How did IFF perform in 2007 compared with 2006?

Net sales were $2,276,638 thousand, up 9% from $2,095,390 thousand. Net income was $247,128 thousand versus $226,500 thousand, and diluted EPS was $2.82 versus $2.48. The company said a weaker U.S. dollar benefited sales, which would have risen 5% at comparable exchange rates.

Why did interest expense and debt increase?

The filing states that interest expense rose 63% to $41,535 thousand, due to higher borrowings tied to share repurchase activity. Total debt reached $1,212,641 thousand, including $500 million of Senior Unsecured Notes issued in September 2007, with an average cost of debt of 4.5% in 2007 versus 3.3% in 2006.

What is the status of the company's share repurchases?

In 2007 the company purchased 10.2 million shares for $532 million. Under the July 2007 Plan, which authorizes up to 15% or $750 million of outstanding common stock, whichever is less, it paid $450 million in September 2007 for an initial delivery of 7.6 million shares under an accelerated share repurchase program, with completion expected by the end of the second quarter of 2008.

What litigation and environmental risks does the filing disclose?

IFF faces numerous lawsuits, principally alleging respiratory injuries from workplace exposure to butter flavor and other flavor ingredients. Management believes adequate provision has been made and does not expect a material adverse effect. The company is a Potentially Responsible Party at nine third-party-operated sites, with its estimated share of future costs at less than $5 million.

How did the two business segments perform?

Flavors operating profit rose to $187,275 thousand, or 18.6% of sales, from $153,099 thousand. Fragrances operating profit declined to $209,812 thousand, or 16.5% of sales, from $212,240 thousand, reflecting lower fragrance ingredient selling prices, higher material costs and under-absorption at the China facility.

IFF 10-K FY2007 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 27, 2008. Cited figures are marked; the original filing is the authoritative source.

International Flavors & Fragrances Inc. (IFF) reported net sales of $2,276,638 thousand^a for fiscal 2007, up 9% from $2,095,390 thousand in 2006, with flavors sales of $1,005,544 thousand and fragrances sales of $1,271,094 thousand.

Net income rose to $247,128 thousand^b from $226,500 thousand, and diluted EPS was $2.82 compared with $2.48 in 2006. The company stated that 2007 sales benefited from a weaker U.S. dollar and would have increased 5% at comparable exchange rates. Gross margin pressure was noted: cost of goods sold rose to 58.2% of sales from 57.8%, driven by product mix, lower fragrance ingredient pricing and under-absorption at a new China facility.

Fragrance operating profit declined to $209,812 thousand^c from $212,240 thousand, while flavors operating profit increased to $187,275 thousand from $153,099 thousand. Capital structure changed significantly during 2007. Total debt rose to $1,212,641 thousand from $807,340 thousand after the company issued $500 million of Senior Unsecured Notes in September 2007, used primarily to fund share repurchases.

The company purchased 10.2 million shares for $532 million^d in 2007 and entered a $450 million accelerated share repurchase program. Shareholders' equity fell to $617,197 thousand from $905,168 thousand, and interest expense increased to $41,535 thousand from $25,549 thousand. Operating cash flow was $314,062 thousand, and the company stated that cash flows and credit facilities are expected to be sufficient for at least the next eighteen months.

The filing also discloses ongoing product liability litigation, principally relating to butter flavor and respiratory illness claims from workplace exposure, with management stating it does not expect a material adverse effect. Environmental PRP exposure at nine sites is estimated at less than $5 million. Management concluded that internal control over financial reporting was effective as of December 31, 2007, and PricewaterhouseCoopers LLP issued an unqualified opinion.

02—Key points

Key Highlights

Net sales rose 9% to $2,276,638 thousand; flavors sales increased 12% and fragrances sales increased 6%.
Net income increased to $247,128 thousand, and diluted EPS rose to $2.82 from $2.48 in 2006.
Cost of goods sold increased to 58.2% of sales from 57.8%, citing product mix, lower fragrance ingredient pricing and China facility under-absorption.
Total debt increased to $1,212,641 thousand from $807,340 thousand, including $500 million of Senior Unsecured Notes issued in September 2007.
The company repurchased 10.2 million shares for $532 million in 2007 and entered a $450 million accelerated share repurchase program.
Shareholders' equity declined to $617,197 thousand from $905,168 thousand, and interest expense rose to $41,535 thousand from $25,549 thousand.
Ongoing product liability lawsuits relate to flavor ingredient exposure; management does not expect a material adverse effect.

03—Questions

Frequently Asked Questions

How did IFF perform in 2007 compared with 2006?
Net sales were $2,276,638 thousand, up 9% from $2,095,390 thousand. Net income was $247,128 thousand versus $226,500 thousand, and diluted EPS was $2.82 versus $2.48. The company said a weaker U.S. dollar benefited sales, which would have risen 5% at comparable exchange rates.
Why did interest expense and debt increase?
The filing states that interest expense rose 63% to $41,535 thousand, due to higher borrowings tied to share repurchase activity. Total debt reached $1,212,641 thousand, including $500 million of Senior Unsecured Notes issued in September 2007, with an average cost of debt of 4.5% in 2007 versus 3.3% in 2006.
What is the status of the company's share repurchases?
In 2007 the company purchased 10.2 million shares for $532 million. Under the July 2007 Plan, which authorizes up to 15% or $750 million of outstanding common stock, whichever is less, it paid $450 million in September 2007 for an initial delivery of 7.6 million shares under an accelerated share repurchase program, with completion expected by the end of the second quarter of 2008.
What litigation and environmental risks does the filing disclose?
IFF faces numerous lawsuits, principally alleging respiratory injuries from workplace exposure to butter flavor and other flavor ingredients. Management believes adequate provision has been made and does not expect a material adverse effect. The company is a Potentially Responsible Party at nine third-party-operated sites, with its estimated share of future costs at less than $5 million.
How did the two business segments perform?
Flavors operating profit rose to $187,275 thousand, or 18.6% of sales, from $153,099 thousand. Fragrances operating profit declined to $209,812 thousand, or 16.5% of sales, from $212,240 thousand, reflecting lower fragrance ingredient selling prices, higher material costs and under-absorption at the China facility.

04—Continue

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