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International Flavors & Fragrances Annual Report, Year Ended Dec 31, 2011

Filing Date
Filed February 28, 2012
Period End
December 31, 2011
Security
IFF
One revenue dollarkept$0.10
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 February 28, 2012. Cited figures are marked; the original filing is the authoritative source.

International Flavors & Fragrances Inc. (IFF) reported 2011 net sales of $2.79 billiona, up 6% on a reported basis and 4% in local currency (LC), with net income of $266.9 million and diluted EPS of $3.26, essentially flat with 2010 ($3.26).

Flavors sales rose 12% reported (9% LC) to $1.35 billionb, while Fragrances rose 1% reported (down 1% LC) to $1.44 billion, with Fragrances weighed down by Ingredients and Fine Fragrance volume declines. Emerging markets represented 46% of 2011 sales. Operating profit increased $11.4 million to $427.7 million (15.3% of sales), and adjusted operating profit, excluding restructuring and the Mane patent litigation settlement, rose to $474.4 million (17.0% of sales).

Gross margin fell to 39.6% from 41.7% as higher raw material costs outpaced price increases, and cash flow from operations declined to $189.2 millionc from $315.1 million. The company incurred a $33.5 million charge related to the settlement of the Mane patent litigation, which required a payment of approximately $40 million, and recorded restructuring charges tied to a December 2011 strategic initiative that eliminated 72 positions and is expected to yield about $9.0 million in 2012 savings. Management expects LC growth in 2012 to be toward the low end of its 4%–6% long-term target, with a larger drag on Flavors sales and a particularly weak first quarter.

The company also disclosed ongoing Spanish tax disputes, with assessments of Euro 23.1 million and Euro 61.6 million, and a provision of $49.6 milliond for uncertain tax positions tied to the Spanish cases. Balance sheet highlights include total debt of $894.9 million, net debt to adjusted EBITDA of 1.42 to 1 against a covenant maximum of 3.25 to 1, and cash of $88.3 million.

In November 2011 the company entered into a new $942 million revolving credit facility maturing in 2016. Dividends declared rose to $1.16 per share from $1.04, and the company stated a target payout of 30%–35% of yearly earnings.

02—Key points

Key Highlights

  1. Net sales rose 6% to $2.79 billion (4% in local currency); Flavors grew 12% reported to $1.35 billion while Fragrances grew 1% to $1.44 billion.
  2. Net income was $266.9 million, and diluted EPS was $3.26, unchanged from 2010 at $3.26.
  3. Gross margin declined to 39.6% from 41.7% as raw material costs rose, and cash flow from operations fell to $189.2 million from $315.1 million.
  4. Adjusted operating profit (excluding restructuring and the Mane settlement) increased $48.0 million to $474.4 million, or 17.0% of sales.
  5. A $33.5 million charge for the Mane patent litigation settlement was recorded in 2011, with a roughly $40 million payment made in the fourth quarter.
  6. Management expects 2012 local currency growth toward the low end of its 4%–6% long-term target, with a larger drag on Flavors and a weak first quarter.
  7. Net debt to adjusted EBITDA was 1.42 to 1 at year-end, well within the 3.25 to 1 covenant, and the company entered a new $942 million revolving credit facility maturing in 2016.

03—One dollar

Follow one dollar

Of each $1.00 of revenue in FY2011, International Flavors & Fragrances kept $0.10.

  1. Revenue$2.79B100.0%
  2. Cost of revenue−$1.68B60.4%
  3. Gross profit$1.10B39.6%
  4. Operating costs−$676.9M24.3%
  5. Operating income$427.7M15.3%
  6. Interest, other & tax−$160.9M5.8%
  7. Net income$266.9M9.6%
Computed from 10-KFY2011filed February 28, 2012Computed from this filing’s revenue, gross profit, operating income and net income · right columngrey figure: share of revenue

Where FY2011 revenue went

$2.79B
  • Cost of revenue: $1.68B, 60% of revenue
  • SG&A: $444.0M, 16% of revenue
  • Net income: $266.9M, 9.6% of revenue
  • R&D: $219.8M, 7.9% of revenue
  • Interest, other & tax: $160.9M, 5.8% of revenue

Kept 9.6% as net income

Full revenue history →

04—Financials

Financial Highlights

Figures from 10-KFY2011filed February 28, 2012
Revenue$2.79B39.6% Gross MarginNet Income$266.87M9.6% Net MarginEPS (Diluted)$3.26Total Assets$2.97BCash & Equivalents$88.28MFree Cash Flow$61.73M

Financial Statements

FY2011 against FY2010

Line itemFY2011FY2010Change
Revenue$2.79B$2.62B+6.3%
Cost of Revenue$1.68B$1.53B+10.0%
Gross Profit$1.10B$1.09B+1.1%
R&D Expenses$219.78M$218.77M+0.5%
SG&A Expenses$443.97M$447.39M−0.8%
Operating Expenses$2.41B$2.26B+6.7%
Operating Income$427.73M$416.36M+2.7%
Interest Expense$44.64M$48.71M−8.4%
Net Income$266.87M$263.56M+1.3%
EPS (Basic)$3.30$3.29+0.3%
EPS (Diluted)$3.26$3.260.0%
Shares Outstanding (Basic)80.46M79.50M+1.2%
Shares Outstanding (Diluted)81.47M80.44M+1.3%

05—Questions

Frequently Asked Questions

  1. How did IFF perform in 2011 and what drove the results?

    Net sales reached $2.79 billion, up 6% reported and 4% in local currency, driven mainly by new business and price increases. Flavors was the stronger business at 9% local currency growth, while Fragrances declined 1% in local currency due to weakness in Ingredients and Fine Fragrances. Emerging markets accounted for 46% of sales.

  2. Why did margins decline in 2011?

    Gross margin fell to 39.6% from 41.7% because higher raw material costs more than offset the benefits of price increases, and sales mix was slightly less favorable. The company stated that the pricing gap was substantial, primarily within Fragrances, and that it expects further price realization and cost savings in 2012.

  3. What are the main legal and tax risks disclosed?

    IFF settled the Mane patent lawsuit in December 2011, paying about $40 million and agreeing to stop selling Cooler 1 products. The company is disputing Spanish tax assessments of Euro 23.1 million and Euro 61.6 million and expects further assessments for 2007–2011. It has recorded a $49.6 million provision for uncertain tax positions related to the Spanish cases.

  4. What is the company's financial position and dividend policy?

    At year-end 2011, IFF had cash of $88.3 million and total debt of $894.9 million, with net debt to adjusted EBITDA of 1.42 to 1 against a 3.25 to 1 covenant. Dividends declared were $1.16 per share for 2011, up from $1.04, and the company intends to pay 30%–35% of yearly earnings.

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

    In December 2011, IFF eliminated 72 positions across Fragrances, Flavors and corporate functions, realigning its Fragrances business from a regional to a global category structure. The company recorded $9.8 million in severance and expects pre-tax savings of approximately $9.0 million in 2012.

06—Continue

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