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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1999 Commission file number 1-4858
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INTERNATIONAL FLAVORS & FRAGRANCES INC.
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 765-5500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Number of shares outstanding as of November 5, 1999: 105,105,083
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<PAGE>
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
9/30/99 12/31/98
----------- -----------
Assets
Current Assets:
Cash & Cash Equivalents $ 91,365 $ 114,960
Short-term Investments 810 1,039
Trade Receivables 311,531 264,352
Allowance For Doubtful Accounts (10,860) (9,517)
Inventories: Raw Materials 235,647 235,552
Work in Process 8,173 8,251
Finished Goods 164,674 160,158
----------- -----------
Total Inventories 408,494 403,961
Other Current Assets 68,849 73,233
----------- -----------
Total Current Assets 870,189 848,028
----------- -----------
Property, Plant & Equipment, At Cost 955,850 913,397
Accumulated Depreciation (430,486) (414,613)
----------- -----------
525,364 498,784
Other Assets 42,253 41,252
----------- -----------
Total Assets $ 1,437,806 $ 1,388,064
=========== ===========
Liabilities and Shareholders' Equity
Current Liabilities:
Bank Loans $ 55,485 $ 29,072
Accounts Payable-Trade 80,193 60,331
Dividends Payable 40,333 40,301
Income Taxes 44,834 46,647
Other Current Liabilities 120,226 96,557
----------- -----------
Total Current Liabilities 341,071 272,908
----------- -----------
Other Liabilities:
Deferred Income Taxes 31,301 30,730
Long-term Debt 3,921 4,341
Retirement and Other Liabilities 137,790 135,034
----------- -----------
Total Other Liabilities 173,012 170,105
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Shareholders' Equity:
Common Stock (115,761,840 shares issued) 14,470 14,470
Capital in Excess of Par Value 135,425 136,443
Restricted Stock (5,061) (6,750)
Retained Earnings 1,215,041 1,210,620
Accumulated Other Comprehensive Income:
Cumulative Translation Adjustment (37,653) (9,130)
----------- -----------
1,322,222 1,345,653
Treasury Stock, at cost - 9,672,357 shares
in '99 and 9,715,775 in '98 (398,499) (400,602)
----------- -----------
Total Shareholders' Equity 923,723 945,051
----------- -----------
Total Liabilities and Shareholders' Equity $ 1,437,806 $ 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 9/30
------------------------
1999 1998
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Net Sales $ 364,674 $ 349,846
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Cost of Goods Sold 199,432 193,176
Research and Development Expenses 25,124 24,655
Selling and Administrative Expenses 61,764 58,256
Nonrecurring Charges 710 --
Interest Expense 1,362 477
Other (Income) Expense, Net 2,365 (1,447)
--------- ---------
290,757 275,117
--------- ---------
Income Before Taxes on Income 73,917 74,729
Taxes on Income 24,762 24,480
--------- ---------
Net Income 49,155 50,249
Other Comprehensive Income:
Foreign Currency Translation Adjustments 19,478 38,661
--------- ---------
Comprehensive Income $ 68,633 $ 88,910
========= =========
Net Income Per Share - Basic $ 0.46 $ 0.47
Net Income Per Share - Diluted $ 0.46 $ 0.47
Average Number of Shares Outstanding - Basic 106,003 106,872
Average Number of Shares Outstanding - Diluted 106,271 107,054
Dividends Paid Per Share $ 0.38 $ 0.37
9 Months Ended 9/30
-------------------------
1999 1998
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Net Sales $1,103,518 $1,088,510
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Cost of Goods Sold 611,111 586,653
Research and Development Expenses 76,992 72,950
Selling and Administrative Expenses 189,558 176,149
Nonrecurring Charges 29,468 --
Interest Expense 3,561 1,395
Other (Income) Expense, Net 4,410 (6,303)
---------- ----------
915,100 830,844
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Income Before Taxes on Income 188,418 257,666
Taxes on Income 63,049 88,884
---------- ----------
Net Income 125,369 168,782
Other Comprehensive Income:
Foreign Currency Translation Adjustments (28,523) 23,383
---------- ----------
Comprehensive Income $ 96,846 $ 192,165
========== ==========
Net Income Per Share - Basic $ 1.18 $ 1.57
Net Income Per Share - Diluted $ 1.18 $ 1.57
Average Number of Shares Outstanding - Basic 105,946 107,507
Average Number of Shares Outstanding - Diluted 106,175 107,845
Dividends Paid Per Share $ 1.14 $ 1.11
See Notes to Consolidated Financial Statements
<PAGE>
3
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
9 Months Ended 9/30
----------------------
1999 1998
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<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 125,369 $ 168,782
Adjustments to Reconcile to Net Cash
Provided by Operations:
One-time Charges 37,485 --
Depreciation 39,830 36,291
Deferred Income Taxes 4,189 5,350
Changes in Assets and Liabilities:
Current Receivables (52,117) (39,841)
Inventories (16,925) (29,178)
Current Payables 20,427 13,616
Other, Net (2,050) 3,260
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Net Cash Provided by Operations 156,208 158,280
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Cash Flows From Investing Activities:
Proceeds From Sales/Maturities of Short-term Investments 971 41,896
Purchases of Short-term Investments (828) --
Additions to Property, Plant & Equipment,
Net of Minor Disposals (81,089) (56,651)
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Net Cash Used in Investing Activities (80,946) (14,755)
--------- ---------
Cash Flows From Financing Activities:
Cash Dividends Paid to Shareholders (120,915) (120,171)
Increase in Bank Loans 27,036 17,038
Decrease in Long-term Debt (628) (1,888)
Proceeds From Issuance of Stock Under Stock Option Plans 3,643 3,899
Purchase of Treasury Stock (2,574) (121,022)
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Net Cash Used in Financing Activities (93,438) (222,144)
--------- ---------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (5,419) 3,763
--------- ---------
Net Change in Cash and Cash Equivalents (23,595) (74,856)
Cash and Cash Equivalents at Beginning of Year 114,960 216,994
--------- ---------
Cash and Cash Equivalents at End of Period $ 91,365 $ 142,138
========= =========
Interest Paid $ 3,558 $ 1,284
Income Taxes Paid $ 53,586 $ 75,243
</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 1998 Annual Report to
Shareholders. In the opinion of the Company's management, all normal recurring
adjustments necessary for a fair statement of the results for the interim
periods have been made.
In June 1999, Statement of Financial Accounting Standards No. 137 (FAS 137) was
issued amending Statement of Accounting Standards No. 133 (FAS 133), Accounting
for Derivative Instruments and Hedging Activities. FAS 137 defers the effective
date of FAS 133 to fiscal years beginning after June 15, 2000. The Company is
currently evaluating FAS 133, and the accounting and reporting implications
thereof.
Effective January 1, 1999, the Company adopted Statement of Position 98-5 (SOP
98-5), Reporting on the Costs of Start-Up Activities, which is effective for
fiscal years beginning after December 15, 1998. SOP 98-5 requires that costs of
start-up activities, including organization costs, be expensed as incurred. The
effect of adopting this Standard was not material.
In June 1999, the Company announced details of its program to streamline the
Company's operations worldwide. The program will include the closure of selected
manufacturing, distribution and sales facilities in all geographic areas in
which the Company operates. In addition, the Company will further consolidate
and align production in its remaining manufacturing locations. The actions will
result in a reduction in the Company's global workforce of nearly 5%, or
approximately 200 employees.
The program will result in one-time pretax charges of approximately $46 million
($31 million after tax, or approximately $.29 per share). Cost savings from this
program have been specifically identified and are expected to increase pretax
earnings by $15 million annually, beginning in 2000. The Company began to
realize savings from the actions taken during the third quarter and expects to
realize approximately $4-5 million of pretax savings from the program in the
second half of 1999.
Of the total anticipated $46 million in one-time charges, the Company recorded
$2.6 million ($1.7 million after tax, or approximately $.02 per share) in the
third quarter, and $37.5 million ($25 million after tax, or approximately $.24
per share) for the year to date. The balance of the total charges is expected to
be recorded in the fourth quarter of 1999, as the remaining aspects of the
program are fully implemented. As a result of the one-time charges, the status
of the related reserves established, and the utilization thereof, is as follows:
BALANCE
ORIGINAL AT
RESERVE UTILIZATION 9/30/99
----------- ----------- -----------
Employee Separation Costs $23,885,000 $ 9,015,000 $14,870,000
Facility/Asset Related 13,600,000 7,537,000 6,063,000
----------- ----------- -----------
Total $37,485,000 $16,552,000 $20,933,000
=========== =========== ===========
Elements of the one-time charges, relating primarily to accelerated depreciation
on assets to be disposed of, have been recorded in cost of goods sold ($665,000
in the third quarter and $1,331,000 year to date) and selling and administrative
expenses ($1,253,000 in the third quarter and $2,206,000 year to date). In
addition, $4,480,000 associated with facility closure was recorded in Other
Expense in the second quarter of 1999. The remaining one-time charges are
recognized as Nonrecurring Charges.
Charges for the third quarter and first nine months totaled approximately $2.2
million and $27.6 million, respectively, in EAME (Europe, Africa, Middle East),
and relate principally to employee separation costs associated with the
rationalization and closure of certain operations and facilities.
<PAGE>
5
For North America and Latin America, charges for the third quarter totaled $0.3
million and $0.1 million, respectively. For the nine months, charges for North
America, Latin America and the Far East totaled $3.5 million, $3.4 million and
$3.0 million, respectively. Charges for North America, Latin America and the Far
East relate to employee separations and closure of operations.
The asset writedowns and other non-cash related elements of the pretax charges
recorded to date, and anticipated to be recorded as part of the total program,
approximate $9 million and $12 million, respectively.
As described in Note 2 of the Notes to the Consolidated Financial Statements
included in the Company's 1998 Annual Report to Shareholders, the Company
undertook a program to phase out and close certain of its aroma chemical
production facilities during 1996. The status of the reserve is as follows:
BALANCE
BALANCE AT UTILIZED AT
12/31/98 IN 1999 9/30/99
----------- ---------- ---------
Employee Related $ 521,000 $ 366,000 $155,000
Facility Related 2,200,000 1,672,000 528,000
---------- ---------- --------
Total $2,721,000 $2,038,000 $683,000
========== ========== ========
The Company's reportable segment information, based on geographic area, for the
first nine months 1999 and 1998 follows:
<TABLE>
- -----------------------------------------------------------------------------------------------------
North Latin
1999 (Dollars in thousands) America EAME America Far East Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $ 369,965 $ 446,098 $ 154,014 $133,441 $ -- $1,103,518
Transfers between areas 44,925 95,752 498 10,379 (151,554) --
- -----------------------------------------------------------------------------------------------------
Total sales $ 414,890 $ 541,850 $ 154,512 $143,820 $(151,554) $1,103,518
=====================================================================================================
Operating profit $ 40,666 $ 138,776 $ 26,907 $ 24,420 $ 804 $ 231,573
========================================================================================
Unallocated expenses (5,716)
Nonrecurring charges (29,468)
Interest expense (3,561)
Other income (expense), net (4,410)
------------
Income before taxes on income $ 188,418
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<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 $ 372,985 $ 443,454 $ 154,950 $117,121 $ -- $1,088,510
Transfers between areas 47,860 85,883 728 11,409 (145,880) --
- -----------------------------------------------------------------------------------------------------
Total sales $ 420,845 $ 529,337 $ 155,678 $128,530 $(145,880) $1,088,510
=====================================================================================================
Operating profit $ 62,540 $ 139,721 $ 34,094 $ 21,240 $ 149 $ 257,744
========================================================================================
Unallocated expenses (4,986)
Interest expense (1,395)
Other income (expense), net 6,303
------------
Income before taxes on income $ 257,666
=====================================================================================================
</TABLE>
Included in the 1999 operating profit for EAME are one-time charges totaling
$3,237,000 for accelerated depreciation on assets to be disposed.
<PAGE>
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OPERATIONS
Worldwide net sales for the third quarter of 1999 were $364,674,000, compared to
$349,846,000 in the 1998 third quarter, an increase of 4%. Local currency sales
for the 1999 third quarter increased approximately 6% over the 1998 third
quarter. On a country of destination basis, third quarter local currency sales
were strongest in EAME fragrances, which increased 10%, and in the Far East
where flavor and fragrance sales increased by 16% and 14%, respectively. North
America fragrance sales were also strong, reporting a 7% increase compared to
the prior year comparable quarter. Flavor sales in North America declined 5%
compared to the comparable 1998 quarter, mainly due to continued weakness in
many of the North American food companies. Total Latin America sales declined 2%
compared to the 1998 third quarter as a result of economic conditions there.
For the first nine months of 1999, worldwide net sales totaled $1,103,518,000,
compared to $1,088,510,000 for the comparable 1998 period. On a country of
destination basis, local currency sales for the nine months ended September 30,
1999 were strongest in the Far East, where total sales increased 11% over 1998.
Local currency sales in EAME were up 2% in comparison to the prior year period.
Sales in North America were flat in comparison to 1998, while sales in Latin
America were down 4% from the prior year, again mainly as a result of economic
conditions there. Sales in the first nine months of 1999 were not significantly
affected by translation.
The percentage relationship of cost of goods sold and other operating expenses
to sales for the first nine months 1999 and 1998 are detailed below.
FIRST NINE MONTHS
-----------------
1999 1998
---- ----
Cost of Goods Sold 55.4% 53.9%
Research and Development Expenses 7.0% 6.7%
Selling and Administrative Expenses 17.2% 16.2%
Cost of goods sold, as a percentage of net sales, increased from the prior year
primarily due to weakness in demand for and pricing pressures on aroma
chemicals.
Selling and administrative expenses increased as a percentage of sales primarily
due to costs of the Company's Y2K program. In 1999 and 1998, the costs for this
program amounted to approximately $11.7 and $9.0 million, respectively, for the
nine month period.
Net income for the third quarter of 1999, including the one-time charges
discussed below, totaled $49,155,000 compared to $50,249,000 in the prior year
third quarter. On the same basis, net income for the first nine months of 1999
totaled $125,369,000, compared to $168,782,000 for the comparable 1998 period.
Net income for the third quarter and nine month period ended September 30, 1999,
excluding the one-time charges, was $50,902,000 and $150,262,000, respectively.
For the nine month period, 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 higher cost of the Company's Y2K program in 1999.
In June 1999, the Company announced details of its program to streamline the
Company's operations worldwide. The Company expects that these steps will result
in improved operating efficiencies and asset utilization, and enable significant
cost savings and enhanced profitability. The program will include the closure of
selected manufacturing, distribution and sales facilities in all geographic
areas in which the Company operates. In addition, the Company will further
consolidate and align production in its remaining
<PAGE>
7
manufacturing locations. The actions will result in a reduction in the Company's
global workforce of nearly 5%, or approximately 200 employees.
The program will result in one-time pretax charges of approximately $46 million
($31 million after tax, or approximately $.29 per share). Cost savings from this
program have been specifically identified and are expected to increase pretax
earnings by $15 million annually, beginning in 2000. The Company began to
realize savings from the actions taken during the third quarter and expects to
realize approximately $4-5 million of pretax savings from the program in the
second half of 1999.
Of the total anticipated $46 million in one-time charges, the Company recorded
$2.6 million ($1.7 million after tax, or approximately $.02 per share) in the
third quarter, and $37.5 million ($25 million after tax, or approximately $.24
per share) for the year to date. The balance of the total charges is expected to
be recorded in the fourth quarter of 1999, as the remaining aspects of the
program are fully implemented. As a result of the one-time charges, the status
of the related reserves established, and the utilization thereof, is as follows:
BALANCE
ORIGINAL AT
RESERVE UTILIZATION 9/30/99
----------- ----------- -----------
Employee Separation Costs $23,885,000 $ 9,015,000 $14,870,000
Facility/Asset Related 13,600,000 7,537,000 6,063,000
----------- ----------- -----------
Total $37,485,000 $16,552,000 $20,933,000
=========== =========== ===========
Elements of the one-time charges, relating primarily to accelerated depreciation
on assets to be disposed of, have been recorded in cost of goods sold ($665,000
in the third quarter and $1,331,000 year to date) and selling and administrative
expenses ($1,253,000 in the third quarter and $2,206,000 year to date). In
addition, $4,480,000 associated with facility closure was recorded in Other
Expense in the second quarter of 1999. The remaining one-time charges are
recognized as Nonrecurring Charges.
Charges for the third quarter and first nine months totaled approximately $2.2
million and $27.6 million, respectively, in EAME, and relate principally to
employee separation costs associated with the rationalization and closure of
certain operations and facilities.
For North America and Latin America, charges for the third quarter totaled $0.3
million and $0.1 million, respectively. For the nine months, charges for North
America, Latin America and the Far East totaled $3.5 million, $3.4 million and
$3.0 million, respectively. Charges for North America, Latin America and the Far
East relate to employee separations and closure of operations.
The asset writedowns and other non-cash related elements of the pretax charges
recorded to date, and anticipated to be recorded as part of the total program,
approximate $9 million and $12 million, respectively.
As described in Note 2 of the Notes to the Consolidated Financial Statements
included in the Company's 1998 Annual Report to Shareholders, the Company
undertook a program to phase out and close certain of its aroma chemical
production facilities during 1996. The status of the reserve is as follows:
BALANCE
BALANCE AT UTILIZED AT
12/31/98 IN 1999 9/30/99
---------- ---------- --------
Employee Related $ 521,000 $ 366,000 $155,000
Facility Related 2,200,000 1,672,000 528,000
---------- ---------- --------
Total $2,721,000 $2,038,000 $683,000
========== ========== ========
The effective tax rate for the third quarter and first nine months of 1999 was
33.5%, compared to 32.8% and 34.5%, respectively, for the comparable periods in
1998. For the nine month period, the lower effective rate reflects the effects
of lower tax rates in various tax jurisdictions in which the Company operates.
The 1998 third quarter effective tax rate reflected the impact of lowering the
estimated full year 1998 effective rate from 35.2% to 34.5%.
<PAGE>
8
FINANCIAL CONDITION
The financial condition of the Company continued to be strong. Cash, cash
equivalents and short-term investments totaled $92,175,000 at September 30,
1999, and working capital was $529,118,000 compared to $575,120,000 at December
31, 1998. Gross additions to property, plant and equipment during the first nine
months of 1999 were $81,962,000.
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 each of the first three quarters of 1999. The Company anticipates that its
growth, capital expenditure programs and share repurchase program will be funded
mainly from internal sources.
Notwithstanding its current strong financial condition, the Company established
a $300,000,000 commercial paper program, which was put in place in October 1999.
Proceeds from the commercial paper program will be used for general corporate
purposes.
The accumulated comprehensive income component of Shareholders' Equity,
comprised principally of the cumulative translation adjustment, at September 30,
1999, was ($37,653,000) 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
This Year 2000 statement is being designated a Year 2000 Readiness Disclosure
within the meaning of the United States Year 2000 Information and Readiness
Disclosure Act of 1998.
The Company has a comprehensive program to address its "Year 2000" needs (the
"Y2K Program"). Most portions of the program have been completed and the Y2K
Program is currently on schedule to be fully complete prior to January 1, 2000.
The Y2K Program was 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 was 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, had five phases: (1) assessing computer programs and embedded
technology to identify Y2K Code; (2) assigning priorities to the identified Y2K
Code; (3) repairing or replacing Y2K Code to make such Y2K Code Year 2000
Capable; (4) testing the repaired or replaced Y2K Code; and (5) developing and
implementing, as necessary, contingency plans to address the possibility that
the Company or third parties, whose operations or business could affect the
Company, do not become Year 2000 Capable. The Company 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 has focused on Company Y2K Code in three principal areas: (1)
infrastructure; (2) applications
<PAGE>
9
software; and (3) facility operations, where the great majority of embedded
technology is found. The infrastructure portion of the Company's Y2K Program is
essentially complete. It has involved hardware and systems software other than
applications software. As hardware and systems software was repaired, upgraded
or replaced, it was tested to assure that it is Year 2000 Capable.
Significant portions of the Company's application software have been replaced by
new software, principally SAP, an enterprise requirements planning ("ERP")
software package. Implementation of SAP at the Company's North American
operations was successfully completed in the third quarter 1999. Applications
software Y2K Code not replaced as part of the SAP project, has been repaired,
upgraded or replaced (where an upgrade or replacement was available from the
supplier of such software) to make such Y2K Code Year 2000 Capable. This portion
of the Y2K Program is also essentially complete.
Facility operations include hardware, software and associated embedded computer
chips used in the operation of all facilities owned by the Company, including,
but not limited to, equipment used in manufacturing and research and
development, as well as security and other systems that may have date sensitive
operating controls. The Company has substantially completed this portion of the
Y2K Program as well.
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 also essentially complete.
The total cost to the Company of the Y2K Program is estimated to approximate $48
million of which approximately $45 million has been expended at September 30,
1999. Of the Y2K Program costs, approximately $22 million represents capital
expenditures associated with replacement hardware, software and associated
items. The remaining amount, totaling approximately $26 million, represents the
costs of repair, testing and related efforts, and is being expensed as incurred.
Of the $45 million spent as at September 30, 1999, approximately $21 million
related to capital and the balance of $24 million was expensed. These amounts do
not include the estimated cost of the SAP project.
The failure to make Y2K Code Year 2000 Capable could result in an interruption
in, or failure of, certain business activities or operations, which could
materially and adversely affect the Company's results of operations, liquidity
and/or financial condition. With the completion of the Company's Y2K Program,
esentially all of the Company's Y2K Code is Year 2000 Capable. 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 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 prepared contingency plans for the critical aspects of its
operations. These contingency plans include, but are not limited to, increasing
on-site and standby staffing, adjustment of raw material and product inventory
levels, alternate sources of transportation and raw materials, alternate
production plans, backup power supplies, utilities and communications, and
emergency response and security procedures. Such plans are designed to avoid or
mitigate potential serious disruptions in the Company's business and will be
refined and modified as circumstances warrant.
<PAGE>
10
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>
11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number
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>
12
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, 1999 By: /s/ DOUGLAS J. WETMORE
---------------------------------------
Douglas J. Wetmore, Vice-President
and Chief Financial Officer
Dated: November 12, 1999 By: /s/ STEPHEN A. BLOCK
---------------------------------------
Stephen A. Block, Senior Vice-President Law
and Regulatory Affairs 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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 91,365
<SECURITIES> 810
<RECEIVABLES> 311,531
<ALLOWANCES> 10,860
<INVENTORY> 408,494
<CURRENT-ASSETS> 870,189
<PP&E> 955,850
<DEPRECIATION> 430,486
<TOTAL-ASSETS> 1,437,806
<CURRENT-LIABILITIES> 341,071
<BONDS> 3,921
0
0
<COMMON> 14,470
<OTHER-SE> 909,253
<TOTAL-LIABILITY-AND-EQUITY> 1,437,806
<SALES> 1,103,518
<TOTAL-REVENUES> 1,103,518
<CGS> 611,111
<TOTAL-COSTS> 877,661
<OTHER-EXPENSES> 33,878
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,561
<INCOME-PRETAX> 188,418
<INCOME-TAX> 63,049
<INCOME-CONTINUING> 125,369
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125,369
<EPS-BASIC> 1.18
<EPS-DILUTED> 1.18
</TABLE>
