01—Abstract
Summary
Summary of the 10-K filed March 25, 2003. Cited figures are marked; the original filing is the authoritative source.
International Flavors & Fragrances Inc. (IFF) reported net sales of $1.81 billiona for fiscal 2002, down 2% from $1.84 billion in 2001 as reported, while pro-forma sales rose 2% to $1.80 billion.
Net income was $175.9 millionb, or $1.84 diluted per share, compared with $116.0 million, or $1.20 per share, in 2001. Excluding nonrecurring charges, diluted earnings were $1.92 per share. The company attributes the 2002 profit improvement largely to the discontinuance of goodwill amortization under FAS 142, the disposal of non-core businesses, and integration savings from the Bush Boake Allen (BBA) acquisition completed in November 2000.
Fragrance products accounted for about 59% of 2002 sales and flavor products for about 41%, with about 70% of sales generated outside the United States. Cash flow from operations was $243.3 million, and debt was reduced to $1.06 billionc in total debt at year-end, versus $1.17 billion a year earlier. Management expects to reduce debt by approximately $100.0 million in 2003 and plans a new $100.0 million share repurchase program over the next two years.
Research and development spending rose to $144.0 milliond (8.0% of sales), and is expected to reach about $160.0 million in 2003. The filing describes ongoing litigation involving a Missouri class action over respiratory injuries alleged to be linked to a BBA flavor, which the company does not expect to have a material adverse effect, and environmental waste-site claims it considers immaterial. The company disclosed that its 30 largest customers accounted for about 52% of sales and that no single customer exceeded 3% of sales.
02—Key points
Key Highlights
- Net sales of $1.81 billion in 2002, down 2% as reported and up 2% on a pro-forma basis.
- Net income rose to $175.9 million, or $1.84 diluted EPS, versus $116.0 million, or $1.20, in 2001; excluding nonrecurring charges, diluted EPS was $1.92.
- Return on average shareholders' equity was 32.0%, compared with 20.1% in 2001.
- Total debt fell to $1,056.7 million from $1,167.3 million, and the company expects to reduce debt by about $100.0 million in 2003.
- A new $100.0 million share repurchase program was authorized on October 22, 2002, to be completed over two years.
- Research and development expenses were $144.0 million in 2002 and are expected to rise to about $160.0 million in 2003.
- Approximately 70% of sales are outside the United States, with 37 fragrance and flavor laboratories in 27 countries.
03—Questions
Frequently Asked Questions
How did IFF's profitability change in 2002?
Net income increased to $175.9 million, or $1.84 per diluted share, from $116.0 million, or $1.20 per share, in 2001. The filing attributes the improvement partly to the discontinuance of goodwill amortization under FAS 142, which eliminated annual goodwill amortization of approximately $33.0 million, and to lower interest expense, which fell to $37.0 million from $70.4 million.
What drove the change in sales?
Reported net sales declined 2% to $1,809.2 million, with sales favorably affected by a weaker U.S. dollar; without currency effects, sales would have decreased 3%. Pro-forma sales, excluding non-core businesses, rose 2% to $1,799.8 million. Latin America sales declined 9% on a pro-forma basis, while North America increased 1%.
How strong is the company's balance sheet and cash generation?
Net cash provided by operating activities was $243.3 million in 2002. Total debt declined to $1,056.7 million, and shareholders' equity increased to $574.7 million from $524.2 million. Working capital rose to $507.3 million, and the current ratio improved to 2.4 from 1.6.
What legal and environmental risks does the filing disclose?
The company is a defendant in a purported class action in Missouri alleging respiratory injuries from a BBA flavor used at a Gilster-Mary Lee plant, which it does not expect to have a material adverse effect. It is also named as a potentially responsible party at waste sites, mainly in New Jersey, with only three sites still subject to significant unsettled claims, and it believes the amounts involved are not material.
What are the company's capital return and customer concentration profiles?
The company paid dividends of $0.60 per share in 2002, unchanged from 2001, with a quarterly dividend of $0.15. Its 30 largest customers accounted for about 52% of sales, while its four largest customers and affiliates accounted for about 9%, 8%, 6% and 4%, and no other single customer exceeded 3% of sales.
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