International Flavors & Fragrances 10-Q 2022-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-4858

INTERNATIONAL FLAVORS & FRAGRANCES INC.

(Exact name of registrant as specified in its charter)

New York						13-1432060
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

521 West 57th Street, New York, NY 10019-2960

200 Powder Mill Road, Wilmington, DE 19803-2907

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (212) 765-5500

Securities registered pursuant to Section 12(b) of the Act:

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
1.750% Senior Notes due 2024						IFF 24						New York Stock Exchange
1.800% Senior Notes due 2026						IFF 26						New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer			☑			Accelerated filer			☐
Non-accelerated filer			☐			Smaller reporting company			☐
						Emerging growth company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Number of shares of common stock outstanding as of May 2, 2022: 254,838,017

INTERNATIONAL FLAVORS & FRAGRANCES INC.

TABLE OF CONTENTS

						PAGE
			PART I
ITEM 1.			Financial Information
			Consolidated Balance Sheets - March 31, 2022 and December 31, 2021			1
			Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) - Three Months Ended March 31, 2022 and 2021			2
			Consolidated Statements of Cash Flows - Three Months Ended March 31, 2022 and 2021			3
			Consolidated Statements of Shareholders' Equity - Three Months Ended March 31, 2022 and 2021			4
			Notes to Consolidated Financial Statements			5
ITEM 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			27
ITEM 3.			Quantitative and Qualitative Disclosures about Market Risk			38
ITEM 4.			Controls and Procedures			38
			PART II
ITEM 1.			Legal Proceedings			39
ITEM 1A.			Risk Factors			39
ITEM 2.			Unregistered Sales of Equity Securities and Use of Proceeds			39
ITEM 6.			Exhibits			39
Signatures						40

PART I. FINANCIAL INFORMATION

INTERNATIONAL FLAVORS & FRAGRANCES INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(DOLLARS IN MILLIONS)			March 31, 2022						December 31, 2021
ASSETS
Current Assets:
Cash and cash equivalents			$	657					$	711
Restricted cash			4						4
Trade receivables (net of allowances of $69 and $46, respectively)			2,160						1,906
Inventories: Raw materials			1,002						854
Work in process			311						287
Finished goods			1,482						1,375
Total Inventories			2,795						2,516
Assets held for sale			1,141						1,122
Prepaid expenses and other current assets			750						728
Total Current Assets			7,507						6,987
Property, plant and equipment, at cost			6,184						6,161
Accumulated depreciation			(1,889)						(1,793)
Property, plant and equipment, net			4,295						4,368
Goodwill			16,298						16,414
Other intangible assets, net			10,250						10,506
Operating lease right-of-use assets			743						767
Other assets			654						616
Total Assets			$	39,747					$	39,658
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Bank borrowings, overdrafts, and current portion of long-term debt			$	308					$	308
Commercial paper			631						324
Accounts payable			1,629						1,532
Accrued payroll and bonus			259						335
Dividends payable			202						201
Liabilities held for sale			87						101
Other current liabilities			916						832
Total Current Liabilities			4,032						3,633
Other Liabilities:
Long-term debt			10,738						10,768
Retirement liabilities			378						385
Deferred income taxes			2,454						2,518
Operating lease liabilities			653						670
Other liabilities			426						462
Total Other Liabilities			14,649						14,803
Commitments and Contingencies (Note 15)
Redeemable noncontrolling interests			101						105
Shareholders’ Equity:
Common stock $0.125 par value; 500,000,000 shares authorized; 275,726,629 shares issued as of March 31, 2022 and 275,726,629 shares issued as of December 31, 2021; and 254,804,747 and 254,573,984 shares outstanding as of March 31, 2022 and December 31, 2021, respectively			35						35
Capital in excess of par value			19,823						19,826
Retained earnings			3,683						3,641
Accumulated other comprehensive loss			(1,622)						(1,423)
Treasury stock, at cost (20,921,882 and 21,152,645 shares as of March 31, 2022 and December 31, 2021, respectively)			(986)						(997)
Total Shareholders’ Equity			20,933						21,082
Noncontrolling interest			32						35
Total Shareholders’ Equity including Noncontrolling interest			20,965						21,117
Total Liabilities and Shareholders’ Equity			$	39,747					$	39,658

See Notes to Consolidated Financial Statements

INTERNATIONAL FLAVORS & FRAGRANCES INC.

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

(Unaudited)

			Three Months Ended
			March 31,
(AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS)			2022						2021
Net sales			$	3,226					$	2,465
Cost of goods sold			2,081						1,711
Gross profit			1,145						754
Research and development expenses			157						143
Selling and administrative expenses			459						451
Amortization of acquisition-related intangibles			186						152
Restructuring and other charges			2						4
Operating profit			341						4
Interest expense			72						65
Other income, net			(16)						(7)
Income (loss) before taxes			285						(54)
Provision for (benefit from) income taxes			39						(14)
Net income (loss)			246						(40)
Net income attributable to noncontrolling interests			2						2
Net income (loss) attributable to IFF stockholders			$	244					$	(42)
Net income (loss) per share - basic			$	0.96					$	(0.21)
Net income (loss) per share - diluted			$	0.96					$	(0.21)
Average number of shares outstanding - basic			255						206
Average number of shares outstanding - diluted			255						206
Statement of Comprehensive Income (Loss)
Net income (loss)			$	246					$	(40)
Other comprehensive loss, after tax:
Foreign currency translation adjustments			(199)						(417)
Gains on derivatives qualifying as hedges			—						4

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(UNLESS INDICATED OTHERWISE, DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

The following management’s discussion and analysis should be read in conjunction with the management’s discussion and analysis of financial condition and results of operations, liquidity and capital resources included in our 2021 Annual Report on Form 10-K (“2021 Form 10-K”).

OVERVIEW

Company Background

On February 1, 2021, the Company completed its Merger with Nutrition & Biosciences, Inc. (“N&B”), a subsidiary of DuPont formed to hold the Nutrition and Biosciences business (the “N&B Business”, and such transaction, the "N&B Transaction") pursuant to an Agreement and Plan of Merger (the "Merger Agreement") with DuPont de Nemours, Inc. ("DuPont"). The shares issued in the Merger represented approximately 55.4% of the common stock of IFF on a fully diluted basis, after giving effect to the Merger, as of February 1, 2021.

As a result of the N&B Transaction, and following our 2018 acquisition of Frutarom Industries Ltd., we have expanded our global leadership positions, which now include high-value ingredients and solutions in the Food & Beverage, Home & Personal Care and Health & Wellness markets, and across key Taste, Texture, Scent, Nutrition, Enzymes, Cultures, Soy Proteins, Pharmaceutical Excipients, Biocides and Probiotics categories.

We are organized into four reportable operating segments: Nourish, Health & Biosciences, Scent, and Pharma Solutions. The Company’s consolidated financial information for the three months ended March 31, 2022 reflect the results of N&B for the full three months in the first quarter of 2022, whereas the three months ended March 31, 2021 reflect only two months of results of N&B in the first quarter of 2021.

Our Nourish segment consists of an innovative and broad portfolio of natural-based ingredients to enhance nutritional value, texture and functionality in a wide range of beverage, dairy, bakery, confectionery and culinary applications.

Our Health & Biosciences segment consists of a biotechnology-driven portfolio where enzymes, food cultures, probiotics and specialty ingredients for food and non-food applications are developed and produced. The biotechnology-driven portfolio of this segment produces cultures for use in fermented foods such as yogurt, cheese and fermented beverages. It also uses industrial fermentation to produce enzymes and microorganisms that provide product and process performance benefits to household detergents, animal feed, ethanol production and brewing. Health & Biosciences is comprised of six business units: Health, Cultures & Food Enzymes, Home & Personal Care, Animal Nutrition, Grain Processing and Microbial Control.

Our Scent segment creates fragrance compounds, fragrance ingredients and cosmetic ingredients that are integral elements in the world’s finest perfumes and best-known household and personal care products. The Scent segment is comprised of three business units: Fragrance Compounds, Fragrance Ingredients and Cosmetic Actives.

Our Pharma Solutions segment produces a vast portfolio of cellulosics and seaweed-based pharmaceutical excipients, used to improve the functionality and delivery of active pharmaceutical ingredients, including controlled or modified drug release formulations, and enabling the development of more effective pharmaceutical formulations.

Financial Measures — Currency Neutral

Changes in our financial results include the impact of changes in foreign currency exchange rates. We provide currency neutral calculations in this report to remove the impact of these items. Our method in calculating currency neutral numbers is conducted by translating current year invoiced sale amounts at the exchange rates used for the corresponding prior year period. We use currency neutral results in our analysis of subsidiary or segment performance. We also use currency neutral numbers when analyzing our performance against our competitors and believe the change in method better allows us to do so.

For the first quarter of 2022, the Company is not presenting currency neutral numbers for the Nourish, Health & Biosciences and Pharma Solutions operating segments as these operating segments include the effects of the Merger with N&B, which closed on February 1, 2021. As a result, the three months ended March 31, 2022 reflect the results of N&B for the full three months in the first quarter of 2022, whereas the three months ended March 31, 2021 reflect only two months of results of N&B in the first quarter of 2021, which do not present equally comparable periods.

Impact of COVID-19 Pandemic

On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Various policies and initiatives have been implemented around the world to reduce the global transmission of COVID-19. Although there continue to be minor disruptions, all of IFF’s manufacturing facilities remain open and continue to manufacture products.

The COVID-19 pandemic remains a serious threat to the health of the world's population and certain countries and regions continue to suffer from outbreaks or have seen a recurrence of infections, especially with the emergence of new variants of the virus. Accordingly, the Company continues to take the threat from COVID-19 seriously. The impact that COVID-19 will have on our consolidated results of operations for the remainder of 2022 remains uncertain. Due to the length and severity of COVID-19, there is continued volatility as a result of retail and travel, consumer shopping and consumption behavior. Moreover, as a result of disruptions or uncertainty relating to the COVID-19 pandemic, we are experiencing, and may continue to experience, increased costs, delays or limited availability related to raw materials, strain on shipping and transportation resources, and higher energy prices, which have negatively impacted, and may continue to negatively impact, our margins and operating results. We will continue to evaluate the nature and extent of these potential impacts to our business, consolidated results of operations, segment results, liquidity and capital resources.

Although IFF has not experienced and does not currently anticipate any impairment charges related to COVID-19, the continuing effects of a prolonged pandemic could result in increased risk of asset write-downs and impairments. Any of these events could potentially result in a material adverse impact on IFF’s business and results of operations.

For more detailed information about risks related to COVID-19, refer to Part I, Item 1A, “Risk Factors,” of our 2021 Form 10-K filed on February 28, 2022 with the SEC.

Impact of the Events in Russia and Ukraine

We maintain operations in both Russia and Ukraine and, additionally, export products to customers in Russia and Ukraine from operations outside the region. In response to the events in Ukraine, we have limited the production and supply of ingredients in and to Russia to only those that meet the essential needs of people, including food, hygiene and medicine.

In 2021, total sales to Russian customers were approximately 2% of total sales. For the three months ended March 31, 2022 sales to Russian customers were also approximately 2% of total sales.

In 2021, total sales to Ukrainian customers were less than 1% of total sales. For the three months ended March 31, 2022 sales to Ukrainian customers were also less than 1% of total sales.

For the first quarter of 2022, we recorded a charge of approximately $20 million related to expected credit losses on receivables from customers located in Russia and Ukraine (for both export and domestic sales) and performed a test of recoverability of certain long-lived assets in the affected countries. For additional information, refer to Note 1 to the Consolidated Financial Statements and Part I, Item 1A, “Risk Factors,” of our 2021 Form 10-K filed on February 28, 2022 with the SEC.

Financial Performance Overview

For a reconciliation between reported and adjusted figures, please refer to the "Non-GAAP Financial Measures" section.

Sales

Sales in the first quarter of 2022 increased $761 million, or 31% on a reported basis, to $3.226 billion compared to $2.465 billion in the 2021 period. Sales included approximately $568 million of incremental sales attributable to N&B for the month of January in the 2022 period. In addition, the increase in sales was driven by volume and price increases across the business.

Gross Profit

Gross profit in the first quarter of 2022 increased $391 million, or 52% on a reported basis, to $1.145 billion (35.5% of sales) compared to $754 million (30.6% of sales) in the 2021 period. Gross profit included approximately $179 million attributable to N&B for the month of January in the 2022 period. In addition, the increase in gross profit was driven by price and volume increases in the overall business.

Adjusted Operating EBITDA

Adjusted operating EBITDA in the first quarter of 2022 increased $133 million, or 23% on a reported basis, to $702 million (21.8% of sales) compared to $569 million (23.1% of sales) in the comparable 2021 period. Adjusted operating EBITDA included approximately $137 million attributable to N&B for the month of January in the 2022 period.

RESULTS OF OPERATIONS

			Three Months Ended
			March 31,
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)			2022						2021						Change
Net sales			$	3,226					$	2,465					31		%
Cost of goods sold			2,081						1,711						22		%
Gross profit			1,145						754						52		%
Research and development (R&D) expenses			157						143						10		%
Selling and administrative (S&A) expenses			459						451						2		%
Amortization of acquisition-related intangibles			186						152						22		%
Restructuring and other charges			2						4						(50)		%
Operating profit			341						4						NMF
Interest expense			72						65						11		%
Other income, net			(16)						(7)						129		%
Income (loss) before taxes			285						(54)						NMF
Provision for (benefit from) income taxes			39						(14)						NMF
Net income (loss)			$	246					$	(40)					NMF
Net income attributable to noncontrolling interests			2						2						—		%
Net income (loss) attributable to IFF stockholders			$	244					$	(42)					NMF
Net income (loss) per share - diluted			$	0.96					$	(0.21)					NMF
Gross margin			35.5		%				30.6		%				490		bps
R&D as a percentage of sales			4.9		%				5.8		%				(90)		bps
S&A as a percentage of sales			14.2		%				18.3		%				(410)		bps
Operating margin			10.6		%				0.2		%				NMF
Effective tax rate			13.7		%				25.9		%				NMF
Segment net sales
Nourish			$	1,731					$	1,308					32		%
Health & Biosciences			661						426						55		%
Scent			585						569						3		%
Pharma Solutions			249						162						54		%
Consolidated			$	3,226					$	2,465

---

NMF: Not meaningful

Cost of goods sold includes the cost of materials and manufacturing expenses. R&D includes expenses related to the development of new and improved products and technical product support. S&A expenses include expenses necessary to support our commercial activities and administrative expenses supporting our overall operating activities including compliance with governmental regulations.

FIRST QUARTER 2022 IN COMPARISON TO FIRST QUARTER 2021

Sales

Sales for the first quarter of 2022 increased $761 million, or 31% on a reported basis, to $3.226 billion, compared to $2.465 billion in the prior year quarter. Sales included approximately $568 million of incremental sales attributable to N&B for the month of January in the 2022 period. In addition, the increase in sales was driven by volume and price increases across the business.

Sales Performance by Segment

			% Change in Sales - First Quarter 2022 vs. First Quarter 2021
			Reported						Currency Neutral**(1)**
Nourish			32		%				NMF
Health & Biosciences			55		%				NMF
Scent			3		%				6		%
Pharma Solutions			54		%				NMF
Total			31		%				NMF

---

(1)Currency neutral sales growth is calculated by translating current year invoiced sale amounts at the exchange rates for the corresponding prior year period.

NMF: Not meaningful

Nourish

Nourish sales in 2022 increased $423 million, or 32% on a reported basis, to $1.731 billion compared to $1.308 billion in the prior year period. Nourish sales included approximately $293 million of incremental sales attributable to N&B for the month of January in the 2022 period. In addition, performance in the Nourish operating segment was driven by price and volume increases, with price increases primarily in the Ingredients and Food Design business units and volume increases primarily in the Flavors and Food Design business units.

Health & Biosciences

Health & Biosciences sales in 2022 increased $235 million, or 55% on a reported basis, to $661 million compared to $426 million in the prior year period. Health & Biosciences sales included approximately $202 million of incremental sales attributable to N&B for the month of January in the 2022 period. In addition, performance in the Health & Biosciences operating segment was primarily driven by volume increases across various business units.

Scent

Scent sales in 2022 increased $16 million, or 3% on a reported basis, to $585 million, compared to $569 million in the prior year period. On a currency neutral basis, Scent sales increased 6% in the 2022 period. Sales growth in the Scent operating segment was driven by volume and price increases in both Fragrance Compounds and Fragrance Ingredients, offset by unfavorable impacts from exchange rate variations.

Pharma Solutions

Pharma Solutions sales in 2022 increased $87 million, or 54% on a reported basis, to $249 million compared to $162 million in the prior year period. Pharma Solutions sales included approximately $73 million of incremental sales attributable to N&B for the month of January in the 2022 period. In addition, performance in the Pharma Solutions operating segment was primarily driven by price and volume increases.

Cost of Goods Sold

Cost of goods sold increased $370 million to $2.081 billion (64.5% of sales) in the first quarter of 2022 compared to $1.711 billion (69.4% of sales) in the first quarter of 2021. Cost of goods sold included approximately $389 million of incremental costs attributable to N&B for the month of January in the 2022 period.

Research and Development (R&D) Expenses

R&D expenses increased $14 million to $157 million (4.9% of sales) in the first quarter of 2022 compared to $143 million (5.8% of sales) in the first quarter of 2021. R&D expenses included approximately $20 million of incremental expenses attributable to N&B for the month of January in the 2022 period, which consisted primarily of employee related expenses, including salaries, wages and bonuses and operating expenses for R&D related activities, primarily offset by lower Applied R&D expenses.

Selling and Administrative (S&A) Expenses

S&A expenses increased $8 million to $459 million (14.2% of sales) in the first quarter of 2022 compared to $451 million (18.3% of sales) in the first quarter of 2021. S&A expenses included approximately $51 million of incremental expenses attributable to N&B for the month of January in the 2022 period, which consisted primarily of employee related expenses, including salaries, wages and bonuses, primarily offset by lower administrative expenses principally due to lower professional fees, including consulting costs.

Restructuring and Other Charges

Restructuring and other charges decreased to $2 million in the first quarter of 2022 compared to $4 million in the first quarter of 2021. The decrease was driven by lower severance costs in the first quarter of 2022 (see Note 4 for additional information).

Amortization of Acquisition-Related Intangibles

Amortization expenses increased to $186 million in the first quarter of 2022 compared to $152 million in the first quarter of 2021. Amortization expense included approximately $47 million attributable to N&B for the month of January in the 2022 period related to the intangible assets acquired through the Merger with N&B (see Notes 3 and 5 for additional information).

Interest Expense

Interest expense increased to $72 million in the first quarter of 2022 compared to $65 million in the 2021 period. Interest expense included approximately $13 million attributable to N&B for the month of January in the 2022 period, which included the impact of the additional debt assumed in the Merger with N&B (see Note 7 for additional information). Average cost of debt was 2.5% for the 2022 period compared to 3.8% for the 2021 period.

Other Income, Net

In the first quarter of 2022, we recognized other income, net, of $16 million compared to $7 million in the 2021 period. The change of $9 million includes approximately $6 million attributable to N&B for the month of January in the 2022 period. In addition, the change, excluding the impact of N&B for the month of January in the 2022 period, was due to foreign exchange gains in the first quarter of 2022 compared to foreign exchange losses in the 2021 period.

Income Taxes

The effective tax rate for the three months ended March 31, 2022 was 13.7% compared to 25.9% for the three months ended March 31, 2021. The quarter-over-quarter decrease was primarily due to a favorable mix of earnings and a one-time benefit associated with the proceedings of a bi-lateral advance pricing agreement.

Segment Adjusted Operating EBITDA Results by Business Unit

The Company uses Segment Adjusted Operating EBITDA for internal reporting and performance measurement purposes. Segment Adjusted Operating EBITDA is defined as Income Before Taxes before depreciation and amortization expense, interest expense, restructuring and other charges and certain non-recurring items. Our determination of reportable segments was made on the basis of our strategic priorities within each segment and corresponds to the manner in which our Chief Operating Decision Maker reviews and evaluates operating performance to make decisions about resources to be allocated to the segment. In addition to our strategic priorities, segment reporting is also based on differences in the products and services we provide.

			Three Months Ended March 31,
(DOLLARS IN MILLIONS)			2022						2021
Segment Adjusted Operating EBITDA:
Nourish			$	329					$	270
Health & Biosciences			192						128
Scent			116						128
Pharma Solutions			65						43
Total			702						569
Depreciation & Amortization			(303)						(242)
Interest Expense			(72)						(65)
Other income, net			16						7
Restructuring and Other Charges			(2)						(4)
Shareholder Activism Related Costs			(3)						(7)
Business Divestiture Costs			(30)						—
Employee Separation Costs			(4)						(3)
Frutarom Acquisition Related Costs			(1)						—
N&B Inventory Step-Up Costs			—						(182)
N&B Transaction Related Costs			—						(89)
Integration Related Costs			(18)						(38)
Income (Loss) Before Taxes			$	285					$	(54)
Segment Adjusted Operating EBITDA margin:
Nourish			19.0		%				20.6		%
Health & Biosciences			29.0		%				30.0		%
Scent			19.8		%				22.5		%
Pharma Solutions			26.1		%				26.5		%
Consolidated			21.8		%				23.1		%

Nourish Segment Adjusted Operating EBITDA

Nourish Segment Adjusted Operating EBITDA increased $59 million to $329 million in the first quarter of 2022 (19.0% of segment sales) from $270 million (20.6% of segment sales) in the comparable 2021 period. Nourish Segment Adjusted Operating EBITDA included approximately $65 million attributable to N&B for the month of January in the 2022 period.

Health & Biosciences Segment Adjusted Operating EBITDA

Health & Biosciences Segment Adjusted Operating EBITDA increased $64 million to $192 million in the first quarter of 2022 (29.0% of segment sales) from $128 million (30.0% of segment sales) in the comparable 2021 period. Health & Biosciences Segment Adjusted Operating EBITDA included approximately $60 million attributable to N&B for the month of January in the 2022 period. In addition, the increase was driven by volume increases across various business units in the operating segment. The decrease in Health & Biosciences Segment Adjusted Operating EBITDA margin, as a percentage of sales, excluding the impact of N&B for the month of January in the 2022 period, was due to an increase in cost of goods sold as a result of higher commodity prices.

Scent Segment Adjusted Operating EBITDA

Scent Segment Adjusted Operating EBITDA decreased $12 million to $116 million in the first quarter of 2022 (19.8% of segment sales) from $128 million (22.5% of segment sales) in the comparable 2021 period. The decrease reflected increases in material costs and unfavorable impacts from exchange rate variations in the operating segment, partially offset by volume increases.

Pharma Solutions Segment Adjusted Operating EBITDA

Pharma Solutions Segment Adjusted Operating EBITDA increased $22 million to $65 million in the first quarter of 2022 (26.1% of segment sales) from $43 million (26.5% of segment sales). Pharma Solutions Segment Adjusted Operating EBITDA included approximately $12 million attributable to N&B for the month of January in the 2022 period. In addition, the increase was driven by price and volume increases. The increase in Pharma Solutions Segment Adjusted Operating EBITDA margin, as a percentage of sales, excluding the impact of N&B for the month of January in the 2022 period, was due to a greater increase in sales than cost of goods sold, which helped to offset the impact of the increase in the cost of goods sold as a result of higher commodity prices.

Liquidity

Cash and Cash Equivalents

We had cash and cash equivalents of $657 million at March 31, 2022 compared to $711 million at December 31, 2021 and of this balance, a portion was held outside the United States. Cash balances held in foreign jurisdictions are, in most circumstances, available to be repatriated to the United States.

Effective utilization of the cash generated by our international operations is a critical component of our strategy. We regularly repatriate cash from our non-U.S. subsidiaries to fund financial obligations in the U.S. As we repatriate these funds to the U.S. we will be required to pay income taxes in certain U.S. states and applicable foreign withholding taxes during the period when such repatriation occurs. Accordingly, as of March 31, 2022, we had a deferred tax liability of approximately $87 million for the effect of repatriating the funds to the U.S., attributable to various non-U.S. subsidiaries. There is no deferred tax liability associated with non-U.S. subsidiaries where we intend to indefinitely reinvest the earnings to fund local operations and/or capital projects.

Cash Flows (Used In) Provided By Operating Activities

Cash flows used in operating activities for the three months ended March 31, 2022 was $4 million, or (0.1)% of sales, compared to cash provided by operating activities of $358 million, or 14.5% of sales, for the three months ended March 31, 2021. The decrease in cash flows from operating activities during 2022 was primarily driven by changes related to inventories, accounts receivables, accrual for incentive compensation, accounts payable and accrued expenses, largely offset by higher cash earnings excluding the impact of non-cash adjustments.

Working capital (current assets less current liabilities) totaled $3.475 billion and $3.354 billion at March 31, 2022 and December 31, 2021, respectively.

We have various factoring agreements in the U.S. and The Netherlands under which we can factor up to approximately $250 million in receivables. In addition, we have factoring agreements sponsored by certain customers. Under all of the arrangements, we sell the receivables on a non-recourse basis to unrelated financial institutions and account for the transactions as a sale of receivables. The applicable receivables are removed from our Consolidated Balance Sheets when the cash proceeds are received.

The impact on cash provided by operations from participating in these programs decreased approximately $45 million and increased approximately $29 million for the three months ended March 31, 2022 and 2021, respectively. The cost of participating in these programs was approximately $1 million for both the three months ended March 31, 2022 and 2021.

Cash Flows (Used In) Provided By Investing Activities

Cash flows used in investing activities during the first three months of 2022 was $121 million compared to $115 million provided by investing activities in the prior year period. The decrease in cash flows from investing activities was primarily driven by the change in cash provided by the Merger with N&B in the current year period, which was related to a pension true-up payment received from DuPont. Additionally, the decrease was due to higher spending on property, plant and equipment in the current year period.

We have evaluated and re-prioritized our capital projects and expect that capital spending in 2022 will be approximately 5.0% of sales (net of potential grants and other reimbursements from government authorities), up from 3.4% in 2021.

Cash Flows Provided By (Used In) Financing Activities

Cash flows provided by financing activities in the first three months of 2022 was $95 million compared to $215 million used in financing activities in the prior year period. The increase in cash flows from financing activities was primarily driven by higher proceeds from issuance of commercial paper, net of repayments, slight increase in short-term debt compared to repayments of short-term debt from the prior year period, less repayments of long-term debt and less contingent considerations paid, largely offset by higher cash dividend payments, higher employee taxes paid and higher purchases of noncontrolling interest.

We paid dividends totaling $201 million in the 2022 period. We declared a cash dividend per share of $0.79 in the first quarter of 2022 that was paid on April 6, 2022 to all shareholders of record as of March 25, 2022.

Our capital allocation strategy seeks to maintain our investment grade rating while investing in the business and continuing to pay dividends and repaying debt. We make capital investments in our businesses to support our operational needs and strategic long term plans. We are committed to maintaining our history of paying a dividend to investors which is determined by our Board of Directors at its discretion based on various factors.

We currently have a board approved stock repurchase program with a total remaining value of $280 million. As of May 7, 2018, we have suspended our share repurchases.

Capital Resources

Operating cash flow provides the primary source of funds for capital investment needs, dividends paid to shareholders and debt service repayments. We anticipate that cash flows from operations and availability under our existing credit facilities will be sufficient to meet our investing and financing needs. We regularly assess our capital structure, including both current and long-term debt instruments, as compared to our cash generation and investment needs in order to provide ample flexibility and to optimize our leverage ratios. We believe our existing cash balances are sufficient to meet our debt service requirements.

Refer to Note 7 for additional information.

Revolving Credit Facility and Term Loans

As of March 31, 2022, we had no outstanding borrowings under our $2.000 billion Revolving Credit Facility. The amount that we are able to draw down under the Revolving Credit Facility is limited by financial covenants as described in more detail below. As of March 31, 2022, our draw down capacity was $842 million under the Revolving Credit Facility.

Refer to Note 7 of this Form 10-Q and Part IV, Item 15, "Exhibits and Financial Statement Schedules," Note 9 of our 2021 Form 10-K, filed on February 28, 2022, for additional information.

Debt Covenants

At March 31, 2022, we were in compliance with all financial and other covenants, including the Net Debt to Credit Adjusted EBITDA ratio. At March 31, 2022 our Net Debt/Credit Adjusted EBITDA(1) ratio was 4.18 to 1.0 as defined by the credit facility agreements, which is below the financial covenants of existing outstanding debt.

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(1)Credit 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 Credit Adjusted EBITDA and Net Debt used by other companies. Reconciliations of Credit Adjusted EBITDA to net income and net debt to total debt are as follows:

(DOLLARS IN MILLIONS)			Twelve Months Ended March 31, 2022
Net income			$	556
Interest expense			296
Income taxes			128
Depreciation and amortization			1,217
Specified items(1)			405
Non-cash items(2)			38
Credit Adjusted EBITDA			$	2,640

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(1)Specified items for the 12 months ended March 31, 2022 of $405 million, consisted of restructuring and other charges, shareholder activism related costs, business divestiture costs, employee separation costs, pension income adjustment, pension settlement, Frutarom acquisition related costs, N&B inventory step-up costs, N&B transaction related costs and integration 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 gains on disposal of assets, gains on business disposal and stock-based compensation.

(DOLLARS IN MILLIONS)			March 31, 2022
Total debt(1)			$	11,695
Adjustments:
Cash and cash equivalents			657
Net debt			$	11,038

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(1)Total debt used for the calculation of Net debt consists of short-term debt, long-term debt, short-term finance lease obligations and long-term finance lease obligations.

Senior Notes

As of March 31, 2022, we had $9.691 billion aggregate principal amount outstanding in senior unsecured notes, with $1.441 billion principal amount denominated in EUR and $8.250 billion principal amount denominated in USD, which includes the N&B Senior Notes assumed as a result of the Merger. The notes bear interest ranging from 0.69% per year to 5.12% per year, with maturities from September 2022 to December 1, 2050. See Note 7 for additional information.

Contractual Obligations

We expect to contribute a total of $5 million to our U.S. pension plans and a total of $33 million to our non-U.S. pension plans during 2022. During the three months ended March 31, 2022, there were no contributions made to the qualified U.S. pension plans, $7 million of contributions were made to the non-U.S. pension plans, and $1 million of benefit payments were made with respect to our non-qualified U.S. pension plan. We also expect to contribute $4 million to our postretirement benefits other than pension plans during 2022. During the three months ended March 31, 2022, $1 million of contributions were made to postretirement benefits other than pension plans.

As discussed in Note 15 to the Consolidated Financial Statements, at March 31, 2022, we had entered into various guarantees and had undrawn outstanding letters of credit from financial institutions. These arrangements reflect ongoing business operations, including commercial commitments, and governmental requirements associated with audits or litigation that are in process with various jurisdictions. Based on the current facts and circumstances, these arrangements are not reasonably likely to have a material impact on our consolidated financial condition, results of operations, or cash flows.

New Accounting Standards

Refer to Note 1 to the Consolidated Financial Statements for a discussion of recent accounting pronouncements.

Non-GAAP Financial Measures

We use non-GAAP financial measures in this Form 10-Q, including: (i) currency neutral metrics and (ii) adjusted operating EBITDA and adjusted operating EBITDA margin. We also provide the non-GAAP measure net debt solely for the purpose of providing information on the extent to which the Company is in compliance with debt covenants contained in its debt agreements. Our non-GAAP financial measures are defined below.

These non-GAAP financial measures are intended to provide additional information regarding our underlying operating results and comparable year-over-year performance. Such information is supplemental to information presented in accordance with GAAP and is not intended to represent a presentation in accordance with GAAP. In discussing our historical and expected future results and financial condition, we believe it is meaningful for investors to be made aware of and to be assisted in a better understanding of, on a period-to-period comparable basis, financial amounts both including and excluding these identified items, as well as the impact of exchange rate fluctuations. These non-GAAP measures should not be considered in isolation or as substitutes for analysis of the Company’s results under GAAP and may not be comparable to other companies’ calculation of such metrics.

Adjusted operating EBITDA and adjusted operating EBITDA margin exclude depreciation and amortization expense, interest expense, other income (expense), net, restructuring and other charges and certain non-recurring items such as shareholder activism related costs, business divestiture costs, employee separation costs, Frutarom acquisition related costs, N&B inventory step-up costs, N&B transaction related costs and integration related costs.

Net Debt to Credit Adjusted EBITDA is the leverage ratio used in our credit agreement and defined as Net Debt divided by Credit Adjusted EBITDA. However, as Credit Adjusted EBITDA for these purposes was calculated in accordance with the provisions of the credit agreement, it may differ from the calculation used for adjusted operating EBITDA.

Cautionary Statement Under the Private Securities Litigation Reform Act of 1995

Statements in this Form 10-Q, which are not historical facts or information, are “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management’s current assumptions, estimates and expectations including those concerning (i) the impacts of COVID-19 and our plans to respond to its implications; (ii) the expected impact of global supply chain challenges; (iii) expectations regarding sales and profit for the fiscal year 2022, including the impact of foreign exchange, pricing actions, raw materials, and sourcing, logistics and manufacturing costs; (iv) expectations of the impact of inflationary pressures and the pricing actions to offset exposure to such impacts; (v) the impact of high input costs, including raw materials, transportation and energy; (vi) our ability to drive cost discipline measures and the ability to recover margin to pre-inflation levels; (vii) the divestiture of our Microbial Control business and the progress of our portfolio optimization strategy, through non-core business divestitures; (viii) our combination with N&B, including the expected benefits and synergies of the N&B Transaction and future opportunities for the combined company; (ix) the success of our integration efforts and ability to deliver on our synergy commitments as well as future opportunities for the combined company; (x) our ability to achieve the anticipated benefits of the Frutarom acquisition, including $145 million of expected synergies; (xi) the growth potential of the markets in which we operate, including the emerging markets, (xii) expected capital expenditures in 2022; (xiii) the expected costs and benefits of our ongoing optimization of our manufacturing operations, including the expected number of closings; (xiv) expected cash flow and availability of capital resources to fund our operations and meet our debt service requirements; (xv) our ability to innovate and execute on specific consumer trends and demands; and (xvi) our ability to continue to generate value for, and return cash to, our shareholders. These forward-looking statements should be evaluated with consideration given to the many risks and uncertainties inherent in our business that could cause actual results and events to differ materially from those in the forward-looking statements. Certain of such forward-looking information may be identified by such terms as “expect”, “anticipate”, “believe”, “intend”, “outlook”, “may”, “estimate”, “should”, “predict” and similar terms or variations thereof. Such forward-looking statements are based on a series of expectations, assumptions, estimates and projections about the Company, are not guarantees of future results or performance, and involve significant risks, uncertainties and other factors, including assumptions and projections, for all forward periods. Our actual results may differ materially from any future results expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include, among others, the following:

• inflationary trends in the price of our input costs, such as raw materials, transportation and energy;

• supply chain disruptions, geopolitical developments, including the Russia-Ukraine conflict, or climate-change related events (including severe weather events) that may affect our suppliers or procurement of raw materials;

• disruption in the development, manufacture, distribution or sale of our products from COVID-19 and other public health crises;

• risks related to the integration of N&B and the Frutarom business, including whether we will realize the benefits anticipated from the acquisitions in the expected time frame;

• our ability to successfully establish and manage acquisitions, collaborations, joint ventures or partnerships, or the failure to close strategic transactions or divestments;

• our ability to successfully market to our expanded and diverse customer base;

• our substantial amount of indebtedness and its impact on our liquidity and ability to return capital to its shareholders;

• our ability to effectively compete in our market and develop and introduce new products that meet customers’ needs;

• our ability to retain key employees;

• changes in demand from large multi-national customers due to increased competition and our ability to maintain “core list” status with customers;

• our ability to successfully develop innovative and cost-effective products that allow customers to achieve their own profitability expectations;

• disruption in the development, manufacture, distribution or sale of our products from natural disasters, public health crises, international conflicts, terrorist acts, labor strikes, political crisis, accidents and similar events;

• volatility and increases in the price of raw materials, energy and transportation;

• the impact of a significant data breach or other disruption in our information technology systems, and our ability to comply with data protection laws in the U.S. and abroad;

• 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;

• our ability to meet increasing consumer, customer, shareholder and regulatory focus on sustainability;

• defect, quality issues (including product recalls), inadequate disclosure or misuse with respect to the products and capabilities;

• our ability to react in a timely and cost-effective manner to changes in consumer preferences and demands, including increased awareness of health and wellness;

• our ability to benefit from our investments and expansion in emerging markets;

• the impact of currency fluctuations or devaluations in the principal foreign markets in which we operate;

• economic, regulatory and political risks associated with our international operations;

• the impact of global economic uncertainty on demand for consumer products;

• our ability to comply with, and the costs associated with compliance with, U.S. and foreign environmental protection laws;

• our ability to successfully manage our 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;

• any impairment on our tangible or intangible long-lived assets, including goodwill associated with the N&B merger and the acquisition of Frutarom;

• our ability to protect our 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 changes in federal, state, local and international tax legislation or policies, including the Tax Cuts and Jobs Act, with respect to transfer pricing and state aid, and adverse results of tax audits, assessments, or disputes;

• the impact of the United Kingdom’s departure from the European Union;

• the impact of the phase out of the London Interbank Offered Rate (LIBOR) on interest expense; and

• risks associated with our CEO transition, including the impact of employee hiring and retention.

The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by the Company (such as in our other filings with the SEC or in company press releases) for other factors that may cause actual results to differ materially from those projected by the Company. Please refer to Part I. Item 1A., Risk Factors of the 2021 Form 10-K for additional information regarding factors that could affect our results of operations, financial condition and liquidity.

We intend our forward-looking statements to speak only as of the time of such statements and do not undertake or plan to update or revise them as more information becomes available or to reflect changes in expectations, assumptions or results. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this report or included in our other periodic reports filed with the SEC could materially and adversely impact our operations and our future financial results.

Any public statements or disclosures made by us following this report that modify or impact any of the forward-looking statements contained in or accompanying this report will be deemed to modify or supersede such outlook or other forward-looking statements in or accompanying this report.

There are no material changes in market risk from the information provided in our 2021 Form 10-K, except for the cross currency swap agreements.

We use derivative instruments as part of our interest rate risk management strategy. We have entered into certain cross currency swap agreements in order to mitigate a portion of our net European investments from foreign currency risk. As of March 31, 2022, these swaps were in a net liability position with an aggregate fair value of $6 million. Based on a hypothetical decrease or increase of 10% in the value of the U.S. dollar against the Euro, the estimated fair value of our cross currency swaps would change by approximately $176 million.

(a) Disclosure Controls and Procedures

The Chief Executive Officer and Chief Financial Officer, with the assistance of other members of our management, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

We have established controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control over Financial Reporting

The Chief Executive Officer and Chief Financial Officer have also concluded that there have not been any changes in our internal control over financial reporting during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

For information that updates the disclosures set forth under Part I, Item 3. "Legal Proceedings" in our 2021 Annual Report on Form 10-K (the "2021 Form 10-K"), refer to Note 15 to the "Consolidated Financial Statements" in this Form 10-Q.

Refer to Part I, Item 1A, “Risk Factors,” of our 2021 Form 10-K, filed on February 28, 2022 with the SEC, and the information contained in this Quarterly Report on Form 10-Q and our other reports and registration statements filed with the SEC. There have been no material changes with respect to the risk factors disclosed in our 2021 Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

31.1						Certification of Frank Clyburn pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of Glenn Richter pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32						Certification of Frank Clyburn and Glenn Richter pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002.
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
104						Cover Page Interactive File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated:						May 9, 2022			By:						/s/ Frank Clyburn
															Frank Clyburn
															Chief Executive Officer and Director (Principal Executive Officer)
Dated:						May 9, 2022			By:						/s/ Glenn Richter
															Glenn Richter
															Executive Vice President and Chief Financial Officer (Principal Financial Officer)
Dated:						May 9, 2022			By:						/s/ Robert Anderson
															Robert Anderson
															Senior Vice President, Corporate Controller and Chief Accounting Officer (Principal Accounting Officer)