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
|
¨
|
Title of each class
|
|
Trading Symbol(s)
|
|
Name of each exchange
on which registered
|
Common Stock, par value 12 1/2¢ per share
|
|
IFF
|
|
New York Stock Exchange
|
6.00% Tangible Equity Units
|
|
IFFT
|
|
New York Stock Exchange
|
0.500% Senior Notes due 2021
|
|
IFF 21
|
|
New York Stock Exchange
|
1.750% Senior Notes due 2024
|
|
IFF 24
|
|
New York Stock Exchange
|
1.800% Senior Notes due 2026
|
|
IFF 26
|
|
New York Stock Exchange
|
(DOLLARS IN THOUSANDS)
|
March 31, 2019
|
|
December 31, 2018
|
||||
ASSETS
|
|
|
|
||||
Current Assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
483,504
|
|
|
$
|
634,897
|
|
Restricted cash
|
13,625
|
|
|
13,625
|
|
||
Trade receivables (net of allowances of $8,815 and $9,173, respectively)
|
1,003,965
|
|
|
937,765
|
|
||
Inventories: Raw materials
|
586,175
|
|
|
568,916
|
|
||
Work in process
|
52,033
|
|
|
48,819
|
|
||
Finished goods
|
476,280
|
|
|
460,802
|
|
||
Total Inventories
|
1,114,488
|
|
|
1,078,537
|
|
||
Prepaid expenses and other current assets
|
310,243
|
|
|
277,036
|
|
||
Total Current Assets
|
2,925,825
|
|
|
2,941,860
|
|
||
Property, plant and equipment, at cost
|
2,581,131
|
|
|
2,492,938
|
|
||
Accumulated depreciation
|
(1,287,102
|
)
|
|
(1,251,786
|
)
|
||
|
1,294,029
|
|
|
1,241,152
|
|
||
Goodwill
|
5,434,000
|
|
|
5,378,388
|
|
||
Other intangible assets, net
|
2,974,177
|
|
|
3,039,322
|
|
||
Other assets
|
583,389
|
|
|
288,673
|
|
||
Total Assets
|
$
|
13,211,420
|
|
|
$
|
12,889,395
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
||||
Current Liabilities:
|
|
|
|
||||
Bank borrowings, overdrafts, and current portion of long-term debt
|
$
|
84,003
|
|
|
$
|
48,642
|
|
Accounts payable
|
476,413
|
|
|
471,382
|
|
||
Accrued payroll and bonus
|
91,293
|
|
|
121,080
|
|
||
Dividends payable
|
77,799
|
|
|
77,779
|
|
||
Other current liabilities
|
414,626
|
|
|
409,428
|
|
||
Total Current Liabilities
|
1,144,134
|
|
|
1,128,311
|
|
||
Long-term debt
|
4,421,430
|
|
|
4,504,417
|
|
||
Retirement liabilities
|
225,834
|
|
|
227,172
|
|
||
Deferred income taxes
|
658,804
|
|
|
655,879
|
|
||
Other liabilities
|
492,029
|
|
|
248,436
|
|
||
Total Other Liabilities
|
5,798,097
|
|
|
5,635,904
|
|
||
Commitments and Contingencies (Note 15)
|
|
|
|
||||
Redeemable noncontrolling interests
|
114,711
|
|
|
81,806
|
|
||
Shareholders’ Equity:
|
|
|
|
||||
Common stock 12 1/2¢ par value; 500,000,000 shares authorized; 128,526,137 shares issued as of March 31, 2019 and December 31, 2018; and 106,646,581 and 106,619,202 shares outstanding as of March 31, 2019 and December 31, 2018, respectively
|
16,066
|
|
|
16,066
|
|
||
Capital in excess of par value
|
3,802,602
|
|
|
3,793,609
|
|
||
Retained earnings
|
4,011,326
|
|
|
3,956,221
|
|
||
Accumulated other comprehensive loss
|
(657,354
|
)
|
|
(702,227
|
)
|
||
Treasury stock, at cost (21,879,556 and 21,906,935 shares as of March 31, 2019 and December 31, 2018, respectively)
|
(1,029,429
|
)
|
|
(1,030,718
|
)
|
||
Total Shareholders’ Equity
|
6,143,211
|
|
|
6,032,951
|
|
||
Noncontrolling interest
|
11,267
|
|
|
10,423
|
|
||
Total Shareholders’ Equity including noncontrolling interest
|
6,154,478
|
|
|
6,043,374
|
|
||
Total Liabilities and Shareholders’ Equity
|
$
|
13,211,420
|
|
|
$
|
12,889,395
|
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
|
2019
|
|
2018
|
||||
Net sales
|
$
|
1,297,402
|
|
|
$
|
930,928
|
|
Cost of goods sold
|
766,143
|
|
|
525,119
|
|
||
Gross profit
|
531,259
|
|
|
405,809
|
|
||
Research and development expenses
|
90,596
|
|
|
78,476
|
|
||
Selling and administrative expenses
|
213,182
|
|
|
142,644
|
|
||
Amortization of acquisition-related intangibles
|
47,625
|
|
|
9,185
|
|
||
Restructuring and other charges, net
|
16,174
|
|
|
717
|
|
||
Gains on sales of fixed assets
|
(188
|
)
|
|
(69
|
)
|
||
Operating profit
|
163,870
|
|
|
174,856
|
|
||
Interest expense
|
36,572
|
|
|
16,595
|
|
||
Other income, net
|
(7,278
|
)
|
|
(576
|
)
|
||
Income before taxes
|
134,576
|
|
|
158,837
|
|
||
Taxes on income
|
23,362
|
|
|
29,421
|
|
||
Net income
|
111,214
|
|
|
129,416
|
|
||
Net income attributable to noncontrolling interests
|
2,385
|
|
|
—
|
|
||
Net income attributable to IFF stockholders
|
108,829
|
|
|
129,416
|
|
||
Other comprehensive income, after tax:
|
|
|
|
||||
Foreign currency translation adjustments
|
42,377
|
|
|
14,803
|
|
||
Losses on derivatives qualifying as hedges
|
(97
|
)
|
|
(529
|
)
|
||
Pension and postretirement net liability
|
2,593
|
|
|
2,629
|
|
||
Other comprehensive income
|
44,873
|
|
|
16,903
|
|
||
Comprehensive income attributable to IFF stockholders
|
$
|
153,702
|
|
|
$
|
146,319
|
|
|
|
|
|
||||
Net income per share - basic
|
$
|
0.97
|
|
|
$
|
1.63
|
|
Net income per share - diluted
|
0.96
|
|
|
1.63
|
|
||
Average number of shares outstanding - basic
|
111,864
|
|
|
79,018
|
|
||
Average number of shares outstanding - diluted
|
113,389
|
|
|
79,393
|
|
|
Three Months Ended March 31,
|
||||||
(DOLLARS IN THOUSANDS)
|
2019
|
|
2018
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income
|
$
|
111,214
|
|
|
$
|
129,416
|
|
Adjustments to reconcile to net cash provided by (used in) operating activities
|
|
|
|
||||
Depreciation and amortization
|
81,775
|
|
|
33,384
|
|
||
Deferred income taxes
|
(12,389
|
)
|
|
18,404
|
|
||
Gains on sale of assets
|
(188
|
)
|
|
(69
|
)
|
||
Stock-based compensation
|
7,604
|
|
|
7,620
|
|
||
Pension contributions
|
(3,956
|
)
|
|
(4,387
|
)
|
||
Litigation settlement
|
—
|
|
|
(12,969
|
)
|
||
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
||||
Trade receivables
|
(55,935
|
)
|
|
(61,301
|
)
|
||
Inventories
|
(24,719
|
)
|
|
(30,185
|
)
|
||
Accounts payable
|
8,988
|
|
|
(8,435
|
)
|
||
Accruals for incentive compensation
|
(36,969
|
)
|
|
(36,583
|
)
|
||
Other current payables and accrued expenses
|
(11,321
|
)
|
|
(18,540
|
)
|
||
Other assets
|
(9,978
|
)
|
|
(26,035
|
)
|
||
Other liabilities
|
(6,894
|
)
|
|
(1,715
|
)
|
||
Net cash provided by (used in) operating activities
|
47,232
|
|
|
(11,395
|
)
|
||
Cash flows from investing activities:
|
|
|
|
||||
Cash paid for acquisitions, net of cash received
|
(33,895
|
)
|
|
(22
|
)
|
||
Additions to property, plant and equipment
|
(57,609
|
)
|
|
(33,105
|
)
|
||
Proceeds from life insurance contracts
|
1,890
|
|
|
—
|
|
||
Maturity of net investment hedges
|
—
|
|
|
(2,405
|
)
|
||
Proceeds from disposal of assets
|
3,970
|
|
|
293
|
|
||
Contingent consideration paid
|
(4,655
|
)
|
|
—
|
|
||
Net cash used in investing activities
|
(90,299
|
)
|
|
(35,239
|
)
|
||
Cash flows from financing activities:
|
|
|
|
||||
Cash dividends paid to shareholders
|
(77,779
|
)
|
|
(54,420
|
)
|
||
Increase in revolving credit facility and short term borrowings
|
2,895
|
|
|
53,688
|
|
||
Repayments on debt
|
(36,156
|
)
|
|
—
|
|
||
Proceeds from issuance of stock in connection with stock options
|
200
|
|
|
—
|
|
||
Employee withholding taxes paid
|
(1,339
|
)
|
|
(3,266
|
)
|
||
Purchase of treasury stock
|
—
|
|
|
(10,617
|
)
|
||
Net cash used in financing activities
|
(112,179
|
)
|
|
(14,615
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
3,853
|
|
|
(1,521
|
)
|
||
Net change in cash and cash equivalents
|
(151,393
|
)
|
|
(62,770
|
)
|
||
Cash and cash equivalents at beginning of year
|
648,522
|
|
|
368,046
|
|
||
Cash and cash equivalents at end of period
|
$
|
497,129
|
|
|
$
|
305,276
|
|
Supplemental Disclosures:
|
|
|
|
||||
Interest paid, net of amounts capitalized
|
$
|
48,506
|
|
|
$
|
20,236
|
|
Income taxes paid
|
33,326
|
|
|
24,939
|
|
||
Accrued capital expenditures
|
14,241
|
|
|
18,868
|
|
(DOLLARS IN THOUSANDS)
|
Common
stock
|
|
Capital in
excess of
par value
|
|
Retained
earnings
|
|
Accumulated other
comprehensive (loss) income |
|
Treasury stock
|
|
Non-controlling
interest
|
|
Total
|
|||||||||||||||||
Shares
|
|
Cost
|
|
|||||||||||||||||||||||||||
Balance at January 1, 2018
|
$
|
14,470
|
|
|
$
|
162,827
|
|
|
$
|
3,870,621
|
|
|
$
|
(637,482
|
)
|
|
(36,910,809
|
)
|
|
$
|
(1,726,234
|
)
|
|
$
|
5,092
|
|
|
$
|
1,689,294
|
|
Net income
|
|
|
|
|
|
|
129,416
|
|
|
|
|
|
|
|
|
|
|
|
720
|
|
|
130,136
|
|
|||||||
Adoption of ASU 2014-09
|
|
|
|
|
|
|
2,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,158
|
|
|||||||
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
14,803
|
|
|
|
|
|
|
|
|
|
|
|
14,803
|
|
|||||||
Losses on derivatives qualifying as hedges; net of tax $106
|
|
|
|
|
|
|
|
|
|
(529
|
)
|
|
|
|
|
|
|
|
|
|
|
(529
|
)
|
|||||||
Pension liability and postretirement adjustment; net of tax $1,894
|
|
|
|
|
|
|
|
|
|
2,629
|
|
|
|
|
|
|
|
|
|
|
|
2,629
|
|
|||||||
Cash dividends declared ($0.69 per share)
|
|
|
|
|
|
|
(54,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54,404
|
)
|
|||||||
Stock options/SSARs
|
|
|
|
(226
|
)
|
|
|
|
|
|
|
|
15,678
|
|
|
736
|
|
|
|
|
|
510
|
|
|||||||
Treasury share repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
(73,154
|
)
|
|
(10,977
|
)
|
|
|
|
|
(10,977
|
)
|
|||||||
Vested restricted stock units and awards
|
|
|
|
(3,704
|
)
|
|
|
|
|
|
|
|
30,294
|
|
|
1,426
|
|
|
|
|
|
(2,278
|
)
|
|||||||
Stock-based compensation
|
|
|
|
7,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,620
|
|
|||||||
Balance at March 31, 2018
|
$
|
14,470
|
|
|
$
|
166,517
|
|
|
$
|
3,947,791
|
|
|
$
|
(620,579
|
)
|
|
(36,937,991
|
)
|
|
$
|
(1,735,049
|
)
|
|
$
|
5,812
|
|
|
$
|
1,778,962
|
|
(DOLLARS IN THOUSANDS)
|
Common
stock
|
|
Capital in
excess of
par value
|
|
Retained
earnings
|
|
Accumulated other
comprehensive (loss) income |
|
Treasury stock
|
|
Non-controlling
interest
|
|
Total
|
|||||||||||||||||
Shares
|
|
Cost
|
|
|||||||||||||||||||||||||||
Balance at January 1, 2019
|
$
|
16,066
|
|
|
$
|
3,793,609
|
|
|
$
|
3,956,221
|
|
|
$
|
(702,227
|
)
|
|
(21,906,935
|
)
|
|
$
|
(1,030,718
|
)
|
|
$
|
10,423
|
|
|
$
|
6,043,374
|
|
Net income
|
|
|
|
|
|
|
108,829
|
|
|
|
|
|
|
|
|
|
|
|
844
|
|
|
109,673
|
|
|||||||
Adoption of ASU 2016-02
|
|
|
|
|
|
|
23,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,094
|
|
|||||||
Adoption of ASU 2017-12
|
|
|
|
|
|
981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
981
|
|
||||||||
Cumulative translation adjustment
|
|
|
|
|
|
|
|
|
|
42,377
|
|
|
|
|
|
|
|
|
|
|
|
42,377
|
|
|||||||
Losses on derivatives qualifying as hedges; net of tax $44
|
|
|
|
|
|
|
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
(97
|
)
|
|||||||
Pension liability and postretirement adjustment; net of tax $836
|
|
|
|
|
|
|
|
|
|
2,593
|
|
|
|
|
|
|
|
|
|
|
|
2,593
|
|
|||||||
Cash dividends declared ($0.73 per share)
|
|
|
|
|
|
|
(77,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,799
|
)
|
|||||||
Stock options/SSARs
|
|
|
|
3,424
|
|
|
|
|
|
|
|
|
13,978
|
|
|
660
|
|
|
|
|
|
4,084
|
|
|||||||
Vested restricted stock units and awards
|
|
|
|
(2,405
|
)
|
|
|
|
|
|
|
|
13,401
|
|
|
629
|
|
|
|
|
|
(1,776
|
)
|
|||||||
Stock-based compensation
|
|
|
|
7,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,604
|
|
|||||||
Redeemable NCI
|
|
|
370
|
|
|
|
|
|
|
|
|
|
|
|
|
370
|
|
|||||||||||||
Balance at March 31, 2019
|
$
|
16,066
|
|
|
$
|
3,802,602
|
|
|
$
|
4,011,326
|
|
|
$
|
(657,354
|
)
|
|
(21,879,556
|
)
|
|
$
|
(1,029,429
|
)
|
|
$
|
11,267
|
|
|
$
|
6,154,478
|
|
(DOLLARS IN THOUSANDS)
|
March 31, 2019
|
|
December 31, 2018
|
||||
Receivables (included in Trade receivables)
|
$
|
1,012,780
|
|
|
$
|
946,938
|
|
Contract asset - Short term
|
2,149
|
|
|
487
|
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
(DOLLARS IN THOUSANDS)
|
2019
|
|
2018
|
||||
Flavor Compounds
|
$
|
713,560
|
|
|
$
|
449,019
|
|
Fragrance Compounds
|
389,111
|
|
|
378,633
|
|
||
Ingredients
|
194,731
|
|
|
103,276
|
|
||
Total revenues
|
$
|
1,297,402
|
|
|
$
|
930,928
|
|
|
Three Months Ended March 31,
|
||||||
(SHARES IN THOUSANDS)
|
2019
|
|
2018
|
||||
Net Income
|
|
|
|
||||
Net income attributable to IFF stockholders
|
$
|
108,829
|
|
|
$
|
129,416
|
|
Add: Decrease in redemption value of redeemable noncontrolling interests in excess of earnings allocated
|
370
|
|
|
—
|
|
||
Net income available to IFF stockholders
|
$
|
109,199
|
|
|
$
|
129,416
|
|
Shares
|
|
|
|
||||
Weighted average common shares outstanding (basic)
(1)
|
111,864
|
|
|
79,018
|
|
||
Adjustment for assumed dilution
(2)
:
|
|
|
|
||||
Stock options and restricted stock awards
|
362
|
|
|
375
|
|
||
SPC portion of TEUs
|
1,163
|
|
|
—
|
|
||
Weighted average shares assuming dilution (diluted)
|
113,389
|
|
|
79,393
|
|
||
|
|
|
|
||||
Net Income per Share
|
|
|
|
||||
Net income per share - basic
|
$
|
0.97
|
|
|
$
|
1.63
|
|
Net income per share - dilutive
|
0.96
|
|
|
1.63
|
|
(1)
|
For the
three
months ended
March 31, 2019
, the tangible equity units (“TEUs”) were assumed to be outstanding at the minimum settlement amount for weighted-average shares for basic earnings per share. See below for details.
|
(2)
|
Effect of dilutive securities includes dilution under stock plans and incremental impact of TEUs. See below for details.
|
|
As reported in the fourth quarter of 2018
|
|
Measurement period adjustments
|
|
As reported in the first quarter of 2019
|
|||||
Cash and cash equivalents
|
$
|
140,747
|
|
|
|
|
$
|
140,747
|
|
|
Other current assets
|
699,627
|
|
|
|
|
699,627
|
|
|||
Identifiable intangible assets
|
2,690,000
|
|
|
(21,700
|
)
|
|
2,668,300
|
|
||
Other assets
|
353,710
|
|
|
43,200
|
|
|
396,910
|
|
||
Equity method investments
|
25,791
|
|
|
|
|
25,791
|
|
|||
Current liabilities
|
(311,325
|
)
|
|
|
|
(311,325
|
)
|
|||
Debt assumed
|
(77,037
|
)
|
|
|
|
(77,037
|
)
|
|||
Other liabilities
|
(632,488
|
)
|
|
(12,221
|
)
|
|
(644,709
|
)
|
||
Redeemable noncontrolling interest
|
(97,510
|
)
|
|
(5,700
|
)
|
|
(103,210
|
)
|
||
Noncontrolling interest
|
(3,700
|
)
|
|
|
|
(3,700
|
)
|
|||
Goodwill
|
4,243,079
|
|
|
(3,579
|
)
|
|
4,239,500
|
|
||
Total Purchase Consideration
|
$
|
7,030,894
|
|
|
|
|
$
|
7,030,894
|
|
(IN THOUSANDS)
|
Estimated Amounts
|
|
Weighted-Average Useful Life
|
||
Product formula
|
$
|
290,000
|
|
|
10 to 12 years
|
Customer relationships
|
2,230,000
|
|
|
18 to 23 years
|
|
Trade names
|
140,000
|
|
|
23 to 26 years
|
|
Favorable/Unfavorable Leases, net
|
8,300
|
|
|
5 to 15 years
|
|
Total
|
$
|
2,668,300
|
|
|
|
(IN THOUSANDS)
|
Three Months Ended March 31, 2018
|
||
Unaudited pro forma net sales
|
$
|
1,315,733
|
|
Unaudited pro forma net income attributable to the Company
|
112,620
|
|
(DOLLARS IN THOUSANDS)
|
Employee-Related Costs
|
|
Other
|
|
Total
|
||||||
Balance at December 31, 2018
|
$
|
4,125
|
|
|
$
|
1,075
|
|
|
$
|
5,200
|
|
Additional charges, net
|
16,174
|
|
|
—
|
|
|
16,174
|
|
|||
Payments
|
(1,393
|
)
|
|
—
|
|
|
(1,393
|
)
|
|||
Balance at March 31, 2019
|
$
|
18,906
|
|
|
$
|
1,075
|
|
|
$
|
19,981
|
|
(DOLLARS IN THOUSANDS)
|
Goodwill
|
||
Balance at December 31, 2018
|
$
|
5,378,388
|
|
Acquisitions
(1)
|
61,711
|
|
|
Frutarom measurement period adjustment
|
(3,579
|
)
|
|
Foreign exchange
|
(2,520
|
)
|
|
Balance at March 31, 2019
|
$
|
5,434,000
|
|
(1)
|
Additions relate to the 2019 acquisition activity. See Note 3 for details.
|
|
March 31,
|
|
December 31,
|
||||
(DOLLARS IN THOUSANDS)
|
2019
|
|
2018
|
||||
Asset Type
|
|
|
|
||||
Customer relationships
|
$
|
2,638,998
|
|
|
$
|
2,658,659
|
|
Trade names & patents
|
177,566
|
|
|
177,770
|
|
||
Technological know-how
|
463,989
|
|
|
451,016
|
|
||
Other
|
33,009
|
|
|
43,766
|
|
||
Total carrying value
|
3,313,562
|
|
|
3,331,211
|
|
||
Accumulated Amortization
|
|
|
|
||||
Customer relationships
|
(193,263
|
)
|
|
(156,906
|
)
|
||
Trade names & patents
|
(21,760
|
)
|
|
(19,593
|
)
|
||
Technological know-how
|
(106,181
|
)
|
|
(93,051
|
)
|
||
Other
|
(18,181
|
)
|
|
(22,339
|
)
|
||
Total accumulated amortization
|
(339,385
|
)
|
|
(291,889
|
)
|
||
Other intangible assets, net
|
$
|
2,974,177
|
|
|
$
|
3,039,322
|
|
(DOLLARS IN THOUSANDS)
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
||||||||||
Estimated future intangible amortization expense
|
$
|
190,281
|
|
|
$
|
185,492
|
|
|
$
|
180,661
|
|
|
$
|
176,734
|
|
|
$
|
176,621
|
|
(DOLLARS IN THOUSANDS)
|
March 31, 2019
|
|
December 31, 2018
|
||||
Operating lease right-of-use assets
|
$
|
300,888
|
|
|
$
|
—
|
|
Deferred income taxes
|
82,928
|
|
|
89,000
|
|
||
Overfunded pension plans
|
79,122
|
|
|
75,158
|
|
||
Cash surrender value of life insurance contracts
|
45,444
|
|
|
43,179
|
|
||
Equity method investments
|
26,735
|
|
|
31,470
|
|
||
Other
(a)
|
48,272
|
|
|
49,866
|
|
||
Total
|
$
|
583,389
|
|
|
$
|
288,673
|
|
(a)
|
Includes land usage rights in China and long term deposits.
|
(DOLLARS IN THOUSANDS)
|
Effective Interest Rate
|
|
March 31, 2019
|
|
December 31, 2018
|
|||||
2020 Notes
(1)
|
3.69
|
%
|
|
$
|
298,743
|
|
|
$
|
298,499
|
|
2021 Euro Notes
(1)
|
0.82
|
%
|
|
334,486
|
|
|
337,704
|
|
||
2023 Notes
(1)
|
3.30
|
%
|
|
298,774
|
|
|
298,698
|
|
||
2024 Euro Notes
(1)
|
1.88
|
%
|
|
558,869
|
|
|
564,034
|
|
||
2026 Euro Notes
(1)
|
1.93
|
%
|
|
891,757
|
|
|
899,886
|
|
||
2028 Notes
(1)
|
4.57
|
%
|
|
396,460
|
|
|
396,377
|
|
||
2047 Notes
(1)
|
4.44
|
%
|
|
493,256
|
|
|
493,151
|
|
||
2048 Notes
(1)
|
5.12
|
%
|
|
785,838
|
|
|
785,788
|
|
||
Term Loan
(1)
|
3.65
|
%
|
|
324,295
|
|
|
349,163
|
|
||
Amortizing Notes
(1)
|
6.09
|
%
|
|
114,667
|
|
|
125,007
|
|
||
Bank overdrafts and other
|
|
|
8,231
|
|
|
4,695
|
|
|||
Deferred realized gains on interest rate swaps
|
|
|
57
|
|
|
57
|
|
|||
|
|
|
4,505,433
|
|
|
4,553,059
|
|
|||
Less: Short term borrowings
(3)
|
|
|
(84,003
|
)
|
|
(48,642
|
)
|
|||
|
|
|
$
|
4,421,430
|
|
|
$
|
4,504,417
|
|
(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, overdrafts and current portion of long-term debt.
|
|
Three Months Ended
|
||
(DOLLARS IN THOUSANDS)
|
March 31, 2019
|
||
Operating lease cost
|
$
|
12,469
|
|
|
Three Months Ended
|
||
(DOLLARS IN THOUSANDS)
|
March 31, 2019
|
||
Cash paid for amounts included in the measurement of lease liabilities:
|
|
||
Operating cash flows from operating leases
|
$
|
11,076
|
|
(DOLLARS IN THOUSANDS)
|
March 31, 2019
|
||
Operating Leases
|
|
||
Operating lease right of use assets
|
$
|
300,888
|
|
|
|
||
Other current liabilities
|
37,198
|
|
|
Operating lease liabilities
|
266,569
|
|
|
Total operating lease liabilities
|
$
|
303,767
|
|
|
Weighted Average Remaining Lease Term
(in years)
|
|
Weighted Average Discount Rate
|
|
Operating leases
|
11.9
|
|
3.75
|
%
|
(DOLLARS IN THOUSANDS)
|
March 31, 2019
|
||
Less than 1 Year
|
$
|
37,680
|
|
1-3 Years
|
77,037
|
|
|
3-5 Years
|
65,087
|
|
|
After 5 years
|
211,387
|
|
|
Less: Imputed Interest
|
(87,424
|
)
|
|
Total
|
$
|
303,767
|
|
(DOLLARS IN THOUSANDS)
|
December 31, 2018
|
||
Less than 1 Year
|
$
|
49,350
|
|
1-3 Years
|
78,600
|
|
|
3-5 Years
|
60,672
|
|
|
After 5 years
|
201,079
|
|
|
Total
|
$
|
389,701
|
|
(DOLLARS IN THOUSANDS)
|
March 31, 2019
|
||
North America
|
$
|
142,748
|
|
Europe, Africa and Middle East
|
120,785
|
|
|
Greater Asia
|
23,151
|
|
|
Latin America
|
14,204
|
|
|
Consolidated
|
$
|
300,888
|
|
|
Three Months Ended March 31,
|
||||||
(DOLLARS IN THOUSANDS)
|
2019
|
|
2018
|
||||
Equity-based awards
|
$
|
7,604
|
|
|
$
|
7,620
|
|
Liability-based awards
|
730
|
|
|
155
|
|
||
Total stock-based compensation expense
|
8,334
|
|
|
7,775
|
|
||
Less: Tax benefit
|
(1,382
|
)
|
|
(1,563
|
)
|
||
Total stock-based compensation expense, after tax
|
$
|
6,952
|
|
|
$
|
6,212
|
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
(DOLLARS IN THOUSANDS)
|
2019
|
|
2018
|
||||
Net sales:
|
|
|
|
||||
Taste
|
$
|
444,602
|
|
|
$
|
449,019
|
|
Scent
|
488,352
|
|
|
481,909
|
|
||
Frutarom
|
364,448
|
|
|
—
|
|
||
Consolidated
|
$
|
1,297,402
|
|
|
$
|
930,928
|
|
Segment profit:
|
|
|
|
||||
Taste
|
$
|
108,455
|
|
|
$
|
111,564
|
|
Scent
|
85,815
|
|
|
93,277
|
|
||
Frutarom
|
29,091
|
|
|
—
|
|
||
Global expenses
|
(18,673
|
)
|
|
(23,825
|
)
|
||
Operational Improvement Initiatives (a)
|
(406
|
)
|
|
(1,026
|
)
|
||
Acquisition Related Costs (b)
|
—
|
|
|
514
|
|
||
Integration Related Costs (c)
|
(14,897
|
)
|
|
—
|
|
||
Restructuring and Other Charges, net (d)
|
(16,174
|
)
|
|
(717
|
)
|
||
Gains on Sale of Assets
|
188
|
|
|
69
|
|
||
FDA Mandated Product Recall (e)
|
—
|
|
|
(5,000
|
)
|
||
Frutarom Acquisition Related Costs (f)
|
(9,529
|
)
|
|
—
|
|
||
Operating profit
|
163,870
|
|
|
174,856
|
|
||
Interest expense
|
(36,572
|
)
|
|
(16,595
|
)
|
||
Other income (expense)
|
7,278
|
|
|
576
|
|
||
Income before taxes
|
$
|
134,576
|
|
|
$
|
158,837
|
|
(a)
|
Represents accelerated depreciation related to a plant relocation in India, as well as a lab closure in Taiwan for 2018.
|
(b)
|
Represents adjustments to the contingent consideration payable for PowderPure, and transaction costs related to
Fragrance Resources and PowderPure within Selling and administrative expenses. |
(c)
|
Represents costs related to the integration of the Frutarom acquisition, principally advisory expenses.
|
(d)
|
For 2019, represents severance costs related primarily to Scent. For 2018, represents severance costs related to the 2017 Productivity Program and Taiwan lab closure.
|
(e)
|
Represents losses related to the FDA mandated recall.
|
(f)
|
Represents transaction-related costs and expenses related to the acquisition of Frutarom. Amount primarily includes $7.9 million of amortization for inventory "step-up" costs and $1.7 million of transaction costs included in Selling and administrative expenses.
|
|
Three Months Ended
|
||||||
|
March 31,
|
||||||
(DOLLARS IN THOUSANDS)
|
2019
|
|
2018
|
||||
Europe, Africa and Middle East
|
$
|
529,606
|
|
|
$
|
309,312
|
|
Greater Asia
|
287,962
|
|
|
243,557
|
|
||
North America
|
301,059
|
|
|
241,146
|
|
||
Latin America
|
178,775
|
|
|
136,913
|
|
||
Consolidated
|
$
|
1,297,402
|
|
|
$
|
930,928
|
|
(DOLLARS IN THOUSANDS)
|
U.S. Plans
|
||||||
Three Months Ended March 31,
|
|||||||
2019
|
|
2018
|
|||||
Service cost for benefits earned
(1)
|
$
|
474
|
|
|
$
|
596
|
|
Interest cost on projected benefit obligation
(2)
|
5,453
|
|
|
4,790
|
|
||
Expected return on plan assets
(2)
|
(6,983
|
)
|
|
(7,739
|
)
|
||
Net amortization and deferrals
(2)
|
1,275
|
|
|
1,549
|
|
||
Net periodic benefit (income) cost
|
$
|
219
|
|
|
$
|
(804
|
)
|
(DOLLARS IN THOUSANDS)
|
Non-U.S. Plans
|
||||||
Three Months Ended March 31,
|
|||||||
2019
|
|
2018
|
|||||
Service cost for benefits earned
(1)
|
$
|
4,873
|
|
|
$
|
4,470
|
|
Interest cost on projected benefit obligation
(2)
|
4,435
|
|
|
4,338
|
|
||
Expected return on plan assets
(2)
|
(10,904
|
)
|
|
(12,032
|
)
|
||
Net amortization and deferrals
(2)
|
2,922
|
|
|
2,972
|
|
||
Net periodic benefit (income) cost
|
$
|
1,326
|
|
|
$
|
(252
|
)
|
(1)
|
Included as a component of Operating Profit.
|
(2)
|
Included as a component of Other Income (Expense), net.
|
|
Three Months Ended March 31,
|
||||||
(DOLLARS IN THOUSANDS)
|
2019
|
|
2018
|
||||
Service cost for benefits earned
|
$
|
148
|
|
|
$
|
195
|
|
Interest cost on projected benefit obligation
|
578
|
|
|
654
|
|
||
Net amortization and deferrals
|
(1,194
|
)
|
|
(1,189
|
)
|
||
Total postretirement benefit income
|
$
|
(468
|
)
|
|
$
|
(340
|
)
|
•
|
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
.
|
|
March 31, 2019
|
|
December 31, 2018
|
||||||||||||
(DOLLARS IN THOUSANDS)
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
||||||||
LEVEL 1
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents
(1)
|
$
|
483,504
|
|
|
$
|
483,504
|
|
|
$
|
634,897
|
|
|
$
|
634,897
|
|
LEVEL 2
|
|
|
|
|
|
|
|
||||||||
Credit facilities and bank overdrafts
(2)
|
8,231
|
|
|
8,231
|
|
|
4,695
|
|
|
4,695
|
|
||||
Derivatives
(3)
|
|
|
|
|
|
|
|
||||||||
Derivative assets
|
—
|
|
|
21,296
|
|
|
—
|
|
|
7,229
|
|
||||
Derivative liabilities
|
—
|
|
|
3,220
|
|
|
—
|
|
|
6,907
|
|
||||
Long-term debt:
(3)
|
|
|
|
|
|
|
|
||||||||
2020 Notes
|
298,743
|
|
|
299,291
|
|
|
298,499
|
|
|
300,356
|
|
||||
2021 Euro Notes
|
334,486
|
|
|
340,073
|
|
|
337,704
|
|
|
341,094
|
|
||||
2023 Notes
|
298,774
|
|
|
298,642
|
|
|
298,698
|
|
|
293,017
|
|
||||
2024 Euro Notes
|
558,869
|
|
|
596,056
|
|
|
564,034
|
|
|
584,129
|
|
||||
2026 Euro Notes
|
891,757
|
|
|
934,385
|
|
|
899,886
|
|
|
909,439
|
|
||||
2028 Notes
|
396,460
|
|
|
414,879
|
|
|
396,377
|
|
|
401,231
|
|
||||
2047 Notes
|
493,256
|
|
|
472,958
|
|
|
493,151
|
|
|
446,725
|
|
||||
2048 Notes
|
785,838
|
|
|
828,682
|
|
|
785,788
|
|
|
783,925
|
|
||||
Term Loan
(2)
|
324,295
|
|
|
325,000
|
|
|
349,163
|
|
|
350,000
|
|
||||
Amortizing Notes
(4)
|
114,667
|
|
|
117,579
|
|
|
125,007
|
|
|
127,879
|
|
(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.
|
(4)
|
The fair value of the Amortizing Notes of the TEUs is based on the most recently quoted price for the outstanding securities, adjusted for any known significant deviation in value. The estimated fair value of these long-term obligations is not necessarily indicative of the amount that would be realized in a current market exchange.
|
(DOLLARS IN THOUSANDS)
|
March 31, 2019
|
|
December 31, 2018
|
||||
Foreign currency contracts
|
$
|
460,758
|
|
|
$
|
585,581
|
|
Cross currency swaps
|
600,000
|
|
|
600,000
|
|
|
March 31, 2019
|
||||||||||
(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
|
$
|
3,926
|
|
|
$
|
1,001
|
|
|
$
|
4,927
|
|
Cross currency swaps
|
16,369
|
|
|
—
|
|
|
16,369
|
|
|||
|
$
|
20,295
|
|
|
$
|
1,001
|
|
|
$
|
21,296
|
|
Derivative liabilities
(b)
|
|
|
|
|
|
||||||
Foreign currency contract
|
$
|
90
|
|
|
$
|
3,130
|
|
|
$
|
3,220
|
|
|
December 31, 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
|
$
|
4,122
|
|
|
$
|
2,020
|
|
|
$
|
6,142
|
|
Cross currency swaps
|
1,087
|
|
|
—
|
|
|
1,087
|
|
|||
|
$
|
5,209
|
|
|
$
|
2,020
|
|
|
$
|
7,229
|
|
Derivative liabilities
(b)
|
|
|
|
|
|
||||||
Foreign currency contracts
|
$
|
205
|
|
|
$
|
6,702
|
|
|
$
|
6,907
|
|
(a)
|
Derivative assets are recorded to Prepaid expenses and Other 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 March 31,
|
|
|||||||
2019
|
|
2018
|
|
||||||
Foreign currency contracts
|
$
|
926
|
|
|
$
|
(3,615
|
)
|
|
Other (income) expense, net
|
|
Amount of Gain (Loss)
Recognized in OCI on
Derivative
|
|
Location of Gain (Loss) Reclassified from
AOCI into Income
|
|
Amount of Gain (Loss)
Reclassified from
Accumulated OCI into
Income
|
||||||||||||
|
Three Months Ended March 31,
|
|
|
Three Months Ended March 31,
|
|||||||||||||
|
2019
|
|
2018
|
|
|
2019
|
|
2018
|
|||||||||
Derivatives in Cash Flow Hedging Relationships:
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency contracts
|
$
|
(312
|
)
|
|
$
|
(743
|
)
|
|
Cost of goods sold
|
|
$
|
2,372
|
|
|
$
|
(2,193
|
)
|
Interest rate swaps
(1)
|
216
|
|
|
216
|
|
|
Interest expense
|
|
(216
|
)
|
|
(216
|
)
|
||||
Derivatives in Net Investment Hedging Relationships:
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency contracts
|
—
|
|
|
(696
|
)
|
|
N/A
|
|
—
|
|
|
—
|
|
||||
Cross currency swaps
|
10,667
|
|
|
—
|
|
|
N/A
|
|
—
|
|
|
—
|
|
||||
Non-Derivatives in Net Investment Hedging Relationships:
|
|
|
|
|
|
|
|
|
|
||||||||
2024 Euro Notes
|
4,206
|
|
|
(15,977
|
)
|
|
N/A
|
|
—
|
|
|
—
|
|
||||
2021 Euro Notes & 2026 Euro Notes
|
9,253
|
|
|
—
|
|
|
N/A
|
|
—
|
|
|
—
|
|
||||
Total
|
$
|
24,030
|
|
|
$
|
(17,200
|
)
|
|
|
|
$
|
2,156
|
|
|
$
|
(2,409
|
)
|
(1)
|
Interest rate swaps were entered into as pre-issuance hedges for bond offerings.
|
(DOLLARS IN THOUSANDS)
|
Foreign
Currency
Translation
Adjustments
|
|
Gains on Derivatives
Qualifying as
Hedges
|
|
Pension and
Postretirement
Liability
Adjustment
|
|
Total
|
||||||||
Accumulated other comprehensive (loss) income, net of tax, as of December 31, 2018
|
$
|
(396,996
|
)
|
|
$
|
4,746
|
|
|
$
|
(309,977
|
)
|
|
$
|
(702,227
|
)
|
OCI before reclassifications
|
42,377
|
|
|
2,059
|
|
|
—
|
|
|
44,436
|
|
||||
Amounts reclassified from AOCI
|
—
|
|
|
(2,156
|
)
|
|
2,593
|
|
|
437
|
|
||||
Net current period other comprehensive income (loss)
|
42,377
|
|
|
(97
|
)
|
|
2,593
|
|
|
44,873
|
|
||||
Accumulated other comprehensive (loss) income, net of tax, as of March 31, 2019
|
$
|
(354,619
|
)
|
|
$
|
4,649
|
|
|
$
|
(307,384
|
)
|
|
$
|
(657,354
|
)
|
(DOLLARS IN THOUSANDS)
|
Foreign
Currency
Translation
Adjustments
|
|
Losses
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
|
14,803
|
|
|
(2,938
|
)
|
|
—
|
|
|
11,865
|
|
||||
Amounts reclassified from AOCI
|
—
|
|
|
2,409
|
|
|
2,629
|
|
|
5,038
|
|
||||
Net current period other comprehensive income (loss)
|
14,803
|
|
|
(529
|
)
|
|
2,629
|
|
|
16,903
|
|
||||
Accumulated other comprehensive (loss) income, net of tax, as of March 31, 2018
|
$
|
(282,613
|
)
|
|
$
|
(10,861
|
)
|
|
$
|
(327,105
|
)
|
|
$
|
(620,579
|
)
|
|
Three Months Ended March 31,
|
|
Affected Line Item in the
Consolidated Statement of Income and Comprehensive Income |
||||||
(DOLLARS IN THOUSANDS)
|
2019
|
|
2018
|
|
|||||
Gains (losses) on derivatives qualifying as hedges
|
|
|
|
|
|
||||
Foreign currency contracts
|
$
|
2,711
|
|
|
$
|
(2,506
|
)
|
|
Cost of goods sold
|
Interest rate swaps
|
(216
|
)
|
|
(216
|
)
|
|
Interest expense
|
||
Tax
|
(339
|
)
|
|
313
|
|
|
Provision for income taxes
|
||
Total
|
$
|
2,156
|
|
|
$
|
(2,409
|
)
|
|
Total, net of income taxes
|
Losses on pension and postretirement liability adjustments
|
|
|
|
|
|
||||
Prior service cost
|
$
|
2,836
|
|
|
$
|
1,772
|
|
|
(a)
|
Actuarial losses
|
168
|
|
|
(5,103
|
)
|
|
(a)
|
||
Tax
|
(5,597
|
)
|
|
702
|
|
|
Provision for income taxes
|
||
Total
|
$
|
(2,593
|
)
|
|
$
|
(2,629
|
)
|
|
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 16 of our
2018
Form 10-K for additional information regarding net periodic benefit cost.
|
(DOLLARS IN THOUSANDS)
|
Redeemable
Noncontrolling Interests
|
||
Balance at December 31, 2018
|
$
|
81,806
|
|
Acquired through acquisitions during 2019
|
26,224
|
|
|
Impact of foreign exchange translation
|
(190
|
)
|
|
Share of profit or loss attributable to redeemable noncontrolling interests
|
1,541
|
|
|
Redemption value mark-up for the current period
|
(370
|
)
|
|
Measurement period adjustments
|
5,700
|
|
|
Balance at March 31, 2019
|
$
|
114,711
|
|
|
Three Months Ended
|
|
|
|||||||
|
March 31,
|
|
|
|||||||
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
|
2019
|
|
2018
|
|
Change
|
|||||
Net sales
|
$
|
1,297,402
|
|
|
$
|
930,928
|
|
|
39
|
%
|
Cost of goods sold
|
766,143
|
|
|
525,119
|
|
|
46
|
%
|
||
Gross profit
|
531,259
|
|
|
405,809
|
|
|
|
|||
Research and development (R&D) expenses
|
90,596
|
|
|
78,476
|
|
|
15
|
%
|
||
Selling and administrative (S&A) expenses
|
213,182
|
|
|
142,644
|
|
|
49
|
%
|
||
Amortization of acquisition-related intangibles
|
47,625
|
|
|
9,185
|
|
|
NMF
|
|
||
Restructuring and other charges, net
|
16,174
|
|
|
717
|
|
|
NMF
|
|
||
Gains on sales of fixed assets
|
(188
|
)
|
|
(69
|
)
|
|
172
|
%
|
||
Operating profit
|
163,870
|
|
|
174,856
|
|
|
|
|||
Interest expense
|
36,572
|
|
|
16,595
|
|
|
120
|
%
|
||
Other income, net
|
(7,278
|
)
|
|
(576
|
)
|
|
NMF
|
|
||
Income before taxes
|
134,576
|
|
|
158,837
|
|
|
|
|||
Taxes on income
|
23,362
|
|
|
29,421
|
|
|
(21
|
)%
|
||
Net income
|
$
|
111,214
|
|
|
$
|
129,416
|
|
|
|
|
Net income attributable to noncontrolling interests
|
2,385
|
|
|
—
|
|
|
—
|
%
|
||
Net income attributable to IFF stockholders
|
$
|
108,829
|
|
|
$
|
129,416
|
|
|
(16
|
)%
|
Diluted EPS
|
$
|
0.96
|
|
|
$
|
1.63
|
|
|
(41
|
)%
|
Gross margin
|
40.9
|
%
|
|
43.6
|
%
|
|
(264
|
)
|
||
R&D as a percentage of sales
|
7.0
|
%
|
|
8.4
|
%
|
|
(145
|
)
|
||
S&A as a percentage of sales
|
16.4
|
%
|
|
15.3
|
%
|
|
111
|
|
||
Operating margin
|
12.6
|
%
|
|
18.8
|
%
|
|
(615
|
)
|
||
Adjusted operating margin
(1)
|
15.8
|
%
|
|
19.4
|
%
|
|
(367
|
)
|
||
Effective tax rate
|
17.4
|
%
|
|
18.5
|
%
|
|
(116
|
)
|
||
Segment net sales
|
|
|
|
|
|
|||||
Taste
|
$
|
444,602
|
|
|
$
|
449,019
|
|
|
(1
|
)%
|
Scent
|
488,352
|
|
|
481,909
|
|
|
1
|
%
|
||
Frutarom
|
364,448
|
|
|
—
|
|
|
—
|
%
|
||
Consolidated
|
$
|
1,297,402
|
|
|
$
|
930,928
|
|
|
|
(1)
|
Adjusted operating margin excludes
$40.8 million
of charges related to operational improvement initiatives, integration related costs, restructuring and other charges, net, and Frutarom acquisition related costs for the
three months ended March 31, 2019
, and excludes
$6.2 million
of charges related to operational improvement initiatives, restructuring and other charges, net, acquisition related costs, gain on sale of assets and an FDA mandated product recall for the
three months ended March 31, 2018
. See "Non-GAAP Financial Measures" below.
|
(1)
|
Currency neutral sales growth is calculated by translating prior year sales at the exchange rates for the corresponding
2019
period.
|
|
Three Months Ended March 31,
|
||||||
(DOLLARS IN THOUSANDS)
|
2019
|
|
2018
|
||||
Segment profit:
|
|
|
|
||||
Taste
|
$
|
108,455
|
|
|
$
|
111,564
|
|
Scent
|
85,815
|
|
|
93,277
|
|
||
Frutarom
|
29,091
|
|
|
—
|
|
||
Global expenses
|
(18,673
|
)
|
|
(23,825
|
)
|
||
Operational Improvement Initiatives
|
(406
|
)
|
|
(1,026
|
)
|
||
Acquisition Related Costs
|
—
|
|
|
514
|
|
||
Integration Related Costs
|
(14,897
|
)
|
|
—
|
|
||
Restructuring and Other Charges, net
|
(16,174
|
)
|
|
(717
|
)
|
||
Gains on Sale of Assets
|
188
|
|
|
69
|
|
||
FDA Mandated Product Recall
|
—
|
|
|
(5,000
|
)
|
||
Frutarom Acquisition Related Costs
|
(9,529
|
)
|
|
—
|
|
||
Operating profit
|
$
|
163,870
|
|
|
$
|
174,856
|
|
Profit margin:
|
|
|
|
||||
Taste
|
24.4
|
%
|
|
24.8
|
%
|
||
Scent
|
17.6
|
%
|
|
19.4
|
%
|
||
Frutarom
|
8.0
|
%
|
|
N/A
|
|
||
Consolidated
|
12.6
|
%
|
|
18.8
|
%
|
(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 March 31, 2019
|
||
Net income
|
$
|
365.7
|
|
Interest expense
|
162.6
|
|
|
Income taxes
|
123.3
|
|
|
Depreciation and amortization
|
257.7
|
|
|
Specified items
(1)
|
158.1
|
|
|
Non-cash items
(2)
|
29.1
|
|
|
Adjusted EBITDA
|
$
|
1,096.5
|
|
(1)
|
Specified items for the 12 months ended
March 31, 2019
of
$158.1 million
consisted of
operational improvement initiatives
,
integration related costs
,
restructuring and other charges, net
,, 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)
|
March 31, 2019
|
||
Total debt
|
$
|
4,505.4
|
|
Adjustments:
|
|
||
Cash and cash equivalents
|
483.5
|
|
|
Net debt
|
$
|
4,021.9
|
|
Reconciliation of Gross Profit
|
|||||||
|
Three Months Ended March 31,
|
||||||
(DOLLARS IN THOUSANDS)
|
2019
|
|
2018
|
||||
Reported (GAAP)
|
$
|
531,259
|
|
|
$
|
405,809
|
|
Operational Improvement Initiatives (a)
|
406
|
|
|
453
|
|
||
Integration Related Costs (c)
|
156
|
|
|
—
|
|
||
FDA Mandated Product Recall (e)
|
—
|
|
|
5,000
|
|
||
Frutarom Acquisition Related Costs (g)
|
7,850
|
|
|
—
|
|
||
Adjusted (Non-GAAP)
|
$
|
539,671
|
|
|
$
|
411,262
|
|
Reconciliation of Net Income
|
|||||||||||||||||||||||||||||||
|
Three Months Ended March 31,
|
||||||||||||||||||||||||||||||
|
2019
|
|
2018
|
||||||||||||||||||||||||||||
|
Income before taxes
|
|
Taxes on income (h)
|
|
Net Income Attributable to IFF (i)
|
|
Diluted EPS
|
|
Income before taxes
|
|
Taxes on income (h)
|
|
Net Income Attributable to IFF
|
|
Diluted EPS (j)
|
||||||||||||||||
Reported (GAAP)
|
$
|
134,576
|
|
|
$
|
23,362
|
|
|
$
|
108,829
|
|
|
$
|
0.96
|
|
|
$
|
158,837
|
|
|
$
|
29,421
|
|
|
$
|
129,416
|
|
|
$
|
1.63
|
|
Operational Improvement Initiatives (a)
|
406
|
|
|
142
|
|
|
264
|
|
|
—
|
|
|
1,026
|
|
|
294
|
|
|
732
|
|
|
0.01
|
|
||||||||
Acquisition Related Costs (b)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(514
|
)
|
|
(134
|
)
|
|
(380
|
)
|
|
—
|
|
||||||||
Integration Related Costs (c)
|
14,897
|
|
|
3,349
|
|
|
11,548
|
|
|
0.10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Restructuring and Other Charges, net (d)
|
16,174
|
|
|
4,031
|
|
|
12,143
|
|
|
0.11
|
|
|
717
|
|
|
169
|
|
|
548
|
|
|
0.01
|
|
||||||||
Gains on Sale of Assets
|
(188
|
)
|
|
(43
|
)
|
|
(145
|
)
|
|
—
|
|
|
(69
|
)
|
|
(17
|
)
|
|
(52
|
)
|
|
—
|
|
||||||||
FDA Mandated Product Recall (e)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,000
|
|
|
1,196
|
|
|
3,804
|
|
|
0.05
|
|
||||||||
U.S. Tax Reform (f)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(649
|
)
|
|
649
|
|
|
0.01
|
|
||||||||
Frutarom Acquisition Related Costs (g)
|
9,529
|
|
|
1,530
|
|
|
7,999
|
|
|
0.07
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Adjusted (Non-GAAP)
|
$
|
175,394
|
|
|
$
|
32,371
|
|
|
$
|
140,638
|
|
|
$
|
1.24
|
|
|
$
|
164,997
|
|
|
$
|
30,280
|
|
|
$
|
134,717
|
|
|
$
|
1.69
|
|
(a)
|
Represents accelerated depreciation related to a plant relocation in India, as well as a lab closure in Taiwan for 2018.
|
||||||||||||
(b)
|
Represents adjustments to the contingent consideration payable for PowderPure, and transaction costs related to
Fragrance Resources and PowderPure within Selling and administrative expenses. |
||||||||||||
(c)
|
For 2019, represents costs related to the integration of the Frutarom acquisition, principally advisory services. For 2018, represents costs related to the integration of the David Michael and Fragrance Resources acquisitions.
|
||||||||||||
(d)
|
For 2019, represents severance costs related primarily to Scent. For 2018, represents severance costs related to the 2017 Productivity Program and Taiwan lab closure.
|
||||||||||||
(e)
|
Represents losses related to the FDA mandated recall.
|
||||||||||||
(f)
|
Represents charges incurred related to enactment of certain U.S. tax legislation changes in December 2017.
|
||||||||||||
(g)
|
Represents transaction-related costs and expenses related to the acquisition of Frutarom. Amount primarily includes $7.9 million of amortization for inventory "step-up" costs and $1.7 million of transaction costs included in Selling and administrative expenses.
|
||||||||||||
(h)
|
The income tax expense (benefit) on non-GAAP adjustments is computed in accordance with ASC 740 using the same methodology as the GAAP provision of income taxes. Income tax effects of non-GAAP adjustments are calculated based on the applicable statutory tax rate for each jurisdiction in which such charges were incurred, except for those items which are non-taxable for which the tax expense (benefit) was calculated at 0%. For fiscal year 2019, these non-GAAP adjustments were not subject to foreign tax credits or valuation allowances, but to the extent that such factors are applicable to any future non-GAAP adjustments we will take such factors into consideration in calculating the tax expense (benefit).
|
||||||||||||
(i)
|
For 2019, net income is reduced by income attributable to noncontrolling interest of $2.4M.
|
||||||||||||
(j)
|
The sum of these items does not foot due to rounding.
|
|
Three Months Ended
|
||
|
March 31,
|
||
|
2019
|
|
2018
|
Operating Profit:
|
|
|
|
% Change - Reported (GAAP)
|
(6.3)%
|
|
34.0%
|
Items impacting comparability
(1)
|
19.4%
|
|
(19.0)%
|
% Change - Adjusted (Non-GAAP)
|
13.1%
|
|
16.0%
|
Currency Impact
|
1.3%
|
|
(4.0)%
|
% Change Year-over-Year - Currency Neutral Adjusted (Non-GAAP)*
|
14.4%
|
|
12.0%
|
•
|
risks related to the integration of the Frutarom business, including whether we will realize the benefits anticipated from the acquisition in the expected time frame;
|
•
|
unanticipated costs, liabilities, charges or expenses resulting from the Frutarom acquisition;
|
•
|
the increase in our leverage resulting from the additional debt incurred to pay a portion of the consideration for Frutarom and its impact on our liquidity and ability to return capital to its shareholders;
|
•
|
our ability to successfully market to its expanded and decentralized Taste and Frutarom customer base;
|
•
|
our ability to effectively compete in its market and develop and introduce new products that meet customers’ needs;
|
•
|
our ability to successfully develop innovative and cost-effective products that allow customers to achieve their own profitability expectations;
|
•
|
the impact of the disruption in our manufacturing operations;
|
•
|
the impact of a disruption in our supply chain, including the inability to obtain ingredients and raw materials from third parties;
|
•
|
volatility and increases in the price of raw materials, energy and transportation;
|
•
|
our ability to comply with, and the costs associated with compliance with, regulatory requirements and industry standards, including regarding product safety, quality, efficacy and environmental impact;
|
•
|
the impact of any failure or interruption of our key information technology systems or a breach of information security;
|
•
|
our ability to react in a timely and cost-effective manner to changes in consumer preferences and demands;
|
•
|
our ability to establish and manage collaborations, joint ventures or partnership that lead to development or commercialization of products;
|
•
|
our ability to benefit from its investments and expansion in emerging markets;
|
•
|
the impact of currency fluctuations or devaluations in the principal foreign markets in which it operates;
|
•
|
economic, regulatory and political risks associated with our international operations;
|
•
|
the impact of global economic uncertainty on demand for consumer products;
|
•
|
the inability to retain key personnel;
|
•
|
our ability to comply with, and the costs associated with compliance with, U.S. and foreign environmental protection laws;
|
•
|
our ability to realize the benefits of its cost and productivity initiatives;
|
•
|
our ability to successfully manage its working capital and inventory balances;
|
•
|
the impact of the failure to comply with U.S. or foreign anti-corruption and anti-bribery laws and regulations, including the U.S. Foreign Corrupt Practices Act;
|
•
|
our ability to protect its intellectual property rights;
|
•
|
the impact of the outcome of legal claims, regulatory investigations and litigation;
|
•
|
changes in market conditions or governmental regulations relating to our pension and postretirement obligations;
|
•
|
the impact of future impairment of our tangible or intangible long-lived assets;
|
•
|
the impact of changes in federal, state, local and international tax legislation or policies, including the enacted Tax Cuts and Jobs Act, with respect to transfer pricing and state aid, and adverse results of tax audits, assessments, or disputes;
|
•
|
the effect of potential government regulation on certain product development initiatives, and restrictions or costs that may be imposed on the Company or its operations as a result; and
|
•
|
the impact of the United Kingdom’s expected departure from the European Union in 2019.
|
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
|
Dated:
|
|
May 6, 2019
|
By:
|
|
/s/ Andreas Fibig
|
|
|
|
|
|
Andreas Fibig
|
|
|
|
|
|
Chairman of the Board and Chief Executive Officer
|
|
|
|
|
|
|
Dated:
|
|
May 6, 2019
|
By:
|
|
/s/ Richard A. O'Leary
|
|
|
|
|
|
Richard A. O'Leary
|
|
|
|
|
|
Executive Vice President and Chief Financial Officer
|
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
|
(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:
|
/s/ Andreas Fibig
|
|
|
Name:
|
Andreas Fibig
|
|
|
Title:
|
Chairman of the Board and Chief Executive Officer
|
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
|
(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:
|
/s/ Richard A. O'Leary
|
|
Name:
|
Richard A. O'Leary
|
|
Title:
|
Executive Vice President and Chief Financial Officer
|
By:
|
/s/ Andreas Fibig
|
Name:
|
Andreas Fibig
|
Title:
|
Chairman of the Board and Chief Executive Officer
|
Dated:
|
May 6, 2019
|
By:
|
/s/ Richard A. O'Leary
|
Name:
|
Richard A. O'Leary
|
Title:
|
Executive Vice President and Chief Financial Officer
|
Dated:
|
May 6, 2019
|