IFF Reports Fourth Quarter & Full Year 2018 Results
Completes historic year with record-setting sales – increasing 17% – and transformational acquisition
Full Year 2018 Consolidated Summary:
Reported (GAAP) |
Adjusted (Non-GAAP)¹ |
||||||||||||||
Sales |
Operating Profit |
EPS | Sales |
Operating Profit |
EPS |
EPS Ex Amortization2 |
|||||||||
Consolidated | $4.0 B | $584 M |
$3.79 |
$4.0 B | $677 M | $5.58 | $6.28 | ||||||||
Fourth Quarter 2018 Consolidated Summary:
Reported (GAAP) |
Adjusted (Non-GAAP)¹ |
||||||||||||||
Sales |
Operating Profit |
EPS | Sales |
Operating Profit |
EPS |
EPS Ex Amortization2 |
|||||||||
Consolidated | $1.2 B | $95 M | $0.09 | $1.2 B | $162 M | $0.89 | $1.22 | ||||||||
1 Schedules at the end of this release contain reconciliations of reported GAAP to non-GAAP metrics.
2Adjusted EPS ex amortization is a Non-GAAP metric that excludes all amortization of acquisition related intangible assets from Adjusted EPS.
Management Commentary
“2018 was a pivotal year in the long and successful history of IFF,” said Andreas Fibig, IFF Chairman and CEO. “As an organization, we delivered on all our key financial metrics and completed our acquisition of Frutarom – the largest in our industry to date – all while successfully navigating a challenging and dynamic market environment.
“We achieved strong advancements in both top and bottom line results in
2018. Highlights include our record-setting sales of approximately
“We also made progress strategically to establish ourselves as a global leader in taste, scent and nutrition through the Frutarom acquisition. This combination helps us create a truly differentiated portfolio with an increased focus on naturals and health and wellness. It also provides us opportunities to expand into attractive and faster-growing categories and broadens our complementary and growing customer base.
“Sustainability also continued to be a prevalent part of our everyday as
we surpassed three of our four 2020 environmental targets and launched
our new environmental goals with ambitious science-based targets. Our
efforts continued to be recognized as we joined Barron’s 100 most
sustainable U.S. companies list, qualified for FTSE4Good Developed
Market Index for the first time, and we were named to Euronext Vigeo’s
World 120 Index – an index that ranks us amongst the top companies
within the
“As we enter 2019 – recognizing that the operating environment remains
dynamic and raw material inflation continues – we are optimistic in our
ability to achieve
Full Year 2018 Consolidated Financial Results
-
Reported net sales for the full year totaled
$4.0 billion , an increase of 17% from$3.4 billion in 2017 driven by mid-single digit growth in both Taste and Scent and the contribution of sales related to Frutarom. For the year, pricing contributed approximately 2 percentage points to growth for both Taste and Scent. -
Reported earnings per share (EPS) for the full year was
$3.79 per diluted share versus$3.72 per diluted share reported in 2017. Excluding those items that affect comparability, adjusted EPS ex amortization was$6.28 per diluted share in 2018 versus$6.23 in the year-ago period as adjusted operating profit growth and a lower year-over-year adjusted effective tax rate more than offset higher interest expense and shares outstanding, both due to the Frutarom acquisition.
Full Year 2018 Segment Summary: Growth vs. Prior Year
Reported (GAAP) |
Currency Neutral (Non-GAAP) | ||||||||
Sales |
Segment Profit |
Sales |
Segment Profit |
||||||
Taste | 6% | 10% | 5% | 6% | |||||
Scent | 6% | 3% | 4% | (2)% | |||||
Frutarom | - | - | - | - | |||||
Taste Business Unit
-
On a reported basis, sales increased 6%, or
$105.2 million , to$1.7 billion . Currency neutral sales grew 5% driven by growth in all regions and across all categories. Improvements were driven by high-single digit growth inNorth America , with strong double-digit growth at Tastepoint℠. EAME, led by double-digit growth inAfrica and theMiddle East , andLatin America , driven by strong double-digit growth inArgentina , both achieved mid-single digit growth. - Taste segment profit increased 10% on a reported basis and 6% on a currency neutral basis, driven primarily by volume growth and the benefits from productivity initiatives.
Scent Business Unit
-
On a reported basis, sales increased 6%, or
$114.1 million , to$1.9 billion . Currency neutral sales improved 4%, with the strongest improvement in Fragrance Ingredients, which grew high-single digits, led by price increases and strong double-digit growth in Cosmetic Active Ingredients. Consumer Fragrances grew mid-single digits, including price increases, as performance was driven by double-digit growth in Hair Care and mid-single digit growth in Fabric Care, Home Care and Toiletries. - Scent segment profit increased 3% on a reported basis and declined 2% on a currency neutral basis as the benefits from cost and productivity initiatives were more than offset by unfavorable price to input costs, reflecting unprecedented raw material inflation - including the previously announced citral supply issue and additional supply chain disruptions that occurred throughout the year - as well as higher manufacturing costs.
Fourth Quarter 2018 Segment Summary: Growth vs. Prior Year
Reported (GAAP) | Currency Neutral (Non-GAAP) | ||||||||
Sales |
Segment Profit |
Sales |
Segment Profit |
||||||
Taste | 0% | (5)% | 2% | (7)% | |||||
Scent | 1% | (4)% | 3% | (4)% | |||||
Frutarom | - | - | - | - | |||||
Taste Business Unit
-
On a reported basis, sales remained constant at
$401.6 million in 2018. Currency neutral sales improved 2%, with growth in three of four regions. Performance was led by mid-single digit growth inNorth America andGreater Asia , the latter, which saw double-digit growth inIndia and high-single digit increases inIndonesia andChina . - Taste segment profit decreased 5% on a reported basis and 7% on a currency neutral basis, as volume growth and the benefits from productivity initiatives were more than offset by higher Research, Selling and Administrative expenses.
Scent Business Unit
-
On a reported basis, sales increased 1%, or
$5.2 million , to$457.9 million . Currency neutral sales improved 3% as Fragrance Ingredients improved mid-single digits and Consumer Fragrances grew low-single digits to more than offset a slight decline in Fine Fragrances due to a strong double-digit year-ago comparison. - Scent segment profit decreased 4% on a reported and currency neutral basis as the benefits from productivity initiatives and cost management were more than offset by unfavorable price to input costs and higher manufacturing expenses.
Frutarom Business Unit
-
On
October 4, 2018 , the Frutarom acquisition was completed. The results for Frutarom have been included from the closing date, and as a result do not represent a full quarter. -
On a reported basis, sales were
$359.6 million . On a standalone basis, Frutarom sales improved 3% on a like-for-like basis driven by strong growth in Natural Product Solutions and F&F Ingredients. The Core business – excluding Trade & Marketing – grew 4% on a like-for-like basis versus prior year. -
Segment profit contributed
$27 million in the fourth quarter;$66 million excluding amortization.
Outlook
The Company reconfirms long-term combined guidance over the 2019-2021 period of:
Guidance | ||
Sales(1) | 5-7% CAGR | |
Adjusted EPS ex amortization* (2) | 10%+ CAGR | |
The Company’s 2019 guidance is as follows:
Guidance | ||
Sales | $5.2B - $5.3B | |
Adjusted EPS (2) | $4.90 - $5.10 | |
Adjusted EPS ex amortization* | $6.30 - $6.50 | |
On a combined basis, full year 2018 sales were approximately
Combined sales growth for 2019 is expected to be approximately 5% to 7%
and combined adjusted EPS ex amortization is expected to be 8% to 11% -
both on a currency neutral basis. When comparing 2019 guidance to 2018
combined results, currency is expected to negatively impact sales in
2019 by an estimated
1 On a currency neutral basis
2 See Use of Non-GAAP Financial Measures
* Adjusted EPS ex amortization is a Non-GAAP metric that excludes all amortization of acquisition related intangible assets from Adjusted EPS
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
Audio Webcast
A live webcast to discuss the Company’s fourth quarter and full year
2018 financial results will be held on
Cautionary Statement Under The Private Securities Litigation Reform Act of 1995
This press release includes “forward-looking statements” under the
Federal Private Securities Litigation Reform Act of 1995, including
statements regarding guidance for full year 2019 and long-term guidance
for 2019-2021, the expected impact of the acquisition of Frutarom,
including expected expansion of our portfolio and our customer base, and
our ability to deliver strong financial results. These forward-looking
statements are qualified in their entirety by cautionary statements and
risk factor disclosures contained in the Company’s
Use of Non-GAAP Financial Measures
We provide in this press release non-GAAP financial measures, including:
(i) currency neutral sales, which eliminates the effects that result
from translating its international sales in U.S. dollars; (ii) adjusted
operating profit and adjusted EPS, which exclude restructuring costs and
other significant items of a non-recurring and/or non-operational nature
such as legal charges/credits, gains on sale of assets, tax assessment,
operational improvement initiatives, integration related costs,
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. With respect to the redemption value adjustment to EPS, the Company excluded this adjustment as (i) the amount is not believed to be a measure of earnings and is excluded from the net income attributable to IFF; and (ii) the Company believes that investors may benefit from an understanding of the Company’s results without giving effect to this adjustment. 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.
When we provide our expectations for adjusted EPS and adjusted EPS ex amortization for our full year 2019 guidance and our expectations for currency neutral sales and currency neutral adjusted EPS ex amortization for our long-term combined guidance for 2019-2021, the closest corresponding GAAP measure and a reconciliation of the differences between the non-GAAP expectation and the corresponding GAAP measure is not available without unreasonable effort due to length of the forecasted period and potential variability, complexity and low visibility as to items such as future contingencies and other costs that would be excluded from the GAAP measure, 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.
Commencing in the fourth quarter of fiscal year 2018, we are including Adjusted (Non-GAAP) 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 (Non-GAAP) 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.
We calculated “combined” numbers by combining (i) our results (including
Frutarom from
Meet IFF
International Flavors & Fragrances Inc. Consolidated Income Statement (Amounts in thousands except per share data) (Unaudited) |
||||||||||||||||||||||
Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||||||||
2018 | 2017 |
% Change |
2018 | 2017 |
% Change |
|||||||||||||||||
Net sales | $ | 1,219,047 | $ | 854,625 | 43 | % | $ | 3,977,539 | $ | 3,398,719 | 17 | % | ||||||||||
Cost of goods sold | 741,532 | 498,627 | 49 | % | 2,294,832 | 1,926,256 | 19 | % | ||||||||||||||
Gross profit | 477,515 | 355,998 | 34 | % | 1,682,707 | 1,472,463 | 14 | % | ||||||||||||||
Research and development | 83,038 | 76,820 | 8 | % | 311,583 | 295,469 | 5 | % | ||||||||||||||
Selling and administrative | 249,614 | 141,469 | 76 | % | 707,461 | 570,144 | 24 | % | ||||||||||||||
Restructuring and other charges | 2,249 | 5,528 | -59 | % | 5,079 | 19,711 | -74 | % | ||||||||||||||
Amortization of acquisition-related intangibles | 48,106 | 10,366 | NMF | 75,879 | 34,693 | 119 | % | |||||||||||||||
Gains on the sale of fixed assets | (742 | ) | (64 | ) | NMF | (1,177 | ) | (184 | ) | NMF | ||||||||||||
Operating profit | 95,250 | 121,879 | -22 | % | 583,882 | 552,630 | 6 | % | ||||||||||||||
Interest expense | 38,804 | 15,779 | 146 | % | 132,558 | 65,363 | 103 | % | ||||||||||||||
Loss on extinguishment of debt | - | - | 0 | % | 38,810 | - | 0 | % | ||||||||||||||
Other (income) expense, net | (9,854 | ) | (9,092 | ) | 8 | % | (35,243 | ) | (49,778 | ) | -29 | % | ||||||||||
Pretax income | 66,300 | 115,192 | -42 | % | 447,757 | 537,045 | -17 | % | ||||||||||||||
Income taxes | 50,800 | 155,347 | -67 | % | 107,976 | 241,380 | -55 | % | ||||||||||||||
Net (loss) income | 15,500 | (40,155 | ) | -139 | % | 339,781 | 295,665 | 15 | % | |||||||||||||
Net income attributable to noncontrolling interest | 2,479 | - | NMF | $ | 2,479 | $ | - | NMF | ||||||||||||||
Net (loss) income attributable to IFF | $ | 13,021 | $ | (40,155 | ) | -132 | % | $ | 337,302 | $ | 295,665 | 14 | % | |||||||||
Net (loss) income per share - basic (a) | $ | 0.09 | $ | (0.51 | ) | $ | 3.81 | $ | 3.73 | |||||||||||||
Net (loss) income per share - diluted (a) | $ | 0.09 | $ | (0.51 | ) | $ | 3.79 | $ | 3.72 | |||||||||||||
Average shares outstanding | ||||||||||||||||||||||
Basic | 110,871 | 79,056 | 87,551 | 79,070 | ||||||||||||||||||
Diluted | 112,155 | 79,056 | 88,121 | 79,370 | ||||||||||||||||||
(a) | For 2018, 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, | ||||||
2018 | 2017 | |||||
Cash, restricted cash & cash equivalents | $ | 648,522 | $ | 368,046 | ||
Receivables | 937,765 | 663,663 | ||||
Inventories | 1,078,537 | 649,448 | ||||
Other current assets | 277,036 | 215,387 | ||||
Total current assets | 2,941,860 | 1,896,544 | ||||
Property, plant and equipment, net | 1,241,152 | 880,580 | ||||
Goodwill and other intangibles, net | 8,417,710 | 1,572,075 | ||||
Other assets | 288,674 | 249,727 | ||||
Total assets | $ | 12,889,396 | $ | 4,598,926 | ||
Bank borrowings and overdrafts, and | ||||||
Current portion of long-term debt | $ | 48,642 | $ | 6,966 | ||
Other current liabilities | 1,079,669 | 761,802 | ||||
Total current liabilities | 1,128,311 | 768,768 | ||||
Long-term debt | 4,504,417 | 1,632,186 | ||||
Non-current liabilities | 1,131,488 | 508,678 | ||||
Redeemable noncontrolling interests | 81,806 | - | ||||
Shareholders' equity | 6,043,374 | 1,689,294 | ||||
Total liabilities and shareholders' equity | $ | 12,889,396 | $ | 4,598,926 | ||
International Flavors & Fragrances Inc. Consolidated Statement of Cash Flows (Amounts in thousands) (Unaudited) |
||||||||
Year Ended December 31, | ||||||||
2018 | 2017 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 339,781 | $ | 295,665 | ||||
Adjustments to reconcile to net cash provided by operations: | ||||||||
Depreciation and amortization | 173,792 | 117,967 | ||||||
Deferred income taxes | 19,403 | 58,889 | ||||||
Gains on sale of assets | (1,177 | ) | (184 | ) | ||||
Stock-based compensation | 29,401 | 26,567 | ||||||
Loss on extinguishment of debt | 38,810 | - | ||||||
Gain on deal contingent derivatives | (12,505 | ) | - | |||||
Pension contributions | (22,433 | ) | (39,298 | ) | ||||
Litigation settlement | - | (56,000 | ) | |||||
Product recall claim settlement, net of insurance proceeds received | 235 | - | ||||||
Foreign currency gain on liquidation of entity | - | (12,217 | ) | |||||
Changes in assets and liabilities, net of acquisitions: | ||||||||
Trade receivables | (49,958 | ) | (68,851 | ) | ||||
Inventories | (117,641 | ) | (18,911 | ) | ||||
Accounts payable | 55,136 | 29,114 | ||||||
Accruals for incentive compensation | (2,289 | ) | 19,144 | |||||
Other current payables and accrued expenses | (5,279 | ) | 22,679 | |||||
Other assets | (19,219 | ) | (3,866 | ) | ||||
Other liabilities | 10,647 | 20,058 | ||||||
Net cash provided by operating activities | 436,704 | 390,756 | ||||||
Cash flows from investing activities: | ||||||||
Cash paid for acquisitions, net of cash received | (4,857,343 | ) | (192,328 | ) | ||||
Additions to property, plant and equipment | (170,094 | ) | (128,973 | ) | ||||
Additions to intangible assets | (3,326 | ) | - | |||||
Proceeds from disposal of assets | 8,176 | 16,139 | ||||||
Proceeds from disposal of subsidiaries, net of cash held | 10,157 | - | ||||||
Maturity of net investment hedges | (2,642 | ) | 1,434 | |||||
Proceeds from life insurance contracts | 1,837 | 3,798 | ||||||
Net cash used in investing activities | (5,013,235 | ) | (299,930 | ) | ||||
Cash flows from financing activities: | ||||||||
Cash dividends paid to shareholders | (230,218 | ) | (206,118 | ) | ||||
Decrease in revolving credit facility and short term borrowing | (927 | ) | (4,499 | ) | ||||
Deferred financing costs | (33,668 | ) | (5,373 | ) | ||||
Repayments of debt | (376,625 | ) | (250,000 | ) | ||||
Proceeds from issuance of long-term debt | 3,256,742 | 498,250 | ||||||
Proceeds from sales of equity securities, net of issuance costs | 2,268,965 | - | ||||||
Gain (loss) on pre-issuance hedges | 12,505 | (5,310 | ) | |||||
Proceeds from issuance of stock in connection with stock plans | - | 329 | ||||||
Employee withholding taxes paid | (9,725 | ) | (11,768 | ) | ||||
Purchase of treasury stock | (15,475 | ) | (58,069 | ) | ||||
Net cash provided (used in) by financing activities | 4,871,574 | (42,558 | ) | |||||
Effect of exchange rates changes on cash and cash equivalents | (14,567 | ) | (4,214 | ) | ||||
Net change in cash and cash equivalents | 280,476 | 44,054 | ||||||
Cash, restricted cash and cash equivalents at beginning of year | 368,046 | 323,992 | ||||||
Cash, restricted cash and cash equivalents at end of period | $ | 648,522 | $ | 368,046 | ||||
International Flavors & Fragrances Inc. Business Unit Performance (Amounts in thousands) (Unaudited) |
||||||||||||||||
Three Months Ended December 31, |
Year Ended December 31, |
|||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net Sales | ||||||||||||||||
Taste | $ | 401,576 |
|
$ | 401,880 | $ | 1,737,349 | $ | 1,632,166 | |||||||
Scent | 457,911 |
|
452,745 | 1,880,630 | 1,766,553 | |||||||||||
Frutarom | 359,560 | - | 359,560 | - | ||||||||||||
Consolidated | 1,219,047 | 854,625 | 3,977,539 | 3,398,719 | ||||||||||||
Segment Profit | ||||||||||||||||
Taste | $ | 77,523 |
|
$ | 81,714 | $ | 395,190 | $ | 360,483 | |||||||
Scent | 68,002 |
|
71,132 | 329,548 | 318,954 | |||||||||||
Frutarom | 27,358 | - | 27,358 | - | ||||||||||||
Global Expenses | (10,752 | ) | (13,342 | ) | (74,730 | ) | (60,810 | ) | ||||||||
Operational Improvement Initiatives | (396 | ) | (329 | ) | (2,169 | ) | (1,802 | ) | ||||||||
Acquisition Related Costs | 770 | 113 | 1,289 | (20,389 | ) | |||||||||||
Integration Related Costs | (5,237 | ) | (1,676 | ) | (7,188 | ) | (4,179 | ) | ||||||||
Legal Charges/Credits, net | - | - | - | (1,000 | ) | |||||||||||
Tax Assessment | - | - | - | (5,331 | ) | |||||||||||
Restructuring and Other Charges, net | (2,249 | ) | (5,528 | ) | (4,086 | ) | (19,711 | ) | ||||||||
Gain on Sale of Assets | 742 | 64 | 1,177 | 184 | ||||||||||||
FDA Mandated Product Recall | 2,325 | (7,500 | ) | 7,125 | (11,000 | ) | ||||||||||
UK Pension Settlement Charges | - | (2,769 | ) | - | (2,769 | ) | ||||||||||
Frutarom Acquisition Related Costs | (62,836 | ) | - | (89,632 | ) | - | ||||||||||
Operating profit | 95,250 | 121,879 | 583,882 | 552,630 | ||||||||||||
Interest Expense | (38,804 | ) | (15,779 | ) | (132,558 | ) | (65,363 | ) | ||||||||
Loss on extinguishment of debt | - | - | (38,810 | ) | - | |||||||||||
Other income (expense), net | 9,854 | 9,092 | 35,243 | 49,778 | ||||||||||||
Income before taxes | $ | 66,300 | $ | 115,192 | $ | 447,757 | $ | 537,045 | ||||||||
Operating Margin | ||||||||||||||||
Taste | 19.3 | % | 20.3 | % | 22.7 | % | 22.1 | % | ||||||||
Scent | 14.9 | % | 15.7 | % | 17.5 | % | 18.1 | % | ||||||||
Frutarom | 7.6 | % | N/A | 7.6 | % | N/A | ||||||||||
Consolidated | 7.8 | % | 14.3 | % | 14.7 | % | 16.3 | % | ||||||||
International Flavors & Fragrances Inc. GAAP to Non-GAAP Reconciliation Foreign Exchange Impact (Unaudited) |
|||||
Q4 Taste |
Sales |
Segment Profit |
|||
% Change - Reported (GAAP) | 0% | -5% | |||
Currency Impact | 2% | -2% | |||
% Change - Currency Neutral | 2% | -7% | |||
Q4 Scent |
Sales |
Segment Profit |
|||
% Change - Reported (GAAP) | 1% | -4% | |||
Currency Impact | 2% | 0 | |||
% Change - Currency Neutral | 3% | -4% | |||
FY Taste |
Sales |
Segment Profit |
|||
% Change - Reported (GAAP) | 6% | 10% | |||
Currency Impact | -1% | -4% | |||
% Change - Currency Neutral | 5% | 6% | |||
FY Scent |
Sales |
Segment Profit |
|||
% Change - Reported (GAAP) | 6% | 3% | |||
Currency Impact | -2% | -5% | |||
% Change - Currency Neutral | 4% | -2% | |||
GAAP to
Non-GAAP Reconciliation
(Amounts in thousands)
(Unaudited)
The following information and schedules provide reconciliation information between reported GAAP amounts and non-GAAP certain adjusted amounts. This information and schedules are not intended as, and should not be viewed as, a substitute for reported GAAP amounts or financial statements of the Company prepared and presented in accordance with GAAP.
Reconciliation of Gross Profit | ||||||||
Fourth Quarter | ||||||||
2018 | 2017 | |||||||
Reported (GAAP) | $ | 477,515 | $ | 355,998 | ||||
Operational Improvement Initiatives (a) | 396 | 329 | ||||||
Acquisition Related Costs (b) | - | (194 | ) | |||||
Integration Related Costs (c) | 84 | 163 | ||||||
FDA Mandated Product Recall (e) | (2,325 | ) | 7,500 | |||||
Frutarom Acquisition Related Costs (h) | 23,550 | - | ||||||
Adjusted (Non-GAAP) | $ | 499,220 | $ | 363,796 | ||||
Reconciliation of Selling and Administrative Expenses | ||||||||
Fourth Quarter | ||||||||
2018 | 2017 | |||||||
Reported (GAAP) | $ | 249,614 | $ | 141,469 | ||||
Acquisition Related Costs (b) | 770 | (81 | ) | |||||
Integration Related Costs (c) | (5,145 | ) | (1,390 | ) | ||||
UK Pension Settlement Charges (f) | - | (1,882 | ) | |||||
Frutarom Acquisition Related Costs (h) | (39,286 | ) | - | |||||
Adjusted (Non-GAAP) | $ | 205,953 | $ | 138,116 | ||||
Reconciliation of Operating Profit | ||||||||
Fourth Quarter | ||||||||
2018 | 2017 | |||||||
Reported (GAAP) | $ | 95,250 | $ | 121,879 | ||||
Operational Improvement Initiatives (a) | 396 | 329 | ||||||
Acquisition Related Costs (b) | (770 | ) | (113 | ) | ||||
Integration Related Costs (c) | 5,237 | 1,676 | ||||||
Restructuring and Other Charges, net (d) | 2,249 | 5,528 | ||||||
Gain on Sale of Assets | (742 | ) | (64 | ) | ||||
FDA Mandated Product Recall (e) | (2,325 | ) | 7,500 | |||||
UK Pension Settlement Charges (f) | - | 2,769 | ||||||
Frutarom Acquisition Related Costs (h) | 62,836 | - | ||||||
Adjusted (Non-GAAP) | $ | 162,131 | $ | 139,504 | ||||
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 | ||||||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||||||
Income before taxes |
Taxes on income (j) |
Net Income Attributable to IFF (k) |
Diluted EPS (l) |
Income before taxes |
Taxes on income (j) |
Net Income Attributable to IFF |
Diluted EPS | |||||||||||||||||||||||||
Reported (GAAP) | $ | 66,300 | $ | 50,800 | $ | 13,021 | $ | 0.09 | $ | 115,192 | $ | 155,347 | $ | (40,155 | ) | $ | (0.51 | ) | ||||||||||||||
Operational Improvement Initiatives (a) | 395 | 133 | 262 | - | 329 | 82 | 247 | - | ||||||||||||||||||||||||
Acquisition Related Costs (b) | (770 | ) | (177 | ) | (593 | ) | (0.01 | ) | (113 | ) | (45 | ) | (68 | ) | - | |||||||||||||||||
Integration Related Costs (c) | 5,236 | 1,160 | 4,076 | 0.04 | 1,676 | 574 | 1,102 | 0.01 | ||||||||||||||||||||||||
Restructuring and Other Charges, net (d) | 2,249 | 577 | 1,672 | 0.01 | 5,528 | 1,561 | 3,967 | 0.05 | ||||||||||||||||||||||||
Gain on Sale of Assets | (742 | ) | (211 | ) | (531 | ) | - | (64 | ) | (20 | ) | (44 | ) | - | ||||||||||||||||||
FDA Mandated Product Recall (e) | (2,325 | ) | (453 | ) | (1,872 | ) | (0.02 | ) | 7,500 | 2,652 | 4,848 | 0.06 | ||||||||||||||||||||
UK Pension Settlement Charges (f) | - | - | - | - | 2,769 | 526 | 2,243 | 0.03 | ||||||||||||||||||||||||
U.S. Tax Reform (g) | - | (32,847 | ) | 32,847 | 0.30 | - | (139,172 | ) | 139,172 | 1.76 | ||||||||||||||||||||||
Frutarom Acquisition Related Costs (h) | 63,586 | 12,386 | 51,200 | 0.46 | - | - | - | - | ||||||||||||||||||||||||
Redemption value adjustment to EPS (i) | - | - | - | 0.03 | - | - | - | - | ||||||||||||||||||||||||
Adjusted (Non-GAAP) | $ | 133,929 | $ | 31,368 | $ | 100,082 | $ | 0.89 | $ | 132,817 | $ | 21,505 | $ | 111,312 | $ | 1.40 | ||||||||||||||||
Reconciliation of Adjusted (Non-GAAP) EPS ex. Amortization | ||||||||||||||||||||||||||||||||
Fourth Quarter | ||||||||||||||||||||||||||||||||
Numerator | 2018 | 2017 | ||||||||||||||||||||||||||||||
Adjusted (Non-GAAP) Net Income | $ | 100,082 | $ | 111,312 | ||||||||||||||||||||||||||||
Amortization of Acquisition related Intangible Assets | 48,106 | 10,366 | ||||||||||||||||||||||||||||||
Tax impact on Amortization of Acquisition related Intangible Assets | 11,257 | 1,679 | ||||||||||||||||||||||||||||||
Amortization of Acquisition related Intangible Assets, net of tax (m) | 36,849 | 8,687 | ||||||||||||||||||||||||||||||
Adjusted (Non-GAAP) Net Income ex. Amortization | 136,931 | 119,999 | ||||||||||||||||||||||||||||||
Denominator | ||||||||||||||||||||||||||||||||
Weighted average shares assuming dilution (diluted) | 112,155 | 79,413 | ||||||||||||||||||||||||||||||
Adjusted (Non-GAAP) EPS ex. Amortization | $ | 1.22 | $ | 1.51 | ||||||||||||||||||||||||||||
(a) | For 2018, represents accelerated depreciation related to a plant relocation in India. For 2017, represents accelerated depreciation and idle labor costs in Hangzhou, China. | |||
(b) | For 2018, represents adjustments to the contingent consideration payable for PowderPure, and transaction costs related to Fragrance Resources and PowderPure within Selling and administrative expenses. For 2017, represents the amortization of inventory "step-up" included in Cost of goods sold and transaction costs related to the acquisitions of Fragrance Resources and PowderPure within Selling and administrative expenses. | |||
(c) | For 2018, represents costs related to the integration of the Frutarom acquisition. For 2017, represents costs related to the integration of the David Michael and Fragrance Resources acquisitions. | |||
(d) | For 2018, represents severance costs related to the 2017 Productivity Program and costs associated with the termination of agent relationships in a subsidiary. For 2017, represents severance costs related to the 2017 Productivity Program. | |||
(e) | For 2018, principally represents recoveries from our insurance in the fourth quarter. For 2017, represents management's best estimate of losses related to the previously disclosed FDA mandated recall. | |||
(f) | Represents pension settlement charges incurred in one of the Company's UK pension plans. | |||
(g) | For 2017, represents charges incurred related to enactment of certain U.S. tax legislation changes in December 2017, including $38.6 million related to net adjustments on deferred tax assets, and $100.6 million related to taxes on deemed repatriation of earnings. For 2018, represents additional expense based on updated repatriation plans requiring accruals for withholding taxes on deemed repatriation. | |||
(h) | Represents transaction-related costs and expenses related to the acquisition of Frutarom. 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. | |||
(i) | Represents the adjustment to EPS related to the excess of the redemption value of certain redeemable noncontrolling interests over their existing carrying value. | |||
(j) | Except for amortization, 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 2018, 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 Company's adjusted worldwide effective tax rate. | |||
(k) | For 2018, net income is reduced by income attributable to noncontrolling interest of $2.479M. | |||
(l) | The sum of these items does not foot due to rounding. | |||
(m) | Represents all amortization of intangible assets acquired in connection with acquisitions, net of tax. | |||
GAAP to
Non-GAAP Reconciliation
(Amounts in thousands)
(Unaudited)
The following information and schedules provide reconciliation information between reported GAAP amounts and non-GAAP certain adjusted amounts. This information and schedules are not intended as, and should not be viewed as, a substitute for reported GAAP amounts or financial statements of the Company prepared and presented in accordance with GAAP.
Reconciliation of Gross Profit | ||||||||
Year Ended December 31, | ||||||||
2018 | 2017 | |||||||
Reported (GAAP) | $ | 1,682,707 | $ | 1,472,463 | ||||
Operational Improvement Initiatives (a) | 1,650 | 1,802 | ||||||
Acquisition Related Costs (b) | - | 15,860 | ||||||
Integration Related Costs (c) | 102 | 480 | ||||||
FDA Mandated Product Recall (h) | (7,125 | ) | 11,000 | |||||
Frutarom Acquisition Related Costs (k) | 23,550 | - | ||||||
Adjusted (Non-GAAP) | $ | 1,700,884 | $ | 1,501,605 | ||||
Reconciliation of Selling and Administrative Expenses |
||||||||
Year Ended December 31, | ||||||||
2018 | 2017 | |||||||
Reported (GAAP) | $ | 707,461 | $ | 570,144 | ||||
Acquisition Related Costs (b) | 1,289 | (4,529 | ) | |||||
Integration Related Costs (c) | (6,060 | ) | (3,258 | ) | ||||
Legal Charges/Credits, net (d) | - | (1,000 | ) | |||||
Tax Assessment (e) | - | (5,331 | ) | |||||
UK Pension Settlement Charges (i) | - | (1,882 | ) | |||||
Frutarom Acquisition Related Costs (k) | (66,082 | ) | - | |||||
Adjusted (Non-GAAP) | $ | 636,608 | $ | 554,144 | ||||
Reconciliation of Operating Profit | ||||||||
Year Ended December 31, | ||||||||
2018 | 2017 | |||||||
Reported (GAAP) | $ | 583,882 | $ | 552,630 | ||||
Operational Improvement Initiatives (a) | 2,169 | 1,802 | ||||||
Acquisition Related Costs (b) | (1,289 | ) | 20,389 | |||||
Integration Related Costs (c) | 7,188 | 4,179 | ||||||
Legal Charges/Credits, net (d) | - | 1,000 | ||||||
Tax Assessment (e) | - | 5,331 | ||||||
Restructuring and Other Charges, net (f) | 4,086 | 19,711 | ||||||
Gain on Sale of Assets | (1,177 | ) | (184 | ) | ||||
FDA Mandated Product Recall (h) | (7,125 | ) | 11,000 | |||||
UK Pension Settlement Charges (i) | - | 2,769 | ||||||
Frutarom Acquisition Related Costs (k) | 89,632 | - | ||||||
Adjusted (Non-GAAP) | $ | 677,366 | $ | 618,627 | ||||
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, | ||||||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||||||
Income before taxes |
Taxes on income (m) |
Net Income Attributable to IFF (n) |
Diluted EPS (o) |
Income before taxes |
Taxes on income (m) |
Net Income Attributable to IFF |
Diluted EPS | |||||||||||||||||||||||||
Reported (GAAP) | $ | 447,757 | $ | 107,976 | $ | 337,302 | $ | 3.79 | $ | 537,045 | $ | 241,380 | $ | 295,665 | $ | 3.72 | ||||||||||||||||
Operational Improvement Initiatives (a) | 2,169 | 694 | 1,475 | 0.02 | 1,802 | 450 | 1,352 | 0.02 | ||||||||||||||||||||||||
Acquisition Related Costs (b) | (1,289 | ) | (311 | ) | (978 | ) | (0.01 | ) | 20,389 | 6,514 | 13,875 | 0.17 | ||||||||||||||||||||
Integration Related Costs (c) | 7,188 | 1,397 | 5,791 | 0.07 | 4,179 | 1,331 | 2,848 | 0.03 | ||||||||||||||||||||||||
Legal Charges/Credits, net (d) | - | - | - | - | 1,000 | 354 | 646 | 0.01 | ||||||||||||||||||||||||
Tax Assessment (e) | - | - | - | - | 5,331 | 1,885 | 3,446 | 0.04 | ||||||||||||||||||||||||
Restructuring and Other Charges, net (f) | 4,086 | 1,020 | 3,066 | 0.03 | 19,711 | 5,465 | 14,246 | 0.17 | ||||||||||||||||||||||||
Gains on Sale of Assets | (1,177 | ) | (352 | ) | (825 | ) | (0.01 | ) | (184 | ) | (59 | ) | (125 | ) | - | |||||||||||||||||
CTA Realization (g) | - | - | - | - | (12,217 | ) | - | (12,217 | ) | (0.15 | ) | |||||||||||||||||||||
FDA Mandated Product Recall (h) | (7,125 | ) | (1,601 | ) | (5,524 | ) | (0.06 | ) | 11,000 | 3,890 | 7,110 | 0.09 | ||||||||||||||||||||
UK Pension Settlement Charges (i) | - | - | - | - | 2,769 | 526 | 2,243 | 0.03 | ||||||||||||||||||||||||
U.S. Tax Reform (j) | - | (25,345 | ) | 25,345 | 0.29 | - | (139,172 | ) | 139,172 | 1.76 | ||||||||||||||||||||||
Frutarom Acquisition Related Costs (k) | 155,569 | 28,490 | 127,079 | 1.44 | - | - | - | - | ||||||||||||||||||||||||
Redemption value adjustment to EPS (l) | - | - | - | 0.03 | - | - | - | - | ||||||||||||||||||||||||
Adjusted (Non-GAAP) | $ | 607,178 | $ | 111,968 | $ | 492,731 | $ | 5.58 | $ | 590,825 | $ | 122,564 | $ | 468,261 | $ | 5.89 | ||||||||||||||||
Reconciliation of Adjusted (Non-GAAP) EPS ex. Amortization | ||||||||||||||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||||||||||||||
Numerator | 2018 | 2017 | ||||||||||||||||||||||||||||||
Adjusted (Non-GAAP) Net Income | $ | 492,731 | $ | 468,261 | ||||||||||||||||||||||||||||
Amortization of Acquisition related Intangible Assets | 75,879 | 34,693 | ||||||||||||||||||||||||||||||
Tax impact on Amortization of Acquisition related Intangible Assets | 13,962 | 7,181 | ||||||||||||||||||||||||||||||
Amortization of Acquisition related Intangible Assets, net of tax (p) | 61,917 | 27,512 | ||||||||||||||||||||||||||||||
Adjusted (Non-GAAP) Net Income ex. Amortization | 554,648 | 495,773 | ||||||||||||||||||||||||||||||
Denominator | ||||||||||||||||||||||||||||||||
Weighted average shares assuming dilution (diluted) | 88,121 | 79,370 | ||||||||||||||||||||||||||||||
Adjusted (Non-GAAP) EPS ex. Amortization | $ | 6.28 | $ | 6.23 | ||||||||||||||||||||||||||||
(a) | For 2018, represents accelerated depreciation related to a plant relocation in India and Taiwan asset write off. For 2017, represents accelerated depreciation and idle labor costs in Hangzhou, China. | |||
(b) | For 2018, represents adjustments to the contingent consideration payable for PowderPure, and transaction costs related to Fragrance Resources and PowderPure within Selling and administrative expenses. For 2017, represents the amortization of inventory "step-up" included in Cost of goods sold and transaction costs related to the acquisitions of Fragrance Resources and PowderPure within Selling and administrative expenses. | |||
(c) | For 2018, represents costs related to the integration of the Frutarom acquisition. For 2017, represents costs related to the integration of the David Michael and Fragrance Resources acquisitions. | |||
(d) | Represents additional charge related to litigation settlement. | |||
(e) | Represents the reserve for payment of a tax assessment related to commercial rent for prior periods. | |||
(f) | For 2018, represents severance costs related to the 2017 Productivity Program and costs associated with the termination of agent relationships in a subsidiary. For 2017, represents severance costs related to the 2017 Productivity Program. | |||
(g) | Represents the release of CTA related to the liquidation of a foreign entity. | |||
(h) | 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. For 2017, represents management's best estimate of losses related to the previously disclosed FDA mandated recall. | |||
(i) | Represents pension settlement charges incurred in one of the Company's UK pension plans. | |||
(j) | For 2017, represents charges incurred related to enactment of certain U.S. tax legislation changes in December 2017, including $38.6 million related to net adjustments on deferred tax assets, and $100.6 million related to taxes on deemed repatriation of earnings. For 2018, represents additional expense based on updated repatriation plans requiring accruals for withholding taxes on deemed repatriation. | |||
(k) | Represents transaction-related costs and expenses related to the acquisition of Frutarom. 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. | |||
(l) | Represents the adjustment to EPS related to the excess of the redemption value of certain redeemable noncontrolling interests over their existing carrying value. | |||
(m) | Except for amortization, 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 2018, 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 Company's adjusted worldwide effective tax rate. | |||
(n) | For 2018, net income is reduced by income attributable to noncontrolling interest of $2.479M. | |||
(o) | The sum of these items does not foot due to rounding. | |||
(p) | 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/20190213005812/en/
Source:
Michael DeVeau
Head of Investor Relations and Communications &
Divisional CFO, Scent
212.708.7164
Michael.DeVeau@iff.com