What drove the change in sales and margins?

Sales were strongest in fragrances, led by a 13% increase in fine fragrance sales. Cost of goods sold as a percentage of sales declined 40 basis points, reflecting improved sales performance, better product mix, and the disposal of the lower-margin European fruit business. Selling and administrative expenses rose to 16.8% of sales from 16.2%, mainly due to $5.0 million of equity compensation and higher incentive accruals.

How much debt does IFF carry and when does it mature?

Total debt was $684.9 million at December 31, 2004. It includes $499.3 million of 6.45% Notes maturing in May 2006. The company has a $300.0 million U.S. revolving credit facility expiring in September 2006 and a Euro 350.0 million multi-currency facility expiring in July 2007, with no borrowings under either at year-end.

What legal proceedings could affect IFF?

IFF is a defendant in lawsuits alleging respiratory injuries from flavors used in workplaces, including a Missouri class action that the court declined to certify, leaving 30 cases to be tried separately. A jury verdict in 2004 awarded one plaintiff and spouse $20 million, which the company is appealing. Management believes adequate provision has been made and does not expect these cases to have a material adverse effect.

What are the key outlook items for 2005?

The company expects 2005 R&D expenses of about $190,000,000, R&D at 9.0% to 9.2% of sales, and stock-based compensation of $12.0 to $14.0 million. Gross capital additions are expected to approximate $95.0 million, interest expense is expected to decline 10% to 12%, and the effective tax rate is expected to approximate 31.2%.

IFF 10-K FY2004 Annual Report — Revenue, Net Income, EPS

Q: How did IFF perform financially in 2004?

Net sales were $2,033,653 thousand, up from $1,901,520 thousand in 2003. Net income was $196,071 thousand, or $2.05 per diluted share, compared with $172,597 thousand, or $1.83 per diluted share, the prior year. Operating profit totaled $310.3 million, after restructuring and other charges of $31.8 million.

01—Abstract

Summary

Summary of the 10-K filed March 14, 2005. Cited figures are marked; the original filing is the authoritative source.

International Flavors & Fragrances Inc. (IFF) reported net sales of $2,033,653 thousand^a for 2004, up from $1,901,520 thousand in 2003, and net income of $196,071 thousand, or $2.05 per diluted share, compared with $172,597 thousand, or $1.83 per diluted share, in 2003.

Sales of fragrance products were $1,123.1 million^b and flavor products were $910.6 million. Operating profit was $310.3 million after restructuring and other charges of $31.8 million, which the company tied to the sale of its European fruit preparations business and the closure of a Canadian plant and the planned closure of its Dijon, France facility. Management described its 2004 results as reflecting improved fine fragrance sales and better product mix, partly offset by weak absorption from the Dijon production transfer.

The balance sheet strengthened over the year. Shareholders' equity rose to $910,487 thousand^c from $742,631 thousand, and total debt fell to $684.9 million from $884.5 million, with no commercial paper outstanding at year-end. Cash and short-term investments totaled $33.0 million.

Cash provided by operations was $295,847 thousand^d. The company repurchased 1,801,900 shares in 2004, had $75.5 million remaining under its July 2004 repurchase authorization, and raised its quarterly dividend to $0.175 per share. The filing also flags several forward-looking items.

Management expects 2005 research and development spending of about $190 million, a 2005 effective tax rate of approximately 31.2%, and stock-based compensation expense of $12.0 to $14.0 million. The company is evaluating a repatriation of $250 to $500 million of foreign earnings under the American Jobs Creation Act of 2004. IFF also faces product liability lawsuits involving flavorings used in butter-flavor popcorn and respiratory injury claims at food plants, which management believes will not have a material adverse effect on its financial condition.

02—Key points

Key Highlights

Net sales rose to $2,033,653 thousand in 2004 from $1,901,520 thousand in 2003, with fragrance sales at $1,123.1 million and flavor sales at $910.6 million.
Net income was $196,071 thousand ($2.05 diluted EPS) versus $172,597 thousand ($1.83 diluted EPS) in 2003.
Restructuring and other charges were $31,830 thousand in 2004, net of $16.3 million in gains tied to the sale of the fruit businesses and the Canadian facility.
Total debt declined to $684.9 million from $884.5 million, and no commercial paper was outstanding at December 31, 2004.
Shareholders' equity increased to $910,487 thousand from $742,631 thousand; the company repurchased 1,801,900 shares in 2004.
Management expects 2005 R&D expenses of about $190 million and an effective tax rate of approximately 31.2%.
The company is evaluating repatriating $250 to $500 million of foreign earnings under the American Jobs Creation Act of 2004.

03—Questions

Frequently Asked Questions

How did IFF perform financially in 2004?
Net sales were $2,033,653 thousand, up from $1,901,520 thousand in 2003. Net income was $196,071 thousand, or $2.05 per diluted share, compared with $172,597 thousand, or $1.83 per diluted share, the prior year. Operating profit totaled $310.3 million, after restructuring and other charges of $31.8 million.
What drove the change in sales and margins?
Sales were strongest in fragrances, led by a 13% increase in fine fragrance sales. Cost of goods sold as a percentage of sales declined 40 basis points, reflecting improved sales performance, better product mix, and the disposal of the lower-margin European fruit business. Selling and administrative expenses rose to 16.8% of sales from 16.2%, mainly due to $5.0 million of equity compensation and higher incentive accruals.
How much debt does IFF carry and when does it mature?
Total debt was $684.9 million at December 31, 2004. It includes $499.3 million of 6.45% Notes maturing in May 2006. The company has a $300.0 million U.S. revolving credit facility expiring in September 2006 and a Euro 350.0 million multi-currency facility expiring in July 2007, with no borrowings under either at year-end.
What legal proceedings could affect IFF?
IFF is a defendant in lawsuits alleging respiratory injuries from flavors used in workplaces, including a Missouri class action that the court declined to certify, leaving 30 cases to be tried separately. A jury verdict in 2004 awarded one plaintiff and spouse $20 million, which the company is appealing. Management believes adequate provision has been made and does not expect these cases to have a material adverse effect.
What are the key outlook items for 2005?
The company expects 2005 R&D expenses of about $190,000,000, R&D at 9.0% to 9.2% of sales, and stock-based compensation of $12.0 to $14.0 million. Gross capital additions are expected to approximate $95.0 million, interest expense is expected to decline 10% to 12%, and the effective tax rate is expected to approximate 31.2%.

04—Continue

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