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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 765-5500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, par value 12 1/2 (cent) per share ....... New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
The Registrant denies that any of its common stock is held by an
"affiliate" of the Registrant within the meaning of Rule 405 of the Securities
and Exchange Commission. See "Stock Ownership" in proxy statement incorporated
by reference herein. The aggregate market value of all of the outstanding voting
stock of Registrant as of March 19, 1999 was $4,016,446,724.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of March 19, 1999.
106,044,798 SHARES OF COMMON STOCK, PAR VALUE 12 1/2 (CENT) PER SHARE
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III [Items 10, 11, 12 and 13] is hereby
incorporated by reference from the Registrant's definitive proxy statement for
the 1999 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A.
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PART I
ITEM 1. BUSINESS.
International Flavors & Fragrances Inc., incorporated in New York in 1909,
is a leading creator and manufacturer of flavor and fragrance products used by
other manufacturers to impart or improve flavor or fragrance in a wide variety
of consumer products. Fragrance products are sold principally to manufacturers
of perfumes, cosmetics, soaps and detergents, and flavor products to
manufacturers of prepared foods, beverages, dairy foods, pharmaceuticals and
confectionery products.
The present world-wide scope of the Company's business is in part the
result of the combination in December 1958 of the business theretofore conducted
primarily in the United States by the Company under the name van
Ameringen-Haebler, Inc. ("VAH") with the business conducted primarily in Europe
by N. V. Polak & Schwarz's Essencefabrieken, a Dutch corporation ("P & S"). The
P & S enterprise, founded in Holland in 1889, was also engaged in the
manufacture and sale of flavor and fragrance products, with operations in a
number of countries where VAH was not an important factor.
The major manufacturing facilities of the Company are located in the United
States, Holland, France, Germany, Great Britain, Ireland, Spain, Switzerland,
Argentina, Brazil, Mexico, Australia, China, Hong Kong, Indonesia and Japan.
Manufacturing facilities are also located in six other countries. The Company
maintains its own sales and distribution facilities in 35 countries and is
represented by sales agents in additional countries. The Company's principal
executive offices are located at 521 West 57th Street, New York, New York 10019
(Tel. No. 212-765-5500). Except as the context otherwise indicates, the term
"the Company" as used herein refers to the Registrant and its subsidiaries.
MARKETS
Fragrance products are used by customers in the manufacture of such
consumer products as soaps, detergents, cosmetic creams, lotions and powders,
lipsticks, after-shave lotions, deodorants, hair preparations and air
fresheners, as well as in other consumer products designed solely to appeal to
the sense of smell, such as perfumes and colognes. The cosmetics industry,
including perfumes and toiletries, is one of the Company's two largest customer
groups. Most of the major United States companies in this industry are customers
of the Company, and five of the largest United States cosmetics companies are
among its principal customers. The household products industry, including soaps
and detergents, is the other important customer group. Four of the largest
United States household product manufacturers are major customers of the
Company. In the five years ended December 31, 1998, sales of fragrance products
accounted for approximately 59%, 57%, 57%, 58% and 58%, respectively, of the
Company's total sales.
Flavor products are sold principally to the food and beverage industries
for use in such consumer products as soft drinks, candies, baked goods,
desserts, prepared foods, dietary foods, dairy products, drink powders,
pharmaceuticals and alcoholic beverages. Two of the Company's largest customers
for flavor products are major producers of prepared foods and beverages in the
United States. In the five years ended December 31, 1998, sales of flavor
products accounted for approximately 41%, 43%, 43%, 42% and 42%, respectively,
of the Company's total sales.
PRODUCTS
The Company's principal fragrance and flavor products consist of compounds
of large numbers of ingredients blended by it under formulas created by its
perfumers and flavorists. Most of these compounds contribute the total fragrance
or flavor to the consumer products in which they are used. This fragrance or
flavor characteristic is often a major factor in the public selection and
acceptance of the consumer end product. A smaller amount of compounds is sold to
manufacturers who further blend them to achieve the finished fragrance or flavor
in their consumer products. Thousands of compounds are produced by the Company,
and new compounds are constantly being created in order to meet the many and
changing characteristics of its customers' end products. Most of the fragrance
compounds and many of the flavor compounds are created and produced for the
exclusive use of particular customers. The Company's flavor products also
include extractives, concentrated juices and concentrates derived from various
fruits, vegetables, nuts, herbs and spices as well as microbiologically derived
ingredients. The Company's products are sold in solid and liquid forms and in
amounts ranging from a few pounds to many tons, depending upon the nature of the
product.
The ingredients used by the Company in its compounds are both synthetic and
natural. Most of the synthetic ingredients are manufactured by the Company.
While the major part of the Company's production of synthetic ingredients
1
is used by it in its compounds, a substantial portion is sold to others. The
natural ingredients are derived from flowers, fruits and other botanical
products as well as from animal products. They contain varying numbers of
organic chemicals, which are responsible for the fragrance or flavor of the
natural product. The natural products are purchased for the larger part in
processed or semi-processed form. Some are used in compounds in the state in
which they are purchased and others after further processing. Natural products,
together with various chemicals, are also used as raw materials for the
manufacture of synthetic ingredients by chemical processes.
MARKET DEVELOPMENTS
The demand for consumer products utilizing flavors and fragrances has been
stimulated and broadened by changing social habits resulting from such factors
as increases in personal income, employment of women, teen-age population,
leisure time, health concerns and urbanization and by the continued growth in
world population. In the fragrance field, these developments have expanded the
market for colognes, toilet waters, deodorants, soaps with finer fragrance
quality, men's toiletries and other products beyond traditional luxury items
such as perfumes. In the flavor field, similar market characteristics have
stimulated the demand for such products as convenience foods, soft drinks and
low-cholesterol and low-fat food products that must conform to expected tastes.
New and improved methods of packaging, application and dispensing have been
developed for many consumer products which utilize some of the Company's flavor
or fragrance products. These developments have called for the creation by the
Company of many new compounds and ingredients compatible with the newly
introduced materials and methods of application used in consumer end products.
PRODUCT DEVELOPMENT AND RESEARCH
The development of new fragrance and flavor compounds is a complex artistic
and technical process calling upon the combined knowledge and talents of the
Company's creative perfumers and flavorists and its application chemists and
research chemists. Through long experience the perfumers and flavorists develop
and refine their skill for creating fragrances or flavors best suited to the
market requirements of the customers' products.
An important contribution to the creation of new fragrance and flavor
products is the development in the Company's research laboratories of new
ingredients having fragrance or flavor value. The principal functions of the
fragrance research program are to isolate and synthesize fragrance components
found in natural substances and through chemical synthesis to develop new
materials and better techniques for utilization of such materials. The principal
functions of the flavor research program are to isolate and produce natural
flavor ingredients utilizing improved processes.
The work of the perfumers and flavorists is conducted in 29 fragrance and
flavor laboratories in 23 countries. The Company maintains a research center at
Union Beach, New Jersey. The Company spent $98,438,000 in 1998, $94,411,000 in
1997 and $93,545,000 in 1996 on its research and development activities, all of
which were financed by the Company. These expenditures are expected to increase
in 1999 to approximately $106,000,000. Of the amount expended in 1998 on such
activities, 60% was for fragrances and the balance was for flavors. The Company
employed 820 persons in 1998 and 811 persons in 1997 in such activities.
The business of the Company is not materially dependent upon any patents,
trademarks or licenses.
DISTRIBUTION
Most of the Company's sales are made through its own sales force, operating
from eight sales offices in the United States and 45 sales offices in 34 foreign
countries. Sales in other countries are made through sales agencies. For the
year ended December 31, 1998, 32% of the Company's sales were to customers in
North America, 40% in Europe, Africa and the Middle East, 17% in Latin America
and 11% in the Far East. See Note 10 of the Notes to the Consolidated Financial
Statements for other information with respect to the Company's segment
operations.
The Company estimates that during 1998 its 30 largest customers accounted
for about 54% of its sales, its four largest customers and their affiliates
accounted for about 11%, 7%, 6% and 4%, respectively, of its sales, and no other
single customer accounted for more than 3% of sales.
GOVERNMENTAL REGULATION
Manufacture and sale of the Company's products are subject to regulation in
the United States by the Food and Drug Administration, the Agriculture
Department, the Alcohol, Tobacco and Firearms Bureau of the Treasury
2
Department, the Environmental Protection Agency, the Occupational Safety and
Health Administration and state authorities. The foreign subsidiaries are
subject to similar regulation in a number of countries. Compliance with existing
governmental requirements regulating the discharge of materials into the
environment has not materially affected the Company's operations, earnings or
competitive position. The Company expects to spend in 1999 approximately
$2,600,000 in capital projects and $10,500,000 in operating expenses and
governmental charges for the purpose of complying with such requirements. The
Company expects that in 2000 capital expenditures, operating expenses and
governmental charges for such purpose will not be materially different.
RAW MATERIAL PURCHASES
Some 5,000 different raw materials are purchased from many sources all over
the world. The principal natural raw material purchases consist of essential
oils, extracts and concentrates derived from fruits, vegetables, flowers, woods
and other botanicals, animal products and raw fruits. The principal synthetic
raw material purchases consist of organic chemicals. The Company believes that
alternate sources of materials are available to enable it to maintain its
competitive position in the event of any interruption in the supply of raw
materials from present sources.
COMPETITION
The Company has more than 50 competitors in the United States and world
markets. While no single factor is responsible, the Company's competitive
position is based principally on the creative skills of its perfumers
and flavorists, the technological advances resulting from its research and
development and the customer service and support provided by its marketing and
application groups. Although statistics are not available, the Company believes
that it is one of the four largest companies producing and marketing on an
international basis a wide range of fragrance and flavor products of the types
manufactured by it for sale to manufacturers of consumer products. In particular
countries and localities, the Company faces the competition of numerous
companies specializing in certain product lines, among which are some larger
than the Company and some more important in a particular product line or lines.
Most of the Company's customers do not buy all their fragrance or flavor
products from the same supplier, and some customers make their own fragrance or
flavor compounds with ingredients supplied by the Company or others.
EMPLOYEE RELATIONS
The Company at December 31, 1998 employed approximately 4,670 persons, of
whom about 1,440 were employed in the United States. The Company has never
experienced a work stoppage or strike and it considers that its employee
relations are satisfactory.
3
ITEM 2. PROPERTIES.
The principal manufacturing and research properties of the Company are as
follows:
Location Operation
-------- ---------
UNITED STATES
New York, NY ............. Fragrance laboratories.
Augusta, GA .............. Production of fragrance chemical ingredients.
Hazlet, NJ ............... Production of fragrance compounds;
fragrance laboratories.
South Brunswick, NJ ...... Production of flavor ingredients and
compounds and fruit
preparations; flavor
laboratories.
Union Beach, NJ .......... Research and development center.
Salem, OR ................ Production of fruit and
vegetable concentrates, fruit
and vegetable preparations and
flavor ingredients.
Menomonee Falls, WI ...... Production of flavor
compounds, flavor ingredients,
bacterial cultures and fruit
preparations.
HOLLAND
Hilversum ................ Flavor and fragrance laboratories.
Tilburg .................. Production of flavor and fragrance compounds
and flavor ingredients.
FRANCE
Bois-Colombes ............ Flavor and fragrance laboratories.
Dijon .................... Production of fragrance
ingredients and compounds,
flavor ingredients and
compounds and fruit
preparations.
GERMANY
Emmerich/Rhein ........... Production of fruit
preparations and flavor
ingredients and compounds;
flavor laboratories.
GREAT BRITAIN
Haverhill ................ Production of flavor compounds
and ingredients, fruit
preparations and fragrance
chemical ingredients; flavor
laboratories.
IRELAND
Drogheda ................. Production of fragrance compounds.
SPAIN
Benicarlo ................ Production of fragrance chemical ingredients.
SWITZERLAND
Reinach-Aargau ........... Production of fruit
preparations and flavor
ingredients and compounds;
flavor laboratories.
ARGENTINA
Garin .................... Production of fruit
preparations and flavor
ingredients and compounds;
production of fragrance
compounds; flavor
laboratories.
BRAZIL
Rio de Janeiro ........... Production of
flavor ingredients and
compounds, fruit preparations
and fragrance compounds;
flavor laboratories.
Sao Paulo ................ Fragrance laboratory.
Taubate .................. Production of flavor compounds.
MEXICO
Tlalnepantla ............. Production of flavor
compounds, fruit preparations
and fragrance compounds;
flavor and fragrance
laboratories.
AUSTRALIA
Dee Why .................. Production of flavor compounds; flavor and
fragrance laboratories.
4
Location Operation
-------- ---------
CHINA
Guangzhou ................ Production of flavor and fragrance compounds;
flavor laboratories.
Xin'anjiang .............. Production of fragrance chemical ingredients.
HONG KONG .................... Production of fragrance compounds;
fragrance laboratories.
INDONESIA
Jakarta .................. Production of flavor and fragrance compounds
and ingredients; flavor and fragrance
laboratories.
JAPAN
Tokyo .................... Flavor and fragrance laboratories.
Gotemba .................. Production of flavor and fragrance compounds.
The principal executive offices of the Company and its New York laboratory
facilities are located at 521 West 57th Street, New York City. Such offices and
all of the above facilities of the Company are owned in fee, except those in
China, Hong Kong, and the Indonesian landsite, which are leased. The Company
believes that the remaining facilities meet its present needs, but that
additional facilities will be required to meet anticipated growth in sales.
ITEM 3. LEGAL PROCEEDINGS.
Various Federal and State authorities and private parties claim that the
Company is a potentially responsible party as a generator of waste materials for
alleged pollution at a total of 10 waste sites operated by third parties located
principally in New Jersey and Pennsylvania. The governmental authorities seek to
recover costs incurred and to be incurred to clean up the sites. The private
suits generally seek damages for alleged injuries and, in one current case, a
waste site's former owner/operator seeks contribution and indemnification from
generators and others for remedial action costs incurred and to be incurred at
the site.
The waste site claims and suits usually involve million dollar amounts, and
most of them are asserted against many potentially responsible parties. Remedial
activities typically consist of several phases carried out over a period of
years. Most site remedies begin with investigation and feasibility studies,
followed by physical removal, destruction, treatment or containment of
contaminated soil and debris, and sometimes by groundwater monitoring and
treatment. To date, the Company's financial responsibility for some sites has
been settled through agreements granting the Company, in exchange for one or
more cash payments made or to be made, either complete release of liability or,
for certain sites, release from further liability for early and/or later
remediation phases, subject to certain "re-opener" clauses for later-discovered
conditions. Settlements in respect of some sites involve, in part, payment by
the Company, and other parties, of a percentage of the site's future remediation
costs over a period of years.
The Company believes that the amounts it has paid and probably will have to
pay for clean-up costs and damages at all sites are and 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,
because payment will be made over an extended time period and because, pursuant
to an agreement reached in July 1994 with three of the Company's liability
insurers, defense costs and indemnity amounts payable by the Company in respect
of the sites will be shared by the insurers up to an agreed amount.
5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF REGISTRANT:
Year First
Became
Name Office and Other Business Experience(2) Age Officer
---- --------------------------------------- --- -------
Eugene P. Grisanti(1) ............ President, Chairman of the Board and Chief 69 1964
Executive Officer
Stephen A. Block ................. Vice-President, Law and Regulatory Affairs, 54 1993
and Secretary
Robert G. Corbett ................ Vice-President since May 1997; Director; employed 44 1997
by the Company in other positions prior thereto
Ronald S. Fenn ................... Vice-President 61 1986
Philip P. Gaetano ................ Vice-President since December 1998; a human 39 1998
resources executive with the following
companies: Alumax Incorporated, an aluminum
manufacturer, from 1997 to 1998; Marcam Corp.,
a software manufacturer, from 1996 to 1997;
Fisher Scientific, a scientific products manufacturer,
from 1995 to 1996; and GE Capital Corporation,
financial services, from 1994 to 1995
Judith C. Giordan ................ Vice-President since November 1997; Research 45 1997
and development executive with The Pepsi-Cola Co.,
affiliate of PepsiCo, Inc., soft drink and snack food
manufacturer, from 1996 to 1997, and Henkel
Corporation, consumer product and specialty
chemical manufacturer, from 1989 to 1996
Carlos A. Lobbosco ............... Vice-President 59 1993
Lewis G. Lynch, Jr. .............. Vice-President 63 1975
Stuart R. Maconochie ............. Vice-President; Director 59 1989
Jose A. Rodriguez ................ Vice-President since May 1998; employed by the 55 1998
Company in other positions prior thereto
Timothy Schaffner ................ Vice-President since May 1997; employed by the 49 1997
Company in other positions prior thereto
Douglas J. Wetmore ............... Vice-President and Chief Financial Officer since
April 1998; Director; Controller prior thereto 41 1992
- ----------
(1) Chairman of Executive Committee of the Board of Directors.
(2) Employed by the Company or an affiliated company for the last five years,
except as otherwise indicated.
6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED SECURITY HOLDER MATTERS.
(a) Market Information.
The Company's common stock is traded principally on the New York Stock
Exchange. The high and low stock prices for each quarter during the last two
years were:
1998 1997
--------------------- ---------------------
Quarter High Low High Low
- ------- ------ ------ ------ ------
First ..................... $51.88 $42.06 $47.13 $42.50
Second .................... 50.31 42.25 52.50 40.00
Third ..................... 44.50 32.06 53.44 48.50
Fourth .................... 45.44 32.56 51.88 45.06
(b) Approximate Number of Equity Security Holders.
(A) (B)
Number of record holders as
Title of Class of December 31, 1998
-------------- ---------------------------
Common stock, par value 12 1/2 (cent) per share ..... 4,653
(c) Dividends.
Cash dividends declared per share for each quarter since January 1997 were
as follows:
1999 1998 1997
---- ---- ----
First ................................. $.38 $.37 $.36
Second ................................ .37 .36
Third ................................. .37 .36
Fourth ................................ .38 .37
ITEM 6. SELECTED FINANCIAL DATA.
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(Dollars in thousands except per share amounts)
Net sales ............................. $1,407,349 $1,426,791 $1,436,053 $1,439,487 $1,315,237
========== ========== ========== ========== ==========
Net income* ........................... $ 203,785 $ 218,229 $ 189,894 $ 248,817 $ 226,022
========== ========== ========== ========== ==========
Earnings per share:
Net income per share--basic ........... $1.90 $2.00 $1.71 $2.24 $2.03
========== ========== ========== ========== ==========
Net income per share--diluted ......... $1.90 $1.99 $1.70 $2.22 $2.02
========== ========== ========== ========== ==========
Total assets .......................... $1,388,064 $1,422,261 $1,506,913 $1,534,269 $1,399,725
========== ========== ========== ========== ==========
Long-term debt ........................ $ 4,341 $ 5,114 $ 8,289 $ 11,616 $ 14,342
========== ========== ========== ========== ==========
Cash dividends declared per share ..... $1.49 $1.45 $1.38 $1.27 $1.12
========== ========== ========== ========== ==========
- ----------
* Reflects nonrecurring charge ($31,315 after tax) in 1996 resulting from the
Registrant's program to phase out and close certain aroma chemical
facilities.
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION.
Operations
In 1998, worldwide net sales were $1,407,349,000 compared to $1,426,791,000
and $1,436,053,000 in 1997 and 1996, respectively. Sales of fragrance products
were $820,149,000, $821,592,000 and $813,918,000 in 1998, 1997 and 1996,
respectively. Fragrance sales were flat in 1998 in comparison to 1997, following
an increase of 1% in 1997 in comparison to 1996. Flavor sales were $587,200,000,
$605,199,000 and $622,135,000 in 1998, 1997 and 1996, respectively. Flavor sales
decreased 3% in 1998 in comparison to 1997, following a similar decrease of 3%
in 1997 in comparison to 1996.
Sales outside the United States represented approximately 70% of total
sales in 1998, 1997 and 1996. The following table shows net sales on a
geographic basis:
Percent Percent
Sales by Destination (Dollars in thousands) 1998 Change 1997 Change 1996
- ------------------------------------------- ---------- ------- ---------- -------- ----------
North America ................................ $ 448,885 6% $ 423,876 -1% $ 427,219
Europe, Africa and the Middle East
(EAME) ...................................... 556,911 -4% 577,576 -3% 596,610
Latin America ................................ 239,472 8% 222,708 8% 206,803
Far East ..................................... 162,081 -20% 202,631 -1% 205,421
---------- ---------- ----------
Total net sales ............................ $1,407,349 -1% $1,426,791 -1% $1,436,053
========== ========== ==========
For the full year 1998, sales growth was strong in North America, in both
flavors and fragrances. Although economic difficulties unfavorably impacted
Latin America flavor sales, fragrance sales in the area achieved double-digit
sales growth for the year. Sales in the Far East, in both flavors and
fragrances, were down 20% for the year, affected by the ongoing economic
disruption in Japan and Southeast Asia. In 1998, reported sales were also
unfavorably impacted by the stronger U.S. dollar, most notably against the major
European currencies; had the dollar exchange rates remained the same during 1998
and 1997, sales would have been approximately 2% higher than reported.
During 1997, the strongest sales growth, for both flavors and fragrances,
was achieved in the EAME area, particularly Eastern Europe and the Middle East.
In 1997, reported sales were unfavorably impacted by the stronger U.S. dollar;
had the dollar exchange rates remained the same during 1997 and 1996, sales
would have increased approximately 4% worldwide. Sales were also affected,
mainly in the fourth quarter, by the economic slowdowns in the Far East and
Brazil.
Although the Company's reported sales and earnings are affected by the
weakening or strengthening of the U.S. dollar, this has no long-term effect on
the underlying strength of our business.
The percentage relationship of cost of goods sold and other operating
expenses to sales was as follows:
1998 1997 1996
---- ---- ----
Cost of goods sold ..................... 54.2% 54.2% 54.2%
Research and development
expenses .............................. 7.0% 6.6% 6.5%
Selling and administrative
expenses .............................. 17.0% 15.9% 15.6%
Cost of goods sold, which includes cost of materials and internal
manufacturing expenses, has remained constant as a percentage of sales over the
years 1998, 1997 and 1996.
Research and development expenses have consistently been between 6% and 7%
of sales. The expenses are for the development of new and improved products,
technical product support, compliance with governmental regulations and help in
maintaining our relationships with our customers who are often dependent on
technical advances. These activities contribute in a significant way to the
Company's business.
Selling and administrative expenses are necessary to support the Company's
sales and operating levels and have remained relatively constant as a percentage
of net sales. In 1998, administrative costs include approximately $12.5
8
million of expense incurred in connection with the Company's Year 2000 program,
for which there were no comparable costs incurred in 1997 or 1996. In addition,
administrative expenses also include certain costs incurred in connection with
the Company's project to implement the enterprise requirements planning ("ERP")
software package, SAP. Excluding these costs, selling and administrative
expenses would have represented approximately 15.9% of sales, in line with the
1997 and 1996 levels.
Operating profit, as shown in Note 10 of the Notes to the Consolidated
Financial Statements, was $312,728,000 in 1998, $338,339,000 in 1997 and
$346,163,000 in 1996. Operating profit results reflect the level of sales
achieved. In 1998, operating profit reflected the effects of the Year 2000
related expenses. Operating profit in 1996 excludes a nonrecurring charge of
$49,707,000.
Interest expense amounted to $2,042,000, $2,420,000 and $2,740,000 in 1998,
1997 and 1996, respectively. This expense relates primarily to bank loans taken
out by some of the Company's subsidiaries and may be significantly affected by
high interest rates in countries where local bank borrowing is used as a hedge
against devaluations. Interest expense decreased in 1998 compared to 1997 mainly
due to lower average borrowing levels during the year; the decrease in 1997
compared to 1996 was due to lower average interest rates, partially offset by
somewhat higher average borrowing levels outstanding during the year. More
details on bank loans and long-term debt are contained in Note 6 of the Notes to
the Consolidated Financial Statements.
Other income was $6,356,000 in 1998, compared to $10,442,000 in 1997 and
$11,405,000 in 1996. The decrease in other income in 1998 compared to 1997, and
1997 compared to 1996, was primarily due to lower interest income due to lower
average interest rates, and lower levels of investments.
Net income in 1998 totaled $203,785,000, a decrease of $14,444,000 or 7%
from the prior year. Net income in 1997 totaled $218,229,000, and in 1996 was
$221,209,000. The 1996 amount excludes the effect of the nonrecurring charge to
earnings relating to the Company's aroma chemical operations; including this
charge, net income was $189,894,000.
During 1996, the Company undertook a program to phase out aroma chemical
production at its Union Beach, New Jersey plant at the end of 1997, and to close
smaller capacity aroma chemical facilities in Mexico and Brazil that year. Most
of the volume produced at Union Beach was transferred to the Company's facility
in Augusta, Georgia; production capacity in Benicarlo, Spain was also expanded.
The program resulted in a nonrecurring pretax charge to 1996 earnings of
$49,707,000 ($31,315,000 after tax or $.29 per share). Of the charge,
approximately $33,000,000 represented asset writedowns and other non-cash
related costs. Approximately 220 employees were affected by this program, all of
whom had left the Company at December 31, 1998.
Movements in the reserve resulting from the nonrecurring charge were as
follows:
Employee Plant
(Dollars in thousands) Related Closure Total
- ---------------------- ------- ------- -------
Original reserve ..................... $10,629 $39,078 $49,707
Utilized in 1996 ..................... 560 6,446 7,006
------- ------- -------
Balance December 31, 1996 ............ 10,069 32,632 42,701
Utilized in 1997 ..................... 8,045 16,654 24,699
------- ------- -------
Balance December 31, 1997 ............ 2,024 15,978 18,002
Utilized in 1998 ..................... 1,503 13,778 15,281
------- ------- -------
Balance December 31, 1998 ............ $ 521 $ 2,200 $ 2,721
======= ======= =======
The balance of the reserve will be utilized in 1999 in connection with the
final decomissioning and disposal of plant equipment, and as severance
obligations to affected employees are satisfied.
Effective January 1, 1997, the Company adopted Statement of Position 96-1
(SOP 96-1), Accounting for Environmental Remediation Liabilities. SOP 96-1
establishes guidance for when environmental liabilities should be recorded and
the factors to be considered in determining amounts recognized. The effect of
adopting this Standard was not material.
9
Effective January 1, 1998, the Company adopted Statement of Position 98-1
(SOP 98-1), Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use. SOP 98-1 establishes guidance on when costs incurred for
internal-use software are capitalized. In accordance with this SOP, in 1998, the
Company capitalized approximately $28,000,000, included in construction in
progress, related to the acquisition and development of the SAP software
package.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (FAS 130), Reporting Comprehensive Income. FAS 130
establishes standards for the reporting of comprehensive income, and requires
that an enterprise classify items of other comprehensive income by their nature
in a financial statement, and display the accumulated balance of other
comprehensive income in the statement of financial position. Other comprehensive
income consists of movements in the Company's cumulative translation adjustment.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131 (FAS 131), Disclosures about Segments of an
Enterprise and Related Information. FAS 131 establishes standards for the way
public business enterprises report information about operating segments in
reports to shareholders. The adoption of FAS 131 did not affect results of
operations or financial position but did affect the disclosure of segment
information. Prior year data has been restated for comparability purposes. More
details on segment information are contained in Note 10 of the Notes to the
Consolidated Financial Statements.
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 132 (FAS 132), Employers' Disclosures about Pensions and Other
Postretirement Benefits. FAS 132 standardizes disclosures about pension and
other postretirement plans; it does not change the accounting measurement or
recognition of such plans. More details on retirement benefits are contained in
Note 11 of the Notes to the Consolidated Financial Statements.
Statement of Financial Accounting Standards No. 133 (FAS 133), Accounting
for Derivative Instruments and Hedging Activities, issued in June 1998, is
effective for fiscal years beginning after June 15, 1999. FAS 133 establishes
accounting and reporting standards for derivative instruments, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The Company is currently evaluating the Standard, and
the accounting and reporting implications thereof.
Statement of Position 98-5 (SOP 98-5), Reporting on the Costs of Start-Up
Activities, issued in April 1998, 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 impact of adopting
this Standard is not expected to be material.
Compliance with existing governmental requirements regulating the discharge
of materials into the environment has not materially affected the Company's
operations, earnings or competitive position. In 1998, the Company spent
approximately $2,700,000 on capital projects and about $10,000,000 in operating
expenses and governmental charges for the purpose of complying with such
regulations. Expenditures for these purposes will continue for the foreseeable
future. In addition, the Company is party to a number of proceedings brought
under the Comprehensive Environmental Response, Compensation and Liability Act
or similar state statutes. It is expected that the impact of any judgments in or
voluntary settlements of such proceedings will not be material to the Company's
financial condition, results of operations or liquidity.
Financial Condition
The financial condition of the Company remained strong during 1998. Cash,
cash equivalents and short-term investments totaled $115,999,000 at December 31,
1998, compared to $260,446,000 and $317,983,000 at December 31, 1997 and 1996,
respectively. Short-term investments are high-quality, readily marketable
instruments. Working capital totaled $575,120,000 at year-end 1998, compared to
$670,598,000 and $725,892,000 at December 31, 1997 and 1996, respectively. Gross
additions to property, plant and equipment were $91,690,000, $59,284,000 and
$80,782,000 in 1998, 1997 and 1996, respectively, and are expected to
approximate $90,000,000 in 1999.
In September 1996, the Company announced a plan to repurchase an additional
7.5 million shares of its common stock. An existing program to purchase 7.5
million shares, in effect since 1992, was completed in 1997. Repurchases will be
made from time to time on the open market or through private transactions as
market and business conditions warrant. The repurchased shares will be available
for use in connection with the Company's employee benefit plans
10
and for other general corporate purposes. At December 31, 1998, approximately
4.3 million shares of common stock had been repurchased under the 1996 program.
Under these plans, the Company purchased $134,448,000, $70,988,000 and
$59,763,000 of treasury stock in 1998, 1997 and 1996, respectively.
The Company has almost no long-term debt and anticipates that its growth
and capital expenditure programs, and the above share repurchase plan, will
continue to be funded mainly from internal sources.
During 1998, the Company paid dividends to shareholders totaling
$159,619,000 while $157,674,000 was paid in 1997, and $150,864,000 in 1996. In
January 1999, the cash dividend was increased to an annual rate of $1.52 per
share, from $1.48 in 1998; the annual cash dividend was $1.44 in 1997. The
Company believes these increases in dividends to its shareholders can be made
without limiting future growth and expansion.
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) 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 ensure 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 ERP software package. At December 31, 1998,
the global design for the SAP project was complete, and the first
implementation, encompassing the Company's North American operations, is
scheduled to take place in May 1999, the scheduled date under the SAP project
plans. 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 currently completing the assessment of these
systems and has commenced testing of critical systems to ensure Y2K capability.
This portion of the Y2K Program is on schedule, and the Company expects it to be
completed 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, to ascertain the extent of their Year
11
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 $24 million has been expended at December 31,
1998. Of the Y2K Program costs, approximately $21 million represents capital
expenditures associated with replacement hardware, software and associated
items. The remaining amount, totaling $24 million, represents the costs of
repair, testing and related efforts, and is being expensed as incurred. Of the
$24 million spent as at December 31, 1998, approximately $11.5 million related
to capital and the balance of $12.5 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. 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.
Euro Currency Adoption
As part of the European Economic and Monetary Union, a single currency (the
"Euro") will replace the national currencies of most of the European countries
in which the Company conducts business. The conversion rates between the Euro
and the participating nations' currencies were fixed irrevocably as of January
1, 1999, with the participating national currencies scheduled to be removed from
circulation between January 1, and June 30, 2002, and replaced by Euro notes and
coinage. During the transition period from January 1, 1999 through December 31,
2001, public and private entities as well as individuals may pay for goods and
services using either checks, drafts, or wire transfers denominated in Euros or
the participating country's national currency.
The Company's systems and processes were "Euro capable" (able to enter into
Euro-denominated transactions) on January 1, 1999. The effects of the Euro
conversion on the Company's revenues, costs and competitive position, while
currently still being assessed, are not expected to be significant. The cost of
systems and business process conversion was not material.
Other Information
The Company is currently evaluating its selling, administrative,
manufacturing and distribution functions with the intention of further
streamlining operations and reducing operating expenses. The Company anticipates
that decisions based on this evaluation will be made in the first half of 1999.
Ensuing actions may result in certain nonrecurring charges during 1999; the
extent of such charges is not yet quantifiable.
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
12
the Company and third parties, including customers and suppliers, to adequately
address the Year 2000 Issue, and political and economic uncertainties, including
the fluctuation or devaluation of currencies in countries in which the Company
does business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See Note 12 of the Notes to the Consolidated Financial Statements for a
discussion of the Company's exposure to, and management of, market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS:
Page No.
--------
Consolidated Statements of Income and Retained Earnings for
the three years ended December 31, 1998 ............................ 14
Consolidated Balance Sheet--December 31, 1998 and 1997 ............... 15
Consolidated Statement of Cash Flows for the three years
ended December 31, 1998 ............................................ 16
Notes to Consolidated Financial Statements ........................... 17
Report of Independent Accountants .................................... 29
Financial Statement Schedules:
VIII--Valuation and Qualifying Accounts and Reserves for the
three years ended December 31, 1998 ............................ S-1
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
QUARTERLY FINANCIAL DATA (Unaudited)
Net Income Per Share
----------------------------------
Net Sales Gross Profit Net Income Basic Diluted
------------------------ -------------------- -------------------- --------------- --------------
Quarter 1998 1997 1998 1997 1998 1997 1998 1997 1998 1997
- ------- ---------- ---------- -------- -------- -------- -------- ----- ----- ----- -----
(DOllars in thousands except per share amounts)
First ..... $ 373,411 $ 382,813 $175,204 $175,520 $ 62,626 $ 63,244 $0.58 $0.58 $0.58 $0.58
Second .... 365,253 381,470 169,983 177,415 55,907 63,309 0.52 0.58 0.52 0.57
Third ..... 349,846 356,242 156,670 164,264 50,249 56,715 0.47 0.52 0.47 0.52
Fourth .... 318,839 306,266 142,010 136,447 35,003 34,961 0.33 0.32 0.33 0.32
---------- ---------- -------- -------- -------- -------- ----- ----- ----- -----
$1,407,349 $1,426,791 $643,867 $653,646 $203,785 $218,229 $1.90 $2.00 $1.90 $1.99
========== ========== ======== ======== ======== ======== ===== ===== ===== =====
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
13
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Year Ended December 31,
---------------------------------------
1998 1997 1996
---------- ---------- ----------
(Dollars in thousands
except per share amounts)
CONSOLIDATED STATEMENT OF INCOME
Net sales ............................................ $1,407,349 $1,426,791 $1,436,053
---------- ---------- ----------
Cost of goods sold ................................... 763,482 773,145 778,816
Research and development expenses .................... 98,438 94,411 93,545
Selling and administrative expenses .................. 238,675 227,066 223,547
Nonrecurring charge .................................. -- -- 49,707
Interest expense ..................................... 2,042 2,420 2,740
Other (income) expense, net .......................... (6,356) (10,442) (11,405)
---------- ---------- ----------
1,096,281 1,086,600 1,136,950
---------- ---------- ----------
Income before taxes on income ........................ 311,068 340,191 299,103
Taxes on income ...................................... 107,283 121,962 109,209
---------- ---------- ----------
NET INCOME .......................................... 203,785 218,229 189,894
Other comprehensive income:
Foreign currency translation adjustments ........... 27,721 (84,406) (27,494)
---------- ---------- ----------
COMPREHENSIVE INCOME ................................ $ 231,506 $ 133,823 $ 162,400
========== ========== ==========
NET INCOME PER SHARE--BASIC ......................... $1.90 $2.00 $1.71
========== ========== ==========
NET INCOME PER SHARE--DILUTED ....................... $1.90 $1.99 $1.70
========== ========== ==========
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
At beginning of year ................................. $1,166,348 $1,106,572 $1,069,421
Net income ........................................... 203,785 218,229 189,894
---------- ---------- ----------
1,370,133 1,324,801 1,259,315
Cash dividends declared .............................. 159,513 158,453 152,743
---------- ---------- ----------
At end of year ....................................... $1,210,620 $1,166,348 $1,106,572
========== ========== ==========
See Notes to Consolidated Financial Statements
14
CONSOLIDATED BALANCE SHEET
ASSETS
December 31,
------------------------
1998 1997
---------- ----------
(Dollars in thousands)
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 114,960 $ 216,994
Short-term investments ........................... 1,039 43,452
Receivables:
Trade .......................................... 264,352 242,791
Allowance for doubtful accounts ................ (9,517) (8,101)
Other .......................................... 28,645 33,844
Inventories ...................................... 403,961 360,074
Prepaid and deferred charges ..................... 44,588 46,405
---------- ----------
Total Current Assets ............................ 848,028 935,459
PROPERTY, PLANT AND EQUIPMENT, NET .................. 498,784 446,509
OTHER ASSETS ........................................ 41,252 40,293
---------- ----------
TOTAL ASSETS ........................................ $1,388,064 $1,422,261
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank loans ....................................... $ 29,072 $ 10,490
Accounts payable ................................. 60,331 57,832
Accrued payrolls and bonuses ..................... 16,507 19,410
Dividends payable ................................ 40,301 40,407
Income taxes ..................................... 46,647 56,070
Other current liabilities ........................ 80,050 80,652
---------- ----------
Total Current Liabilities ....................... 272,908 264,861
---------- ----------
OTHER LIABILITIES:
Long-term debt ..................................... 4,341 5,114
Deferred income taxes .............................. 30,730 23,139
Retirement and other liabilities ................... 135,034 128,659
---------- ----------
Total Other Liabilities ......................... 170,105 156,912
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock 12 1/2 (cent) par value;
authorized 500,000,000 shares;
issued 115,761,840 shares ........................ 14,470 14,470
Capital in excess of par value ..................... 136,443 137,418
Restricted stock ................................... (6,750) (9,000)
Retained earnings .................................. 1,210,620 1,166,348
Accumulated other comprehensive income:
Cumulative translation adjustment .............. (9,130) (36,851)
---------- ----------
1,345,653 1,272,385
Treasury stock, at cost--9,715,775 shares in 1998
and 6,630,911 shares in 1997 ..................... (400,602) (271,897)
---------- ----------
Total Shareholders' Equity ....................... 945,051 1,000,488
---------- ----------
Total Liabilities and Shareholders' Equity .......... $1,388,064 $1,422,261
========== ==========
See Notes to Consolidated Financial Statements
15
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31,
--------------------------------------
1998 1997 1996
--------- --------- ---------
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 203,785 $ 218,229 $ 189,894
Adjustments to reconcile to net cash provided by operations:
Nonrecurring charge -- -- 49,707
Depreciation .................................................. 49,006 50,278 47,764
Deferred income taxes ......................................... 15,877 8,201 (2,271)
Changes in assets and liabilities:
Current receivables .......................................... (3,887) (32,949) (2,433)
Inventories .................................................. (31,354) (20,524) 30,179
Current payables ............................................. (15,816) 11,473 (14,530)
Other, net ................................................... (1,185) 4,440 9,689
--------- --------- ---------
Net cash provided by operations ................................... 216,426 239,148 307,999
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales/maturities of short-term investments ....... 41,766 23,056 44,646
Purchases of short-term investments ............................ -- (9,851) (57,289)
Additions to property, plant and equipment, net of
minor disposals (89,741) (58,211) (79,425)
--------- --------- ---------
Net cash used in investing activities ............................. (47,975) (45,006) (92,068)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid to shareholders ............................ (159,619) (157,674) (150,864)
Increase (decrease) in bank loans .............................. 16,570 (7,305) 7,144
Decrease in long-term debt ..................................... (1,380) (2,357) (2,230)
Proceeds from issuance of stock under stock option plans ....... 4,569 15,356 9,622
Purchase of treasury stock ..................................... (134,448) (70,988) (59,763)
--------- --------- ---------
Net cash used in financing activities ............................. (274,308) (222,968) (196,091)
--------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents ...... 3,823 (15,550) (9,900)
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS ........................... (102,034) (44,376) 9,940
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .................... 216,994 261,370 251,430
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR .......................... $ 114,960 $ 216,994 $ 261,370
========= ========= =========
See Notes to Consolidated Financial Statements
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is the leading creator and manufacturer of flavors and
fragrances used by others to impart or improve flavor or fragrance in a wide
variety of consumer products. Fragrance products are sold principally to makers
of perfumes and cosmetics, hair and other personal care products, soaps and
detergents, household and other cleaning products and area fresheners. Flavors
are sold primarily to makers of dairy, meat and other processed foods,
beverages, snacks and savory foods, confectionery, sweet and baked goods,
pharmaceutical and oral care products and animal foods.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all subsidiaries.
CURRENCY TRANSLATION
The assets and liabilities of non-U.S. subsidiaries which operate in a
local currency environment are translated into U.S. dollars at year-end exchange
rates. Income and expense items are translated at average exchange rates during
the year. Cumulative translation adjustments are shown as a separate component
of shareholders' equity.
For those subsidiaries which operate in U.S. dollars, or which operate in a
highly inflationary environment, inventory and property, plant and equipment are
translated using the approximate exchange rates at the time of acquisition. All
other assets and liabilities are translated at year-end exchange rates. Except
for inventories charged to cost of goods sold and depreciation, which are
remeasured for historical rates of exchange, all income and expense items are
translated at average exchange rates during the year. Gains and losses as a
result of remeasurements are included in income.
INVENTORIES
Inventories are stated at the lower of cost (generally on an average basis)
or market.
CASH EQUIVALENTS
Highly liquid investments with maturities of three months or less at date
of purchase are considered to be cash equivalents.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is
calculated on a straight-line basis, principally over the following estimated
useful lives: buildings and improvements, 10 to 30 years; machinery and
equipment, 3 to 10 years; and leasehold improvements, the shorter of 10 years or
the remaining life of the lease.
When properties are retired or otherwise disposed of, the asset and related
accumulated depreciation are removed from the accounts and the resultant gain or
loss is included in income.
Long-lived assets are reviewed for impairment when events or changes in
business conditions indicate that their full carrying value may not be
recovered. Assets are considered to be impaired and written down to estimated
fair value if expected associated cash flows are less than the carrying amounts.
INCOME TAXES
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes, based on tax laws as
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
currently enacted. Additional taxes which would result from dividend
distributions by subsidiary companies to the parent company are provided to the
extent such dividends are anticipated. No provision is made for additional taxes
on undistributed earnings of subsidiary companies which are intended to be
permanently invested in such subsidiaries. As a result, no income tax effect is
attributable to the currency translation component of other comprehensive
income.
RETIREMENT BENEFITS
Current service costs of retirement plans and postretirement health care
and life insurance benefits are accrued currently. Prior service costs resulting
from improvements in these plans are amortized over periods ranging from 10 to
20 years.
FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to
various market data and other valuation techniques, as appropriate. Unless
otherwise disclosed, the fair values of financial instruments approximate their
recorded values.
RISKS AND UNCERTAINTIES
The diversity of the Company's products, customers and geographic
operations significantly reduces the risk that a severe impact will occur in the
near term as a result of changes in its customer base, competition, sources of
supply or markets. It is unlikely that any one event would have a severe impact
on the Company's operating results.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1997, the Company adopted Statement of Position 96-1
(SOP 96-1), Accounting for Environmental Remediation Liabilities. SOP 96-1
establishes guidance for when environmental liabilities should be recorded and
the factors to be considered in determining amounts recognized. The effect of
adopting this Standard was not material.
Effective January 1, 1998, the Company adopted Statement of Position 98-1
(SOP 98-1), Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use. SOP 98-1 establishes guidance on when costs incurred for
internal-use software are capitalized.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (FAS 130), Reporting Comprehensive Income. FAS 130
establishes standards for the reporting of comprehensive income, and requires
that an enterprise classify items of other comprehensive income by their nature
in a financial statement, and display the accumulated balance of other
comprehensive income separately in the statement of financial position.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131 (FAS 131), Disclosures about Segments of an
Enterprise and Related Information. FAS 131 establishes standards for the way
public business enterprises report information about operating segments in
reports to shareholders. The adoption of FAS 131 did not affect results of
operations or financial position but did affect the disclosure of segment
information. Prior year data has been restated for comparability purposes.
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 132 (FAS 132), Employers' Disclosures about Pensions and Other
Postretirement Benefits. FAS 132 standardizes disclosures about pension and
other postretirement plans; it does not change the accounting measurement or
recognition of such plans.
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Statement of Financial Accounting Standards No. 133 (FAS 133), Accounting
for Derivative Instruments and Hedging Activities, issued in June 1998, is
effective for fiscal years beginning after June 15, 1999. FAS 133 establishes
accounting and reporting standards for derivative instruments, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The Company is currently evaluating the Standard, and
the accounting and reporting implications thereof.
Statement of Position 98-5 (SOP 98-5), Reporting on the Costs of Start-Up
Activities, issued in April 1998, 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 impact of adopting
this Standard is not expected to be material.
NET INCOME PER SHARE
Net income per share is based on the weighted average number of shares
outstanding. A reconciliation of the number of shares used in the computations
for basic and diluted net income per share is as follows:
Number of Shares
------------------------------------
(Shares in thousands) 1998 1997 1996
- --------------------- ------- ------- -------
Basic EPS .............................. 107,122 109,065 110,773
Dilution under stock plans ............. 308 560 613
------- ------- -------
Diluted EPS ............................ 107,430 109,625 111,386
======= ======= =======
Net income used in the computation of basic and diluted net income per
share is not affected by the assumed issuance of stock under the Company's stock
plans and is therefore the same for both calculations.
Options to purchase 2,295,667, 944,959 and 1,107,000 shares were
outstanding in 1998, 1997 and 1996, respectively, but were not included in the
computation of diluted net income per share because the options' exercise prices
were greater than the average market price of the common shares in the
respective years.
NOTE 2. NONRECURRING CHARGE
During 1996, the Company undertook a program to phase out aroma chemical
production at its Union Beach, New Jersey plant at the end of 1997, and to close
smaller capacity aroma chemical facilities in Mexico and Brazil that year. Most
of the volume produced at Union Beach was transferred to the Company's facility
in Augusta, Georgia; production capacity in Benicarlo, Spain was also expanded.
The program resulted in a nonrecurring pretax charge to 1996 earnings of
$49,707,000 ($31,315,000 after tax or $.29 per share). Of the charge,
approximately $33,000,000 represented asset writedowns and other non-cash
related costs. Approximately 220 employees were affected by this program, all of
whom had left the Company at December 31, 1998.
Movements in the reserve resulting from the nonrecurring charge were as
follows:
Employee Plant
(Dollars in thousands) Related Closure Total
- --------------------- ------- ------- -------
Original reserve ........................ $10,629 $39,078 $49,707
Utilized in 1996 ........................ 560 6,446 7,006
------- ------- -------
Balance December 31, 1996 10,069 32,632 42,701
Utilized in 1997 ........................ 8,045 16,654 24,699
------- ------- -------
Balance December 31, 1997 ............... 2,024 15,978 18,002
Utilized in 1998 ........................ 1,503 13,778 15,281
------- ------- -------
Balance December 31, 1998 ............... $ 521 $ 2,200 $ 2,721
======= ======= =======
The balance of the reserve will be utilized in 1999 in connection with the
final decommissioning and disposal of plant equipment, and as severance
obligations to affected employees are satisfied.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 3. MARKETABLE SECURITIES
Marketable securities are included in cash equivalents and short-term
investments, as appropriate. At December 31, 1998 and 1997, marketable
securities totaling $2,655,000 and $122,931,000, respectively, were available
for sale and recorded at fair value which approximated cost. Realized gains and
losses on the sale of marketable securities were not material.
NOTE 4. INVENTORIES
December 31,
---------------------------
1998 1997
-------- --------
(Dollars in thousands)
Raw materials ................................. $235,552 $193,136
Work in process ............................... 8,251 13,593
Finished goods ................................ 160,158 153,345
-------- --------
$403,961 $360,074
======== ========
NOTE 5. PROPERTY, PLANT AND EQUIPMENT, NET
December 31,
---------------------------
1998 1997
-------- --------
(Dollars in thousands)
Land .......................................... $ 33,784 $ 29,676
Buildings and improvements .................... 284,861 271,407
Machinery and equipment ....................... 526,859 471,456
Construction in progress ...................... 67,893 38,362
-------- --------
913,397 810,901
Accumulated depreciation ...................... 414,613 364,392
-------- --------
$498,784 $446,509
======== ========
In 1998, construction in progress includes approximately $28,000,000
related to the acquisition and development of internal-use software.
NOTE 6. BORROWINGS
Bank loans (all foreign) averaged $16,912,000 in 1998, $19,639,000 in 1997
and $15,007,000 in 1996. The highest levels were $29,636,000 in 1998,
$28,736,000 in 1997 and $18,925,000 in 1996. The 1998 weighted average annual
interest rate on these loans (based on balances outstanding at the end of each
month) was approximately 8% and the average rate on loans outstanding at
December 31, 1998 was 7%. These rates compare to 7% and 10%, respectively, in
1997, and 9% and 7%, respectively, in 1996.
Long-term debt (all foreign) consists of various loans from financial
institutions, with interest rates ranging between 2.1% to 2.5%, and with
original terms of between five and seven years. Aggregate payments for the next
five years of long-term debt outstanding at December 31, 1998 are $1,683,000 in
1999 and $886,000 annually through 2003. At December 31, 1998 and 1997, the
estimated fair value of long-term debt, based on borrowing rates currently
available to the Company with similar terms and maturities, approximated the
recorded amount.
Cash payments for interest were $1,774,000 in 1998, $2,330,000 in 1997 and
$2,688,000 in 1996.
At December 31, 1998, the Company and its subsidiaries had available unused
lines of bank credit approximating $96,000,000.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 7. INCOME TAXES
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
U.S. income before taxes ............. $ 54,745 $ 63,719 $ 19,860
Foreign income before taxes .......... 256,323 276,472 279,243
-------- -------- --------
Total income before taxes ............ $311,068 $340,191 $299,103
======== ======== ========
The following table shows the components of current and deferred income tax
expense by taxing jurisdiction, both domestic and foreign:
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
Current
Federal ............................. $ 4,830 $ 18,149 $ 15,138
State and local ..................... 578 2,210 2,835
Foreign ............................. 85,998 93,402 93,507
-------- -------- --------
91,406 113,761 111,480
-------- -------- --------
Deferred
Federal ............................. 13,350 6,478 (10,640)
State and local ..................... 1,847 235 (2,356)
Foreign ............................. 680 1,488 10,725
-------- -------- --------
15,877 8,201 (2,271)
-------- -------- --------
Total income taxes ................... $107,283 $121,962 $109,209
======== ======== ========
At December 31, 1998 and 1997, gross deferred tax assets were $56,000,000
and $61,300,000, respectively; gross deferred tax liabilities were $64,800,000
and $55,400,000, respectively. No valuation allowance was required for deferred
tax assets. The principal components of deferred tax assets (liabilities) were:
1998 1997
-------- --------
(Dollars in thousands)
Employee and retiree benefits ................... $ 33,000 $ 35,400
Inventory ....................................... 8,200 9,100
Property, plant and equipment ................... (34,800) (25,400)
Other, net ...................................... (15,200) (13,200)
-------- --------
$ (8,800) $ 5,900
======== ========
A reconciliation between the U.S. federal income tax rate and the effective
tax rate is:
1998 1997 1996
---- ---- ----
Statutory tax rate .............................. 35.0% 35.0% 35.0%
Difference in effective tax rate on
foreign earnings and remittances .............. (0.5) 0.8 1.8
State and local taxes ........................... 0.5 0.5 0.1
Other, net ...................................... (0.5) (0.4) (0.4)
---- ---- ----
Effective tax rate .............................. 34.5% 35.9% 36.5%
==== ==== ====
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income taxes paid were $99,894,000 in 1998, $110,594,000 in 1997 and
$124,435,000 in 1996.
Undistributed earnings of foreign subsidiaries for which no deferred taxes
have been provided approximated $518,000,000 at December 31, 1998. Any
additional U.S. taxes payable on these foreign earnings, if remitted, would be
substantially offset by credits for foreign taxes already paid.
NOTE 8. SHAREHOLDERS' EQUITY
Transactions in treasury shares resulted in net charges to capital in
excess of par value of $3,996,000, $1,062,000 and $975,000 in 1996, 1997 and
1998, respectively.
The following table shows treasury shares acquired and, as appropriate, the
use of treasury shares for stock plans:
Number
of
Shares Amount
--------- --------
(Dollars in thousands)
Balance January 1, 1996 ........................ 4,808,005 $184,856
Acquisitions ................................... 1,407,667 62,815
Used for stock plans ........................... (425,349) (17,131)
--------- --------
Balance December 31, 1996 ...................... 5,790,323 230,540
Acquisitions ................................... 1,633,034 73,869
Used for stock plans ........................... (792,446) (32,512)
--------- --------
Balance December 31, 1997 ...................... 6,630,911 271,897
Acquisitions ................................... 3,222,900 134,448
Used for stock plans ........................... (138,036) (5,743)
--------- --------
Balance December 31, 1998 ...................... 9,715,775 $400,602
========= ========
Under an employment contract dated January 1, 1997, the Company awarded
250,000 restricted shares of the Company's common stock. The restrictions
expire, subject to certain performance goals, over a five-year period.
Compensation expense is recognized over the restricted period.
Changes in the cumulative translation adjustment, included in other
comprehensive income, were (in thousands):
Balance January 1, 1996 ............................ $ 75,049
Translation adjustments ............................ (27,494)
--------
Balance December 31, 1996 .......................... 47,555
Translation adjustments ............................ (84,406)
--------
Balance December 31, 1997 .......................... (36,851)
Translation adjustments ............................ 27,721
--------
Balance December 31, 1998 .......................... $(9,130)
========
On February 13, 1990, the Company adopted a shareholder protection rights
agreement (the "Rights Agreement") and declared a dividend of one right on each
share of common stock outstanding on February 28, 1990 or issued thereafter.
Under the Rights Agreement, as amended, until a person or group acquires
20% or more of the Company's common stock or commences a tender offer that will
result in such person or group owning 20% or more, the rights will be evidenced
by the common stock certificates, will automatically trade with the common stock
and will not be exercisable. Thereafter, separate rights certificates will be
distributed and each right will entitle its holder to purchase one share of
common stock for an exercise price of $250.
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
If any person or group acquires 20% or more of the Company's common stock,
then ten business days thereafter (the "Flip-in Date") each right (other than
rights beneficially owned by holders of 20% or more of the common stock or
transferees thereof, which rights become void) will entitle its holder to
purchase, for the exercise price, a number of shares of common stock having a
market value of twice the exercise price.
If the Company is involved in a merger or sells more than 50% of its assets
or earning power, each right will entitle its holder to purchase, for the
exercise price, a number of shares of common stock of the acquiring company
having a market value of twice the exercise price. If any person or group
acquires between 20% and 50% of common stock, the Company's Board of Directors
may, at its option, exchange one share of common stock for each right. The
rights may be redeemed by the Board of Directors for $0.01 per right prior to
the Flip-in Date. The rights will expire on February 20, 2000, unless previously
redeemed by the Board in accordance with the terms of the Rights Agreement.
Dividends paid per share were $1.48, $1.44 and $1.36 in 1998, 1997 and
1996, respectively.
NOTE 9. STOCK OPTIONS
The Company has various stock option plans under which the Company's
officers, directors and key employees may be granted options to purchase the
Company's common stock at 100% of the market price on the day the option is
granted.
Except for certain options granted to foreign employees which can be
exercised immediately, options generally become exercisable no earlier than two
years from the date of grant. All options expire ten years after date of grant.
During 1998, options to purchase common stock were granted at exercise
prices ranging from $40.50 to $49.69 per share. At December 31, 1998, the price
range for shares under option was $19.30 to $49.88; options for 1,983,676 shares
were exercisable at that date. During 1998, 138,036 shares of common stock under
option were exercised at prices ranging from $19.30 to $36.21.
Stock option transactions were:
Shares of Common Stock Weighted
---------------------- Average
Available Under Exercise
for Option Option Price
---------- --------- ---------
Balance January 1, 1996 .............. 863,166 3,285,632 $37.09
Granted .............................. (639,500) 639,500 48.06
Exercised ............................ -- (425,349) 29.78
Terminated ........................... 13,428 (13,428) 38.21
--------- ---------
Balance December 31, 1996 ............ 237,094 3,486,355 39.98
Granted .............................. (781,250) 781,250 43.38
Exercised ............................ -- (542,446) 33.61
Terminated ........................... 94,485 (94,485) 39.67
Increase under 1997 plan ............. 3,500,000 -- --
--------- ---------
Balance December 31, 1997 ............ 3,050,329 3,630,674 41.67
Granted .............................. (941,000) 941,000 48.93
Exercised ............................ -- (138,036) 33.10
Terminated ........................... 397,719 (397,719) 46.26
--------- ---------
Balance December 31, 1998 ............ 2,507,048 4,035,919 $43.21
========= =========
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information concerning currently outstanding
and exercisable options:
Range of Exercise Prices
-------------------------
$10-$30 $30-$50
------- ---------
Number outstanding ................................. 231,473 3,804,446
Weighted average remaining contractual
life, in years ................................... 1.7 7.1
Weighted average exercise price .................... $24.31 $44.36
Number exercisable ................................. 231,473 1,752,203
Weighted average exercise price .................... $24.31 $41.21
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for its
plans. Had compensation cost for the Company's stock option plans been
determined based upon the fair value at the grant date, consistent with the
methodology prescribed under Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation, the Company's net income and basic
earnings per share would have been reduced by approximately $4,700,000 ($.04 per
share) in 1998, $3,500,000 ($.03 per share) in 1997 and $2,700,000 ($.02 per
share) in 1996. These pro forma amounts may not be representative of future
disclosures because the estimated fair value of stock options is amortized to
expense over the vesting period, and additional options may be granted in future
years.
Using the Black-Scholes option valuation model, the estimated fair values
of options granted during 1998, 1997 and 1996 were $9.74, $8.19 and $9.98,
respectively. The Black-Scholes model was developed for use in estimating the
fair value of traded options which have no vesting restrictions. In addition,
such models require the use of subjective assumptions, including expected stock
price volatility. In management's opinion, such valuation models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
Principal assumptions used in applying the Black-Scholes model were as
follows:
1998 1997 1996
---- ---- ----
Risk-free interest rate .................... 5.6% 6.6% 6.6%
Expected life, in years .................... 5 5 5
Expected volatility ........................ 19.5% 16.4% 16.8%
Expected dividend yield .................... 3.0% 3.3% 2.8%
NOTE 10. SEGMENT INFORMATION
The Company's reportable segments are based on geographic area; accounting
policies used for segment reporting are the same as those described in Note 1.
The Company evaluates the performance of its geographic areas based on operating
profit, excluding interest expense, other income and expense, certain
unallocated expenses, the effects of nonrecurring items and accounting changes,
and income tax expense. Transfers between geographic areas are accounted for at
prices which approximate arm's length market prices. The North America area
includes the United States and Canada, and the EAME area includes Europe, Africa
and the Middle East. Unallocated assets are principally cash and short-term
investments.
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1998 (Dollars in thousands)
------------------------------------------------------------------------------------
North Latin Far
America EAME America East Eliminations Consolidated
-------- -------- -------- -------- ------------ ------------
Sales to unaffiliated customers .......... $474,481 $569,894 $211,235 $151,739 $ -- $1,407,349
Transfers between areas .................. 58,355 114,258 841 14,626 (188,080) --
-------- -------- -------- -------- --------- ----------
Total sales ............................ $532,836 $684,152 $212,076 $166,365 $(188,080) $1,407,349
======== ======== ======== ======== ========= ==========
Operating profit ......................... $ 66,207 $172,392 $ 47,005 $ 26,954 $ 170 $ 312,728
======== ======== ======== ======== =========
Unallocated expenses ..................... (5,974)
Interest expense ......................... (2,042)
Other income (expense), net .............. 6,356
----------
Income before taxes on income $ 311,068
==========
Segment assets ........................... $494,783 $509,006 $164,434 $166,915 $ (50,008) $1,285,130
======== ======== ======== ======== =========
Unallocated assets ....................... 102,934
----------
Total assets ........................... $1,388,064
==========
Capital expenditures ..................... $ 47,737 $ 29,424 $ 10,130 $ 4,399 $ -- $ 91,690
Depreciation ............................. 19,252 21,026 4,077 4,651 -- 49,006
======== ======== ======== ======== ========= ==========
1997 (Dollars in thousands)
------------------------------------------------------------------------------------
North Latin Far
America EAME America East Eliminations Consolidated
-------- -------- -------- -------- ------------ ------------
Sales to unaffiliated customers .......... $449,671 $589,308 $197,165 $190,647 $ -- $1,426,791
Transfers between areas .................. 68,188 101,922 1,205 15,789 (187,104) --
-------- -------- -------- -------- --------- ----------
Total sales ............................ $517,859 $691,230 $198,370 $206,436 $(187,104) $1,426,791
======== ======== ======== ======== ========= ==========
Operating profit ......................... $ 73,220 $186,113 $ 43,219 $ 36,663 $ (876) $ 338,339
======== ======== ======== ======== =========
Unallocated expenses ..................... (6,170)
Interest expense ......................... (2,420)
Other income (expense), net .............. 10,442
----------
Income before taxes on income .......... $ 340,191
==========
Segment assets ........................... $448,416 $451,784 $153,698 $159,725 $ (36,356) $1,177,267
======== ======== ======== ======== =========
Unallocated assets ....................... 244,994
----------
Total assets ........................... $1,422,261
==========
Capital expenditures ..................... $ 16,724 $ 29,024 $ 8,617 $ 4,919 $ -- $ 59,284
Depreciation ............................. 21,255 20,983 3,415 4,625 -- 50,278
======== ======== ======== ======== ========= ==========
1996 (Dollars in thousands)
------------------------------------------------------------------------------------
North Latin Far
America EAME America East Eliminations Consolidated
-------- -------- -------- -------- ------------ ------------
Sales to unaffiliated customers .......... $448,650 $610,467 $183,096 $193,840 $ -- $1,436,053
Transfers between areas .................. 64,353 94,150 3,459 9,275 (171,237) --
-------- -------- -------- -------- --------- ----------
Total sales ............................ $513,003 $704,617 $186,555 $203,115 $(171,237) $1,436,053
======== ======== ======== ======== ========= ==========
Operating profit ......................... $ 77,989 $195,696 $ 35,591 $ 38,294 $ (1,407) $ 346,163
======== ======== ======== ======== =========
Unallocated expenses ..................... (6,018)
Nonrecurring charge ...................... (49,707)
Interest expense ......................... (2,740)
Other income (expense), net .............. 11,405
----------
Income before taxes on income .......... $ 299,103
==========
Segment assets ........................... $452,352 $475,017 $133,114 $189,630 $ (48,555) $1,201,558
======== ======== ======== ======== =========
Unallocated assets ....................... 305,355
----------
Total assets ........................... $1,506,913
==========
Capital expenditures ..................... $ 39,650 $ 24,180 $ 9,780 $ 7,172 $ -- $ 80,782
Depreciation ............................. 19,104 21,993 3,262 3,405 -- 47,764
======== ======== ======== ======== ========= ==========
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Sales of fragrance products were $820,149,000, $821,592,000 and
$813,918,000 in 1998, 1997 and 1996, respectively. Sales of flavor products were
$587,200,000, $605,199,000 and $622,135,000 in 1998, 1997 and 1996,
respectively. Sales in the United States, based on the final country of
destination of the Company's products, were $432,035,000, $407,824,000 and
$413,591,000 in 1998, 1997 and 1996, respectively. No other individual country
of destination exceeded 8% of consolidated sales. Sales to the Company's largest
customer in 1998, 1997 and 1996 accounted for 11%, 11% and 12% of worldwide net
sales, respectively. Total long-lived assets consist of net property, plant and
equipment and amounted to $498,784,000, $446,509,000 and $467,797,000 at
December 31, 1998, 1997 and 1996, respectively; of the respective totals
$204,430,000, $186,888,000 and $181,761,000 were located in the United States.
No other individual country had long-lived assets that exceeded 10% of total
long-lived assets.
Net foreign exchange gains of $943,000 in 1998 and $1,231,000 in 1997 and
net losses of $668,000 in 1996 are included in other income.
NOTE 11. RETIREMENT BENEFITS
The Company and most of its subsidiaries have pension and/or other
retirement benefit plans covering substantially all employees. Pension benefits
are generally based on years of service and on compensation during the final
years of employment. Plan assets consist primarily of equity securities and
corporate and government fixed income securities. Substantially all pension
benefit costs are funded as accrued; however, such funding is limited, where
applicable, to amounts deductible for income tax purposes. Certain other
retirement benefits are provided by balance sheet accruals. Contributions to
defined contribution plans are mainly determined as a percentage of profits.
In addition to pension benefits, certain health care and life insurance
benefits are provided to qualifying United States employees upon retirement from
the Company. Such coverage is provided through insurance plans with premiums
based on benefits paid. The Company does not generally provide health care and
life insurance coverage for retired employees of foreign subsidiaries; however,
such benefits are provided in most foreign countries by government-sponsored
plans, and the cost of these programs is not significant to the Company.
Pension expense included the following components:
U.S. Plans Non-U.S. Plans
------------------------------- --------------------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- -------
(Dollars in thousands)
Service cost for benefits earned ...... $ 5,886 $ 3,914 $ 4,516 $ 6,137 $ 5,819 $ 5,379
Interest cost on projected
benefit obligation ................... 11,690 10,623 10,180 10,116 9,989 10,572
Expected return on plan assets ........ (12,972) (11,383) (10,757) (11,980) (10,621) (11,128)
Net amortization and deferrals ........ (98) (231) (198) 712 495 312
------- ------- ------- ------- ------- -------
Defined benefit plans ................. 4,506 2,923 3,741 4,985 5,682 5,135
Defined contribution and other
retirement plans ..................... 2,386 2,360 2,297 2,121 1,655 3,447
------- ------- ------- ------- ------- -------
Total pension expense ................. $ 6,892 $ 5,283 $ 6,038 $ 7,106 $ 7,337 $ 8,582
======= ======= ======= ======= ======= =======
Expense recognized for postretirement benefits included the following
components:
1998 1997 1996
------ ------ ------
(Dollars in thousands)
Service cost for benefits earned ............ $1,505 $1,070 $1,368
Interest on benefit obligation .............. 3,371 3,097 3,377
Net amortization and deferrals .............. 28 (9) 138
------ ------ ------
Total postretirement benefit expense ........ $4,904 $4,158 $4,883
====== ====== ======
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Changes in pension and postretirement benefit obligations were:
U.S. Pension Plans Non-U.S. Pension Plans Postretirement Benefits
------------------- ---------------------- -----------------------
1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- ------- -------
(Dollars in thousands)
Benefit obligation at beginning
of year ............................. $158,736 $133,968 $153,758 $156,827 $46,808 $45,939
Service cost for benefits earned ..... 5,886 3,914 6,137 5,819 1,505 1,070
Interest cost on projected
benefit obligation .................. 11,690 10,623 10,116 9,989 3,371 3,097
Actuarial (gain) loss ................ 18,623 12,595 10,999 1,123 5,953 (2,470)
Plan amendments ...................... -- 3,132 -- 4,331 -- 200
Plan participants' contributions ..... -- -- 88 94 -- --
Benefits paid ........................ (6,840) (5,496) (6,253) (6,055) (1,704) (1,028)
Translation adjustments .............. -- -- 10,065 (18,370) -- --
-------- -------- -------- -------- ------- -------
Benefit obligation at end of year .... $188,095 $158,736 $184,910 $153,758 $55,933 $46,808
======== ======== ======== ======== ======= =======
Changes in pension plan assets were:
U.S. Plans Non-U.S. Plans
-------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
(Dollars in thousands)
Fair value of plan assets at beginning of year ............. $202,417 $164,334 $148,067 $148,094
Actual return on plan assets ............................... 38,044 37,598 8,341 17,565
Employer contributions ..................................... 2,847 5,981 5,551 5,319
Plan participants' contributions ........................... -- -- 88 94
Benefits paid .............................................. (6,840) (5,496) (6,253) (6,055)
Translation adjustments .................................... -- -- 9,009 (16,950)
-------- -------- -------- --------
Fair value of plan assets at end of year ................... $236,468 $202,417 $164,803 $148,067
======== ======== ======== ========
The funded status of pension and postretirement plans at December 31 was:
U.S. Pension Plans Non-U.S. Pension Plans Postretirement Benefits
------------------ ---------------------- -----------------------
1998 1997 1998 1997 1998 1997
------- ------- -------- ------- -------- --------
(Dollars in thousands)
Plan assets in excess of (less than)
projected benefit obligation ......... $48,373 $43,681 $(20,107) $(5,691) $(55,933) $(46,808)
Remaining balance of unrecognized
net (asset) liability established
at adoption of FAS 87 ................ (2,856) (3,477) 1,589 1,526 -- --
Unrecognized prior service cost ....... 4,505 4,904 6,371 6,585 174 187
Unrecognized net (gain) loss .......... (45,384) (38,811) 10,996 (3,841) 6,348 410
------- ------- -------- ------- -------- --------
Net asset (liability) ................. $ 4,638 $ 6,297 $ (1,151) $(1,421) $(49,411) $(46,211)
======= ======= ======== ======= ======== ========
Pension assets and liabilities included in the Consolidated Balance Sheet
at December 31 were:
U.S. Plans Non-U.S. Plans
------------------- -------------------
1998 1997 1998 1997
------- ------- ------ ------
(Dollars in thousands)
Prepaid benefit cost .......... $ 20,331 $ 19,845 $ 6,191 $ 5,291
Accrued benefit liability ..... (15,693) (13,548) (7,342) (6,712)
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Principal weighted average actuarial assumptions used to determine the
above pension data were:
U.S. Plans Non-U.S. Plans
--------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
Discount rate .......................... 6.7% 7.2% 5.3% 6.6%
Weighted average rate of
compensation increase ................ 4.5% 4.5% 2.8% 3.5%
Long-term rate of return
on plan assets ....................... 8.0% 8.0% 7.3% 7.9%
Principal actuarial assumptions used to determine the above postretirement
data were:
1998 1997
---- ----
Discount rate .................................. 6.7% 7.2%
Initial medical cost trend rate ................ 7.0% 8.0%
Ultimate medical cost trend rate ............... 5.0% 5.0%
Medical cost trend rate decreases to
ultimate rate in year ........................ 2003 2001
The effect of a 1% increase in the assumed medical rate of inflation would
increase the accumulated postretirement benefit obligation, and the annual
postretirement expense, by approximately $9,900,000 and $1,100,000,
respectively; a 1% decrease in the rate would decrease the obligation and
expense by approximately $7,800,000 and $800,000, respectively.
NOTE 12. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
The Company uses forward exchange contracts to reduce its exposure to
fluctuations in foreign currency exchange rates. These contracts, the
counterparties to which are major international financial institutions,
generally involve the exchange of one currency for a second currency at a future
date, and have maturities which do not exceed six months. Gains and losses on
such contracts are recognized in income as incurred, effectively offsetting the
losses and gains on the foreign currency transactions that are hedged. At
December 31, 1998 and 1997, the value of outstanding foreign currency exchange
contracts was not material.
The Company has no significant concentrations of risk in financial
instruments. Temporary cash investments are made in a well-diversified portfolio
of high-quality, liquid obligations of government, corporate and financial
institutions. There are also limited concentrations of credit risk with respect
to trade receivables because of the large number of customers spread across many
industries and geographic areas.
NOTE 13. CONTINGENT LIABILITIES
There are various lawsuits and claims pending against the Company.
Management believes that any liability resulting from those actions or claims
will not have a material adverse effect on the Company's financial condition,
results of operations or liquidity.
28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
INTERNATIONAL FLAVORS & FRAGRANCES INC.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 8 on page 13 present fairly, in all material respects, the
financial position of International Flavors & Fragrances Inc. and its
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
1301 Avenue of the Americas
New York, New York 10019
January 28, 1999
29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) See Item 8 on page 13.
(b) A report on Form 8-K was filed during the last quarter of the year
ended December 31, 1998 on October 5, 1998.
(c) Exhibits.
(d) Not applicable.
Number
- ------
2 Not applicable.
3 Restated Certificate of Incorporation of Registrant,
incorporated by reference to Exhibit 3 to Registrant's Report
on Form 10-K for fiscal year ended December 31, 1993 (File No.
1-4858).
3(b) By-laws of Registrant, incorporated by reference to Exhibit
3(b) to Registrant's Report on Form 10-K for fiscal year ended
December 31, 1993 (File No. 1-4858).
3(c) Amendment to By-laws adopted December 12, 1996, incorporated
by reference to Exhibit 3(c) to Registrant's Report on Form
10-K for the fiscal year ended December 31, 1996 (File No.
1-4858).
3(d) Amendment to By-laws adopted May 8, 1997, incorporated by
reference to Exhibit 3(a) to Registrant's Report on Form 10-Q
dated August 13, 1997 (File No. 1-4858).
3(e) Amendments to By-laws adopted March 10, 1998, incorporated by
reference to Exhibit 3(a) to Registrant's Report on Form 10-Q
dated May 14, 1998 (File No. 1-4858).
4(a) Shareholder Protection Rights Agreement dated as of February
20, 1990 between Registrant and The Bank of New York, as
Rights Agent, incorporated by reference to Exhibit 4(a) to
Registrant's Report on Form 10-Q dated May 14, 1997 (File No.
1-4858).
4(b) Amendment No. 1 dated as of April 6, 1990 to Shareholder
Protection Rights Agreement, incorporated by reference to
Exhibit 4(b) to Registrant's Report on Form 10-Q dated May 14,
1997 (File No. 1-4858).
4(c) Amendment No. 2 dated as of March 8, 1994 to Shareholder
Protection Rights Agreement, incorporated by reference to
Exhibit 4(c) to Registrant's Report on Form 10-K for fiscal
year ended December 31, 1993 (File No. 1-4858).
4(cc) Amended and Restated Shareholder Protection Rights Agreement
dated as of September 25, 1998, incorporated by reference to
Exhibit (4) to Registrant's Report on Form 8-K dated September
25, 1998.
4(ccc) First Amendment dated as of March 9, 1999 to the Amended and
Restated Shareholder Protection Rights Agreement.
4(d) Specimen certificates of Registrant's Common Stock bearing
legend notifying of Shareholder Protection Rights Agreement,
incorporated by reference to Exhibit 4(d) to Registrant's
Report on Form 10-Q dated May 14, 1997 (File No. 1-4858).
9 Not applicable.
10(a) Agreement dated as of January 1, 1997 between Registrant and
Eugene P. Grisanti, Chairman and President of Registrant,
incorporated by reference to Exhibit 10(a) to Registrant's
Report on Form 10-Q dated May 14, 1997 (File No. 1-4858).
10(b) Form of Executive Severance Agreement approved by Registrant's
Board of Directors on February 14, 1989 incorporated by
reference to Exhibit 10(b) to Registrant's Report on Form
10-Q dated May 14, 1997 (File No. 1-4858).
10(c) Registrant's Executive Death Benefit Plan effective July 1,
1990, incorporated by reference to Exhibit 10(c) to
Registrant's Report on Form 10-Q dated May 14, 1997 (File No.
1-4858).
10(d) Supplemental Retirement Investment Plan adopted by
Registrant's Board of Directors on November 14, 1989
incorporated by reference to Exhibit 10(d) to Registrant's
Report on Form 10-Q dated May 14, 1997 (File No. 1-4858).
10(e) Supplemental Retirement Plan adopted by Board of Directors on
October 29, 1986, incorporated by reference to Exhibit 10(e)
to Registrant's Report on Form 10-Q dated May 14, 1997 (File
No. 1-4858).
30
Number
- ------
10(f) Restated Management Incentive Compensation Plan of Registrant,
incorporated by reference to Exhibit A to the Registrant's
Proxy Statement dated March 28, 1995 (File No. 1-4858).
10(h) Stock Option Plan for Non-Employee Directors, incorporated by
reference to Exhibit 10(h) to Registrant's Report on Form 10-Q
dated May 14, 1997 (File No. 1-4858).
10(i) Registrant's Directors' Deferred Compensation Plan adopted by
Registrant's Board of Directors on September 15, 1981,
incorporated by reference to Exhibit 10(i) to Registrant's
Report on Form 10-Q dated May 14, 1997 (File No. 1-4858).
10(j) Director Charitable Contribution Program adopted by the Board
of Directors on February 14, 1995 incorporated by reference to
Exhibit 10(j) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 1-4858).
10(k) Agreement dated as of July 22, 1996 between Registrant and
Hugh R. Kirkpatrick, former Senior Vice-President and Director
of Registrant incorporated by reference to Exhibit 10(k) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 1-4858).
10(l) 1997 Employee Stock Option Plan, incorporated by reference to
Exhibit A to the Registrant's Proxy Statement dated March 27,
1997 (File No. 1-4858).
10(m) Agreement dated June 19, 1997 between Registrant and Hendrik
C. van Baaren, former Senior Vice-President and Director of
Registrant, incorporated by reference to Exhibit 10(m) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1997 (File No. 1-4858).
10(n) Agreement dated September 2, 1998 between Registrant and
David G. Bluestein, former Director and Senior Vice-President
of Registrant, incorporated by reference to Exhibit 10(c) to
Registrant's Report on Form 10-Q dated November 13, 1998 (File
No. 1-4858).
10(o) Agreement dated July 27, 1998 between Registrant and Stuart
R. Maconochie, Vice-President of Registrant, incorporated by
reference to Exhibit 10(b) to Registrant's Report on Form 10-Q
dated November 13, 1998 (File No. 1-4858).
10(p) Agreement dated June 23, 1998 between Registrant and Carlos
A. Lobbosco, Vice-President of Registrant, incorporated by
reference to Exhibit 10(a) to Registrant's Report on Form 10-Q
dated November 13, 1998 (File No. 1-4858).
10(q) Agreement dated July 2, 1998 between Registrant and Brian D.
Chadbourne, former Director and Senior Vice-President of
Registrant, incorporated by reference to Exhibit 10(a) to
Registrant's Report on Form 10-Q dated August 14, 1998 (File
No. 1-4858).
10(r) Agreement dated February 25, 1998 between Registrant and
Thomas H. Hoppel, former Vice-President, Chief Financial
Officer and Director of Registrant, incorporated by reference
to Exhibit 10(a) to Registrant's Report on Form 10-Q dated May
14, 1998 (File No. 1-4858).
11 Not applicable.
12 Not applicable.
13 Not applicable.
16 Not applicable.
18 Not applicable.
21 List of Principal Subsidiaries. See page E-1 of this
Form 10-K.
22 Not applicable.
23 Consent of PricewaterhouseCoopers LLP. See page 33 of this
Form 10-K.
24 Powers of Attorney authorizing George Rowe, Jr. and Stephen A.
Block to sign this report and amendments thereto on behalf of
certain directors and officers of the Registrant.
27 Financial Data Schedule (EDGAR version only).
28 Not applicable.
99 None.
31
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OF THE SECURITIES EXCHANGE ACT
OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED HEREUNTO DULY AUTHORIZED.
INTERNATIONAL FLAVORS & FRAGRANCES INC.
(REGISTRANT)
By: /s/ DOUGLAS J. WETMORE
------------------------------------
Douglas J. Wetmore
Vice-President and Chief Financial
Officer
Dated: March 30, 1999
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED:
PRINCIPAL EXECUTIVE OFFICER:
EUGENE P. GRISANTI
President, Chairman of the Board
and Chief Executive Officer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
DOUGLAS J. WETMORE By: /s/ STEPHEN A. BLOCK
Vice-President and Chief Financial -----------------------------------
Officer and Director Stephen A. Block
Attorney-in-fact
DIRECTORS:
MARGARET HAYES ADAME
ROBERT G. CORBETT
ROBIN CHANDLER DUKE
RICHARD M. FURLAUD
STUART R. MACONOCHIE March 30, 1999
GEORGE ROWE, JR.
STANLEY M. RUMBOUGH, JR.
HENRY P. VAN AMERINGEN
WILLIAM D. VAN DYKE, III
ORIGINAL POWERS OF ATTORNEY AUTHORIZING GEORGE ROWE, JR. AND STEPHEN A.
BLOCK, AND EACH OF THEM, TO SIGN THIS REPORT ON BEHALF OF CERTAIN DIRECTORS AND
OFFICERS OF THE REGISTRANT HAVE BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
32
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 333-59689, No. 33-66756 and No. 33-47856) and the
Registration Statement on Form S-8 (No. 33-54423) of International Flavors &
Fragrances Inc. of our report dated January 28, 1999 relating to the financial
statements and financial statement schedules, which appears on page 29 of this
Form 10-K.
PRICEWATERHOUSECOOPERS LLP
1301 Avenue of the Americas
New York, New York 10019
March 30, 1999
33
SCHEDULE VIII
INTERNATIONAL FLAVORS & FRAGRANCES INC. AND SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands of dollars)
FOR THE YEAR ENDED DECEMBER 31, 1998
Additions Trans-
Balance at charged to lation Balance
beginning costs and Accounts adjust- at end
of period expenses written off ments of period
--------- -------- ----------- ----- ---------
Allowance for doubtful accounts ............... $8,101 $2,228 $1,053 $ 241 $9,517
====== ====== ====== ====== ======
FOR THE YEAR ENDED DECEMBER 31, 1997
Additions Trans-
Balance at charged to lation Balance
beginning costs and Accounts adjust- at end
of period expenses written off ments of period
--------- -------- ----------- ----- ---------
Allowance for doubtful accounts ............... $8,733 $1,506 $1,304 ($ 834) $8,101
====== ====== ====== ====== ======
FOR THE YEAR ENDED DECEMBER 31, 1996
Additions Trans-
Balance at charged to lation Balance
beginning costs and Accounts adjust- at end
of period expenses written off ments of period
--------- -------- ----------- ----- ---------
Allowance for doubtful accounts ............... $8,602 $1,564 $1,290 ($ 143) $8,733
====== ====== ====== ====== ======
S-1
EXHIBIT 21
LIST OF REGISTRANT'S PRINCIPAL SUBSIDIARIES
There is furnished below a list of the principal subsidiaries of
Registrant. All the voting stock of each subsidiary, other than directors'
qualifying shares, if any, is wholly owned by Registrant or a subsidiary of
Registrant, except that International Flavors & Fragrances I.F.F. (France)
S.a.r.1. is owned 70% by International Flavors & Fragrances I.F.F. (Nederland)
B.V. and 30% by Registrant, I.F.F. Essencias e Fragrancias Ltda. is owned 63% by
Registrant and 37% by International Flavors & Fragrances I.F.F. (Nederland)
B.V., and International Flavours & Fragrances I.F.F. (Great Britain) Ltd. is
owned 49% by International Flavors & Fragrances I.F.F. (Nederland) B.V. and 51%
by Aromatics Holdings Limited.
Organized under
Name of Company laws of
--------------- ---------------
International Flavors & Fragrances Inc. .................................... New York
International Flavors & Fragrances I.F.F. (Nederland) B.V. ............... The Netherlands
Aromatics Holdings Limited ............................................. Ireland
IFF-Benicarlo, S.A. .................................................. Spain
International Flavours & Fragrances (China) Ltd. ..................... China
Irish Flavours and Fragrances Limited ................................ Ireland
International Flavours & Fragrances I.F.F. (Great Britain) Ltd. ...... England
International Flavors & Fragrances I.F.F. (Italia) S.r.l. ............ Italy
International Flavors & Fragrances I.F.F. (Deutschland)
G.m.b.H. .............................................................. Germany
International Flavors & Fragrances I.F.F. (Switzerland) A.G. ........... Switzerland
International Flavors & Fragrances I.F.F. (France) S.a.r.l. ............ France
International Flavors & Fragrances (Hong Kong) Ltd. .................... Hong Kong
International Flavors & Fragrances (Japan) Ltd. ........................ Japan
International Flavors & Fragrances S.A.C.I. .............................. Argentina
I.F.F. Essencias e Fragrancias Ltda. ..................................... Brazil
International Flavours & Fragrances (Australia) Pty. Ltd. ................ Australia
P.T. Essence Indonesia ................................................... Indonesia
International Flavors & Fragrances (Mexico) S.A. de C.V. ................. Mexico
International Flavors & Fragrances I.F.F. (Espana) S.A. .................. Spain
ALVA Insurance Limited ................................................... Bermuda
E-1
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
2 Not applicable.
3 Restated Certificate of Incorporation of Registrant,
incorporated by reference to Exhibit 3 to Registrant's Report
on Form 10-K for fiscal year ended December 31, 1993 (File No.
1-4858).
3(b) By-laws of Registrant, incorporated by reference to Exhibit
3(b) to Registrant's Report on Form 10-K for fiscal year ended
December 31, 1993 (File No. 1-4858).
3(c) Amendment to By-laws adopted December 12, 1996, incorporated
by reference to Exhibit 3(c) to Registrant's Report on Form
10-K for the fiscal year ended December 31, 1996 (File No.
1-4858).
3(d) Amendment to By-laws adopted May 8, 1997, incorporated by
reference to Exhibit 3(a) to Registrant's Report on Form 10-Q
dated August 13, 1997 (File No. 1-4858).
3(e) Amendments to By-laws adopted March 10, 1998, incorporated by
reference to Exhibit 3(a) to Registrant's Report on Form 10-Q
dated May 14, 1998 (File No. 1-4858).
4(a) Shareholder Protection Rights Agreement dated as of February
20, 1990 between Registrant and The Bank of New York, as
Rights Agent, incorporated by reference to Exhibit 4(a) to
Registrant's Report on Form 10-Q dated May 14, 1997 (File No.
1-4858).
4(b) Amendment No. 1 dated as of April 6, 1990 to Shareholder
Protection Rights Agreement, incorporated by reference to
Exhibit 4(b) to Registrant's Report on Form 10-Q dated May 14,
1997 (File No. 1-4858).
4(c) Amendment No. 2 dated as of March 8, 1994 to Shareholder
Protection Rights Agreement, incorporated by reference to
Exhibit 4(c) to Registrant's Report on Form 10-K for fiscal
year ended December 31, 1993 (File No. 1-4858).
4(cc) Amended and Restated Shareholder Protection Rights Agreement
dated as of September 25, 1998, incorporated by reference to
Exhibit (4) to Registrant's Report on Form 8-K dated September
25, 1998.
4(ccc) First Amendment dated as of March 9, 1999 to the Amended and
Restated Shareholder Protection Rights Agreement.
4(d) Specimen certificates of Registrant's Common Stock bearing
legend notifying of Shareholder Protection Rights Agreement,
incorporated by reference to Exhibit 4(d) to Registrant's
Report on Form 10-Q dated May 14, 1997 (File No. 1-4858).
9 Not applicable.
10(a) Agreement dated as of January 1, 1997 between Registrant and
Eugene P. Grisanti, Chairman and President of Registrant,
incorporated by reference to Exhibit 10(a) to Registrant's
Report on Form 10-Q dated May 14, 1997 (File No. 1-4858).
10(b) Form of Executive Severance Agreement approved by Registrant's
Board of Directors on February 14, 1989 incorporated by
reference to Exhibit 10(b) to Registrant's Report on Form
10-Q dated May 14, 1997 (File No. 1-4858).
10(c) Registrant's Executive Death Benefit Plan effective July 1,
1990, incorporated by reference to Exhibit 10(c) to
Registrant's Report on Form 10-Q dated May 14, 1997 (File No.
1-4858).
10(d) Supplemental Retirement Investment Plan adopted by
Registrant's Board of Directors on November 14, 1989
incorporated by reference to Exhibit 10(d) to Registrant's
Report on Form 10-Q dated May 14, 1997 (File No. 1-4858).
10(e) Supplemental Retirement Plan adopted by Board of Directors on
October 29, 1986, incorporated by reference to Exhibit 10(e)
to Registrant's Report on Form 10-Q dated May 14, 1997 (File
No. 1-4858).
EXHIBIT
- -------
10(f) Restated Management Incentive Compensation Plan of Registrant,
incorporated by reference to Exhibit A to the Registrant's
Proxy Statement dated March 28, 1995 (File No. 1-4858).
10(h) Stock Option Plan for Non-Employee Directors, incorporated by
reference to Exhibit 10(h) to Registrant's Report on Form 10-Q
dated May 14, 1997 (File No. 1-4858).
10(i) Registrant's Directors' Deferred Compensation Plan adopted by
Registrant's Board of Directors on September 15, 1981,
incorporated by reference to Exhibit 10(i) to Registrant's
Report on Form 10-Q dated May 14, 1997 (File No. 1-4858).
10(j) Director Charitable Contribution Program adopted by the Board
of Directors on February 14, 1995 incorporated by reference to
Exhibit 10(j) to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 1-4858).
10(k) Agreement dated as of July 22, 1996 between Registrant and
Hugh R. Kirkpatrick, former Senior Vice-President and Director
of Registrant incorporated by reference to Exhibit 10(k) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 1-4858).
10(l) 1997 Employee Stock Option Plan, incorporated by reference to
Exhibit A to the Registrant's Proxy Statement dated March 27,
1997 (File No. 1-4858).
10(m) Agreement dated June 19, 1997 between Registrant and Hendrik
C. van Baaren, former Senior Vice-President and Director of
Registrant, incorporated by reference to Exhibit 10(m) to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1997 (File No. 1-4858).
10(n) Agreement dated September 2, 1998 between Registrant and
David G. Bluestein, former Director and Senior Vice-President
of Registrant, incorporated by reference to Exhibit 10(c) to
Registrant's Report on Form 10-Q dated November 13, 1998 (File
No. 1-4858).
10(o) Agreement dated July 27, 1998 between Registrant and Stuart
R. Maconochie, Vice-President of Registrant, incorporated by
reference to Exhibit 10(b) to Registrant's Report on Form 10-Q
dated November 13, 1998 (File No. 1-4858).
10(p) Agreement dated June 23, 1998 between Registrant and Carlos
A. Lobbosco, Vice-President of Registrant, incorporated by
reference to Exhibit 10(a) to Registrant's Report on Form 10-Q
dated November 13, 1998 (File No. 1-4858).
10(q) Agreement dated July 2, 1998 between Registrant and Brian D.
Chadbourne, former Director and Senior Vice-President of
Registrant, incorporated by reference to Exhibit 10(a) to
Registrant's Report on Form 10-Q dated August 14, 1998 (File
No. 1-4858).
10(r) Agreement dated February 25, 1998 between Registrant and
Thomas H. Hoppel, former Vice-President, Chief Financial
Officer and Director of Registrant, incorporated by reference
to Exhibit 10(a) to Registrant's Report on Form 10-Q dated May
14, 1998 (File No. 1-4858).
11 Not applicable.
12 Not applicable.
13 Not applicable.
16 Not applicable.
18 Not applicable.
21 List of Principal Subsidiaries. See page E-1 of this
Form 10-K.
22 Not applicable.
23 Consent of PricewaterhouseCoopers LLP. See page 33 of this
Form 10-K.
24 Powers of Attorney authorizing George Rowe, Jr. and Stephen A.
Block to sign this report and amendments thereto on behalf of
certain directors and officers of the Registrant.
27 Financial Data Schedule (EDGAR version only).
28 Not applicable.
99 None.