Regulatory News:
International Flavors & Fragrances Inc. (NYSE: IFF)
(Euronext Paris: IFF) (TASE: IFF) reported financial results for
the fourth quarter and full year ended December 31, 2019.
Fourth Quarter 2019 Consolidated Summary:
Reported
(GAAP)
Adjusted
(Non-GAAP)1
Sales
Operating Profit
EPS
Sales
Operating Profit
EPS
EPS ex Amortization
$1.3 B
$117 M
$0.70
$1.3 B
$174 M
$1.15
$1.46
Full Year 2019 Consolidated Summary:
Reported
(GAAP)
Adjusted
(Non-GAAP)1
Sales
Operating Profit
EPS
Sales
Operating Profit
EPS
EPS ex Amortization
$5.1 B
$665 M
$4.00
$5.1 B
$793 M
$4.88
$6.17
¹ Schedules at the end of this release contain reconciliations
of reported GAAP to non-GAAP metrics.
Management Commentary
“2019 was a transformational year for IFF as we continued to
take important steps to redefine our industry, including our
integration of Frutarom and recently announced combination with
DuPont Nutrition & Biosciences,” said IFF Chairman and CEO
Andreas Fibig. “Importantly, we continued to achieve significant
cost synergies from Frutarom well ahead of our year-one targets,
and captured solid year one revenue synergies, demonstrating our
broad operational strength.
“In the fourth quarter, we delivered high-single digit currency
neutral top-line growth and a robust double-digit increase in
adjusted EPS ex amortization - both broadly in line with our
expectations. During 2019, we grew sales to $5.1 billion, expanded
our adjusted operating profit margin ex amortization, and delivered
on our balance sheet deleverage commitment - a testament to our
team’s focus, dedication and commitment to delivering strong
results while executing our long-term strategy.
“Looking forward to 2020, our priorities are clear: drive growth
and profitability in our business, substantially complete the
Frutarom integration and lay the groundwork for a successful
combination with DuPont Nutrition & Biosciences. With continued
focus on execution, we will be well-positioned to become a global
leader in innovative integrated solutions and create value for all
of our stakeholders."
Fourth Quarter 2019 Consolidated Financial
Results
- Reported net sales for the fourth quarter totaled $1.28
billion, an increase of 5% from $1.22 billion in 2018. Currency
neutral sales increased 7%, including the net contribution of
acquisitions and divested businesses. Growth this quarter benefited
from approximately 4 percentage points associated with an
additional week of sales, or a 53rd week.
- Reported earnings per share (EPS) for the fourth quarter was
$0.70 per diluted share versus $0.09 per diluted share reported in
2018. Excluding those items that affect comparability, adjusted EPS
ex amortization was $1.46 per diluted share in 2019 versus $1.23 in
the year-ago period, led by adjusted operating profit growth,
increases in other income and a lower effective tax rate.
Fourth Quarter 2019 Segment Summary: Growth vs. Prior
Year
Reported
(GAAP)
Currency Neutral
(Non-GAAP)
Sales
Segment
Profit
Sales
Segment
Profit
Scent
4%
7%
6%
11%
Taste
7%
2%
8%
5%
Frutarom
4%
17%
6%
24%
Scent Business Unit
- On a reported basis, sales increased 4%, or $20.4 million, to
$478.3 million. Currency neutral sales increased 6%, with growth in
all regions and nearly all categories. Performance was strongest in
Consumer Fragrance, increasing high-single digits, driven by strong
growth in Home, Fabric and Hair Care. Fine Fragrance grew mid
single-digits, led by double-digit growth in both Greater Asia and
Latin America. Fragrance Ingredients declined low single-digits as
price increases were offset by volume declines related to inventory
destocking.
- Scent segment profit increased 7% on a reported basis and
increased 11% on a currency neutral basis driven by the benefits of
productivity initiatives and volume growth.
Taste Business Unit
- On a reported basis, sales increased 7%, or $28.3 million, to
$429.9 million. Currency neutral sales increased 8% led by
double-digit growth in Greater Asia and high single-digit growth in
North America. From a category perspective, growth was strongest in
Beverage and Savory, led by strong new win performance.
- Taste segment profit increased 2% on a reported basis and
increased 5% on a currency neutral basis as contributions from
volume growth, productivity and lower incentive compensation
expense were moderated by higher raw material costs.
Frutarom Business Unit
- On a reported basis, sales increased 4%, or $16.0 million, to
$375.6 million. Currency neutral sales increased 6%, including the
net contribution of acquisitions and divested businesses. Sales,
excluding the impact of foreign currency and the benefits of
acquisitions, grew 2% driven by solid growth in Taste and Savory
Solutions.
- Frutarom segment profit increased 17% on a reported basis and
24% on a currency neutral basis to $32 million. Excluding
amortization, segment profit for the fourth quarter was $73 million
driven by acquisition-related synergies and cost management.
Full Year 2019 Consolidated Financial Results
- Reported net sales for the full year totaled $5.1 billion, an
increase of 29% from $4.0 billion in 2018, including the
contribution of sales related to Frutarom. On a combined basis,
currency neutral sales increased 3%, including the net contribution
of acquisitions and divested businesses. Growth this year benefited
from approximately 1 percentage point associated with an additional
week of sales, or a 53rd week.
- Reported earnings per share (EPS) for the full year was $4.00
per diluted share versus $3.79 per diluted share reported in 2018.
Excluding those items that affect comparability, adjusted EPS ex
amortization was $6.17 per diluted share in 2019 versus $6.23 in
the year-ago period, as adjusted operating profit improvement was
more than offset by higher shares outstanding and interest expense
- both related to the Frutarom acquisition.
Full Year 2019 Segment Summary: Growth vs. Prior Year
Reported
(GAAP)
Currency Neutral
(Non-GAAP)
Sales
Segment
Profit
Sales
Segment
Profit
Scent
2%
1%
4%
6%
Taste
0%
(3)%
2%
0%
Frutarom
—
—
—
—
Scent Business Unit
- On a reported basis, sales increased 2%, or $42.1 million, to
$1.9 billion. Currency neutral sales increased 4%, with growth in
all regions and all categories. Performance was strongest in Fine
Fragrance and Consumer Fragrance, both growing mid single-digits.
Fine Fragrance results were driven by double-digit growth in EAME
and Greater Asia, while Consumer Fragrance was led by strong
improvements in Home and Fabric Care. Fragrance Ingredients
improved low single-digits led by price increases related to higher
raw material costs.
- Scent segment profit increased 1% on a reported basis and
increased 6% on a currency neutral basis led by raw material driven
price increases and the benefits of productivity initiatives.
Taste Business Unit
- On a reported basis, sales remained relatively constant at $1.7
billion. Currency neutral sales increased approximately 2% as
performance was driven by high single-digit growth in Greater Asia
and low single-digit growth in EAME. In North America and Latin
America, results were challenged, as performance was adversely
impacted 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 decreased 3% on a reported basis and 0% on
a currency neutral basis as productivity, integration related
synergies and lower incentive compensation expense were offset by
higher raw material costs.
Frutarom Business Unit
- On a reported basis, sales were $1.5 billion. On a standalone
basis, currency neutral sales increased 3%, including the net
contribution of acquisitions and divested businesses.
- Sales, excluding the impact of foreign currency and the
benefits of acquisitions, remained constant driven by solid growth
in Taste and Savory Solutions.
- Frutarom segment profit contributed $127 million, or $286
million excluding amortization. Margin continued to be supported by
acquisition-related synergies and cost management.
Brazil Tax Recovery During the fourth quarter of 2019,
the Company recognized $8 million in income related to the expected
recoveries of previously paid indirect taxes in Brazil from the
period from 2012 to 2018 that have been subject to litigation
between the Company and certain tax authorities. The amount has
been recorded in Selling and administrative expense.
Compliance Investigation Completed
IFF’s investigation of allegations that improper payments to
representatives of customers were made in Russia and Ukraine has
been completed. Such allegations were 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.
IFF has confirmed in these investigations that total affected
sales represented less than 1% of IFF’s consolidated net sales for
2019. The impact of the reviews including the costs associated with
them, have not been material to IFF’s results of operations or
financial condition. In addition, no evidence was uncovered
suggesting that any of these compliance matters had any connection
to the United States.
In addition to IFF’s standard compliance integration activities,
IFF also conducted a robust secondary review of Frutarom’s
operations in certain other jurisdictions, including those that it
deems “high risk”. These reviews supplemented 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 also complete.
IFF is committed to the highest standards of ethics and
integrity and has strict compliance policies in place that are
regularly reviewed and updated.
Outlook
The Company's 2020 guidance is as follows:
Guidance
Sales
$5.15B - $5.35B
Adjusted EPS (1)
$4.89 - $5.14
Adjusted EPS Ex Amortization
(1)
$6.20 - $6.45
1 See Use of Non-GAAP Financial Measures
When comparing 2020 guidance to 2019 results, currency is
expected to negatively impact sales by an estimated 1 percentage
point, and adjusted EPS ex amortization by 3 percentage points.
Sales growth for 2020 is expected to be approximately 1% to 5%
on a currency neutral basis, which includes an estimated 1
percentage point impact related to the 53rd week in the prior year
period and an anticipated 0.5 percentage point impact, principally
related to the carryover effect from the Russia/Ukraine compliance
issue and CitraSource. Excluding these impacts, currency neutral
core sales growth is expected to be approximately 2.5% to 6.5%.
Adjusted EPS ex amortization growth for 2020 is expected to be
approximately 3.5% to 7.5% on a currency neutral basis, which
includes an estimated 5 percentage point impact related to an
incentive compensation reset, an estimated 1 percentage point
impact related to the 53rd week in the prior year period and an
anticipated 0.5 percentage point impact, principally related to the
carryover effect from the Russia/Ukraine compliance issue and
CitraSource. Offsetting this is a 6 percentage point contribution
from integration synergies. Excluding these impacts, core currency
neutral adjusted EPS ex amortization growth is expected to be
approximately 4% to 8%.
The Company expects to achieve a Net Debt to EBITDA ratio of
less than 3.0x by the end of 2020.
The Company expects a modest impact from the recent coronavirus
outbreak in Asia, based on its knowledge at this time. However,
there are still too many variables and uncertainties regarding this
outbreak to quantify currently. The Company is assessing
developments constantly and will update these measures as
needed.
Starting in the first quarter 2020, the Company will report
financial results in two segments, Taste and Scent, incorporating
nearly all Frutarom business into the Taste segment. Under the new
reporting structure, the new Taste segment would have represented
approximately 62% of 2019 sales and the new Scent segment would
have represented approximately 38% of 2019 sales.
A copy of the Company’s Annual Report on Form 10-K will be
available on its website at www.iff.com or at www.sec.gov by March
3, 2020.
Audio Webcast
A live webcast to discuss the Company’s fourth quarter and full
year 2019 financial results will be held on February 13, 2020, 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 2020, the
proposed combination with DuPont’s Nutrition & Biosciences
business (“N&B”), the progress of the integration of Frutarom,
including expected cost savings in 2020, and our ability to
accelerate growth and profitability in 2020. 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)the impact of the outcome of
legal claims, regulatory investigations and litigation, including
any that may arise out of the Company’s investigations into
improper payments made in Frutarom businesses principally operating
in Russia and the Ukraine, (4) 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, (5) the Company’s ability to meet expectations
regarding the timing, completion and accounting and tax treatments
of the proposed combination with N&B, (6) any failure to obtain
necessary regulatory approvals, approval of IFF’s shareholders,
anticipated tax treatment or any required financing or to satisfy
any of the other conditions to the proposed combination with
N&B, (7) potential inability to access or reduced access to the
capital markets or increased cost of borrowings, including as a
result of a credit rating downgrade, (8) the integration of IFF and
N&B being more difficult, time consuming or costly than
expected, (9) the possibility that IFF may be unable to achieve
expected benefits, synergies and operating efficiencies in
connection with the proposed combination with N&B within the
expected time frames or at all, (10) customer loss and business
disruption being greater than expected following the proposed
combination with N&B, (11) the impact of any divestitures
required as a condition to consummation of the proposed combination
with N&B as well as other conditional commitments, (12) risks
relating to the value of the IFF shares to be issued in the
combination with N&B and uncertainty as to the long-term value
of IFF’s common stock, (13) the Company’s ability to successfully
market to its expanded and decentralized Taste and Frutarom
customer base, (14) the Company’s ability to effectively compete in
its market and develop and introduce new products that meet
customers’ needs, (15) the Company’s ability to successfully
develop innovative and cost-effective products that allow customers
to achieve their own profitability expectations, (16) the impact of
the disruption in the Company’s manufacturing operations, (17) the
impact of a disruption in the Company’s supply chain, including the
inability to obtain ingredients and raw materials from third
parties, (18) volatility and increases in the price of raw
materials, energy and transportation, (19) 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, (20)
the impact of any failure or interruption of the Company’s key
information technology systems or a breach of information security,
(21) the Company’s ability to react in a timely and cost-effective
manner to changes in consumer preferences and demands, (22) the
Company’s ability to establish and manage collaborations, joint
ventures or partnership that lead to development or
commercialization of products, (23) the Company’s ability to
benefit from its investments and expansion in emerging markets,
(24) the impact of currency fluctuations or devaluations in the
principal foreign markets in which it operates, (25) economic,
regulatory and political risks associated with the Company’s
international operations, (26) the impact of global economic
uncertainty on demand for consumer products, (27) the inability to
retain key personnel, (28) the Company’s ability to comply with,
and the costs associated with compliance with, U.S. and foreign
environmental protection laws, (29) the Company’s ability to
realize the benefits of its cost and productivity initiatives, (30)
the Company’s ability to successfully manage its working capital
and inventory balances, (31) 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, (32)
the Company’s ability to protect its intellectual property rights,
(33) the impact of the outcome of legal claims, regulatory
investigations and litigation, (34) changes in market conditions or
governmental regulations relating to our pension and postretirement
obligations, (35) the impact of future impairment of our tangible
or intangible long-lived assets, (36) 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, (37) 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 (38) the impact of the United Kingdom’s
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; (vi) Frutarom
organic sales and (vii) Frutarom segment profit 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.
Frutarom organic sales are currency neutral sales excluding the
impact of acquisitions for the twelve months following the
acquisition. We also adjust Frutarom organic sales on a currency
neutral basis to reflect planned divestitures and temporary
business headwinds related to CitraSouce, Natural Colors, PTI and
Trade & Marketing that are expected to normalize.
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, compliance review & legal defense
costs and N&B transaction related 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, N&B merger related 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.
Frutarom segment profit ex amortization is Frutarom segment
profit excluding amortization expense related to intangible assets
of $41 million in the fourth quarter of 2019 and $159 million in
the full year 2019.
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 2020 with respect to (i) sales
growth; (ii) Adjusted EPS growth; and (iii) Adjusted 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 the
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.
Standalone Frutarom Growth
We calculated Frutarom growth “on a standalone basis” by
comparing (i) Frutarom sales results prior to acquisition from
January 1, 2018 to October 3, 2018 combined with Frutarom sales
post acquisition from October 4, 2018 to December 31, 2018 to (ii)
Frutarom sales results for fiscal year 2019.
Welcome to IFF
At IFF (NYSE:IFF) (Euronext Paris: IFF) (TASE: IFF), 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 December
31,
Year Ended December
31,
2019
2018
% Change
2019
2018
% Change
Net sales
$
1,283,769
$
1,219,047
5
%
$
5,140,084
$
3,977,539
29
%
Cost of goods sold
781,607
741,532
5
%
3,027,336
2,294,832
32
%
Gross profit
502,162
477,515
5
%
2,112,748
1,682,707
26
%
Research and development
85,637
83,038
3
%
346,128
311,583
11
%
Selling and administrative
242,004
249,614
(3
)%
876,121
707,461
24
%
Restructuring and other charges
7,350
2,249
NMF
29,765
5,079
NMF
Amortization of acquisition-related
intangibles
49,132
48,106
2
%
193,097
75,879
154
%
Losses (gains) on the sale of fixed
assets
1,231
(742
)
NMF
2,367
(1,177
)
NMF
Operating profit
116,808
95,250
23
%
665,270
583,882
14
%
Interest expense
35,559
38,804
(8
)%
138,221
132,558
4
%
Loss on extinguishment of debt
—
—
—
%
—
38,810
(100
)%
Other (income), net
(15,278
)
(9,854
)
55
%
(30,403
)
(35,243
)
(14
)%
Pretax income
96,527
66,300
46
%
557,452
447,757
24
%
Income taxes
16,150
50,800
(68
)%
97,184
107,976
(10
)%
Net income
80,377
15,500
NMF
460,268
339,781
35
%
Net (loss) income attributable to
noncontrolling interest
(3,166
)
2,479
NMF
4,395
2,479
77
%
Net income attributable to IFF
83,543
13,021
NMF
455,873
337,302
35
%
Net income per share - basic (1)
$
0.71
$
0.09
$
4.05
$
3.81
Net income per share - diluted (1)
$
0.70
$
0.09
$
4.00
$
3.79
Average number of shares outstanding -
basic
112,003
110,871
111,966
87,551
Average number of shares outstanding -
diluted
113,472
112,155
113,307
88,121
(1) For 2018 and 2019, net income per share reflects adjustments
related to the excess of the redemption value of certain redeemable
noncontrolling interests, over their existing carrying values. NMF
Not meaningful
International Flavors & Fragrances Inc.
Condensed Consolidated Balance Sheet (Amounts in thousands)
(Unaudited)
December 31,
2019
2018
Cash, restricted cash & cash
equivalents
$
623,945
$
648,522
Receivables
876,197
937,765
Inventories
1,123,068
1,078,537
Other current assets
375,246
277,036
Total current assets
2,998,456
2,941,860
Property, plant and equipment, net
1,386,920
1,241,152
Goodwill and other intangibles, net
8,349,531
8,417,710
Other assets
608,416
288,673
Total assets
13,343,323
12,889,395
Short term borrowings
$
384,958
$
48,642
Other current liabilities
1,223,144
1,079,669
Total current liabilities
1,608,102
1,128,311
Long-term debt
3,997,438
4,504,417
Non-current liabilities
1,409,192
1,131,487
Redeemable noncontrolling interests
99,043
81,806
Shareholders' equity
6,229,548
6,043,374
Total liabilities and shareholders'
equity
$
13,343,323
$
12,889,395
International Flavors & Fragrances Inc.
Consolidated Statement of Cash Flows (Amounts in thousands)
(Unaudited)
Year Ended December
31,
2019
2018
Cash flows from operating
activities:
Net income
$
460,268
$
339,781
Adjustments to reconcile to net cash
provided by operations:
Depreciation and amortization
323,330
173,792
Deferred income taxes
(59,279
)
19,402
(Gains) loss on sale of assets
2,367
(1,177
)
Stock-based compensation
34,482
29,401
Loss on extinguishment of debt
—
38,810
Gain on deal contingent derivatives
—
(12,505
)
Pension contributions
(23,714
)
(22,433
)
Changes in assets and liabilities, net of
acquisitions:
Trade receivables
59,555
(49,958
)
Inventories
(62,129
)
(117,641
)
Accounts payable
55,464
55,136
Accruals for incentive compensation
(22,357
)
(2,289
)
Other current payables and accrued
expenses
2,026
(5,279
)
Other assets
(63,188
)
(19,219
)
Other liabilities
(7,860
)
11,754
Net cash provided by operating
activities
698,965
437,575
Cash flows from investing
activities:
Cash paid for acquisitions, net of cash
received
(49,065
)
(4,857,343
)
Additions to property, plant and
equipment
(235,978
)
(170,094
)
Additions to intangible assets
(6,070
)
(3,326
)
Proceeds from disposal of assets
42,112
8,176
Proceeds from disposal of subsidiaries,
net of cash held
—
10,157
Maturity of net investment hedges
—
(2,642
)
Proceeds from life insurance contracts
1,890
1,837
Proceeds from unwinding of cross currency
swap derivative instruments
25,900
—
Contingent consideration paid
(4,655
)
—
Net cash used in investing activities
(225,866
)
(5,013,235
)
Cash flows from financing
activities:
Cash dividends paid to shareholders
(313,510
)
(230,218
)
Decrease in revolving credit facility and
short term borrowing
(1,021
)
(927
)
Deferred financing costs
—
(33,668
)
Repayments of debt
(155,261
)
(376,625
)
Proceeds from issuance of long-term
debt
—
3,256,742
Proceeds from sales of equity securities,
net of issuance costs
—
2,268,094
Contingent consideration paid
(24,478
)
—
Gain (loss) on pre-issuance hedges
—
12,505
Employee withholding taxes paid
(10,787
)
(9,725
)
Purchase of treasury stock
—
(15,475
)
Net cash (used in) provided by financing
activities
(505,057
)
4,870,703
Effect of exchange rates changes on cash
and cash equivalents
7,381
(14,567
)
Net change in cash, cash equivalents
and restricted cash
(24,577
)
280,476
Cash, cash equivalents and restricted cash
at beginning of year
648,522
368,046
Cash, cash equivalents and restricted
cash at end of period
$
623,945
$
648,522
International Flavors & Fragrances Inc.
Business Unit Performance (Amounts in thousands)
(Unaudited)
Three Months Ended December
31,
Year Ended December
31,
2019
2018
2019
2018
Net Sales
Taste
$
429,869
$
401,576
$
1,731,919
$
1,737,349
Scent
478,310
457,911
1,922,717
1,880,630
Frutarom
375,590
359,560
1,485,448
359,560
Consolidated
$
1,283,769
$
1,219,047
$
5,140,084
$
3,977,539
Segment Profit
Taste
$
78,778
$
77,523
$
382,590
$
395,190
Scent
72,901
68,002
333,522
329,548
Frutarom
31,962
27,358
126,804
27,358
Global Expenses
(10,106
)
(10,752
)
(49,836
)
(74,730
)
Operational Improvement Initiatives
(615
)
(396
)
(2,267
)
(2,169
)
Acquisition Related Costs
—
770
—
1,289
Integration Related Costs
(18,335
)
(5,237
)
(55,160
)
(7,188
)
Restructuring and Other Charges, net
(7,350
)
(2,249
)
(29,765
)
(4,086
)
(Losses) gains on Sale of Assets
(1,231
)
742
(2,367
)
1,177
FDA Mandated Product Recall
—
2,325
(250
)
7,125
Frutarom Acquisition Related Costs
(758
)
(62,836
)
(5,940
)
(89,632
)
Compliance Review & Legal Defense
Costs
(7,691
)
—
(11,314
)
—
N&B Transaction Related Costs
(20,747
)
—
(20,747
)
—
Operating profit
116,808
95,250
665,270
583,882
Interest Expense
(35,559
)
(38,804
)
(138,221
)
(132,558
)
Loss on extinguishment of debt
—
—
—
(38,810
)
Other income, net
15,278
9,854
30,403
35,243
Income before taxes
$
96,527
$
66,300
$
557,452
$
447,757
Operating Margin
Taste
18
%
19
%
22
%
23
%
Scent
15
%
15
%
17
%
18
%
Frutarom
9
%
8
%
9
%
8
%
Consolidated
9
%
8
%
13
%
15
%
International Flavors & Fragrances Inc.
GAAP to Non-GAAP Reconciliation Foreign Exchange Impact
(Unaudited)
Q4 Taste
Sales
Segment
Profit
% Change - Reported
7%
2%
Currency Impact
1%
3%
% Change - Currency Neutral
8%
5%
Q4 Scent
Sales
Segment
Profit
% Change - Reported
4%
7%
Currency Impact
2%
4%
% Change - Currency Neutral
6%
11%
Q4
Frutarom
Sales
Segment
Profit
% Change - Reported
4%
17%
Currency Impact
2%
8%
% Change - Currency Neutral
6%
24%*
YTD Taste
Sales
Segment
Profit
% Change - Reported
0%
(3)%
Currency Impact
2%
3%
% Change - Currency Neutral
2%
0%
YTD Scent
Sales
Segment
Profit
% Change - Reported
2%
1%
Currency Impact
2%
5%
% Change - Currency Neutral
4%
6%
YTD
Frutarom
Sales
Segment
Profit
% Change - Reported
—
—
Currency Impact
—
—
% Change - Currency Neutral
—
—
* Item does not foot due to rounding
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
Fourth Quarter
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
502,162
$
477,515
Operational Improvement Initiatives
(a)
616
396
Integration Related Costs (c)
222
84
FDA Mandated Product Recall (e)
—
(2,325
)
Frutarom Acquisition Related Costs (g)
—
23,550
Adjusted (Non-GAAP)
$
503,000
$
499,220
Reconciliation of Selling and
Administrative Expenses
Fourth Quarter
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
242,004
$
249,614
Acquisition Related Costs (b)
—
770
Integration Related Costs (c)
(17,834
)
(5,145
)
Frutarom Acquisition Related Costs (g)
(756
)
(39,286
)
Compliance Review & Legal Defense
Costs (h)
(7,691
)
—
N&B Transaction Related Costs (i)
(20,747
)
—
Adjusted (Non-GAAP)
$
194,976
$
205,953
Reconciliation of Operating
Profit
Fourth Quarter
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
116,808
$
95,250
Operational Improvement Initiatives
(a)
615
396
Acquisition Related Costs (b)
—
(770
)
Integration Related Costs (c)
18,335
5,237
Restructuring and Other Charges, net
(d)
7,350
2,249
Gain on Sale of Assets
1,231
(742
)
FDA Mandated Product Recall (e)
—
(2,325
)
Frutarom Acquisition Related Costs (g)
758
62,836
Compliance Review & Legal Defense
Costs (h)
7,691
—
N&B Transaction Related Costs (i)
20,747
—
Adjusted (Non-GAAP)
$
173,535
$
162,131
Reconciliation of Adjusted
(Non-GAAP) Operating Profit Margin ex. Amortization
(DOLLARS IN
THOUSANDS)
Fourth Quarter
Numerator
2019
2018
Adjusted (Non-GAAP) Operating Profit
$
173,535
$
162,131
Amortization of Acquisition related
Intangible Assets
49,132
48,106
Adjusted (Non-GAAP) Operating Profit ex.
Amortization
222,667
210,237
Denominator
Sales
1,283,769
1,219,047
Adjusted (Non-GAAP) Operating Profit
Margin ex. Amortization
17.3
%
17.2
%
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
and EPS
Fourth Quarter
2019
2018
(DOLLARS IN
THOUSANDS)
Income before taxes
Taxes on income (k)
Net Income Attributable to IFF
(l)
Diluted EPS (m)
Income before taxes
Taxes on income (k)
Net Income Attributable to IFF
(l)
Diluted EPS (m)
Reported (GAAP)
$
96,527
$
16,150
$
83,543
$
0.70
$
66,300
$
50,800
$
13,021
$
0.09
Operational Improvement Initiatives
(a)
615
49
566
—
395
133
262
—
Acquisition Related Costs (b)
—
—
—
—
(770
)
(177
)
(593
)
(0.01
)
Integration Related Costs (c)
18,335
4,191
14,144
0.12
5,236
1,160
4,076
0.04
Restructuring and Other Charges, net
(d)
7,350
1,403
5,947
0.05
2,249
577
1,672
0.01
Losses (Gains) on Sale of Assets
1,231
282
949
0.01
(742
)
(211
)
(531
)
—
FDA Mandated Product Recall (e)
—
—
—
—
(2,325
)
(453
)
(1,872
)
(0.02
)
U.S. Tax Reform (f)
—
—
—
—
—
(32,847
)
32,847
0.30
Frutarom Acquisition Related Costs (g)
758
122
636
0.01
63,586
12,386
51,200
0.46
Compliance Review & Legal Defense
Costs (h)
7,691
1,695
5,996
0.05
—
—
—
—
N&B Transaction Related Costs (i)
20,747
2,354
18,393
0.16
—
—
—
—
Redemption value adjustment to EPS (j)
—
—
—
0.04
—
—
—
0.03
Adjusted (Non-GAAP)
$
153,254
$
26,246
$
130,174
$
1.15
$
133,929
$
31,368
$
100,082
$
0.89
Reconciliation of Adjusted
(Non-GAAP) EPS ex. Amortization
Fourth Quarter
(DOLLARS AND SHARE
AMOUNTS IN THOUSANDS)
2019
2018
Numerator
Adjusted (Non-GAAP) Net Income
$
130,174
$
100,082
Amortization of Acquisition related
Intangible Assets
49,132
48,106
Tax impact on Amortization of Acquisition
related Intangible Assets
13,805
10,341
Amortization of Acquisition related
Intangible Assets, net of tax (n)
35,327
37,765
Adjusted (Non-GAAP) Net Income ex.
Amortization
165,501
137,847
Denominator
Weighted average shares assuming dilution
(diluted)
113,472
112,155
Adjusted (Non-GAAP) EPS ex.
Amortization
$
1.46
$
1.23
(a)
For 2019, represents accelerated
depreciation related plant relocations in India and China. For
2018, represents accelerated depreciation in India.
(b)
Represents adjustments to the contingent
consideration payable for PowderPure, and transaction costs related
to Fragrance Resources and PowderPure within Selling and
administrative expenses.
(c)
Represents costs related to the
integration of the Frutarom acquisition, principally advisory
services.
(d)
For 2019, represents costs primarily
related to the Frutarom Integration Initiative and the 2019
Severance Program, including severance related to outsourcing the
IT function. For 2018, represents severance costs related to the
2017 Productivity Program and costs associated with the termination
of agent relationships in a subsidiary.
(e)
Principally represents recoveries from our
insurance.
(f)
Represents charges incurred related to
enactment of certain U.S tax legislation changes in December
2017.
(g)
For 2019, amount primarily compensation
associated with Frutarom options that had not vested at the time
the Frutarom acquisition closed. For 2018, amount primarily
includes $23.5 million of amortization for inventory "step-up"
costs and $39.2 million of transaction costs included in Selling
and 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 costs and expenses related to
the pending transaction with Nutrition & Biosciences Inc.
(j)
Represents the adjustment to EPS related
to the excess of the redemption value of certain redeemable
noncontrolling interests over their existing carrying value.
(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
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.
(l)
For 2019 net income is increased by an
adjustment to income attributable to noncontrolling interest of
$3.2M. For 2018, net income is reduced by income attributable to
noncontrolling interest of $2.5M.
(m)
The sum of these items does not foot due
to rounding.
(n)
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
Year Ended December
31,
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
2,112,748
$
1,682,707
Operational Improvement Initiatives
(a)
2,267
1,650
Integration Related Costs (c)
730
102
FDA Mandated Product Recall (e)
250
(7,125
)
Frutarom Acquisition Related Costs (g)
4,247
23,550
Adjusted (Non-GAAP)
$
2,120,242
$
1,700,884
Reconciliation of Selling and
Administrative Expenses
Year Ended December
31,
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
876,121
$
707,461
Acquisition Related Costs (b)
—
1,289
Integration Related Costs (c)
(53,481
)
(6,060
)
Frutarom Acquisition Related Costs (g)
(1,693
)
(66,082
)
Compliance Review & Legal Defense
Costs (h)
(11,314
)
—
N&B Transaction Related Costs (i)
(20,747
)
—
Adjusted (Non-GAAP)
$
788,886
$
636,608
Reconciliation of Operating
Profit
Year Ended December
31,
(DOLLARS IN
THOUSANDS)
2019
2018
Reported (GAAP)
$
665,270
$
583,882
Operational Improvement Initiatives
(a)
2,267
2,169
Acquisition Related Costs (b)
—
(1,289
)
Integration Related Costs (c)
55,160
7,188
Restructuring and Other Charges, net
(d)
29,765
4,086
Losses (Gains) on Sale of Assets
2,367
(1,177
)
FDA Mandated Product Recall (e)
250
(7,125
)
Frutarom Acquisition Related Costs (g)
5,940
89,632
Compliance Review & Legal Defense
Costs (h)
11,314
—
N&B Transaction Related Costs (i)
20,747
—
Adjusted (Non-GAAP)
$
793,080
$
677,366
Reconciliation of Adjusted
(Non-GAAP) Operating Profit Margin ex. Amortization
(DOLLARS IN
THOUSANDS)
Year Ended December
31,
Numerator
2019
2018
Adjusted (Non-GAAP) Operating Profit
$
793,080
$
677,366
Amortization of Acquisition related
Intangible Assets
193,097
75,879
Adjusted (Non-GAAP) Operating Profit ex.
Amortization
986,177
753,245
Denominator
Sales
5,140,084
3,977,539
Adjusted (Non-GAAP) Operating Profit
Margin ex. Amortization
19.2
%
18.9
%
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
and EPS
Year Ended December
31,
2019
2018
(DOLLARS IN
THOUSANDS)
Income before taxes
Taxes on income (k)
Net Income Attributable to IFF
(l)
Diluted EPS (m)
Income before taxes
Taxes on income (k)
Net Income Attributable to IFF
(l)
Diluted EPS (m)
Reported (GAAP)
$
557,452
$
97,184
$
455,873
$
4.00
$
447,757
$
107,976
$
337,302
$
3.79
Operational Improvement Initiatives
(a)
2,267
610
1,657
0.01
2,169
694
1,475
0.02
Acquisition Related Costs (b)
(3,371
)
—
(3,371
)
(0.03
)
(1,289
)
(311
)
(978
)
(0.01
)
Integration Related Costs (c)
55,160
12,461
42,699
0.38
7,188
1,397
5,791
0.07
Restructuring and Other Charges, net
(d)
29,765
6,797
22,968
0.20
4,086
1,020
3,066
0.03
Losses (Gains) on Sale of Assets
2,367
572
1,795
0.02
(1,177
)
(352
)
(825
)
(0.01
)
FDA Mandated Product Recall (e)
250
57
193
—
(7,125
)
(1,601
)
(5,524
)
(0.06
)
U.S. Tax Reform (f)
—
—
—
—
—
(25,345
)
25,345
0.29
Frutarom Acquisition Related Costs (g)
5,940
794
5,146
0.05
155,569
28,490
127,079
1.44
Compliance Review & Legal Defense
Costs (h)
11,314
2,522
8,792
0.08
—
—
—
—
N&B Transaction Related Costs (i)
20,747
2,354
18,393
0.16
—
—
—
—
Redemption value adjustment to EPS (j)
—
—
—
0.02
—
—
—
0.03
Adjusted (Non-GAAP)
$
681,891
$
123,351
$
554,145
$
4.88
$
607,178
$
111,968
$
492,731
$
5.58
Reconciliation of Adjusted
(Non-GAAP) EPS ex. Amortization
Year Ended December
31,
(DOLLARS AND SHARE
AMOUNTS IN THOUSANDS)
2019
2018
Numerator
Adjusted (Non-GAAP) Net Income
$
554,145
$
492,731
Amortization of Acquisition related
Intangible Assets
193,097
75,879
Tax impact on Amortization of Acquisition
related Intangible Assets
47,589
18,354
Amortization of Acquisition related
Intangible Assets, net of tax (n)
145,508
57,525
Adjusted (Non-GAAP) Net Income ex.
Amortization
699,653
550,256
Denominator
Weighted average shares assuming dilution
(diluted)
113,307
88,121
Adjusted (Non-GAAP) EPS ex.
Amortization
$
6.17
$
6.23
(a)
For 2019, represents accelerated
depreciation related to plant relocations in India and China. For
2018, represents accelerated depreciation in India and Taiwan asset
write off.
(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)
Represents costs related to the
integration of the Frutarom acquisition, principally advisory
services.
(d)
For 2019, represents costs primarily
related to the Frutarom Integration Initiative and the 2019
Severance Program, including severance related to outsourcing the
IT function. For 2018, represents severance costs related to the
2017 Productivity Program and costs associated with the termination
of agent relationships in a subsidiary.
(e)
For 2019, represents additional claims
that management will pay to co-packers. For 2018, principally
represents recoveries from the supplier for the third and fourth
quarter, partially offset by final payments to the customer made
for the effected 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 $23.5
million of amortization for inventory "step-up" costs, $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 $66.0
million of transaction costs included in Selling and 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 costs and expenses related to
the pending transaction with Nutrition & Biosciences Inc.
(j)
Represents the adjustment to EPS related
to the excess of the redemption value of certain redeemable
noncontrolling interests over their existing carrying value.
(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
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.
(l)
For 2019 and 2018, net income is reduced
by income attributable to noncontrolling interest of $4.4M and
$2.5M, respectively.
(m)
The sum of these items does not foot due
to rounding.
(n)
Represents all amortization of intangible
assets acquired in connection with acquisitions, net of tax.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200212005864/en/
Michael DeVeau Head of Investor Relations and Communications
& Divisional CFO, Scent 212.708.7164 Michael.DeVeau@iff.com
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