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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 September 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) indentification 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 November 4, 1994: 111,434,266
PART I. FINANCIAL INFORMATION 1
Item 1. Financial Statements
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
Assets 9/30/94 12/31/93
------ -------- ---------
Current Assets:
Cash & Cash Equivalents $204,399 $187,205
Short-term Investments 92,014 124,073
Trade Receivables 263,722 203,088
Allowances For Doubtful Accounts (7,136) (6,314)
Inventories: Raw Materials 210,612 175,269
Work in Process 25,266 26,902
Finished Goods 112,860 100,755
-------- --------
Total Inventories 348,738 302,926
Other Current Assets 77,467 68,045
-------- --------
Total Current Assets 979,204 879,023
-------- --------
Property, Plant & Equipment, At Cost 715,610 610,629
Accumulated depreciation (324,937) (287,212)
-------- --------
390,673 323,417
Other Assets 22,240 22,817
-------- --------
Total Assets $1,392,117 $1,225,257
========= =========
Liabilities and Shareholders' Equity
Current Liabilities:
Bank Loans $ 12,550 $ 30,937
Accounts Payable-Trade 60,898 43,771
Dividends Payable 30,087 30,259
Income Taxes 63,635 45,512
Other Current Liabilities 85,793 76,108
--------- ---------
Total Current Liabilities 252,963 226,587
--------- ---------
Other Liabilities:
Deferred Income Taxes 13,903 11,099
Long-term Debt 14,754 -
Other 102,810 95,702
--------- ---------
Total Other Liabilities 131,467 106,801
--------- ---------
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 146,392 150,114
Retained Earnings 953,142 860,640
Cumulative Translation Adjustment 50,895 448
--------- ---------
1,164,899 1,025,672
Treasury Stock, at cost - 4,329,330 shares
in '94 and 3,701,259 in '93 (157,212) (133,803)
--------- ---------
Total Shareholders' Equity 1,007,687 891,869
--------- ---------
Total Liabilities and Shareholders' Equity $1,392,117 $1,225,257
========= =========
See Notes to Consolidated Financial Statements
INTERNATIONAL FLAVORS & FRAGRANCES INC. 2
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands except per share amounts)
3 Months Ended 9/30
------------------------
1994 1993
---- ----
Net Sales $341,684 $298,650
------- -------
Cost of Goods Sold 176,565 154,822
Research and Development Expenses 20,501 18,757
Selling and Administrative Expenses 52,632 48,148
Interest Expense 1,359 5,436
Other (Income) Expense, Net (3,322) (9,030)
-------- --------
247,735 218,133
-------- --------
Income Before Taxes on Income 93,949 80,517
Taxes on Income 35,043 30,881
-------- --------
Net income $ 58,906 $ 49,636
======== ========
Earnings per share * $0.53 $0.44
Dividends Paid Per Share * $0.27 $0.25
9 Months Ended 9/30
-------------------------
1994 1993
---- ----
Net Sales $1,010,431 $929,056
---------- -------
Cost of Goods Sold 515,792 475,863
Research and Development Expenses 59,777 56,243
Selling and Administrative Expenses 151,593 145,091
Interest Expense 12,903 12,289
Other (Income) Expense,Net (21,132) (27,230)
-------- --------
718,933 662,256
-------- --------
Income Before Taxes on Income 291,498 266,800
Taxes on Income 108,735 100,003
-------- --------
Net income $182,763 $166,797
======== ========
Earnings Per Share * $1.64 $1.46
Dividends Paid Per Share * $0.81 $0.75
Average Number of Shares Outstanding (000) * 111,553 114,415
* 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
3
INTERNATIONAL FLAVORS & FRAGRANCE INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
9 Months Ended 9/30
---------------------
1994 1993
---- ----
Cash Flows From Operating Activities:
------------------------------------
Net Income $182,763 $166,797
Adjustments to Reconcile to Net Cash
Provided by Operations:
Depreciation 26,689 26,206
Deferred Income Taxes 1,567 1,052
Changes in Assets and Liabilities:
Current Receivables (53,360) (62,596)
Inventories (27,185) (8,226)
Current Payables 40,739 30,205
Other, Net (2,309) 3,182
--------- --------
Net Cash Provided by Operations 168,904 156,620
--------- --------
Cash Flows From Investing Activities:
Proceeds From Sale/Maturities Short
Term Investment 103,443 216,793
Purchases of Short Term Investments (68,679) (146,316)
Additions to Property, Plant & Equipment,
Net of Minor Disposals (73,535) (42,944)
-------- --------
Net Cash Provided by (Used in) (38,771) 27,533
Investing Activities -------- --------
Cash Flows From Financing Activities:
Cash Dividends Paid (90,432) (86,187)
Increase (Decrease) in Bank Loans (8,510) 4,749
Proceeds From Issuance of Stock Under Stock
Option Plans 4,954 3,083
Purchase of Treasury Stock (32,433) (85,577)
------- -------
Net Cash Used In Financing Activities (126,421) (163,932)
------- -------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 13,482 (13,624)
------- -------
Net Change in Cash and Cash Equivalents 17,194 6,597
Cash and Cash Equivalents at Beginning of Year 187,205 210,798
------- -------
Cash and Cash Equivalents at End of Period $204,399 $217,395
======= =======
Interest Paid $ 13,172 $ 12,625
Income Taxes Paid $ 88,924 $ 85,814
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 nine month period ended
September 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 third quarter of 1994 increased 14% over the prior
year to $341,684,000. For the first nine months of 1994, net sales increased 9%
over the prior year to $1,010,431,000. Sales increases in flavor and fragrance
products were recorded in both the third quarter and the nine month periods. The
sales increase for the third quarter, as compared to the same period in 1993,
was favorably affected by the translation of European currencies into the weaker
U.S. dollar. If the dollar exchange rate had remained the same during 1994 and
1993, the sales increase for the quarter ended September 30, 1994 would have
been 11%. On a worldwide basis, translating local currencies into the dollar had
no significant effect on the reported sales increase for the nine months ended
September 30, 1994 over the comparable period in 1993.
Net income for the third quarter was $58,906,000, an increase of 19% from the
third quarter 1993. Net income for the first nine months of 1994 was
$182,763,000, an increase of 10% 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 nine months of 1994 and 1993 remained fairly constant,
especially on an overall basis:
First Nine Months
-----------------
1994 1993
---- ----
Cost of Goods Sold 51.0% 51.2%
Research and Development Expense 5.9% 6.1%
Selling and Administrative Expense 15.0% 15.6%
Interest expense was $1,359,000 for the third quarter of 1994, compared to
$5,436,000 for the third quarter 1993. For the first nine months 1994, interest
expense was $12,903,000, compared to $12,289,000 in the first nine months of
1993. The lower interest expense in the third quarter of 1994, compared to 1993,
resulted mainly from a lower level of borrowings and lower interest rates. In
both 1994 and 1993, a substantial portion of the borrowings were incurred in
Brazil, where such borrowings serve as hedges against devaluations which occur
in that country. Such borrowings in Brazil generate significant offsetting
exchange gains which were included in Other Income.
The effective tax rate for the third quarter and first nine months of 1994 was
37.3%, as compared to 38.4% and 37.5% for the comparable periods in 1993.
The higher effective tax rate in the third quarter of 1993 reflected the higher
U.S. statutory rate under the 1993 Tax Act, enacted during that quarter,
retroactive to January 1, 1993.
Financial Condition
The financial condition of the Company continued to be strong during the third
quarter. Cash, cash equivalents and short-term investments totaled $296,413,000
at September 30, 1994. At September 30, 1994, working capital was $726,241,000
compared to $652,436,000 at December 31, 1993. Gross additions to property,
plant and equipment during the first nine months of 1994 were $75,099,000. 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 each of the
first three quarters of 1994. 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
September 30, 1994 was $50,895,000 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 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit 27 -- Financial Data Schedule
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.
9 Months
Ended 9/30
Item Number Item Description 1994
- - ----------- ---------------- ----------
5-02(1) Cash and cash items 204,399
5-02(2) Marketable securities 92,014
5-02(3)(a)(1) Notes and accounts receivable-trade 263,722
5-02(4) Allowances for doubtful accounts (7,136)
5-02(6) Inventory 348,738
5-02(9) Total current assets 979,204
5-02(13) Property, Plant and equipment 715,610
5-02(14) Accumulated depreciation (324,937)
5-02(18) Total assets 1,392,117
5-02(21) Total current liabilities 252,963
5-02(22) Bonds, mortgages and similar debt 14,754
5-02(28) Preferred stock-mandatory redemption 0
5-02(29) Preferred stock-no mandatory redemption 0
5-02(30) Common Stock 14,470
5-02(31) Other stockholders' equity 993,217
5-02(32) Total liabilities and stockholders' equity 1,392,117
5-03(b)1(a) Net sales of tangible products 1,010,431
5-03(b)1 Total revenues 1,010,431
5-03(b)2(a) Cost of tangible goods sold 515,792
5-03(b)2 Total costs and expenses applicable to
sales and revenues 727,162
5-03(b)3 Other costs and expenses (21,132)
5-03(b)5 Provision for doubtful accounts and notes 0
5-03(b)(8) Interest and amortization of debt discount 12,903
5-03(b)(10) Income before taxes and other items 291,498
5-03(b)(11) Income tax expense 108,735
5-03(b)(14) Income/loss from continuing operations 0
5-03(b)(15) Discontinued operations 0
5-03(b)(17) Extraordinary items 0
5-03(b)(18) Cumulative effect-changes in accounting
principles 0
5-03(b)(19) Net income or loss 182,763
5-03(b)(20) Earnings per share - primary 1.64
5-03(b)(20) Earnings per share - fully diluted 1.64
(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: November 14, 1994 By: /s/ Thomas H. Hoppel
--------------------------------------------
Thomas H. Hoppel, Vice President & Treasurer
Dated: November 14, 1994 By: /s/ Stephen A. Block
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Stephen A. Block, Vice-President Law and Secretary