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 September 30, 1996 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 November 11,1996: 110,325,234
<PAGE>
PART I. FINANCIAL INFORMATION 1
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
9/30/96 12/31/95
------- --------
Assets
- ------
Current Assets:
<S> <C> <C>
Cash & Cash Equivalents $ 247,091 $ 251,430
Short-term Investments 62,064 45,503
Trade Receivables 284,541 253,913
Allowance For Doubtful Accounts (8,888) (8,602)
Inventories: Raw Materials 208,592 233,759
Work in Process 24,248 27,739
Finished Goods 136,868 153,049
---------- ----------
Total Inventories 369,708 414,547
Other Current Assets 84,173 79,186
---------- ----------
Total Current Assets 1,038,689 1,035,977
---------- ----------
Property, Plant & Equipment, At Cost 875,618 839,206
Accumulated Depreciation (410,316) (370,621)
---------- ----------
465,302 468,585
Other Assets 30,103 29,707
---------- ----------
Total Assets $1,534,094 $1,534,269
========== ==========
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Bank Loans $ 12,510 $ 12,185
Accounts Payable-Trade 54,496 63,282
Dividends Payable 37,588 37,749
Income Taxes 77,561 70,471
Other Current Liabilities 106,681 92,714
---------- ----------
Total Current Liabilities 288,836 276,401
---------- ----------
Other Liabilities:
Deferred Income Taxes 13,898 13,420
Long-term Debt 8,834 11,616
Other 120,948 116,272
---------- ----------
Total Other Liabilities 143,680 141,308
---------- ----------
Shareholders' Equity:
Common Stock (115,761,840 shares issued in '96
and in '95) 14,470 14,470
Capital in Excess of Par Value 138,974 142,476
Retained Earnings 1,105,288 1,069,421
Cumulative Translation Adjustment 48,732 75,049
---------- ----------
1,307,464 1,301,416
Treasury Stock, at cost - 5,240,969 shares in '96
and 4,808,005 in '95 (205,886) (184,856)
---------- ----------
Total Shareholders' Equity 1,101,578 1,116,560
---------- ----------
Total Liabilities and Shareholders' Equity $1,534,094 $1,534,269
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
INTERNATIONAL FLAVORS & FRAGRANCES INC. 2
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands except per share amounts)
3 Months Ended 9/30
------------------------
1996 1995
---------- ----------
Net Sales $ 354,865 $ 360,083
---------- ----------
Cost of Goods Sold 193,768 186,705
Research and Development Expenses 23,431 22,741
Selling and Administrative Expenses 55,714 52,671
Interest Expense 800 932
Other (Income) Expense, Net (2,494) (2,617)
---------- ----------
271,219 260,432
---------- ----------
Income Before Taxes on Income 83,646 99,651
Taxes on Income 30,531 36,325
---------- ----------
Net Income $ 53,115 $ 63,326
========== ==========
Earnings Per Share $0.48 $0.57
Dividends Paid Per Share $0.34 $0.31
9 Months Ended 9/30
------------------------
1996 1995
---------- ----------
Net Sales $1,112,029 $1,127,983
---------- ----------
Cost of Goods Sold 599,646 575,400
Research and Development Expenses 69,476 67,611
Selling and Administrative Expenses 166,390 161,836
Nonrecurring Charge 49,707 --
Interest Expense 2,093 2,544
Other (Income) Expense, Net (9,607) (10,151)
---------- ----------
877,705 797,240
---------- ----------
Income Before Taxes on Income 234,324 330,743
Taxes on Income 85,342 121,759
---------- ----------
Net Income $ 148,982 $ 208,984
========== ==========
Earnings Per Share $1.34 $1.88
Average Number of Shares Outstanding (000's) 110,933 111,359
Dividends Paid Per Share $1.02 $0.93
See Notes to Consolidated Financial Statements
<PAGE>
INTERNATIONAL FLAVORS & FRAGRANCES INC. 3
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
9 Months Ended 9/30
----------------------------
1996 1995
---------- ----------
Cash Flows From Operating Activities:
- -------------------------------------
<S> <C> <C>
Net Income $ 148,982 $ 208,984
Adjustments to Reconcile to Net Cash
Provided by Operations:
Nonrecurring Charge 49,707 --
Depreciation 34,674 31,070
Deferred Income Taxes (12,340) 6,581
Changes in Assets and Liabilities:
Current Receivables (30,606) (51,687)
Inventories 29,312 (33,568)
Current Payables 1,610 (4,793)
Other, Net 3,520 671
---------- ----------
Net Cash Provided by Operations 224,859 157,258
---------- ----------
Cash Flows From Investing Activities:
- -------------------------------------
Proceeds From Sales/Maturities of Short-term
Investments 29,804 69,861
Purchases of Short-term Investments (47,400) (130,780)
Additions to Property, Plant & Equipment,
Net of Minor Disposals (63,490) (56,079)
---------- ----------
Net Cash Used in Investing Activities (81,086) (116,998)
---------- ----------
Cash Flows From Financing Activities:
- -------------------------------------
Cash Dividends Paid to Shareholders (113,276) (103,637)
Increase in Bank Loans 488 1,641
Decrease in Long-term Debt (2,096) (2,423)
Proceeds From Issuance of Stock Under Stock Option Plans 7,593 6,812
Purchase of Treasury Stock (32,470) (36,949)
---------- ----------
Net Cash Used In Financing Activities (139,761) (134,556)
---------- ----------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (8,351) 14,387
---------- ----------
Net Change in Cash and Cash Equivalents (4,339) (79,909)
Cash and Cash Equivalents at Beginning of Year 251,430 230,581
---------- ----------
Cash and Cash Equivalents at End of Period $ 247,091 $ 150,672
========== ==========
Interest Paid $ 2,079 $ 3,105
Income Taxes Paid $ 92,081 $ 109,398
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
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 1995 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.
Statement of Financial Accounting Standards No. 121, Accounting For The
Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of, is
effective for fiscal years beginning after December 15, 1995. The standard
requires that long-lived assets and certain identifiable intangibles held by an
entity be reviewed for impairment whenever events or circumstances indicate that
the carrying value of an asset may not be recoverable. The effect of adopting
this standard was not material to the Company.
In June 1996, the Company announced the final phase of its program to expand and
streamline its worldwide aroma chemical production facilities. This program will
include the phase-out of aroma chemical production at the Company's Union Beach,
New Jersey plant over the 18 month period ending December 31, 1997, and the
closure of smaller capacity aroma chemical facilities in Mexico City, Mexico and
Rio de Janeiro, Brazil by the end of 1996. Most of the aroma chemical volume
currently produced at Union Beach will be transferred to the Company's newly
constructed, state-of-the-art facility in Augusta, Georgia. In addition, aroma
chemical production capacity in Benicarlo, Spain will be expanded. The closure
of the three facilities will affect approximately 220 employees associated with
aroma chemical manufacturing at these locations, including 170 jobs at the Union
Beach facility.
The aroma chemical streamlining resulted in a one-time pretax charge to second
quarter 1996 earnings of $49,707,000 ($31,315,000 after tax or $.29 per share).
Cost savings from this program have been specifically identified and are
expected to ultimately increase pretax earnings by $20,000,000 annually, on
completion of the phase-out of Union Beach operations.
The reserve established as a result of the one-time charge consists of the
following components:
Employee related .............................. $10,629,000
Closing manufacturing plants .................. 39,078,000
-----------
Total nonrecurring charge .................. $49,707,000
===========
Utilization of the reserve since the June 1996 announcement has not been
material.
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition
Operations
Worldwide net sales for the third quarter of 1996 were $354,865,000, compared to
$360,083,000 in the 1995 third quarter. For the first nine months of 1996, net
sales totaled $1,112,029,000, compared to $1,127,983,000 for the nine month
period in 1995. Sales in the third quarter and the first nine months of 1996
were unfavorably impacted by translation of European currencies into a stronger
U.S. dollar.
<PAGE>
5
Net income for the third quarter of 1996 totaled $53,115,000 compared to
$63,326,000 in the prior year third quarter. Net income for the first nine
months of 1996, including the one-time charge discussed below, totaled
$148,982,000 compared to $208,984,000 for the comparable 1995 period. Excluding
the one-time charge, net income for the nine month period ended September 30,
1996 was $180,297,000.
The Company's sales and earnings for the first nine months of 1996 were affected
by slow customer reordering patterns for fragrances, both in Europe and the
United States. The disruption of reorder patterns began with sluggish retail
sales during the 1995 holiday season, and continued during the first half of
1996. While the third quarter evidenced some improvement in reordering, the
resumption of normal ordering patterns is not expected until some time in the
fourth quarter of 1996, particularly due to economic conditions in Europe. Third
quarter flavor sales were also softer due to the continuing downsizing and
restructuring of some of the Company's major U.S. food customers, as well as the
unusually cool and wet summer in Europe and the United States, resulting in
lower flavor sales to the beverage, ice cream and yogurt industries. During the
first nine months of 1996, margins were unfavorably affected by the low volume
of sales in the period. Sales, earnings and margins are also being impacted by
highly competitive conditions for aroma chemicals, which have caused the Company
to lower prices for certain aroma chemicals.
The percentage relationship of cost of goods sold and other operating expenses
to sales for the first nine months 1996 and 1995 are detailed below.
First Nine Months
-------------------
1996 1995
---- ----
Cost of Goods Sold .......................... 53.9% 51.0%
Research and Development Expense ............ 6.2% 6.0%
Selling and Administrative Expense .......... 15.0% 14.3%
In June 1996, the Company announced the final phase of its program to expand and
streamline its worldwide aroma chemical production facilities. This program will
include the phase-out of aroma chemical production at the Company's Union Beach,
New Jersey plant over the 18 month period ending December 31, 1997, and the
closure of smaller capacity aroma chemical facilities in Mexico City, Mexico and
Rio de Janeiro, Brazil by the end of 1996. Most of the aroma chemical volume
currently produced at Union Beach will be transferred to the Company's newly
constructed, state-of-the-art facility in Augusta, Georgia. In addition, aroma
chemical production capacity in Benicarlo, Spain will be expanded.
These steps are intended to improve the Company's production capabilities, to
achieve cost efficiencies in the United States as well as internationally, and
to maintain and extend the Company's leadership position in the aroma chemical
market. They will also assure that the Company will have sufficient aroma
chemical supply to meet its own and its customers' needs for the foreseeable
future.
The closure of the three facilities will affect approximately 220 employees
associated with aroma chemical manufacturing at these locations, including 170
jobs at the Union Beach facility.
The aroma chemical streamlining resulted in a one-time pretax charge to second
quarter 1996 earnings of $49,707,000 ($31,315,000 after tax or $.29 per share).
Cost savings from this program have been
<PAGE>
6
specifically identified and are expected to increase pretax earnings by
$20,000,000 annually, on completion of the phase-out of Union Beach operations.
The reserve established as a result of the one-time charge consists of the
following components:
Employee related ............................ $10,629,000
Closing manufacturing plants ................ 39,078,000
-----------
Total nonrecurring charge ................ $49,707,000
===========
Of the charge, approximately $33,000,000 represents asset writedowns and other
non-cash related costs. Usage of the reserve since the June 1996 announcement
has not been material.
The phased transfer of production from Union Beach to Augusta will result, until
the full closure of Union Beach, in some duplication of operating expenses which
will affect both operating margins and earnings. However, the cost savings from
the Company's program to streamline its worldwide aroma chemical facilities will
more than offset the effect of these conditions when the program is fully
implemented.
The effective tax rates for the third quarter and first nine months 1996 were
36.5% and 36.4%, respectively, as compared to 36.5% and 36.8% for the comparable
periods in 1995. The lower effective tax rate for the nine month period in 1996
reflects the effects of lower tax rates in various tax jurisdictions in which
the Company operates.
Statement of Financial Accounting Standards No. 121, Accounting For The
Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of, is
effective for fiscal years beginning after December 15, 1995. The standard
requires that long-lived assets and certain identifiable intangibles held by an
entity be reviewed for impairment whenever events or circumstances indicate that
the carrying value of an asset may not be recoverable. The effect of adopting
this standard was not material to the Company.
Financial Condition
The financial condition of the Company continued to be strong. Cash, cash
equivalents and short-term investments totaled $309,155,000 at September 30,
1996. At September 30, 1996, working capital was $749,853,000 compared to
$759,576,000 at December 31, 1995. Gross additions to property, plant and
equipment during the first nine months of 1996 were $64,156,000. 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, is nearly completed. 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 benefits
plan and for other general corporate purposes.
In January 1996, the Company's cash dividend was increased 9.7% to an annual
rate of $1.36 per share, and $.34 per share was paid to shareholders in each of
the first three quarters of 1996. The Company anticipates that its growth,
capital expenditure programs and share repurchase programs will be funded from
internal sources.
<PAGE>
7
The cumulative translation adjustment component of Shareholders' Equity at
September 30, 1996 was $48,732,000 compared to $75,049,000 at December 31, 1995.
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.
<PAGE>
8
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27--Financial Data Schedule
(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.
<PAGE>
9
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 12, 1996 By: /s/ THOMAS H. HOPPEL
-----------------------------------
Thomas H. Hoppel, Vice-President and
Chief Financial Officer
Dated: November 12, 1996 By: /s/ STEPHEN A. BLOCK
-----------------------------------
Stephen A. Block, Vice-President Law
and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheet & Consolidated Statement of Income and is qualified
in its entirety by reference to such financial statements. Amounts in thousands
of dollars, except per share amounts.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 247,091
<SECURITIES> 62,064
<RECEIVABLES> 284,541
<ALLOWANCES> (8,888)
<INVENTORY> 369,708
<CURRENT-ASSETS> 1,038,689
<PP&E> 875,618
<DEPRECIATION> (410,316)
<TOTAL-ASSETS> 1,534,094
<CURRENT-LIABILITIES> 288,836
<BONDS> 8,834
0
0
<COMMON> 14,470
<OTHER-SE> 1,087,108
<TOTAL-LIABILITY-AND-EQUITY> 1,534,094
<SALES> 1,112,029
<TOTAL-REVENUES> 1,112,029
<CGS> 599,646
<TOTAL-COSTS> 835,512
<OTHER-EXPENSES> 40,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,093
<INCOME-PRETAX> 234,324
<INCOME-TAX> 85,342
<INCOME-CONTINUING> 148,982
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148,982
<EPS-PRIMARY> $1.34
<EPS-DILUTED> $1.34
</TABLE>
