01—Abstract
Summary
Summary of the 10-K filed March 31, 1998. Cited figures are marked; the original filing is the authoritative source.
International Flavors & Fragrances Inc. (IFF), a New York corporation headquartered at 521 West 57th Street, New York, reported 1997 net sales of $1,426,791,000,a down slightly from $1,436,053,000 in 1996, and net income of $218,229,000, or $1.99 per diluted share, compared with $189,894,000 in 1996.
The 1996 figure included a nonrecurring pretax charge of $49,707,000b ($31,315,000 after tax) tied to streamlining its aroma chemical production, so 1997 net income rose against that depressed base. The filing attributes the sales shortfall largely to a stronger U.S. dollar; the company states that at constant exchange rates sales would have increased approximately 4% worldwide. Fragrance products accounted for $821,592,000 of sales and flavor products for $605,199,000.
Gross margin fell to a cost of goods sold ratio of 54.2%, unchanged from 1996 but up from 51.9% in 1995, and selling and administrative expenses rose to 15.9% of sales. The balance sheet remains conservative. Total assets declined to $1,422,261,000c from $1,506,913,000, long-term debt was only $5,114,000, and cash, cash equivalents and short-term investments totaled $260,446,000.
Operating cash flow was $239,148,000,d down from $307,999,000 in 1996, and the company spent $58,211,000 on net property additions and $70,988,000 repurchasing treasury stock. Dividends declared totaled $1.45 per share for 1997, and the annualized dividend rate was increased to $1.48 per share in January 1998. The company spent $94,411,000 on research and development and reported 30% of 1997 sales in North America, 33% in Western Europe and 37% in the rest of the world.
The filing also discloses a number of routine risks. The company is a potentially responsible party at 10 waste sites, which it states will not be material. Year 2000 remediation is in progress with no material cost expected.
Management states that the Far East and Brazil slowdowns affected sales in the fourth quarter, though those countries represent only about 7% of consolidated sales. Long-serving Chief Financial Officer Thomas H.
Hoppel retires on March 31, 1998, and Douglas J. Wetmore assumes the CFO role on April 1, 1998.
02—Key points
Key Highlights
- Net sales of $1,426,791,000 in 1997, down 1% from $1,436,053,000 in 1996, with the filing attributing the decline mainly to a stronger U.S. dollar
- Net income of $218,229,000 ($1.99 diluted EPS) in 1997, up from $189,894,000 ($1.70 diluted EPS) in 1996, which included a $49,707,000 pretax nonrecurring charge
- Fragrance sales of $821,592,000 (up 1%) and flavor sales of $605,199,000 (down 3%) in 1997
- Cost of goods sold at 54.2% of sales in 1997 and 1996, up from 51.9% in 1995, reflecting competitive pricing for aroma chemicals
- Balance sheet strength with long-term debt of only $5,114,000 and cash, cash equivalents and short-term investments of $260,446,000 at year-end 1997
- Operating cash flow of $239,148,000 in 1997, down from $307,999,000 in 1996; $70,988,000 spent on treasury stock purchases
- Dividend declared at $1.45 per share for 1997 and raised to an annual rate of $1.48 per share in January 1998
03—Questions
Frequently Asked Questions
Why did IFF's sales decline in 1997 even though the company reported growth in fragrance products?
The filing states that reported sales were unfavorably affected by the stronger U.S. dollar. Had exchange rates remained unchanged from 1996, sales would have increased approximately 4% worldwide. Fragrance sales rose 1% to $821,592,000, while flavor sales fell 3% to $605,199,000. Sales in the Far East and Brazil also slowed, mainly in the fourth quarter, though those countries account for only about 7% of consolidated sales.
How did the 1996 nonrecurring charge affect the year-over-year comparison?
The 1996 results included a nonrecurring pretax charge of $49,707,000 ($31,315,000 after tax, or $.29 per share) for expanding and streamlining worldwide aroma chemical production. About $33,000,000 of that charge was for asset writedowns and other non-cash costs. Excluding the charge, 1996 net income would have been $221,209,000, which means 1997 net income of $218,229,000 was slightly lower on an underlying basis. The company expects annual savings of about $20,000,000 from the program, with a substantial portion affecting 1998.
What is IFF's financial position and how is it funding growth?
IFF reported total assets of $1,422,261,000 and shareholders' equity of $1,000,488,000 at December 31, 1997. Long-term debt was only $5,114,000, and cash, cash equivalents and short-term investments totaled $260,446,000. The company states it expects to fund growth, capital expenditures and its share repurchase program from internal sources. Gross additions to property, plant and equipment were $59,284,000 in 1997 and are expected to be about $90,000,000 in 1998.
Are there significant legal or environmental risks disclosed?
The company is named as a potentially responsible party as a waste generator at a total of 10 waste sites, mainly in New Jersey and Pennsylvania. Management believes the amounts paid and expected to be paid for cleanup and damages will not be material, because other large parties are involved at most sites, payments are spread over many years, and insurers share defense and indemnity costs up to an agreed amount. The company spent approximately $2,600,000 on environmental capital projects and about $14,600,000 on environmental operating expenses in 1997.
What management and leadership changes were disclosed?
Thomas H. Hoppel, Vice-President and Chief Financial Officer and a director, retired as an officer and director on March 31, 1998. Douglas J. Wetmore, previously Controller, resigned as Controller and assumed the office of Vice-President and Chief Financial Officer on April 1, 1998. Eugene P. Grisanti continues as President and Chairman of the Board.
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