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IFF Reports Third Quarter 2019 Results

NEW YORK--(BUSINESS WIRE)--

Regulatory News:

International Flavors & Fragrances Inc. (IFF) (Euronext Paris: IFF) (IFF.TA) reported financial results for the third quarter ended September 30, 2019 and reconfirms full year 2019 guidance.

Third Quarter 2019 Consolidated Summary:

Reported

(GAAP)

 

Adjusted

(Non-GAAP)1

Sales

 

Operating Profit

 

EPS

 

Sales

 

Operating Profit

 

EPS

 

EPS ex Amortization

$1.3 B

 

$185 M

 

$1.13

 

$1.3 B

 

$201 M

 

$1.20

 

$1.53

¹ Schedules at the end of this release contain reconciliations of reported GAAP to non-GAAP metrics.

Management Commentary

“In the third quarter, we delivered a sequential improvement in our combined top-line growth rate,” said IFF Chairman and CEO Andreas Fibig. “Scent continued to perform well, growing low single-digits, and we have seen a sequential improvement at Frutarom - with broad-based increases across many categories. In Taste, our win rate remains high, yet performance continued to be impacted by volume erosion. On a two-year basis, Taste growth remained solid when we factor in a high single-digit year-ago comparison.

“We drove strong improvements in profitability with adjusted operating profit margin ex amortization up 60 basis points year-over-year, despite a more challenging top-line environment. We also generated strong cash flow - with improvements in operating and free cash flow - through an increased emphasis on productivity savings and the benefit of acquisition-related synergies.

"Our integration efforts are progressing well across all of our priorities. We are expanding our Tastepoint model in key markets around the world, we secured $14 million of cross-selling wins on a run-rate basis and executed on our talent agenda. For those businesses where we have aligned our go-to-market approach, growth remained robust. We also continue to progress against our cost synergy efforts, and now expect to deliver approximately $50 million of savings in 2019 - significantly ahead of our revised estimate of $40 million.

"We have started the fourth quarter strong, and with a continuation of this trend, we expect sales and adjusted EPS ex amortization for full year 2019 to be in line with the low end of our guidance. Acknowledging the many moving parts and challenging market environment over the course of the year, we remain on pace to deliver solid top and bottom-line results. Our path forward is clear - deliver strong value creation for all our stakeholders through growth acceleration, margin expansion and a successful integration."

Third Quarter 2019 Consolidated Financial Results

  • Reported net sales for the third quarter totaled $1.3 billion, an increase of 40% from $908 million in 2018, including the contribution of sales related to Frutarom. On a combined basis, currency neutral sales increased 2%, including the net contribution of acquisitions and divested businesses.
  • Reported earnings per share (EPS) for the third quarter was $1.13 per diluted share versus $1.17 per diluted share reported in 2018. Excluding those items that affect comparability, adjusted EPS excluding amortization was $1.53 per diluted share in 2019 versus $1.62 in the year-ago period, as adjusted operating profit growth was more than offset by shares outstanding and higher interest expense - both related to the Frutarom acquisition.

Third Quarter 2019 Segment Summary: Growth vs. Prior Year

 

Reported

(GAAP)

 

Currency Neutral

(Non-GAAP)

 

Sales

 

Segment

Profit

 

Sales

 

Segment

Profit

Scent

2%

 

(5)%

 

3%

 

0%

Taste

(3)%

 

1%

 

(2)%

 

4%

Frutarom

 

 

 

Scent Business Unit

  • On a reported basis, sales increased 2%, or $9.1 million, to $480.4 million. Currency neutral sales improved 3%, with growth in all regions and nearly all categories. Performance was strongest in Fine Fragrance, growing mid single-digits led by robust growth in EAME and Greater Asia. Consumer Fragrances grew low single-digits with increases in nearly all categories led by Home Care, Hair Care and Fabric Care. Fragrance Ingredients was flat as price increases were offset by volume declines related to inventory destocking.
  • Scent segment profit decreased 5%on a reported basis and was 0% on a currency neutral basis as the benefits of productivity initiatives and mix were offset by unfavorable price to input costs.

Taste Business Unit

  • On a reported basis, sales decreased 3%, or $12.9 million, to $423.3 million. Currency neutral sales decreased approximately 2% against a strong 7% year-ago comparison as high single-digit growth in Greater Asia was more than offset by volume erosion with multinational customers. From a category perspective, growth was strongest in Beverage and Savory, led by strong new win performance.
  • Taste segment profit increased 1% on a reported basis and 4% on a currency neutral basis driven primarily by productivity initiatives and cost management.

Frutarom Business Unit

  • On a reported basis, sales were $363.7 million. On a standalone basis, currency neutral sales increased 5%, including the net contribution of acquisitions and divested businesses, as organic sales remained constant. Performance was driven by growth in Taste and Savory offset by continued pressures in F&F ingredients - notably CitraSource - and Natural Product Solutions - particularly raw material-driven price decreases in Natural Colors.
  • Segment profit contributed $28 million in the third quarter, or $68 million excluding amortization. Margin continued to be supported by disciplined cost management and acquisition-related synergies.

Compliance Update

IFF’s investigation of allegations that improper payments to representatives of customers were made in Russia and Ukraine has been substantially completed. Such allegations have been substantiated, and IFF has confirmed that key members of Frutarom’s senior management at the time were aware of such payments. IFF has taken appropriate remedial actions, including replacing senior management in relevant locations, and believes that such improper customer payments have stopped.

In addition to IFF’s standard compliance integration activities, IFF has also conducted a robust secondary review of Frutarom’s operations in certain other jurisdictions, including those that it deems “high risk”. These reviews supplement IFF’s existing global compliance initiatives that were implemented at Frutarom in connection with the closing of the Frutarom transaction. These secondary reviews were conducted with the assistance of outside legal and accounting firms. These reviews are substantially complete.

IFF has confirmed in these investigations that total affected sales represented less than 1% of IFF’s and Frutarom’s combined net sales for 2018. The impact of the reviews including the costs associated with them, to date, have not been and are not anticipated to be material to IFF’s results of operations or financial condition. In addition, no evidence has been uncovered suggesting that any of these compliance matters had any connection to the United States.

IFF is committed to the highest standards of ethics and integrity and has strict compliance policies in place that are regularly reviewed and updated.

The Company reconfirms its 2019 financial guidance as follows:

 

Guidance

Sales

$5.15B - $5.25B

Adjusted EPS (1)

$4.85 - $5.05

Adjusted EPS Ex Amortization (1)

$6.15 - $6.35

1 See Use of Non-GAAP Financial Measures

Audio Webcast

A live webcast to discuss the Company’s third quarter 2019 financial results will be held on November 5, 2019, at 10:00 a.m. ET. The webcast and accompanying slide presentation may be accessed on the Company's IR website at ir.iff.com. For those unable to listen to the live webcast, a recorded version will be made available on the Company's website approximately one hour after the event and will remain available on IFF’s website for one year.

Cautionary Statement Under The Private Securities Litigation Reform Act of 1995

This press release includes “forward-looking statements” under the Federal Private Securities Litigation Reform Act of 1995, including statements regarding guidance for full year 2019, the progress of the integration of Frutarom, including expected cost savings in 2019, the status and preliminary results of our ongoing investigations regarding improper payments made in Frutarom businesses operating principally in Russia and the Ukraine and the expected impact of such investigations on our results of operations or financial condition, and our ability to accelerate growth and profitability in 2019. These forward-looking statements are qualified in their entirety by cautionary statements and risk factor disclosures contained in the Company’s Securities and Exchange Commission filings, including the Company’s Annual Report on Form 10-K filed with the Commission on February 26, 2019 and subsequent filings with the SEC, including the Company’s Quarterly Reports on Form 10-Q. The Company wishes to caution readers that certain important factors may have affected and could in the future affect the Company’s actual results and could cause the Company’s actual results for subsequent periods to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. With respect to the Company’s expectations regarding these statements, such factors include, but are not limited to: (1) risks related to the integration of the Frutarom business, including whether we will realize the benefits anticipated from the acquisition in the expected time frame; (2) unanticipated costs, liabilities, charges or expenses resulting from the Frutarom acquisition, (3) risks relating to the Company’s ongoing investigations into improper payments made in Frutarom businesses principally operating in Russia and the Ukraine, including expenses incurred with respect to the investigations, the cost of any remedial measures or compliance programs arising out of the investigations, legal proceedings or government investigations that may arise relating to the subject of the Company’s investigations, and the outcome of any such legal or government investigations, such as the imposition of fines, penalties, orders, or injunctions, (4) the impact of the failure to comply with U.S. or foreign anti-corruption and anti-bribery laws and regulations, including with respect to the Company’s ongoing investigations into improper payments made in Frutarom businesses principally operating in Russia and the Ukraine, (5) the impact of the outcome of legal claims, regulatory investigations and litigation, including any that may arise out of the Company’s ongoing investigations into improper payments made in Frutarom businesses principally operating in Russia and the Ukraine, (6) the increase in the Company’s leverage resulting from the additional debt incurred to pay a portion of the consideration for Frutarom and its impact on the Company’s liquidity and ability to return capital to its shareholders, (7) the Company’s ability to successfully market to its expanded and decentralized Taste and Frutarom customer base, (8) the Company’s ability to effectively compete in its market and develop and introduce new products that meet customers’ needs, (9) the Company’s ability to successfully develop innovative and cost-effective products that allow customers to achieve their own profitability expectations, (10) the impact of the disruption in the Company’s manufacturing operations, (11) the impact of a disruption in the Company’s supply chain, including the inability to obtain ingredients and raw materials from third parties, (12) volatility and increases in the price of raw materials, energy and transportation, (13) the Company’s ability to comply with, and the costs associated with compliance with, regulatory requirements and industry standards, including regarding product safety, quality, efficacy and environmental impact, (14) the impact of any failure or interruption of the Company’s key information technology systems or a breach of information security, (15) the Company’s ability to react in a timely and cost-effective manner to changes in consumer preferences and demands, (16) the Company’s ability to establish and manage collaborations, joint ventures or partnership that lead to development or commercialization of products, (17) the Company’s ability to benefit from its investments and expansion in emerging markets; (18) the impact of currency fluctuations or devaluations in the principal foreign markets in which it operates; (19) economic, regulatory and political risks associated with the Company’s international operations, (20) the impact of global economic uncertainty on demand for consumer products, (21) the inability to retain key personnel; (22) the Company’s ability to comply with, and the costs associated with compliance with, U.S. and foreign environmental protection laws, (23) the Company’s ability to realize the benefits of its cost and productivity initiatives, (24) the Company’s ability to successfully manage its working capital and inventory balances, (25) the impact of the failure to comply with U.S. or foreign anti-corruption and anti-bribery laws and regulations, including the U.S. Foreign Corrupt Practices Act, (26) the Company’s ability to protect its intellectual property rights, (27) the impact of the outcome of legal claims, regulatory investigations and litigation, (28) changes in market conditions or governmental regulations relating to our pension and postretirement obligations, (29) the impact of future impairment of our tangible or intangible long-lived assets, (30) the impact of changes in federal, state, local and international tax legislation or policies, including the Tax Cuts and Jobs Act, with respect to transfer pricing and state aid, and adverse results of tax audits, assessments, or disputes, (31) the effect of potential government regulation on certain product development initiatives, and restrictions or costs that may be imposed on the Company or its operations as a result, and (32) the impact of the United Kingdom’s expected departure from the European Union. New risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risks on the Company’s business. Accordingly, the Company undertakes no obligation to publicly revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Use of Non-GAAP Financial Measures

We provide in this press release non-GAAP financial measures, including: (i) currency neutral sales; (ii) adjusted operating profit; (iii) adjusted operating profit (margin) ex. amortization; (iv) adjusted EPS; (v) adjusted EPS ex. amortization.

Our non-GAAP financial measures are defined below.

Currency Neutral metrics eliminate the effects that result from translating international currency to U.S. dollars. We calculate currency neutral numbers by comparing current year results to the prior year results restated at exchange rates in effect for the current year based on the currency of the underlying transaction.

Adjusted Operating Profit excludes the impact of operational improvement initiatives, acquisition related costs, integration related costs, restructuring and other charges, net, losses (gains) on sale of assets, FDA mandated product recall, Frutarom acquisition related costs, and compliance review & legal defense costs ("Operating Profit Items Impacting Comparability").

Adjusted Operating Profit (Margin) ex. Amortization excludes the impact of Operating Profit Items Impacting Comparability and the amortization of acquisition related intangible assets.

Adjusted EPS excludes the impact of operational improvement initiatives, acquisition related costs, integration related costs, restructuring and other charges, net, losses (gains) on sale of assets, FDA mandated product recall, U.S. tax reform, Frutarom acquisition related costs, compliance review & legal defense costs, and redemption value adjustment to EPS (often referred to as “Items Impacting Comparability”).

Adjusted EPS ex. Amortization excludes the impact of Items Impacting Comparability and the amortization of acquisition related intangible assets.

These non-GAAP measures are intended to provide additional information regarding our underlying operating results and comparable year-over-year performance. Such information is supplemental to information presented in accordance with GAAP and is not intended to represent a presentation in accordance with GAAP. In discussing our historical and expected future results and financial condition, we believe it is meaningful for investors to be made aware of and to be assisted in a better understanding of, on a period-to-period comparable basis, financial amounts both including and excluding these identified items, as well as the impact of exchange rate fluctuations. These non-GAAP measures should not be considered in isolation or as substitutes for analysis of the Company’s results under GAAP and may not be comparable to other companies’ calculation of such metrics.

In the fourth quarter of fiscal year 2018, we began including Adjusted EPS ex. Amortization as a key non-GAAP financial measure of our business. Full amortization expense of intangible assets acquired in connection with acquisitions will be excluded from Adjusted EPS ex. Amortization calculation. The exclusion of amortization expense allows comparison of operating results that are consistent over time for newly and long-held businesses and with both acquisitive and non-acquisitive peer companies. We believe this calculation will provide a more accurate presentation in this and in future periods in the event of additional acquisitions. Further, this allows the investors to evaluate and understand operating trends excluding the impact on operating income and earnings per diluted share. In addition, the Frutarom acquisition related costs have been separated from costs related to prior acquisitions. The Frutarom acquisition costs represent a significant balance and we believe this amount should be shown separately to provide an accurate presentation of the acquisition related costs. Our GAAP results and GAAP metrics do not change, and this change has no effect on day to day business operations, or how we manage our business. For Frutarom, we present segment profit excluding amortization expense as it allows comparison of operating results that are consistent over time for newly and long-held businesses and with both acquisitive and non-acquisitive peer companies.

Forward-Looking Non-GAAP Metrics. This press release also includes our expectations for 2019 with respect to (i) sales growth; (ii) Adjusted EPS growth; and (iii) EPS ex. amortization growth. The closest corresponding GAAP measures to these non-GAAP measures and a reconciliation of the differences between the non-GAAP metric expectation and the corresponding GAAP measure is not available without unreasonable effort due to length of the forecasted period and potential variability, complexity and low visibility as to items such as future contingencies and other costs that would be excluded from the GAAP measures, and the tax impact of such items, in the relevant future period. The variability of the excluded items may have a significant, and potentially unpredictable, impact on our future GAAP results.

Combined 2018 Financials

We calculated “combined” numbers by combining (i) our fiscal year 2018 results (including Frutarom from October 4, 2018 to December 31, 2018) with (ii) the results of Frutarom from January 1, 2018 to October 3, 2018, and adjusting for divestitures of Frutarom’s businesses since October 4, 2018, but do not include any other adjustments that would have been made had we owned Frutarom for such periods prior to October 4, 2018.

Welcome to IFF

At IFF (IFF) (Euronext Paris: IFF) (IFF.TA), we’re using Uncommon Sense to create what the world needs. As a collective of unconventional thinkers and creators, we put science and artistry to work to create unique and unexpected scents, tastes, experiences and ingredients for the products our world craves. Learn more at www.iff.com, Twitter, Facebook, Instagram, and LinkedIn.

International Flavors & Fragrances Inc.
Consolidated Income Statement
(Amounts in thousands except per share data)
(Unaudited)

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

2019

 

2018

 

% Change

2019

 

2018

 

% Change

Net sales

$

1,267,345

 

 

$

907,548

 

 

40

%

$

3,856,315

 

 

$

2,758,492

 

 

40

%

Cost of goods sold

734,257

 

 

506,882

 

 

45

%

2,245,729

 

 

1,553,300

 

 

45

%

Gross profit

533,088

 

 

400,666

 

 

33

%

1,610,586

 

 

1,205,192

 

 

34

%

Research and development expenses

85,077

 

 

75,302

 

 

13

%

260,489

 

 

228,545

 

 

14

%

Selling and administrative expenses

210,829

 

 

157,796

 

 

34

%

634,111

 

 

457,847

 

 

38

%

Amortization of acquisition-related intangibles

48,430

 

 

9,003

 

 

NMF

143,964

 

 

27,772

 

 

NMF

Restructuring and other charges, net

3,716

 

 

927

 

 

NMF

22,415

 

 

2,830

 

 

NMF

Losses (gains) on sales of fixed assets

372

 

 

(1,630

)

 

(123

)%

1,136

 

 

(435

)

 

NMF

Operating profit

184,664

 

 

159,268

 

 

16

%

548,471

 

 

488,633

 

 

12

%

Interest expense

33,497

 

 

23,914

 

 

40

%

102,662

 

 

93,755

 

 

10

%

Loss on extinguishment of debt

 

 

38,810

 

 

(100

)%

 

 

38,810

 

 

(100

)%

Other income, net

(5,699

)

 

(4,158

)

 

37

%

(15,114

)

 

(25,389

)

 

(40

)%

Income before taxes

156,866

 

 

100,702

 

 

56

%

460,923

 

 

381,457

 

 

21

%

Taxes on income

27,059

 

 

4,986

 

 

NMF

81,033

 

 

57,176

 

 

42

%

Net income

129,807

 

 

95,716

 

 

36

%

379,890

 

 

324,281

 

 

17

%

Net income attributable to noncontrolling interest

2,683

 

 

 

 

%

7,560

 

 

 

 

%

Net income attributable to IFF

127,124

 

 

95,716

 

 

33

%

372,330

 

 

324,281

 

 

15

%

 

 

 

 

 

 

 

 

 

 

 

Net income per share - basic (1)

$

1.15

 

 

$

1.18

 

 

 

$

3.34

 

 

$

4.06

 

 

 

Net income per share - diluted (1)

$

1.13

 

 

$

1.17

 

 

 

$

3.30

 

 

$

4.04

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average number of shares outstanding - basic

111,998

 

 

81,263

 

 

 

111,953

 

 

79,783

 

 

 

Average number of shares outstanding - diluted

113,493

 

 

81,647

 

 

 

113,133

 

 

80,115

 

 

 

(1) For 2019, net income per share reflects adjustments related to the redemption value of certain redeemable noncontrolling interests.
NMF Not meaningful

International Flavors & Fragrances Inc.
Condensed Consolidated Balance Sheet
(Amounts in thousands)
(Unaudited)

 

September 30,

 

December 31,

 

2019

 

2018

Cash, cash equivalents, and restricted cash

$

504,054

 

 

$

648,522

 

Receivables

942,705

 

 

937,765

 

Inventories

1,126,389

 

 

1,078,537

 

Other current assets

325,410

 

 

277,036

 

Total current assets

2,898,558

 

 

2,941,860

 

 

 

 

 

Property, plant and equipment, net

1,313,539

 

 

1,241,152

 

Goodwill and other intangibles, net

8,211,378

 

 

8,417,710

 

Other assets

561,249

 

 

288,673

 

Total assets

12,984,724

 

 

12,889,395

 

 

 

 

 

Short term borrowings

$

384,823

 

 

$

48,642

 

Other current liabilities

1,027,626

 

 

1,079,669

 

Total current liabilities

1,412,449

 

 

1,128,311

 

 

 

 

 

Long-term debt

4,008,134

 

 

4,504,417

 

Non-current liabilities

1,382,608

 

 

1,131,487

 

 

 

 

 

Redeemable noncontrolling interests

114,545

 

 

81,806

 

 

 

 

 

Shareholders' equity

6,066,988

 

 

6,043,374

 

Total liabilities and shareholders' equity

$

12,984,724

 

 

$

12,889,395

 

International Flavors & Fragrances Inc.
Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)

 

Nine Months Ended September 30,

 

2019

 

2018

Cash flows from operating activities:

 

 

 

Net income

$

379,890

 

 

$

324,281

 

Adjustments to reconcile to net cash provided by operating activities

 

 

 

Depreciation and amortization

235,429

 

 

95,994

 

Deferred income taxes

(35,134

)

 

20,623

 

Losses (gains) on sale of assets

1,136

 

 

(435

)

Stock-based compensation

26,426

 

 

22,041

 

Pension contributions

(16,390

)

 

(15,983

)

Loss on extinguishment of debt

 

 

38,810

 

Gain on deal contingent derivatives

 

 

(12,505

)

Product recall claim settlement, net of insurance proceeds received

 

 

(3,090

)

Changes in assets and liabilities, net of acquisitions:

 

 

 

Trade receivables

(22,878

)

 

(93,198

)

Inventories

(84,140

)

 

(92,705

)

Accounts payable

(39,332

)

 

(17,198

)

Accruals for incentive compensation

(20,726

)

 

(10,753

)

Other current payables and accrued expenses

(12,161

)

 

386

 

Other assets

(58,016

)

 

(61,597

)

Other liabilities

28,931

 

 

7,287

 

Net cash provided by operating activities

383,035

 

 

201,958

 

Cash flows from investing activities:

 

 

 

Cash paid for acquisitions, net of cash received

(49,065

)

 

(22

)

Additions to property, plant and equipment

(160,449

)

 

(102,421

)

Additions to intangible assets

(6,070

)

 

 

Proceeds from life insurance contracts

1,890

 

 

1,837

 

Maturity of net investment hedges

 

 

(2,642

)

Proceeds from disposal of assets

34,607

 

 

961

 

Proceeds from unwinding of cross currency swap derivative instruments

25,900

 

 

 

Contingent consideration paid

(4,655

)

 

 

Net cash used in investing activities

(157,842

)

 

(102,287

)

Cash flows from financing activities:

 

 

 

Cash dividends paid to shareholders

(233,477

)

 

(163,318

)

Increase in revolving credit facility and short term borrowings

11

 

 

112,483

 

Proceeds from sales of equity securities, net of issuance costs

 

 

2,268,965

 

Deferred financing costs

 

 

(21,944

)

Repayments on debt

(100,785

)

 

(288,810

)

Proceeds from issuance of long-term debt

 

 

2,926,414

 

Contingent consideration paid

(21,791

)

 

 

Gain on pre-issuance hedges

 

 

12,505

 

Proceeds from issuance of stock in connection with stock options

200

 

 

 

Employee withholding taxes paid

(9,966

)

 

(9,725

)

Purchase of treasury stock

 

 

(15,475

)

Net cash (used in) provided by financing activities

(365,808

)

 

4,821,095

 

Effect of exchange rates changes on cash, cash equivalents and restricted cash

(3,853

)

 

(14,353

)

Net change in cash, cash equivalents and restricted cash

(144,468

)

 

4,906,413

 

Cash, cash equivalents and restricted cash at beginning of year

648,522

 

 

368,046

 

Cash, cash equivalents and restricted cash at end of period

$

504,054

 

 

$

5,274,459

  

International Flavors & Fragrances Inc.
Business Unit Performance
(Amounts in thousands)

(Unaudited)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

Net Sales

 

 

 

 

 

 

 

Taste

$

423,269

 

 

$

436,214

 

 

$

1,302,050

 

 

$

1,335,773

 

Scent

480,384

 

 

471,334

 

 

1,444,407

 

 

1,422,719

 

Frutarom

363,692

 

 

 

 

1,109,858

 

 

 

Consolidated

$

1,267,345

 

 

$

907,548

 

 

$

3,856,315

 

 

$

2,758,492

 

 

 

 

 

 

 

 

 

Segment Profit

 

 

 

 

 

 

 

Taste

$

97,526

 

 

$

96,497

 

 

$

304,062

 

 

$

317,666

 

Scent

83,484

 

 

87,488

 

 

260,543

 

 

261,545

 

Frutarom

28,257

 

 

 

 

94,841

 

 

 

Global Expenses

(8,333

)

 

(19,578

)

 

(39,892

)

 

(63,975

)

Operational Improvement Initiatives

(712

)

 

(344

)

 

(1,652

)

 

(1,773

)

Acquisition Related Costs

 

 

1

 

 

 

 

519

 

Integration Related Costs

(10,511

)

 

(958

)

 

(36,825

)

 

(1,951

)

Restructuring and Other Charges, net

(3,716

)

 

(927

)

 

(22,415

)

 

(1,837

)

(Losses) Gains on Sale of Assets

(372

)

 

1,630

 

 

(1,136

)

 

435

 

FDA Mandated Product Recall

(250

)

 

9,800

 

 

(250

)

 

4,800

 

Frutarom Acquisition Related Costs

2,914

 

 

(14,341

)

 

(5,182

)

 

(26,796

)

Compliance Review & Legal Defense Costs

(3,623

)

 

 

 

(3,623

)

 

 

Operating profit

184,664

 

 

159,268

 

 

548,471

 

 

488,633

 

Interest Expense

(33,497

)

 

(23,914

)

 

(102,662

)

 

(93,755

)

Loss on extinguishment of debt

 

 

(38,810

)

 

 

 

(38,810

)

Other income, net

5,699

 

 

4,158

 

 

15,114

 

 

25,389

 

Income before taxes

$

156,866

 

 

$

100,702

 

 

$

460,923

 

 

$

381,457

 

 

 

 

 

 

 

 

 

Operating Margin

 

 

 

 

 

 

 

Taste

23

%

 

22

%

 

23

%

 

24

%

Scent

17

%

 

19

%

 

18

%

 

18

%

Frutarom

8

%

 

%

 

9

%

 

%

Consolidated

15

%

 

18

%

 

14

%

 

18

%

International Flavors & Fragrances Inc.
GAAP to Non-GAAP Reconciliation
Foreign Exchange Impact
(Unaudited)

Q3 Taste

Sales

 

Segment

Profit

 

% Change - Reported

(3)%

 

1%

 

Currency Impact

1%

 

3%

 

% Change - Currency Neutral

(2)%

 

4%

 

 

 

 

 

 

Q3 Scent

Sales

 

Segment

Profit

 

% Change - Reported

2%

 

(5)%

 

Currency Impact

1%

 

5%

 

% Change - Currency Neutral

3%

 

0%

 

YTD Taste

Sales

 

Segment

Profit

% Change - Reported

(3)%

 

(4)%

Currency Impact

3%

 

3%

% Change - Currency Neutral

0%

 

(1)%

 

 

 

 

YTD Scent

Sales

 

Segment

Profit

% Change - Reported

2%

 

0%

Currency Impact

2%

 

5%

% Change - Currency Neutral

4%

 

5%

International Flavors & Fragrances Inc.
GAAP to Non-GAAP Reconciliation
(Unaudited)

The following information and schedules provide reconciliation information between reported GAAP amounts and non-GAAP certain adjusted amounts. This information and schedules are not intended as, and should not be viewed as, a substitute for reported GAAP amounts or financial statements of the Company prepared and presented in accordance with GAAP.

Reconciliation of Gross Profit

 

Third Quarter

(DOLLARS IN THOUSANDS)

2019

 

2018

Reported (GAAP)

$

533,088

 

 

$

400,666

 

Operational Improvement Initiatives (a)

711

 

 

398

 

Integration Related Costs (c)

187

 

 

18

 

FDA Mandated Product Recall (e)

250

 

 

(9,800

)

Frutarom Acquisition Related Costs (g)

(3,603

)

 

 

Adjusted (Non-GAAP)

$

530,633

 

 

$

391,282

 

Reconciliation of Selling and Administrative Expenses

 

Third Quarter

(DOLLARS IN THOUSANDS)

2019

 

2018

Reported (GAAP)

$

210,829

 

 

$

157,796

 

Acquisition Related Costs (b)

 

 

1

 

Integration Related Costs (c)

(10,047

)

 

(915

)

Frutarom Acquisition Related Costs (g)

(691

)

 

(14,341

)

Compliance Review & Legal Defense Costs (h)

(3,623

)

 

 

Adjusted (Non-GAAP)

$

196,468

 

 

$

142,541

 

Reconciliation of Operating Profit

 

Third Quarter

(DOLLARS IN THOUSANDS)

2019

 

2018

Reported (GAAP)

$

184,664

 

 

$

159,268

 

Operational Improvement Initiatives (a)

712

 

 

344

 

Acquisition Related Costs (b)

 

 

(1

)

Integration Related Costs (c)

10,511

 

 

958

 

Restructuring and Other Charges, net (d)

3,716

 

 

927

 

Losses (Gains) on Sale of Assets

372

 

 

(1,630

)

FDA Mandated Product Recall (e)

250

 

 

(9,800

)

Frutarom Acquisition Related Costs (g)

(2,914

)

 

14,341

 

Compliance Review & Legal Defense Costs (h)

3,623

 

 

 

Adjusted (Non-GAAP)

$

200,934

 

 

$

164,407

 

Reconciliation of Adjusted (Non-GAAP) Operating Profit Margin ex. Amortization

(DOLLARS IN THOUSANDS)

Third Quarter

Numerator

2019

 

2018

Adjusted (Non-GAAP) Operating Profit

$

200,934

 

 

$

164,407

 

Amortization of Acquisition related Intangible Assets

48,430

 

 

9,003

 

Adjusted (Non-GAAP) Operating Profit ex. Amortization

249,364

 

 

173,410

 

 

 

 

 

Denominator

 

 

 

Sales

1,267,345

 

 

907,548

 

Adjusted (Non-GAAP) Operating Profit Margin ex. Amortization

19.7

%

 

19.1

%

International Flavors & Fragrances Inc.
GAAP to Non-GAAP Reconciliation
(Amounts in thousands)
(Unaudited)

The following information and schedules provide reconciliation information between reported GAAP amounts and non-GAAP certain adjusted amounts. This information and schedules are not intended as, and should not be viewed as, a substitute for reported GAAP amounts or financial statements of the Company prepared and presented in accordance with GAAP.

Reconciliation of Net Income

 

Third Quarter

 

2019

 

2018

(DOLLARS IN THOUSANDS)

Income before taxes

 

Taxes on income (j)

 

Net Income Attributable to IFF (k)

 

Diluted EPS (l)

 

Income before taxes

 

Taxes on income (j)

 

Net Income Attributable to IFF

 

Diluted EPS

Reported (GAAP)

$

156,866

 

 

$

27,059

 

 

$

127,124

 

 

$

1.13

 

 

$

100,702

 

 

$

4,986

 

 

$

95,716

 

 

$

1.17

 

Operational Improvement Initiatives (a)

712

 

 

243

 

 

469

 

 

 

 

345

 

 

125

 

 

220

 

 

 

Acquisition Related Costs (b)

(3,371

)

 

 

 

(3,371

)

 

(0.03

)

 

(1

)

 

1

 

 

(2

)

 

 

Integration Related Costs (c)

10,511

 

 

2,347

 

 

8,164

 

 

0.07

 

 

959

 

 

237

 

 

722

 

 

0.01

 

Restructuring and Other Charges, net (d)

3,716

 

 

811

 

 

2,905

 

 

0.03

 

 

927

 

 

228

 

 

699

 

 

0.01

 

Losses (Gains) on Sale of Assets

372

 

 

98

 

 

274

 

 

 

 

(1,630

)

 

(387

)

 

(1,243

)

 

(0.02

)

FDA Mandated Product Recall (e)

250

 

 

57

 

 

193

 

 

 

 

(9,800

)

 

(2,344

)

 

(7,456

)

 

(0.09

)

U.S. Tax Reform (f)

 

 

 

 

 

 

 

 

 

 

8,151

 

 

(8,151

)

 

(0.10

)

Frutarom Acquisition Related Costs (g)

(2,914

)

 

(715

)

 

(2,199

)

 

(0.02

)

 

54,994

 

 

9,561

 

 

45,433

 

 

0.56

 

Compliance Review & Legal Defense Costs (h)

3,623

 

 

827

 

 

2,796

 

 

0.02

 

 

 

 

 

 

 

 

 

Redemption value adjustment to EPS (i)

 

 

 

 

 

 

(0.02

)

 

 

 

 

 

 

 

 

Adjusted (Non-GAAP)

$

169,765

 

 

$

30,727

 

 

$

136,355

 

 

$

1.20

 

 

$

146,496

 

 

$

20,558

 

 

$

125,938

 

 

$

1.54

 

Reconciliation of Adjusted (Non-GAAP) EPS ex. Amortization

 

Third Quarter

(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)

2019

 

2018

Numerator

 

 

 

Adjusted (Non-GAAP) Net Income

$

136,355

 

 

$

125,938

 

Amortization of Acquisition related Intangible Assets

48,430

 

 

9,003

 

Tax impact on Amortization of Acquisition related Intangible Assets (j)

10,961

 

 

2,340

 

Amortization of Acquisition related Intangible Assets, net of tax (m)

37,469

 

 

6,663

 

Adjusted (Non-GAAP) Net Income ex. Amortization

173,824

 

 

132,601

 

 

 

 

 

Denominator

 

 

 

Weighted average shares assuming dilution (diluted)

113,493

 

 

81,647

 

Adjusted (Non-GAAP) EPS ex. Amortization

$

1.53

 

 

$

1.62

 

(a)

For 2019, represents accelerated depreciation related to a plant relocation in India and China. For 2018, represents accelerated depreciation related to a plant relocation in India and Taiwan.

(b)

For 2019, represents adjustments to the fair value for an equity method investment in Canada which we began consolidating in the second quarter.

(c)

For 2019, represents costs related to the integration of the Frutarom acquisition, principally advisory services. For 2018, represents costs related to the integration of David Michael and Frutarom.

(d)

For 2019, represents costs primarily related to the Frutarom Integration Initiative and the 2019 Severance Charges program. For 2018, represents severance costs related to the 2017 Productivity Program.

(e)

For 2019, represents additional claims that management will pay to co-packers. For 2018, represents recoveries from the supplier for the third quarter, partially offset by final payments to the customer made for the affected product in the first quarter.

(f)

Represents charges incurred related to enactment of certain U.S. tax legislation changes in December 2017.

(g)

Represents transaction-related costs and expenses related to the acquisition of Frutarom. For 2019, amount primarily relates to a measurement period adjustment to the amount of the inventory "step-up" recorded. For 2018, amount primarily includes $28.8 million of bridge loan commitment fees partially offset by $25.3 million net mark-to-market gains on deal-contingent interest rate derivatives included in Interest expense; $34.9 million make whole payment on the Senior Notes - 2007 and $3.9 million realized loss on a fair value hedge included in Loss on extinguishment of debt; $1.9 million realized gain on a foreign currency derivative included in Other income; and $14.3 million of transaction costs included in administrative expenses.

(h)

Costs related to reviewing the nature of inappropriate payments and review of compliance in certain other countries. In addition, includes legal costs for related shareholder lawsuits.

(i)

Represents the adjustment to EPS related to the excess of the redemption value of certain redeemable noncontrolling interests over their existing carrying value.

(j)

The income tax expense (benefit) on non-GAAP adjustments is computed in accordance with ASC 740 using the same methodology as the GAAP provision of income taxes. Income tax effects of non-GAAP adjustments are calculated based on the applicable statutory tax rate for each jurisdiction in which such charges were incurred, except for those items which are non-taxable for which the tax expense (benefit) was calculated at 0%. For fiscal year 2019, these non-GAAP adjustments were not subject to foreign tax credits or valuation allowances, but to the extent that such factors are applicable to any future non-GAAP adjustments we will take such factors into consideration in calculating the tax expense (benefit). For amortization, the tax benefit has been calculated based on the statutory rate on a country by country basis.

(k)

For 2019, net income is reduced by income attributable to noncontrolling interest of $2.7M.

(l)

The sum of these items does not foot due to rounding.

(m)

Represents all amortization of intangible assets acquired in connection with acquisitions, net of tax.

International Flavors & Fragrances Inc.
GAAP to Non-GAAP Reconciliation
(Unaudited)

The following information and schedules provide reconciliation information between reported GAAP amounts and non-GAAP certain adjusted amounts. This information and schedules are not intended as, and should not be viewed as, a substitute for reported GAAP amounts or financial statements of the Company prepared and presented in accordance with GAAP.

Reconciliation of Gross Profit

 

Third Quarter Year-to-Date

(DOLLARS IN THOUSANDS)

2019

 

2018

Reported (GAAP)

$

1,610,586

 

 

$

1,205,192

 

Operational Improvement Initiatives (a)

1,651

 

 

1,254

 

Integration Related Costs (c)

508

 

 

18

 

FDA Mandated Product Recall (e)

250

 

 

(4,800

)

Frutarom Acquisition Related Costs (g)

4,247

 

 

 

Adjusted (Non-GAAP)

$

1,617,242

 

 

$

1,201,664

 

Reconciliation of Selling and Administrative Expenses

 

Third Quarter Year-to-Date

(DOLLARS IN THOUSANDS)

2019

 

2018

Reported (GAAP)

$

634,111

 

 

$

457,847

 

Acquisition Related Costs (b)

 

 

519

 

Integration Related Costs (c)

(35,647

)

 

(915

)

Frutarom Acquisition Related Costs (g)

(937

)

 

(26,796

)

Compliance Review & Legal Defense Costs (h)

(3,623

)

 

 

Adjusted (Non-GAAP)

$

593,904

 

 

$

430,655

 

Reconciliation of Operating Profit

 

Third Quarter Year-to-Date

(DOLLARS IN THOUSANDS)

2019

 

2018

Reported (GAAP)

$

548,471

 

 

$

488,633

 

Operational Improvement Initiatives (a)

1,652

 

 

1,773

 

Acquisition Related Costs (b)

 

 

(519

)

Integration Related Costs (c)

36,825

 

 

1,951

 

Restructuring and Other Charges, net (d)

22,415

 

 

1,837

 

Losses (Gains) on Sale of Assets

1,136

 

 

(435

)

FDA Mandated Product Recall (e)

250

 

 

(4,800

)

Frutarom Acquisition Related Costs (g)

5,182

 

 

26,796

 

Compliance Review & Legal Defense Costs (h)

3,623

 

 

 

Adjusted (Non-GAAP)

$

619,554

 

 

$

515,236

 

International Flavors & Fragrances Inc.
GAAP to Non-GAAP Reconciliation
(Amounts in thousands)
(Unaudited)

The following information and schedules provide reconciliation information between reported GAAP amounts and non-GAAP certain adjusted amounts. This information and schedules are not intended as, and should not be viewed as, a substitute for reported GAAP amounts or financial statements of the Company prepared and presented in accordance with GAAP.

Reconciliation of Net Income

 

Third Quarter Year-to-Date

 

2019

 

2018

(DOLLARS IN THOUSANDS)

Income before taxes

 

Taxes on income (j)

 

Net Income Attributable to IFF (k)

 

Diluted EPS

 

Income before taxes

 

Taxes on income (j)

 

Net Income Attributable to IFF

 

Diluted EPS (l)

Reported (GAAP)

$

460,923

 

 

$

81,033

 

 

$

372,330

 

 

$

3.30

 

 

$

381,457

 

 

$

57,176

 

 

$

324,281

 

 

$

4.04

 

Operational Improvement Initiatives (a)

1,652

 

 

561

 

 

1,091

 

 

0.01

 

 

1,774

 

 

561

 

 

1,213

 

 

0.02

 

Acquisition Related Costs (b)

(3,371

)

 

 

 

(3,371

)

 

(0.03

)

 

(519

)

 

(134

)

 

(385

)

 

 

Integration Related Costs (c)

36,825

 

 

8,270

 

 

28,555

 

 

0.25

 

 

1,952

 

 

237

 

 

1,715

 

 

0.02

 

Restructuring and Other Charges, net (d)

22,415

 

 

5,394

 

 

17,021

 

 

0.16

 

 

1,837

 

 

443

 

 

1,394

 

 

0.02

 

Losses (Gains) on Sale of Assets

1,136

 

 

290

 

 

846

 

 

0.01

 

 

(435

)

 

(141

)

 

(294

)

 

 

FDA Mandated Product Recall (e)

250

 

 

57

 

 

193

 

 

 

 

(4,800

)

 

(1,148

)

 

(3,652

)

 

(0.05

)

U.S. Tax Reform (f)

 

 

 

 

 

 

 

 

 

 

7,502

 

 

(7,502

)

 

(0.09

)

Frutarom Acquisition Related Costs (g)

5,182

 

 

672

 

 

4,510

 

 

0.04

 

 

91,983

 

 

16,104

 

 

75,879

 

 

0.95

 

Compliance Review & Legal Defense Costs (h)

3,623

 

 

827

 

 

2,796

 

 

0.02

 

 

 

 

 

 

 

 

 

Redemption value adjustment to EPS (i)

 

 

 

 

 

 

(0.02

)

 

 

 

 

 

 

 

 

Adjusted (Non-GAAP)

$

528,635

 

 

$

97,104

 

 

$

423,971

 

 

$

3.74

 

 

$

473,249

 

 

$

80,600

 

 

$

392,649

 

 

$

4.89

 

Reconciliation of Adjusted (Non-GAAP) EPS ex. Amortization

 

Third Quarter Year-to-Date

(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)

2019

 

2018

Numerator

 

 

 

Adjusted (Non-GAAP) Net Income

$

423,971

 

 

$

392,649

 

Amortization of Acquisition related Intangible Assets

143,964

 

 

27,772

 

Tax impact on Amortization of Acquisition related Intangible Assets (j)

33,792

 

 

8,013

 

Amortization of Acquisition related Intangible Assets, net of tax (m)

110,172

 

 

19,759

 

Adjusted (Non-GAAP) Net Income ex. Amortization

534,143

 

 

412,408

 

 

 

 

 

Denominator

 

 

 

Weighted average shares assuming dilution (diluted)

113,133

 

 

80,115

 

Adjusted (Non-GAAP) EPS ex. Amortization

$

4.72

 

 

$

5.14

 

(a)

For 2019, represents accelerated depreciation related to a plant relocation in India and China. For 2018, represents accelerated depreciation related to a plant relocation in India and Taiwan.

(b)

For 2019, represents adjustments to the fair value for an equity method investment in Canada which we began consolidating in the second quarter. For 2018, represents adjustments to the contingent consideration payable for PowderPure, and transaction costs related to Fragrance Resources and PowderPure within Selling and administrative expenses.

(c)

For 2019, represents costs related to the integration of the Frutarom acquisition, principally advisory services. For 2018, represents costs related to the integration of David Michael and Frutarom.

(d)

For 2019, represents costs primarily related to the Frutarom Integration Initiative and the 2019 Severance Charges program. For 2018, represents severance costs related to the 2017 Productivity Program.

(e)

For 2019, represents additional claims that management will pay to co-packers. For 2018, represents recoveries from the supplier for the third quarter, partially offset by final payments to the customer made for the affected product in the first quarter.

(f)

Represents charges incurred related to enactment of certain U.S. tax legislation changes in December 2017.

(g)

Represents transaction-related costs and expenses related to the acquisition of Frutarom. For 2019, amount primarily includes amortization for inventory "step-up" costs and transaction costs. For 2018, amount primarily includes $39.4 million of bridge loan commitment fees included in Interest expense; $34.9 million make whole payment on the Senior Notes - 2007 and $3.9 million realized loss on a fair value hedge included in Loss on extinguishment of debt; $12.5 million realized gain on a foreign currency derivative included in Other income; and $26.8 million of transaction costs included in administrative expenses.

(h)

Costs related to reviewing the nature of inappropriate payments and review of compliance in certain other countries. In addition, includes legal costs for related shareholder lawsuits.

(i)

Represents the adjustment to EPS related to the excess of the redemption value of certain redeemable noncontrolling interests over their existing carrying value.

(j)

The income tax expense (benefit) on non-GAAP adjustments is computed in accordance with ASC 740 using the same methodology as the GAAP provision of income taxes. Income tax effects of non-GAAP adjustments are calculated based on the applicable statutory tax rate for each jurisdiction in which such charges were incurred, except for those items which are non-taxable for which the tax expense (benefit) was calculated at 0%. For fiscal year 2019, these non-GAAP adjustments were not subject to foreign tax credits or valuation allowances, but to the extent that such factors are applicable to any future non-GAAP adjustments we will take such factors into consideration in calculating the tax expense (benefit). For amortization, the tax benefit has been calculated based on the statutory rate on a country by country basis.

(k)

For 2019, net income is reduced by income attributable to noncontrolling interest of $7.6M.

(l)

The sum of these items does not foot due to rounding.

(m)

Represents all amortization of intangible assets acquired in connection with acquisitions, net of tax.

 

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