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IFF Reports Second Quarter Results Updates 2005 Guidance

07/27/05

NEW YORK, July 27 /PRNewswire-FirstCall/ -- International Flavors & Fragrances Inc. (NYSE: IFF) ("IFF" or "the Company") reported earnings per share for the second quarter 2005 of $.60 compared to $.59 in the prior year quarter. The 2004 second quarter results included sales and operating results of the European fruit preparations business which was disposed of in the second half of the year; 2004 results also included $7.7 million ($5.0 million after tax or $.06 per share) of restructuring and other charges related primarily to the impairment of the fruit business assets. On an as-adjusted basis, excluding both the sales and operating results of the fruit business and the effects of the charges related to the disposition, 2004 second quarter earnings per share would have been $.63.

Second quarter 2005 sales totaled $515.6 million, declining 2% in comparison to the prior year, as reported. Sales for the 2005 quarter benefited from the strengthening of various currencies, particularly the Euro, in relation to the U.S. dollar; had exchange rates remained constant, sales for the quarter would have decreased 4% in comparison to the prior year quarter. Fragrance sales increased 5% while flavor sales decreased 9%; on a local currency basis, fragrance sales grew 2% while flavor sales declined 11%.

Flavor sales in the 2005 quarter were impacted by the disposition, in the second half of 2004, of the Company's European fruit preparations business. On an as-adjusted basis, excluding $21.6 million in sales attributable to the fruit business from the 2004 second quarter, consolidated sales for the current quarter would have increased 3% in dollars and been flat in local currency; on the same basis, flavor sales would have declined 2% in local currency and been flat in dollars. Flavor sales, most notably in North America and Europe, were also unfavorably impacted by lower selling prices for naturals, mainly vanilla. Also in the quarter, as previously disclosed, the Company experienced a slowdown in flavor sales for products that included a contaminated raw material received from a supplier. As a result of associated production and shipment delays while quarantined raw materials were tested, second quarter sales were negatively impacted by approximately $5.0 million (1.0% of the quarter's sales).

Fragrance sales were led by fine fragrance which increased 12% in dollars and 9% in local currency; the fine fragrance performance reflected the benefit of a number of new product wins. Chemical sales increased 6% in dollars and 3% in local currency while sales of functional fragrances were flat in dollars and declined 2% in local currency.

"Our focus on technological innovation and superior service is creating positive momentum throughout the Company," said Richard A. Goldstein, Chairman and Chief Executive Officer of IFF. "In addition to new wins during the quarter, IFF also received the fragrance industry's highest award for our unique Sensory Perception(TM) technology. With proprietary technology like this and our focus on operating excellence, I believe IFF will successfully manage through this difficult pricing environment and drive growth for our shareholders. The recent dividend increase and new share repurchase program underscore the confidence we have in our Company and its future."

Sales performance by region for the 2005 second quarter compared to the prior year quarter follows:

    * North America flavor sales declined 10% and fragrance sales were flat;
      in total, regional sales declined 5%.  Aroma chemical and functional
      fragrance sales declined 2% and 3%, respectively, while fine fragrances
      increased 4%.  New fragrance wins drove the fine fragrance performance
      for the quarter.

    * European fragrance sales increased 8% while flavor sales declined 21%;
      in total, regional sales declined 5%.  Reported sales benefited from the
      strength of the Euro and Pound Sterling; local currency sales declined
      9%.  Local currency fragrance sales increased 2%; aroma chemical and
      fine fragrance sales increased 4% and 11%, respectively, while
      functional fragrances declined 8%.  Local currency flavor sales declined
      25%, mainly as a result of the disposition of the fruit preparations
      business.  On an as-adjusted basis, excluding sales attributable to this
      business from the 2004 results, 2005 flavor sales would have increased
      4% in dollars and decreased 1% in local currency; this local currency
      decline was primarily the result of the raw material matter, previously
      discussed.

    * Asia Pacific sales declined 2% as a result of a local currency sales
      decline of 4%.  Fragrance sales decreased 6% in dollars and 8% in local
      currency.  Local currency functional fragrance sales declined 15%,
      mainly due to weak demand in Singapore, Malaysia, Thailand and
      Australia. Local currency flavor sales declined 1%, resulting in a 1%
      increase in reported dollars.  For the region, Greater China, Vietnam
      and Singapore were strongest, with respective local currency flavor
      sales increases of 11%, 11% and 17%; the flavor growth was offset by
      weakness in the Philippines, Indonesia and Australia which declined 7%,
      9% and 6%, respectively.

    * Latin American sales increased 13% with fragrance and flavor sales
      increasing 13% and 14%, respectively.  For the region, sales growth was
      strongest in Argentina, Brazil and Mexico which grew 21%, 17% and 15%,
      respectively.  Fragrance sales were strongest in Argentina, Brazil and
      Mexico, with respective increases of 27%, 15% and 15%.  Fragrance sales
      grew in all categories with increases of 15%, 12% and 14% in fine
      fragrances, functional fragrances and aroma chemical sales,
      respectively.  Flavor sales were led by respective increases of 18%, 21%
      and 23% in Mexico, Columbia and Brazil.

    * India reported 16% sales growth in local currency and 17% in dollars.
      Local currency fragrance sales increased 16% and 18% in dollars, while
      flavor sales increased 17% in both local currency and dollars.  In both
      flavors and fragrances, the sales performance reflected the benefit of
      new product introductions.

Net income, as reported for the 2005 quarter was flat with the prior year quarter; excluding the impact of restructuring and other charges from the 2004 quarter, net income declined 8%. The decline in net income was partially due to the disposition of the European fruit business; 2004 results included $1.9 million in net income attributable to this business. Proceeds from the disposition were used to reduce debt but profits related to the Fruit business were not replaced by interest expense savings. In the quarter, gross profit, as a percentage of sales, was 42.0% compared to 43.6% in the prior year. The gross margin decline was mainly attributable to increased raw material costs and customer resistance to price increases, as well as lower selling prices for naturals, most notably vanilla. Gross margin was also impacted by costs attributable to the raw material matter noted above; in the quarter, the Company expensed approximately $3.0 million in associated costs, comprised mainly of additional testing costs and the write-off of affected materials. As previously announced the Company will seek full indemnification from its supplier, the supplier's insurers and, to the extent required, its own insurers with regard to any potential costs and customer claims. Research and Development ("R&D") expenses totaled 8.6% of sales compared to 8.5% in the prior year quarter, consistent with the Company's intended level of R&D spending. Selling, General and Administrative ("SG&A") expenses, as a percentage of sales, increased to 16.1% from 15.9%. SG&A expenses include $2.1 million of equity compensation expense compared to $0.8 expense included in the 2004 second quarter results. However, this increase was partially offset by lower accruals under the Company's various incentive plans compared to the 2004 quarter. Interest expense decreased 1% from the prior year. The effective tax rate for the 2005 second quarter was 30.8% compared to 31.2% reported in the prior year quarter; variations in the effective rate are mainly attributable to fluctuations in earnings in the countries in which the Company operates.

For the six-month period ended June 30, 2005, sales totaled $1,038.6 million, declining 2% in comparison to the prior year period, as reported. Reported sales for 2005 benefited from the strengthening of various currencies, particularly the Euro, in relation to the U.S. dollar; had exchange rates remained constant, sales for the six-month period ended June 30, 2005 would have decreased 4% compared to the prior year period. For the 2005 period, fragrance sales increased 4% while flavor sales declined 9%; on a local currency basis, fragrance sales grew 2% while flavor sales declined 11%.

Flavor sales in the 2005 period were impacted by the disposition, in the second half of 2004, of the Company's European fruit preparations business. On an as-adjusted basis, excluding $46.2 million in sales attributable to the fruit business from the 2004 period, 2005 sales would have increased 1% in dollars and declined 2% in local currency. Flavor sales, most notably in North America and Europe, were also unfavorably impacted by lower selling prices for naturals, mainly vanilla, and by the raw material matter that occurred in the 2005 second quarter, as discussed above.

Sales performance by region for the 2005 six-month period compared to the prior year follows:

    * North America fragrance and flavor sales declined 2% and 9%,
      respectively; in total, regional sales declined 5%. Functional fragrance
      and fine fragrance sales declined 5% and 1%, respectively, while aroma
      chemical sales increased 3%.  Sales of both fragrances and flavors had a
      difficult comparative with the first half of 2004 when sales grew 10%
      and 11%, respectively.

    * Europe sales declined 10% in local currency and 5% in dollars.
      Fragrance sales increased 2% in local currency, resulting in an 8%
      increase in reported dollar sales.  Local currency fine fragrance sales
      increased 14%, driven mainly by new wins, while functional fragrances
      declined 7% and aroma chemical sales were flat.  Local currency flavor
      sales declined 25% mainly as a result of the disposition of the fruit
      preparations business.  On an as-adjusted basis, excluding sales
      attributable to this business from the 2004 results, 2005 flavor sales
      would have increased 4% in dollars and declined 1% in local currency.
      Product contamination issues also impacted flavor sales in Europe
      (discussed above).

    * Local currency sales in Asia Pacific decreased 1%, resulting in a 1%
      increase in reported dollar sales.  Fragrance sales decreased 3% in
      local currency and 2% in reported dollars; local currency flavor sales
      increased 1% and 3% in reported dollars.  For the region, sales growth
      was strongest in Vietnam and China, with respective local currency
      increases of 59% and 4%.

    * Latin American sales increased 9% in comparison to the prior year.
      Flavor sales increased 10%, benefiting from increases of 9%, 15% and 26%
      in Argentina, Brazil and Mexico, respectively.  Fragrance sales
      increased 9% with Argentina, Mexico and Brazil increasing 22%, 7% and
      11%, respectively.

    * India sales increased 15% in local currency and 16% in reported dollars.
      This performance was led by a 17% local currency increase in flavor
      sales with fragrance sales increasing 13% in comparison to the prior
      year period.  In both flavors and fragrances, the sales performance
      reflected the benefit of new wins.

Net income for the six-month period ended June 30, 2005 decreased 3% in comparison to the prior year, as reported; excluding the impact of restructuring and other charges from the 2004 results, net income declined 7%. The decline in net income was partially due to the disposition of the European fruit business; 2004 results included income approximating $4.2 million attributable to this business. As noted above, proceeds from the disposition were used to reduce debt but profits related to the Fruit business were not replaced by interest expense savings. Gross profit, as a percentage of sales, was 41.5% compared to 43.1% in the prior year period. The gross margin decline was mainly attributable to increased raw material costs and customer resistance to price increases, as well as lower selling prices for naturals, most notably vanilla. Gross margin was also impacted by the $3.0 million costs attributable to the product contamination matter in the second quarter 2005. R&D expenses totaled 8.6% of sales, consistent with the Company's intended level of R&D spending. SG&A expenses, as a percentage of sales, were 16.1% compared to 16.3% reported in the prior year period. Interest expense decreased 7% from the prior year due to lower average borrowings in 2005 compared to the prior year. The effective tax rate for the six-month period ended June 30, 2005 and 2004 was 31.0% and 31.3%, respectively; variations in the effective rate are mainly attributable to fluctuations in earnings in the countries in which the Company operates.

Outlook for 2005

IFF currently expects 2005 local currency sales to decrease in the low- single digits in comparison to 2004 sales as reported; based on current exchange rates, such local currency performance is expected to result in a low-single digit decrease in reported dollars. For purposes of this comparison, 2004 sales include $58 million of sales attributable to the European fruit preparations business. Excluding fruit sales from the 2004 comparative, IFF expects 2005 local currency sales to increase in the low- single digits in comparison to 2004; based on current exchange rates, this local currency growth is expected to result in a low-single digit increase in reported dollars.

Gross profit as a percentage of sales is expected to remain at approximately the same levels as reported for the first half of 2005. Margins are expected to remain under pressure due to anticipated increased supply chain costs including the impact of the raw material costs as well as expected delays in fully implementing price increases. The expected margin also contemplates costs associated with the product contamination issue; the Company has included all costs that it is aware of or has incurred as a result of the raw material contamination. As previously announced, the Company will seek full indemnification from its supplier, the supplier's insurers and, to the extent required, its own insurers with regard to any potential claims; there can be no assurance, however, of the final outcome of any claims made, or of the timing or extent of indemnification from the supplier and its insurers. R&D expenses are expected to approximate 9% of sales, consistent with the Company's intended level of R&D spending. R&D spending will increase somewhat as a percentage of sales in comparison to 2004, mainly as a result of the elimination of the fruit preparations business; relative to other parts of the business, fruit preparations required less R&D as a percentage of sales. In 2005, SG&A expenses, as a percentage of sales, are expected to increase somewhat from 2004 levels, mainly from inclusion of an expected $11.0 million - $14.0 million in equity compensation expense in 2005, compared to $5.0 million of such expense in 2004. In May 2004, the Company began using Restricted Stock Units ("RSU's"), rather than stock options, as an element of the Company's incentive compensation plans for all eligible U.S. - based employees and a majority of eligible overseas employees. Vesting of the RSU's for the Company's senior management is performance and time based; for the remainder of eligible employees, vesting is time based (generally over a three year period). The actual expense will depend upon the value of the Company's stock and the number of RSU's granted. Interest expense is expected to decline 10% - 12% from 2004. The Company expects the effective tax rate in 2005 to approximate 31.0%. This tax rate does not contemplate the effect, if any, that may arise as a result of repatriation from overseas subsidiaries as envisioned under the American Jobs Creation Act of 2004; the Company expects to determine the amounts and sources, if any, of foreign earnings to be repatriated in the second half of 2005.

Based on the foregoing, IFF currently expects earnings per share for 2005 to be in the range of $2.08 to $2.18 compared to $2.05 reported in 2004. Excluding restructuring and other charges representing $.22 per share, 2004 results per share were $2.27.

About IFF

IFF is a leading creator and manufacturer of flavors and fragrances used in a wide variety of consumer products-from fine fragrances and toiletries, to soaps, detergents and other household products, to beverages and food products. IFF is dedicated to The Pursuit of Excellence in every area of its business, using knowledge, creativity, innovation and technology to continually provide customers with the highest quality products and service and superior consumer understanding.

IFF has sales, manufacturing and creative facilities in 31 countries worldwide. For more information, please visit our Web site at www.iff.com.

Cautionary Statement Under the Private Securities Litigation Reform Act of 1995

Statements in this report, which are not historical facts or information, are "forward-looking statements" within the meaning of The Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management's reasonable current assumptions and expectations. Certain of such forward-looking information may be identified by such terms as "expect", "believe", "may", "outlook", "guidance" and similar terms or variations thereof. All information concerning future revenues, tax rates or benefits, interest savings, and other future financial results or financial position, constitutes forward-looking information. Such forward-looking statements are based on management's reasonable current assumptions and expectations. Such forward-looking statements involve risks, uncertainties and other factors, which may cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements, and there can be no assurance that actual results will not differ materially from management's expectations. Such factors include, among others, the following: general economic and business conditions in the Company's markets, including economic, population health and political uncertainties; interest rates; the price, quality and availability of raw materials; the Company's ability to implement its business strategy, including the achievement of anticipated cost savings, profitability and growth targets; the impact of currency fluctuation or devaluation in the Company's principal foreign markets and the success of the Company's hedging and risk management strategies; the outcome of uncertainties related to litigation; uncertainties related to any potential claims and rights of indemnification or other recovery for customer and consumer reaction to the contamination issue; the impact of possible pension funding obligations and increased pension expense on the Company's cash flow and results of operations; and the effect of legal and regulatory proceedings, as well as restrictions imposed on the Company, its operations or its representatives by foreign governments. The Company intends its forward-looking statements to speak only as of the time of such statements and does not undertake to update or revise them as more information becomes available or to reflect changes in expectations, assumptions or results.

Conference call

There will be a conference call today at 10:00 AM Eastern Time, at which time the Company will discuss operating results for the second quarter 2005, and its current expectations for 2005. The dial in number for U.S.-based participants is 1-888-202-2422; for international participants, the number is 1-913-981-5592. The pass code for the call is 4993754.

A replay of the conference call will be available from 1:00 PM Eastern Time beginning on Wednesday July 27, 2005 and ending at Midnight on Wednesday, August 10. The dial in number for the replay for U.S.-based listeners is 1-888-203-1112; for international listeners, the number is 1-719-457-0820. The replay pass code will be 4993754.

The call can also be monitored via the World Wide Web at www.iff.com. Real Network's Real Player or Microsoft Media Player is required to access the webcast. They can be downloaded from www.real.com or www.microsoft.com/windows/mediaplayer. A replay of the conference call will be available on the Company's website for twelve months.


                   International Flavors & Fragrances Inc.
                        Consolidated Income Statement
                 (Amounts in thousands except per share data)
                                 (Unaudited)

                                         Quarter Ended June 30,
                               As Reported  Adjustments  As-adjusted
                                   2004         (A)        2004        2005

    Net Sales                    $524,177     $21,622    $502,555    $515,578
    Cost of goods sold            295,716      16,580     279,136     299,065
    Gross margin on sales         228,461       5,042     223,419     216,513
    Research & development         44,342         612      43,730      44,380
    Selling and administrative     83,184       1,654      81,530      82,866
    Amortization                    3,709          -        3,709       3,767
                                   97,226       2,776      94,450      85,500

    Restructuring and
     other charges                 (7,716)         -       (7,716)         -
    Interest expense               (6,114)         -       (6,114)     (6,062)
    Other income (expense), net    (1,305)         -       (1,305)      2,558
    Pretax income                  82,091       2,776      79,315      81,996
    Income taxes                   25,589         865      24,724      25,283
    Net income                    $56,502      $1,911     $54,591     $56,713

    Including restructuring and
     other charges:
    Net income                    $56,502                 $54,591     $56,713
    Earnings per share - basic      $0.60                   $0.58       $0.60
    Earnings per share - diluted    $0.59                   $0.57       $0.60

    Excluding restructuring and
     other charges:
    Net income                    $61,517                 $59,606     $56,713
    Results per share - basic       $0.65                   $0.63       $0.60
    Results per share - diluted     $0.65                   $0.63       $0.60

    (A) Adjustments reflect elimination of sales and operating results of the
        European fruit preparations business for the period presented.
        Additional details regarding as-adjusted information are contained in
        a January 25, 2005 Form 8-K filed with the SEC and are also available
        via the Company's website.


                   International Flavors & Fragrances Inc.
                        Consolidated Income Statement
                 (Amounts in thousands except per share data)
                                 (Unaudited)

                                        Six Months Ended June 30,
                            As Reported  Adjustments  As-adjusted
                                2004          (A)         2004         2005

    Net Sales               $1,059,192      $46,238   $1,012,954   $1,038,630
    Cost of goods sold         602,502       35,507      566,995      607,462
    Gross margin on sales      456,690       10,731      445,959      431,168
    Research & development      88,990        1,239       87,751       89,133
    Selling and administrative 172,910        3,431      169,479      167,610
    Amortization                 7,408           -         7,408        7,535
                               187,382        6,061      181,321      166,890
    Restructuring and
     other charges              (7,716)          -        (7,716)          -
    Interest expense           (12,571)          -       (12,571)     (11,638)
    Other income (expense), net (2,730)          -        (2,730)       3,114
    Pretax income              164,365        6,061      158,304      158,366
    Income taxes                51,505        1,900       49,605       49,110
    Net income                $112,860       $4,161     $108,699     $109,256

    Including restructuring
     and other charges:
    Net income                $112,860                  $108,699     $109,256
    Earnings per share
      - basic                    $1.20                     $1.16        $1.16
    Earnings per share
      - diluted                  $1.19                     $1.14        $1.14

    Excluding restructuring
     and other charges:
    Net income                $117,875                  $113,714     $109,256
    Results per share
      - basic                    $1.25                     $1.21        $1.16
    Results per share
      - diluted                  $1.24                     $1.19        $1.14

    (A) Adjustments reflect elimination of sales and operating results of the
        European fruit preparations business for the period presented.
        Additional details regarding as-adjusted information are contained in
        a January 25, 2005 Form 8-K filed with the SEC and are also available
        via the Company's website.


                   International Flavors & Fragrances Inc.
                     Consolidated Condensed Balance Sheet
                            (Amounts in thousands)
                                 (Unaudited)

                                                     December 31,   June 30,
                                                         2004         2005

    Cash & short-term investments                       $32,995      $60,225
    Receivables                                         358,361      387,931
    Inventories                                         457,204      432,073
    Other current assets                                112,810      103,523
        Total current assets                            961,370      983,752

    Property, plant and equipment, net (1,2)            501,334      484,069
    Goodwill and other intangibles, net                 789,676      782,141
    Other assets                                        110,914      117,046
                     Total assets                    $2,363,294   $2,367,008

    Commercial paper/bank borrowings, overdrafts
      and current portion of long-term debt (3)         $15,957     $614,992
    Other current liabilities                           383,565      326,194
       Total current liabilities                        399,522      941,186

    Long-term debt (3)                                  668,969      139,420
    Non-current liabilities                             384,316      397,837

    Shareholders' equity                                910,487      888,565
      Total liabilities and shareholders' equity     $2,363,294   $2,367,008

    Notes:
    1.  Capital spending - Quarter:      $22 million
                           Year-to-date: $38 million

    2.  Depreciation -     Quarter:      $19 million
                           Year-to-date: $38 million

    3.  At December 31, 2004 and June 30, 2005 long-term debt includes
        unamortized gains and FAS 133 mark to market adjustments of
        $23.8 million and $16.5 million, respectively, on various interest
        rate swaps the Company has entered into; such gains have been deferred
        and are being amortized over the remaining term of the underlying debt
        and the mark to market adjustment is recorded each quarter.

    Average Shares Outstanding (in thousands):      2004          2005

    Second quarter:
         Basic                                    94,136        93,876
         Diluted                                  95,330        95,255
    Year-to-date:
         Basic                                    94,085        94,100
         Diluted                                  95,228        95,640


                   Quarter ended June 30, 2005 As Reported

      % Change in Sales by Area of
              Destination              Fragrances    Flavors      Total

             North America                  -         (10)         (5)

           Europe - Reported                8         (21)         (5)
        Europe - Local Currency             2         (25)         (9)

             Latin America                 13          14          13

        Asia Pacific - Reported            (6)          1          (2)
     Asia Pacific - Local Currency         (8)         (1)         (4)

            India - Reported               18          17          17
         India - Local Currency            16          17          16

            Total - Reported                5          (9)         (2)
         Total - Local Currency             2         (11)         (4)


           Quarter ended June 30, 2005 Compared to 2004 As-Adjusted
     Excluding Sales Attributable to European Fruit Preparations Business

      % Change in Sales by Area of
              Destination              Fragrances    Flavors      Total

             North America                  -         (10)         (5)

           Europe - Reported                8           4           6
        Europe - Local Currency             2          (1)          1

             Latin America                 13          14          13

        Asia Pacific - Reported            (6)          1          (2)
     Asia Pacific - Local Currency         (8)         (1)         (4)

            India - Reported               18          17          17
         India - Local Currency            16          17          16

            Total - Reported                5           -           3
         Total - Local Currency             2          (2)          -


                  Six-months ended June 30, 2005 As Reported

      % Change in Sales by Area of
              Destination              Fragrances    Flavors      Total

             North America                 (2)         (9)         (5)

           Europe - Reported                8         (22)         (5)
        Europe - Local Currency             2         (25)        (10)

             Latin America                  9          10           9

        Asia Pacific - Reported            (2)          3           1
     Asia Pacific - Local Currency         (3)          1          (1)

            India - Reported               15          17          16
         India - Local Currency            13          17          15

            Total - Reported                4          (9)         (2)
         Total - Local Currency             2         (11)         (4)


         Six-months ended June 30, 2005 Compared to 2004 As-Adjusted
     Excluding Sales Attributable to European Fruit Preparations Business

      % Change in Sales by Area of
              Destination              Fragrances    Flavors      Total

             North America                 (2)         (9)         (5)

           Europe - Reported                8           4           6
        Europe - Local Currency             2          (1)          1

             Latin America                  9          10           9

        Asia Pacific - Reported            (2)          3           1
     Asia Pacific - Local Currency         (3)          1          (1)

            India - Reported               15          17          16
         India - Local Currency            13          17          15

            Total - Reported                4           1           3
         Total - Local Currency             2          (2)          -
SOURCE  International Flavors & Fragrances Inc.
    -0-                             07/27/2005
    /CONTACT:  Douglas J. Wetmore, Senior Vice President and Chief Financial
Officer of International Flavors & Fragrances Inc., +1-212-708-7145/
    /Web site:  http://www.iff.com /
    (IFF)

CO:  International Flavors & Fragrances Inc.
ST:  New York
IN:  HOU FOD
SU:  ERN ERP CCA

WR
-- NYW008 --
8804 07/27/2005 06:00 EDT http://www.prnewswire.com
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