01—Abstract
Summary
Summary of the 10-K filed February 25, 2014. Cited figures are marked; the original filing is the authoritative source.
International Flavors & Fragrances Inc. (IFF) reported 2013 net sales of $2,952,896 thousanda ($2.95 billion), up from $2,821,446 thousand in 2012, with net income of $353,544 thousand, or $4.29 per diluted share, compared with $254,134 thousand ($3.09 per diluted share) in 2012.
Operating profit rose to $516,339 thousandb (17.5% of sales) from $486,618 thousand (17.2% of sales). The company operates two segments, Flavors (48% of 2013 sales) and Fragrances (52%), and states that emerging markets represented 49% of 2013 sales. Management described local currency sales growth of 5% for 2013 (6% on a like-for-like basis excluding the exit of low-margin Flavors activities) and said results were driven by new customer wins and price increases.
Profitability and cash generation improved, though the filing notes several one-time items. The 2013 results include a $13,011 thousandc Spanish capital tax charge, $8,770 thousand of operational improvement initiative costs, and $7.4 million of Fragrance Ingredients Rationalization charges tied to the planned closure of the Augusta, Georgia facility by July 2014. Cash flow from operations was $407,562 thousand, compared with $323,796 thousand in 2012, which included a $105,503 thousand outflow for the Spanish tax settlement.
Cash and cash equivalents ended the year at $405,505 thousandd, and total debt was $932,814 thousand. The company acquired Aromor Flavors and Fragrances Ltd. on January 16, 2014, funded with cash, and repurchased $51,363 thousand of stock in 2013 under a $250 million program that runs through December 31, 2014.
The filing highlights risks including volatile raw material and energy costs, exposure to emerging-market and currency risks (78% of 2013 net sales were to customers outside the United States), and ongoing tax and litigation matters, most notably the Spanish tax disputes and the ZoomEssence trade secret lawsuit, for which management does not believe a material loss is probable. The company states its 2014 expectations: growth consistent with its long-term targets of 4%-6% local currency growth, capital spending of 4-5% of sales, and a gross margin improvement rate substantially less than in 2013.
02—Key points
Key Highlights
- Net sales of $2,952,896 thousand in 2013, up from $2,821,446 thousand in 2012; local currency sales grew 5%, or 6% like-for-like.
- Net income of $353,544 thousand, or $4.29 per diluted share, versus $254,134 thousand ($3.09 per diluted share) in 2012.
- Operating profit of $516,339 thousand (17.5% of sales) versus $486,618 thousand (17.2% of sales); the 2013 results include a $13,011 thousand Spanish capital tax charge.
- Gross margin of 43.5% in 2013, up from 41.7% in 2012, driven by lower raw material costs, mix and internal improvements.
- Cash flow from operations of $407,562 thousand, compared with $323,796 thousand in 2012, which included a $105,503 thousand Spanish tax settlement payment.
- Emerging markets represented 49% of 2013 sales, and the company plans to invest in Greater Asia, including a Flavors facility in Guangzhou, China.
- Acquired Aromor Flavors and Fragrances Ltd. on January 16, 2014 for cash; the $250 million share repurchase program runs through December 31, 2014, with $198 million remaining at year-end 2013.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, International Flavors & Fragrances kept $0.12.
- Revenue$2.95B100.0%
- Cost of revenue−$1.67B56.5%
- Gross profit$1.28B43.5%
- Operating costs−$767.9M26.0%
- Operating income$516.3M17.5%
- Interest, other & tax−$162.8M5.5%
- Net income$353.5M12.0%
Where FY2013 revenue went
$2.95B- Cost of revenue: $1.67B, 57% of revenue
- SG&A: $505.9M, 17% of revenue
- Net income: $353.5M, 12% of revenue
- R&D: $259.8M, 8.8% of revenue
- Interest, other & tax: $162.8M, 5.5% of revenue
Kept 12% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 25, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $2.95B$2.82B | +4.7% |
| Cost of Revenue | $1.67B$1.65B | +1.4% |
| Gross Profit | $1.28B$1.18B | +9.2% |
| R&D Expenses | $259.84M$233.71M | +11.2% |
| SG&A Expenses | $505.88M$453.54M | +11.5% |
| Operating Expenses | $2.47B$2.38B | +3.8% |
| Operating Income | $516.34M$486.62M | +6.1% |
| Interest Expense | $46.77M$41.75M | +12.0% |
| Net Income | $353.54M$254.13M | +39.1% |
| EPS (Basic) | $4.32$3.11 | +38.9% |
| EPS (Diluted) | $4.29$3.09 | +38.8% |
| Shares Outstanding (Basic) | 81.32M81.11M | +0.3% |
| Shares Outstanding (Diluted) | 81.93M81.83M | +0.1% |
05—Questions
Frequently Asked Questions
How did IFF perform financially in 2013?
Net sales rose to $2,952,896 thousand from $2,821,446 thousand, and net income increased to $353,544 thousand, or $4.29 per diluted share, from $254,134 thousand, or $3.09 per diluted share. Operating profit was $516,339 thousand, or 17.5% of sales.
What one-time items affected 2013 results?
The 2013 results include a $13,011 thousand charge for the Spanish capital tax case, $8,770 thousand of operational improvement initiative costs, and $7.4 million of Fragrance Ingredients Rationalization charges tied to closing the Augusta, Georgia facility. The company also recorded a $14.2 million gain on the sale of non-operating assets.
How much of IFF's business depends on emerging markets and customers outside the U.S.?
Emerging markets represented 49% of 2013 sales, up from 47% in 2012. During 2013, 78% of net sales were to customers outside the United States.
What are IFF's main growth plans for 2014?
The company expects 2014 growth consistent with its long-term targets, with local currency growth also benefiting by an additional 1% from the Aromor acquisition. It expects capital spending of 4-5% of sales, prioritizing emerging markets and Flavors, and expects the rate of gross margin improvement to be substantially less than in 2013.
What significant legal and tax matters does IFF face?
IFF has ongoing Spanish tax disputes, including a capital tax case for which it paid $11.2 million principal in early 2014 while it appeals, and a remaining dividend withholding tax case of Euro 3.2 million ($4.4 million). The ZoomEssence trade secret lawsuit is proceeding toward a trial anticipated in early 2015, and management does not believe it represents a material loss contingency.
06—Continue