01—Abstract
Summary
Summary of the 10-K filed February 24, 2011. Cited figures are marked; the original filing is the authoritative source.
International Flavors & Fragrances Inc. (IFF) reported net sales of $2,622,862 thousanda in 2010, up from $2,326,158 thousand in 2009, and net income of $263,557 thousand, or $3.26 per diluted share, compared with $195,526 thousand, or $2.46 per diluted share, in 2009.
Management attributes the sales increase mainly to a broad-based recovery in demand, new business wins, and restocking. Sales grew 13%b overall, with Fragrances up 14% and Flavors up 11% on a reported basis. Cost of goods sold fell to 58.3% of sales from 59.8%, reflecting favorable input costs, better absorption from higher volumes, and a stronger sales mix, partly offset by inventory write-offs and transition costs tied to the European rationalization.
The balance sheet strengthened over the year. Cash and cash equivalents rose to $131,332 thousand, total debt fell to $921.6 millionc from $1,011.5 million, and operating cash flow was $315,136 thousand. Management said it was in compliance with all debt covenants, with a Net Debt/adjusted EBITDA ratio of 1.56 to 1 against a 3.25 to 1 maximum.
The Board's stated intention is to pay dividends of 30%-35% of yearly earnings, and quarterly dividends were raised to $0.27d per share in the second half of 2010. Key risks disclosed include ongoing volatility in global economic and credit conditions, currency fluctuations, raw material price and availability, and a number of pending legal matters. These include popcorn flavor respiratory-illness litigation (16 actions involving 269 claimants) and a patent suit by V.
Mane Fils S.A. for which a provision was recorded in the second quarter of 2010. Management does not expect these matters to have a material adverse effect on financial condition, results of operations or liquidity.
02—Key points
Key Highlights
- Net sales rose 13% to $2,622,862 thousand in 2010 from $2,326,158 thousand in 2009, with Fragrances up 14% and Flavors up 11% on a reported basis.
- Net income increased to $263,557 thousand ($3.26 diluted EPS) from $195,526 thousand ($2.46 diluted EPS) in 2009.
- Cost of goods sold improved to 58.3% of sales from 59.8% in 2009, helped by favorable input costs, higher volumes, and a stronger sales mix.
- Operating cash flow was $315,136 thousand in 2010, versus $291,637 thousand in 2009, and cash rose to $131,332 thousand.
- Total debt declined to $921.6 million from $1,011.5 million, and Net Debt/adjusted EBITDA was 1.56 to 1 against a 3.25 to 1 covenant maximum.
- Quarterly dividend increased to $0.27 per share in July and October 2010, with total 2010 dividends declared of $1.04 per share.
- Research and development spending was $219 million in 2010, about 8% of revenues, and the company operates 30 manufacturing facilities.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, International Flavors & Fragrances kept $0.10.
- Revenue$2.62B100.0%
- Cost of revenue−$1.53B58.3%
- Gross profit$1.09B41.7%
- Operating costs−$676.2M25.8%
- Operating income$416.4M15.9%
- Interest, other & tax−$152.8M5.8%
- Net income$263.6M10.0%
Where FY2010 revenue went
$2.62B- Cost of revenue: $1.53B, 58% of revenue
- SG&A: $447.4M, 17% of revenue
- Net income: $263.6M, 10% of revenue
- R&D: $218.8M, 8.3% of revenue
- Interest, other & tax: $152.8M, 5.8% of revenue
Kept 10% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 24, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $2.62B$2.33B | +12.8% |
| Cost of Revenue | $1.53B$1.39B | +9.9% |
| Gross Profit | $1.09B$934.25M | +17.0% |
| R&D Expenses | $218.77M$184.77M | +18.4% |
| SG&A Expenses | $447.39M$390.88M | +14.5% |
| Operating Expenses | $2.26B$2.05B | +10.4% |
| Operating Income | $416.36M$340.29M | +22.4% |
| Interest Expense | $48.71M$61.82M | −21.2% |
| Net Income | $263.56M$195.53M | +34.8% |
| EPS (Basic) | $3.29$2.48 | +32.7% |
| EPS (Diluted) | $3.26$2.46 | +32.5% |
| Shares Outstanding (Basic) | 79.50M78.40M | +1.4% |
| Shares Outstanding (Diluted) | 80.44M79.09M | +1.7% |
05—Questions
Frequently Asked Questions
How did IFF's sales and profitability trend in 2010?
Net sales increased 13% to $2,622,862 thousand from $2,326,158 thousand, and net income rose to $263,557 thousand from $195,526 thousand. Diluted EPS increased to $3.26 from $2.46. Management cited higher volumes, new business wins, restocking in developed markets, and a stronger sales mix.
Is IFF's debt position under control?
Yes. Total debt was $921.6 million at December 31, 2010, down from $1,011.5 million a year earlier. Management reported compliance with all financial covenants, with Net Debt/adjusted EBITDA of 1.56 to 1 against a maximum of 3.25 to 1. The revolving credit facility had drawdown capacity of approximately $818 million.
What are the main risks identified in the filing?
The filing highlights volatility in global economic and credit markets, currency fluctuations, the price and availability of raw materials (natural products are about 50% of raw material purchases), competitive pressure, future pension funding obligations, and changes in tax law. It also discloses ongoing litigation, including popcorn flavor respiratory-illness claims and a patent suit by V. Mane Fils S.A.
What is IFF's dividend policy?
Management's current intention is to pay dividends approximating 30%-35% of yearly earnings, though the Board sets dividends at its discretion. Dividends declared were $1.04 per share in 2010, up from $1.00 in 2009. Cash dividends paid to shareholders totaled $81,181 thousand in 2010.
Does IFF expect its legal matters to have a material impact?
Management does not expect the outcome of the popcorn flavor cases or the V. Mane Fils patent claim to have a material adverse effect on financial condition, results of operations or liquidity, based on current information. It did record a provision related to the patent case in the second quarter of 2010, and it acknowledges that future events could require increased accruals.
06—Continue