Strong financial performance during historic quarter
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IFF Q3 2018 Infographic (Graphic:
Business Wire)
International Flavors & Fragrances Inc. (NYSE: IFF)
(Euronext Paris: IFF) (TASE: IFF) reported financial results for
the third quarter ended September 30, 2018.
Nine Months Year-To-Date 2018 Consolidated Summary: Change
vs. Prior Year
Reported
(GAAP) Adjusted (Non-GAAP)¹ Currency Neutral
(Non-GAAP)¹ Sales Operating Profit
EPS Sales Operating Profit
EPS Sales Operating Profit
EPS Consolidated 8% 13% (4)% 8% 8%
9% 6% 4% 11%
Third Quarter 2018 Consolidated Summary: Change vs. Prior
Year
Reported (GAAP)
Adjusted (Non-GAAP)¹ Currency Neutral (Non-GAAP)¹
Sales Operating Profit EPS
Sales Operating Profit EPS
Sales Operating Profit EPS
Consolidated 4% 7% (16)% 4% 4% 5% 4%
3% 12%
¹ Schedules at the end of this release contain reconciliations
of reported GAAP to non-GAAP metrics.2 Excludes Frutarom results as
the transaction closed in the fourth quarter 2018.
Management Commentary
“In 1958, van Ameringen-Haebler announced that it would merge
with Polak & Schwarz N.V. to create International Flavors &
Fragrances Inc. In the sixty years since that historic
announcement, IFF has changed significantly, increasing its net
sales from $32 million in 1959 to $3.4 billion in 2017,” said IFF
Chairman and CEO Andreas Fibig. “IFF has also expanded
geographically, grown its portfolio of offerings and deepened its
commitment to corporate social responsibility.”
“We are now embarking on the next major chapter of IFF’s
history, following the completion of the Frutarom transaction in
early October. We believe that our combination with Frutarom, the
largest transaction of its kind in our industry, is fundamentally
going to expand our customer and employee base and product
offerings. We will have greater exposure to fast-growing customers,
broader access to attractive adjacencies and a differentiated
portfolio with an increased focus on naturals and health and
wellness as well as more comprehensive solutions. We believe this
will translate into accelerated financial performance as a combined
company, with robust top and bottom-line growth, leading to strong
returns for our shareholders.
“With all this change comes the bittersweet realization that the
third quarter 2018 was our final as legacy IFF. I’m pleased to say
we continued to deliver strong results to our shareholders. Against
a very strong year-ago performance, top-line trends remained solid
– growing 4%. Performance was broad-based – led by new wins and
pricing to compensate rising raw material costs – with both
business units contributing to results. Bottom-line performance was
also strong, as we achieved a double-digit currency neutral
adjusted EPS growth. Looking forward, we are excited about the
prospects of this historic combination of two world-class
companies, entering a new chapter of profitable growth and
shareholder value creation.”
Third Quarter 2018 Consolidated Financial Results
- Reported net sales for the third
quarter totaled $908 million, an increase of 4% from $873 million
in 2017. Excluding the impact of foreign exchange, currency neutral
sales increased 4% over the prior year.
- Reported operating profit for the third
quarter was $159 million versus $149 million reported in 2017, an
increase of 7%. Excluding the impact of foreign exchange and those
items that affect comparability, currency neutral adjusted
operating profit increased by 3%.
- Reported earnings per share (EPS) for
the third quarter was $1.17 per diluted share versus $1.39 per
diluted share reported in 2017. Excluding the impact of foreign
exchange and those items that affect comparability, currency
neutral adjusted EPS improved 12%.
Third Quarter 2018 Segment Summary: Growth vs. Prior
Year
Reported (GAAP)
Currency Neutral (Non-GAAP) Sales Segment
Profit Sales Segment Profit Flavors
6% 10% 7% 7%
Fragrances 2% (2)% 2% (5)%
Flavors Business Unit
- On a reported basis, sales increased
6%, or $26.4 million, to $436.2 million. Currency neutral sales
grew 7%, against a strong year-ago comparison, driven by growth in
all categories and all regions.
- EAME increased 7% on a reported basis
and 6% on a currency neutral basis, as Europe, Africa and the
Middle East all grew high-single-digits. Growth was achieved across
all categories, led by strong performances in Dairy, Beverage and
Sweet.
- North America improved 10% driven by
strong performances in Dairy & Sweet and double-digit growth at
Tastepoint℠.
- Latin America increased 6% on a
reported basis and 12% on a currency neutral basis driven by strong
double-digit growth in Argentina and mid-single-digit growth in
Mexico. On a category basis, strong double-digit growth was
achieved in Savory and Dairy as well as high-single digit growth in
Beverage.
- Greater Asia increased 3% on a reported
basis and 4% on a currency neutral basis led by strong growth in
India. Growth was achieved in most categories, led by strong
double-digit growth in Beverage.
- Flavors segment profit increased 10% on
a reported basis and 7% on a currency neutral basis, driven
primarily by volume growth and the benefits from productivity
initiatives.
Fragrances Business Unit
- On a reported basis, sales increased
2%, or $8.2 million, to $471.3 million. Currency neutral sales
improved 2% on a strong double-digit year-ago comparison, with
growth in nearly all regions.
- Fine Fragrances decreased 3% on a
reported basis and 2% on a currency neutral basis, as strong new
win performance was offset by volume softness due to a strong
year-ago comparison.
- Consumer Fragrances grew 2% on a
reported basis and currency neutral basis. Performance was driven
by continued growth in Hair, Home and Fabric Care. On a geographic
basis, nearly all regions contributed positively to results.
- Fragrance Ingredients grew 6% on a
reported basis and 5% on a currency neutral basis, led by strong
double-digit growth in cosmetic active ingredients and continued
growth in Fragrance Ingredients.
- Fragrances segment profit decreased 2%
on a reported basis and 5% on a currency neutral basis as the
benefits from productivity initiatives and cost management were
more than offset by unfavorable price to input costs, including the
previously announced citral supply issue.
Frutarom Transaction Update
- On October 4, 2018, completed the
combination with Frutarom to establish a global leader in taste,
scent and nutrition.
- For purposes of calculating diluted EPS
in the fourth quarter of 2018, we estimate that there will be a
total of approximately 113 million shares to be included in the EPS
calculation. This estimate includes 6.3 million tangible equity
units. In the third quarter 2018, diluted EPS was impacted by
approximately 2.2 million shares given the timing of the equity
raise. There was no contribution of earnings from Frutarom in the
third quarter of 2018.
- Interest expense following the
completion of the $2.8 billion debt raise is expected to be
approximately $150 - $155 million. In the third quarter 2018, Net
Income was impacted by approximately $1.6 million given the timing
of the debt raise.
- The following estimated Frutarom
results are shown for informational purposes only, they reflect
Frutarom’s results when it was under previous ownership and prior
to our acquisition of Frutarom on October 4, 2018. Frutarom’s
financial data has historically been prepared under International
Financial Reporting Standards (“IFRS”), and not U.S. GAAP and the
numbers below were prepared under IFRS. Consequently, these results
do not necessarily reflect actual results as if Frutarom had been
included in our results for the third quarter of 2018.
- Net sales for the third quarter of 2018
are expected to be between $360 and $365 million, and adjusted
EBITDA margin is expected to be approximately 21%.
The Company’s full year 2018 guidance (excluding items impacting
comparability) including Frutarom’s results beginning in the fourth
quarter 2018 is as follows:
Guidance Sales $3.95B - $4.05B
Adjusted EPS*
$6.25 - $6.45
1 See Use of Non-GAAP Financial Measures* Adjusted EPS is a
Non-GAAP metric that excludes restructuring costs and other
significant items of a non-recurring and/or nonoperational nature,
foreign currency movements, and full amortization for the
Company
A copy of the Company’s Quarterly Report on Form 10-Q will be
available on its website at www.iff.com or at www.sec.gov by
November 7, 2018.
Audio Webcast
A live webcast to discuss the Company’s third quarter 2018
financial results will be held on November 6, 2018, at 10:00 a.m.
ET. Investors may access the webcast and accompanying slide
presentation 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 our outlook in our full year 2018
guidance, the expected impact of the combination with Frutarom,
including expected increase in our portfolio and our customer base,
on future growth and accelerated performance and our ability to
deliver growth across all of our key financial metrics, and the
impact of our actions on value creation for our shareholders. 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 27, 2018 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 the
acquisition will have an accretive effect on the Company’s earnings
and cash flows and the possibility that anticipated cost savings
and synergies will not be realized or will not be realized in the
expected time frame; (2) the impact of the Company’s recent
financings on its liquidity and flexibility to respond to other
business opportunities; (3) unexpected costs, liabilities, charges
or expenses resulting from the Frutarom acquisition; (4) adverse
effects on the Company’s stock price resulting from the Frutarom
acquisition; (5) the inability to retain key personnel; (6)
potential adverse reactions, changes to business relationships or
competitive responses resulting from the Frutarom acquisition; (7)
macroeconomic trends affecting the emerging markets; (9) the
Company’s ability to realize the benefits of its cost and
productivity initiatives; (10) the impact of the disruption in
supply of citral from BASF on the price and availability of citral
in 2018; (11) the Company’s ability to effectively compete in its
market, and to successfully develop new, cost-effective and
competitive products that appeal to its customers and consumers;
(12) changes in consumer preferences and demand for the Company’s
products or a decline in consumer confidence and spending; (13) the
Company’s ability to benefit from its investments and expansion in
emerging markets; (14) the impact of currency fluctuations or
devaluations in the principal foreign markets in which it operates;
(15) the economic and political risks associated with the Company’s
international operations, including challenging economic conditions
in China and Latin America; (16) the impact of any failure or
interruption of the Company’s key information technology systems or
a breach of information security; (17) the Company’s ability to
comply with, and the costs associated with compliance with U.S. and
foreign environmental protection laws; (18) the Company’s ability
to realize expected cost savings and efficiencies from its
profitability improvement initiative and other optimization
activities; (19) volatility and increases in the price of raw
materials, energy and transportation; (20) price realization in a
rising input cost environment; (21) fluctuations in the quality and
availability of raw materials; (22) the impact of a disruption in
the Company’s supply chain, availability of key raw materials, or
its relationship with its suppliers; (23) any adverse impact on the
availability, effectiveness and cost of the Company’s hedging and
risk management strategies; (24) the Company’s ability to
successfully manage its working capital and inventory balances;
(25) the effect of legal and regulatory developments, as well as
restrictions or costs that may be imposed on the Company or its
operations by U.S. and foreign governments; (26) adverse changes in
federal, state, local and international tax legislation or
policies, including with respect to transfer pricing and state aid,
and adverse results of tax audits, assessments, or disputes; and
(27) changes in market conditions or governmental regulations
relating to our pension and postretirement obligations. 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 (1) Currency Neutral Sales, (2)
Adjusted Operating Profit and Currency Neutral Adjusted Operating
Profit and (3) Adjusted EPS and Currency Neutral Adjusted EPS,
which exclude restructuring costs and other significant items of a
non-recurring and/or nonoperational nature such as legal
charges/credits, gains on sale of assets, tax assessment,
operational improvement initiatives, integration related costs, FDA
mandated product recall costs, acquisition related costs, CTA
realization, Frutarom acquisition related costs and U.S. Tax reform
(often referred to as “Items Impacting Comparability”) and, with
respect to the currency neutral items, the impact of foreign
currency movements. We provide these metrics as we believe that
they are useful in providing period to period comparisons of the
results of our operational performance. When we provide our
expectations for our currency neutral metrics in our full year 2018
guidance, we estimate the anticipated FX impact by comparing prior
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. When we provide our expectations for our
Adjusted Operating Profit and our Adjusted EPS in our full year
2018 guidance and the estimated Adjusted EBITDA for Frutarom, the
closest corresponding GAAP measures (expected reported Operating
Profit and EPS) and a reconciliation of the differences between the
non-GAAP expectation and the corresponding GAAP measure generally
are not available without unreasonable effort due to inherent
difficulty of forecasting the timing and amount of reconciling
items that would be excluded from the GAAP measure in the relevant
future period and the relevant tax impact of such reconciling items
on EPS. The variability of the excluded items may have a
significant, and potentially unpredictable, impact on our future
GAAP results. Currency Neutral Sales, Adjusted Operating Profit,
Currency Neutral Adjusted Operating Profit, Adjusted EPS and
Currency Neutral Adjusted EPS 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.
Meet IFF
International Flavors & Fragrances Inc. (NYSE:IFF) (Euronext
Paris: IFF) (TASE: IFF) is a leading innovator of scent, taste, and
nutrition, with over 110 manufacturing facilities, 100 R&D
centers, and 33,000 customers globally. At the heart of our
company, we are fueled by a sense of discovery, constantly asking
“what if?”. That passion for exploration drives us to co-create
unique products that consumers experience in more than 150,000
unique products sold annually. Our 13,000 team members globally
take advantage of leading consumer insights, naturals exploration,
research and development, creative expertise, and customer intimacy
to develop differentiated offerings for consumer products. 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, 2018 2017
% Change 2018 2017 %
Change Net sales $907,548 $872,940 4% $2,758,492
$2,544,094 8% Cost of goods sold 506,882 492,542 3% 1,553,300
1,427,630 9% Gross profit 400,666 380,398 5% 1,205,192 1,116,464 8%
Research and development expenses 75,302 73,762 2% 228,545 218,649
5% Selling and administrative expenses 157,796 145,652 8% 457,847
428,675 7% Amortization of acquisition-related intangibles 9,003
8,766 3% 27,772 24,327 14% Restructuring and other charges, net 927
3,249 -71% 2,830 14,183 -80% Gains on sales of fixed assets (1,630)
(31) 5158% (435) (120) 263% Operating profit 159,268 149,000 7%
488,633 430,750 13% Interest expense 23,914 19,221 24% 93,755
49,584 89% Loss on extinguishment of debt 38,810 - N/A 38,810 - N/A
Other income, net (4,158) (11,547) -64% (25,389) (40,687) -38%
Income before taxes 100,702 141,326 -29% 381,457 421,853 -10% Taxes
on income 4,986 31,065 -84% 57,176 86,033 -34% Net income $ 95,716
$110,261 -13% $ 324,281 $ 335,820 -3% Earnings per share -
basic $ 1.18 $ 1.39 $ 4.06 $ 4.24 Earnings per share - diluted $
1.17 $ 1.39 $ 4.04 $ 4.22 Average shares outstanding Basic
81,263 79,063 79,783 79,072 Diluted 81,647 79,362 80,115 79,353
International Flavors & Fragrances
Inc.
Condensed Consolidated Balance
Sheet
(Amounts in thousands)
(Unaudited)
September 30, December 31, 2018
2017 Cash and cash equivalents $ 5,274,459 $ 368,046
Receivables 701,111 663,663 Inventories 719,508 649,448 Other
current assets 251,749 215,387 Total current assets 6,946,827
1,896,544 Property, plant and equipment, net 874,817 880,580
Goodwill and other intangibles, net 1,538,439 1,572,075 Other
assets 255,459 249,727 Total assets $ 9,615,542 $ 4,598,926
Short term borrowings $ 45,985 $ 6,966 Other current liabilities
712,471 761,802 Total current liabilities 758,456 768,768
Long-term debt 4,331,242 1,632,186 Non-current liabilities 487,895
508,678 Shareholders' equity 4,037,949 1,689,294 Total
liabilities and shareholders' equity $ 9,615,542 $ 4,598,926
International Flavors & Fragrances
Inc.
Consolidated Statement of Cash
Flows
(Amounts in thousands)
(Unaudited)
Nine Months Ended September 30, 2018
2017 Cash flows from operating activities: Net income
$ 324,281 $ 335,820 Adjustments to reconcile to net cash provided
by operating activities: Depreciation and amortization 95,994
85,446 Deferred income taxes 20,623 (3,439) Gains on sale of assets
(435) (120) Stock-based compensation 22,041 20,149 Pension
contributions (15,983) (36,870) Loss on extinguishment of debt
38,810 - Gain on deal contingent derivatives (12,505) - Litigation
settlement - (56,000) Product recall claim settlement, net of
insurance proceeds received (3,090) - Foreign currency gain on
liquidation of entity - (12,214) Changes in assets and liabilities,
net of acquisitions: Trade receivables (93,198) (94,945)
Inventories (92,705) 6,211 Accounts payable (17,198) (20,560)
Accruals for incentive compensation (10,753) 2,907 Other current
payables and accrued expenses 386 9,423 Other assets (61,597) 3,824
Other liabilities 7,287 (40,143) Net cash provided by operating
activities 201,958 199,489
Cash flows from investing
activities: Cash paid for acquisitions, net of cash received
(22) (191,304) Additions to property, plant and equipment (102,421)
(77,318) Proceeds from life insurance contracts 1,837 1,941
Maturity of net investment hedges (2,642) 2,226 Proceeds from
disposal of assets 961 1275 Net cash used in investing activities
(102,287) (263,180)
Cash flows from financing
activities: Cash dividends paid to shareholders (163,318)
(151,678) Increase in revolving credit facility and short term
borrowings 112,483 35,998 Proceeds from sales of equity securities,
net of issuance costs 2,268,965 - Deferred financing costs (21,944)
(5,373) Repayments on debt (288,810) (250,000) Proceeds from
issuance of long-term debt 2,926,414 498,250 Gain (loss) on
pre-issuance hedges 12,505 (5,310) Proceeds from issuance of stock
in connection with stock options - 329 Employee withholding taxes
paid (9,725) (11,509) Purchase of treasury stock (15,475) (53,211)
Net cash provided by financing activities 4,821,095 57,496 Effect
of exchange rates changes on cash and cash equivalents (14,353)
(1,795)
Net change in cash and cash equivalents 4,906,413
(7,990)
Cash and cash equivalents at beginning of year
368,046 323,992
Cash and cash equivalents at end of period $
5,274,459 $ 316,002
International Flavors & Fragrances
Inc.
Business Unit Performance
(Amounts in thousands)
(Unaudited)
Three Months Ended September 30, Nine
Months Ended September 30, 2018 2017
2018 2017 Net Sales Flavors $436,214
$409,800 $1,335,773 $1,230,286 Fragrances 471,334 463,140 1,422,719
1,313,808
Consolidated 907,548 872,940 2,758,492 2,544,094
Segment Profit Flavors 96,497 87,375 317,666 278,768
Fragrances 87,488 88,959 261,545 247,824 Global Expenses (19,578)
(17,693) (63,975) (47,472) Operational Improvement Initiatives
(344) (407) (1,773) (1,473) Acquisition Related Costs 1 (5,436) 519
(20,502) Integration Related Costs (958) (580) (1,951) (2,501)
Legal Charges/Credits, net - - - (1,000) Tax Assessment - - -
(5,331) Restructuring and Other Charges, net (927) (3,249) (1,837)
(14,183) Gains on Sale of Assets 1,630 31 435 120 FDA Mandated
Product Recall 9,800 - 4,800 (3,500) Frutarom Acquisition Related
Costs (14,341) - (26,796) -
Operating profit 159,268 149,000
488,633 430,750 Interest Expense (23,914) (19,221) (93,755)
(49,584) Loss on extinguishment of debt (38,810) - (38,810) - Other
income, net 4,158 11,547 25,389 40,687
Income before taxes
$100,702 $141,326 $ 381,457 $ 421,853
Operating
Margin Flavors 22.1% 21.3% 23.8% 22.7% Fragrances 18.6% 19.2%
18.4% 18.9% Consolidated 17.5% 17.1% 17.7% 16.9%
International Flavors & Fragrances
Inc.
Sales Performance by Region and
Category
(Unaudited)
Third Quarter 2018 vs.
2017 Percentage Change in Sales by Region of Destination
Fine Consumer Fragrances
Ingredients Total Frag. Flavors
Total North America
Reported -13% 1% 23% 3%
10% 7% EAME Reported 3%
2% -4% 1% 7% 3% Currency
Neutral 2% 2% -5% 0% 6%
3% Latin America Reported -7%
-4% -12% -6% 6% -2% Currency
Neutral -3% -3% -11% -4% 12%
1% Greater Asia Reported 21%
8% 14% 9% 3% 6% Currency
Neutral 20% 8% 14% 9% 4%
7% Total Reported -3% 2%
6% 2% 6% 4% Currency Neutral
-2% 2% 5% 2%
7% 4% First Nine
Months 2018 vs. First Nine Months 2017 Percentage Change in
Sales by Region of Destination Fine Consumer
Fragrances Ingredients Total Frag.
Flavors Total North
America Reported -2% 6% 16%
7% 9% 8% EAME Reported
7% 11% 10% 10% 15% 12%
Currency Neutral -1% 3% 3% 2%
7% 4% Latin America Reported
10% 1% 6% 4% 3% 3%
Currency Neutral 13% 1% 5% 4%
6% 5% Greater Asia Reported
1% 8% 35% 12% 5% 8%
Currency Neutral -2% 6% 32% 10%
3% 6% Total Reported 5%
7% 16% 8% 9% 8% Currency
Neutral 1% 4% 11%
5% 6% 6%
Currency neutral growth is calculated by translating prior year
sales at the exchange rates used for the corresponding 2018
period.
International Flavors & Fragrances
Inc.
GAAP to Non-GAAP Reconciliation
Foreign Exchange Impact
(Unaudited)
Q3
Consolidated
Sales Operating Profit EPS %
Change - Reported (GAAP) 4% 7%
-16% Items Impacting Comparability 0% -3% 21%
% Change -
Adjusted (Non-GAAP) 4% 4% 5% Currency
Impact 0% 0% 7%
% Change - Currency Neutral (Adjusted)
4% 3%* 12%
Q3
Flavors
Sales Segment Profit % Change - Reported
(GAAP) 6% 10% Currency Impact 1% -3%
% Change
- Currency Neutral 7% 7%
Q3
Fragrances
Sales Segment Profit % Change - Reported
(GAAP) 2% -2% Currency Impact 0% -3%
% Change
- Currency Neutral 2% -5%
9M YTD
Consolidated
Sales Operating Profit EPS %
Change - Reported (GAAP) 8% 13% -4% Items
Impacting Comparability 0% -6% 13%
% Change - Adjusted
(Non-GAAP) 8% 8%* 9% Currency Impact -3%
-3% 2%
% Change - Currency Neutral (Adjusted) 6%*
4%* 11%
*Item does not foot due to rounding
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 Gross Profit Third Quarter
2018 2017 Reported (GAAP) $ 400,666 $380,398
Operational Improvement Initiatives (a) 398 407 Acquisition Related
Costs (b) - 5,147 Integration Related Costs (c) 18 131 FDA Mandated
Product Recall (e) (9,800) - Adjusted (Non-GAAP) $ 391,282 $386,083
Reconciliation of Selling and Administrative Expenses
Third Quarter 2018 2017 Reported (GAAP) $
157,796 $145,652 Acquisition Related Costs (b) 1 (289) Integration
Related Costs (c) (915) (383) Frutarom Acquisition Related Costs
(g) (14,341) - Adjusted (Non-GAAP) $ 142,541 $144,980
Reconciliation of Operating Profit Third Quarter
2018 2017 Reported (GAAP) $ 159,268 $149,000
Operational Improvement Initiatives (a) 344 407 Acquisition Related
Costs (b) (1) 5,436 Integration Related Costs (c) 958 580
Restructuring and Other Charges, net (d) 927 3,249 Gains on Sale of
Assets (1,630) (31) FDA Mandated Product Recall (e) (9,800) -
Frutarom Acquisition Related Costs (g) 14,341 - Adjusted (Non-GAAP)
$ 164,407 $158,641
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 2018 2017 Income before
taxes Taxes on income (h) Net
income Diluted EPS Income before taxes
Taxes on income (h) Net income
Diluted EPS Reported (GAAP) $ 100,702 $ 4,986 $ 95,716 $
1.17 $ 141,326 $ 31,065 $ 110,261 $ 1.39 Operational Improvement
Initiatives (a) 345 125 220 - 407 102 305 - Acquisition Related
Costs (b) (1) 1 (2) - 5,436 1,949 3,487 0.04 Integration Related
Costs (c) 959 237 722 0.01 580 152 428 0.01 Restructuring and Other
Charges, net (d) 927 228 699 0.01 3,249 1,012 2,237 0.03 Gains on
Sale of Assets (1,630) (387) (1,243) (0.02) (31) (10) (21) - FDA
Mandated Product Recall (e) (9,800) (2,344) (7,456) (0.09) - - - -
U.S. Tax Reform (f) - 8,151 (8,151) (0.10) - - - - Frutarom
Acquisition Related Costs (g) 54,994 9,561 45,433 0.56 - - - -
Adjusted (Non-GAAP) $ 146,496 $ 20,558 $ 125,938 $ 1.54 $ 150,967 $
34,270 $ 116,697 $ 1.47 (a) For 2018, represents accelerated
depreciation related to a plant relocation in India and Taiwan
asset write off. For 2017, represents accelerated depreciation and
idle labor costs in Hangzhou, China. (b) For 2017, represents the
amortization of inventory "step-up" related to the acquisitions of
David Michael, Fragrance Resources and PowderPure, included in cost
of goods sold, and transaction costs related to the acquisitions of
David Michael, Fragrance Resources and PowderPure, included in
Selling and administrative expenses. (c) For 2018, represents costs
related to the integration of Frutarom. For 2017, represents costs
related to the integration of David Michael and Fragrance Resources
acquisitions. (d) For 2018, represents severance costs related to
the 2017 Productivity Program. For 2017, represents severance costs
related to the 2017 Productivity Program which were partially
offset by the reversal of 2015 severance charges that were no
longer needed. (e) Represents recoveries from the supplier related
to the previously disclosed FDA mandated recall. (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. 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) 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 third
quarter of 2018, certain non-GAAP adjustments were subject to
valuation allowances and therefore was calculated at 0%. The
Company tracks the amount of amortization recorded on recent
acquisitions in order to monitor its progress with respect to its
Vision 2020 goals. The following amounts were recorded with respect
to recent acquisitions: $0.7M related to PowderPure, $1.7M related
to Fragrance Resources, $1.1M related to David Michael, $2.1M
related to Lucas Meyer Cosmetics, and $1.6M related to Ottens
Flavors
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 Gross Profit Third Quarter
Year-to-Date 2018 2017 Reported (GAAP) $
1,205,192 $1,116,464 Operational Improvement Initiatives (a) 1,254
1,473 Acquisition Related Costs (b) - 16,055 Integration Related
Costs (c) 18 316 FDA Mandated Product Recall (h) (4,800) 3,500
Adjusted (Non-GAAP) $ 1,201,664 $1,137,808
Reconciliation
of Selling and Administrative Expenses Third Quarter
Year-to-Date 2018 2017 Reported (GAAP) $ 457,847
$ 428,675 Acquisition Related Costs (b) 519 (4,447) Integration
Related Costs (c) (915) (1,867) Legal Charges/Credits, net (d) -
(1,000) Tax Assessment (e) - (5,331) Frutarom Acquisition Related
Costs (j) (26,796) - Adjusted (Non-GAAP) $ 430,655 $ 416,030
Reconciliation of Operating Profit Third Quarter
Year-to-Date 2018 2017 Reported (GAAP) $ 488,633
$ 430,750 Operational Improvement Initiatives (a) 1,773 1,473
Acquisition Related Costs (b) (519) 20,502 Integration Related
Costs (c) 1,951 2,501 Legal Charges/Credits, net (d) - 1,000 Tax
Assessment (e) - 5,331 Restructuring and Other Charges, net (f)
1,837 14,183 Gains on Sale of Assets (435) (120) FDA Mandated
Product Recall (h) (4,800) 3,500 Frutarom Acquisition Related Costs
(j) 26,796 - Adjusted (Non-GAAP) $ 515,236 $ 479,120
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 2018 2017 Income before
taxes Taxes on income (k) Net
income Diluted EPS (l) Income before taxes
Taxes on income (k) Net income
Diluted EPS Reported (GAAP) $ 381,457 $ 57,176 $ 324,281 $
4.04 $ 421,853 $ 86,033 $ 335,820 $ 4.22 Operational Improvement
Initiatives (a) 1,774 561 1,213 0.02 1,473 368 1,105 0.01
Acquisition Related Costs (b) (519) (134) (385) - 20,502 6,559
13,943 0.18 Integration Related Costs (c) 1,952 237 1,715 0.02
2,501 757 1,744 0.02 Legal Charges/Credits, net (d) - - - - 1,000
354 646 0.01 Tax Assessment (e) - - - - 5,331 1,885 3,446 0.04
Restructuring and Other Charges, net (f) 1,837 443 1,394 0.02
14,183 3,904 10,279 0.13 Gains on Sale of Assets (435) (141) (294)
- (120) (39) (81) - CTA Realization (g) - - - - (12,214) - (12,214)
(0.15) FDA Mandated Product Recall (h) (4,800) (1,148) (3,652)
(0.05) 3,500 1,238 2,262 0.03 U.S. Tax Reform (i) - 7,502 (7,502)
(0.09) - - - - Frutarom Acquisition Related Costs (j) 91,983 16,104
75,879 0.95 - - - - Adjusted (Non-GAAP) $ 473,249 $ 80,600 $
392,649 $ 4.89 $ 458,009 $ 101,059 $ 356,950 $ 4.49 (a) For
2018, represents accelerated depreciation related to a plant
relocation in India and Taiwan asset write off. For 2017,
represents accelerated depreciation and idle labor costs in
Hangzhou, China. (b) 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. For 2017, represents the amortization
of inventory "step-up" related to the acquisitions of David
Michael, Fragrance Resources and PowderPure, included in cost of
goods sold, and transaction costs related to the acquisitions of
David Michael, Fragrance Resources and PowderPure, included in
Selling and administrative expenses. (c) For 2018, represents costs
related to the integration of David Michael and Frutarom. For 2017,
represents costs related to the integration of David Michael and
Fragrance Resources acquisitions. (d) Represents additional charge
related to litigation settlement. (e) Represents the reserve for
payment of a tax assessment related to commercial rent for prior
periods. (f) For 2018, represents severance costs related to the
2017 Productivity Program. For 2017, represents severance costs
related to the 2017 Productivity Program which were partially
offset by the reversal of 2015 severance charges that were no
longer needed. (g) Represents the release of CTA related to the
liquidation of a foreign entity. (h) For 2018, represents
recoveries from the supplier for the third quarter, partially
offset by final payments to the customer made for the effected
product in the first quarter. For 2017, represents management's
best estimate of losses related to the previously disclosed FDA
mandated recall. (i) Represents charges incurred related to
enactment of certain U.S. tax legislation changes in December 2017.
(j) Represents transaction-related costs and expenses related to
the acquisition of Frutarom. 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.
(k) 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 third quarter of 2018,
certain non-GAAP adjustments were subject to valuation allowances
and therefore was calculated at 0%. (l) The sum of these items does
not foot due to rounding. The Company tracks the amount of
amortization recorded on recent acquisitions in order to monitor
its progress with respect to its Vision 2020 goals. The following
amounts were recorded with respect to recent acquisitions: $2.1M
related to PowderPure, $5.6M related to Fragrance Resources, $3.4M
related to David Michael, $6.4M related to Lucas Meyer Cosmetics,
and $4.7M related to Ottens Flavors
International Flavors & Fragrances Inc.521 West 57th
StreetNew York, NY 10019
T +212.765.5500F +212.708.7132iff.com
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181105005979/en/
International Flavors & Fragrances Inc.Michael DeVeau,
212-708-7164Head of Investor Relations and Communications &
Divisional CFO, ScentMichael.DeVeau@iff.com
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