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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 June 30, 1994 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 (IRS Employer
incorporation or organization) identification No.)
521 West 57th Street, New York, N.Y. 10019-2905
________________________________________ _______________
(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, 1994: 111,364,554
PART. I FINANCIAL INFORMATION 1
Item 1. Financial Statements
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
6/30/94 12/31/93
------- --------
Assets
Current Assets:
Cash & Cash Equivalents $193,391 $187,205
Short-term Investments 82,989 124,073
Trade Receivables 274,869 203,088
Allowances For Doubtful Accounts (6,755) (6,314)
Inventories: Raw Materials 195,551 175,269
Work in Process 24,692 26,902
Finished Goods 107,285 100,755
-------- -------
Total Inventories 327,528 302,926
Other Current Assets 76,348 68,045
-------- -------
Total Current Assets 948,370 879,023
-------- -------
Property, Plant & Equipment, At Cost 680,299 610,629
Accumulated Depreciation (313,402) (287,212)
-------- -------
366,897 323,417
Other Assets 21,631 22,817
---------- ----------
Total Assets $1,336,898 $1,225,257
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities:
Bank Loans $ 14,212 $ 30,937
Accounts Payable-Trade 60,246 43,771
Dividends Payable 30,058 30,259
Income Taxes 60,244 45,512
Other Current Liabilities 77,767 76,108
---------- ----------
Total Current Liabilities 242,527 226,587
---------- ----------
Other Liabilities:
Deferred Income Taxes 12,056 11,099
Long-term Debt 15,803 -
Other 100,350 95,702
---------- ----------
Total Other Liabilities 128,209 106,801
---------- ----------
Shareholders' Equity:
Common Stock(115,761,840 shares issued in '94
and 115,761,240 in '93) 14,470 14,470
Capital in Excess of Par Value 147,735 150,114
Retained Earnings 924,323 860,640
Cumulative Translation Adjustment 40,504 448
---------- ----------
1,127,032 1,025,672
Treasury Stock, at cost - 4,430,045 shares
in '94 and 3,701,259 in '93 (160,870) (133,803)
---------- ----------
Total Shareholders' Equity 966,162 891,869
---------- ----------
Total Liabilities and Shareholders' Equity $1,336,898 $1,225,257
========== ==========
See Notes to Consolidated Financial Statements
INTERNATIONAL FLAVORS & FRAGRANCES 2
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands except per share amounts)
3 Months Ended 6/30
--------------------------
1994 1993
---- ----
Net Sales $345,210 $321,262
-------- --------
Cost of Goods Sold 173,607 161,946
Research and Development Expenses 19,923 18,728
Selling and Administrative Expenses 50,116 48,745
Interest Expense 5,379 3,627
Other (Income) Expense, Net (7,356) (8,658)
-------- --------
241,669 224,388
-------- --------
Income Before Taxes on Income 103,541 96,874
Taxes on Income 38,625 35,940
-------- --------
Net income $ 64,916 $ 60,934
======== ========
Earnings per share * $0.58 $0.53
Dividends Paid Per Share * $0.27 $0.25
6 Months Ended 6/30
-------------------------
1994 1993
---- ----
Net Sales $668,747 $630,406
-------- --------
Cost of Goods Sold 339,227 321,041
Research and Development Expenses 39,276 37,486
Selling and Administrative Expenses 98,961 96,943
Interest Expense 11,544 6,853
Other (Income) Expense, Net (17,810) (18,200)
-------- --------
471,198 444,123
-------- --------
Income Before Taxes on Income 197,549 186,283
Taxes on Income 73,692 69,122
-------- --------
Net income $123,857 $117,161
======== ========
Earnings Per Share * $1.11 $1.02
Dividends Paid Per Share * $0.54 $0.50
Average Number of Shares Outstanding (000) 111,642 114,627
* Reflects three-for-one stock split, distributed on January 19, 1994 to
shareholders of record on December 28, 1993.
See Notes to Consolidated Financial Statements
INTERNATIONAL FLAVORS & FRAGRANCE 3
CONSOLIDATED STATEMENT OF CASH FLOW
(Dollars in thousands)
6 Months Ended 6/30
-------------------------
1994 1993
---- ----
Cash Flows From Operating Activities:
Net Income $123,857 $117,161
Adjustments to Reconcile to Net Cash
Provided by Operations:
Depreciation 17,790 17,577
Deferred Income Taxes 3,639 575
Changes in Assets and Liabilities:
Current Receivables (67,240) (61,384)
Inventories (11,411) (2,754)
Current Payables 29,629 27,877
Other, Net (3,850) 2
-------- -------
Net Cash Provided by Operations 92,414 99,054
-------- -------
Cash Flows From Investing Activities:
Proceeds From Sale/Maturities Short
Term Investment 92,966 160,237
Purchases of Short Term Investments (49,664) (131,019)
Additions to Property, Plant & Equipment,
Net of Minor Disposals (44,169) (28,151)
-------- -------
Net Cash Provided by (Used in)
Investing Activities (867) 1,067
-------- -------
Cash Flows From Financing Activities:
Cash Dividends Paid (60,374) (57,562)
Increase (Decrease) in Bank Loans (5,692) (646)
Proceeds From Issuance of Stock Under
Stock Option 2,755 2,550
Purchase of Treasury Stock (32,433) (40,848)
-------- -------
Net Cash Used In Financing Activities (95,744) (96,506)
-------- -------
Effect of Exchange Rate Changes on
Cash and Cash Equivalents 10,383 (17,360)
-------- -------
Net Change in Cash and Cash Equivalents 6,186 (13,745)
Cash and Cash Equivalents at Beginning of Year 187,205 210,798
-------- -------
Cash and Cash Equivalents at End of Period $193,391 $197,053
======== ========
Interest Paid $ 11,673 $ 7,180
Income Taxes Paid $ 54,263 $ 55,866
See Notes to Consolidated Financial Statements
4
Notes to Consolidated Financial Statements
These interim statements and management's 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 1993 Annual Report to
Shareholders.
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, Accounting For Certain Debt and Equity Securities,
classifying all marketable securities as available for sale. The effect of
adopting this standard was not material.
The financial statements at and for the quarter and six month period ended June
30, 1994 include the balances and results of operations of the Company's 80%
owned joint venture, International Flavors & Fragrances (Hangzhou) Co., Ltd. The
inclusion of these accounts was not material to the Company's financial
condition or results of operations.
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.
Earnings per share were calculated on the basis of the average number of shares
of common stock outstanding during the applicable period. Earnings per share
amounts reflect the three-for-one stock split distributed on January 19, 1994 to
shareholders of record on December 28, 1993.
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Operations
Worldwide net sales for the second quarter of 1994 increased 7% over the prior
year to $345,210,000. For the first six months of 1994, net sales increased 6%
over the prior year to $668,747,000. Sales increases in flavor and fragrance
products were recorded in both the second quarter and the six month periods. The
sales increase for the second quarter and the first six months of 1994, as
compared to the same period in 1993, was unfavorably affected by the translation
of European currencies into the stronger U.S. dollar. If the dollar exchange
rate had remained the same during 1994 and 1993, the sales increase for both the
second quarter and the six months ended June 30, 1994 would have been 9%.
Net income for the second quarter was $64,916,000, an increase of 7% from the
second quarter 1993. Net income for the first six months of 1994 was
$123,857,000, an increase of 6% over the comparable 1993 period. This profit
growth was primarily the result of the sales increase during these periods.
5
The percentage relationship of cost of goods sold and other operating expenses
to sales for the first half 1994 and 1993 remained fairly constant, especially
on an overall basis:
First Six Months
---------------------
1994 1993
---- ----
Cost of Goods Sold 50.7% 50.9%
Research and Development Exp. 5.9% 5.9%
Selling and Administrative Exp. 14.8% 15.4%
Interest expense was $5,379,000 for the second quarter of 1994, compared to
$3,627,000 for the second quarter 1993. For the first six months 1994, interest
expense amounted to $11,544,000, compared to $6,853,000 in the first six months
of 1993. The higher interest expense in 1994 resulted mainly from the higher
level of borrowings and higher interest rates in Brazil. In both 1994 and 1993,
the borrowing levels in Brazil generated significant offsetting exchange gains
which were included in Other Income.
The effective tax rate for the second quarter and first six months of 1994 was
37.3%, as compared to 37.1% for the comparable periods in 1993.
Financial Condition
The financial condition of the Company continued to be strong during the second
quarter. Cash, cash equivalents and short-term investments totalled $276,380,000
at June 30, 1994. At June 30, 1994, working capital was $705,843,000 compared to
$652,436,000 at December 31, 1993. Gross additions to property, plant and
equipment during the first half of 1994 were $44,904,000. In January 1994, the
Company's cash dividend was increased 8% to an annual rate of $1.08 per share,
and $.27 per share was paid to shareholders in both the first and second
quarter. The Company anticipates that its growth, capital expenditure programs
and share repurchase program will be funded from internal sources.
The cumulative translation adjustment component of Shareholders' Equity at June
30, 1994 was $40,504,000 compared to $448,000 at December 31, 1993. 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.
6
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In July 1994, the Company and its three primary liability insurers
entered into an agreement settling the action commenced by such insurers in
November 1991. That action had sought a declaratory judgment that the insurers
were under no duty to defend or indemnify the Company with respect to pending or
future waste site claims and recovery of sums previously paid by the carriers in
defending the Company against such claims. In the settlement, the Company and
the insurers have agreed to share defense and indemnity costs up to an agreed
amount. The settlement of the declaratory judgment action is consistent with the
Company's previously stated belief that the amounts it will probably have to pay
in connection with waste site claims will not be material to the Company's
financial condition, results of operations or liquidity, because of the
involvement of other large potentially responsible parties at most sites and
because payment will be made over an extended time period.
ITEM 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of Registrant's shareholders held Thursday, May
12, 1994, at which 96,679,766 shares or 86.5% 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 April 5, 1994 previously filed
with the Commission, were duly elected to Registrant's Board of Directors. There
was no solicitation of proxies in opposition to these nominees.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(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.
7
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 10, 1994 By: /s/ THOMAS H. HOPPEL
--------------------------------------------------
Thomas H. Hoppel, Vice President & Treasurer
Dated: August 10, 1994 By: /s/ STEPHEN A. BLOCK
--------------------------------------------------
Stephen A. Block, Vice-President Law and Secretary