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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 June 30, 1997 Commission File Number 1-4858
INTERNATIONAL FLAVORS & FRAGRANCES INC.
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(Exact Name of Registrant as specified in its charter)
NEW YORK 13-1432060
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(State or other jurisdiction 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
---- ----
Number of shares outstanding as of August 8, 1997: 109,279,253
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<PAGE>
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
6/30/97 12/31/96
---------- ----------
Assets
- ------
Current Assets:
Cash & Cash Equivalents ......................... $ 208,529 $ 261,370
Short-term Investments .......................... 46,326 56,613
Trade Receivables ............................... 305,217 253,484
Allowance For Doubtful Accounts ................. (7,674) (8,733)
Inventories: Raw Materials ..................... 201,734 211,124
Work in Process ................... 16,519 24,644
Finished Goods .................... 131,248 133,310
---------- ----------
Total Inventories ................. 349,501 369,078
Other Current Assets ............................ 90,477 74,544
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Total Current Assets ............................ 992,376 1,006,356
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Property, Plant & Equipment, At Cost ............... 859,233 878,224
Accumulated Depreciation ........................... (406,487) (410,427)
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452,746 467,797
Other Assets ....................................... 33,702 32,760
---------- ----------
Total Assets ....................................... $1,478,824 $1,506,913
========== ==========
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Bank Loans ...................................... $ 22,903 $ 18,929
Accounts Payable-Trade .......................... 62,190 57,681
Dividends Payable ............................... 39,300 39,628
Income Taxes .................................... 77,445 56,832
Other Current Liabilities ....................... 99,820 107,394
---------- ----------
Total Current Liabilities ....................... 301,658 280,464
---------- ----------
Other Liabilities:
Deferred Income Taxes ........................... 15,043 16,941
Long-term Debt .................................. 7,351 8,289
Retirement and Other Liabilities ................ 124,654 124,682
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Total Other Liabilities ............................ 147,048 149,912
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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 .................. 137,547 138,480
Restricted Stock ................................ (10,125) --
Retained Earnings ............................... 1,154,432 1,106,572
Cumulative Translation Adjustment ............... 4,283 47,555
---------- ----------
1,300,607 1,307,077
Treasury Stock, at cost--6,644,763 shares
in '97 and 5,790,323 in '96 .................. (270,489) (230,540)
---------- ----------
Total Shareholders' Equity ...................... 1,030,118 1,076,537
---------- ----------
Total Liabilities and Shareholders' Equity ......... $1,478,824 $1,506,913
========== ==========
See Notes to Consolidated Financial Statements
<PAGE>
2
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
3 Months Ended 6/30
------------------------
1997 1996
-------- --------
Net Sales ..................................... $381,470 $374,397
-------- --------
Cost of Goods Sold ............................ 204,055 201,807
Research and Development Expenses ............. 23,496 23,096
Selling and Administrative Expenses ........... 57,001 55,355
Nonrecurring Charge ........................... -- 49,707
Interest Expense .............................. 618 747
Other (Income) Expense, Net ................... (2,497) (2,699)
-------- --------
282,673 328,013
-------- --------
Income Before Taxes on Income ................. 98,797 46,384
Taxes on Income ............................... 35,488 16,681
-------- --------
Net Income .................................... $ 63,309 $ 29,703
======== ========
Earnings Per Share ............................ $0.58 $0.26
Dividends Paid Per Share ...................... $0.36 $0.34
6 Months Ended 6/30
------------------------
1997 1996
-------- --------
Net Sales ..................................... $764,283 $757,164
-------- --------
Cost of Goods Sold ............................ 411,348 405,878
Research and Development Expenses ............. 47,069 46,045
Selling and Administrative Expenses ........... 113,331 110,676
Nonrecurring Charge ........................... -- 49,707
Interest Expense .............................. 1,177 1,293
Other (Income) Expense, Net ................... (6,568) (7,113)
-------- --------
566,357 606,486
-------- --------
Income Before Taxes on Income ................. 197,926 150,678
Taxes on Income ............................... 71,373 54,811
-------- --------
Net Income .................................... $126,553 $ 95,867
======== ========
Earnings Per Share ............................ $1.16 $0.86
Average Number of Shares Outstanding (000's) .. 109,420 111,032
Dividends Paid Per Share ...................... $0.72 $0.68
See Notes to Consolidated Financial Statements
<PAGE>
3
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
6 Months Ended 6/30
--------------------
1997 1996
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Cash Flows From Operating Activities:
- -------------------------------------
Net Income ............................................. $ 126,553 $ 95,867
Adjustments to Reconcile to Net Cash
Provided by Operations:
Nonrecurring Charge .............................. -- 49,707
Depreciation ..................................... 24,765 23,078
Deferred Income Taxes ............................ (2,071) (11,263)
Changes in Assets and Liabilities:
Current Receivables ........................... (80,435) (51,696)
Inventories ................................... 5,522 25,410
Current Payables .............................. 26,421 99
Other, Net .................................... 360 (444)
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Net Cash Provided by Operations ........................ 101,115 130,758
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Cash Flows From Investing Activities:
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Proceeds From Sales/Maturities of Short-term
Investments .......................................... 14,573 12,424
Purchases of Short-term Investments .................... (4,900) (43,830)
Additions to Property, Plant & Equipment,
Net of Minor Disposals ............................... (24,131) (45,278)
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Net Cash Used in Investing Activities .................. (14,458) (76,684)
--------- --------
Cash Flows From Financing Activities:
- -------------------------------------
Cash Dividends Paid to Shareholders .................... (79,021) (75,503)
Increase in Bank Loans ................................. 3,979 4,937
Decrease in Long-term Debt ............................. (1,008) (1,138)
Proceeds From Issuance of Stock Under Stock
Option Plans ........................................ 7,389 6,288
Purchase of Treasury Stock ............................. (59,752) (5,319)
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Net Cash Used In Financing Activities .................. (128,413) (70,735)
--------- --------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents .......................................... (11,085) (7,969)
--------- --------
Net Change in Cash and Cash Equivalents ................ (52,841) (24,630)
Cash and Cash Equivalents at Beginning of Year ......... 261,370 251,430
--------- --------
Cash and Cash Equivalents at End of Period ............. $ 208,529 $226,800
========= ========
Interest Paid .......................................... $ 1,090 $ 1,263
Income Taxes Paid ...................................... $ 46,816 $ 48,451
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 1996 Annual Report to
Shareholders. In the opinion of the Company's management, all normal recurring
adjustments necessary for a fair statement of the results for the interim
periods have been made.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (FAS 128), Earnings per Share, which is
effective for both interim and annual periods ending after December 15, 1997.
FAS 128 simplifies the rules of computing earnings per share and prescribes that
companies present basic and diluted earnings per share amounts, as defined, on
the face of the income statement. The Company is studying the implications of
FAS 128 but does not believe the impact on earnings per share will be material.
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130 (FAS 130) and 131 (FAS 131), Reporting
Comprehensive Income, and Disclosures about Segments of an Enterprise and
Related Information, respectively. FAS 130 establishes standards for reporting
and display of comprehensive income and its components, and requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement, and display the accumulated balance of other comprehensive
income separately in the statement of financial position. FAS 131 establishes
standards for the way public business enterprises report information about
operating segments in annual financial statements and requires that such
enterprises report selected information about operating segments in interim
reports to shareholders. Both standards are effective for periods beginning
after December 15, 1997. The Company is currently evaluating the standards and
the reporting implications thereof.
Effective January 1, 1997, the Company adopted Statement of Position 96-1 (SOP
96-1), Accounting for Environmental Remediation Liabilities issued by the
American Institute of Certified Public Accountants. SOP 96-1 establishes
guidance for when environmental liabilities should be recorded and the factors
to be considered in determining amounts recognized. The effect of adopting this
standard was not material to the Company.
As described in Note 2 of the Notes to the Consolidated Financial Statements
included in the Company's 1996 annual report to shareholders, the Company
undertook a program to expand and streamline its aroma chemical production
facilities during 1996. The aroma chemical streamlining resulted in a
nonrecurring pretax charge to second quarter 1996 earnings of $49,707,000
($31,315,000 after tax or $.29 per share). At December 31, 1996, the remaining
balance in the reserve was as follows:
Employee related ...................... $10,069,000
Closing manufacturing plants .......... 32,632,000
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Total ............................... $42,701,000
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Utilization of the reserve since December 31, 1996 has not been material.
<PAGE>
5
In connection with an employment contract, the Company made a restricted stock
award effective January 1, 1997. The restrictions generally relate to continuous
employment and expire over a five year period from the date of grant.
Compensation expense is recognized over the restricted period.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Operations
Worldwide net sales for the second quarter of 1997 were $381,470,000, compared
to $374,397,000 in the 1996 second quarter. For the first six months of 1997,
net sales totaled $764,283,000, compared to $757,164,000 for the six month
period in 1996. Sales in the second quarter and first six months of 1997 were
affected by the translation of local currency sales gains into the stronger U.S.
dollar. If the dollar exchange rate had remained the same during these periods,
worldwide sales would have increased approximately 6% and 5%, respectively, over
the sales reported in the comparable periods last year. Local sales increases
were particularly strong in the emerging market areas of Latin America and the
Far East, with good increases also achieved in Western Europe.
Net income for the second quarter of 1997 totaled $63,309,000 compared to
$61,018,000 in the prior year second quarter; net income for the first six
months of 1997 totaled $126,553,000 compared to $127,182,000 for the comparable
1996 period. Earnings per share for the second quarter and first six months of
1997 were $.58 and $1.16, as compared to $.55 and $1.15 per share in the prior
year quarter and six month periods, respectively. The 1996 amounts exclude the
effect of the one-time charge to second quarter earnings for streamlining the
Company's aroma chemical operations; including this charge, net income for the
second quarter and six months ended June 30, 1996 was $29,703,000 and
$95,867,000, respectively, and earnings per share were $.26 and $.86,
respectively.
The percentage relationship of cost of goods sold and other operating expenses
to sales for the first half 1997 and 1996 remained fairly constant, especially
on an overall basis.
First Half
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1997 1996
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Cost of Goods Sold ............................ 53.8% 53.6%
Research and Development Expense .............. 6.2% 6.1%
Selling and Administrative Expense ............ 14.8% 14.6%
As described in Note 2 of the Notes to the Consolidated Financial Statements
included in the Company's 1996 annual report to shareholders, the Company
undertook a program to expand and streamline its aroma chemical production
facilities during 1996. The aroma chemical streamlining resulted in a
nonrecurring pretax charge to second quarter 1996 earnings of $49,707,000
($31,315,000 after tax or $.29 per share). At December 31, 1996, the remaining
balance in the reserve was as follows:
Employee related ..................... $10,069,000
Closing manufacturing plants ......... 32,632,000
-----------
Total .............................. $42,701,000
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<PAGE>
6
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 $254,855,000 at June 30, 1997. At
June 30, 1997, working capital was $690,718,000 compared to $725,892,000 at
December 31, 1996. Gross additions to property, plant and equipment during the
first half of 1997 were $24,390,000. 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 both the
first and second quarters of 1997. The Company anticipates that its growth,
capital expenditure programs and share repurchase programs will be funded from
internal sources.
The cumulative translation adjustment component of Shareholders' Equity at June
30, 1997 was $4,283,000 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.
<PAGE>
7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of Registrant's shareholders held Thursday, May 8, 1997,
at which 99,156,961 shares, or 90.2%, of Registrant's Common Stock were
represented in person or by proxy, the 12 nominees for director of Registrant,
as listed in Registrant's proxy statement dated March 27, 1997 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.
At such annual meeting, the shareholders also voted with respect to the other
matter submitted for shareholder consideration as follows, the vote being
legally sufficient to adopt the proposal:
Proposal to approve registrant's 1997 Employee Stock
Option Plan, covering up to 3.5 million shares of
Registrant's Common Stock.
No. of Shares
-------------
FOR ................................. 95,774,417
AGAINST ............................. 2,532,442
ABSTAIN AND NON-VOTING .............. 850,102
<PAGE>
8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number
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3(a) Amendment to By-laws adopted May 8, 1997.
10(a) Registrant's 1997 Employee Stock Option Plan incorporated by
reference to Exhibit A to the Proxy Statement of Registrant
dated April 27, 1997 (File No. 1-4858).
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.
<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: August 13, 1997 By: /s/ THOMAS H. HOPPEL
--------------------------------------------------
Thomas H. Hoppel, Vice-President and Chief
Financial Officer
Dated: August 13, 1997 By: /s/ STEPHEN A. BLOCK
--------------------------------------------------
Stephen A. Block, Vice-President Law and Secretary
EXHIBIT 3(a)
RESOLUTION ADOPTED MAY 8, 1997 BY BOARD
OF DIRECTORS OF INTERNATIONAL FLAVORS &
FRAGRANCES INC. AMENDING BY-LAWS
IN RESPECT OF ANNUAL MEETING DATE
----------------------------------------
RESOLVED that Section 1 of Article I of the By-laws of the Corporation, as
amended, is hereby amended, effective with the 1999 Annual Meeting of
Shareholders, to read in its entirety as follows:
"SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation for the election of directors and for the transaction of such other
business as may properly come before the meeting shall be held on the third
Thursday of May in each year, if not a legal holiday, and if a legal holiday,
then on the next succeeding day not a legal holiday, at the office of the
Corporation or at such other place and at such hour as shall be designated in
the notice thereof."
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 208,529
<SECURITIES> 46,326
<RECEIVABLES> 305,217
<ALLOWANCES> (7,674)
<INVENTORY> 349,501
<CURRENT-ASSETS> 992,376
<PP&E> 859,233
<DEPRECIATION> (406,487)
<TOTAL-ASSETS> 1,478,824
<CURRENT-LIABILITIES> 301,658
<BONDS> 7,351
0
0
<COMMON> 14,470
<OTHER-SE> 1,015,648
<TOTAL-LIABILITY-AND-EQUITY> 1,478,824
<SALES> 764,283
<TOTAL-REVENUES> 764,283
<CGS> 411,348
<TOTAL-COSTS> 571,748
<OTHER-EXPENSES> (6,568)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,177
<INCOME-PRETAX> 197,926
<INCOME-TAX> 71,373
<INCOME-CONTINUING> 126,553
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 126,553
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.16
</TABLE>
