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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT UNDER SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 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 of incorporation (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 May 12, 1997: 109,119,265
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1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
3/31/97 12/31/96
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Assets
Current Assets:
Cash & Cash Equivalents ........................ $ 207,255 $ 261,370
Short-term Investments ......................... 54,136 56,613
Trade Receivables .............................. 290,154 253,484
Allowance For Doubtful Accounts ................ (7,716) (8,733)
Inventories: Raw Materials ..................... 213,758 211,124
Work in Process ................... 18,541 24,644
Finished Goods .................... 125,853 133,310
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Total Inventories ................. 358,152 369,078
Other Current Assets ........................... 74,925 74,544
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Total Current Assets ........................... 976,906 1,006,356
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Property, Plant & Equipment, At Cost ............. 853,575 878,224
Accumulated Depreciation ......................... (400,177) (410,427)
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453,398 467,797
Other Assets ..................................... 33,480 32,760
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Total Assets ..................................... $1,463,784 $1,506,913
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities:
Bank Loans ..................................... $ 18,282 $ 18,929
Accounts Payable-Trade ......................... 62,052 57,681
Dividends Payable .............................. 39,393 39,628
Income Taxes ................................... 70,635 56,832
Other Current Liabilities ...................... 94,679 107,394
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Total Current Liabilities ...................... 285,041 280,464
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Other Liabilities:
Deferred Income Taxes .......................... 16,914 16,941
Long-term Debt ................................. 6,977 8,289
Retirement and Other Liabilities ............... 125,206 124,682
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Total Other Liabilities .......................... 149,097 149,912
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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 ................... 138,694 138,480
Restricted Stock ................................. (10,688) --
Retained Earnings ................................ 1,130,423 1,106,572
Cumulative Translation Adjustment ................ 17,428 47,555
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1,290,327 1,307,077
Treasury Stock, at cost -- 6,418,087 shares
in '97 and 5,790,323 in '96 ................... (260,681) (230,540)
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Total Shareholders' Equity ...................... 1,029,646 1,076,537
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Total Liabilities and Shareholders' Equity ....... $1,463,784 $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 3/31
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1997 1996
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Net Sales ........................................ $382,813 $382,767
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Cost of Goods Sold ............................... 207,293 204,071
Research and Development Expenses ................ 23,573 22,949
Selling and Administrative Expenses .............. 56,330 55,321
Interest Expense ................................. 559 546
Other (Income) Expense, Net ...................... (4,071) (4,414)
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283,684 278,473
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Income Before Taxes on Income .................... 99,129 104,294
Taxes on Income .................................. 35,885 38,130
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Net Income ....................................... $ 63,244 $ 66,164
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Earnings Per Share ............................... $0.58 $0.60
Average Number of Shares Outstanding (000's) ..... 109,704 111,000
Dividends Paid Per Share ......................... $0.36 $0.34
See Notes to Consolidated Financial Statements
3
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
3 Months Ended 3/31
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1997 1996
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Cash Flows From Operating Activities:
Net Income .................................................................... $ 63,244 $ 66,164
Adjustments to Reconcile to Net Cash Provided by Operations:
Depreciation ................................................................ 12,296 11,660
Deferred Income Taxes ....................................................... 376 7,301
Changes in Assets and Liabilities:
Current Receivables ....................................................... (47,100) (42,780)
Inventories ............................................................... 1,491 10,179
Current Payables .......................................................... 11,024 (5,168)
Other, Net ................................................................ 1,504 (341)
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Net Cash Provided by Operations ............................................... 42,835 47,015
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Cash Flows From Investing Activities:
Proceeds From Sales/Maturities of Short-term Investments ...................... 3,037 2,033
Purchases of Short-term Investments ........................................... (1,746) (12,336)
Additions to Property, Plant & Equipment,
Net of Minor Disposals ....................................................... (9,620) (20,915)
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Net Cash Used in Investing Activities ......................................... (8,329) (31,218)
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Cash Flows From Financing Activities:
Cash Dividends Paid to Shareholders ........................................... (39,628) (37,749)
(Decrease) Increase in Bank Loans ............................................. (171) 2,986
Decrease in Long-term Debt .................................................... (884) (998)
Proceeds From Issuance of Stock Under Stock Option Plans ...................... 4,588 2,987
Purchase of Treasury Stock .................................................... (45,880) (96)
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Net Cash Used In Financing Activities ......................................... (81,975) (32,870)
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Effect of Exchange Rate Changes on Cash and Cash Equivalents .................. (6,646) (4,111)
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Net Change in Cash and Cash Equivalents ....................................... (54,115) (21,184)
Cash and Cash Equivalents at Beginning of Year ................................ 261,370 251,430
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Cash and Cash Equivalents at End of Period .................................... $ 207,255 $ 230,246
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Interest Paid ................................................................. $ 533 $ 572
Income Taxes Paid ............................................................. $ 17,555 $ 23,279
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.
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.
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 first quarter of 1997 were $382,813,000, compared to
$382,767,000 in the 1996 first quarter. Sales in the first quarter 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 5% over the sales reported in
the first
5
quarter of last year. Local sales increases were achieved in all geographic
areas, and were particularly strong in Western Europe in both flavor and
fragrance products. Sales, margins and earnings are also being affected by
highly competitive conditions for aroma chemicals, which have caused the Company
to lower prices for certain aroma chemicals.
Net income for the first quarter of 1997 totaled $63,244,000 compared to
$66,164,000 in the prior year first quarter. Earnings per share for the quarter
were $.58, as compared to $.60 in the prior year quarter. Net income per share
in 1997, also affected by the stronger U.S. dollar, was slightly below the first
quarter of 1996.
The percentage relationship of cost of goods sold and other operating expenses
to sales for the first quarter 1997 and 1996 are detailed below.
First Quarter
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1997 1996
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Cost of Goods Sold ........................ 54.1% 53.3%
Research and Development Expense .......... 6.2% 6.0%
Selling and Administrative Expense ........ 14.7% 14.5%
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.
Financial Condition
The financial condition of the Company continued to be strong. Cash, cash
equivalents and short-term investments totaled $261,391,000 at March 31, 1997.
At March 31, 1997, working capital was $691,865,000 compared to $725,892,000 at
December 31, 1996. Gross additions to property, plant and equipment during the
first quarter of 1997 were $9,717,000. 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 the
first quarter of 1997. The Company anticipates that
6
its growth, capital expenditure programs and share repurchase programs will be
funded from internal sources.
The cumulative translation adjustment component of Shareholders' Equity at March
31, 1997 was $17,428,000 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 Description
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4(a) Shareholder Protection Rights Agreement dated as of February 20,
1990 between Registrant and The Bank of New York, as Rights Agent.
4(b) Amendment No.1 dated as of April 6, 1990 to Shareholder Protection Rights Agreement.
4(d) Specimen certificates of Registrant's Common Stock bearing legend notifying of
Shareholder Protection Rights Agreement.
10(a) Agreement dated as of January 1, 1997 between Registrant and Eugene P. Grisanti,
Chairman and President of Registrant.
10(b) Form of Executive Severance Agreement approved by Registrant's Board of Directors on
February 14, 1989.
10(c) Registrant's Executive Death Benefit Plan effective July 1, 1990.
10(d) Supplemental Retirement Investment Plan adopted by Registrant's Board of Directors on
November 14, 1989.
10(e) Supplemental Retirement Plan adopted by Board of Directors on October 29, 1986.
10(h) Stock Option Plan for Non-Employee Directors.
10(i) Registrant's Directors' Deferred Compensation Plan adopted by Registrant's Board of
Directors on September 15, 1981.
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: May 14, 1997 By: /s/ THOMAS H. HOPPEL
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Thomas H. Hoppel, Vice-President and Chief
Financial Officer
Dated: May 14, 1997 By: /s/ STEPHEN A. BLOCK
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Stephen A. Block, Vice-President Law and
Secretary
EXHIBIT INDEX
EXHIBIT DESCRIPTION
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4(a) Shareholder Protection Rights Agreement dated as of February
20, 1990 between Registrant and The Bank of New York, as Rights
Agent.
4(b) Amendment No. 1 dated as of April 6, 1990 to Shareholder
Protection Rights Agreement.
4(d) Specimen certificates of Registrant's Common Stock bearing legend
notifying of Shareholder Protection Rights Agreement.
10(a) Agreement dated as of January 1, 1997 between Registrant and
Eugene P. Grisanti, Chairman and President of Registrant.
10(b) Form of Executive Severance Agreement approved by Registrant's
Board of Directors on February 14, 1989.
10(c) Registrant's Executive Death Benefit Plan effective July 1, 1990.
10(d) Supplemental Retirement Investment Plan adopted by Registrant's
Board of Directors on November 14, 1989.
10(e) Supplemental Retirement Plan adopted by Board of Directors on
October 29, 1986.
10(h) Stock Option Plan for Non-Employee Directors.
10(i) Registrant's Directors' Deferred Compensation Plan adopted by
Registrant's Board of Directors on September 15, 1981.
27 Financial Data Schedule (EDGAR version only).