SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2000 Commission file number 1-4858
--------------------------------------------------------------
INTERNATIONAL FLAVORS & FRAGRANCES INC.
(Exact Name of Registrant as specified in its charter)
New York 13-1432060
---------------------------------------- ---------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification No.)
521 West 57th Street, New York, N.Y. 10019-2960
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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
----- -----
Number of shares outstanding as of May 9, 2000: 102,820,344
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
3/31/00 12/31/99
----------- -----------
(Unaudited)
ASSETS
Current Assets:
Cash & Cash Equivalents ...................................... $ 51,063 $ 62,135
Short-term Investments ....................................... 709 836
Trade Receivables ............................................ 308,554 290,118
Allowance For Doubtful Accounts .............................. (10,318) (10,013)
Inventories: Raw Materials .................................. 212,076 229,896
Work in Process ................................ 9,255 7,423
Finished Goods ................................. 165,994 177,950
----------- -----------
Total Inventories .............................. 387,325 415,269
Other Current Assets ......................................... 73,624 77,069
----------- -----------
Total Current Assets ......................................... 810,957 835,414
----------- -----------
Property, Plant & Equipment, At Cost ............................ 947,758 948,920
Accumulated Depreciation ........................................ (430,096) (425,004)
----------- -----------
517,662 523,916
Other Assets .................................................... 28,730 42,165
----------- -----------
Total Assets .................................................... $1,357,349 $1,401,495
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank Loans ................................................... $ 33,000 $ 29,274
Commercial Paper ............................................. 105,172 63,200
Accounts Payable-Trade ....................................... 51,934 71,989
Dividends Payable ............................................ 39,153 39,882
Income Taxes ................................................. 55,720 54,497
Other Current Liabilities .................................... 98,980 110,860
----------- -----------
Total Current Liabilities .................................... 383,959 369,702
----------- -----------
Other Liabilities:
Deferred Income Taxes ........................................ 30,691 32,785
Long-term Debt ............................................... 14,834 3,832
Retirement and Other Liabilities ............................. 137,824 136,679
----------- -----------
Total Other Liabilities ......................................... 183,349 173,296
----------- -----------
Shareholders' Equity:
Common Stock (115,761,840 shares issued) ..................... 14,470 14,470
Capital in Excess of Par Value ............................... 133,215 134,480
Retained Earnings ............................................ 1,216,413 1,211,790
Accumulated Other Comprehensive Income:
Cumulative Translation Adjustment ......................... (72,177) (57,135)
----------- -----------
1,291,921 1,303,605
Treasury Stock, at cost - 12,771,746 shares in '00
and 10,939,915 in '99 ..................................... (501,880) (445,108)
----------- -----------
Total Shareholders' Equity ................................... 790,041 858,497
----------- -----------
Total Liabilities and Shareholders' Equity ...................... $1,357,349 $1,401,495
=========== ===========
See Notes to Consolidated Financial Statements
INTERNATIONAL FLAVORS & FRAGRANCES INC. 2
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands except per share amounts)
(Unaudited)
3 Months Ended 3/31
-------------------------
2000 1999
--------- ----------
Net Sales .......................................... $ 369,912 $ 367,765
--------- ----------
Cost of Goods Sold ................................. 201,085 206,469
Research and Development Expenses .................. 26,812 25,925
Selling and Administrative Expenses ................ 65,341 63,580
Nonrecurring Charges ............................... 9,354 --
Interest Expense ................................... 2,137 991
Other (Income) Expense, Net ........................ (329) (2,554)
--------- ----------
304,400 294,411
--------- ----------
Income Before Taxes on Income ...................... 65,512 73,354
Taxes on Income .................................... 21,736 24,574
--------- ----------
Net Income ......................................... 43,776 48,780
Other Comprehensive Income:
Foreign Currency Translation Adjustments ........ (15,042) (30,697)
--------- ----------
Comprehensive Income ............................... $ 28,734 $ 18,083
========= ==========
Net Income Per Share - Basic ....................... $0.42 $0.46
Net Income Per Share - Diluted ..................... $0.42 $0.46
Average Number of Shares Outstanding - Basic ....... 104,264 105,907
Average Number of Shares Outstanding - Diluted ..... 104,285 106,128
Dividends Paid Per Share ........................... $0.38 $0.38
See Notes to Consolidated Financial Statements
INTERNATIONAL FLAVORS & FRAGRANCES INC. 3
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
3 Months Ended 3/31
--------------------------
2000 1999
--------- ----------
Cash Flows From Operating Activities:
Net Income ....................................................... $ 43,776 $ 48,780
Adjustments to Reconcile to Net Cash
Provided by Operations:
Depreciation ............................................... 14,500 12,658
Deferred Income Taxes ...................................... (2,116) 7,456
Changes in Assets and Liabilities:
Current Receivables ..................................... (22,400) (26,707)
Inventories ............................................. 20,713 7,320
Current Payables ........................................ (26,644) (8,049)
Other, Net .............................................. 15,626 5,215
--------- ----------
Net Cash Provided by Operations .................................. 43,455 46,673
--------- ----------
Cash Flows From Investing Activities:
Proceeds From Sales/Maturities of Short-term Investments ......... 127 221
Purchases of Short-term Investments .............................. -- (392)
Additions to Property, Plant & Equipment,
Net of Minor Disposals ......................................... (14,460) (34,445)
--------- ----------
Net Cash Used in Investing Activities ............................ (14,333) (34,616)
--------- ----------
Cash Flows From Financing Activities:
Cash Dividends Paid to Shareholders .............................. (39,882) (40,301)
Increase in Bank Loans ........................................... 5,060 21,243
Proceeds from Issuance of Commercial Paper ....................... 41,972 --
Increase in Long-Term Debt ....................................... 11,374 --
Decrease in Long-Term Debt ....................................... (235) (214)
Proceeds From Issuance of Stock Under Stock Option Plans ......... 1,116 646
Purchase of Treasury Stock ....................................... (59,174) (847)
--------- ----------
Net Cash Used in Financing Activities ............................ (39,769) (19,473)
--------- ----------
Effect of Exchange Rate Changes on Cash and Cash Equivalents ..... (425) (5,699)
--------- ----------
Net Change in Cash and Cash Equivalents .......................... (11,072) (13,115)
Cash and Cash Equivalents at Beginning of Year ................... 62,135 114,960
--------- ----------
Cash and Cash Equivalents at End of Period ....................... $ 51,063 $ 101,845
========= ==========
Interest Paid .................................................... $ 2,323 $ 801
Income Taxes Paid ................................................ $ 20,934 $ 19,725
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 1999 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.
As described in Note 2 of the Notes to the Consolidated Financial Statements
included in the Company's 1999 Annual Report to Shareholders, in June 1999, the
Company announced a program to streamline the Company's operations worldwide by
improving operating efficiencies and asset utilization, enabling significant
cost savings and enhanced profitability. The program includes the closure of
selected manufacturing, distribution and sales facilities in all geographic
areas in which the Company operates.
In connection with this program, in January 2000, the Company initiated a
voluntary early retirement incentive program for United States-based employees
meeting certain eligibility requirements. The nonrecurring charge of $9,354,000
($6,248,000 after tax) in the first quarter 2000 represents the costs associated
with approximately 70 employees who elected to participate in the early
retirement program. There were no significant non-cash related elements included
in the first quarter charge.
At March 31, 2000, the Company had substantially completed the restructuring
program. Since the program's inception, total nonrecurring and other one-time
pretax charges of approximately $50,300,000 have been recorded ($40,900,000 of
pretax charges were recorded in 1999); non-cash charge amounts approximated
$11,700,000. The Company anticipates annual savings on completion of this
program of approximately $15,000,000; approximately $2,500,000 in savings from
the program were realized in the first quarter of 2000.
Movements in the reserve resulting from nonrecurring charges were as follows:
EMPLOYEE- ASSET -
RELATED RELATED TOTAL
-----------------------------------------------------
Balance December 31, 1999 ........... $ 9,622,000 $ 1,586,000 $ 11,208,000
Additional Reserves ................. 9,354,000 -- 9,354,000
Utilized in 2000 .................... (1,987,000) (137,000) (2,124,000)
------------ ------------- -------------
Balance March 31, 2000 .............. $ 16,989,000 $ 1,449,000 $ 18,438,000
============ ============= =============
The balance of the reserve is expected to be utilized in the remainder of 2000
upon final decommissioning and disposal of affected equipment, and as severance
and other benefit obligations to affected employees are satisfied.
5
The Company's reportable segment information, based on geographic area, for the
first three months of 2000 and 1999 follows. Certain prior year amounts have
been reclassified for comparative purposes.
North Latin Asia-
2000 (Dollars in thousands) America EAME America Pacific Eliminations Consolidated
- -------------------------------------- ------------ ------------ ------------ ------------ ---------------- --------------
Sales to unaffiliated customers $ 114,747 $ 150,067 $55,244 $49,854 $ -- $ 369,912
Transfers between areas 12,377 32,258 312 2,981 (47,928) --
------------ ------------ ------------ ------------ --------------- --------------
Total sales $ 127,124 $ 182,325 $55,556 $52,835 $(47,928) $ 369,912
============ ============ ============ ============ =============== ==============
Operating profit $ 16,627 $ 48,900 $10,595 $10,432 $ (1,264) $ 85,290
============ ============ ============ ============ ===============
Corporate and other unallocated
expenses (8,616)
Nonrecurring charges (9,354)
Interest expense (2,137)
Other income (expense), net 329
--------------
Income before taxes on income $ 65,512
==============
North Latin Asia-
1999 (Dollars in thousands) America EAME America Pacific Eliminations Consolidated
- -------------------------------------- ------------ ------------ ------------ ------------ ---------------- --------------
Sales to unaffiliated customers $ 118,509 $ 157,504 $48,540 $43,212 $ -- $ 367,765
Transfers between areas 14,105 31,047 148 2,492 (47,792) --
------------ ------------ ------------ ------------ -------------- --------------
Total sales $ 132,614 $ 188,551 $48,688 $45,704 $ (47,792) $ 367,765
============ ============ ============ ============ ============== ==============
Operating profit $ 15,738 $ 47,670 $ 7,202 $ 7,728 $ 1,639 $ 79,977
============ ============ ============ ============ ==============
Corporate and other unallocated
expenses (8,186)
Interest expense (991)
Other income (expense), net 2,554
--------------
Income before taxes on income $ 73,354
==============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OPERATIONS
Worldwide net sales for the first quarter of 2000 were $369,912,000, compared to
$367,765,000 in the 1999 first quarter, an increase of 1%. Local currency sales
for the 2000 first quarter increased approximately 5% over the 1999 first
quarter. For the quarter, fragrance sales were strong in all geographic areas,
led by Europe, Africa and the Middle East ("EAME") and Asia-Pacific, with local
currency sales increases of 8% and 14%, respectively; North America fragrance
sales increased 5% while Latin America sales rose 4%. Flavor sales were
strongest in Asia-Pacific, achieving a 10% local currency sales increase, and in
Latin America where sales also increased 10%. North America flavor sales
declined 5% and EAME flavor sales, in local currency, were flat with the prior
year quarter, reflecting the relatively weak conditions among many of the
Company's food customers in these geographic areas.
6
The percentage relationship of cost of goods sold and other operating expenses
to sales for the first quarter 2000 and 1999 are detailed below.
FIRST QUARTER
---------------
2000 1999
---- ----
Cost of Goods Sold .............................. 54.4% 56.1%
Research and Development Expenses ............... 7.2% 7.0%
Selling and Administrative Expenses ............. 17.7% 17.3%
Cost of goods sold, as a percentage of net sales, decreased from the prior year
primarily due to improved pricing conditions for aroma chemicals and improved
economic and pricing conditions in Latin America, principally Brazil. In 1999,
the impact of the currency devaluation and economic disruption in Brazil
affected the Company's near-term ability to pass on price increases to its
customers in that market.
Research and development expenses are somewhat higher due to increased
activities in this area. Selling and administrative expenses were somewhat
higher in 2000 due to increased depreciation and other costs associated with new
computer systems and equipment, partially offset by elimination of costs
incurred in 1999 in connection with the Company's Y2K program.
Net income for the first quarter of 2000, including the nonrecurring charges
discussed below, totaled $43,776,000 compared to $48,780,000 in the prior year
first quarter. Income for the first quarter ended March 31, 2000, excluding the
one-time charges, was $50,024,000.
As described in Note 2 of the Notes to the Consolidated Financial Statements
included in the Company's 1999 Annual Report to Shareholders, in June 1999, the
Company announced a program to streamline the Company's operations worldwide by
improving operating efficiencies and asset utilization, enabling significant
cost savings and enhanced profitability. The program includes the closure of
selected manufacturing, distribution and sales facilities in all geographic
areas in which the Company operates.
In connection with this program, in January 2000, the Company initiated a
voluntary early retirement incentive program for United States-based employees
meeting certain eligibility requirements. The nonrecurring charge of $9,354,000
($6,248,000 after tax, or approximately $.06 per share) in the first quarter
2000 represents the costs associated with approximately 70 employees who elected
to participate in the early retirement program. There were no significant
non-cash related elements included in the first quarter charge.
At March 31, 2000, the Company had substantially completed the restructuring
program. Since the program's inception, total nonrecurring and other one-time
pretax charges of approximately $50,300,000 have been recorded ($40,900,000 of
pretax charges were recorded in 1999); non-cash charge amounts approximated
$11,700,000. The Company anticipates annual savings on completion of this
program of approximately $15,000,000; approximately $2,500,000 in savings from
the program were realized in the first quarter of 2000.
Movements in the reserve resulting from nonrecurring charges were as follows:
EMPLOYEE- ASSET-
RELATED RELATED TOTAL
-----------------------------------------------------
Balance December 31, 1999 ............ $ 9,622,000 $ 1,586,000 $11,208,000
Additional Reserves .................. 9,354,000 -- 9,354,000
Utilized in 2000 ..................... (1,987,000) (137,000) (2,124,000)
------------ ------------- -----------
Balance March 31, 2000 ............... $ 16,989,000 $ 1,449,000 $18,438,000
============ ============= ===========
7
The balance of the reserve is expected to be utilized in the remainder of 2000
upon final decommissioning and disposal of affected equipment, and as severance
and other benefit obligations to affected employees are satisfied.
The effective tax rate for the first quarter of 2000 was 33.2%, compared to
33.5% for the comparable period in 1999. The lower effective rate reflects the
effects of lower tax rates in various tax jurisdictions in which the Company
operates.
FINANCIAL CONDITION
The financial condition of the Company continued to be strong. Cash, cash
equivalents and short-term investments totaled $51,772,000 at March 31, 2000,
and working capital was $426,998,000 compared to $465,712,000 at December 31,
1999. Gross additions to property, plant and equipment during the first quarter
of 2000 were $17,852,000. Long-term debt (all Japan) increased $11,000,000 in
the first quarter 2000. The new loan is payable in full in 2005 and bears
interest at a rate of 1.74%. Proceeds from the loan were used to repay certain
short-term borrowings and for general corporate purposes.
In January 2000, the Company paid a quarterly cash dividend of $.38 per share to
shareholders. In April 2000, 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 had been in effect since 1996, was
completed in the first quarter of 2000. 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. The Company anticipates that its growth, capital spending
and share repurchase plan will be funded from internal sources and credit
facilities currently in place.
The accumulated comprehensive income component of Shareholders' Equity,
comprised principally of the cumulative translation adjustment, at March 31,
2000, was ($72,177,000) compared to ($57,135,000) at December 31, 1999. 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.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this Management's Discussion and Analysis which are not historical
facts or information are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, and are subject to risks and
uncertainties that could cause the Company's actual results to differ materially
from those expressed or implied by such forward-looking statements. Risks and
uncertainties with respect to the Company's business include general economic
and business conditions, the price and availability of raw materials, and
political and economic uncertainties, including the fluctuation or devaluation
of currencies in countries in which the Company does business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There are no material changes from the disclosures in Form 10-K filed with the
Securities and Exchange Commission as of December 31, 1999.
8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
NUMBER
10 Separation Agreement dated as of March 1, 2000
between Registrant and Eugene P. Grisanti, former
Chairman and President of Registrant.
27 Financial Data Schedule (EDGAR version only).
(b) REPORTS ON FORM 8-K
During the quarter for which this report on Form 10-Q is
filed, Registrant filed a report on Form 8-K, dated March 22,
2000, describing the provisions of a new shareholder rights
protection agreement.
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: May 15, 2000 By: /s/ DOUGLAS J. WETMORE
-------------------------------
Douglas J. Wetmore,
Vice-President and Chief
Financial Officer
Dated: May 15, 2000 By: /s/ STEPHEN A. BLOCK
-------------------------------
Stephen A. Block,
Senior Vice-President,
General Counsel and Secretary