Regulatory News:
International Flavors & Fragrances Inc. (NYSE: IFF)
(Euronext Paris: IFF) (TASE: IFF) reported financial results for
the second quarter ended June 30, 2020.
Second Quarter 2020 Consolidated Summary:
Reported (GAAP)
Adjusted
(Non-GAAP)1
Sales
Operating Profit
EPS
Sales
Operating Profit
EPS
EPS ex Amortization
$1.2 B
$119 M
$0.74
$1.2 B
$158 M
$1.03
$1.36
First Six Months 2020 Consolidated Summary:
Reported (GAAP)
Adjusted
(Non-GAAP)1
Sales
Operating Profit
EPS
Sales
Operating Profit
EPS
EPS ex Amortization
$2.5 B
$316 M
$1.89
$2.5 B
$380 M
$2.33
$2.99
¹ Schedules at the end of this release contain reconciliations
of reported GAAP to non-GAAP metrics.
Management Commentary
"Throughout the COVID-19 pandemic, we have continued to serve
the needs of our customers and our communities around the world,”
said Andreas Fibig, IFF Chairman and CEO. “Our unwavering
dedication and commitment through this challenging set of
circumstances are indicative of the passion and perseverance of our
employees and the resiliency of our business.
"The second quarter coincided with peak COVID-19 regulatory
actions to date around the world – presenting both opportunities
and challenges for our business. We are fortunate that a large
portion of our business is in end-markets such as packaged food,
beverage, hygiene and disinfection products, all of which have
performed well. As we communicated in early June, the categories
most exposed to COVID-19 restrictions – Fine Fragrance and Food
Service – did experience significant pressure.
“As restrictions and closures eased and mobility improved, we
have seen an improvement in July, as sales were up low
single-digits – a marked improvement and an inflection point from
the second quarter. We do, however, remain cautiously optimistic in
our outlook, while recognizing that the environment is volatile,
and much uncertainty remains about the duration and impact of the
pandemic.
IFF Executive Vice President and CFO, Rustom Jilla commented,
"Even given our diverse and resilient product portfolio, COVID-19
resulted in a sales decline in the second quarter. This, along with
higher pandemic related costs, more than offset the benefit of
tight expense control. Nevertheless, even during this unprecedented
global crisis, the strength of our business was apparent in our
robust cash flow, which allowed us to continue to reduce net debt
while also returning capital to our shareholders. Reflecting our
confidence, we are pleased to announce we are raising our quarterly
dividend. This marks eleven years of consecutive dividend increases
and underscores our confidence in our business, long-term strategy
and proven strong cash flow generation capability."
Second Quarter 2020 Consolidated Financial Results
- Reported net sales for the second quarter totaled $1.20
billion, a decrease of 7% from $1.29 billion in 2019. Currency
neutral sales decreased 4% driven by pressure in Fine Fragrance and
Food Service, across select emerging markets and particularly with
small- and mid-sized customers as a result of the COVID-19
pandemic. Fine Fragrance and Food Service collectively declined 38%
on a currency neutral basis or 40% on a reported basis. The rest of
the portfolio excluding Fine Fragrance and Food Service grew 2% on
a currency neutral basis and declined 1% on a reported basis.
- Reported operating profit for the second quarter was $119.4
million, a decrease of 40% from $199.9 million in 2019. Adjusted
operating profit excluding amortization decreased 19% on a currency
neutral basis as acquisition-related synergies and productivity
were more than offset by lower sales volume, weaker mix and
unfavorable price to raw material cost.
- Reported earnings per share (EPS) for the second quarter was
$0.74 per diluted share versus $1.20 per diluted share reported in
2019. Adjusted EPS excluding amortization was $1.36 per diluted
share in 2020 versus $1.61 in the year-ago period. On a currency
neutral basis, adjusted EPS excluding amortization decreased 19% as
a more favorable effective tax rate and higher other income were
more than offset by adjusted operating profit performance.
Second Quarter 2020 Segment Summary1: Growth vs. Prior
Year
Reported (GAAP)
Currency Neutral
(Non-GAAP)
Sales
Segment Profit
Sales
Segment Profit
Scent
(6)%
(25)%
(4)%
(25)%
Taste
(8)%
(18)%
(5)%
(15)%
1 Starting in the first quarter 2020, IFF reports financial
results in two segments, Taste and Scent, incorporating nearly all
of the Frutarom business into the Taste segment.
Scent Segment
- On a reported basis, sales decreased 6% to $450.4 million, or
declined 4% on a currency neutral basis. Consumer Fragrance growth
remained strong with growth across nearly all sub-categories. Fine
Fragrance declined 40% on a currency neutral basis or 43% on a
reported basis due to the temporary disruptions of consumer access
to retail markets related to COVID-19. Fragrance Ingredients was
down due to the internal prioritization of ingredients to support
Fragrance Compounds in light of COVID-19.
- Scent segment profit decreased 25% on a reported basis and 25%
on a currency neutral basis due primarily to lower sales volume,
weaker mix and unfavorable price to raw material cost.
Taste Segment
- On a reported basis, sales decreased 8% to $748.3 million, or
declined 5% on a currency neutral sales. Away-from-home channels
such as Food Service experienced significant pressure, declining
36% on a currency neutral basis and 38% on a reported basis. From a
geographic perspective, North America showed resiliency, but the
emerging markets, especially India and several Latin American
countries, were impacted by COVID-19 and regulatory restrictions
put in place to protect communities.
- Taste segment profit decreased 18% on a reported basis and 15%
on a currency neutral basis as acquisition-related synergies were
more than offset by lower sales volume and unfavorable price to raw
material cost.
Quarterly Dividend
On August 10, 2020, the Board of Directors authorized a 3%, or
$0.02 increase, in the quarterly dividend to $0.77 per share of the
Company’s common stock. The quarterly dividend is payable on
October 5, 2020 to shareholders of record as of September 24, 2020.
Including this authorization, IFF has increased its quarterly
dividend payment for the eleventh consecutive year.
2020 Full Year Financial Guidance
As the COVID-19 pandemic continues to evolve, there is
uncertainty around its ultimate impact. Therefore, the Company's
full year financial results cannot be reasonably estimated at this
time.
Audio Webcast
A live webcast to discuss the Company’s second quarter 2020
financial results will be held on August 11, 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 the expected impact of the COVID-19
pandemic on the Company’s near term results, including sales and
profit for the remainder of 2020, the volatility of the economic
environment and uncertainty about the duration and impact of the
COVID-19 pandemic; revenue from its categories with retail channel
exposure, such as Fine Fragrance and Food Service; the expected
impact of the COVID-19 pandemic on the global economy; the
Company’s expectations with respect to generating cash flow and its
liquidity position to meet the needs of its business, progress its
deleverage plan and return cash to shareholders; and the Company’s
ability to manage through the COVID-19 pandemic and to mitigate the
near-term impact. 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 March 3, 2020, Quarterly Report on Form 10-Q
filed with the Commission on May 11, 2020 and subsequent filings
with the SEC. 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)
the effect of economic conditions in the industries and markets in
which IFF operates in the U.S. and globally and any changes
therein, including financial market conditions, fluctuations in
commodity prices, interest rates and foreign currency exchange
rates, levels of end market demand, the impact of weather
conditions, natural disasters, public health issues, epidemics and
pandemics, including the novel coronavirus (COVID-19), or the fear
of such events, and the financial condition of IFF’s customers and
suppliers; (2) the risks to the Company’s business from the
COVID-19 pandemic, including operational risks, supply chain risks,
and customer related-risks; (3) 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; (4) unanticipated costs, liabilities, charges or expenses
resulting from the Frutarom acquisition, (5) the impact of the
outcome of legal claims, regulatory investigations and litigation,
(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
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 and (vi)
currency neutral 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, integration related costs, restructuring
and other charges, net, losses (gains) on sale of assets, 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, integration related costs, restructuring and other
charges, net, losses (gains) on sale of assets, Frutarom
acquisition related costs, compliance review & legal defense
costs, N&B transaction 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.
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 and N&B transaction related costs
have been separated from costs related to prior acquisitions. The
Frutarom acquisition related costs and N&B transaction related
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.
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 June
30,
Six Months Ended June
30,
2020
2019
% Change
2020
2019
% Change
Net sales
$
1,198,773
$
1,291,568
(7)
%
$
2,546,090
$
2,588,970
(2)
%
Cost of goods sold
716,931
745,329
(4)
%
1,498,381
1,511,472
(1)
%
Gross profit
481,842
546,239
(12)
%
1,047,709
1,077,498
(3)
%
Research and development expenses
80,948
84,816
(5)
%
166,857
175,412
(5)
%
Selling and administrative expenses
230,407
210,100
10
%
460,121
423,282
9
%
Amortization of acquisition-related
intangibles
48,834
47,909
2
%
97,184
95,534
2
%
Restructuring and other charges, net
1,884
2,525
(25)
%
6,802
18,699
(64)
%
Losses on sales of fixed assets
399
952
(58)
%
1,153
764
51
%
Operating profit
119,370
199,937
(40)
%
315,592
363,807
(13)
%
Interest expense
32,062
32,593
(2)
%
64,202
69,165
(7)
%
Other income, net
(15,757)
(2,137)
NMF
(5,183)
(9,415)
(45)
%
Income before taxes
103,065
169,481
(39)
%
256,573
304,057
(16)
%
Taxes on income
15,699
30,612
(49)
%
41,996
53,974
(22)
%
Net income
87,366
138,869
(37)
%
214,577
250,083
(14)
%
Net income attributable to noncontrolling
interest
1,162
2,492
(53)
%
3,766
4,877
(23)
%
Net income attributable to IFF
86,204
136,377
(37)
%
210,811
245,206
(14)
%
Net income per share - basic (1)
$
0.75
$
1.21
$
1.91
$
2.19
Net income per share - diluted (1)
$
0.74
$
1.20
$
1.89
$
2.16
Average number of shares outstanding -
basic
112,177
111,996
112,130
111,930
Average number of shares outstanding -
diluted
113,675
112,872
113,635
113,131
(1) For 2020 and 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)
June 30,
December 31,
2020
2019
Cash, cash equivalents, and restricted
cash
$
507,534
$
623,945
Receivables
961,568
876,197
Inventories
1,165,860
1,123,068
Other current assets
377,623
319,334
Total current assets
3,012,585
2,942,544
Property, plant and equipment, net
1,355,619
1,386,920
Goodwill and other intangibles, net
8,029,710
8,349,531
Other assets
591,216
608,416
Total assets
12,989,130
13,287,411
Short term borrowings
$
185,200
$
384,958
Other current liabilities
1,158,972
1,167,232
Total current liabilities
1,344,172
1,552,190
Long-term debt
4,181,701
3,997,438
Non-current liabilities
1,363,807
1,409,192
Redeemable noncontrolling interests
98,534
99,043
Shareholders' equity
6,000,916
6,229,548
Total liabilities and shareholders'
equity
$
12,989,130
$
13,287,411
International Flavors & Fragrances
Inc. Consolidated Statement of Cash Flows (Amounts in
thousands) (Unaudited)
Six Months Ended June
30,
2020
2019
Cash flows from operating
activities:
Net income
$
214,577
$
250,083
Adjustments to reconcile to net cash
provided by operating activities
Depreciation and amortization
160,244
154,814
Deferred income taxes
(7,843)
(27,214)
Losses on sale of assets
1,153
764
Stock-based compensation
18,982
18,300
Pension contributions
(14,130)
(10,681)
Changes in assets and liabilities, net of
acquisitions:
Trade receivables
(132,438)
(87,111)
Inventories
(67,248)
(71,545)
Accounts payable
62,265
(7,645)
Accruals for incentive compensation
7,487
(29,338)
Other current payables and accrued
expenses
(29,995)
(11,934)
Other assets
(7,960)
(29,989)
Other liabilities
3,302
36,412
Net cash provided by operating
activities
208,396
184,916
Cash flows from investing
activities:
Cash paid for acquisitions, net of cash
received
—
(49,064)
Additions to property, plant and
equipment
(80,033)
(119,094)
Proceeds from life insurance contracts
1,739
1,890
Proceeds from disposal of assets
692
24,685
Contingent consideration paid
—
(4,655)
Net cash used in investing activities
(77,602)
(146,238)
Cash flows from financing
activities:
Cash dividends paid to shareholders
(160,100)
(155,578)
(Decrease) increase in revolving credit
facility and short term borrowings
(1,123)
8
Repayments on debt
(23,279)
(47,417)
Purchases of redeemable noncontrolling
interest
(21,566)
—
Contingent consideration paid
(927)
(21,791)
Proceeds from issuance of stock in
connection with stock options
—
200
Employee withholding taxes paid
(7,594)
(9,855)
Net cash used in financing activities
(214,589)
(234,433)
Effect of exchange rates changes on cash,
cash equivalents and restricted cash
(28,216)
2,053
Net change in cash, cash equivalents
and restricted cash
(112,011)
(193,702)
Cash, cash equivalents and restricted cash
at beginning of year
623,945
648,522
Cash, cash equivalents and restricted
cash at end of period
$
511,934
$
454,820
The following table reconciles cash, cash equivalents and
restricted cash between the Company's statement of cash flows for
the periods ended June 30, 2020 and June 30, 2019 to the amounts
reported in the Company's balance sheet:
June 30, 2020
December 31, 2019
June 30, 2019
December 31, 2018
Current assets
Cash and cash equivalents
$
497,412
$
606,823
$
426,717
$
634,897
Restricted cash
10,122
17,122
28,103
13,625
Noncurrent assets
Restricted cash included in Other
assets
4,400
—
—
—
Cash, cash equivalents and restricted
cash
$
511,934
$
623,945
$
454,820
$
648,522
International Flavors & Fragrances
Inc. Business Unit Performance (Amounts in
thousands) (Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Net Sales
Taste
$
748,324
$
811,319
$
1,578,646
$
1,616,121
Scent
450,449
480,249
967,444
972,849
Consolidated
$
1,198,773
$
1,291,568
$
2,546,090
$
2,588,970
Segment Profit
Taste
$
107,276
$
130,623
$
244,623
$
262,025
Scent
70,373
94,214
175,768
184,167
Global Expenses
(19,549)
(10,905)
(39,942)
(27,572)
Operational Improvement Initiatives
—
(534)
—
(940)
Frutarom Integration Related Costs
(3,283)
(11,417)
(6,933)
(26,314)
Restructuring and Other Charges, net
(1,884)
(2,525)
(6,802)
(18,699)
Losses on sale of assets
(399)
(952)
(1,153)
(764)
Frutarom Acquisition Related Costs
239
1,433
(574)
(8,096)
Compliance Review & Legal Defense
Costs
25
—
(624)
—
N&B Transaction Related Costs
(10,926)
—
(16,125)
—
N&B Integration Related Costs
(22,502)
—
(32,646)
—
Operating profit
119,370
199,937
315,592
363,807
Interest Expense
(32,062)
(32,593)
(64,202)
(69,165)
Other income, net
15,757
2,137
5,183
9,415
Income before taxes
$
103,065
$
169,481
$
256,573
$
304,057
Operating Margin
Taste
14
%
16
%
15
%
16
%
Scent
16
%
20
%
18
%
19
%
Consolidated
10
%
15
%
12
%
14
%
International Flavors & Fragrances
Inc. GAAP to Non-GAAP Reconciliation Foreign Exchange
Impact (Unaudited)
Q2 Taste
Sales
Segment Profit
% Change - Reported
(8)%
(18)%
Currency Impact
3%
3%
% Change - Currency Neutral
(5)%
(15)%
Q2 Scent
Sales
Segment Profit
% Change - Reported
(6)%
(25)%
Currency Impact
2%
0%
% Change - Currency Neutral
(4)%
(25)%
Q2 Consolidated
EPS ex. Amortization
Adjusted Operating
Profit
% Change - Adjusted (Non-GAAP)
(16)%
(21)%
Currency Impact
(3)%
2%
% Change - Currency Neutral
(19)%
(19)%
YTD Taste
Sales
Segment Profit
% Change - Reported
(2)%
(7)%
Currency Impact
2%
3%
% Change - Currency Neutral
0%
(4)%
YTD Scent
Sales
Segment Profit
% Change - Reported
(1)%
(5)%
Currency Impact
3%
1%
% Change - Currency Neutral
2%
(4)%
YTD Consolidated
EPS ex. Amortization
Adjusted Operating
Profit
% Change - Adjusted (Non-GAAP)
(6)%
(7)%
Currency Impact
2%
1%
% Change - Currency Neutral
(4)%
(6)%
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
Second Quarter
(DOLLARS IN THOUSANDS)
2020
2019
Reported (GAAP)
$
481,842
$
546,239
Operational Improvement Initiatives
(a)
—
534
Frutarom Integration Related Costs (b)
96
165
Frutarom Acquisition Related Costs (d)
246
—
Adjusted (Non-GAAP)
$
482,184
$
546,938
Reconciliation of Selling and
Administrative Expenses
Second Quarter
(DOLLARS IN THOUSANDS)
2020
2019
Reported (GAAP)
$
230,407
$
210,100
Frutarom Integration Related Costs (b)
(2,999)
(11,043)
Frutarom Acquisition Related Costs (d)
485
1,433
Compliance Review & Legal Defense
Costs (e)
25
—
N&B Transaction Related Costs (f)
(10,926)
—
N&B Integration Related Costs (g)
(22,502)
—
Adjusted (Non-GAAP)
$
194,490
$
200,490
Reconciliation of Operating
Profit
Second Quarter
(DOLLARS IN THOUSANDS)
2020
2019
Reported (GAAP)
$
119,370
$
199,937
Operational Improvement Initiatives
(a)
—
534
Frutarom Integration Related Costs (b)
3,283
11,417
Restructuring and Other Charges, net
(c)
1,884
2,525
Losses on Sale of Assets
399
952
Frutarom Acquisition Related Costs (d)
(239)
(1,433)
Compliance Review & Legal Defense
Costs (e)
(25)
—
N&B Transaction Related Costs (f)
10,926
—
N&B Integration Related Costs (g)
22,502
—
Adjusted (Non-GAAP)
$
158,100
$
213,932
Reconciliation of Adjusted
(Non-GAAP) Operating Profit Margin ex. Amortization
(DOLLARS IN THOUSANDS)
Second Quarter
Numerator
2020
2019
Adjusted (Non-GAAP) Operating Profit
$
158,100
$
213,932
Amortization of Acquisition related
Intangible Assets
48,834
47,909
Adjusted (Non-GAAP) Operating Profit ex.
Amortization
206,934
261,841
Denominator
Sales
1,198,773
1,291,568
Adjusted (Non-GAAP) Operating Profit
Margin ex. Amortization
17.3
%
20.3
%
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 Net
Income
Second Quarter
2020
2019
(DOLLARS IN THOUSANDS)
Income before taxes
Taxes on income (i)
Net Income Attributable to IFF
(j)
Diluted EPS (k)
Income before taxes
Taxes on income (i)
Net Income Attributable to IFF
(j)
Diluted EPS
Reported (GAAP)
$
103,065
$
15,699
$
86,204
$
0.74
$
169,481
$
30,612
$
136,377
$
1.20
Operational Improvement Initiatives
(a)
—
—
—
—
534
176
358
—
Frutarom Integration Related Costs (b)
3,283
737
2,546
0.02
11,417
2,574
8,843
0.08
Restructuring and Other Charges, net
(c)
1,884
539
1,345
0.01
2,525
552
1,973
0.02
Losses on Sale of Assets
399
76
323
—
952
235
717
0.01
Frutarom Acquisition Related Costs (d)
(147)
(49)
(98)
—
(1,433)
(143)
(1,290)
(0.01)
Compliance Review & Legal Defense
Costs (e)
(25)
(5)
(20)
—
—
—
—
—
N&B Transaction Related Costs (f)
10,926
904
10,022
0.09
—
—
—
—
N&B Integration Related Costs (g)
22,502
5,368
17,134
0.15
—
—
—
—
Redemption value adjustment to EPS (h)
—
—
—
0.01
—
—
—
—
Adjusted (Non-GAAP)
$
141,887
$
23,269
$
117,456
$
1.03
$
183,476
$
34,006
$
146,978
$
1.30
Reconciliation of Adjusted
(Non-GAAP) EPS ex. Amortization
Second Quarter
(DOLLARS AND SHARE AMOUNTS IN
THOUSANDS)
2020
2019
Numerator
Adjusted (Non-GAAP) Net Income
$
117,456
$
146,978
Amortization of Acquisition related
Intangible Assets
48,834
47,909
Tax impact on Amortization of Acquisition
related Intangible Assets (i)
11,105
12,635
Amortization of Acquisition related
Intangible Assets, net of tax (l)
37,729
35,274
Adjusted (Non-GAAP) Net Income ex.
Amortization
155,185
182,252
Denominator
Weighted average shares assuming dilution
(diluted)
113,675
112,872
Adjusted (Non-GAAP) EPS ex.
Amortization
$
1.36
$
1.61
(a)
Represents accelerated depreciation
related to a plant relocation in India and China.
(b)
Represents costs related to the
integration of the Frutarom acquisition. For 2020, costs primarily
related to advisory services, retention bonuses and performance
stock awards. For 2019, costs principally related to advisory
services.
(c)
For 2020, represents costs primarily
related to the Frutarom Integration Initiative. For 2019,
represents costs primarily related to the 2019 Severance
Program.
(d)
Represents transaction-related costs and
expenses related to the acquisition of Frutarom. For 2020, amount
primarily includes earn-out payments, net of adjustments,
amortization for inventory "step-up" costs and transaction costs
principally related to the 2019 Acquisition Activity, including an
adjustment to reverse an earnout liability in the second quarter of
2020. For 2019, amount primarily includes transaction costs
included in Selling and administrative expense.
(e)
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.
(f)
Represents transaction costs and expenses
related to the pending transaction with N&B, principally
related to legal and professional fees for capital raising
activities.
(g)
Represents costs primarily related to
advisory services for the integration of the pending transaction
with N&B, principally consulting fees.
(h)
Represents the adjustment to EPS related
to the excess of the redemption value of certain redeemable
noncontrolling interests over their existing carrying value.
(i)
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
or are subject to a valuation allowance for which the tax expense
(benefit) was calculated at 0%. For fiscal years 2020 and 2019,
these non-GAAP adjustments were not subject to foreign tax credits,
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.
(j)
For 2020 and 2019, net income is reduced
by income attributable to noncontrolling interest of $1.2M and
$2.5M, respectively.
(k)
The sum of these items does not foot due
to rounding.
(l)
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
Second Quarter
Year-to-Date
(DOLLARS IN THOUSANDS)
2020
2019
Reported (GAAP)
$
1,047,709
$
1,077,498
Operational Improvement Initiatives
(a)
—
940
Frutarom Integration Related Costs (b)
245
321
Frutarom Acquisition Related Costs (d)
759
7,850
Adjusted (Non-GAAP)
$
1,048,713
$
1,086,609
Reconciliation of Selling and
Administrative Expenses
Second Quarter
Year-to-Date
(DOLLARS IN THOUSANDS)
2020
2019
Reported (GAAP)
$
460,121
$
423,282
Frutarom Integration Related Costs (b)
(6,278)
(25,600)
Frutarom Acquisition Related Costs (d)
185
(246)
Compliance Review & Legal Defense
Costs (e)
(624)
—
N&B Transaction Related Costs (f)
(16,125)
—
N&B Integration Related Costs (g)
(32,646)
—
Adjusted (Non-GAAP)
$
404,633
$
397,436
Reconciliation of Operating
Profit
Second Quarter
Year-to-Date
(DOLLARS IN THOUSANDS)
2020
2019
Reported (GAAP)
$
315,592
$
363,807
Operational Improvement Initiatives
(a)
—
940
Frutarom Integration Related Costs (b)
6,933
26,314
Restructuring and Other Charges, net
(c)
6,802
18,699
Losses on Sale of Assets
1,153
764
Frutarom Acquisition Related Costs (d)
574
8,096
Compliance Review & Legal Defense
Costs (e)
624
—
N&B Transaction Related Costs (f)
16,125
—
N&B Integration Related Costs (g)
32,646
—
Adjusted (Non-GAAP)
$
380,449
$
418,620
Reconciliation of Adjusted
(Non-GAAP) Operating Profit Margin ex. Amortization
(DOLLARS IN THOUSANDS)
Second Quarter
Year-to-Date
Numerator
2020
2019
Adjusted (Non-GAAP) Operating Profit
$
380,449
$
418,620
Amortization of Acquisition related
Intangible Assets
97,184
95,534
Adjusted (Non-GAAP) Operating Profit ex.
Amortization
477,633
514,154
Denominator
Sales
2,546,090
2,588,970
Adjusted (Non-GAAP) Operating Profit
Margin ex. Amortization
18.8
%
19.9
%
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 Net
Income
Second Quarter
Year-to-Date
2020
2019
(DOLLARS IN THOUSANDS)
Income before taxes
Taxes on income (i)
Net Income Attributable to IFF
(j)
Diluted EPS
Income before taxes
Taxes on income (i)
Net Income Attributable to IFF
(j)
Diluted EPS
Reported (GAAP)
$
256,573
$
41,996
$
210,811
$
1.89
$
304,057
$
53,974
$
245,206
$
2.16
Operational Improvement Initiatives
(a)
—
—
—
—
940
318
622
0.01
Frutarom Integration Related Costs (b)
6,933
1,552
5,381
0.05
26,314
5,923
20,391
0.18
Restructuring and Other Charges, net
(c)
6,802
1,573
5,229
0.05
18,699
4,583
14,116
0.12
Losses on Sale of Assets
1,153
265
888
0.01
764
192
572
0.01
Frutarom Acquisition Related Costs (d)
66
(1,683)
1,749
0.02
8,096
1,387
6,709
0.06
Compliance Review & Legal Defense
Costs (e)
624
130
494
—
—
—
—
—
N&B Transaction Related Costs (f)
16,125
904
15,221
0.13
—
—
—
—
N&B Integration Related Costs (g)
32,646
7,536
25,110
0.22
—
—
—
—
Redemption value adjustment to EPS (h)
—
—
—
(0.04)
—
—
—
—
Adjusted (Non-GAAP)
$
320,922
$
52,273
$
264,883
$
2.33
$
358,870
$
66,377
$
287,616
$
2.54
Reconciliation of Adjusted
(Non-GAAP) EPS ex. Amortization
Second Quarter
Year-to-Date
(DOLLARS AND SHARE AMOUNTS IN
THOUSANDS)
2020
2019
Numerator
Adjusted (Non-GAAP) Net Income
$
264,883
$
287,616
Amortization of Acquisition related
Intangible Assets
97,184
95,534
Tax impact on Amortization of Acquisition
related Intangible Assets (i)
22,071
22,831
Amortization of Acquisition related
Intangible Assets, net of tax (k)
75,113
72,703
Adjusted (Non-GAAP) Net Income ex.
Amortization
339,996
360,319
Denominator
Weighted average shares assuming dilution
(diluted)
113,635
113,131
Adjusted (Non-GAAP) EPS ex.
Amortization
$
2.99
$
3.18
(a)
Represents accelerated depreciation
related to a plant relocation in India and China.
(b)
Represents costs related to the
integration of the Frutarom acquisition. For 2020, costs primarily
related to advisory services, retention bonuses and performance
stock awards. For 2019, costs principally related to advisory
services.
(c)
For 2020, represents costs primarily
related to the Frutarom Integration Initiative. For 2019,
represents costs primarily related to the 2019 Severance
Program.
(d)
Represents transaction-related costs and
expenses related to the acquisition of Frutarom. For 2020, amount
primarily includes earn-out payments, net of adjustments,
amortization for inventory "step-up" costs and transaction costs
principally related to the 2019 Acquisition Activity, including an
adjustment to reverse an earnout liability in the second quarter of
2020. For 2019, amount primarily includes amortization for
inventory "step-up" costs and transaction costs, offset by a
reduction in contingent consideration included in Selling and
administrative expense.
(e)
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.
(f)
Represents transaction costs and expenses
related to the pending transaction with N&B, principally
related to legal and professional fees for capital raising
activities.
(g)
Represents costs primarily related to
advisory services for the integration of the pending transaction
with N&B, principally consulting fees.
(h)
Represents the adjustment to EPS related
to the excess of the redemption value of certain redeemable
noncontrolling interests over their existing carrying value.
(i)
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
or are subject to a valuation allowance for which the tax expense
(benefit) was calculated at 0%. For fiscal years 2020 and 2019,
these non-GAAP adjustments were not subject to foreign tax credits,
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.
(j)
For 2020 and 2019, net income is reduced
by income attributable to noncontrolling interest of $3.8M and
$4.9M, respectively.
(k)
Represents all amortization of intangible
assets acquired in connection with acquisitions, net of tax.
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version on businesswire.com: https://www.businesswire.com/news/home/20200810005718/en/
Michael DeVeau Head of Investor Relations and Communications
212.708.7164 Michael.DeVeau@iff.com