þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
New York
|
|
13-1432060
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
Large accelerated filer
|
þ
|
Accelerated filer
|
¨
|
Non-accelerated filer
|
¨
|
Smaller reporting company
|
¨
|
|
|
Emerging growth company
|
¨
|
(DOLLARS IN THOUSANDS)
|
June 30, 2018
|
|
December 31, 2017
|
||||
ASSETS
|
|
|
|
||||
Current Assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
322,423
|
|
|
$
|
368,046
|
|
Trade receivables (net of allowances of $13,622 and $13,392, respectively)
|
723,855
|
|
|
663,663
|
|
||
Inventories: Raw materials
|
353,220
|
|
|
326,140
|
|
||
Work in process
|
23,671
|
|
|
16,431
|
|
||
Finished goods
|
318,301
|
|
|
306,877
|
|
||
Total Inventories
|
695,192
|
|
|
649,448
|
|
||
Prepaid expenses and other current assets
|
285,110
|
|
|
215,387
|
|
||
Total Current Assets
|
2,026,580
|
|
|
1,896,544
|
|
||
Property, plant and equipment, at cost
|
2,098,513
|
|
|
2,090,755
|
|
||
Accumulated depreciation
|
(1,230,884
|
)
|
|
(1,210,175
|
)
|
||
|
867,629
|
|
|
880,580
|
|
||
Goodwill
|
1,148,586
|
|
|
1,156,288
|
|
||
Other intangible assets, net
|
391,426
|
|
|
415,787
|
|
||
Deferred income taxes
|
82,204
|
|
|
99,777
|
|
||
Other assets
|
157,017
|
|
|
149,950
|
|
||
Total Assets
|
$
|
4,673,442
|
|
|
$
|
4,598,926
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
||||
Current Liabilities:
|
|
|
|
||||
Short term borrowings
|
$
|
6,500
|
|
|
$
|
6,966
|
|
Accounts payable
|
315,656
|
|
|
338,188
|
|
||
Accrued payroll and bonus
|
59,278
|
|
|
88,361
|
|
||
Dividends payable
|
54,488
|
|
|
54,420
|
|
||
Other current liabilities
|
263,448
|
|
|
280,833
|
|
||
Total Current Liabilities
|
699,370
|
|
|
768,768
|
|
||
Long-term debt
|
1,717,189
|
|
|
1,632,186
|
|
||
Deferred gains
|
35,824
|
|
|
37,344
|
|
||
Retirement liabilities
|
226,221
|
|
|
228,936
|
|
||
Other liabilities
|
238,635
|
|
|
242,398
|
|
||
Total Other Liabilities
|
2,217,869
|
|
|
2,140,864
|
|
||
Commitments and Contingencies (Note 13)
|
|
|
|
||||
Shareholders’ Equity:
|
|
|
|
||||
Common stock 12 1/2¢ par value; 500,000,000 shares authorized; 115,858,190 shares issued as of June 30, 2018 and December 31, 2017; and 79,046,217 and 78,947,381 shares outstanding as of June 30, 2018 and December 31, 2017, respectively
|
14,470
|
|
|
14,470
|
|
||
Capital in excess of par value
|
167,432
|
|
|
162,827
|
|
||
Retained earnings
|
3,992,452
|
|
|
3,870,621
|
|
||
Accumulated other comprehensive loss
|
(692,498
|
)
|
|
(637,482
|
)
|
||
Treasury stock, at cost (36,811,973 and 36,910,809 shares as of June 30, 2018 and December 31, 2017, respectively)
|
(1,732,001
|
)
|
|
(1,726,234
|
)
|
||
Total Shareholders’ Equity
|
1,749,855
|
|
|
1,684,202
|
|
||
Noncontrolling interest
|
6,348
|
|
|
5,092
|
|
||
Total Shareholders’ Equity including noncontrolling interest
|
1,756,203
|
|
|
1,689,294
|
|
||
Total Liabilities and Shareholders’ Equity
|
$
|
4,673,442
|
|
|
$
|
4,598,926
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Net sales
|
$
|
920,016
|
|
|
$
|
842,861
|
|
|
$
|
1,850,944
|
|
|
$
|
1,671,154
|
|
Cost of goods sold
|
521,299
|
|
|
469,877
|
|
|
1,046,419
|
|
|
935,088
|
|
||||
Gross profit
|
398,717
|
|
|
372,984
|
|
|
804,525
|
|
|
736,066
|
|
||||
Research and development expenses
|
74,767
|
|
|
72,761
|
|
|
153,244
|
|
|
144,887
|
|
||||
Selling and administrative expenses
|
157,407
|
|
|
139,319
|
|
|
300,051
|
|
|
283,023
|
|
||||
Amortization of acquisition-related intangibles
|
9,584
|
|
|
8,494
|
|
|
18,769
|
|
|
15,561
|
|
||||
Restructuring and other charges, net
|
1,186
|
|
|
791
|
|
|
1,903
|
|
|
10,934
|
|
||||
Losses (gains) on sales of fixed assets
|
1,264
|
|
|
(68
|
)
|
|
1,195
|
|
|
(89
|
)
|
||||
Operating profit
|
154,509
|
|
|
151,687
|
|
|
329,363
|
|
|
281,750
|
|
||||
Interest expense
|
53,246
|
|
|
17,556
|
|
|
69,841
|
|
|
30,363
|
|
||||
Other (income), net
|
(20,655
|
)
|
|
(7,909
|
)
|
|
(21,232
|
)
|
|
(29,140
|
)
|
||||
Income before taxes
|
121,918
|
|
|
142,040
|
|
|
280,754
|
|
|
280,527
|
|
||||
Taxes on income
|
22,769
|
|
|
32,245
|
|
|
52,190
|
|
|
54,968
|
|
||||
Net income
|
99,149
|
|
|
109,795
|
|
|
228,564
|
|
|
225,559
|
|
||||
Other comprehensive income (loss), after tax:
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustments
|
(85,264
|
)
|
|
13,347
|
|
|
(70,461
|
)
|
|
10,090
|
|
||||
Gains (losses) on derivatives qualifying as hedges
|
10,455
|
|
|
(11,768
|
)
|
|
9,926
|
|
|
(13,519
|
)
|
||||
Pension and postretirement net liability
|
2,890
|
|
|
3,688
|
|
|
5,519
|
|
|
7,323
|
|
||||
Other comprehensive income (loss)
|
(71,919
|
)
|
|
5,267
|
|
|
(55,016
|
)
|
|
3,894
|
|
||||
Total comprehensive income
|
$
|
27,230
|
|
|
$
|
115,062
|
|
|
$
|
173,548
|
|
|
$
|
229,453
|
|
|
|
|
|
|
|
|
|
||||||||
Net income per share - basic
|
$
|
1.25
|
|
|
$
|
1.39
|
|
|
$
|
2.89
|
|
|
$
|
2.85
|
|
Net income per share - diluted
|
$
|
1.25
|
|
|
$
|
1.38
|
|
|
$
|
2.87
|
|
|
$
|
2.84
|
|
Average number of shares outstanding - basic
|
79,065
|
|
|
79,072
|
|
|
79,041
|
|
|
79,088
|
|
||||
Average number of shares outstanding - diluted
|
79,303
|
|
|
79,305
|
|
|
79,347
|
|
|
79,360
|
|
||||
Dividends declared per share
|
$
|
0.69
|
|
|
$
|
0.64
|
|
|
$
|
1.38
|
|
|
$
|
1.28
|
|
|
Six Months Ended June 30,
|
||||||
(DOLLARS IN THOUSANDS)
|
2018
|
|
2017
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income
|
$
|
228,564
|
|
|
$
|
225,559
|
|
Adjustments to reconcile to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization
|
64,968
|
|
|
55,805
|
|
||
Deferred income taxes
|
14,342
|
|
|
1,505
|
|
||
Loss (gain) on disposal of assets
|
1,195
|
|
|
(89
|
)
|
||
Stock-based compensation
|
15,173
|
|
|
12,893
|
|
||
Pension contributions
|
(9,963
|
)
|
|
(31,557
|
)
|
||
Litigation settlement
|
—
|
|
|
(56,000
|
)
|
||
Product recall claim settlement
|
(12,969
|
)
|
|
—
|
|
||
Foreign currency gain on liquidation of entity
|
—
|
|
|
(12,214
|
)
|
||
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
||||
Trade receivables
|
(99,963
|
)
|
|
(77,580
|
)
|
||
Inventories
|
(67,940
|
)
|
|
(4,228
|
)
|
||
Accounts payable
|
(7,139
|
)
|
|
(23,479
|
)
|
||
Accruals for incentive compensation
|
(25,158
|
)
|
|
(12,316
|
)
|
||
Other current payables and accrued expenses
|
11,028
|
|
|
(3,099
|
)
|
||
Other assets
|
(65,620
|
)
|
|
18,007
|
|
||
Other liabilities
|
8,651
|
|
|
(35,286
|
)
|
||
Net cash provided by operating activities
|
55,169
|
|
|
57,921
|
|
||
Cash flows from investing activities:
|
|
|
|
||||
Cash paid for acquisitions, net of cash received
|
(22
|
)
|
|
(191,304
|
)
|
||
Additions to property, plant and equipment
|
(67,421
|
)
|
|
(46,153
|
)
|
||
Proceeds from life insurance contracts
|
—
|
|
|
1,941
|
|
||
Maturity of net investment hedges
|
(2,642
|
)
|
|
3,016
|
|
||
Proceeds from disposal of assets
|
618
|
|
|
473
|
|
||
Net cash used in investing activities
|
(69,467
|
)
|
|
(232,027
|
)
|
||
Cash flows from financing activities:
|
|
|
|
||||
Cash dividends paid to shareholders
|
(108,824
|
)
|
|
(101,184
|
)
|
||
Increase in revolving credit facility borrowings and overdrafts
|
110,259
|
|
|
21,595
|
|
||
Deferred financing costs
|
(1,401
|
)
|
|
(5,373
|
)
|
||
Proceeds from issuance of long-term debt
|
—
|
|
|
498,250
|
|
||
Loss on pre-issuance hedges
|
—
|
|
|
(5,310
|
)
|
||
Proceeds from issuance of stock under stock plans
|
—
|
|
|
329
|
|
||
Employee withholding taxes paid
|
(9,096
|
)
|
|
(11,485
|
)
|
||
Purchase of treasury stock
|
(15,475
|
)
|
|
(53,211
|
)
|
||
Net cash (used in) provided by financing activities
|
(24,537
|
)
|
|
343,611
|
|
||
Effect of exchange rate changes on cash and cash equivalents
|
(6,788
|
)
|
|
(2,111
|
)
|
||
Net change in cash and cash equivalents
|
(45,623
|
)
|
|
167,394
|
|
||
Cash and cash equivalents at beginning of year
|
368,046
|
|
|
323,992
|
|
||
Cash and cash equivalents at end of period
|
$
|
322,423
|
|
|
$
|
491,386
|
|
Supplemental Disclosures:
|
|
|
|
||||
Interest paid, net of amounts capitalized
|
$
|
74,422
|
|
|
$
|
32,039
|
|
Income taxes paid
|
$
|
57,809
|
|
|
$
|
50,962
|
|
Accrued capital expenditures
|
$
|
19,160
|
|
|
$
|
13,589
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(DOLLARS IN THOUSANDS)
|
2018
|
|
2017
(a)
|
|
2018
|
|
2017
(a)
|
||||||||
Flavor Compounds
|
$
|
450,540
|
|
|
$
|
414,323
|
|
|
$
|
899,559
|
|
|
$
|
820,487
|
|
Fragrance Compounds
|
|
|
|
|
|
|
|
||||||||
Consumer Fragrances
|
274,586
|
|
|
253,258
|
|
|
554,849
|
|
|
505,891
|
|
||||
Fine Fragrances
|
97,448
|
|
|
91,432
|
|
|
195,817
|
|
|
179,199
|
|
||||
Fragrance Ingredients
|
97,442
|
|
|
83,848
|
|
|
200,719
|
|
|
165,577
|
|
||||
Total revenues
|
$
|
920,016
|
|
|
$
|
842,861
|
|
|
$
|
1,850,944
|
|
|
$
|
1,671,154
|
|
(a)
|
Prior period amounts have not been adjusted based on the modified retrospective method.
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(DOLLARS IN THOUSANDS)
|
2018
|
|
2017
(a)
|
|
2018
|
|
2017
(a)
|
||||||||
Europe, Africa and Middle East
|
$
|
292,848
|
|
|
$
|
259,292
|
|
|
$
|
602,161
|
|
|
$
|
516,976
|
|
Greater Asia
|
242,221
|
|
|
224,703
|
|
|
485,779
|
|
|
447,523
|
|
||||
North America
|
249,054
|
|
|
230,529
|
|
|
490,199
|
|
|
449,357
|
|
||||
Latin America
|
135,893
|
|
|
128,337
|
|
|
272,805
|
|
|
257,298
|
|
||||
Total revenues
|
$
|
920,016
|
|
|
$
|
842,861
|
|
|
$
|
1,850,944
|
|
|
$
|
1,671,154
|
|
(a)
|
Prior period amounts have not been adjusted based on the modified retrospective method.
|
(DOLLARS IN THOUSANDS)
|
June 30, 2018
|
|
At adoption
|
||||
Receivables (included in Trade receivables)
|
$
|
737,477
|
|
|
$
|
677,055
|
|
Contract asset - Short term
|
1,903
|
|
|
4,449
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||
(SHARES IN THOUSANDS)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
Basic
|
79,065
|
|
|
79,072
|
|
|
79,041
|
|
|
79,088
|
|
Assumed dilution under stock plans
|
238
|
|
|
233
|
|
|
306
|
|
|
272
|
|
Diluted
|
79,303
|
|
|
79,305
|
|
|
79,347
|
|
|
79,360
|
|
(DOLLARS IN THOUSANDS)
|
Employee-Related Costs
|
|
Other
|
|
Total
|
||||||
Balance at December 31, 2017
|
$
|
7,539
|
|
|
$
|
418
|
|
|
$
|
7,957
|
|
Additional charges (reversals), net
|
1,903
|
|
|
—
|
|
|
1,903
|
|
|||
Payments
|
(4,581
|
)
|
|
—
|
|
|
(4,581
|
)
|
|||
Balance at June 30, 2018
|
$
|
4,861
|
|
|
$
|
418
|
|
|
$
|
5,279
|
|
(DOLLARS IN THOUSANDS)
|
Goodwill
|
||
Balance at December 31, 2017
|
$
|
1,156,288
|
|
Acquisitions
|
22
|
|
|
Foreign exchange
|
(7,724
|
)
|
|
Balance at June 30, 2018
|
$
|
1,148,586
|
|
|
June 30,
|
|
December 31,
|
||||
(DOLLARS IN THOUSANDS)
|
2018
|
|
2017
|
||||
Asset Type
|
|
|
|
||||
Customer relationships
|
$
|
402,032
|
|
|
$
|
407,636
|
|
Trade names & patents
|
38,146
|
|
|
38,771
|
|
||
Technological know-how
|
161,331
|
|
|
161,856
|
|
||
Other
|
24,734
|
|
|
24,814
|
|
||
Total carrying value
|
626,243
|
|
|
633,077
|
|
||
Accumulated Amortization
|
|
|
|
||||
Customer relationships
|
(116,519
|
)
|
|
(104,800
|
)
|
||
Trade names & patents
|
(16,998
|
)
|
|
(15,241
|
)
|
||
Technological know-how
|
(81,580
|
)
|
|
(76,766
|
)
|
||
Other
|
(19,720
|
)
|
|
(20,483
|
)
|
||
Total accumulated amortization
|
(234,817
|
)
|
|
(217,290
|
)
|
||
Other intangible assets, net
|
$
|
391,426
|
|
|
$
|
415,787
|
|
(DOLLARS IN THOUSANDS)
|
Effective Interest Rate
|
|
June 30, 2018
|
|
December 31, 2017
|
|||||
Senior notes - 2007
(1)(4)
|
6.40% - 6.82%
|
|
|
$
|
249,776
|
|
|
$
|
249,765
|
|
Senior notes - 2013
(1)
|
3.39
|
%
|
|
298,823
|
|
|
298,670
|
|
||
Euro Senior notes - 2016
(1)
|
1.99
|
%
|
|
573,514
|
|
|
589,848
|
|
||
Senior notes - 2017
(1)
|
4.50
|
%
|
|
492,941
|
|
|
492,819
|
|
||
Credit facility
|
LIBOR + 1.125%
|
|
(2)
|
103,988
|
|
|
—
|
|
||
Bank overdrafts and other
|
|
|
4,590
|
|
|
7,993
|
|
|||
Deferred realized gains on interest rate swaps
|
|
|
57
|
|
|
57
|
|
|||
|
|
|
1,723,689
|
|
|
1,639,152
|
|
|||
Less: Short term borrowings
(3)
|
|
|
(6,500
|
)
|
|
(6,966
|
)
|
|||
|
|
|
$
|
1,717,189
|
|
|
$
|
1,632,186
|
|
(1)
|
Amount is net of unamortized discount and debt issuance costs.
|
(2)
|
Represents the rate on drawn down and outstanding balances. Deferred debt issuance costs are immaterial.
|
(3)
|
Includes bank borrowings, commercial paper, overdrafts and current portion of long-term debt.
|
(4)
|
As discussed in Note 3 above, in connection with the pending acquisition of Frutarom and associated financing, the Company also expects to pay its outstanding
$250 million
of its Senior Notes 2007 and the associated make-whole payments of approximately
$35 million
. The amount outstanding continues to be reflected as long term given that the Company has not entered into a contractual commitment to repay.
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(DOLLARS IN THOUSANDS)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Equity-based awards
|
$
|
7,554
|
|
|
$
|
7,074
|
|
|
$
|
15,173
|
|
|
$
|
12,893
|
|
Liability-based awards
|
242
|
|
|
1,298
|
|
|
396
|
|
|
3,051
|
|
||||
Total stock-based compensation expense
|
7,796
|
|
|
8,372
|
|
|
15,569
|
|
|
15,944
|
|
||||
Less: Tax benefit
|
(1,335
|
)
|
|
(2,336
|
)
|
|
(2,897
|
)
|
|
(4,549
|
)
|
||||
Total stock-based compensation expense, after tax
|
$
|
6,461
|
|
|
$
|
6,036
|
|
|
$
|
12,672
|
|
|
$
|
11,395
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(DOLLARS IN THOUSANDS)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Net sales:
|
|
|
|
|
|
|
|
||||||||
Flavors
|
$
|
450,540
|
|
|
$
|
414,323
|
|
|
$
|
899,559
|
|
|
$
|
820,487
|
|
Fragrances
|
469,476
|
|
|
428,538
|
|
|
951,385
|
|
|
850,667
|
|
||||
Consolidated
|
$
|
920,016
|
|
|
$
|
842,861
|
|
|
$
|
1,850,944
|
|
|
$
|
1,671,154
|
|
Segment profit:
|
|
|
|
|
|
|
|
||||||||
Flavors
|
$
|
109,605
|
|
|
$
|
96,840
|
|
|
$
|
221,169
|
|
|
$
|
191,395
|
|
Fragrances
|
80,780
|
|
|
80,993
|
|
|
174,056
|
|
|
158,867
|
|
||||
Global expenses
|
(20,572
|
)
|
|
(13,488
|
)
|
|
(44,398
|
)
|
|
(29,781
|
)
|
||||
Operational Improvement Initiatives (a)
|
(403
|
)
|
|
(445
|
)
|
|
(1,429
|
)
|
|
(1,066
|
)
|
||||
Acquisition Related Costs (b)
|
4
|
|
|
(6,278
|
)
|
|
518
|
|
|
(15,066
|
)
|
||||
Integration Related Costs (c)
|
(993
|
)
|
|
(731
|
)
|
|
(993
|
)
|
|
(1,923
|
)
|
||||
Legal Charges/Credits, net (d)
|
—
|
|
|
(1,000
|
)
|
|
—
|
|
|
(1,000
|
)
|
||||
Tax Assessment (e)
|
—
|
|
|
19
|
|
|
—
|
|
|
(5,331
|
)
|
||||
Restructuring and Other Charges, net (f)
|
(193
|
)
|
|
(791
|
)
|
|
(910
|
)
|
|
(10,934
|
)
|
||||
(Losses) Gains on Sale of Assets
|
(1,264
|
)
|
|
68
|
|
|
(1,195
|
)
|
|
89
|
|
||||
FDA Mandated Product Recall (g)
|
—
|
|
|
(3,500
|
)
|
|
(5,000
|
)
|
|
(3,500
|
)
|
||||
Frutarom Acquisition Related Costs (h)
|
(12,455
|
)
|
|
—
|
|
|
(12,455
|
)
|
|
—
|
|
||||
Operating profit
|
154,509
|
|
|
151,687
|
|
|
329,363
|
|
|
281,750
|
|
||||
Interest expense
|
(53,246
|
)
|
|
(17,556
|
)
|
|
(69,841
|
)
|
|
(30,363
|
)
|
||||
Other income (expense)
|
20,655
|
|
|
7,909
|
|
|
21,232
|
|
|
29,140
|
|
||||
Income before taxes
|
$
|
121,918
|
|
|
$
|
142,040
|
|
|
$
|
280,754
|
|
|
$
|
280,527
|
|
(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" related to the acquisitions of David Michael, Fragrance Resources and PowderPure, included in cost of goods sold and transaction costs related to the acquisitions of David Michael, Fragrance Resources and PowderPure, included in Selling and administrative expenses.
|
(c)
|
For 2018, represents costs related to the integration of David Michael. For 2017, represents costs related to the integration of David Michael and Fragrance Resources acquisitions.
|
(d)
|
Represents additional charge related to litigation settlement.
|
(e)
|
Represents the reserve for payment of a tax assessment related to commercial rent for prior periods.
|
(f)
|
Represents severance costs related to the 2017 Productivity Program and Taiwan lab closure.
|
(g)
|
Represents management's best estimate of losses related to the previously disclosed FDA mandated recall.
|
(h)
|
Represents transaction-related costs and expenses related to the pending acquisition of Frutarom.
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(DOLLARS IN THOUSANDS)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Net sales related to the U.S.
|
$
|
234,118
|
|
|
$
|
243,815
|
|
|
$
|
464,521
|
|
|
$
|
449,325
|
|
Net sales attributed to all foreign countries
|
685,898
|
|
|
599,046
|
|
|
1,386,423
|
|
|
1,221,829
|
|
(DOLLARS IN THOUSANDS)
|
U.S. Plans
|
||||||||||||||
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|||||||||||||
2018
|
|
2017
|
|
2018
|
|
2017
|
|||||||||
Service cost for benefits earned
(1)
|
$
|
596
|
|
|
$
|
698
|
|
|
$
|
1,192
|
|
|
$
|
1,395
|
|
Interest cost on projected benefit obligation
(2)
|
4,790
|
|
|
4,561
|
|
|
9,580
|
|
|
9,122
|
|
||||
Expected return on plan assets
(2)
|
(7,740
|
)
|
|
(9,246
|
)
|
|
(15,479
|
)
|
|
(18,492
|
)
|
||||
Net amortization and deferrals
(2)
|
1,549
|
|
|
1,793
|
|
|
3,098
|
|
|
3,585
|
|
||||
Net periodic benefit income
|
(805
|
)
|
|
(2,194
|
)
|
|
(1,609
|
)
|
|
(4,390
|
)
|
||||
Defined contribution and other retirement plans
(1)
|
3,081
|
|
|
2,524
|
|
|
5,771
|
|
|
4,779
|
|
||||
Total expense
|
$
|
2,276
|
|
|
$
|
330
|
|
|
$
|
4,162
|
|
|
$
|
389
|
|
(DOLLARS IN THOUSANDS)
|
Non-U.S. Plans
|
||||||||||||||
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|||||||||||||
2018
|
|
2017
|
|
2018
|
|
2017
|
|||||||||
Service cost for benefits earned
(1)
|
$
|
4,470
|
|
|
$
|
5,610
|
|
|
$
|
8,939
|
|
|
$
|
11,220
|
|
Interest cost on projected benefit obligation
(2)
|
4,338
|
|
|
3,911
|
|
|
8,675
|
|
|
7,822
|
|
||||
Expected return on plan assets
(2)
|
(12,032
|
)
|
|
(12,334
|
)
|
|
(24,064
|
)
|
|
(24,668
|
)
|
||||
Net amortization and deferrals
(2)
|
2,972
|
|
|
3,988
|
|
|
5,943
|
|
|
7,977
|
|
||||
Net periodic benefit (income) cost
|
(252
|
)
|
|
1,175
|
|
|
(507
|
)
|
|
2,351
|
|
||||
Defined contribution and other retirement plans
(1)
|
1,706
|
|
|
1,616
|
|
|
3,258
|
|
|
2,913
|
|
||||
Total expense
|
$
|
1,454
|
|
|
$
|
2,791
|
|
|
$
|
2,751
|
|
|
$
|
5,264
|
|
(1)
|
Included as a component of Operating Profit
.
|
(2)
|
Included as a component of Other Income (Expense), net.
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
||||||||||||
(DOLLARS IN THOUSANDS)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Service cost for benefits earned
|
$
|
196
|
|
|
$
|
221
|
|
|
$
|
391
|
|
|
$
|
442
|
|
Interest cost on projected benefit obligation
|
654
|
|
|
588
|
|
|
1,308
|
|
|
1,176
|
|
||||
Net amortization and deferrals
|
(1,189
|
)
|
|
(1,046
|
)
|
|
(2,378
|
)
|
|
(2,092
|
)
|
||||
Total postretirement benefit income
|
$
|
(339
|
)
|
|
$
|
(237
|
)
|
|
$
|
(679
|
)
|
|
$
|
(474
|
)
|
•
|
Level 1 — Quoted prices for
identical
instruments in active markets.
|
•
|
Level 2 — Quoted prices for
similar
instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
|
•
|
Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable
.
|
|
June 30, 2018
|
|
December 31, 2017
|
||||||||||||
(DOLLARS IN THOUSANDS)
|
Principal
|
|
Fair Value
|
|
Principal
|
|
Fair Value
|
||||||||
Cash and cash equivalents
(1)
|
$
|
322,423
|
|
|
$
|
322,423
|
|
|
$
|
368,046
|
|
|
$
|
368,046
|
|
Credit facilities and bank overdrafts
(2)
|
115,078
|
|
|
115,078
|
|
|
7,993
|
|
|
7,993
|
|
||||
Long-term debt:
(3)
|
|
|
|
|
|
|
|
||||||||
Senior notes - 2007
|
250,000
|
|
|
278,720
|
|
|
250,000
|
|
|
293,232
|
|
||||
Senior notes - 2013
|
300,000
|
|
|
294,645
|
|
|
300,000
|
|
|
304,219
|
|
||||
Euro Senior notes - 2016
|
577,700
|
|
|
599,111
|
|
|
594,400
|
|
|
627,782
|
|
||||
Senior notes - 2017
|
500,000
|
|
|
452,689
|
|
|
500,000
|
|
|
525,906
|
|
(1)
|
The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of those instruments.
|
(2)
|
The carrying amount approximates fair value as the interest rate is reset frequently based on current market rates as well as the short maturity of those instruments.
|
(3)
|
The fair value of the Company's long-term debt was calculated using discounted cash flows applying current interest rates and current credit spreads based on its own credit risk.
|
(DOLLARS IN THOUSANDS)
|
June 30, 2018
|
|
December 31, 2017
|
||||
Non-Deal Contingent Swaps
|
|
|
|
||||
Foreign currency contracts
|
$
|
531,092
|
|
|
$
|
896,947
|
|
Interest rate swaps
|
150,000
|
|
|
150,000
|
|
||
Deal Contingent Swaps
|
|
|
|
||||
Foreign currency contract
|
1,000,000
|
|
|
—
|
|
||
Interest rate swaps
|
898,513
|
|
|
—
|
|
|
June 30, 2018
|
||||||||||
(DOLLARS IN THOUSANDS)
|
Fair Value of
Derivatives Designated as Hedging Instruments |
|
Fair Value of
Derivatives Not Designated as Hedging Instruments |
|
Total Fair Value
|
||||||
Derivative assets
(a)
|
|
|
|
|
|
||||||
Foreign currency contracts
|
$
|
5,525
|
|
|
$
|
17,172
|
|
|
$
|
22,697
|
|
Derivative liabilities
(b)
|
|
|
|
|
|
||||||
Foreign currency contract
|
250
|
|
|
5,901
|
|
|
6,151
|
|
|||
Interest rate swaps
|
3,799
|
|
|
24,937
|
|
|
28,736
|
|
|||
Total derivative liabilities
|
$
|
4,049
|
|
|
$
|
30,838
|
|
|
$
|
34,887
|
|
|
December 31, 2017
|
||||||||||
(DOLLARS IN THOUSANDS)
|
Fair Value of
Derivatives Designated as Hedging Instruments |
|
Fair Value of
Derivatives Not Designated as Hedging Instruments |
|
Total Fair Value
|
||||||
Derivative assets
(a)
|
|
|
|
|
|
||||||
Foreign currency contracts
|
$
|
1,159
|
|
|
$
|
3,978
|
|
|
$
|
5,137
|
|
Derivative liabilities
(b)
|
|
|
|
|
|
||||||
Foreign currency contracts
|
7,842
|
|
|
4,344
|
|
|
12,186
|
|
|||
Interest rate swaps
|
1,369
|
|
|
—
|
|
|
1,369
|
|
|||
Total derivative liabilities
|
$
|
9,211
|
|
|
$
|
4,344
|
|
|
$
|
13,555
|
|
(a)
|
Derivative assets are recorded to Prepaid expenses and other current assets in the Consolidated Balance Sheet.
|
(b)
|
Derivative liabilities are recorded as Other current liabilities in the Consolidated Balance Sheet.
|
|
|||||||||
|
Amount of Gain (Loss)
|
|
Location of Gain (Loss) Recognized in Income on Derivative
|
||||||
(DOLLARS IN THOUSANDS)
|
Three Months Ended June 30,
|
|
|||||||
2018
|
|
2017
|
|
||||||
Foreign currency contracts
|
$
|
4,685
|
|
|
$
|
(3,054
|
)
|
|
Other (income), net
|
Deal contingent swaps
|
|
|
|
|
|
||||
Foreign currency contracts
|
10,979
|
|
|
—
|
|
|
Other (income), net
|
||
Interest rate swaps
|
(24,937
|
)
|
|
—
|
|
|
Interest expense
|
||
|
$
|
(9,273
|
)
|
|
$
|
(3,054
|
)
|
|
|
|
Amount of Gain (Loss)
|
|
Location of Gain (Loss) Recognized in Income on Derivative
|
||||||
|
Six Months Ended June 30,
|
|
|||||||
(DOLLARS IN THOUSANDS)
|
2018
|
|
2017
|
|
|||||
Foreign currency contracts
(1)
|
$
|
1,070
|
|
|
$
|
(13,181
|
)
|
|
Other (income), net
|
Deal contingent swaps
|
|
|
|
|
|
||||
Foreign currency contracts
|
10,979
|
|
|
—
|
|
|
Other (income), net
|
||
Interest rate swaps
|
(24,937
|
)
|
|
—
|
|
|
Interest expense
|
||
|
$
|
(12,888
|
)
|
|
$
|
(13,181
|
)
|
|
|
(1)
|
Most of these net gains (losses) offset any recognized gains (losses) arising from the revaluation of the related intercompany loans during the same respective periods.
|
|
Amount of Gain (Loss)
Recognized in OCI on
Derivative (Effective
Portion)
|
|
Location of Gain
(Loss) Reclassified
from AOCI into Income
(Effective Portion)
|
|
Amount of Gain (Loss)
Reclassified from
Accumulated OCI into
Income (Effective
Portion)
|
||||||||||||
|
Three Months Ended June 30,
|
|
|
|
Three Months Ended June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
|
|
2018
|
|
2017
|
||||||||
Derivatives in Cash Flow Hedging Relationships:
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency contracts
|
$
|
10,241
|
|
|
$
|
(6,328
|
)
|
|
Cost of goods sold
|
|
$
|
(2,330
|
)
|
|
$
|
1,789
|
|
Interest rate swaps
(1)
|
216
|
|
|
(5,439
|
)
|
|
Interest expense
|
|
(216
|
)
|
|
(186
|
)
|
||||
Derivatives in Net Investment Hedging Relationships:
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency contracts
|
178
|
|
|
(2,082
|
)
|
|
N/A
|
|
—
|
|
|
—
|
|
||||
Euro Senior notes - 2016
|
28,682
|
|
|
(19,780
|
)
|
|
N/A
|
|
—
|
|
|
—
|
|
||||
Total
|
$
|
39,317
|
|
|
$
|
(33,629
|
)
|
|
|
|
$
|
(2,546
|
)
|
|
$
|
1,603
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
Amount of (Loss) Gain
Recognized in OCI on
Derivative (Effective
Portion)
|
|
Location of (Loss) Gain
Reclassified from AOCI into
Income (Effective Portion)
|
|
Amount of (Loss) Gain
Reclassified from
Accumulated OCI into
Income (Effective
Portion)
|
||||||||||||
|
Six Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
||||||||||||
|
2018
|
|
2017
|
|
|
|
2018
|
|
2017
|
||||||||
Derivatives in Cash Flow Hedging Relationships:
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency contracts
|
$
|
9,498
|
|
|
$
|
(9,276
|
)
|
|
Cost of goods sold
|
|
$
|
(4,523
|
)
|
|
$
|
2,247
|
|
Interest rate swaps
(1)
|
432
|
|
|
(4,243
|
)
|
|
Interest expense
|
|
(432
|
)
|
|
(357
|
)
|
||||
|
|
|
|
|
|
|
|
|
|
||||||||
Derivatives in Net Investment Hedging Relationships:
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency contracts
|
(518
|
)
|
|
(3,128
|
)
|
|
N/A
|
|
—
|
|
|
—
|
|
||||
Euro Senior notes - 2016
|
12,705
|
|
|
(31,189
|
)
|
|
N/A
|
|
—
|
|
|
—
|
|
||||
Total
|
$
|
22,117
|
|
|
$
|
(47,836
|
)
|
|
|
|
$
|
(4,955
|
)
|
|
$
|
1,890
|
|
(1)
|
Interest rate swaps were entered into as pre-issuance hedges for bond offerings.
|
(DOLLARS IN THOUSANDS)
|
Foreign
Currency
Translation
Adjustments
|
|
(Losses) Gains on Derivatives
Qualifying as
Hedges
|
|
Pension and
Postretirement
Liability
Adjustment
|
|
Total
|
||||||||
Accumulated other comprehensive (loss) income, net of tax, as of December 31, 2017
|
$
|
(297,416
|
)
|
|
$
|
(10,332
|
)
|
|
$
|
(329,734
|
)
|
|
$
|
(637,482
|
)
|
OCI before reclassifications
|
(70,461
|
)
|
|
4,971
|
|
|
186
|
|
|
(65,304
|
)
|
||||
Amounts reclassified from AOCI
|
—
|
|
|
4,955
|
|
|
5,333
|
|
|
10,288
|
|
||||
Net current period other comprehensive income (loss)
|
(70,461
|
)
|
|
9,926
|
|
|
5,519
|
|
|
(55,016
|
)
|
||||
Accumulated other comprehensive (loss) income, net of tax, as of June 30, 2018
|
$
|
(367,877
|
)
|
|
$
|
(406
|
)
|
|
$
|
(324,215
|
)
|
|
$
|
(692,498
|
)
|
(DOLLARS IN THOUSANDS)
|
Foreign
Currency
Translation
Adjustments
|
|
(Losses) Gains on
Derivatives
Qualifying as
Hedges
|
|
Pension and
Postretirement
Liability
Adjustment
|
|
Total
|
||||||||
Accumulated other comprehensive (loss) income, net of tax, as of December 31, 2016
|
$
|
(352,025
|
)
|
|
$
|
7,604
|
|
|
$
|
(335,674
|
)
|
|
$
|
(680,095
|
)
|
OCI before reclassifications
|
22,304
|
|
|
(11,629
|
)
|
|
—
|
|
|
10,675
|
|
||||
Amounts reclassified from AOCI
|
(12,214
|
)
|
(a)
|
(1,890
|
)
|
|
7,323
|
|
|
(6,781
|
)
|
||||
Net current period other comprehensive income (loss)
|
10,090
|
|
|
(13,519
|
)
|
|
7,323
|
|
|
3,894
|
|
||||
Accumulated other comprehensive (loss) income, net of tax, as of June 30, 2017
|
$
|
(341,935
|
)
|
|
$
|
(5,915
|
)
|
|
$
|
(328,351
|
)
|
|
$
|
(676,201
|
)
|
|
Six Months Ended June 30,
|
|
Affected Line Item in the
Consolidated Statement of Income and Comprehensive Income |
||||||
(DOLLARS IN THOUSANDS)
|
2018
|
|
2017
|
|
|||||
(Losses) gains on derivatives qualifying as hedges
|
|
|
|
|
|
||||
Foreign currency contracts
|
$
|
(5,169
|
)
|
|
$
|
2,568
|
|
|
Cost of goods sold
|
Interest rate swaps
|
(432
|
)
|
|
(357
|
)
|
|
Interest expense
|
||
Tax
|
646
|
|
|
(321
|
)
|
|
Provision for income taxes
|
||
Total
|
$
|
(4,955
|
)
|
|
$
|
1,890
|
|
|
Total, net of income taxes
|
(Losses) gains on pension and postretirement liability adjustments
|
|
|
|
|
|
||||
Prior service cost
|
$
|
3,543
|
|
|
$
|
3,512
|
|
|
(a)
|
Actuarial losses
|
(10,206
|
)
|
|
(12,982
|
)
|
|
(a)
|
||
Tax
|
1,330
|
|
|
2,147
|
|
|
Provision for income taxes
|
||
Total
|
$
|
(5,333
|
)
|
|
$
|
(7,323
|
)
|
|
Total, net of income taxes
|
(a)
|
The amortization of prior service cost and actuarial loss is included in the computation of net periodic benefit cost. Refer to Note 14 of our
2017
Form 10-K for additional information regarding net periodic benefit cost.
|
|
Three Months Ended
|
|
|
|
Six Months Ended
|
|
|
||||||||||||||
|
June 30,
|
|
|
|
June 30,
|
|
|
||||||||||||||
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
|
2018
|
|
2017
|
|
Change
|
|
2018
|
|
2017
|
|
Change
|
||||||||||
Net sales
|
$
|
920,016
|
|
|
$
|
842,861
|
|
|
9
|
%
|
|
$
|
1,850,944
|
|
|
$
|
1,671,154
|
|
|
11
|
%
|
Cost of goods sold
|
521,299
|
|
|
469,877
|
|
|
11
|
%
|
|
1,046,419
|
|
|
935,088
|
|
|
12
|
%
|
||||
Gross profit
|
398,717
|
|
|
372,984
|
|
|
|
|
804,525
|
|
|
736,066
|
|
|
|
||||||
Research and development (R&D) expenses
|
74,767
|
|
|
72,761
|
|
|
3
|
%
|
|
153,244
|
|
|
144,887
|
|
|
6
|
%
|
||||
Selling and administrative (S&A) expenses
|
157,407
|
|
|
139,319
|
|
|
13
|
%
|
|
300,051
|
|
|
283,023
|
|
|
6
|
%
|
||||
Amortization of acquisition-related intangibles
|
9,584
|
|
|
8,494
|
|
|
13
|
%
|
|
18,769
|
|
|
15,561
|
|
|
21
|
%
|
||||
Restructuring and other charges, net
|
1,186
|
|
|
791
|
|
|
50
|
%
|
|
1,903
|
|
|
10,934
|
|
|
(83
|
)%
|
||||
Losses (gains) on sales of fixed assets
|
1,264
|
|
|
(68
|
)
|
|
(1,959
|
)%
|
|
1,195
|
|
|
(89
|
)
|
|
(1,443
|
)%
|
||||
Operating profit
|
154,509
|
|
|
151,687
|
|
|
|
|
329,363
|
|
|
281,750
|
|
|
|
||||||
Interest expense
|
53,246
|
|
|
17,556
|
|
|
203
|
%
|
|
69,841
|
|
|
30,363
|
|
|
130
|
%
|
||||
Other (income), net
|
(20,655
|
)
|
|
(7,909
|
)
|
|
161
|
%
|
|
(21,232
|
)
|
|
(29,140
|
)
|
|
(27
|
)%
|
||||
Income before taxes
|
121,918
|
|
|
142,040
|
|
|
|
|
280,754
|
|
|
280,527
|
|
|
|
||||||
Taxes on income
|
22,769
|
|
|
32,245
|
|
|
(29
|
)%
|
|
52,190
|
|
|
54,968
|
|
|
(5
|
)%
|
||||
Net income
|
$
|
99,149
|
|
|
$
|
109,795
|
|
|
(10
|
)%
|
|
$
|
228,564
|
|
|
$
|
225,559
|
|
|
1
|
%
|
Diluted EPS
|
$
|
1.25
|
|
|
$
|
1.38
|
|
|
(9
|
)%
|
|
$
|
2.87
|
|
|
$
|
2.84
|
|
|
1
|
%
|
Gross margin
|
43.3
|
%
|
|
44.3
|
%
|
|
(91
|
)
|
|
43.5
|
%
|
|
44.0
|
%
|
|
(58
|
)
|
||||
R&D as a percentage of sales
|
8.1
|
%
|
|
8.6
|
%
|
|
(51
|
)
|
|
8.3
|
%
|
|
8.7
|
%
|
|
(39
|
)
|
||||
S&A as a percentage of sales
|
17.1
|
%
|
|
16.5
|
%
|
|
58
|
|
|
16.2
|
%
|
|
16.9
|
%
|
|
(73
|
)
|
||||
Operating margin
|
16.8
|
%
|
|
18.0
|
%
|
|
(120
|
)
|
|
17.8
|
%
|
|
16.9
|
%
|
|
93
|
|
||||
Adjusted operating margin
(1)
|
18.5
|
%
|
|
19.5
|
%
|
|
(104
|
)
|
|
19.0
|
%
|
|
19.2
|
%
|
|
(22
|
)
|
||||
Effective tax rate
|
18.7
|
%
|
|
22.7
|
%
|
|
(403
|
)
|
|
18.6
|
%
|
|
19.6
|
%
|
|
(101
|
)
|
||||
Segment net sales
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Flavors
|
$
|
450,540
|
|
|
$
|
414,323
|
|
|
9
|
%
|
|
$
|
899,559
|
|
|
$
|
820,487
|
|
|
10
|
%
|
Fragrances
|
469,476
|
|
|
428,538
|
|
|
10
|
%
|
|
951,385
|
|
|
850,667
|
|
|
12
|
%
|
||||
Consolidated
|
$
|
920,016
|
|
|
$
|
842,861
|
|
|
|
|
$
|
1,850,944
|
|
|
$
|
1,671,154
|
|
|
|
(1)
|
Adjusted operating margin excludes
$15.3 million
of charges related to
operational improvement initiatives
,
integration related costs
,
restructuring and other charges, net
, losses on sale of assets and costs related to the pending acquisition of Frutarom which were partially offset by
acquisition related costs
for the
three months ended June 30, 2018
, and excludes
$12.7 million
of charges related to
operational improvement initiatives
,
acquisition related costs
,
integration related costs
,
legal charges/credits, net
,
restructuring and other charges, net
and
FDA mandated product recall
which were partially offset by gains on sales of fixed assets and a favorable legal settlement for the
three months ended June 30, 2017
. For the
six months ended June 30, 2018
, adjusted operating margin excludes
$21.5 million
of charges related to
operational improvement initiatives
,
integration related costs
,
restructuring and other charges, net
, gains on sale of assets,
FDA mandated product recall
and costs related to the pending acquisition of Frutarom which were partially offset by
acquisition related costs
, compared to the six months ended June 30, 2017 adjusted operating margin which excludes
$38.7 million
consisting of acquisition-related costs, costs associated with product recalls, tax assessment, legal charges, restructuring, integration-related and operational improvement initiative costs as well as gains on sales of fixed assets See "Non-GAAP Financial Measures" below.
|
|
|
% Change in Sales - Second Quarter 2018 vs. Second Quarter 2017
|
||||||||||||||||
|
|
Fine Fragrances
|
|
Consumer Fragrances
|
|
Ingredients
|
|
Total
Fragrances
|
|
Flavors
|
|
Total
|
||||||
NOAM
|
Reported
|
2
|
%
|
|
4
|
%
|
|
20
|
%
|
|
7
|
%
|
|
9
|
%
|
|
8
|
%
|
EAME
|
Reported
|
8
|
%
|
|
15
|
%
|
|
7
|
%
|
|
11
|
%
|
|
16
|
%
|
|
13
|
%
|
|
Currency Neutral
(1)
|
-2
|
%
|
|
4
|
%
|
|
-2
|
%
|
|
1
|
%
|
|
5
|
%
|
|
2
|
%
|
LA
|
Reported
|
8
|
%
|
|
6
|
%
|
|
6
|
%
|
|
6
|
%
|
|
5
|
%
|
|
6
|
%
|
|
Currency Neutral
(1)
|
10
|
%
|
|
6
|
%
|
|
5
|
%
|
|
7
|
%
|
|
8
|
%
|
|
7
|
%
|
GA
|
Reported
|
-5
|
%
|
|
7
|
%
|
|
39
|
%
|
|
12
|
%
|
|
5
|
%
|
|
8
|
%
|
|
Currency Neutral
(1)
|
-9
|
%
|
|
5
|
%
|
|
34
|
%
|
|
9
|
%
|
|
2
|
%
|
|
5
|
%
|
Total
|
Reported
|
7
|
%
|
|
8
|
%
|
|
16
|
%
|
|
10
|
%
|
|
9
|
%
|
|
9
|
%
|
|
Currency Neutral
(1)
|
1
|
%
|
|
5
|
%
|
|
10
|
%
|
|
5
|
%
|
|
6
|
%
|
|
5
|
%
|
(1)
|
Currency neutral sales growth is calculated by translating prior year sales at the exchange rates for the corresponding
2018
period.
|
•
|
NOAM Flavors sales growth primarily reflected double-digit growth in Dairy, high single-digit growth in Beverage, mid single-digit growth in Savory, and low single-digit growth in Sweet. Total Fragrances sales growth reflected double-digit gains in Toiletries, Hair Care and Fragrance Ingredients and low single-digit gains in Fine Fragrances and Fabric Care. These gains were partially offset by mid single-digit declines in Personal Wash and low single-digit declines in Home Care.
|
•
|
EAME Flavors sales experienced high single-digit gains in Dairy and Beverage, and mid single-digit growth in Sweet and Savory. Total Fragrances sales growth was driven mainly by double-digit growth in Hair Care, high single-digit gains in Toiletries and Personal Wash, and low single-digit gains in Fabric Care and Home Care. These gains were partially offset by low single-digit declines in Fine Fragrances and Fragrance Ingredients.
|
•
|
LA Flavors sales included double-digit gains in Savory and Dairy and mid single-digit gains in Beverage, which were partially offset by mid single-digit declines in Sweet. Total Fragrances sales growth reflected double-digit gains in Home Care, high single-digit gains in Fine Fragrances, Hair Care and Fabric Care, and mid single-digit gains in Fragrance Ingredients. These gains more than offset double-digit declines in Toiletries and mid single-digit declines in Personal Wash.
|
•
|
GA Flavors sales growth primarily reflected double-digit gains in Savory, high single-digit gains in Sweet, mid single-digit gains in Dairy, and low single-digit gains in Beverage. Total Fragrances sales growth was principally driven by double-digit gains in Toiletries, Home Care and Fragrance Ingredients, mid single-digit gains in Hair Care, and low single-digit gains Fabric Care and Personal Wash. These gains more than offset high single-digit declines in Fine Fragrances.
|
|
Three Months Ended June 30,
|
||||||
(DOLLARS IN THOUSANDS)
|
2018
|
|
2017
|
||||
Segment profit:
|
|
|
|
||||
Flavors
|
$
|
109,605
|
|
|
$
|
96,840
|
|
Fragrances
|
80,780
|
|
|
80,993
|
|
||
Global expenses
|
(20,572
|
)
|
|
(13,488
|
)
|
||
Operational Improvement Initiatives
|
(403
|
)
|
|
(445
|
)
|
||
Acquisition Related Costs
|
4
|
|
|
(6,278
|
)
|
||
Integration Related Costs
|
(993
|
)
|
|
(731
|
)
|
||
Legal Charges/Credits, net
|
—
|
|
|
(1,000
|
)
|
||
Tax Assessment
|
—
|
|
|
19
|
|
||
Restructuring and Other Charges, net
|
(193
|
)
|
|
(791
|
)
|
||
Losses (Gains) on Sale of Assets
|
(1,264
|
)
|
|
68
|
|
||
FDA Mandated Product Recall
|
—
|
|
|
(3,500
|
)
|
||
Frutarom Acquisition Related Costs
|
(12,455
|
)
|
|
—
|
|
||
Operating profit
|
$
|
154,509
|
|
|
$
|
151,687
|
|
Profit margin:
|
|
|
|
||||
Flavors
|
24.3
|
%
|
|
23.4
|
%
|
||
Fragrances
|
17.2
|
%
|
|
18.9
|
%
|
||
Consolidated
|
16.8
|
%
|
|
18.0
|
%
|
|
|
% Change in Sales - First Six Months 2018 vs. First Six Months 2017
|
||||||||||||||||
|
|
Fine Fragrances
|
|
Consumer Fragrances
|
|
Ingredients
|
|
Total
Fragrances
|
|
Flavors
|
|
Total
|
||||||
NOAM
|
Reported
|
6
|
%
|
|
8
|
%
|
|
13
|
%
|
|
9
|
%
|
|
9
|
%
|
|
9
|
%
|
EAME
|
Reported
|
8
|
%
|
|
17
|
%
|
|
18
|
%
|
|
14
|
%
|
|
20
|
%
|
|
16
|
%
|
|
Currency Neutral
(1)
|
-3
|
%
|
|
4
|
%
|
|
7
|
%
|
|
3
|
%
|
|
8
|
%
|
|
5
|
%
|
LA
|
Reported
|
21
|
%
|
|
4
|
%
|
|
16
|
%
|
|
9
|
%
|
|
2
|
%
|
|
6
|
%
|
|
Currency Neutral
(1)
|
21
|
%
|
|
4
|
%
|
|
14
|
%
|
|
9
|
%
|
|
3
|
%
|
|
7
|
%
|
GA
|
Reported
|
-10
|
%
|
|
8
|
%
|
|
47
|
%
|
|
13
|
%
|
|
5
|
%
|
|
9
|
%
|
|
Currency Neutral
(1)
|
-13
|
%
|
|
5
|
%
|
|
41
|
%
|
|
10
|
%
|
|
2
|
%
|
|
5
|
%
|
Total
|
Reported
|
9
|
%
|
|
10
|
%
|
|
21
|
%
|
|
12
|
%
|
|
10
|
%
|
|
11
|
%
|
|
Currency Neutral
(1)
|
3
|
%
|
|
5
|
%
|
|
14
|
%
|
|
6
|
%
|
|
6
|
%
|
|
6
|
%
|
(1)
|
Currency neutral sales growth is calculated by translating prior year sales at the exchange rates for the corresponding 2017 period.
|
•
|
NOAM Flavors sales growth was led by double-digit growth in Dairy, high single-digit growth in Beverage, and mid single-digit growth in Savory and Sweet. Total Fragrances sales growth reflected double-digit gains in Toiletries, Hair Care and Fragrance Ingredients, high single-digit gains in Home Care and Fabric Wash, and mid single-digit gains in Fine Fragrances. These gains more than offset low single-digit declines in Personal Wash.
|
•
|
EAME Flavors sales experienced double-digit gains in Beverage and Dairy, high single-digit gains in Savory and low single-digit gains in Sweet. Total Fragrances sales growth was driven mainly by double-digit growth in Hair Care and Toiletries, high single-digit gains in Fragrance Ingredients, mid single-digit gains in Home Care and Personal Wash, and low single-digit gains in Fabric Care. These gains more than offset low single-digit declines in Fine Fragrances.
|
•
|
LA Flavors sales growth was driven by double-digit gains in Savory and Dairy, which were partially offset by mid single-digit declines in Sweet. Total Fragrances sales growth reflected double-digit gains in Fine Fragrances and Fragrance Ingredients, high single-digit gains in Fabric Care, mid single-digit gains in Hair Care, and low single-digit gains in Home Care and Personal Wash. These gains more than offset low single-digit declines in Toiletries.
|
•
|
GA Flavors sales experienced high single-digit gains in Savory and Sweet and low single-digit gains in Dairy, which were partially offset by low single-digit declines in Beverage. Total Fragrances sales growth was driven by double-digit gains in Toiletries, Home Care and Fragrance Ingredients, mid single-digit gains in Fabric Care and low single-digit gains in Hair Care and Personal Wash, which more than offset double-digit declines in Fine Ingredients.
|
|
Six Months Ended June 30,
|
||||||
(DOLLARS IN THOUSANDS)
|
2018
|
|
2017
|
||||
Segment profit:
|
|
|
|
||||
Flavors
|
$
|
221,169
|
|
|
$
|
191,395
|
|
Fragrances
|
174,056
|
|
|
158,867
|
|
||
Global expenses
|
(44,398
|
)
|
|
(29,781
|
)
|
||
Operational Improvement Initiatives
|
(1,429
|
)
|
|
(1,066
|
)
|
||
Acquisition Related Costs
|
518
|
|
|
(15,066
|
)
|
||
Integration Related Costs
|
(993
|
)
|
|
(1,923
|
)
|
||
Legal Charges/Credits, net
|
—
|
|
|
(1,000
|
)
|
||
Tax Assessment
|
—
|
|
|
(5,331
|
)
|
||
Restructuring and Other Charges, net
|
(910
|
)
|
|
(10,934
|
)
|
||
Losses (Gains) on Sale of Assets
|
(1,195
|
)
|
|
89
|
|
||
FDA Mandated Product Recall
|
(5,000
|
)
|
|
(3,500
|
)
|
||
Frutarom Acquisition Related Costs
|
(12,455
|
)
|
|
—
|
|
||
Operating profit
|
$
|
329,363
|
|
|
$
|
281,750
|
|
Profit margin:
|
|
|
|
||||
Flavors
|
24.6
|
%
|
|
23.3
|
%
|
||
Fragrances
|
18.3
|
%
|
|
18.7
|
%
|
||
Consolidated
|
17.8
|
%
|
|
16.9
|
%
|
(1)
|
Adjusted EBITDA and Net Debt, which are non-GAAP measures used for these covenants, are calculated in accordance with the definition in the debt agreements. In this context, these measures are used solely to provide information on the extent to which we are in compliance with debt covenants and may not be comparable to adjusted EBITDA and Net Debt used by other companies. Reconciliations of adjusted EBITDA to net income and net debt to total debt are as follows:
|
(DOLLARS IN MILLIONS)
|
Twelve Months Ended June 30, 2018
|
||
Net income
|
$
|
298.6
|
|
Interest expense
|
104.8
|
|
|
Income taxes
|
238.7
|
|
|
Depreciation and amortization
|
127.2
|
|
|
Specified items
(1)
|
72.2
|
|
|
Non-cash items
(2)
|
30.0
|
|
|
Adjusted EBITDA
|
$
|
871.5
|
|
(1)
|
Specified items for the 12 months ended
June 30, 2018
of
$72.2 million
consisted of
operational improvement initiatives
,
acquisition related costs
,
integration related costs
,
restructuring and other charges, net
,
FDA mandated product recall
,
UK pension settlement charges
and
Frutarom acquisition related costs
.
|
(2)
|
Non-cash items represent all other adjustments to reconcile net income to net cash provided by operations as presented on the Statement of Cash Flows, including gain on disposal of assets and stock-based compensation.
|
(DOLLARS IN MILLIONS)
|
June 30, 2018
|
||
Total debt
|
$
|
1,723.7
|
|
Adjustments:
|
|
||
Deferred gain on interest rate swaps
|
1.6
|
|
|
Cash and cash equivalents
|
(322.4
|
)
|
|
Net debt
|
$
|
1,402.9
|
|
Reconciliation of Gross Profit
|
|||||||
|
Three Months Ended June 30,
|
||||||
(DOLLARS IN THOUSANDS)
|
2018
|
|
2017
|
||||
Reported (GAAP)
|
$
|
398,717
|
|
|
$
|
372,984
|
|
Operational Improvement Initiatives (a)
|
403
|
|
|
445
|
|
||
Acquisition Related Costs (b)
|
—
|
|
|
5,606
|
|
||
Integration Related Costs (c)
|
—
|
|
|
98
|
|
||
FDA Mandated Product Recall (g)
|
—
|
|
|
3,500
|
|
||
Adjusted (Non-GAAP)
|
$
|
399,120
|
|
|
$
|
382,633
|
|
Reconciliation of Net Income
|
|||||||||||||||||||||||||||||||
|
Three Months Ended June 30,
|
||||||||||||||||||||||||||||||
|
2018
|
|
2017
|
||||||||||||||||||||||||||||
|
Income before taxes
|
|
Taxes on income (i)
|
|
Net income
|
|
EPS (j)
|
|
Income before taxes
|
|
Taxes on income (i)
|
|
Net income
|
|
EPS
|
||||||||||||||||
Reported (GAAP)
|
$
|
121,918
|
|
|
$
|
22,769
|
|
|
$
|
99,149
|
|
|
$
|
1.25
|
|
|
$
|
142,040
|
|
|
$
|
32,245
|
|
|
$
|
109,795
|
|
|
$
|
1.38
|
|
Operational Improvement Initiatives (a)
|
403
|
|
|
142
|
|
|
261
|
|
|
—
|
|
|
445
|
|
|
111
|
|
|
334
|
|
|
—
|
|
||||||||
Acquisition Related Costs (b)
|
(4
|
)
|
|
(1
|
)
|
|
(3
|
)
|
|
—
|
|
|
6,278
|
|
|
1,472
|
|
|
4,806
|
|
|
0.06
|
|
||||||||
Integration Related Costs (c)
|
993
|
|
|
—
|
|
|
993
|
|
|
0.01
|
|
|
731
|
|
|
243
|
|
|
488
|
|
|
0.01
|
|
||||||||
Legal Charges/Credits, net (d)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,000
|
|
|
354
|
|
|
646
|
|
|
0.01
|
|
||||||||
Tax Assessment (e)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
(7
|
)
|
|
(12
|
)
|
|
—
|
|
||||||||
Restructuring and Other Charges, net (f)
|
193
|
|
|
46
|
|
|
147
|
|
|
—
|
|
|
791
|
|
|
(75
|
)
|
|
866
|
|
|
0.01
|
|
||||||||
Losses (Gains) on Sale of Assets
|
1,264
|
|
|
263
|
|
|
1,001
|
|
|
0.01
|
|
|
(68
|
)
|
|
(22
|
)
|
|
(46
|
)
|
|
—
|
|
||||||||
FDA Mandated Product Recall (g)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,500
|
|
|
1,238
|
|
|
2,262
|
|
|
0.03
|
|
||||||||
Frutarom Acquisition Related Costs (h)
|
36,989
|
|
|
6,543
|
|
|
30,446
|
|
|
0.38
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Adjusted (Non-GAAP)
|
$
|
161,756
|
|
|
$
|
29,762
|
|
|
$
|
131,994
|
|
|
$
|
1.66
|
|
|
$
|
154,698
|
|
|
$
|
35,559
|
|
|
$
|
119,139
|
|
|
$
|
1.50
|
|
(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 2017, represents the amortization of inventory "step-up" related to the acquisitions of David Michael, Fragrance Resources and PowderPure, included in cost of goods sold and transaction costs related to the acquisitions of David Michael, Fragrance Resources and PowderPure, included in Selling and administrative expenses.
|
||||||||||||
(c)
|
For 2018, represents costs related to the integration of David Michael. For 2017, represents costs related to the integration of David Michael and Fragrance Resources acquisitions.
|
||||||||||||
(d)
|
Represents additional charge related to litigation settlement.
|
||||||||||||
(e)
|
Represents the reserve for payment of a tax assessment related to commercial rent for prior periods.
|
||||||||||||
(f)
|
Represents severance costs related to the 2017 Productivity Program.
|
||||||||||||
(g)
|
Represents management's best estimate of losses related to the previously disclosed FDA mandated recall.
|
||||||||||||
(h)
|
Represents transaction-related costs and expenses related to the pending acquisition of Frutarom. Amount includes $10.6 million of bridge loan commitment fees included in Interest expense, $25.0 million mark-to-market loss adjustment on an interest rate derivative and an $11.0 million mark-to-market gain adjustment on a foreign currency derivative, and $12.5 million of transaction costs included in administrative expenses.
|
||||||||||||
(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 for which the tax expense (benefit) was calculated at 0%. For second quarter of 2018, certain non-GAAP adjustments were subject to valuation allowances and therefore was calculated at 0%.
|
||||||||||||
(j)
|
The sum of these items does not foot due to rounding.
|
Reconciliation of Net Income
|
|||||||||||||||||||||||||||||||
|
Six Months Ended June 30,
|
||||||||||||||||||||||||||||||
|
2018
|
|
2017
|
||||||||||||||||||||||||||||
(DOLLARS IN THOUSANDS)
|
Income before taxes
|
|
Taxes on income (k)
|
|
Net income
|
|
EPS
|
|
Income before taxes
|
|
Taxes on income (k)
|
|
Net income
|
|
EPS (l)
|
||||||||||||||||
Reported (GAAP)
|
$
|
280,754
|
|
|
$
|
52,190
|
|
|
$
|
228,564
|
|
|
$
|
2.87
|
|
|
$
|
280,527
|
|
|
$
|
54,968
|
|
|
$
|
225,559
|
|
|
$
|
2.84
|
|
Operational Improvement Initiatives (a)
|
1,429
|
|
|
436
|
|
|
993
|
|
|
0.01
|
|
|
1,066
|
|
|
266
|
|
|
800
|
|
|
0.01
|
|
||||||||
Acquisition Related Costs (b)
|
(518
|
)
|
|
(135
|
)
|
|
(383
|
)
|
|
—
|
|
|
15,066
|
|
|
4,610
|
|
|
10,456
|
|
|
0.13
|
|
||||||||
Integration Related Costs (c)
|
993
|
|
|
—
|
|
|
993
|
|
|
0.01
|
|
|
1,922
|
|
|
605
|
|
|
1,317
|
|
|
0.02
|
|
||||||||
Legal Charges/Credits, net (d)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,000
|
|
|
354
|
|
|
646
|
|
|
0.01
|
|
||||||||
Tax Assessment (e)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,331
|
|
|
1,885
|
|
|
3,446
|
|
|
0.04
|
|
||||||||
Restructuring and Other Charges, net (f)
|
910
|
|
|
215
|
|
|
695
|
|
|
0.01
|
|
|
10,934
|
|
|
2,892
|
|
|
8,042
|
|
|
0.1
|
|
||||||||
Losses (Gains) on Sale of Assets
|
1,195
|
|
|
246
|
|
|
949
|
|
|
0.01
|
|
|
(89
|
)
|
|
(29
|
)
|
|
(60
|
)
|
|
—
|
|
||||||||
CTA Realization (g)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,214
|
)
|
|
—
|
|
|
(12,214
|
)
|
|
(0.15
|
)
|
||||||||
FDA Mandated Product Recall (h)
|
5,000
|
|
|
1,196
|
|
|
3,804
|
|
|
0.05
|
|
|
3,500
|
|
|
1,238
|
|
|
2,262
|
|
|
0.03
|
|
||||||||
U.S. Tax Reform (i)
|
—
|
|
|
(649
|
)
|
|
649
|
|
|
0.01
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Frutarom Acquisition Related Costs (j)
|
36,989
|
|
|
6,543
|
|
|
30,446
|
|
|
0.38
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Adjusted (Non-GAAP)
|
$
|
326,752
|
|
|
$
|
60,042
|
|
|
$
|
266,710
|
|
|
$
|
3.35
|
|
|
$
|
307,043
|
|
|
$
|
66,789
|
|
|
$
|
240,254
|
|
|
$
|
3.02
|
|
(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" related to the acquisitions of David Michael, Fragrance Resources and PowderPure, included in cost of goods sold and transaction costs related to the acquisitions of David Michael, Fragrance Resources and PowderPure, included in Selling and administrative expenses.
|
(c)
|
For 2018, represents costs related to the integration of David Michael. For 2017, represents costs related to the integration of David Michael and Fragrance Resources acquisitions.
|
(d)
|
Represents additional charge related to litigation settlement.
|
(e)
|
Represents the reserve for payment of a tax assessment related to commercial rent for prior periods.
|
(f)
|
Represents severance costs related to the 2017 Productivity Program and Taiwan lab closure.
|
(g)
|
Represents the release of CTA related to the liquidation of a foreign entity.
|
(h)
|
Represents management's best estimate of losses related to the previously disclosed FDA mandated recall.
|
(i)
|
Represents charges incurred related to enactment of certain U.S. tax legislation changes in December 2017.
|
(j)
|
Represents transaction-related costs and expenses related to the pending acquisition of Frutarom. Amount includes $10.6 million of bridge loan commitment fees included in Interest expense, $25.0 million mark-to-market loss adjustment on an interest rate derivative and an $11.0 million mark-to-market gain adjustment on a foreign currency derivative, and $12.5 million of transaction costs included in administrative expenses.
|
(k)
|
The income tax expense (benefit) on non-GAAP adjustments is computed in accordance with ASC 740 using the same methodology as the GAAP provision of income taxes. Income tax effects of non-GAAP adjustments are calculated based on the applicable statutory tax rate for each jurisdiction in which such charges were incurred, except for those items which are non-taxable for which the tax expense (benefit) was calculated at 0%. For second quarter of 2018, certain non-GAAP adjustments were subject to valuation allowances and therefore was calculated at 0%.
|
(l)
|
The sum of these items does not foot due to rounding.
|
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
June 30,
|
|
June 30,
|
||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Operating Profit:
|
|
|
|
|
|
|
|
% Change - Reported (GAAP)
|
1.9%
|
|
(5.8)%
|
|
16.9%
|
|
(14.0)%
|
Items impacting comparability
(1)
|
1.5%
|
|
7.2%
|
|
(7.4)%
|
|
12.4%
|
% Change - Adjusted (Non-GAAP)
|
3.3%
|
|
1.4%
|
|
9.5%
|
|
(1.6)%
|
Currency Impact
|
(5.7)%
|
|
2.5%
|
|
(4.8)%
|
|
3.9%
|
% Change Year-over-Year - Currency Neutral Adjusted (Non-GAAP)**
|
(2.4)%
|
|
3.9%
|
|
4.7%
|
|
2.3%
|
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
June 30,
|
|
June 30,
|
||||
(DOLLARS IN THOUSANDS)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
PowderPure
|
$690
|
|
$586
|
|
$1,379
|
|
$586
|
Fragrance Resources
|
1,969
|
|
1,527
|
|
3,928
|
|
2,784
|
David Michael
|
1,131
|
|
1,135
|
|
2,261
|
|
1,730
|
Lucas Meyer
|
2,363
|
|
1,891
|
|
4,336
|
|
3,750
|
Ottens Flavors
|
1,571
|
|
1,571
|
|
3,142
|
|
3,142
|
•
|
the inability to obtain required regulatory approvals for the pending Frutarom acquisition, the timing of obtaining such approvals and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the acquisition;
|
•
|
the risk that a condition to closing of the Frutarom acquisition may not be satisfied on a timely basis or at all;
|
•
|
the failure of the pending Frutarom transaction to close for any other reason;
|
•
|
uncertainties as to access to available financing (including financing for the acquisition or refinancing of our debt or Frutarom debt) on a timely basis and on reasonable terms;
|
•
|
the impact of our proposed financings on liquidity and flexibility to respond to other business opportunities;
|
•
|
unexpected costs, liabilities, charges or expenses resulting from the pending Frutarom acquisition;
|
•
|
adverse effects on our stock price resulting from the pending Frutarom acquisition;
|
•
|
our ability to retain key personnel;
|
•
|
potential adverse reactions, changes to business relationships or competitive responses resulting from the pending Frutarom acquisition;
|
•
|
our ability to effectively compete in our market, and to successfully develop new products that appeal to our customers and consumers;
|
•
|
our ability to provide our customers with innovative, cost-effective products;
|
•
|
the impact of a disruption in our manufacturing operations, our supply chain or our relationship with our suppliers;
|
•
|
the impact of the BASF supply chain disruption on the supply and price of a key ingredient in 2018;
|
•
|
the impact of the recently-enacted Tax Act on our effective tax rate in 2018 and beyond;
|
•
|
our ability to react in a timely manner to changes in the consumer products industry related to health and wellness;
|
•
|
our ability to benefit from our investments and expansion in emerging markets;
|
•
|
our ability to comply with, and the costs associated with compliance with, U.S. and foreign environmental protection laws;
|
•
|
our ability to realize the expected cost savings and efficiencies from our profitability improvement initiatives and other optimization activities;
|
•
|
volatility and increases in the price of raw materials, energy and transportation;
|
•
|
our ability to maintain the integrity of our raw materials, supply chain and finished goods, and comply with applicable regulations;
|
•
|
any adverse impact on the availability, effectiveness and cost of our hedging and risk management strategies;
|
•
|
uncertainties regarding the outcome of, or funding requirements, related to litigation or settlement of pending litigation, uncertain tax positions or other contingencies;
|
•
|
the impact of changes in our tax rates, tax liabilities, the adoption of new United States or international tax legislation, or changes in existing tax laws; and
|
•
|
our ability to successfully estimate the impact of certain accounting and tax matters.
|
•
|
we have incurred and will continue to incur costs relating to the pending acquisition (including significant legal and financial advisory fees), and many of these costs are payable by us whether or not the acquisition is completed;
|
•
|
matters relating to the pending acquisition (including integration planning) may require substantial commitments of time and resources by our management team, which could otherwise have been devoted to our historical core businesses or other opportunities that may have been beneficial to us;
|
•
|
we may be subject to legal proceedings related to the pending acquisition;
|
•
|
the failure to consummate the pending acquisition may result in negative publicity and a negative impression of us in the investment community; and
|
•
|
any disruptions to our business resulting from the announcement and pendency of the acquisition, including any adverse changes in our relationships with our customers, suppliers and employees, may continue or intensify in the event the pending acquisition is delayed or is not completed.
|
•
|
potential disruption of, or reduced growth in, our historical core businesses, due to diversion of management attention and uncertainty with our current customer and supplier relationships;
|
•
|
challenges arising from the expansion of our product offerings into adjacencies with which we have limited experience, including flavor ingredients, food additives and nutraceuticals;
|
•
|
challenges arising from the expansion into those Frutarom jurisdictions where we do not currently operate or have significant operations;
|
•
|
coordinating and integrating research and development teams across technologies and products to enhance product development while reducing costs;
|
•
|
consolidating and integrating corporate, information technology, finance and administrative infrastructures, and integrating and harmonizing business systems, which may be more difficult than anticipated due to the significant number of acquisitions completed by Frutarom over the past few years;
|
•
|
coordinating sales and marketing efforts to effectively position our capabilities and the direction of product development;
|
•
|
difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from combining Frutarom's business with our business;
|
•
|
limitations prior to the completion of the pending acquisition on the ability of management of our company and of Frutarom to conduct planning regarding the integration of the two companies;
|
•
|
the increased scale and complexity of our operations resulting from the pending acquisition;
|
•
|
retaining key employees, suppliers and other partners of our company and Frutarom;
|
•
|
retaining and efficiently managing Frutarom’s expanded and decentralized customer base;
|
•
|
obligations that we will have to counterparties of Frutarom that arise as a result of the change in control of Frutarom;
|
•
|
difficulties in anticipating and responding to actions that may be taken by competitors in response to the pending acquisition; and
|
•
|
the assumption of and exposure to unknown or contingent liabilities of Frutarom.
|
Period
|
Total Number of
Shares
Repurchased
(1)
|
|
Average
Price Paid
per Share
|
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Program
|
|
Approximate Dollar Value
of Shares That May Yet
be Purchased Under the
Program
|
||||||
April 1 - 30, 2018
|
27,211
|
|
|
$
|
138.87
|
|
|
27,211
|
|
|
$
|
280,385,836
|
|
May 1 - 31, 2018
|
5,103
|
|
|
141.02
|
|
|
5,103
|
|
|
279,666,206
|
|
||
June 1 - 30, 2018
|
—
|
|
|
—
|
|
|
—
|
|
|
279,666,206
|
|
||
Total
|
32,314
|
|
|
$
|
139.21
|
|
|
32,314
|
|
|
$
|
279,666,206
|
|
(1)
|
Shares were repurchased pursuant to the Company’s share repurchase program. Authorization of the repurchase program may be modified, suspended, or discontinued at any time. On May 7, 2018, we announced plans to suspend share repurchases until our deleveraging target is met following our pending acquisition of Frutarom.
|
2.1
|
|
|
3(ii)
|
|
|
10.1
|
|
|
10.2
|
|
|
10.3
|
|
|
10.4
|
|
|
10.5
|
|
|
10.6
|
|
|
12
|
|
|
31.1
|
|
|
31.2
|
|
|
32
|
|
|
101.INS
|
|
XBRL Instance Document
|
101.SCH
|
|
XBRL Taxonomy Extensions Schema
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
*
|
Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the SEC upon request.
|
Dated:
|
|
August 7, 2018
|
By:
|
|
/s/ Andreas Fibig
|
|
|
|
|
|
Andreas Fibig
|
|
|
|
|
|
Chairman of the Board and Chief Executive Officer
|
|
|
|
|
|
|
Dated:
|
|
August 7, 2018
|
By:
|
|
/s/ Richard A. O'Leary
|
|
|
|
|
|
Richard A. O'Leary
|
|
|
|
|
|
Executive Vice President and Chief Financial Officer
|
|
INTERNATIONAL FLAVORS & FRAGRANCES INC.,
|
|
By:
/s/ John Taylor _________________________
Name: John Taylor
Title: Treasurer
|
|
INTERNATIONAL FLAVORS & FRAGRANCES (NEDERLAND) HOLDING B.V.,
|
|
By:
/s/ Jeroen Henricus Maria van Noorden_____ _
Name: Jeroen Henricus Maria van Noorden
Title: Managing Director
|
|
INTERNATIONAL FLAVORS & FRAGRANCES I.F.F. (NEDERLAND) B.V.,
|
|
By:
/s/ Jeroen Henricus Maria van Noorden_____ _
Name: Jeroen Henricus Maria van Noorden
Title: Managing Director
|
|
INTERNATIONAL FLAVORS & FRAGRANCES (GREATER ASIA) PTE. LTD.,
|
|
By:
/s/ Chandy C. Thambi _____ _
Name: Chandy C. Thambi
Title: Director
|
|
CITIBANK, N.A.,
as Agent, a Lender and a Swing Line Bank
|
|
|
|
|
|
By:
/s/ Michael Vondriska ________________
Name: Michael Vondriska
Title: Vice President
|
|
CITIBANK, N.A., LONDON BRANCH
as Tranche B Swing Line Bank
|
|
|
|
|
|
By:
/s/ Caryn Bell______ ________________
Name: Caryn Bell
Title: Director
|
BNP Paribas, as a Lender
|
|
|
By:
/s/ Pamela J. Fitton________________
Name: Pamela J. Fitton
Title: Managing Director
|
By: /s/ Richard Pace__________________
Name: Richard Pace
Title: Managing Director
|
BNP Paribas Fortis S.A. / N.V., as a Lender
|
|
|
By:
/s/ Hans Maas____________________
Name: Hans Maas
Title: Executive Director
|
JPMORGAN CHASE BANK, N.A., as a Lender
|
|
|
By:
/s/ Joon Hur________________
Name: Joon Hur
Title: Executive Director
|
MORGAN STANLEY BANK, N.A.,
as a Lender
|
|
|
By:
/s/ Subhalakshmi Ghosh-Kohli
Name:
Subhalakshmi Ghosh-Kohli
Title:
Authorized Signatory
|
Citizens Bank, N.A., as a Lender
|
|
|
By:
/s/ Angela Reilly________________
Name: Angela Reilly
Title: Senior Vice President
|
ING Bank N.V., Dublin Branch, as a Lender
|
|
|
By:
/s/ Barry Fehily________________
Name: Barry Fehily
Title: Country Manager
|
By: /s/ Shaun Hawley_______________
Name: Shaun Hawley
Title: Director
|
U.S. Bank National Association, as a Lender
|
|
|
By:
/s/ Harry J. Brown________________
Name: Harry J. Brown
Title: Vice President
|
WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender
|
|
|
By:
/s/ Denis Waltrich________________
Name: Denis Waltrich
Title: Director
|
HSBC Bank USA, National Association as a
Lender
|
|
|
By:
/s/ Robert Levins___________________
Name: Robert Levins
Title: Senior Portfolio Manager
|
Standard Chartered Bank, as a Lender
|
|
|
By:
/s/ Daniel Mattern________________
Name: Daniel Mattern
Title: Associate Director
|
MUFG Bank, Ltd., as a Lender
|
|
|
|
|
|
By:
/s/ Liwei Liu________________
Name: Liwei Liu
Title: Vice President
|
|
|
|
|
|
|
|
|
CoBank, ACB,
as a Lender
|
|
|
By:
/s/ Patrick Sauer________________
Name: Patrick Sauer
Title: Vice President
|
|
INTERNATIONAL FLAVORS & FRAGRANCES INC.,
|
|
By:
/s/ John Taylor _________________________
Name: John Taylor
Title: Treasurer
|
|
MORGAN STANLEY SENIOR FUNDING, INC.,
as Agent
|
|
By:
/s/ Subhalakshmi Ghosh-Kohli_____________
Name: Subhalakshmi Ghosh-Kohli
Title: Authorized Signatory
|
MORGAN STANLEY BANK, N.A.,
|
as a Lender
|
By: /s/ Subhalakshmi Ghosh-Kohli_____________
|
Name: Subhalakshmi Ghosh-Kohli
|
Title: Authorized Signatory
|
BNP Paribas, as a Lender
|
|
|
By:
/s/ Pamela J. Fitton________________
Name: Pamela J. Fitton
Title: Managing Director
|
|
By:
/s/ Richard Pace__________________
Name: Richard Pace
Title: Managing Director
|
CITIBANK, N.A., as a Lender
|
|
|
By:
/s/ Michael Vondriska ________________
Name: Michael Vondriska
Title: Vice President
|
JPMORGAN CHASE BANK, N.A., as a Lender
|
|
|
By:
/s/ Joon Hur________________
Name: Joon Hur
Title: Executive Director
|
Citizens Bank, N.A., as a Lender
|
|
|
By:
/s/ Angela Reilly________________
Name: Angela Reilly
Title: Senior Vice President
|
CoBank, ACB,
as a Lender
|
|
|
By:
/s/ Patrick Sauer________________
Name: Patrick Sauer
Title: Vice President
|
HSBC Bank USA, National Association as a
Lender
|
|
|
By:
/s/ Robert Levins___________________
Name: Robert Levins
Title: Senior Portfolio Manager
|
ING Bank N.V., Dublin Branch, as a Lender
|
|
|
By:
/s/ Barry Fehily________________
Name: Barry Fehily
Title: Country Manager
|
By: /s/ Shaun Hawley_______________
Name: Shaun Hawley
Title: Director
|
MUFG Bank, Ltd., as a Lender
|
|
|
By:
/s/ Liwei Liu________________
Name: Liwei Liu
Title: Vice President
|
Standard Chartered Bank, as a Lender
|
|
|
By:
/s/ Daniel Mattern________________
Name: Daniel Mattern
Title: Associate Director
|
U.S. Bank National Association, as a Lender
|
|
|
By:
/s/ Harry J. Brown________________
Name: Harry J. Brown
Title: Vice President
|
WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender
|
|
|
By:
/s/ Denis Waltrich________________
Name: Denis Waltrich
Title: Director
|
|
|
|
Ratio of Earnings to Fixed Charges
|
||||||||||||||||||||
(Amounts in thousands except Ratio of Earnings to Fixed Charges)
|
Six months ended
|
|
Fiscal Year
|
||||||||||||||||||||
Earnings:
|
June 30, 2018
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
||||||||||||
Add:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Income before taxes
|
$
|
280,754
|
|
|
$
|
537,045
|
|
|
$
|
523,717
|
|
|
$
|
539,101
|
|
|
$
|
549,061
|
|
|
$
|
485,210
|
|
Fixed charges
|
78,830
|
|
|
82,133
|
|
|
68,838
|
|
|
63,158
|
|
|
63,098
|
|
|
64,194
|
|
||||||
Amortization of capitalized interest
|
2,589
|
|
|
5,000
|
|
|
4,723
|
|
|
4,198
|
|
|
3,734
|
|
|
3,087
|
|
||||||
Less:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Capitalized interest
|
(2,692
|
)
|
|
(4,176
|
)
|
|
(4,035
|
)
|
|
(5,893
|
)
|
|
(5,572
|
)
|
|
(6,629
|
)
|
||||||
Total Earnings available for fixed charges
|
$
|
359,481
|
|
|
$
|
620,002
|
|
|
$
|
593,243
|
|
|
$
|
600,564
|
|
|
$
|
610,321
|
|
|
$
|
545,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Fixed Charges:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Interest expense
|
$
|
69,841
|
|
|
$
|
65,363
|
|
|
$
|
52,989
|
|
|
$
|
46,062
|
|
|
$
|
46,067
|
|
|
$
|
46,767
|
|
Capitalized interest
|
2,692
|
|
|
4,176
|
|
|
4,035
|
|
|
5,893
|
|
|
5,572
|
|
|
6,629
|
|
||||||
Portion of rental expense which represents interest factor
1
|
6,297
|
|
|
12,594
|
|
|
11,814
|
|
|
11,203
|
|
|
11,459
|
|
|
10,798
|
|
||||||
Total Fixed charges
|
$
|
78,830
|
|
|
$
|
82,133
|
|
|
$
|
68,838
|
|
|
$
|
63,158
|
|
|
$
|
63,098
|
|
|
$
|
64,194
|
|
Ratio of Earnings to Fixed Charges
|
4.56
|
|
|
7.55
|
|
|
8.62
|
|
|
9.51
|
|
|
9.67
|
|
|
8.50
|
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of International Flavors & Fragrances Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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By:
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/s/ Andreas Fibig
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Name:
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Andreas Fibig
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Title:
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Chairman of the Board and Chief Executive Officer
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1.
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I have reviewed this Quarterly Report on Form 10-Q of International Flavors & Fragrances Inc.;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
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The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
|
By:
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/s/ Richard A. O'Leary
|
|
Name:
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Richard A. O'Leary
|
|
Title:
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Executive Vice President and Chief Financial Officer
|
By:
|
/s/ Andreas Fibig
|
Name:
|
Andreas Fibig
|
Title:
|
Chairman of the Board and Chief Executive Officer
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Dated:
|
August 7, 2018
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By:
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/s/ Richard A. O'Leary
|
Name:
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Richard A. O'Leary
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Title:
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Executive Vice President and Chief Financial Officer
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Dated:
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August 7, 2018
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