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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 June 30, 1999 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 incorporation (IRS Employer
or organization) identification No.)
521 West 57th Street, New York, N.Y. 10019-2960
- -------------------------------------------- --------------------------
(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 August 6,1999: 106,127,597
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PART I. FINANCIAL INFORMATION 1
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
6/30/99 12/31/98
----------- -----------
Assets
Current Assets:
Cash & Cash Equivalents $ 85,893 $ 114,960
Short-term Investments 1,244 1,039
Trade Receivables 302,169 264,352
Allowance For Doubtful Accounts (10,401) (9,517)
Inventories: Raw Materials 234,251 235,552
Work in Process 6,488 8,251
Finished Goods 146,249 160,158
----------- -----------
Total Inventories 386,988 403,961
Other Current Assets 68,498 73,233
----------- -----------
Total Current Assets 834,391 848,028
----------- -----------
Property, Plant & Equipment, At Cost 924,904 913,397
Accumulated Depreciation (415,207) (414,613)
----------- -----------
509,697 498,784
Other Assets 40,937 41,252
----------- -----------
Total Assets $ 1,385,025 $ 1,388,064
=========== ===========
Liabilities and Shareholders' Equity
Current Liabilities:
Bank Loans $ 49,191 $ 29,072
Accounts Payable-Trade 73,813 60,331
Dividends Payable 40,317 40,301
Income Taxes 40,082 46,647
Other Current Liabilities 115,744 96,557
----------- -----------
Total Current Liabilities 319,147 272,908
----------- -----------
Other Liabilities:
Deferred Income Taxes 31,529 30,730
Long-term Debt 3,630 4,341
Retirement and Other Liabilities 135,354 135,034
----------- -----------
Total Other Liabilities 170,513 170,105
----------- -----------
Shareholders' Equity:
Common Stock (115,761,840 shares issued) 14,470 14,470
Capital in Excess of Par Value 135,830 136,443
Restricted Stock (5,624) (6,750)
Retained Earnings 1,206,220 1,210,620
Accumulated Other Comprehensive Income:
Cumulative Translation Adjustment (57,131) (9,130)
----------- -----------
1,293,765 1,345,653
Treasury Stock, at cost - 9,661,827 shares in '99
and 9,715,775 in '98 (398,400) (400,602)
----------- -----------
Total Shareholders' Equity 895,365 945,051
----------- -----------
Total Liabilities and Shareholders' Equity $ 1,385,025 $ 1,388,064
=========== ===========
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 6/30
-----------------------
1999 1998
--------- ---------
Net Sales $ 371,079 $ 365,253
--------- ---------
Cost of Goods Sold 205,210 195,270
Research and Development Expenses 25,943 24,445
Selling and Administrative Expenses 64,214 60,520
Nonrecurring Charges 28,758 --
Interest Expense 1,208 459
Other (Income) Expense, Net 4,599 (1,584)
--------- ---------
329,932 279,110
--------- ---------
Income Before Taxes on Income 41,147 86,143
Taxes on Income 13,713 30,236
--------- ---------
Net Income 27,434 55,907
Other Comprehensive Income:
Foreign Currency Translation Adjustments (17,304) (4,331)
--------- ---------
Comprehensive Income $ 10,130 $ 51,576
========= =========
Net Income Per Share - Basic $0.26 $0.52
Net Income Per Share - Diluted $0.26 $0.52
Average Number of Shares Outstanding - Basic 105,928 107,521
Average Number of Shares Outstanding - Diluted 106,127 107,958
Dividends Paid Per Share $0.38 $0.37
6 Months Ended 6/30
-----------------------
1999 1998
--------- ---------
Net Sales $ 738,844 $ 738,664
--------- ---------
Cost of Goods Sold 411,679 393,477
Research and Development Expenses 51,868 48,295
Selling and Administrative Expenses 127,794 117,893
Nonrecurring Charges 28,758 --
Interest Expense 2,199 918
Other (Income) Expense, Net 2,045 (4,856)
--------- ---------
624,343 555,727
--------- ---------
Income Before Taxes on Income 114,501 182,937
Taxes on Income 38,287 64,404
--------- ---------
Net Income 76,214 118,533
Other Comprehensive Income:
Foreign Currency Translation Adjustments (48,001) (15,278)
--------- ---------
Comprehensive Income $ 28,213 $ 103,255
========= =========
Net Income Per Share - Basic $0.72 $1.10
Net Income Per Share - Diluted $0.72 $1.10
Average Number of Shares Outstanding - Basic 105,917 107,825
Average Number of Shares Outstanding - Diluted 106,127 108,241
Dividends Paid Per Share $0.76 $0.74
See Notes to Consolidated Financial Statements
3
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
6 Months Ended 6/30
----------------------
1999 1998
--------- ---------
Cash Flows From Operating Activities:
Net Income $ 76,214 $ 118,533
Adjustments to Reconcile to Net Cash
Provided by Operations:
One-time Charges 34,857 --
Depreciation 25,475 23,960
Deferred Income Taxes 5,112 2,216
Changes in Assets and Liabilities:
Current Receivables (50,497) (55,415)
Inventories (2,973) (19,453)
Current Payables 11,864 15,377
Other, Net (2,140) 3,591
--------- ---------
Net Cash Provided by Operations 97,912 88,809
--------- ---------
Cash Flows From Investing Activities:
Proceeds From Sales/Maturities of Short-term Investments 485 30,898
Purchases of Short-term Investments (828) --
Additions to Property, Plant & Equipment,
Net of Minor Disposals (63,093) (30,961)
--------- ---------
Net Cash Used in Investing Activities (63,436) (63)
--------- ---------
Cash Flows From Financing Activities:
Cash Dividends Paid to Shareholders (80,598) (80,315)
Increase in Bank Loans 22,889 6,136
Decrease in Long-term Debt (420) (1,082)
Proceeds From Issuance of Stock Under Stock Option Plans 2,436 3,503
Purchase of Treasury Stock (847) (80,843)
--------- ---------
Net Cash Used in Financing Activities (56,540) (152,601)
--------- ---------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (7,003) (3,084)
--------- ---------
Net Change in Cash and Cash Equivalents (29,067) (66,939)
Cash and Cash Equivalents at Beginning of Year 114,960 216,994
--------- ---------
Cash and Cash Equivalents at End of Period $ 85,893 $ 150,055
========= =========
Interest Paid $ 2,265 $ 850
Income Taxes Paid $ 35,363 $ 48,455
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 1998 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 June 1999, Statement of Financial Accounting Standards No. 137 (FAS 137) was
issued amending Statement of Accounting Standards No. 133 (FAS 133), Accounting
for Derivative Instruments and Hedging Activities. FAS 137 defers the effective
date of FAS 133 to fiscal years beginning after June 15, 2000. The Company is
currently evaluating FAS 133, and the accounting and reporting implications
thereof.
Effective January 1, 1999, the Company adopted Statement of Position 98-5 (SOP
98-5), Reporting on the Costs of Start-Up Activities, which is effective for
fiscal years beginning after December 15, 1998. SOP 98-5 requires that costs of
start-up activities, including organization costs, be expensed as incurred. The
effect of adopting this Standard was not material.
In June 1999, the Company announced details of its program to streamline the
Company's operations worldwide. The program will include the closure of selected
manufacturing, distribution and sales facilities in all geographic areas in
which the Company operates. In addition, the Company will further consolidate
and align production in its remaining manufacturing locations. The actions will
result in a reduction in the Company's global workforce of nearly 5%, or
approximately 200 employees.
The program will result in one-time pretax charges of approximately $46 million
($31 million after tax, or approximately $.29 per share). Cost savings from this
program have been specifically identified and are expected to increase pretax
earnings by $15 million annually, beginning in 2000; the Company expects to
realize approximately $4-5 million of pretax savings from the program in the
second half of 1999.
Of the total anticipated $46 million in one-time charges, the Company recorded
$35 million ($23 million after tax, or approximately $.22 per share) in the
second quarter; the remaining charges are expected to be recorded in the second
half of 1999, as the remaining aspects of the program are fully implemented. As
a result of the one-time charges, the related reserve established in the second
quarter, and the utilization thereof, is as follows:
ORIGINAL BALANCE AT
RESERVE UTILIZATION 6/30/99
-----------------------------------------
Employee Separation Costs $22,899,000 $ 4,697,000 $18,202,000
Facility/Asset Related 11,958,000 7,330,000 4,628,000
----------- ----------- -----------
Total $34,857,000 $12,027,000 $22,830,000
=========== =========== ===========
Included in the total second quarter one-time charges, are charges of $666,000
and $953,000, recorded to Cost of Goods Sold and Selling and Administrative
Expenses, respectively, for accelerated depreciation on assets to be disposed.
In addition, $4,480,000 was recorded in Other Expense for certain costs
associated with facility closure. The remaining one-time charges are recognized
as Nonrecurring Charges.
Charges for the second quarter totaled approximately $25.4 million in EAME and
relate principally to employee separation costs associated with the
rationalization and closure of certain operations and facilities. For North
America, Latin America and the Far East, charges for the second quarter
approximate $3 million each, and relate to employee separations and closure of
operations. The asset writedowns and other non-cash related elements of the
pretax charges recorded to date, and anticipated to be recorded as part of the
total program, approximate $7 million and $12 million, respectively.
As described in Note 2 of the Notes to the Consolidated Financial Statements
included in the Company's 1998 Annual Report to Shareholders, the Company
undertook a program to phase out and close certain of its aroma chemical
production facilities during 1996. The status of the reserve is as follows:
BALANCE AT UTILIZED BALANCE AT
12/31/98 IN 1999 6/30/99
-----------------------------------------
Employee Related $ 521,000 $ 314,000 $ 207,000
Facility Related 2,200,000 1,386,000 814,000
---------- ---------- ----------
Total $2,721,000 $1,700,000 $1,021,000
========== ========== ==========
5
The Company's reportable segment information, based on geographic area, for the
first half 1999 and 1998 follows:
North Latin
1999 (Dollars in thousands) America EAME America Far East Eliminations Consolidated
- ------------------------------------ --------------- ------------ ------------ ------------ --------------- ---------------
Sales to unaffiliated customers $ 244,963 $ 304,407 $ 99,311 $90,163 $ -- $ 738,844
Transfers between areas 28,396 64,218 345 5,095 (98,054) --
--------- --------- --------- ------- -------- ---------
Total sales $ 273,359 $ 368,625 $ 99,656 $95,258 $(98,054) $ 738,844
========= ========= ========= ======= ======== =========
Operating profit $ 23,639 $ 93,315 $ 15,500 $16,079 $ 2,554 $ 151,087
========= ========= ========= ======= ========
Unallocated expenses (3,584)
Nonrecurring charges (28,758)
Interest expense (2,199)
Other income (expense), net (2,045)
---------
Income before taxes on income $ 114,501
=========
North Latin
1998 (Dollars in thousands) America EAME America Far East Eliminations Consolidated
- ------------------------------------ --------------- ------------ ------------ ------------ --------------- ---------------
Sales to unaffiliated customers $ 248,412 $ 305,727 $ 103,361 $81,164 $ -- $ 738,664
Transfers between areas 33,615 56,945 316 8,249 (99,125) --
--------- --------- --------- ------- -------- ---------
Total sales $ 282,027 $ 362,672 $ 103,677 $89,413 $(99,125) $ 738,664
========= ========= ========= ======= ======== =========
Operating profit $ 44,462 $ 98,680 $ 23,201 $15,371 $ 725 $ 182,439
========= ========= ========= ======= ========
Unallocated expenses (3,440)
Interest expense (918)
Other income (expense), net 4,856
---------
Income before taxes on income $ 182,937
=========
Included in the 1999 operating profit for EAME are second quarter one-time
charges totaling $1,619,000 for accelerated depreciation on assets to be
disposed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OPERATIONS
Worldwide net sales for the second quarter of 1999 were $371,079,000, compared
to $365,253,000 in the 1998 second quarter, an increase of 2%. Local currency
sales for the 1999 second quarter increased 3% over the 1998 second quarter. On
a country of destination basis, second quarter local currency sales were
strongest in European fragrances, which increased 10%, and in the Far East where
flavor and fragrance sales increased by 18% and 11%, respectively. These strong
sales gains were partially offset by the weak economic conditions in Latin
America, most notably in Brazil, and by the impact of the stronger U.S. dollar,
primarily against the Euro and the major European currencies. North American
sales for the quarter were flat with the prior year.
For the first six months of 1999, worldwide net sales totaled $738,844,000,
compared to $738,664,000 for the comparable 1998 period. On a country of
destination basis, local currency sales for the six months ended June 30, 1999
were strongest in the Far East, where total sales increased 10% over 1998. Local
currency sales in EAME were essentially flat with the comparable prior year
period, as were sales in North America. Sales in Latin America were down 5% from
the prior year, again mainly as a result of economic conditions in Brazil. Sales
in the first six months of 1999 were not significantly affected by translation.
The percentage relationship of cost of goods sold and other operating expenses
to sales for the first half 1999 and 1998 are detailed below.
6
FIRST HALF
--------------------
1999 1998
---- ----
Cost of Goods Sold 55.7% 53.3%
Research and Development Expenses 7.0% 6.5%
Selling and Administrative Expenses 17.3% 16.0%
Cost of goods sold, as a percentage of net sales, increased from the prior year
primarily due to the circumstances impacting aroma chemicals, both in terms of
weakness in demand and in pricing pressures.
Selling and administrative expenses increased as a percentage of sales primarily
due to costs of the Company's Y2K program. The costs for this program amounted
to approximately $.03 and $.07 per share for the current quarter and the six
month period, respectively. Excluding the Y2K program costs, selling and
administrative expenses would have represented approximately 16.3% of sales, in
line with 1998 levels. There were no comparable levels of spending for Y2K in
the 1998 second quarter and six month periods.
Net income for the second quarter of 1999, including the one-time charges
discussed below, totaled $27,434,000 compared to $55,907,000 in the prior year
second quarter. On the same basis, net income for the first six months of 1999
totaled $76,214,000, compared to $118,533,000 for the comparable 1998 period.
Net income for the second quarter and six month period ended June 30, 1999,
excluding the one-time charges, was $50,579,000 and $99,359,000, respectively.
The decline in net income from the prior year was primarily attributable to the
increase in cost of goods sold as a percentage of sales, and the costs of the
Company's Y2K program.
In June 1999, the Company announced details of its program to streamline the
Company's operations worldwide. The Company expects that these steps will result
in improved operating efficiencies and asset utilization, and enable significant
cost savings and enhanced profitability. The program will include the closure of
selected manufacturing, distribution and sales facilities in all geographic
areas in which the Company operates. In addition, the Company will further
consolidate and align production in its remaining manufacturing locations. The
actions will result in a reduction in the Company's global workforce of nearly
5%, or approximately 200 employees.
The program will result in one-time pretax charges of approximately $46 million
($31 million after tax, or approximately $.29 per share). Cost savings from this
program have been specifically identified and are expected to increase pretax
earnings by $15 million annually, beginning in 2000; the Company expects to
realize approximately $4-5 million of pretax savings from the program in the
second half of 1999.
Of the total anticipated $46 million in one-time charges, the Company recorded
$35 million ($23 million after tax, or approximately $.22 per share) in the
second quarter; the remaining charges are expected to be recorded in the second
half of 1999, as the remaining aspects of the program are fully implemented. As
a result of the one-time charges, the related reserve established in the second
quarter, and the utilization thereof, is as follows:
ORIGINAL BALANCE AT
RESERVE UTILIZATION 6/30/99
---------------------------------------------
Employee Separation Costs $22,899,000 $ 4,697,000 $18,202,000
Facility/Asset Related 11,958,000 7,330,000 4,628,000
----------- ----------- -----------
Total $34,857,000 $12,027,000 $22,830,000
=========== =========== ===========
Included in the total second quarter one-time charges, are charges of $666,000
and $953,000, recorded to Cost of Goods Sold and Selling and Administrative
Expenses, respectively, for accelerated depreciation on assets to be disposed.
In addition, $4,480,000 was recorded in Other Expense for certain costs
associated with facility closure. The remaining one-time charges are recognized
as Nonrecurring Charges.
Charges for the second quarter totaled approximately $25.4 million in EAME and
relate principally to employee separation costs associated with the
rationalization and closure of certain operations and facilities. For North
America, Latin America and the Far East, charges for the second quarter
approximate $3 million each, and relate to employee separations and closure of
operations. The asset writedowns and other non-cash related elements of the
pretax charges recorded to date, and anticipated to be recorded as part of the
total program, approximate $7 million and $12 million, respectively.
7
As described in Note 2 of the Notes to the Consolidated Financial Statements
included in the Company's 1998 Annual Report to Shareholders, the Company
undertook a program to phase out and close certain of its aroma chemical
production facilities during 1996. The status of the reserve is as follows:
BALANCE AT UTILIZED BALANCE AT
12/31/98 IN 1999 6/30/99
--------------------------------------------
Employee Related $ 521,000 $ 314,000 $ 207,000
Facility Related 2,200,000 1,386,000 814,000
---------- ---------- ----------
Total $2,721,000 $1,700,000 $1,021,000
========== ========== ==========
The effective tax rates for the second quarter and first six months of 1999,
were 33.3% and 33.4%, respectively, compared to 35.1% and 35.2%, respectively,
for the comparable periods in 1998. The lower effective rates reflect 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 $87,137,000 at June 30, 1999, and
working capital was $515,244,000 compared to $575,120,000 at December 31, 1998.
Gross additions to property, plant and equipment during the first half of 1999
were $63,470,000.
In January 1999, the Company's cash dividend was increased to an annual rate of
$1.52 per share from $1.48 in 1998, and $.38 per share was paid to shareholders
in both the first and second quarters of 1999. The Company anticipates that its
growth, capital expenditure programs and share repurchase program will be funded
mainly from internal sources.
Notwithstanding its current strong financial condition, the Company is currently
in the process of establishing a $300,000,000 commercial paper program, which it
anticipates to have in place by September 30, 1999. As of June 30, 1999, the
Company had arranged the requisite backstop credit facility to support the
program. Proceeds from the commercial paper program will be used for general
corporate purposes.
The accumulated comprehensive income component of Shareholders' Equity,
comprised principally of the cumulative translation adjustment, at June 30,
1999, was ($57,131,000) compared to ($9,130,000) at December 31, 1998. 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.
YEAR 2000 ISSUE
The Company has a comprehensive program to address its "Year 2000" needs (the
"Y2K Program"). The Y2K Program is currently on schedule to be fully complete
prior to January 1, 2000, and in most cases no later than September 30, 1999.
The Y2K Program has been designed to evaluate and, if necessary, repair or
replace those computer programs and embedded computer chips that are significant
to the Company and that use only the last two digits to refer to a year ("Y2K
Code"), so that such Y2K Code will be "Year 2000 Capable," that is, will
recognize dates beginning in the year 2000. For purposes of the Y2K Program, Y2K
Code is that which the Company concludes could, if not made Year 2000 Capable,
materially affect the Company's operations and ability to service its customers,
or create a safety or environmental risk. In addition to dealing with the
Company's Y2K Code, the Y2K Program also is designed to identify and evaluate
the Year 2000 readiness of the Company's key suppliers of inventory and
non-inventory goods and services, and of the Company's significant customers.
8
The Y2K Program, as it relates to the Company's computer programs and embedded
technology, has five phases: (1) assessing computer programs and embedded
technology to identify Y2K Code; (2) assigning priorities to the identified Y2K
Code; (3) repairing or replacing Y2K Code to make such Y2K Code Year 2000
Capable; (4) testing the repaired or replaced Y2K Code; and (5) developing and
implementing, as necessary, contingency plans to address the possibility that
the Company or third parties, whose operations or business could affect the
Company, do not become Year 2000 Capable. The Company has engaged certain
outside consultants with recognized expertise in assessing and dealing with Year
2000 needs, principally Computer Sciences Corporation, to assist in the
management of the Y2K Program and in the repair and testing of certain Y2K Code.
The Y2K Program focuses on Company Y2K Code in three principal areas: (1)
infrastructure; (2) applications software; and (3) facility operations, where
the great majority of embedded technology is found. The infrastructure area
involves hardware and systems software other than applications software. As
hardware and systems software is repaired, upgraded or replaced, they are tested
to assure that they are Year 2000 Capable. The Company's infrastructure portion
of the Y2K Program is essentially complete.
Significant portions of the Company's application software will be replaced by
new software, principally SAP, an enterprise requirements planning ("ERP")
software package. The first implementation, encompassing a portion of the
Company's North American operations, occurred on May 3, 1999, its scheduled date
under the SAP project plans; the North American implementation of SAP is
expected to be completed in the third quarter of 1999. Applications software Y2K
Code not being replaced as part of the SAP project is being repaired, upgraded
or replaced (where an upgrade or replacement is available from the supplier of
such software) to make such Y2K Code Year 2000 Capable. This portion of the Y2K
Program is expected to be completed by September 30, 1999, consistent with the
schedule established by the Y2K Program.
Facility operations include hardware, software and associated embedded computer
chips used in the operation of all facilities owned by the Company, including,
but not limited to, equipment used in manufacturing and research and
development, as well as security and other systems that may have date sensitive
operating controls. The Company has substantially completed its testing of
critical systems to ensure Y2K Capability. This portion of the Y2K Program is on
schedule, and the Company expects it to be completed early in the fourth quarter
of 1999.
The Company has identified its key suppliers of inventory and non-inventory
goods and services and has contacted them, in writing and in some cases through
face-to-face discussions and analysis, to ascertain the extent of their Year
2000 Capability. Similarly, the Company has also been communicating with
significant customers about their and the Company's Year 2000 Capability plans
and progress. This portion of the Y2K Program is substantially complete.
The total cost to the Company of the Y2K Program is estimated to approximate $48
million of which approximately $42.5 million has been expended at June 30, 1999.
Of the Y2K Program costs, approximately $22 million represents capital
expenditures associated with replacement hardware, software and associated
items. The remaining amount, totaling approximately $26 million, represents the
costs of repair, testing and related efforts, and is being expensed as incurred.
Of the $42.5 million spent as at June 30, 1999, approximately $20 million
related to capital and the balance of $22.5 million was expensed. These amounts
do not include the estimated cost of the SAP project.
The failure to make Y2K Code Year 2000 Capable could result in an interruption
in, or failure of, certain business activities or operations, which could
materially and adversely affect the Company's results of operations, liquidity
and/or financial condition. The Company currently expects that the Company's Y2K
Code will be Year 2000 Capable on or before December 31, 1999. Due to general
uncertainty about the overall extent of the Year 2000 problem, however,
including, but not limited to, uncertainty about the extent of Year 2000
Capability of the Company's suppliers and customers, the Company is currently
unable to
9
determine whether the consequences of the failure of entities other than the
Company to be Year 2000 Capable will have a material impact on the Company's
results of operations, liquidity or financial condition.
Subject to the above uncertainties, however, the Company believes that, with the
completion of the Y2K Program as scheduled, and with the implementation of SAP,
the likelihood of material interruptions of the Company's normal business should
be reduced. Notwithstanding the Company's belief, the Company is currently
unable to predict, and thus to describe, its most likely worst case Year 2000
scenario. To address the possibility that the Company or its suppliers,
customers, or other third parties are not successful in becoming Year 2000
Capable, the Company is developing contingency plans for the critical aspects of
its operations. Such plans will be designed to avoid or mitigate potential
serious disruptions in the Company's business and will be refined and modified
as the Company monitors and evaluates the progress of its Y2K Program.
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, the
ability of the Company and third parties, including customers and suppliers, to
adequately address the Year 2000, and political and economic uncertainties,
including the fluctuation or devaluation of currencies in countries in which the
Company does business.
10
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
1999 Annual Meeting
At the annual meeting of Registrant's shareholders held Thursday, May 20, 1999,
at which 93,535,465 shares, or 88.2%, of Registrant's Common Stock, were
represented in person or by proxy, the 11 nominees for director of Registrant,
as listed in Registrant's proxy statement dated March 30, 1999 previously filed
with the Commission, were duly elected to Registrant's Board of Directors. There
was no solicitation of proxies in opposition to these nominees.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number
10(a) Credit Agreement dated as of June 1, 1999 among
Registrant as Borrower, certain Initial Lenders,
Citibank, N.A. as Agent and Salomon Smith Barney Inc.
as Arranger.
10(b) Agreement dated May 14, 1999 between Registrant
and Philip P. Gaetano, former Vice-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 April 7, 1999,
describing certain amendments made March 9, 1999 to Registrant's
Shareholder Protection Rights Agreement.
11
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: August 13, 1999 By: /s/ DOUGLAS J. WETMORE
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Douglas J. Wetmore, Vice-President and Chief
Financial Officer
Dated: August 13, 1999 By: /s/ STEPHEN A. BLOCK
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Stephen A. Block, Senior Vice-President Law
and Regulatory Affairs and Secretary