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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997
Commission file number 1-4858
INTERNATIONAL FLAVORS & FRAGRANCES INC.
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(Exact Name of Registrant as specified in its charter)
NEW YORK 13-1432060
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(State or other jurisdiction (IRS Employer
or organization) identification No.)
521 WEST 57TH STREET, NEW YORK, N.Y. 10019-2960
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 765-5500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Number of shares outstanding as of November 10, 1997: 109,178,599
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1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
9/30/97 12/31/96
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Assets
Current Assets:
Cash & Cash Equivalents ......................... $ 233,459 $ 261,370
Short-term Investments .......................... 47,063 56,613
Trade Receivables ............................... 281,396 253,484
Allowance For Doubtful Accounts ................. (7,706) (8,733)
Inventories: Raw Materials ..................... 198,105 211,124
Work in Process ................... 16,379 24,644
Finished Goods .................... 141,993 133,310
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Total Inventories ................. 356,477 369,078
Other Current Assets ............................ 82,727 74,544
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Total Current Assets ............................ 993,416 1,006,356
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Property, Plant & Equipment, At Cost ............... 859,357 878,224
Accumulated Depreciation ........................... (412,872) (410,427)
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446,485 467,797
Other Assets ....................................... 33,506 32,760
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Total Assets ....................................... $1,473,407 $1,506,913
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities:
Bank Loans ...................................... $ 18,674 $ 18,929
Accounts Payable-Trade .......................... 58,804 57,681
Dividends Payable ............................... 39,353 39,628
Income Taxes .................................... 69,238 56,832
Other Current Liabilities ....................... 104,733 107,394
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Total Current Liabilities ....................... 290,802 280,464
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Other Liabilities:
Deferred Income Taxes ........................... 17,087 16,941
Long-term Debt .................................. 6,080 8,289
Retirement and Other Liabilities ................ 126,284 124,682
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Total Other Liabilities ............................ 149,451 149,912
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Shareholders' Equity:
Common Stock (115,761,840 shares issued in '97
and in '96) .................................. 14,470 14,470
Capital in Excess of Par Value .................. 136,163 138,480
Restricted Stock ................................ (9,563) --
Retained Earnings ............................... 1,171,794 1,106,572
Cumulative Translation Adjustment ............... (13,518) 47,555
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1,299,346 1,307,077
Treasury Stock, at cost -- 6,522,541 shares
in '97 and 5,790,323 in '96 .................. (266,192) (230,540)
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Total Shareholders' Equity ...................... 1,033,154 1,076,537
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Total Liabilities and Shareholders' Equity ......... $1,473,407 $1,506,913
========== ==========
See Notes to Consolidated Financial Statements
2
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands except per share amounts)
3 Months Ended 9/30
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1997 1996
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Net Sales ...................................... $ 356,242 $ 354,865
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Cost of Goods Sold ............................. 191,978 193,768
Research and Development Expenses .............. 23,068 23,431
Selling and Administrative Expenses ............ 54,913 55,714
Interest Expense ............................... 737 800
Other (Income) Expense, Net .................... (2,349) (2,494)
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268,347 271,219
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Income Before Taxes on Income .................. 87,895 83,646
Taxes on Income ................................ 31,180 30,531
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Net Income ..................................... $ 56,715 $ 53,115
=========== ===========
Earnings Per Share ............................. $0.52 $0.48
Dividends Paid Per Share ....................... $0.36 $0.34
9 Months Ended 9/30
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1997 1996
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Net Sales ...................................... $ 1,120,525 $ 1,112,029
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Cost of Goods Sold ............................. 603,326 599,646
Research and Development Expenses .............. 70,137 69,476
Selling and Administrative Expenses ............ 168,244 166,390
Nonrecurring Charge ............................ -- 49,707
Interest Expense ............................... 1,914 2,093
Other (Income) Expense, Net .................... (8,917) (9,607)
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834,704 877,705
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Income Before Taxes on Income .................. 285,821 234,324
Taxes on Income ................................ 102,553 85,342
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Net Income ..................................... $ 183,268 $ 148,982
=========== ===========
Earnings Per Share ............................. $1.68 $1.34
Average Number of Shares Outstanding (000's) ... 109,365 110,933
Dividends Paid Per Share ....................... $1.08 $1.02
See Notes to Consolidated Financial Statements
3
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
9 Months Ended 9/30
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1997 1996
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Cash Flows From Operating Activities:
Net Income ................................................. $ 183,268 $ 148,982
Adjustments to Reconcile to Net Cash
Provided by Operations:
Nonrecurring Charge .................................. -- 49,707
Depreciation ......................................... 37,511 34,674
Deferred Income Taxes ................................ 2,285 (12,340)
Changes in Assets and Liabilities:
Current Receivables ............................... (64,215) (30,606)
Inventories ....................................... (8,489) 29,312
Current Payables .................................. 25,716 1,610
Other, Net ........................................ 6,096 3,520
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Net Cash Provided by Operations ............................ 182,172 224,859
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Cash Flows From Investing Activities:
Proceeds From Sales/Maturities of Short-term Investments ... 17,691 29,804
Purchases of Short-term Investments ........................ (8,341) (47,400)
Additions to Property, Plant & Equipment,
Net of Minor Disposals ................................... (37,101) (63,490)
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Net Cash Used in Investing Activities ...................... (27,751) (81,086)
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Cash Flows From Financing Activities:
Cash Dividends Paid to Shareholders ........................ (118,321) (113,276)
Increase in Bank Loans ..................................... 166 488
Decrease in Long-term Debt ................................. (1,908) (2,096)
Proceeds From Issuance of Stock Under Stock Option Plans ... 14,124 7,593
Purchase of Treasury Stock ................................. (63,689) (32,470)
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Net Cash Used In Financing Activities ...................... (169,628) (139,761)
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Effect of Exchange Rate Changes on Cash and Cash Equivalents (12,704) (8,351)
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Net Change in Cash and Cash Equivalents .................... (27,911) (4,339)
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Cash and Cash Equivalents at Beginning of Year ............. 261,370 251,430
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Cash and Cash Equivalents at End of Period ................. $ 233,459 $ 247,091
========= =========
Interest Paid .............................................. $ 1,814 $ 2,079
Income Taxes Paid .......................................... $ 83,821 $ 92,081
See Notes to Consolidated Financial Statements
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
These interim statements and management's related discussion and analysis should
be read in conjunction with the consolidated financial statements and their
related notes, and management's discussion and analysis of results of operations
and financial condition included in the Company's 1996 Annual Report to
Shareholders. In the opinion of the Company's management, all normal recurring
adjustments necessary for a fair statement of the results for the interim
periods have been made.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (FAS 128), Earnings per Share, which is
effective for both interim and annual periods ending after December 15, 1997.
FAS 128 simplifies the rules of computing earnings per share and prescribes that
companies present basic and diluted earnings per share amounts, as defined, on
the face of the income statement. The Company is studying the implications of
FAS 128 but does not believe the impact on earnings per share will be material.
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130 (FAS 130) and 131 (FAS 131), Reporting
Comprehensive Income, and Disclosures about Segments of an Enterprise and
Related Information, respectively. FAS 130 establishes standards for reporting
and display of comprehensive income and its components, and requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement, and display the accumulated balance of other comprehensive
income separately in the statement of financial position. FAS 131 establishes
standards for the way public business enterprises report information about
operating segments in annual financial statements and requires that such
enterprises report selected information about operating segments in interim
reports to shareholders. Both standards are effective for periods beginning
after December 15, 1997. The Company is currently evaluating the standards and
the reporting implications thereof.
Effective January 1, 1997, the Company adopted Statement of Position 96-1 (SOP
96-1), Accounting for Environmental Remediation Liabilities issued by the
American Institute of Certified Public Accountants. SOP 96-1 establishes
guidance for when environmental liabilities should be recorded and the factors
to be considered in determining amounts recognized. The effect of adopting this
standard was not material to the Company.
As described in Note 2 of the Notes to the Consolidated Financial Statements
included in the Company's 1996 Annual Report to Shareholders, the Company
undertook a program to expand and streamline its aroma chemical production
facilities during 1996. The aroma chemical streamlining resulted in a
nonrecurring pretax charge to second quarter 1996 earnings of $49,707,000
($31,315,000 after tax or $.29 per share). At December 31, 1996, the remaining
balance in the reserve was as follows:
Employee related ........................... $10,069,000
Closing manufacturing plants ............... 32,632,000
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Total ...................................... $42,701,000
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Utilization of the reserve since December 31, 1996 has not been material.
5
In connection with an employment contract, the Company made a restricted stock
award effective January 1, 1997. The restrictions generally relate to continuous
employment and expire over a five year period from the date of grant.
Compensation expense is recognized over the restricted period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OPERATIONS
Worldwide net sales for the third quarter of 1997 were $356,242,000, compared to
$354,865,000 in the 1996 third quarter. For the first nine months of 1997, net
sales totaled $1,120,525,000, compared to $1,112,029,000 for the nine month
period in 1996. Sales in the third quarter and first nine months of 1997 were
affected by the translation of local currency sales gains into the stronger U.S.
dollar. If the dollar exchange rate had remained the same during these periods,
worldwide sales would have increased approximately 6% and 5%, respectively, over
the sales reported in the comparable periods last year.
Net income for the third quarter and the first nine months of 1997, both of
which were also affected by the stronger U.S. dollar, totaled $56,715,000 and
$183,268,000, compared to $53,115,000 and $180,297,000 in the comparable periods
in 1996. Earnings per share for the third quarter and first nine months of 1997
were $.52 and $1.68, as compared to $.48 and $1.63 per share in the prior year
quarter and nine month periods, respectively. The 1996 amounts exclude the
effect of the one-time charge to second quarter earnings for streamlining the
Company's aroma chemical operations; including this charge, net income for the
nine months ended September 30, 1996 was $148,982,000 and earnings per share was
$1.34.
The percentage relationship of cost of goods sold and other operating expenses
to sales for the first nine months 1997 and 1996 remained fairly constant.
FIRST NINE MONTHS
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1997 1996
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Cost of Goods Sold ......................... 53.8% 53.9%
Research and Development Expense ........... 6.3% 6.2%
Selling and Administrative Expense ......... 15.0% 15.0%
As described in Note 2 of the Notes to the Consolidated Financial Statements
included in the Company's 1996 Annual Report to Shareholders, the Company
undertook a program to expand and streamline its aroma chemical production
facilities during 1996. The aroma chemical streamlining resulted in a
nonrecurring pretax charge to second quarter 1996 earnings of $49,707,000
($31,315,000 after tax or $.29 per share). At December 31, 1996, the remaining
balance in the reserve was as follows:
Employee related ........................ $10,069,000
Closing manufacturing plants ............ 32,632,000
-----------
Total ................................... $42,701,000
===========
Utilization of the reserve since December 31, 1996 has not been material.
6
FINANCIAL CONDITION
The financial condition of the Company continued to be strong. Cash, cash
equivalents and short-term investments totaled $280,522,000 at September 30,
1997. At September 30, 1997, working capital was $702,614,000 compared to
$725,892,000 at December 31, 1996. Gross additions to property, plant and
equipment during the first nine months of 1997 were $37,558,000. In September
1996, the Company announced a plan to repurchase up to an additional 7.5 million
shares of its common stock. An existing program to repurchase 7.5 million
shares, which has been in effect since 1992, was completed in the first quarter
of 1997. Repurchases will be made from time to time on the open market or
through private transactions as market and business conditions warrant. The
repurchased shares will be available for use in connection with the Company's
employee benefit plans and for other general corporate purposes.
In January 1997, the Company's cash dividend was increased 5.9% to an annual
rate of $1.44 per share, and $.36 per share was paid to shareholders in each of
the first three quarters of 1997. The Company anticipates that its growth,
capital expenditure programs and share repurchase programs will be funded from
internal sources.
The cumulative translation adjustment component of Shareholders' Equity at
September 30, 1997 was ($13,518,000) compared to $47,555,000 at December 31,
1996. Changes in the component result from translating the net assets of the
majority of the Company's foreign subsidiaries into U.S. dollars at current
exchange rates as required by the Statement of Financial Accounting Standards
No. 52 on accounting for foreign currency translation.
7
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number
27 Financial Data Schedule (EDGAR version only).
(b) Reports on Form 8-K
Registrant filed no report on Form 8-K during the quarter for
which this report on Form 10-Q is filed.
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL FLAVORS & FRAGRANCES INC.
Dated: November 14, 1997 By: /s/ THOMAS H. HOPPEL
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Thomas H. Hoppel, Vice-President and Chief
Financial Officer
Dated: November 14, 1997 By: /s/ STEPHEN A. BLOCK
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Stephen A. Block, Vice-President
Law and Secretary