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IFF Reports Third Quarter 2016 Results

NEW YORK--(BUSINESS WIRE)--Nov. 7, 2016-- Regulatory News:

This Smart News Release features multimedia. View the full release here: http://www.businesswire.com/news/home/20161107006545/en/

IFF Q3 2016 Infographic (Graphic: Business Wire)

IFF Q3 2016 Infographic (Graphic: Business Wire)

International Flavors & Fragrances Inc. (NYSE: IFF) (Euronext Paris: IFF) reported financial results and strategic achievements for the third quarter ended September 30, 2016.

Third Quarter 2016 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 2% (21)% (15)% 2% (8)% (4)% 3% (4)% (1)%
Acquisition Impact 1%   1%   1% 1%   1%   1% 1%   1%   1%

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

Third Quarter 2016 Consolidated Financial Highlights

  • Reported net sales for the third quarter totaled $777.0 million, an increase of 2% from $765.1 million in the third quarter of 2015. Excluding the impact of foreign exchange, currency neutral sales increased 3%, including a 1 percentage point contribution related to the acquisition of IFF | Lucas Meyer Cosmetics.
  • Reported operating profit declined from $156.7 million in the third quarter of 2015 to $124.3 million in the third quarter of 2016, including a charge of $25 million related to a reserve for litigation. Excluding the impact of foreign exchange and those items that affect comparability, currency neutral adjusted operating profit decreased 4% as volume growth and the benefits associated with cost and productivity initiatives were more than offset by unfavorable mix and manufacturing performance as well as increases in research, selling and administrative costs (RSA), including planned strategic investments.
  • Reported earnings per share (EPS) decreased from $1.31 per diluted share in the prior year period, to $1.12 per diluted share compared to the third quarter of 2016. Excluding the impact of foreign exchange and those items that affect comparability, adjusted currency neutral EPS declined 1%, as lower year-over-year shares outstanding and a favorable year-over-year effective tax rate were more than offset by operating profit performance.

Third Quarter 2016 Strategic Highlights: Currency Neutral Performance

Innovating Firsts: strengthen position and drive differentiation in priority R&D platforms

  • Encapsulation-related sales grew strong double-digits in Personal Wash & Home Care
  • Sweetness and savory modulation portfolio continued to grow double-digits
  • Launched 4 new flavor molecules to build consumer-preferred products
  • Commercialized a new captive fragrance ingredient to drive further differentiation

Win Where We Compete: achieve market leadership position in key markets, categories & customers

  • Middle East & Africa up strong double-digits led by growth in both Flavors & Fragrances
  • North America Fragrance sales +6% driven by strong double-digit growth in Fabric Care
  • Home Care grew low-single-digits led by double-digit growth in Greater Asia

Become Our Customers’ Partner of Choice: attain commercial excellence

  • Growth achieved across both global and regional accounts, with regionals outpacing
  • First flavor and fragrance company to join the World Economic Forum
  • Elected to World Business Council for Sustainable Development Executive Committee

Strengthen and Expand the Portfolio: pursue value creation through collaborations & acquisitions

  • IFF | Lucas Meyer Cosmetics achieved double-digit growth on a standalone basis
  • Acquired David Michael in Q4 2016 to improve share of North American Flavors business
  • In Q4 2016, announced intention to purchase Fragrance Resources to strengthen
    North America and Germany

Management Commentary

“In the third quarter, we continued to drive the execution of Vision 2020,” said Chairman and CEO Andreas Fibig. “In the key areas we’ve identified – encapsulation, modulation, North America, Africa and the Middle East – we continue to make progress against our strategic goals. We also accelerated our efforts in M&A recently, with the addition of approximately $160 million in expected annualized sales from David Michael and Fragrance Resources – both of which complement our strategic vision well.

“Financially, third quarter currency neutral sales grew 3%, led by an improved performance in Flavors and the contribution from the IFF | Lucas Meyer Cosmetics acquisition. Driven by new win performance, growth was achieved across both business units. From a currency neutral operating profit perspective, we anticipated performance to be muted given the timing of planned investments, yet results came in softer than expected due principally to unfavorable mix and higher manufacturing costs. As we progress in the fourth quarter, we are optimistic that sales, operating profit and EPS growth – on a currency neutral basis – will all improve sequentially.

“For the full year, despite challenging conditions given a higher level of economic uncertainty and limited volume growth by many consumer packaged goods companies, we are pleased to say that we are in a position to deliver solid top- and bottom-line growth in 2016. Longer-term, we believe that our investment in innovation will enable us to accelerate sales performance while simultaneously driving productivity improvements to ensure sustainable profit growth. We’re confident that by doing so, the cumulative benefits will lead to improved value creation for our customers, employees and shareholders.”

Third Quarter 2016 Segment Summary: Growth vs. Prior Year

       
Reported (GAAP) Currency Neutral (Non-GAAP)
Sales   Segment Profit Sales   Segment Profit
Fragrances: 1% (6)% 2% (7)%
Acquisition Impact 1% 1% 1% 1%
 
Flavors: 2% (3)% 3% (4)%
Acquisition Impact 0%   0% 0%   0%

Fragrances Business Unit

  • On a reported basis, sales increased 1%, or $4.2 million, to $410.1 million. Reported Fragrances segment profit was $85.0 million and reported segment profit margin was 20.7%.
  • Currency neutral sales improved 2%, including approximately 1 percentage point related to the acquisition of IFF | Lucas Meyer Cosmetics.
  • Fine Fragrances declined 3% on a reported and currency neutral basis as strong double-digit growth in Greater Asia and low single-digit growth in North America were more than offset by softness in Latin America and Western Europe.
  • Consumer Fragrances was flat on a reported basis and grew 1% on a currency neutral basis led by mid-single-digit growth in Fabric Care and Personal Wash. On a geographic basis, growth was led by a high-single-digit increase in Greater Asia and mid-single-digit growth in North America.
  • Fragrance Ingredients grew 9% on a reported basis and 8% on a currency neutral basis, driven by low-single digit growth on an organic basis and the contribution of sales related to the IFF | Lucas Meyer Cosmetics acquisition.
  • Fragrances segment profit declined approximately 7% on a currency neutral basis as volume growth and the benefits from cost and productivity initiatives were more than offset by weaker mix, unfavorable price to input costs, manufacturing performance and RSA.

Flavors Business Unit

  • On a reported basis, sales increased 2%, or $7.8 million, to $366.9 million. Reported Flavors segment profit was $77.5 million and reported segment profit margin was 21.1%.
  • Currency neutral sales grew 3% led by mid-single-digit growth in Savory, Dairy and Sweet.
  • EAME increased 2% on a reported basis and 5% on a currency neutral basis led by strong double-digit growth in the Middle East and Africa.
  • North America was challenged as low-single-digit growth in Savory and Sweet were offset by softness in Beverage.
  • Latin America increased 4% on a reported basis and 7% on a currency neutral basis as Brazil and Mexico both grew strong double-digits.
  • Greater Asia increased 4% on a reported basis and 5% on a currency neutral basis led by growth in India, Asean, Indonesia and China.
  • Flavors segment profit fell approximately 4% on a currency neutral basis as volume growth and the benefits from productivity initiatives were more than offset by weaker mix, unfavorable price to input costs and increases in RSA.

FY 2016 Guidance: Percent Change vs. Prior Year

The Company’s full year 2016 guidance:

           
Currency Neutral FX Impact1 Reported2
Organic   M&A   Total
Sales 2.0% - 3.0% ~2.0% 4.0% - 5.0% ~(1.5)% 2.5% - 3.5%
Operating Profit 2.0% - 3.0% ~1.5% 3.5% - 4.5% ~(2.0)% 1.5% - 2.5%
EPS 3.5% - 4.5% ~1.5% 5.0% - 6.0% ~(2.0)% 3.0% - 4.0%

1 See Use of Non-GAAP Financial Measures
2 Excludes items impacting comparability

A copy of the Company’s Quarterly Report on Form 10-Q will be available on its website at www.iff.com or at sec.gov by November 9, 2016.

Audio Webcast

A live webcast to discuss the Company’s third quarter 2016 financial results and outlook for the balance of the year will be held on November 8, 2016, at 10:00 a.m. EST. 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 for fiscal year 2016 and the impact of our actions on value creation for our customers and 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 March 1, 2016. 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 Company’s ability to implement its Vision 2020 strategy; (2) the Company’s ability to successfully identify and complete acquisitions in line with its Vision 2020 strategy, and to realize the anticipated benefits of those acquisitions; (3) the Company’s ability to effectively compete in its market, and to successfully develop new and competitive products that appeal to its customers and consumers; (4) changes in consumer preferences and demand for the Company’s products or a decline in consumer confidence and spending; (5) the Company’s ability to benefit from its investments and expansion in emerging markets; (6) the impact of currency fluctuations or devaluations in the principal foreign markets in which it operates, including the devaluation of the Euro; (7) the economic and political risks associated with the Company’s international operations, including challenging economic conditions in China and Latin America; (8) the impact of any failure of the Company’s key information technology systems or a breach of information security; (9) the Company’s ability to attract and retain talented employees; (10) the Company’s ability to comply with, and the costs associated with compliance with U.S. and foreign environmental protection laws; (11) the Company’s ability to realize expected cost savings and efficiencies from its profitability improvement initiative and other optimization activities; (12) volatility and increases in the price of raw materials, energy and transportation; (13) fluctuations in the quality and availability of raw materials; (14) the impact of a disruption in the Company’s supply chain or its relationship with its suppliers; (15) any adverse impact on the availability, effectiveness and cost of the Company’s hedging and risk management strategies; (16) the Company’s ability to successfully manage its working capital and inventory balances; (17) uncertainties regarding the outcome of, or funding requirements related to litigation or settlement of pending litigation uncertain tax positions or other contingencies; (18) 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; (19) 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 (19) changes in market conditions or governmental regulations relating to our pension and postretirement obligations (20) expectations regarding the timing of closing and the benefits of the potential acquisition of Fragrance Resources (21) with respect to statements regarding the closing and potential benefits of Fragrance Resources these risks include (i) the ability of both parties to obtain required consents and (ii) other customary closing conditions. 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, operational improvement initiatives and acquisition related costs (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 2016 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 2016 guidance, 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) is a leading innovator of sensorial experiences that move the world. 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 taste, smell, or feel in fine fragrances and beauty, detergents and household goods, as well as beloved foods and beverages. Our 6,700 team members globally take advantage of leading consumer insights, 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.
521 West 57th Street
New York, NY 10019

T +212.765.5500
F +212.708.7132
iff.com

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,
     
2016 2015 % Change 2016 2015 % Change
 
Net sales $ 777,001 $ 765,092 2 % $ 2,353,790 $ 2,307,540 2 %
Cost of goods sold   430,733     417,966 3 %   1,281,673     1,269,097   1 %
Gross profit 346,268 347,126 (0 )% 1,072,117 1,038,443 3 %
Research and development expenses 64,415 62,750 3 % 191,052 188,725 1 %
Selling and administrative expenses 152,046 122,249 24 % 408,372 372,267 10 %
Amortization of acquisition-related intangibles 5,468 5,414 1 % 16,659 10,293 62 %
Restructuring and other charges, net       %       (170 ) (100 )%
Operating profit 124,339 156,713 (21 )% 456,034 467,328 (2 )%
Interest expense 13,111 11,855 11 % 40,649 34,357 18 %
Other (income) expense, net   (2,162 )   1,959 (210 )%   (4,952 )   (3,315 ) 49 %
Income before taxes 113,390 142,899 (21 )% 420,337 436,286 (4 )%
Taxes on income   23,613     36,452 (35 )%   95,223     96,206   (1 )%
Net income $ 89,777   $ 106,447 (16 )% $ 325,114   $ 340,080   (4 )%
 
 
 
Earnings per share - basic $ 1.13 $ 1.32 $ 4.07 $ 4.20
Earnings per share - diluted $ 1.12 $ 1.31 $ 4.05 $ 4.18
 
Average shares outstanding
Basic 79,580 80,330 79,727 80,602
Diluted 79,935 80,737 80,067 81,052

International Flavors & Fragrances Inc.

Condensed Consolidated Balance Sheet

(Amounts in thousands)

(Unaudited)

   
September 30, December 31,
2016 2015
Cash and cash equivalents $ 498,730 $ 181,988
Receivables 587,074 537,896
Inventories 585,185 572,047
Other current assets   186,046   145,178
Total current assets 1,857,035 1,437,109
 
Property, plant and equipment, net 745,241 732,794
Goodwill and other intangibles, net 1,226,119 1,247,393
Other assets   268,734   284,714
Total assets $ 4,097,129 $ 3,702,010
 
Bank borrowings and overdrafts, and
current portion of long-term debt $ 257,675 $ 132,349
Other current liabilities   598,249   592,807
Total current liabilities 855,924 725,156
 
Long-term debt 1,110,201 935,373
Non-current liabilities 432,806 446,492
 
Shareholders' equity   1,698,198   1,594,989
Total liabilities and shareholders' equity $ 4,097,129 $ 3,702,010

International Flavors & Fragrances Inc.

Consolidated Statement of Cash Flows

(Amounts in thousands)

(Unaudited)

 

Nine Months Ended

2016   2015
Cash flows from operating activities:
Net income $ 325,114 $ 340,080
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 75,109 65,099
Deferred income taxes 8,323 13,134
Gain on disposal of assets (2,998 ) (341 )
Stock-based compensation 19,471 18,355
Pension contributions (44,356 ) (61,125 )
Changes in assets and liabilities, net of acquisitions:
Trade receivables (36,070 ) (108,563 )
Inventories (160 ) (31,655 )
Accounts payable (29,523 ) 54,482
Accruals for incentive compensation 3,012 (13,781 )
Other current payables and accrued expenses 30,663 34,585
Other assets (10,155 ) (30,098 )
Other liabilities   (9,077 )   14,523  
Net cash provided by operating activities   329,353     294,695  
 
Cash flows from investing activities:
Cash paid for acquisitions, net of cash received (493,469 )
Additions to property, plant and equipment (70,179 ) (66,632 )
Proceeds from life insurance contracts 292 868
Maturity of net investment hedges (12 ) 9,735
Proceeds from disposal of assets   3,664     3,431  
Net cash used in investing activities   (66,235 )   (546,067 )
 
Cash flows from financing activities:
Cash dividends paid to shareholders (134,051 ) (113,875 )
Increase (decrease) in revolving credit facility borrowings and overdrafts (133,687 ) 249,998
Deferred financing costs (4,780 )
Repayments of debt (125,000 )
Proceeds from issuance of long-term debt 555,559
Loss on pre-issuance hedges (3,244 )
Proceeds from issuance of stock under stock plans 594 288
Excess tax benefits on stock-based payments 4,532 11,704
Purchase of treasury stock   (94,148 )   (81,237 )
Net cash provided by financing activities   65,775     66,878  
Effect of exchange rates changes on cash and cash equivalents (12,151 ) (21,803 )
Net change in cash and cash equivalents 316,742 (206,297 )
Cash and cash equivalents at beginning of year   181,988     478,573  
Cash and cash equivalents at end of period $ 498,730   $ 272,276  

International Flavors & Fragrances Inc.

Business Unit Performance

(Amounts in thousands)

(Unaudited)

   
Three Months Ended September 30, Nine Months Ended September 30,
2016   2015 2016   2015
Net Sales
Flavors $ 366,857 $ 359,103 $ 1,118,869 $ 1,108,689
Fragrances   410,144     405,989     1,234,921     1,198,851  
Consolidated 777,001 765,092 2,353,790 2,307,540
 
Segment Profit
Flavors 77,512 79,803 259,662 256,546
Fragrances 85,010 90,893 261,843 252,416
Global Expenses (11,405 ) (6,874 ) (37,544 ) (27,067 )
Restructuring and other charges, net (190 ) (473 ) 170
Acquisition and related costs (786 ) (6,830 ) (2,035 ) (13,896 )
Operational improvement initiative costs (802 ) (279 ) (1,901 ) (841 )
Spanish capital tax settlement 1,482
Legal charge   (25,000 )       (25,000 )    
Operating profit 124,339 156,713 456,034 467,328
 
Interest Expense (13,111 ) (11,855 ) (40,649 ) (34,357 )
Other income, net   2,162     (1,959 )   4,952     3,315  
Income before taxes $ 113,390   $ 142,899   $ 420,337   $ 436,286  
 
Operating Margin
Flavors 21.1 % 22.2 % 23.2 % 23.1 %
Fragrances 20.7 % 22.4 % 21.2 % 21.1 %
Consolidated 16.0 % 20.5 % 19.4 % 20.3 %

International Flavors & Fragrances Inc.

Sales Performance by Region and Category

(Unaudited)

         
Third Quarter 2016 vs. 2015
Percentage Change in Sales by Region of Destination
Fine  

Consumer Fragrances

  Ingredients   Total Frag.   Flavors   Total
   
North America Reported 1% 5% 10% 6% -1% 2%
 
EAME Reported -5% 0% 11% 1% 2% 1%
Currency Neutral -5% 0% 11% 1% 5% 3%
 
Latin America Reported -6% -12% -26% -12% 4% -6%
Currency Neutral -3% -9% -24% -9% 7% -4%
 
Greater Asia Reported 15% 8% 22% 10% 4% 7%
Currency Neutral 15% 8% 18% 10% 5% 7%
 
Total Reported -3% 0% 9% 1% 2% 2%
Currency Neutral -3%   1%   8%   2%   3%   3%
 
First Nine Months 2016 vs. First Nine Months 2015
Percentage Change in Sales by Region of Destination
Fine  

Consumer Fragrances

  Ingredients   Total Frag.   Flavors   Total
 
North America Reported 3% 7% 18% 9% 4% 6%
 
EAME Reported -3% -1% 12% 1% -1% 0%
Currency Neutral -2% 1% 14% 3% 2% 3%
 
Latin America Reported -2% -4% -16% -5% -2% -4%
Currency Neutral 5% -1% -15% -1% 3% 0%
 
Greater Asia Reported 2% 6% 15% 8% 2% 4%
Currency Neutral 3% 8% 14% 9% 4% 6%
 
Total Reported -1% 2% 12% 3% 1% 2%
Currency Neutral 1%   4%   13%   5%   4%   4%

Currency neutral growth is calculated by translating prior year sales at the exchange rates used for the corresponding 2016 period.

International Flavors & Fragrances Inc.

GAAP to Non-GAAP Reconciliation

Foreign Exchange Impact

(Unaudited)

           

Q3 Consolidated

Sales   Operating Profit   EPS
% Change - Reported (GAAP) 2%   -21%   -15%
Items Impacting Comparability 0% 13% 11%
% Change - Adjusted (Non-GAAP) 2% -8% -4%
Currency Impact 1% 4% 3%
% Change - Currency Neutral (Adjusted) 3%   -4%   -1%
     

Q3 Flavors

Sales   Segment Profit
% Change - Reported (GAAP) 2% -3%
Currency Impact 1% -1%
% Change - Currency Neutral 3%   -4%
     

Q3 Fragrances

Sales   Segment Profit
% Change - Reported (GAAP) 1% -6%
Currency Impact 1% -1%
% Change - Currency Neutral 2%   -7%
 
         

YTD Consolidated

Sales   Operating Profit   EPS
% Change - Reported (GAAP) 2% -2% -3%
Items Impacting Comparability 0% 3% 5%
% Change - Adjusted (Non-GAAP) 2% 0%* 2%
Currency Impact 2% 3% 3%
% Change - Currency Neutral (Adjusted) 4%   3%   5%

*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.

  Third Quarter 2016
Items Impacting Comparability
         
Adjusted Operating Profit
Reported (GAAP) Restructuring and Other Charges (a) Operational Improvement Initiative Costs (b) Acquisition Related Costs (c) Legal Charges/Credits (d) Adjusted (Non-GAAP)
Operating profit 124,339 190 802 786 25,000 151,117
 
Adjusted Net Income
Reported (GAAP) Restructuring and Other Charges (a) Operational Improvement Initiative Costs (b) Acquisition Related Costs (c) Legal Charges/Credits (d) Adjusted (Non-GAAP)
Income before taxes 113,390 190 802 786 25,000 140,168
Taxes on income (e) 23,613   36   200   276   8,750   32,875
Net income 89,777 154 602 510 16,250 107,293
Diluted EPS 1.12 0.01 0.01 0.20 1.34

(a) Accelerated depreciation costs related to restructuring initiatives.
(b) Accelerated depreciation costs in Asia.
(c) Transaction costs related to the acquisition of David Michael.
(d) Legal charge related to reserve for the ZoomEssence case.
(e) The tax effects are calculated based upon the specific rate of the applicable jurisdiction of the items.
* 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: $2.0M related to Lucas Meyer and $1.6M related to Ottens Flavors.

 

Third Quarter 2015

Items Impacting Comparability  
       
Adjusted Operating Profit  
Reported (GAAP) Operational Improvement Initiative Costs (a) Acquisition Related Costs (b) Adjusted (Non-GAAP)
Operating profit 156,713 279 6,830 163,822
 
Adjusted Net Income
Reported (GAAP) Operational Improvement Initiative Costs (a) Acquisition Related Costs (b) Adjusted (Non-GAAP)
Income before taxes 142,899 279 6,830 150,008
Taxes on income (c) 36,452   70   829   37,351
Net income 106,447 209 6,001 112,657
Diluted EPS 1.31 0.07 1.39

 

(d)

(a) Related to a partial plant closing in Asia.
(b) Transaction costs related to acquisitions (Ottens Flavors and Lucas Meyer Cosmetics) as well as expense related to the fair value step up of inventory on the Lucas Meyer acquisition.
(c) The tax effects are calculated based upon the specific rate of the applicable jurisdiction of the items.
(d) The sum of these items do 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: $3.5M.

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.

  YTD 2016
Items Impacting Comparability
         
Adjusted Operating Income
Reported (GAAP) Restructuring and Other Charges (a) Operational Improvement Initiative Costs (b) Acquisition Related Costs (c) Legal Charges/Credits (d) Adjusted (Non-GAAP)
Operating profit 456,034 473 1,901 2,035 23,518 483,961
 
Adjusted Net Income
Reported (GAAP) Restructuring and Other Charges (a) Operational Improvement Initiative Costs (b) Acquisition Related Costs (c) Legal Charges/Credits (d) Adjusted (Non-GAAP)
Income before taxes 420,337 473 1,901 2,035 23,518 448,264
Taxes on income (e) 95,223 90 475 542 8,339 104,669
Net income 325,114 383 1,426 1,493 15,179 343,595
4.05 0.02 0.02 0.19 4.28

(a) Accelerated depreciation and severance costs related to restructuring initiatives.
(b) Accelerated depreciation and severance costs in Asia.
(c) Expense related to the fair value step up of inventory and additional transaction costs related to acquisition of Lucas Meyer as well as transaction costs related to the acquisition of David Michael.
(d) Includes legal charge related to reserve for the ZoomEssence case as well as settlements due to favorable tax rulings in jurisdictions for which reserves were previously recorded for ongoing tax disputes.
(e) The tax effects are calculated based upon the specific rate of the applicable jurisdiction of the items.
* 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: $6.3M related to Lucas Meyer Cosmetics and $4.8M related to Ottens Flavors.

  YTD 2015  
Items Impacting Comparability
         
Adjusted Operating Income
Reported (GAAP) Restructuring and Other Charges (a) Operational Improvement Initiative Costs (b) Acquisition Related Costs (c) Adjusted (Non-GAAP)
Operating profit 467,328 (170 ) 841 13,896 481,895
 
Adjusted Net Income
Reported (GAAP) Restructuring and Other Charges (a) Operational Improvement Initiative Costs (b) Acquisition Related Costs (c) Tax Settlements (d) Adjusted (Non-GAAP)
Income before taxes 436,286 (170 ) 841 13,896 450,853
Taxes on income (e) 96,206 (60 ) 210 1,879 10,478   108,713
Net income 340,080 (110 ) 631 12,017 (10,478 ) 342,140
Diluted EPS 4.18 0.01 0.15 (0.13 ) 4.20 (f)

(a) Costs related to the Fragrance Ingredients Rationalization.
(b) Related to plant closings in Europe and partial closing in Asia.
(c) Transaction costs related to acquisitions (Ottens Flavors and Lucas Meyer Cosmetics) as well as expense related to the fair value step up of inventory for both acquisitions.
(d) Settlements due to favorable tax rulings in jurisdictions for which reserves were previously recorded for ongoing tax disputes.
(e) The tax effects are calculated based upon the specific rate of the applicable jurisdiction of the items.
(f) The sum of these items do 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: $4.7M.

Source: International Flavors & Fragrances Inc.

International Flavors & Fragrances Inc.
Michael DeVeau, 212-708-7164
VP, Global Corporate Communications & Investor Relations
Michael.DeVeau@iff.com

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