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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, 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 May 7,1999: 106,048,298
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<PAGE>
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
3/31/99 12/31/98
---------- ----------
ASSETS
Current Assets:
Cash & Cash Equivalents ....................... $ 101,845 $ 114,960
Short-term Investments ........................ 1,205 1,039
Trade Receivables ............................. 288,169 264,352
Allowance For Doubtful Accounts ............... (9,786) (9,517)
Inventories: Raw Materials ................... 226,273 235,552
Work in Process ................. 5,585 8,251
Finished Goods .................. 151,648 160,158
---------- ----------
Total Inventories ............... 383,506 403,961
Other Current Assets .......................... 61,624 73,233
---------- ----------
Total Current Assets .......................... 826,563 848,028
---------- ----------
Property, Plant & Equipment, At Cost ............. 920,382 913,397
Accumulated Depreciation ......................... (411,859) (414,613)
---------- ----------
508,523 498,784
Other Assets ..................................... 40,866 41,252
---------- ----------
Total Assets ..................................... $1,375,952 $1,388,064
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank Loans .................................... $ 48,666 $ 29,072
Accounts Payable-Trade ........................ 69,191 60,331
Dividends Payable ............................. 40,297 40,301
Income Taxes .................................. 42,046 46,647
Other Current Liabilities ..................... 80,199 96,557
---------- ----------
Total Current Liabilities ..................... 280,399 272,908
---------- ----------
Other Liabilities:
Deferred Income Taxes ......................... 33,842 30,730
Long-term Debt ................................ 3,948 4,341
Retirement and Other Liabilities .............. 134,564 135,034
---------- ----------
Total Other Liabilities .......................... 172,354 170,105
---------- ----------
Shareholders' Equity:
Common Stock (115,761,840 shares issued) ...... 14,470 14,470
Capital in Excess of Par Value ................ 136,317 136,443
Restricted Stock .............................. (6,187) (6,750)
Retained Earnings ............................. 1,219,103 1,210,620
Accumulated Other Comprehensive Income:
Cumulative Translation Adjustment .......... (39,827) (9,130)
---------- ----------
1,323,876 1,345,653
Treasury Stock, at cost - 9,717,042 shares
in '99 and 9,715,775 in '98 ................ (400,677) (400,602)
---------- ----------
Total Shareholders' Equity .................... 923,199 945,051
---------- ----------
Total Liabilities and Shareholders' Equity ....... $1,375,952 $1,388,064
========== ==========
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 3/31
---------------------
1999 1998
-------- --------
Net Sales .......................................... $367,765 $373,411
-------- --------
Cost of Goods Sold ................................. 206,469 198,207
Research and Development Expenses .................. 25,925 23,850
Selling and Administrative Expenses ................ 63,580 57,373
Interest Expense ................................... 991 459
Other (Income) Expense, Net ........................ (2,554) (3,272)
-------- --------
294,411 276,617
-------- --------
Income Before Taxes on Income ...................... 73,354 96,794
Taxes on Income .................................... 24,574 34,168
-------- --------
Net Income ......................................... 48,780 62,626
Other Comprehensive Income:
Foreign Currency Translation Adjustments ........ (30,697) (10,947)
-------- --------
Comprehensive Income ............................... $ 18,083 $ 51,679
======== ========
Net Income Per Share - Basic ....................... $0.46 $0.58
Net Income Per Share - Diluted ..................... $0.46 $0.58
Average Number of Shares Outstanding - Basic ....... 105,907 108,129
Average Number of Shares Outstanding - Diluted ..... 106,128 108,524
Dividends Paid Per Share ........................... $0.38 $0.37
See Notes to Consolidated Financial Statements
<PAGE>
3
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
3 Months Ended 3/31
----------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ............................................ $ 48,780 $ 62,626
Adjustments to Reconcile to Net Cash
Provided by Operations:
Depreciation .................................... 12,658 11,972
Deferred Income Taxes ........................... 7,456 1,636
Changes in Assets and Liabilities:
Current Receivables .......................... (26,707) (51,448)
Inventories .................................. 7,320 (9,577)
Current Payables ............................. (8,049) 10,325
Other, Net ................................... 5,215 2,256
--------- ---------
Net Cash Provided by Operations ....................... 46,673 27,790
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds From Sales/Maturities of
Short-term Investments .............................. 221 29,999
Purchases of Short-term Investments ................... (392) 0
Additions to Property, Plant & Equipment,
Net of Minor Disposals .............................. (34,445) (12,860)
--------- ---------
Net Cash (Used in) Provided by Investing Activities ... (34,616) 17,139
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Dividends Paid to Shareholders ................... (40,301) (40,407)
Increase in Bank Loans ................................ 21,243 638
Decrease in Long-term Debt ............................ (214) (892)
Proceeds From Issuance of Stock Under Stock
Option Plans......................................... 646 1,049
Purchase of Treasury Stock ............................ (847) (60,765)
--------- ---------
Net Cash Used in Financing Activities ................. (19,473) (100,377)
--------- ---------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents ................................ (5,699) (2,260)
--------- ---------
Net Change in Cash and Cash Equivalents ............... (13,115) (57,708)
Cash and Cash Equivalents at Beginning of Year ........ 114,960 216,994
--------- ---------
Cash and Cash Equivalents at End of Period ............ $ 101,845 $ 159,286
========= =========
Interest Paid ......................................... $ 801 $ 428
Income Taxes Paid ..................................... $ 19,725 $ 17,034
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 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.
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.
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 3/31/99
---------- ---------- ----------
Employee related ............... $ 521,000 $ 205,000 $ 316,000
Closing manufacturing plants ... 2,200,000 913,000 1,287,000
---------- ---------- ----------
Total .......................... $2,721,000 $1,118,000 $1,603,000
========== ========== ==========
<TABLE>
<CAPTION>
The Company's reportable segment information, based on geographic area, for the first quarter 1999 and 1998
follows:
North Latin
1999 (Dollars in thousands) America EAME America Far East Eliminations Consolidated
- ---------------------------------- ---------- ---------- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
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 ................. $ 10,120 $ 47,323 $ 7,054 $ 7,646 $ 1,639 $ 73,782
======== ======== ======== ======== ========
Unallocated expenses ............. (1,991)
Interest expense ................. (991)
Other income (expense), net ...... 2,554
--------
Income before taxes on income .... $ 73,354
========
<CAPTION>
North Latin
1998 (Dollars in thousands) America EAME America Far East Eliminations Consolidated
- ---------------------------------- ---------- ---------- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated customers .. $121,102 $159,711 $ 51,703 $ 40,895 $ -- $373,411
Transfers between areas .......... 19,585 27,302 179 3,947 (51,013) --
-------- -------- -------- -------- -------- --------
Total sales ...................... $140,687 $187,013 $ 51,882 $ 44,842 $(51,013) $373,411
======== ======== ======== ======== ======== ========
Operating profit ................. $ 21,982 $ 54,035 $ 12,162 $ 7,657 $ (182) $ 95,654
======== ======== ======== ======== ========
Unallocated expenses ............. (1,673)
Interest expense ................. (459)
Other income (expense), net ...... 3,272
--------
Income before taxes on income .... $ 96,794
========
</TABLE>
<PAGE>
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OPERATIONS
Worldwide net sales for the first quarter of 1999 were $367,765,000, compared to
$373,411,000 in the 1998 first quarter. North American flavor sales continue to
grow, reflecting a strengthening of the U.S. food and beverage market. In
addition, the Company is beginning to see a resumption of growth in the Far
East. However, a number of factors combined to offset these positive
developments. Sales were adversely affected by weakness in aroma chemical sales,
in both EAME and North America, and because of pricing pressure on certain
non-proprietary chemicals produced by the Company. The currency and ensuing
economic crisis in Brazil, the Company's largest market in Latin America, also
significantly impacted both sales and operating results. Sales in the first
quarter 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 quarter 1999 and 1998 are detailed below.
FIRST QUARTER
--------------------
1999 1998
---- ----
Cost of Goods Sold .......................... 56.1% 53.1%
Research and Development Expenses ........... 7.0% 6.4%
Selling and Administrative Expenses ......... 17.3% 15.4%
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 $.04 per share for the current quarter; such expenses are
expected to continue at about the same level through the end of the second
quarter of 1999. Excluding the Y2K program costs, selling and administrative
expenses would have represented approximately 15.7% of sales, in line with 1998
levels. There were no comparable levels of spending for Y2K in the 1998 first
quarter.
Net income for the first quarter of 1999 totaled $48,780,000 compared to
$62,626,000 in the prior year first quarter. 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. Basic and
diluted earnings per share for the current quarter were both $.46, compared to
$.58 in the prior year first quarter.
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:
<PAGE>
6
BALANCE AT UTILIZED BALANCE AT
12/31/98 IN 1999 3/31/99
---------- ---------- ----------
Employee related ............... $ 521,000 $ 205,000 $ 316,000
Closing manufacturing plants ... 2,200,000 913,000 1,287,000
---------- ---------- ----------
Total .......................... $2,721,000 $1,118,000 $1,603,000
========== ========== ==========
The effective tax rate for the first quarter 1999 was 33.5% as compared to 35.3%
for the same period in 1998. 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 $103,050,000 at March 31, 1999,
and working capital was $546,164,000 compared to $575,120,000 at December 31,
1998. Gross additions to property, plant and equipment during the first three
months of 1999 were $34,664,000.
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 the first quarter of 1999. The Company anticipates that its growth, capital
expenditure programs and share repurchase program will be funded mainly from
internal sources.
The accumulated comprehensive income component of Shareholders' Equity,
comprised principally of the cumulative translation adjustment, at March 31,
1999, was ($39,827,000) 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 instituted a comprehensive program to address its "Year 2000"
needs (the "Y2K Program"). The Y2K Program is currently on schedule to be
completed 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.
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)
<PAGE>
7
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 expects the
infrastructure portion of the Y2K Program to be completed by June 30, 1999.
Significant portions of the Company's application software will be replaced by
new software, principally SAP, an enterprise requirements planning ("ERP")
software package. At March 31, 1999, the global design for the SAP project was
complete and 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 by the end of the second quarter. 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 is completing the assessment of these systems
and is testing 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 expected to be completed in the
third quarter of 1999.
The total cost to the Company of the Y2K Program is estimated to approximate $45
million of which approximately $38 million has been expended at March 31, 1999.
Of the Y2K Program costs, approximately $21 million represents capital
expenditures associated with replacement hardware, software and associated
items. The remaining amount, totaling approximately $24 million, represents the
costs of repair, testing and related efforts, and is being expensed as incurred.
Of the $38 million spent as at March 31, 1999, approximately $20 million related
to capital and the balance of $18 million was expensed. These amounts do not
include the estimated cost of the SAP project.
<PAGE>
8
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 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 has commenced to develop 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.
OTHER INFORMATION
The Company is evaluating its selling, administrative, and manufacturing
functions with the intention of further streamlining operations and reducing
operating costs. The Company anticipates that such cost reductions will be
announced and implemented in the second quarter, and through the remainder of
the year.
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.
<PAGE>
9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number
10(a) Agreement dated March 3, 1998 between Registrant and Ronald S.
Fenn, Vice-President of Registrant.
10(aa) Amendment dated March 24, 1999 to the above agreement with
Mr. Fenn.
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>
10
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, 1999 By:/s/ DOUGLAS J. WETMORE
--------------------------------------------
Douglas J. Wetmore, Vice-President and Chief
Financial Officer
Dated: May 14, 1999 By:/s/ STEPHEN A. BLOCK
--------------------------------------------
Stephen A. Block, Vice-President Law and
Regulatory Affairs and Secretary
<PAGE>
EXHIBIT INDEX
Exhibit No. Descriptions
----------- ----------------
10(a) Agreement dated March 3, 1998
between Registrant and
Ronald S. Fenn, Vice-President
of Registrant.
10(aa) Amendment dated March 24, 1999
to the above Agreement with
Mr. Fenn.
27 Financial Data Schedule (EDGAR version only).
INTERNATIONAL FLAVORS & FRAGRANCES INC. 521 WEST 57TH STREET NEW YORK, NY 10019
Brian D. Chadbourne
President
IFF Fragrances
March 3, 1998
Mr. Ronald S. Fenn
1537 Washington Valley Road
Bridgewater, New Jersey 08807
Dear Ron:
In accordance with our discussions, you have expressed the desire to take
early retirement, effective January 31, 2001 (the "Retirement Date"), from
International Flavors & Fragrances Inc. (together with its subsidiaries, "IFF").
This letter will outline the arrangements on which we have agreed, and the terms
and conditions of (1) your employment from the date of this letter through the
Retirement Date (the "Pre-Retirement Period"), and (2) your retirement.
1. From the date of this letter through the Retirement Date, you will
continue to be employed by IFF. For the calendar year 1998, your
monthly compensation is $25,000. Effective January 1, 1999, you will
be eligible for an increase in your compensation. Your actual
compensation increase for 1999 will be based on your individual
performance during 1998 and the performance of the IFF Fragrance
Division for such year, and will be determined in late 1998 together
with the increases of the other IFF officers. Your compensation for
1999 will be your compensation through the Retirement Date. You will
not receive any increase in your compensation for either of the years
2000 or 2001. Your monthly compensation for
<PAGE>
Mr. Ronald S. Fenn
March 3, 1998
Page 2 of 8 Pages
any year is hereinafter referred to as your "Monthly Salary" for such
year.
2. On the Retirement Date, you will retire from IFF employment.
Thereafter, by notifying the IFF Compensation and Benefits Department,
you may elect at any time to begin to receive your pension under the
IFF Pension Plan, the IFF Supplemental Retirement Plan and the
Supplemental Foreign Service Retirement Benefit Agreement between you
and IFF (collectively, the "Retirement Plans"). Upon your retirement
you will also become eligible for the benefits of a retired employee
under those IFF benefit plans applicable to a retiree who was both a
corporate officer of IFF and a participant in the MICP at the time of
retirement, including, but not limited to, continued full
participation in the Executive Death Benefit Plan and participation in
the IFF medical plan for retirees.
3. Until July 31, 1999, you will continue as a Vice-President of IFF and
as Director, Aroma Chemical Sales, with the same responsibilities as
you currently have or with such other responsibilities as I may assign
to you. On July 31, 1999, you will execute the resignation as a
Vice-President of IFF in substantially the form attached to this
letter as Exhibit A. Thereafter, for the remainder of the
Pre-Retirement Period, IFF will employ you, and you will make yourself
available, to provide such services, consistent with your knowledge
and experience with IFF, as I may request. Notwithstanding the
preceding sentence, after July 31, 1999 and for the remainder
<PAGE>
Mr. Ronald S. Fenn
March 3, 1998
Page 3 of 8 Pages
of the Pre-Retirement Period, your employment will not require you to
provide services to or on behalf of IFF for more than forty (40) hours
in any calendar month.
4. At all times during the Pre-Retirement Period you will retain the
right to use the IFF-provided automobile now in your possession or
such other IFF-provided automobile to which you may become entitled in
accordance with IFF policy (any such automobile is hereinafter
referred to as the "Company Car"); your compensation which has been
deferred under the terms of the Management Incentive Compensation Plan
(the "MICP") and/or the Special Executive Bonus Plan ("SEBP") will
continue to be deferred and to change in value in accordance with the
measurement vehicle(s) that you have selected; and you will retain
coverage under the IFF medical, dental, retirement, 401(k), life
insurance and long-term disability plans (including applicable
supplemental plans) (such plans other than the MICP and SEBP are
hereinafter collectively referred to as the "Benefit Plans"), all in
accordance with the terms of the Benefit Plans. Notwithstanding the
foregoing, at no time after July 31, 1999 will IFF have any obligation
to purchase for you or provide to you a new or different automobile
from the Company Car then being provided to you.
5. In the event of your death during the Pre-Retirement Period, your
Monthly Salary will be pro-rated to the date of death and paid to your
legal representative, and IFF will have no
<PAGE>
Mr. Ronald S. Fenn
March 3, 1998
Page 4 of 8 Pages
further obligation to your estate, heirs or assigns therefor.
6. You agree and acknowledge that, as of July 31, 1999, the Executive
Severance Agreement dated February 16, 1989, between you and IFF will
terminate.
7. You will be eligible to receive incentive compensation awards in
respect of each of 1998 and 1999 under the Management Incentive
Compensation Plan ("MICP"). Your actual incentive compensation award
for each such year will be based on your individual performance and
the performance of the IFF Fragrance Division and will be determined
and awarded in early 1999 and 2000, respectively, together with the
awards to all other 1998 and 1999 MICP participants. Your award for
1999 will be prorated to July 31, 1999. You will be listed as a
participant in the MICP for 2000 and 2001, but you understand and
acknowledge that no award will be made to you under the MICP in
respect of either such year.
8. Ownership of the Company Car will be transferred to you on the
Retirement Date. If you are required to recognize any compensation
resulting from the transfer, that compensation will be included in
your Form W-2 for 2001.
9. You may exercise until three (3) months after the Retirement Date any
IFF stock options which are exercisable on the Retirement Date, in
accordance with the provisions of your various Stock Option
Agreements. If you should die prior to the expiration of that
period (including prior to the Retirement Date), your legal
<PAGE>
Mr. Ronald S. Fenn
March 3, 1998
Page 5 of 8 Pages
representative's right to exercise stock options will be governed by
the provisions of such Stock Option Agreements.
10. Attached to this letter agreement as Exhibit B is a copy of the
Security Agreement which you signed on September 1, 1969. You agree to
abide by the terms and conditions of the Security Agreement both
during the Pre-Retirement Period and thereafter, but such obligations
will in no way be construed as a continuation of your IFF employment;
which will terminate on the Retirement Date.
11. As part of the consideration for the benefits accruing to you under
this letter agreement, you agree that until December 31, 2002 you will
not, directly or indirectly, anywhere in the world, (a)(i) become
employed or otherwise participate as an officer, director, employee,
partner, principal, individual proprietor or investor with a
beneficial interest of more than one percent (1%) of the outstanding
stock or other equity of, or (ii) make loans or advances of more than
one percent (1%) of the outstanding stock or other equity to, or (iii)
act as advisor or consultant to, in each case any person, firm,
partnership, corporation or other business entity, who or which
competes, directly or indirectly, with any of the fragrance or aroma
chemicals business of IFF; or (b) either solicit for employment by or
hire any IFF employee for, and you will not, either directly or
indirectly, encourage or advise any IFF employee to leave the employ
of IFF and/or accept any position with, any business, whether or not
<PAGE>
Mr. Ronald S. Fenn
March 3, 1998
Page 6 of 8 Pages
competitive with IFF and whether or not you, directly or indirectly,
whether as principal, shareholder, director, officer, employee,
consultant partner, investor or otherwise, are engaging or intend to
engage in such business.
For purposes of this Paragraph 11, a business will be deemed
"competitive" if its operations are in the fragrance or aroma chemical
business or if it manufactures and/or sells a product which is
purchased by IFF and for which (either because of patent or trade
secret protection, the market share of such business or its ability
for any reason to control the price and/or availability, or any other
reason) IFF has no other practical source of supply of such product,
in any locality in which such IFF need for such product exists. For
purposes of this paragraph 11 and paragraph 13, an "IFF employee" is
any person who at the relevant time either is an active employee of
IFF or within the preceding twelve (12) months, whether or not an
active employee, has been paid any compensation, whether as a salary,
consulting fee or severance or salary continuation, by IFF (for the
purpose of this paragraph 11 pension or other retirement benefits will
not be considered compensation). Notwithstanding the foregoing,
nothing in this paragraph 11 will preclude your owning up to one
percent (1%) of the outstanding publicly traded equity or debt
securities of any corporation.
12. Please sign and return the Release attached to this letter agreement
as Exhibit C. This letter agreement will
<PAGE>
Mr. Ronald S. Fenn
March 3, 1998
Page 7 of 8 Pages
take effect only upon your execution of the Release. IFF will have the
right to request that you execute another Release, in the form of
Exhibit C but dated the Retirement Date. If IFF so requests, you agree
promptly to execute and return such additional release. Such
additional release will be deemed part of the consideration for the
benefits accruing to you under this letter agreement, and your failure
for any reason to execute such additional release will be a breach of
this letter agreement.
13. You and IFF agree that at no time, whether before or after your
retirement, will either you or any officer, director, employee or
other representative of IFF in any way denigrate, demean or otherwise
say or do anything, whether in oral discussions or in writing, that
would cause any third party, including but not limited to suppliers,
customers and competitors of IFF, to lower its perception about the
integrity, public or private image, professional competence, or
quality of products or service, of the other or, in the case of IFF,
of any officer, director, employee or other representative of IFF. You
hereby consent to IFF's obtaining injunctive relief should you breach
either paragraph 11 or this paragraph 13.
14. This letter agreement will be governed by and interpreted in
accordance with New York law.
Please sign and date both copies of this letter in the space provided below
and return one fully executed copy. The other is for your records.
<PAGE>
Mr. Ronald S. Fenn
March 3, 1998
Page 8 of 8 Pages
Ron, all of us at IFF appreciate your many contributions to the Company
over your long and distinguished career here. We are pleased that we will
continue to have the benefit of your services through the Retirement Date.
Sincerely
/s/BRIAN D. CHADBOURNE
----------------------
Brian D. Chadbourne
AGREED AND ACCEPTED:
/s/RONALD S. FENN
- -----------------
Ronald S. Fenn
March 10, 1998
<PAGE>
EXHIBIT A
July 31, 1999
Stephen A. Block, Esq.
Vice-President and Secretary
International Flavors & Fragrances Inc.
521 West 57th Street
New York, New York 10019
Dear Mr. Block:
I hereby resign as a Vice-President of International Flavors & Fragrances,
Inc.
------------------
Ronald S. Fenn
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
International Flavors & Fragrances Inc.
521 West 57th St., New York, N.Y. 10019
(IFF)
In consideration of my employment by IFF or any of its subsidiaries (herein
together called IFF), I hereby agree as follows:
1. I acknowledge that in the course of my employment by IFF, I may have
access to, acquire or gain confidential knowledge or information (i) with
respect to formulae, secret processes, plans, devices, products, know-how and
other data belonging or relating to IFF, or (ii) with respect to the identity of
customers of IFF, and the identity of products and the quantity and prices of
the same ordered by such customers. I acknowledge that all such information is
the sole property of IFF and I shall treat it as set forth below.
2. I shall keep confidential all such knowledge or information described
above and shall not divulge it to others nor use it for my own private purposes
or personal gain, without the express written consent of IFF. This obligation on
my part shall continue during and after the period of my employment by IFF.
3. Upon termination of my employment, or at any time IFF may request, I
shall deliver to IFF all notes, memoranda, formulae, records, files or other
papers, and copies thereof, in my custody relating to any such knowledge or
information described above to which I have had access or which I may have
developed during the term of my employment.
4. I shall not, without the prior written permission of IFF, after leaving
the employ of IFF for any reason, work for others, or for my own account, on any
of the secret processes or formulae on which I have worked or to which I have
had access while in the employ of IFF.
5. Any invention, formula, process, product, idea, discovery and
improvement conceived or developed by me within the period of my employment,
relating to any activity engaged in by IFF, shall be the sole and exclusive
property of IFF and I shall promptly communicate to IFF full information with
respect to any of the foregoing conceived or developed by me. I shall execute
and deliver all documents and do all other things as shall be deemed by IFF to
be necessary and proper to effect the assignment to IFF of the sole and
exclusive right, title and interest in and to all such inventions, formulae,
processes, products, ideas, discoveries and improvements, and patent
applications and patents thereon.
6. I understand and agree that IFF has no interest in and will not accept
divulgence to it of any confidential knowledge or information which is the
property of any previous employer or other third party. Notwithstanding any
other paragraph of this agreement. I shall not communicate any such confidential
knowledge or information to IFF nor use the same during the course of my
employment.
9/1/69 Ronald S. Fenn
- -------------------------------- -----------------------------------
(date) (signature)
<PAGE>
EXHIBIT C
RELEASE
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned, Ronald S. Fenn,
1537 Washington Valley Road, Bridgewater, New Jersey 08807 (hereinafter referred
to as "Employee"), for and in consideration of certain benefits heretofore paid
or to be paid or provided to him by International Flavors & Fragrances Inc., a
New York corporation with a place of business located at 521 West 57th Street,
New York, New York 10019 (hereinafter referred to as "IFF Inc."), as such
benefits are set forth in a Letter Agreement dated March 30, 1998, a copy of
which is annexed hereto as Annex A, DOES HEREBY AGREE TO RELEASE and DOES HEREBY
RELEASE IFF Inc. and all of its subsidiaries and affiliates and their respective
directors, officers and employees (hereinafter referred to as "Releasees") from
all "Claims", as hereinafter defined, and Employee agrees never to file any
lawsuit or any claim with any Federal, state or local administrative agency
asserting or in respect of any of such Claims.
As used in this Release, the term "Claims" means and includes all charges,
complaints, claims, liabilities, obligations, promises, agreements, damages,
actions, causes of action, rights, costs, losses and expenses (including
attorneys' fees and costs actually incurred) of any nature whatsoever, known or
unknown, suspected or unsuspected, which Employee now has, or claims to have, or
which Employee at any earlier time had, or claimed to have had, or which
Employee at any future time may have, or claim to have, against each of any of
the Releasees as to any matters occurring or arising on or before the date this
Release is executed by Employee. The Claims Employee is releasing under this
Release include, but are not limited to, rights arising out of alleged
violations of any contracts, express or implied, written or oral, and any Claims
for wrongful discharge, fraud, misrepresentation, infliction of emotional
distress, or any other tort, and any other Claims relating to or arising out of
Employee's employment with IFF Inc. or the termination thereof, and
<PAGE>
any Claim for violation of any Federal, state or other governmental statute,
regulation or ordinance including, but not limited to, the following, each as
amended to date: (1) Title VII of the Civil Rights Act of 1964, 42 U.S.C. ss.
2000e et seq. (race, color, religion, sex and national origin discrimination);
(2) Section 1981 of the Civil Rights Act of 1866, 42 U.S.C. s. 1981 (race
discrimination); (3) the Age Discrimination in Employment Act, 29 U.S.C. ss.
621-634 (age discrimination); (4) the Equal Pay Act of 1963, 29 U.S.C. s. 206
(equal pay); (5) Executive Order 11246 (race, color, religion, sex and national
origin discrimination); (6) Executive Order 11141 (age discrimination); (7)
Section 503 of the Rehabilitation Act of 1973, 29 U.S.C. ss. 701 et seq.
(handicap discrimination); (8) the Employee Retirement Income Security Act of
1974, 29 U.S.C. ss. 1001 et seq. (retirement matters); and (9) any applicable
New York, New Jersey or Connecticut state or local law relating to employment
termination that may be discriminatory or otherwise in contravention of public
policy.
Employee hereby represents that he has not filed any complaints, charges,
or lawsuits against any Releasee with any governmental agency or any court; that
he will not file or pursue any at any time hereafter; and that if any such
agency or court assumes jurisdiction of any complaint, charge or lawsuit against
any Releasee on behalf of Employee, he will request such agency or court to
withdraw from the matter. Neither this Release nor the undertaking in this
paragraph shall limit Employee from pursuing Claims for the sole purpose of
enforcing his rights under Annex A or under any employment or retiree benefit
plan or program of IFF Inc.
Employee hereby represents that he has been given a period of twenty-one
(21) days to review and consider this Release before signing it. Employee
further understands that he may use none or as much of this 21-day period as he
wishes prior to signing.
Employee is advised that he has the right to and should consult with an
attorney before singing this Release. Employee understands that whether or not
to do so is Employee's decision. Employee has exercised his right to consult
with an attorney to the extent, if any, that he desired.
2
<PAGE>
Employee may revoke this Release within seven (7) days after he signs it.
Revocation can be made by delivering a written notice of revocation to Eric
Campbell, Vice-President, Human Resources, IFF Inc., 521 West 57th Street, New
York, New York 10019. For such revocation to be effective, written notice must
be received by Mr. Campbell not later than the close of business on the seventh
day after the day on which Employee executes this Release. If Employee revokes
this Release, it shall not be effective and the Letter Agreement described in
Annex A, shall be null and void.
Employee understands and acknowledges that IFF Inc. has not made any
promises or representations to Employee other than those in Annex A.
EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS RELEASE, UNDERSTANDS IT AND IS
VOLUNTARILY EXECUTING IT.
[PLEASE READ THIS RELEASE CAREFULLY. IT COVERS ALL KNOWN AND UNKNOWN
CLAIMS.]
Executed at New York IFF Offices, on 3/13, 1998
------------------------ ---------------------
/s/ RONALD S. FENN
-------------------------------
STATE OF New York)
------------
COUNTY OF New York) ss:
------------
Subscribed and sworn to before
me this 13 day of March, 1998
by the said Ronald S. Fenn
known to me.
PETER J. SERRITELLA
--------------------------------------
Notary Public
PETER J. SERRITELLA
Notary Public, State of New York
No.02SE3598465
Qualified in New York County
Commission Expires March 30, 1999
3
IFF
INTERNATIONAL FLAVORS & 521 WEST 57 STREET, NEW YORK, NY 10019
FRAGRANCES INC. (212)765-5500
- --------------------------------------------------------------------------------
CREATORS AND MANUFACTURERS OF FLAVORS, FAX: (212)708-7132
FRAGRANCES AND AROMA CHEMICALS
March 24, 1999
Mr. Ronald S. Fenn
1537 Washington Valley Road
Bridgewater, New Jersey 08807
Dear Ron:
With the support of International Flavors & Fragrances Inc. ("IFF"), you
have elected to assume, effectively immediately, the role of Vice President of
the International Fragrance Association ("IFRA") and, for the two-year period
commencing November 1, 2000, the Presidency of IFRA. In addition, you have
agreed to continue as IFF's representative on the Boards of the Fragrance
Materials Association ("FMA") and the Research Institute for Fragrance Materials
("RIFM). In connection with your undertaking these roles, you and IFF have
agreed to supplement and amend the letter agreement between you and IFF dated
March 3, 1998 and executed by you on March 10, 1998 (the "Letter Agreement") as
set forth below. All capitalized terms not defined in this letter agreement
(this "Agreement") will have the same meanings as in the Letter Agreement. For
purposes of this Agreement and the Letter Agreement, that portion of the period
of your service as President of IFRA after the Retirement Date through the
earlier of the termination of your IFRA Presidency or November 1, 2002 will be
referred to as the "Interim Period". Other than as supplemented or amended this
Agreement, the Letter Agreement will remain in full force and effect.
1. At the commencement of your term as the President of IFRA, IFF will pay you
in acknowledgement of your undertaking such service the sum of $30,000.
That sum will bear interest at a rate of seven percent (7%) per annum from
March 1, 1999 until it is paid. From the aggregate sum owed to you IFF will
withhold
<PAGE>
MR. RONALD S. FENN
MARCH 24, 1999
PAGE 2 OF 3 PAGES
such taxes as may be required by law at the time of payment.
2. You acknowledge and agree that (a) prior to the Interim Period you will
receive no additional salary or other compensation from IFF in respect of
your activities on behalf of IFRA, and (b) during the Interim Period you
will receive no salary or other remuneration from IFF other than payments
and/ or benefits due you as a retired employee of IFF. IFF acknowledges and
agrees, however, that your service with and activities on behalf of IFRA,
FMA and RIFM will fully satisfy the requirement, set forth in Section 3 of
the Letter Agreement, that you provide 40 hours per month of services to
IFF during the Pre-Retirement Period. Moreover, prior to and during the
Interim Period IFF will reimburse you for all reasonable expenses you incur
that are not reimbursed by IFRA or others in connection with your
activities as Vice President or President of IFRA and/or your activities on
behalf of FMA or RIFM. Prior to the Retirement Date such expenses are to be
included with other business-related expenses, and are subject to the same
in accordance with IFF policy. During the Interim Period you agree to
submit such expenses monthly to the Office of the Chairman and President of
IFF, using the standard IFF expense reimbursement form and providing the
same supporting documentation as is required of active IFF employees.
3. During the Interim Period, although you will participate in the IFF medical
plan for retirees, upon your submission of appropriate documentation IFF
will reimburse you (a) for any amounts which you must pay under that plan
which are greater than the amounts which you would have had to pay had you
remained as an active IFF employee during the Interim Period, and (b) for
dental expenses equivalent to those provided to active employees under the
IFF Dental Plan.
4. During the Interim Period you will either continue to participate in the
IFF Accidental Death and Dismemberment Insurance Plan or, if such continued
<PAGE>
MR. RONALD S. FENN
MARCH 24, 1999
PAGE 3 OF 3 PAGES
participation is not possible, at no cost to you IFF will purchase
accidental death and dismemberment insurance substantially equivalent to
the coverage you would enjoy if you were an active IFF employee.
5. Should you elect pursuant to Section 2 of the Letter Agreement to commence
receiving your pension prior to your 65th birthday, together with pension
payable under the Retirement Plans IFF will pay you as a supplemental
pension benefit an amount equal to the amount by which your pension will be
reduced under the requirements of the Retirement Plans because you have
elected to commence receiving your pension earlier than your 65th birthday.
6. Section 11 of the Letter Agreement is hereby amended by deleting the date
"December 31, 2002" in line 4 and inserting in lieu thereof the date
"December 31, 2003."
Please sign and date both copies of this Agreement in the space provided
below and return one fully executed copy. The other is for your files.
Ron, thank you for undertaking the IFRA assignment. All of us at IFF know
that you will do an outstanding job.
Sincerely yours,
/s/STUART R. MACONOCHIE
------------------------
Stuart R. Maconochie
Vice-President
President, IFF Fragrances
AGREED AND ACCEPTED:
/s/RONALD S. FENN
- -----------------
Ronald S. Fenn
March 24, 1999
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 101,845
<SECURITIES> 1,205
<RECEIVABLES> 288,169
<ALLOWANCES> 9,786
<INVENTORY> 383,506
<CURRENT-ASSETS> 826,563
<PP&E> 920,382
<DEPRECIATION> 411,859
<TOTAL-ASSETS> 1,375,952
<CURRENT-LIABILITIES> 280,399
<BONDS> 3,948
0
0
<COMMON> 14,470
<OTHER-SE> 908,729
<TOTAL-LIABILITY-AND-EQUITY> 1,375,952
<SALES> 367,765
<TOTAL-REVENUES> 367,765
<CGS> 206,469
<TOTAL-COSTS> 295,974
<OTHER-EXPENSES> (2,554)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 991
<INCOME-PRETAX> 73,354
<INCOME-TAX> 24,574
<INCOME-CONTINUING> 48,780
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,780
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
