Why did net income decline in 2000 despite higher sales?

Net income fell to $123.0 million from $162.0 million. The filing attributes this to $41.3 million of nonrecurring charges, $7.0 million of goodwill and intangible amortization from the BBA acquisition, higher interest expense of $25.1 million (versus $5.2 million), and a higher cost of goods sold at 56.9% of sales versus 56.0% in 1999, partly due to BBA and weak North American absorption.

How is the BBA acquisition being financed, and what is the debt picture?

The acquisition was initially financed through short-term debt and bank borrowings, later replaced largely by commercial paper of $1,209.4 million at an average rate of 7.4%. Of this, $400.0 million is classified as long-term, and the company is arranging permanent long-term financing for a substantial portion, expected in the first half of 2001. The company also has $1,300.0 million of backstop revolving credit facilities, with no amounts drawn.

Did the company change its dividend in 2000?

Yes. In September 2000 the Board reduced the quarterly dividend by 60% to $0.15 per share, beginning with the fourth-quarter 2000 dividend. Total dividends paid were $155.5 million in 2000, compared with $161.2 million in 1999.

What restructuring and integration actions are planned?

The company reorganized into Business Development and Operations and named a single regional manager for each geographic cluster effective January 1, 2001. It expects total reorganization costs of $90.0 million to $100.0 million through 2002, with annual savings of $25.0 million to $30.0 million by 2003. For BBA integration, it expects about $70.0 million in annual savings and $75.0 million to $80.0 million in implementation costs, plus $45.0 million to $50.0 million of related capital spending.

What did the company say about portfolio changes after year-end?

On February 20, 2001, the Board authorized management to divest a significant portion of the aroma chemicals business acquired with BBA, which had annual sales of about $100.0 million in 2000. Preliminary discussions with potential buyers had begun, but no definitive agreement had been reached. The company intends to use the proceeds to pay down debt.

IFF 10-K FY2000 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 30, 2001. Cited figures are marked; the original filing is the authoritative source.

International Flavors & Fragrances Inc. (IFF) reported 2000 net sales of $1,462.8 million^a, up from $1,439.5 million in 1999, with net income falling to $123.0 million from $162.0 million, or $1.22 per diluted share versus $1.53.

The results include $41.3 million^b of nonrecurring charges and $7.0 million of amortization of goodwill and other intangibles tied to the November 3, 2000 acquisition of Bush Boake Allen Inc. (BBA) for approximately $970.0 million in cash. Excluding BBA, the filing states that 2000 sales declined 3% versus 1999, with the continuing strong U.S. dollar reducing reported sales; the filing says reported sales would have been about 5% higher at constant exchange rates. The balance sheet changed significantly with the acquisition.

Total assets rose to $2.49 billion^c from $1.40 billion, intangible assets reached $755.9 million, and commercial paper outstanding was $1,209.4 million at an average rate of 7.4%. Total shareholders' equity fell to $631.3 million from $858.5 million, reflecting $201.0 million of 2000 treasury stock purchases. The current ratio dropped to 0.9 from 2.3.

Management is pursuing permanent long-term financing for much of the BBA-related debt, expected in the first half of 2001. Management is restructuring the business. The company is reorganized around Business Development and Operations, with a single regional manager for each geographic cluster effective January 1, 2001.

The filing projects about $70.0 million^d in annual BBA synergy savings, with roughly half expected in 2001, and total reorganization costs of $90.0 million to $100.0 million through 2002. On February 20, 2001, the Board authorized management to divest a significant portion of the BBA aroma chemicals business, which had annual sales of about $100.0 million, with proceeds to pay down debt. The quarterly dividend was cut by 60% to $0.15 per share beginning in the fourth quarter of 2000.

02—Key points

Key Highlights

2000 net sales rose 2% to $1,462.8 million, while net income fell to $123.0 million ($1.22 per diluted share) from $162.0 million ($1.53) in 1999.
Acquisition of Bush Boake Allen Inc. for about $970.0 million in cash on November 3, 2000, funded initially by commercial paper and bank borrowings.
Excluding BBA, 2000 sales declined 3%; the filing cites a strong U.S. dollar, which it says reduced reported sales by roughly 5%.
Commercial paper rose to $1,209.4 million at December 31, 2000, and the current ratio fell to 0.9 from 2.3.
Shareholders' equity fell to $631.3 million from $858.5 million, reflecting $201.0 million of treasury stock purchases in 2000.
Projected BBA synergy savings of about $70.0 million annually, with about half expected in 2001; reorganization costs of $90.0 million to $100.0 million through 2002.
Board authorized divestiture of a significant portion of the BBA aroma chemicals business (about $100.0 million in annual sales); quarterly dividend cut 60% to $0.15 per share.

03—Questions

Frequently Asked Questions

Why did net income decline in 2000 despite higher sales?
Net income fell to $123.0 million from $162.0 million. The filing attributes this to $41.3 million of nonrecurring charges, $7.0 million of goodwill and intangible amortization from the BBA acquisition, higher interest expense of $25.1 million (versus $5.2 million), and a higher cost of goods sold at 56.9% of sales versus 56.0% in 1999, partly due to BBA and weak North American absorption.
How is the BBA acquisition being financed, and what is the debt picture?
The acquisition was initially financed through short-term debt and bank borrowings, later replaced largely by commercial paper of $1,209.4 million at an average rate of 7.4%. Of this, $400.0 million is classified as long-term, and the company is arranging permanent long-term financing for a substantial portion, expected in the first half of 2001. The company also has $1,300.0 million of backstop revolving credit facilities, with no amounts drawn.
Did the company change its dividend in 2000?
Yes. In September 2000 the Board reduced the quarterly dividend by 60% to $0.15 per share, beginning with the fourth-quarter 2000 dividend. Total dividends paid were $155.5 million in 2000, compared with $161.2 million in 1999.
What restructuring and integration actions are planned?
The company reorganized into Business Development and Operations and named a single regional manager for each geographic cluster effective January 1, 2001. It expects total reorganization costs of $90.0 million to $100.0 million through 2002, with annual savings of $25.0 million to $30.0 million by 2003. For BBA integration, it expects about $70.0 million in annual savings and $75.0 million to $80.0 million in implementation costs, plus $45.0 million to $50.0 million of related capital spending.
What did the company say about portfolio changes after year-end?
On February 20, 2001, the Board authorized management to divest a significant portion of the aroma chemicals business acquired with BBA, which had annual sales of about $100.0 million in 2000. Preliminary discussions with potential buyers had begun, but no definitive agreement had been reached. The company intends to use the proceeds to pay down debt.

04—Continue

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