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International Flavors & Fragrances Annual Report, Year Ended Dec 31, 2005

Filing Date
Filed March 13, 2006
Period End
December 31, 2005
Security
IFF
In the record · 2016–202610-K1110-Q338-K151

IFF filed 11 annual reports (10-K), 33 quarterly reports (10-Q) and 151 current reports (8-K) between 2016 and 2026.

  1. Material agreement8-K · May ’17May ’17
  2. Material agreement8-K · Jan ’20Jan ’20
  3. Leadership change8-K · Feb ’22Feb ’22
  4. Leadership change8-K · Oct ’25Oct ’25

01—Abstract

Summary

Summary of the 10-K filed March 13, 2006. Cited figures are marked; the original filing is the authoritative source.

International Flavors & Fragrances Inc. (IFF) reported net sales of $1,993.4 milliona for 2005, down from $2,033.7 million in 2004, with net income of $193.1 million ($2.04 diluted EPS) versus $196.1 million ($2.05 diluted) a year earlier.

Management attributes the sales decline mainly to the 2004 disposition of the European fruit preparations business and to lower selling prices for naturals, mainly vanilla, partly offset by strong fine fragrance growth from new product wins. Cost of goods sold rose to 58.6% of sales from 57.1%, driven by higher raw material costs that were not fully recovered through pricing, plus a vendor-supplied raw material contamination issue. The 2005 effective tax rate fell to 21.6% from 30.2%, aided by a $24.7 millionb net tax benefit from repatriating $242.0 million of foreign dividends under the American Jobs Creation Act.

Balance sheet and liquidity changed significantly. Cash and short-term investments rose to $272.9 millionc, while bank borrowings and the current portion of long-term debt reached $819.4 million, largely because the $499.2 million 6.45% Notes mature in May 2006. Working capital was negative $11.4 million at year-end, and management expects to reduce borrowings by about $200.0 million in 2006.

Restructuring charges of $23.3 milliond relate to eliminating about 300 positions, with $25 million to $30 million of total charges anticipated and annual savings of $16 million to $18 million expected. Management also expects R&D spending to rise to about $190.0 million in 2006. Litigation remains a notable risk.

The filing describes three remaining plaintiff verdicts in the Benavides respiratory-injury cases (Moenning $2.74 million, Brand $15 million, McNeely $15 million), all under appeal, along with a number of other pending flavor-exposure suits. Management believes adequate provision has been made and does not expect the outcome to have an adverse effect on financial condition, results of operations or liquidity, though it cannot assure that accruals will not increase.

02—Key points

Key Highlights

  1. Net sales fell 2% to $1,993.4 million in 2005; on an as-adjusted basis excluding the divested European fruit business, sales rose 1%.
  2. Net income was $193.1 million, or $2.04 per diluted share, versus $196.1 million, or $2.05 per diluted share, in 2004.
  3. Fragrance sales rose to $1,135.7 million from $1,123.1 million, while flavor sales fell to $857.7 million from $910.6 million.
  4. The effective tax rate dropped to 21.6% from 30.2%, including a $24.7 million benefit from the AJCA repatriation of $242.0 million of foreign dividends.
  5. Cost of goods sold rose to 58.6% of sales from 57.1%, mainly from raw material cost increases not fully recovered through pricing.
  6. Short-term debt rose to $819.4 million because the $499.2 million 6.45% Notes mature in May 2006; cash and short-term investments were $272.9 million.
  7. Pending Benavides-related flavor exposure cases include three plaintiff verdicts under appeal totaling roughly $32.7 million in the stated amounts.

03—Questions

Frequently Asked Questions

  1. Why did IFF's net sales decline in 2005?

    Reported net sales fell 2% in dollars to $1,993.4 million, mainly because the European fruit preparations business was sold in 2004 and because flavor sales were hurt by lower selling prices for naturals, mainly vanilla. Fine fragrance grew strongly on new product wins, and on an as-adjusted basis sales rose 1%.

  2. How is IFF planning to handle its large debt maturity?

    The $499.2 million 6.45% Notes mature in May 2006 and are classified as current debt. The filing says the company is developing plans for both short-term financing and potential issuance of additional long-term instruments, and it expects to reduce borrowings by about $200.0 million in 2006. It also has a five-year revolving credit facility of US $350 million and Euro 400 million.

  3. What restructuring actions did IFF take, and what savings are expected?

    In 2005 the company undertook to eliminate about 300 positions in manufacturing, selling, research and administration, mainly in Europe and North America. It recorded $23.3 million of pre-tax charges in 2005 and expects total charges of $25 million to $30 million, with the remainder in 2006. Annual savings are expected to be $16 million to $18 million.

  4. What litigation exposure does IFF disclose?

    IFF is defendant in workplace respiratory-injury suits tied to flavor ingredients. Three plaintiff verdicts remain on appeal: Moenning ($2.74 million), Brand ($15 million) and McNeely ($15 million). Thirteen other similar actions are pending, and management believes adequate provision has been made and does not expect an adverse effect on financial condition, results or liquidity.

04—Continue

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