Item 1. FINANCIAL STATEMENTS.

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Item 1. FINANCIAL STATEMENTS.

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
Pension and postretirement liability adjustment	—		9
Other comprehensive loss	(199)		(404)
Comprehensive income (loss)	47		(444)
Net income attributable to noncontrolling interests	2		2
Comprehensive income (loss) attributable to IFF stockholders	$	45	$	(446)

See Notes to Consolidated Financial Statements

INTERNATIONAL FLAVORS & FRAGRANCES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
(DOLLARS IN MILLIONS)	2022		2021
Cash flows from operating activities:
Net income (loss)	$	246	$	(40)
Adjustments to reconcile to net cash (used in) provided by operating activities
Depreciation and amortization	303		242
Deferred income taxes	(65)		(86)

Stock-based compensation	9		11
Pension contributions	(8)		(9)





Amortization of inventory step-up	—		182
Changes in assets and liabilities, net of acquisitions:
Trade receivables	(272)		(175)
Inventories	(311)		(64)
Accounts payable	178		250
Accruals for incentive compensation	(101)		(22)
Other current payables and accrued expenses	39		48


Other assets/liabilities, net	(22)		21
Net cash (used in) provided by operating activities	(4)		358
Cash flows from investing activities:

Additions to property, plant and equipment	(132)		(93)
Additions to intangible assets	(2)		—


Proceeds from disposal of assets	2		1
Cash provided by the Merger with N&B	11		207


Net cash (used in) provided by investing activities	(121)		115
Cash flows from financing activities:
Cash dividends paid to shareholders	(201)		(82)
Increase (decrease) in revolving credit facility and short-term borrowings	1		(104)
Proceeds from issuance of commercial paper (maturities after three months)	155		—
Repayments of commercial paper (maturities after three months)	(75)		—
Net borrowings of commercial paper (maturities less than three months)	227		—

Repayments of long-term debt	—		(12)

Contingent consideration paid	—		(14)

Purchases of noncontrolling interest	(6)		—


Proceeds from issuance of stock in connection with stock options	7		3
Employee withholding taxes paid	(13)		(6)

Net cash provided by (used in) financing activities	95		(215)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(24)		(37)
Net change in cash, cash equivalents and restricted cash	(54)		221
Cash, cash equivalents and restricted cash at beginning of year	716		660
Cash, cash equivalents and restricted cash at end of period	$	662	$	881
Supplemental Disclosures:
Interest paid, net of amounts capitalized	$	45	$	42
Income taxes paid	78		36
Accrued capital expenditures	64		21

See Notes to Consolidated Financial Statements

INTERNATIONAL FLAVORS & FRAGRANCES INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)


(DOLLARS IN MILLIONS)	Common stock				Capital in excess of par value		Retained earnings		Accumulated other comprehensive (loss) income		Treasury stock			Non-controlling interest		Total
Shares		Cost	Shares		Cost
Balance at January 1, 2021	128,526,137		$	16	$	3,853	$	4,156	$	(698)	(21,588,147)	$	(1,017)	$	12	$	6,322
Net loss							(42)							1		(41)

Cumulative translation adjustment									(417)							(417)
Gains on derivatives qualifying as hedges; net of tax of $(1)									4							4
Pension liability and postretirement adjustment; net of tax of $1									9							9
Cash dividends declared ($0.77 per share)							(192)									(192)
Stock options/SSARs					1						98,729	5				6

Vested restricted stock units and awards					(4)						82,461	4				—
Stock-based compensation					11											11
Impact of N&B Merger	141,740,461		18		15,936									26		15,980

Redeemable NCI					(1)											(1)

Balance at March 31, 2021	270,266,598		$	34	$	19,796	$	3,922	$	(1,102)	(21,406,957)	$	(1,008)	$	39	$	21,681


(DOLLARS IN MILLIONS)	Common stock				Capital in excess of par value		Retained earnings		Accumulated other comprehensive (loss) income		Treasury stock			Non-controlling interest		Total
Shares		Cost	Shares		Cost
Balance at January 1, 2022	275,726,629		$	35	$	19,826	$	3,641	$	(1,423)	(21,152,645)	$	(997)	$	35	$	21,117
Net income							244							2		246

Cumulative translation adjustment									(199)							(199)


Cash dividends declared ($0.79 per share)							(202)									(202)
Stock options/SSARs					9						80,153	4				13

Vested restricted stock units and awards					(22)						150,610	7				(15)
Stock-based compensation					9											9
Purchases of NCI					1									(5)		(4)



Balance at March 31, 2022	275,726,629		$	35	$	19,823	$	3,683	$	(1,622)	(20,921,882)	$	(986)	$	32	$	20,965

See Notes to Consolidated Financial Statements

INTERNATIONAL FLAVORS & FRAGRANCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

International Flavors & Fragrances Inc. and its subsidiaries (the “Registrant,” “IFF,” “the Company,” “we,” “us” and “our”) is a leading creator and manufacturer of food, beverage, health & biosciences, scent and pharma solutions and complementary adjacent products, including cosmetic active and natural health ingredients, which are used in a wide variety of consumer products. Our products are sold principally to manufacturers of perfumes and cosmetics, hair and other personal care products, soaps and detergents, cleaning products, dairy, meat and other processed foods, beverages, snacks and savory foods, sweet and baked goods, sweeteners, dietary supplements, food protection, infant and elderly nutrition, functional food, and pharmaceutical excipients and oral care products.

Basis of Presentation

The accompanying interim Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the related notes included in our 2021 Annual Report on Form 10-K (“2021 Form 10-K”).

The interim Consolidated Financial Statements are unaudited. In addition, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted, if not materially different from the 2021 Form 10-K. The year-end balance sheet data included in this Form 10-Q was derived from the audited financial statements. In the opinion of management, all adjustments, which consist of normal recurring adjustments necessary for a fair statement of the interim Consolidated Financial Statements, have been made.

On February 1, 2021 (the “Closing Date”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), the Company completed the combination (the "Merger") of IFF and DuPont de Nemours, Inc (“DuPont”) nutrition and biosciences business (the “N&B Business”), which had been transferred to Nutrition and Biosciences, Inc., a Delaware corporation and wholly owned subsidiary of DuPont ("N&B") in a Reverse Morris Trust transaction. See Note 3 for additional information. As a result, the Company’s Consolidated Financial Statements 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.

Reporting Periods

The Company uses a calendar year of the twelve-month period from January 1 to December 31.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. The inputs into our judgments and estimates take into account the current economic implications of the novel coronavirus ("COVID-19") and the potential impairment of assets arising from the recent events in Russia and Ukraine on our critical and significant accounting estimates, including estimates associated with future cash flows that are used in assessing the risk of impairment of certain long-lived assets. Actual results could differ from those estimates.

Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash reported in the Company's balance sheet as of March 31, 2022, December 31, 2021, March 31, 2021 and December 31, 2020 were as follows:


(DOLLARS IN MILLIONS)	March 31, 2022		December 31, 2021		March 31, 2021		December 31, 2020
Current assets
Cash and cash equivalents	$	657	$	711	$	872	$	650
Restricted cash	4		4		7		7
Noncurrent assets
Restricted cash included in Other assets	1		1		2		3
Cash, cash equivalents and restricted cash	$	662	$	716	$	881	$	660

Accounts Receivable

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

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

Revenue Recognition

The Company recognizes revenue when control of the promised goods is transferred to its customers in an amount that reflects the consideration it expects to be entitled to in exchange for those goods. Sales, value added, and other taxes the Company collects are excluded from revenues. The Company receives payment in accordance with standard customer terms. See Note 11 for further details on revenues disaggregated by segment.

Contract Assets and Liabilities

With respect to a small number of contracts for the sale of compounds, the Company has an “enforceable right to payment for performance to date” and as the products do not have an alternative use, the Company recognizes revenue for these contracts over time and records a contract asset using the output method. The output method recognizes revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract.

As of March 31, 2022 and December 31, 2021, the Company's gross accounts receivable was $2.229 billion and $1.952 billion, respectively. The Company's contract assets and contract liabilities as of March 31, 2022 and December 31, 2021 were not material.

Expected Credit Losses

The Company is exposed to credit losses primarily through its sales of products. To determine the appropriate allowance for expected credit losses, the Company considers certain credit quality indicators, such as aging, collection history, and creditworthiness of debtors. Regional and Global Credit committees review and approve specific customer allowance reserves. The allowance for expected credit losses is primarily based on two primary factors: i) the aging of the different categories of trade receivables, and ii) a specific reserve for accounts identified as uncollectible.

The Company also considers current and future economic conditions in the determination of the allowance. At March 31, 2022, the Company reported $2.160 billion of trade receivables, net of allowances of $69 million. Based on the aging analysis as of March 31, 2022, approximately 91% of our accounts receivable were current based on the payment terms of the invoice. Receivables that were past due by over 365 days account for approximately 1% of our accounts receivable.

The following is a rollforward of the Company's allowances for bad debts for the three months ended March 31, 2022:


(DOLLARS IN MILLIONS)	Allowances for Bad Debts
Balance at December 31, 2021	$	46
Bad debt expense(1)	23
Write-offs	(1)

Foreign exchange	1
Balance at March 31, 2022	$	69

(1)The bad debt expense included approximately $20 million related to expected credit losses on receivables from customers located in Russia and Ukraine (for both export and domestic sales) due to recent events in those countries. The Company will continue to evaluate its credit exposure related to Russia and Ukraine.

Long-Lived Assets

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is calculated on a straight-line basis, principally over the following estimated useful lives: buildings and improvements, 1 to 50 years; machinery and equipment, 1 to 40 years; information technology hardware and software, 1 to 23 years; and leasehold improvements which are included in buildings and improvements, the estimated life of the improvements or the remaining term of the lease, whichever is shorter.

Finite-Lived Intangible Assets

Finite-lived intangible assets include customer relationships, patents, trade names, technological know-how and other intellectual property valued at acquisition and amortized on a straight-line basis over the following estimated useful lives: customer relationships, 10 to 27 years; patents, 11 to 15 years; trade names, 4 to 28 years; and technological know-how, 5 to 28 years.

The Company reviews long-lived assets for impairment when events or changes in business conditions indicate that their carrying value may not be recovered. An estimate of undiscounted future cash flows produced by an asset or group of assets is compared to the carrying value to determine whether impairment exists. If assets are determined to be impaired, the loss is measured based on an estimate of fair value using various valuation techniques, including a discounted estimate of future cash flows.

Recent Events in Russia and Ukraine

The Company maintains operations in both Russia and Ukraine and, additionally, exports products to customers in Russia and Ukraine from operations outside the region. In response to the events in Ukraine, the Company has 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.

During the first quarter of 2022, in connection with the events in Ukraine (including the impact of the invasion and the sanctions placed on Russia), the Company determined that certain assets should be tested for recoverability. In order to perform the test for recoverability, the Company prepared an estimate of the undiscounted cash flows for the applicable asset groups. The total amount of assets in the applicable asset groups identified, and to be tested for recoverability, was approximately $228 million, or less than 1% of total assets, of which approximately $210 million related to Russia. Based on the projections made, it was determined that no impairment existed in any of the asset groups as of March 31, 2022. The undiscounted cash flows were prepared under the assumption that the Company’s operations in Russia and Ukraine would continue to operate and that the Company would be able to continue to manufacture and sell products within Russia, subject to limiting our operations to servicing essential needs. The Company may incur impairment of such assets in the future if these assumptions change or circumstances worsen.

As indicated above, the Company also 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) due to recent events in those countries. The Company will continue to evaluate its credit exposure related to Russia and Ukraine.

Recent Accounting Pronouncements

In November 2021, the FASB issued Accounting Standards Update ("ASU") 2021-10, "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance." The ASU requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This guidance is effective for all entities for annual periods beginning after December 15, 2021 and early adoption is permitted. The Company is currently evaluating the impact of this guidance, but does not expect this guidance to have a material impact on its Consolidated Financial Statements.

In October 2021, the FASB issued Accounting Standards Update ("ASU") 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." The ASU is intended to provide specific guidance on how to recognize and measure acquired contract assets and liabilities from revenue contracts in a business combination. An acquirer needs to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied Topic 606 to determine what to record for the acquired revenue contracts. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this guidance, but does not expect this guidance to have a material impact on its Consolidated Financial Statements.

In January 2021, the FASB issued Accounting Standards Update ("ASU") 2021-01, "Reference Rate Reform (Topic 848): Scope." The ASU is intended to provide updates and responses to concerns over Topic 848 related to the cessation of reference rates in certain financial markets. Alternative reference rates that are more observable or transaction based have been identified and are being transitioned to in numerous jurisdictions globally, such as a receive-variable-rate, pay-variable-rate cross currency interest rate swap. This guidance is effective immediately for all entities, but does not apply to any contract modifications or new hedging relationships entered into after December 31, 2022. This guidance was adopted and does not have a material impact on the Company's Consolidated Financial Statements.

NOTE 2. NET INCOME (LOSS) PER SHARE

A reconciliation of the shares used in the computation of basic and diluted net income (loss) per share is as follows:


	Three Months Ended March 31,
(AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS)	2022		2021
Net Income (Loss)
Net income (loss) attributable to IFF stockholders	$	244	$	(42)
Adjustment related to (increase) decrease in redemption value of redeemable noncontrolling interests in excess of earnings allocated	—		(1)
Net income (loss) available to IFF stockholders	$	244	$	(43)
Shares
Weighted average common shares outstanding (basic)(1)	255		206



Weighted average shares assuming dilution (diluted)	255		206

Net Income (Loss) per Share
Net income (loss) per share - basic	$	0.96	$	(0.21)
Net income (loss) per share - diluted	0.96		(0.21)

(1)On September 15, 2021, additional shares of IFF's common stock were issued in settlement of the stock purchase contract ("SPC") portion of the tangible equity units ("TEUs"). For the three months ended March 31, 2021, the TEUs were assumed to be outstanding at the minimum settlement amount for basic earnings per share ("EPS"). See below for additional information.

As of the effective time of the Merger, each issued and outstanding share of common stock of N&B (except for shares of common stock of N&B held by N&B as treasury stock or by DuPont, which were canceled and ceased to exist and no consideration was delivered in exchange therefor) was converted into the right to receive one share of common stock of IFF. The Merger was completed in exchange for 141,740,461 shares of IFF common stock, par value $0.125 per share (or cash payment in lieu of fractional shares), which had been approved in the special shareholder meeting that occurred on August 27, 2020 where IFF shareholders voted to approve the issuance of shares of IFF common stock in connection with the N&B Transaction, pursuant to the Merger Agreement. 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.

The Company declared a quarterly dividend to its shareholders of $0.79 and $0.77 per share for the three months ended March 31, 2022 and 2021, respectively.

There were no stock options or stock-settled appreciation rights (“SSARs”) excluded from the computation of diluted net income per share for the three months ended March 31, 2022.

There were approximately one million potentially dilutive securities excluded from the computation of diluted net income (loss) per share for the three months ended March 31, 2021 because there was a net loss attributable to IFF for the period and, as such, the inclusion of these securities would have been anti-dilutive.

The Company issued 16,500,000 TEUs, consisting of a prepaid SPC and a senior amortizing note, for net proceeds of $800 million on September 17, 2018. On September 14, 2021, the Company notified holders of the TEUs that the final settlement rate in respect of each SPC was 0.330911 shares of IFF's common stock. On September 15, 2021, 5,460,031 shares of IFF's common stock were issued in settlement of the SPCs. The SPC conversion factor is based on the 20 day volume-weighted average price (“VWAP”) per share of the Company’s common stock. For purposes of calculating basic net income (loss) per share, the minimum settlement rate of 0.313400 shares per SPC on March 31, 2021 was used. For purposes of calculating diluted earnings per share, the SPCs were assumed to be settled at a conversion factor not to exceed 0.366500 shares per SPC on March 31, 2021.

The Company has issued shares of purchased restricted common stock units (“PRSUs”) which contain rights to nonforfeitable dividends while these shares are outstanding and thus are considered participating securities. Such securities are required to be included in the computation of basic and diluted earnings per share pursuant to the two-class method.

The Company did not present the two-class method since there was no difference between basic net income (loss) per share for both unrestricted common shareholders and PRSU shareholders for the three months ended March 31, 2022 and 2021. The difference between diluted net income per share for both unrestricted common shareholders and PRSU shareholders for the three months ended March 31, 2022 was less than $0.01 per share and there was no difference between diluted net income (loss) per share for both unrestricted common shareholders and PRSU shareholders for the three months ended March 31, 2021. In addition, the number of PRSUs outstanding as of March 31, 2022 and 2021 was not material. Net income allocated to such PRSUs was not material for the three months ended March 31, 2022 and 2021.

NOTE 3. ACQUISITIONS

Transaction with N&B

On February 1, 2021, IFF completed the Merger with N&B. The aggregate purchase price consideration paid to acquire N&B was $15.942 billion. Refer to Note 3 of the Company's 2021 Form 10-K for additional information.

Pro Forma Financial Information

The following unaudited pro forma financial information presents the combined results of operations of IFF and N&B as if the Merger had been completed as of January 1, 2020. The unaudited pro forma financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the Merger and related borrowings had taken place on January 1, 2020, nor are they indicative of future results. The unaudited pro forma financial information for the three months ended March 31, 2021 includes IFF results, including the post-Merger results of N&B, since February 1, 2021, and pre-Merger results of N&B for the period January 1, 2021 through January 31, 2021.

The unaudited pro forma results for the three months ended March 31, 2021 were as follows:


(DOLLARS IN MILLIONS)	Three Months Ended March 31, 2021
Unaudited pro forma net sales	$	2,972
Unaudited pro forma net income attributable to the Company	219

The unaudited pro forma results for all periods include adjustments made to account for certain costs and transactions that would have been incurred had the Merger been completed as of January 1, 2020, including amortization charges for acquired intangibles assets, adjustments for transaction costs, adjustments for depreciation expense for property, plant and equipment, inventory step-up and adjustments to interest expense. These adjustments are net of any applicable tax impact and were included to arrive at the pro forma results above.

NOTE 4. RESTRUCTURING AND OTHER CHARGES

Restructuring and other charges primarily consist of separation costs for employees including severance, outplacement and other employee benefit costs ("Severance"), charges related to the write-down of fixed assets of plants to be closed ("Fixed asset write-down") and all other related restructuring ("Other") costs. All restructuring and other charges are separately stated on the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).

Frutarom Integration Initiative

In connection with the acquisition of Frutarom, the Company has been executing an integration plan that, among other initiatives, seeks to optimize its manufacturing network (the "Frutarom Integration Initiative"). As part of the Frutarom Integration Initiative, the Company now expects to close approximately 30 manufacturing sites with all closures targeted to occur by 2023. Since the inception of the initiative through March 31, 2022, the Company has closed 22 sites and expensed total costs of approximately $37 million. Total costs for the program are expected to be approximately $42 million including cash and non-cash items.

2019 Severance Program

During the year ended December 31, 2019, the Company incurred severance charges related to approximately 190 headcount reductions, excluding those previously mentioned under the Frutarom Integration Initiative. The headcount reductions primarily related to the Scent business unit with additional amounts related to headcount reductions in all business units associated with the establishment of a new shared service center in Europe. Since the inception of the program, the Company has expensed approximately $20 million to date.

N&B Merger Restructuring Liability

For the three months ended March 31, 2022, the Company incurred approximately $2 million of charges related to severance. Since the inception of the restructuring activities, there have been approximately 265 headcount reductions and the Company has expensed approximately $32 million.

Changes in Restructuring Liabilities

Changes in restructuring liabilities during the three months ended March 31, 2022 were as follows:


(DOLLARS IN MILLIONS)	Balance at December 31, 2021		Additional Charges (Reversals), Net		Non-Cash Charges		Cash Payments		Balance at March 31, 2022




Frutarom Integration Initiative
Severance	$	5	$	—	$	—	$	—	$	5

Other(1)	3		—		—		(1)		2
2019 Severance Plan
Severance	5		—		—		—		5


Other Restructuring Charges
Severance	1		—		—		—		1


N&B Merger Restructuring Liability
Severance	15		2		—		(5)		12


Total restructuring and other charges	$	29	$	2	$	—	$	(6)	$	25

(1)Other includes supplier contract termination costs, consulting and advisory fees.

Restructuring liabilities are presented in "Other Current Liabilities" in the Consolidated Balance Sheets.

Charges by Segment

The following table summarizes the total amount of costs incurred in connection with these restructuring programs and activities by segment:


	Three Months Ended March 31,
(DOLLARS IN MILLIONS)	2022		2021
Nourish	$	2	$	3

Scent	—		1


Total Restructuring and other charges	$	2	$	4

NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

Movements in goodwill attributable to each reportable segment for the three months ended March 31, 2022 were as follows:


(DOLLARS IN MILLIONS)	Nourish		Health & Biosciences		Scent		Pharma Solutions		Total
Balance at December 31, 2021	$	6,555	$	6,749	$	1,828	$	1,282	$	16,414



Foreign exchange	(50)		(42)		(11)		(13)		(116)


Balance at March 31, 2022	$	6,505	$	6,707	$	1,817	$	1,269	$	16,298

Other Intangible Assets

Other intangible assets, net consisted of the following amounts:


	March 31,		December 31,
(DOLLARS IN MILLIONS)	2022		2021






Asset Type
Customer relationships	$	8,878	$	8,935
Technological know-how	2,470		2,494
Trade names & patents	405		411

Other	50		50
Total carrying value	11,803		11,890
Accumulated Amortization
Customer relationships	(991)		(887)
Technological know-how	(441)		(388)
Trade names & patents	(76)		(68)

Other	(45)		(41)
Total accumulated amortization	(1,553)		(1,384)

Other intangible assets, net	$	10,250	$	10,506

Amortization

Amortization expense was $186 million and $152 million for the three months ended March 31, 2022 and 2021, respectively.

Amortization expense for the next five years is expected to be as follows:



(DOLLARS IN MILLIONS)	2022		2023		2024		2025		2026
Estimated future intangible amortization expense	$	564	$	743	$	742	$	740	$	737

NOTE 6. OTHER CURRENT ASSETS AND LIABILITIES, AND OTHER ASSETS

Prepaid expenses and other current assets consisted of the following amounts:


(DOLLARS IN MILLIONS)	March 31, 2022		December 31, 2021
Value-added tax receivable	$	196	$	178
Income tax receivable	107		131
Prepaid expenses	328		288

Other	119		131
Total	$	750	$	728

Other assets consisted of the following amounts:


(DOLLARS IN MILLIONS)	March 31, 2022		December 31, 2021

Finance lease right-of-use assets	$	20	$	21
Deferred income taxes	111		82
Overfunded pension plans	134		136
Cash surrender value of life insurance contracts	49		52
Equity method investments	85		86

Other(1)	255		239
Total	$	654	$	616

(1)Includes land usage rights in China and long term deposits.

Other current liabilities consisted of the following amounts:


(DOLLARS IN MILLIONS)	March 31, 2022		December 31, 2021
Rebates and incentives payable	$	110	$	113
Value-added tax payable	55		50
Interest payable	70		48
Current pension and other postretirement benefit obligation	9		11
Accrued insurance (including workers’ compensation)	9		10

Restructuring and other charges	25		29
Current operating lease obligation	107		109
Current financing lease obligation	5		5

Accrued income taxes	151		94

Other accounts payable and accrued expenses payable	267		270
Other	108		93
Total	$	916	$	832

NOTE 7. DEBT

Debt consisted of the following:


(DOLLARS IN MILLIONS)	Effective Interest Rate		March 31, 2022		December 31, 2021


2022 Notes(3)	0.69	%	$	300	$	300
2023 Notes(1)	3.30	%	300		300
2024 Euro Notes(1)	1.88	%	554		565
2025 Notes(3)	1.22	%	1,000		1,001
2026 Euro Notes(1)	1.93	%	882		900
2027 Notes(3)	1.56	%	1,217		1,218
2028 Notes(1)	4.57	%	397		397
2030 Notes(3)	2.21	%	1,510		1,511
2040 Notes(3)	3.04	%	774		775
2047 Notes(1)	4.44	%	495		494
2048 Notes(1)	5.12	%	787		786
2050 Notes(3)	3.21	%	1,572		1,572


2024 Term Loan Facility(3)	1.56	%	625		625
2026 Term Loan Facility(3)	1.94	%	625		625


Commercial paper(4)	—	%	631		324
Bank overdrafts and other			8		7

Total debt			11,677		11,400
Less: Short-term borrowings(2)			(939)		(632)
Total Long-term debt			$	10,738	$	10,768

(1)Amount is net of unamortized discount and debt issuance costs.

(2)Includes bank borrowings, commercial paper, overdrafts and current portion of long-term debt.

(3)Assumed by the Company as part of the N&B Merger.

(4)The effective interest rate of commercial paper issuances fluctuates as short-term interest rates and demand fluctuate, and deferred debt issuance costs are immaterial. Additionally, the effective interest rate of commercial paper is not meaningful as issuances do not materially differ from short-term interest rates.

Commercial Paper

During the three months ended March 31, 2022, the Company had gross issuances of $873 million and repayments of $566 million under the Commercial Paper Program. The commercial paper issued had original maturities of less than 125 days. There were no commercial paper issuances or repayments during the three months ended March 31, 2021.

The Commercial Paper Program is backed by the borrowing capacity available under the Revolving Credit Facility. The effective interest rate of commercial paper issuances does not materially differ from short-term interest rates, which fluctuate due to market conditions and as a result may impact our interest expense.

NOTE 8. LEASES

The Company has leases for corporate offices, manufacturing facilities, research and development facilities, and certain transportation and office equipment. The Company's leases have remaining lease terms of up to 50 years, some of which include options to extend the leases for up to 5 years.

The components of lease expense were as follows:


	Three Months Ended		Three Months Ended
(DOLLARS IN MILLIONS)	March 31, 2022		March 31, 2021
Operating lease cost	$	47	$	32
Finance lease cost	2		1

Supplemental cash flow information related to leases was as follows:


	Three Months Ended		Three Months Ended
(DOLLARS IN MILLIONS)	March 31, 2022		March 31, 2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases	$	35	$	27

Financing cash flows for finance leases	2		1
Right-of-use assets obtained in exchange for lease obligations
Operating leases	18		11
Finance leases	1		1

Operating lease right-of-use assets are presented in "Operating lease right-of-use assets" and financing lease right-of-use assets are presented in "Other Assets" in the Consolidated Balance Sheets. Operating lease liabilities are presented in "Operating lease liabilities" and financing lease liabilities are presented in "Other Liabilities" in the Consolidated Balance Sheets. Any other current liabilities related to operating and financing lease liabilities are presented in "Other Current Liabilities" in the Consolidated Balance Sheets.

NOTE 9. INCOME TAXES

Uncertain Tax Positions

As of March 31, 2022, the Company had approximately $131 million of unrecognized tax benefits recorded in Other liabilities and no amounts recorded to Other current liabilities. If these unrecognized tax benefits were recognized, the effective tax rate would be affected.

As of March 31, 2022, the Company had accrued interest and penalties of approximately $37 million classified in Other liabilities and no amounts classified in Other current liabilities.

As of March 31, 2022, the Company’s aggregate provisions for uncertain tax positions, including interest and penalties, was approximately $168 million associated with tax positions asserted in various jurisdictions.

The Company regularly repatriates earnings from non-U.S. subsidiaries. As the Company repatriates these funds to the U.S., they 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, the Company 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.

The Company has ongoing income tax audits and legal proceedings which are at various stages of administrative or judicial review. In addition, the Company has open tax years with various taxing jurisdictions that range primarily from 2012 to 2021. Based on currently available information, the Company does not believe the outcome of any of these tax audits and other tax positions related to open tax years, when finalized, will have a material impact on its results of operations.

The Company also has other ongoing tax audits and legal proceedings that relate to indirect taxes, such as value-added taxes, sales and use taxes and property taxes, which are discussed in Note 15.

Effective Tax Rate

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.

NOTE 10. STOCK COMPENSATION PLANS

The Company has various plans under which its officers, senior management, other key employees and directors may be granted equity-based awards. Equity awards outstanding under the plans include PRSUs, RSUs, SSARs and Long-Term Incentive Plan awards. Liability-based awards outstanding under the plans are cash-settled RSUs.

Stock-based compensation expense and related tax benefits were as follows:


	Three Months Ended March 31,
(DOLLARS IN MILLIONS)	2022		2021
Equity-based awards	$	9	$	11
Liability-based awards	—		3
Total stock-based compensation expense	9		14
Less: Tax benefit	(2)		(3)
Total stock-based compensation expense, after tax	$	7	$	11

NOTE 11. SEGMENT INFORMATION

The Company is organized into four reportable operating segments: Nourish, Health & Biosciences (“H&B”), Scent and Pharma Solutions. These segments align with the internal structure to manage these businesses. The Company’s Chief Operating Decision Maker regularly reviews financial information to allocate resources and assess performance utilizing these segments.

Nourish is comprised of three business units, Ingredients, Flavors and Food Designs, with a diversified portfolio across natural and plant-based specialty food ingredients, flavor compounds, and savory solutions and inclusions, respectively. Ingredients provide texturizing solutions to the food industry, food protection solutions used in food and beverage products, specialty soy and pea protein with value-added formulations, emulsifiers and sweeteners. Flavors provide a range of flavor compounds and natural taste solutions that are ultimately used by IFF's customers in savory products, beverages, sweets, and dairy products. Flavors also provide value-added spices and seasoning ingredients for meat, food service, convenience, alternative protein and culinary products. Food Designs provide savory solution products such as spices, sauces, marinades and mixtures. Additionally, Food Designs provide inclusion products that help with taste and texture by, among other things, combining flavorings with fruit, vegetables, and other natural ingredients for a wide range of food products, such as health snacks, baked goods, cereals, pastries, ice cream and other dairy products.

Health & Biosciences is comprised of six business units, Health, Cultures & Food Enzymes, Home & Personal Care, Animal Nutrition, Grain Processing and Microbial Control, with a biotechnology-driven portfolio of products that serve the health and wellness, food, consumer and industrial markets. Products within this portfolio range from enzymes, food cultures, probiotics and specialty ingredients for non-food applications. Health provides ingredients for dietary supplements, food and beverage, specialized nutrition and pharma. Cultures & Food Enzymes provide products that aim to serve the global demand for healthy, natural, clean label and fermented food for fresh dairy, cheese, bakery and brewing products. This is accomplished by providing IFF's customers with products that allow for extended shelf life and stability, which help to improve customers' products and performance. The business unit's enzyme solution also allows IFF's customers to provide low sugar, high fiber and lactose-free dairy products. Home & Personal Care produces enzymes for detergents, cleaning and textile processing products in the laundry, dishwashing, textiles and industrials and personal care markets that help to enhance product and process performances. Animal Nutrition produces enzymes that help to improve the product and process performance of animal feed products, which aim to lessen environmental impact by reducing farm waste. Grain Processing produces enzymes for biofuel production and carbohydrate processing. Microbial Control produces biocides for controlling microbial populations for oil and gas production, home and personal care and industrial preservation markets.

Scent is comprised of (1) Fragrance Compounds, which are ultimately used by our customers in two broad categories: Fine Fragrances, including perfumes and colognes, and Consumer Fragrances, including fragrance compounds for personal care (e.g., soaps), household products (e.g., detergents and cleaning agents) and beauty care, including toiletries; (2) Fragrance Ingredients, consisting of synthetic and natural ingredients that can be combined with other materials to create unique fine fragrance and consumer fragrance compounds; and (3) Cosmetic Active Ingredients, consisting of active and functional ingredients, botanicals and delivery systems to support our customers’ cosmetic and personal care product lines. Major fragrance customers include the cosmetics industry, including perfume and toiletries manufacturers, and the household products industry, including manufacturers of soaps, detergents, fabric care, household cleaners and air fresheners.

Pharma Solutions is comprised of a vast portfolio including 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 finished dosage formats. Pharma Solutions excipients are used in prescription and over-the-counter pharmaceuticals and dietary supplements. Pharma Solutions products also serve a variety of other specialty and industrial end-uses including coatings, inks, electronics, agriculture, and consumer products.

Reportable segment information was as follows:


	Three Months Ended
	March 31,
(DOLLARS IN MILLIONS)	2022		2021
Net sales:
Nourish	$	1,731	$	1,308
Health & Biosciences	661		426
Scent	585		569
Pharma Solutions	249		162
Consolidated	$	3,226	$	2,465
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 (a)	(3)		(7)
Business Divestiture Costs (b)	(30)		—
Employee Separation Costs (c)	(4)		(3)
Frutarom Acquisition Related Costs (d)	(1)		—
N&B Inventory Step-Up Costs	—		(182)
N&B Transaction Related Costs (e)	—		(89)
Integration Related Costs (f)	(18)		(38)





Income (Loss) Before Taxes	$	285	$	(54)


(a)			Represents shareholder activist related costs, primarily professional fees.
(b)			Represents costs related to the Company's planned sales of businesses, primarily legal and professional fees.
(c)			Represents costs related to severance, including accelerated stock compensation expense, for certain employees and executives who have been separated or will separate from the Company.
(d)			Represents transaction-related costs and expenses related to the acquisition of Frutarom.


(e)			Represents transaction costs and expenses related to the transaction with N&B, primarily includes legal and professional fees.
(f)			Represents costs related to integration activities since 2018, primarily for Frutarom and N&B. For 2022, represents costs primarily related to external consulting fees and internal integration costs, including salaries. For 2021, represents costs primarily related to performance stock awards and consulting fees for advisory services.

Net sales, which are attributed to individual regions based upon the destination of product delivery, were as follows:


	Three Months Ended March 31,
(DOLLARS IN MILLIONS)	2022		2021
Europe, Africa and Middle East	$	1,128	$	873
Greater Asia	744		587
North America	1,002		722
Latin America	352		283
Consolidated	$	3,226	$	2,465


	Three Months Ended March 31,
(DOLLARS IN MILLIONS)	2022		2021
Net sales related to the U.S.	$	901	$	654
Net sales attributed to all foreign countries	2,325		1,811

No non-U.S. country had net sales greater than 6% of total consolidated net sales for the three months ended March 31, 2022 and 2021.

NOTE 12. EMPLOYEE BENEFITS

Pension and other defined contribution retirement plan expenses included the following components:


(DOLLARS IN MILLIONS)	U.S. Plans
Three Months Ended March 31,
2022			2021

Interest cost on projected benefit obligation(2)	$	4		$	3
Expected return on plan assets(2)	(5)			(5)
Net amortization and deferrals(2)	2			2
Net periodic benefit (income) cost	$	1		$	—


(DOLLARS IN MILLIONS)	Non-U.S. Plans
Three Months Ended March 31,
2022			2021
Service cost for benefits earned(1)	$	9		$	10
Interest cost on projected benefit obligation(2)	5			2
Expected return on plan assets(2)	(11)			(12)
Net amortization and deferrals(2)	3			5

Net periodic benefit (income) cost	$	6		$	5

(1)Included as a component of Operating profit.

(2)Included as a component of Other income, net.

The Company expects to contribute a total of $5 million to its U.S. pension plans and a total of $33 million to its non-U.S. pension plans during 2022. During the three months ended March 31, 2022, no contributions were 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 the Company's non-qualified U.S. pension plan.

(Income) expense recognized for postretirement benefits other than pensions included the following components:


	Three Months Ended March 31,
(DOLLARS IN MILLIONS)	2022		2021


Net amortization and deferrals	$	(1)	$	(1)
Total postretirement benefit (income) expense	$	(1)	$	(1)

The Company expects to contribute $4 million to its postretirement benefits other than pension plans during 2022. In the three months ended March 31, 2022, $1 million of contributions were made.

NOTE 13. FINANCIAL INSTRUMENTS

Fair Value

Accounting guidance on fair value measurements specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs create the following fair value hierarchy:

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*.*

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The Company determines the fair value of structured liabilities (where performance is linked to structured interest rates, inflation or currency risks) using the London Interbank Offer Rate ("LIBOR") swap curve and forward interest and exchange rates at period end. Such instruments are classified as Level 2 based on the observability of significant inputs to the model. The Company does not have any instruments classified as Level 3, other than those included in pension asset trusts as discussed in Note 15 of the Company's 2021 Form 10-K.

These valuations take into consideration the Company's credit risk and its counterparties’ credit risk. The estimated change in the fair value of these instruments due to such changes in its own credit risk (or instrument-specific credit risk) was not material as of March 31, 2022.

The carrying values and the estimated fair values of financial instruments at March 31, 2022 and December 31, 2021 consisted of the following:


	March 31, 2022				December 31, 2021
(DOLLARS IN MILLIONS)	Carrying Value		Fair Value		Carrying Value		Fair Value
LEVEL 1
Cash and cash equivalents(1)	$	657	$	657	$	711	$	711
2025 Notes(5)	1,000		924		1,001		968
2027 Notes(5)	1,217		1,089		1,218		1,180
2030 Notes(5)	1,510		1,333		1,511		1,466
2040 Notes(5)	774		662		775		762
2050 Notes(5)	1,572		1,307		1,572		1,556
LEVEL 2
Credit facilities and bank overdrafts(2)	8		8		7		7
Derivatives

Derivative liabilities(3)	8		8		7		7
Commercial paper (2)	631		631		324		324
Long-term debt:(4)


2022 Notes	300		298		300		300
2023 Notes	300		301		300		308
2024 Euro Notes	554		561		565		585
2026 Euro Notes	882		888		900		960
2028 Notes	397		415		397		452
2047 Notes	495		494		494		585
2048 Notes	787		872		786		1,026


2024 Term Loan Facility(6)	625		625		625		625
2026 Term Loan Facility(6)	625		625		625		625

(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 carrying amount approximates fair value as the instruments are marked-to-market and held at fair value on the Consolidated Balance Sheets.

(4)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.

(5)The fair value of the Notes is based on market quoted price as there is an active market for the Notes and observable market data and inputs.

(6)The carrying amount approximates fair value as the Term Loans were assumed at fair value and the interest rate is reset frequently based on current market rates.

Derivatives

Foreign Currency Forward Contracts

The Company periodically enters into foreign currency forward contracts with the objective of reducing exposure to cash flow volatility associated with its intercompany loans, foreign currency receivables and payables and anticipated purchases of certain raw materials used in operations. These contracts generally involve the exchange of one currency for a second currency at a future date, have maturities not exceeding twelve months and are with counterparties which are major international financial institutions.

Commodity Contracts

The Company utilizes options, futures and swaps that are not designated as hedging instruments to reduce exposure to commodity price fluctuations on purchases of inventory such as soybeans, soybean oil and soybean meal.

Cash Flow Hedges

The Company maintains several forward currency contracts which qualified as cash flow hedges. The objective of these hedges is to protect against the currency risk associated with forecasted U.S. dollar ("USD") denominated raw material purchases made by Euro ("EUR") functional currency entities which result from changes in the EUR/USD exchange rate. The effective portions of cash flow hedges are recorded in other comprehensive income ("OCI") as a component of Gains on derivatives qualifying as hedges in the accompanying Consolidated Statements of Income (Loss) and Comprehensive Income (Loss). Realized gains/(losses) in accumulated other comprehensive income ("AOCI") related to cash flow hedges of raw material purchases are recognized as a component of Cost of goods sold in the accompanying Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) in the same period as the related costs are recognized.

Hedges Related to Issuances of Debt

Subsequent to the issuance of the 2021 Euro Notes and 2026 Euro Notes during the third quarter of 2018, the Company designated the debt as a hedge of a portion of its net European investments. Accordingly, the change in the value of the debt that is attributable to foreign exchange movements is recorded in OCI as a component of foreign currency translation adjustments in the accompanying Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).

Subsequent to the issuance of the 2024 Euro Notes during the first quarter of 2016, the Company designated the debt as a hedge of a portion of its net European investments. Accordingly, the change in the value of the debt that is attributable to foreign exchange movements is recorded in OCI as a component of foreign currency translation adjustments in the accompanying Consolidated Statements of Income (Loss) and Comprehensive Income (Loss).

Cross Currency Swaps

During the first quarter of 2022, the Company entered into twelve EUR/USD cross currency swaps, with a notional value of $1.400 billion that mature through November 2030. The swaps all qualified as net investment hedges in order to mitigate a portion of the Company's net European investments from foreign currency risk. As of March 31, 2022, the fourteen remaining swaps were in a net liability position with an aggregate fair value of $6 million which was classified as other current liabilities. Changes in fair value related to cross currency swaps are recorded in OCI.

The following table shows the notional amount of the Company’s derivative instruments outstanding as of March 31, 2022 and December 31, 2021:


(DOLLARS IN MILLIONS)	March 31, 2022		December 31, 2021
Foreign currency contracts	$	42	$	46
Commodity contracts	4		10
Cross currency swaps	1,700		300

The following tables show the Company’s derivative instruments measured at fair value (Level 2 of the fair value hierarchy), as reflected in the Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021:


	March 31, 2022
(DOLLARS IN MILLIONS)	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value





Derivative liabilities(1)
Foreign currency contract	$	—	$	2	$	2
Cross currency swaps	6		—		6
Total derivative liabilities	$	6	$	2	$	8


	December 31, 2021
(DOLLARS IN MILLIONS)	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value





Derivative liabilities(1)
Foreign currency contracts	$	—	$	2	$	2
Cross currency swaps	5		—		5
Total derivative liabilities	$	5	$	2	$	7

(1)Derivative liabilities are recorded to Other current liabilities in the Consolidated Balance Sheets.

The following table shows the effect of the Company’s derivative instruments which were not designated as hedging instruments in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021:


	Amount of Gain (Loss)					Location of Gain (Loss) Recognized in Income on Derivative
(DOLLARS IN MILLIONS)	Three Months Ended March 31,
2022			2021
Foreign currency contracts(1)	$	2		$	(3)	Other income, net

(1)The foreign currency contract net gains (losses) offset any recognized gains (losses) arising from the revaluation of the related intercompany loans during the same respective periods.

The following table shows the effect of the Company’s derivative and non-derivative instruments designated as cash flow and net investment hedging instruments, net of tax, in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021:


	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,
(DOLLARS IN MILLIONS)	2022		2021			2022			2021
Derivatives in Cash Flow Hedging Relationships:
Foreign currency contracts	$	—	$	4	Cost of goods sold		$	—		$	(2)

Derivatives in Net Investment Hedging Relationships:

Cross currency swaps	(1)		9		N/A		—			—
Non-Derivatives in Net Investment Hedging Relationships:
2024 Euro Notes	9		20		N/A		—			—
2021 Euro Notes & 2026 Euro Notes	14		45		N/A		—			—
Total	$	22	$	78			$	—		$	(2)

The ineffective portion of the above noted cash flow hedges was not material during the three months ended March 31, 2022 and 2021.

At March 31, 2022, based on current market rates, the Company does not expect any derivative losses (net of tax), included in AOCI, to be reclassified into earnings within the next 12 months.

NOTE 14. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables present changes in the accumulated balances for each component of other comprehensive (loss) income, including current period other comprehensive (loss) income and reclassifications out of accumulated other comprehensive loss:


(DOLLARS IN MILLIONS)	Foreign Currency Translation Adjustments		Gains (Losses) on Derivatives Qualifying as Hedges		Pension and Postretirement Liability Adjustment		Total
Accumulated other comprehensive (loss) income, net of tax, as of December 31, 2021	$	(1,133)	$	1	$	(291)	$	(1,423)
OCI before reclassifications	(199)		—		(3)		(202)
Amounts reclassified from AOCI	—		—		3		3
Net current period other comprehensive income (loss)	(199)		—		—		(199)
Accumulated other comprehensive (loss) income, net of tax, as of March 31, 2022	$	(1,332)	$	1	$	(291)	$	(1,622)


(DOLLARS IN MILLIONS)	Foreign Currency Translation Adjustments		Gains (Losses) on Derivatives Qualifying as Hedges		Pension and Postretirement Liability Adjustment		Total
Accumulated other comprehensive (loss) income, net of tax, as of December 31, 2020	$	(285)	$	(7)	$	(406)	$	(698)
OCI before reclassifications	(417)		2		2		(413)
Amounts reclassified from AOCI	—		2		7		9
Net current period other comprehensive income (loss)	(417)		4		9		(404)
Accumulated other comprehensive (loss) income, net of tax, as of March 31, 2021	$	(702)	$	(3)	$	(397)	$	(1,102)

The following table provides details about reclassifications out of Accumulated other comprehensive loss to the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss):


	Three Months Ended March 31,				Affected Line Item in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(DOLLARS IN MILLIONS)	2022		2021
Gains (losses) on derivatives qualifying as hedges

Foreign currency contracts	$	—	$	(3)	Cost of goods sold

Tax	—		1		Provision for income taxes
Total	$	—	$	(2)	Total, net of income taxes
Losses on pension and postretirement liability adjustments

Prior service cost	$	2	$	2	(1)
Actuarial losses	(5)		(8)		(1)

Tax	—		(1)		Provision for income taxes
Total	$	(3)	$	(7)	Total, net of income taxes

(1)The amortization of prior service cost and actuarial loss is included in the computation of net periodic benefit cost. Refer to Note 15 of the Company's 2021 Form 10-K for additional information regarding net periodic benefit cost.

NOTE 15. COMMITMENTS AND CONTINGENCIES

Guarantees and Letters of Credit

The Company has various bank guarantees, letters of credit and surety bonds which are used to support its ongoing business operations, satisfy governmental requirements associated with pending litigation in various jurisdictions and the payment of customs duties.

At March 31, 2022, the Company had total bank guarantees, commercial guarantees, standby letters of credit and surety bonds of approximately $405 million with various financial institutions. Included in the above aggregate amount was a total of $16 million for other assessments in Brazil for various income tax and indirect tax disputes related to fiscal years 1998-2011. There was a total of approximately $12 million outstanding under the bank guarantees and standby letters of credit and approximately $105 million outstanding under the commercial guarantees as of March 31, 2022.

In order to challenge the assessments in these cases in Brazil, the Company has been required to, and has separately pledged assets, principally property, plant and equipment, to cover assessments in the amount of approximately $8 million as of March 31, 2022.

Lines of Credit

The Company has various lines of credit which are available to support its ongoing business operations. As of March 31, 2022, the Company had available lines of credit of approximately $1.864 billion with various financial institutions, in addition to the $842 million of capacity under the Credit Facility. There were total draw downs of approximately $642 million pursuant to these lines of credit as of March 31, 2022, including approximately $631 million related to the issuance of commercial paper.

Litigation

The Company assesses contingencies related to litigation and/or other matters to determine the degree of probability and range of possible loss. A loss contingency is accrued in the Company’s Consolidated Financial Statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly sensitive and requires judgments about future events. On at least a quarterly basis, the Company reviews contingencies related to litigation to determine the adequacy of accruals. The amount of ultimate loss may differ from these estimates and further events may require the Company to increase or decrease the amounts it has accrued on any matter.

Periodically, the Company assesses its insurance coverage for all known claims, where applicable, taking into account aggregate coverage by occurrence, limits of coverage, self-insured retentions and deductibles, historical claims experience and claims experience with its insurance carriers. The liabilities are recorded at management’s best estimate of the probable outcome of the lawsuits and claims, taking into consideration the facts and circumstances of the individual matters as well as past experience on similar matters. At each balance sheet date, the key issues that management assesses are whether it is probable that a loss as to asserted or unasserted claims has been incurred and if so, whether the amount of loss can be reasonably estimated. The Company records the expected liability with respect to claims in Other liabilities and expected recoveries from its insurance carriers in Other assets. The Company recognizes a receivable when it believes that realization of the insurance receivable is probable under the terms of the insurance policies and its payment experience to date.

Litigation Matters

On August 12, 2019, Marc Jansen filed a putative securities class action against IFF, its Chairman and CEO, and its then-CFO, in the United States District Court for the Southern District of New York. The lawsuit was filed after IFF disclosed that preliminary results of investigations indicated that Frutarom businesses operating principally in Russia and Ukraine had made improper payments to representatives of customers. On March 16, 2020, an amended complaint was filed, which added Frutarom and certain former officers of Frutarom as defendants. The amended complaint alleges, among other things, that defendants made materially false and misleading statements or omissions concerning IFF’s acquisition of Frutarom, the integration of the two companies, and the companies’ financial reporting and results. The amended complaint asserts claims under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, and under the Israeli Securities Act-1968, against all defendants, and under Section 20(a) of the Securities Exchange Act of 1934 against the individual defendants, on behalf of a putative class of persons and entities who purchased or otherwise acquired IFF securities on the New York Stock Exchange between May 7, 2018 and August 12, 2019 and persons and entities who purchased or otherwise acquired IFF securities on the Tel Aviv Stock Exchange between October 9, 2018 and August 12, 2019. The amended complaint seeks an award of unspecified compensatory damages, costs, and expenses. IFF, its officers, and Frutarom filed a motion to dismiss the case on June 26, 2020, which was granted on March 30, 2021. On April 28, 2021, lead plaintiffs filed a notice of appeal to the United States Court of Appeals for the Second Circuit. Lead plaintiffs are pursuing the appeal only against Frutarom and certain former officers of Frutarom. The parties have submitted their briefs to the Court of Appeals. The Second Circuit held oral argument on February 10, 2022, and the Court has not yet ruled.

Two motions to approve securities class actions were filed in the Tel Aviv District Court, Israel, in August 2019, similarly alleging, among other things, false and misleading statements largely in connection with IFF’s acquisition of Frutarom and the above-mentioned improper payments. One motion ("Borg") asserts claims under the U.S. federal securities laws against IFF, its Chairman and CEO, and its former CFO. On November 8, 2020, IFF and its officers filed their response to the Borg motion. On April 20, 2021, Mr. Borg filed a motion to stay the proceeding pending an appellate decision in the U.S. proceeding. On June 15, 2021, August 11, 2021, November 9, 2021, January 9, 2022 and April 7, 2022, the U.S. lead plaintiffs filed update notices with the Israeli court regarding the appeal in the U.S. proceeding. The other motion ("Oman") (following an initial amendment) asserted claims under the Israeli Securities Act-1968 against IFF, its Chairman and CEO, and its former CFO, and against Frutarom and certain former Frutarom officers and directors, as well as claims under the Israeli Companies Act-1999 against certain former Frutarom officers and directors. On February 17, 2021, the court granted a motion by the Oman plaintiff to remove IFF and its officers from the motion and to add factual allegations from the US amended complaint. The amended Oman motion was filed on July 4, 2021. On August 29, 2021, the former Frutarom officers and certain former Frutarom directors filed a motion to dismiss the case. On September 30, 2021, Frutarom notified the court that it joins the legal arguments made in the motion to dismiss. On February 22, 2022, the court denied the motion to dismiss.

On October 29, 2019, IFF and Frutarom filed a claim in the Tel Aviv District Court, Israel, against Ori Yehudai, the former President and CEO of Frutarom, and against certain former directors of Frutarom, challenging the bonus of US $20 million granted to Yehudai in 2018. IFF and Frutarom allege, among other things, that Yehudai was not entitled to receive the bonus because he breached his fiduciary duty by, among other things, knowing of the above-mentioned improper payments and failing to prevent them from being made. The parties agreed, pursuant to the court’s recommendation, to attempt to resolve the dispute through mediation, and a court decision is pending with regard to the order in which this claim and the class action described below will be heard.

On March 11, 2020, an IFF shareholder filed a motion to approve a class action in Israel against, among others, Frutarom, Yehudai, and Frutarom’s former board of directors, alleging that former minority shareholders of Frutarom were harmed as a result of the US $20 million bonus paid to Yehudai. The parties to this motion agreed to attempt to resolve the dispute through mediation to take place regarding the aforesaid claim against Yehudai. On July 27, 2021, counsel to the movant in the class action filed a notice with the court that the mediation process ended without an agreement. On August 26, 2021, a motion to dismiss the class action application was filed by Yehudai and certain former directors of Frutarom. On September 9, 2021, an additional motion to dismiss was filed by other former directors of Frutarom together with ICC Industries, Inc. and its affiliates. On December 9, 2021, the court denied the motions to dismiss.

Investigation

On June 3, 2020, the Israel Police’s National Fraud Investigation Unit and the Israeli Securities Authority commenced an investigation into Frutarom and certain of its former executives, based on suspected bribery of foreign officials, money laundering, and violations of the Israeli Securities Act-1968. As part of the investigation, the National Fraud Investigation Unit and the Israeli Securities Authority have provided IFF and Frutarom with various orders, mainly requesting that IFF and Frutarom provide certain documents and materials. In addition, a seizure of assets was imposed on Frutarom and certain of its affiliates. IFF has been working to ensure compliance with such orders, all in accordance with, and subject to, Israeli law. On August 25, 2021, the Israeli Police informed Frutarom that they have decided to remove the temporary criminal seizure of assets order from the real estate assets of Frutarom and its related companies, which was done in parallel with the transfer of the case to the District Attorney's Office in Israel.

China Facilities

Guangzhou Taste Plant

During the fourth quarter of 2016, the Company was notified that certain governmental authorities have begun to evaluate a change in the zoning of the Guangzhou Taste plant. The zoning, if changed, would prevent the Company from continuing to manufacture product at the existing plant. The ultimate outcome of any change that the governmental authorities may propose, the timing of such a change, and the nature of any compensation arrangements that might be provided to the Company are uncertain. To address the governmental authorities' requirements, the Company has been transferring certain production capabilities from the Guangzhou Taste plant to a newly built facility in Zhangjiagang.

The net book value of the plant in Guangzhou was approximately $59 million as of March 31, 2022.

Guangzhou Scent Plant

During the second quarter of 2019, the Company was notified that certain governmental authorities had changed the zoning where the Guangzhou Scent plant is located. The zoning change did not affect the current operations but prevents expansions or other increases in the operating capacity of the plant. The Company believes that it is possible that the zoning may be enforced in the future such that it would not be able to continue manufacturing at the existing site. The ultimate outcome of any change that the governmental authorities may propose, the timing of such a change, and the nature of any compensation arrangements that might be provided to the Company are uncertain.

The net book value of the existing plant was approximately $8 million as of March 31, 2022.

Zhejiang Ingredients Plant

In the fourth quarter of 2017, the Company concluded discussions with the government regarding the relocation of its Fragrance Ingredients plant in Zhejiang and, based on the agreements reached, expects to receive total compensation payments up to approximately $50 million. The relocation compensation will be paid to the Company over the period of the relocation which is expected to be through the end of 2022. The Company received payments totaling $30 million through the end of 2019. In the third quarter of 2020, the Company received a payment of approximately $13 million. A final payment is expected to be received upon completion of the final environmental inspection.

Production at the facility ceased during 2019. In the second quarter of 2020, the Company transferred ownership of the site to the government. The land remediation activities are in progress and are expected to be completed in the second half of 2022. During the second quarter of 2020, the remaining net book value of the plant was written off.

Total China Operations

The total net book value of all plants in China was approximately $274 million as of March 31, 2022.

If the Company is required to close a plant, or operate one at significantly reduced production levels on a permanent basis, the Company may be required to record charges that could have a material impact on its consolidated financial results of operations, financial position and cash flows in future periods.

Other Contingencies

The Company has contingencies involving third parties (such as labor, contract, technology or product-related claims or litigation) as well as government-related items in various jurisdictions in which it operates pertaining to such items as value-added taxes, other indirect taxes, customs and duties and sales and use taxes. It is possible that cash flows or results of operations, in any period, could be materially affected by the unfavorable resolution of one or more of these contingencies.

The most significant government-related contingencies exist in Brazil. With regard to the Brazilian matters, the Company believes it has valid defenses for the underlying positions under dispute; however, in order to pursue these defenses, the Company is required to, and has provided, bank guarantees and pledged assets in the aggregate amount of $24 million. The Brazilian matters take an extended period of time to proceed through the judicial process and there are a limited number of rulings to date.

Brazil Tax Credits

In January 2020, the Company was informed of a favorable ruling from the Brazilian tax authorities confirming that the Company was entitled to recover the overpayments of certain indirect taxes (known as PIS/COFINS) for the period from November 2011 to December 2018, plus interest on the amount of the overpayments. The overpayments arose from the inclusion of a value added tax known as ICMS in the calculation of the PIS/COFINS tax. The ruling did not, however, settle the question of whether the Company is eligible to recover overpayments based on the gross or the net amount of ICMS amounts paid on PIS/COFINS. The Company calculated the amount of overpayments using the gross method which yields a higher amount than the application of the net method. A final ruling on the gross versus net amount issue was made by the Brazilian Supreme Court who affirmed the use of the gross calculation with respect to claims submitted prior to March 2017. Although the Company had not submitted a claim until after March 2017, the Company believes that the Supreme Court, whilst confirming the use of the gross method of calculation, does not override the January 2020 ruling by the Brazilian tax authorities with respect to the timeframe for the calculation.

Avicel® PH NF (Pharma Solutions)

The Company has determined that certain grades of microcrystalline cellulose (Avicel® PH 101, 102, and 200 NF and Avicel® RC-591 NF) were found to be out-of-specification (collectively, “OOS Avicel® NF”). The Company does not expect this issue to affect the functionality of Avicel® NF grades or to pose a human health hazard. Corrective actions have been implemented to improve operational and laboratory conditions. Based on the information available, as of March 31, 2022, payments associated with the issue were approximately $30 million, and the Company has a current accrual of approximately $31 million. The total amount of exposure may increase as additional customers present claims or other exposures are identified.

Other

The Company determines estimates of reasonably possible losses or ranges of reasonably possible losses in excess of related accrued liabilities, if any, when it has determined that either a loss is reasonably possible or a loss in excess of accrued amounts is reasonably possible and the amount of losses or range of losses is determinable. For all third party contingencies (including labor, contract, technology, tax, product-related claims and business litigation), the Company currently estimates that the aggregate range of reasonably possible losses in excess of any accrued liabilities is $0 to approximately $35 million. The estimates included in this amount are based on the Company’s analysis of currently available information and, as new information is obtained, these estimates may change. Due to the inherent subjectivity of the assessments and the unpredictability of outcomes of legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to the Company from the matters in question. Thus, the Company’s exposure and ultimate losses may be higher or lower, and possibly significantly so, than the amounts accrued or the range disclosed above.

NOTE 16. REDEEMABLE NONCONTROLLING INTERESTS

Through certain subsidiaries of the Company's Frutarom acquisition, there are certain noncontrolling interests that carry redemption features. The noncontrolling interest holders have the right, over a stipulated period of time, to sell their respective interests to Frutarom, and Frutarom has the option to purchase these interests (subject to the same timing). These options carry, in most cases, similar price and conditions of exercise, and will be settled on a pre-agreed formula based on a multiple of the average EBITDA of consecutive quarters to be achieved during the period ending prior to the exercise date.

The following table sets forth the details of the Company's redeemable noncontrolling interests:


(DOLLARS IN MILLIONS)	Redeemable Noncontrolling Interests
Balance at December 31, 2020	$	98

Impact of foreign exchange translation	2
Share of profit or loss attributable to redeemable noncontrolling interests	1
Redemption value adjustment for the current period	1



Balance at March 31, 2021	$	102

Balance at December 31, 2021	$	105

Impact of foreign exchange translation	(4)





Balance at March 31, 2022	$	101

NOTE 17. ASSETS HELD FOR SALE

Microbial Control

During the third quarter of 2021, the Company announced it had entered into an agreement to sell its Microbial Control business unit, which is a part of the Health & Biosciences segment. The Company acquired the Microbial Control business unit as part of the Merger with N&B.

The Company classifies assets as "held for sale" when, among other factors, management approves and commits to a formal plan of sale with the expectation the sale will be completed within one year. Pursuant to ASC 360, assets held for sale were recorded at the lower of carrying value or the fair market value, less costs to sell. The sale does not constitute a strategic shift of the Company’s operations and does not, and will not, have major effects on the Company’s operations and financial results; therefore, the transaction does not meet the discontinued operations criteria.

Based on the agreement to sell, it was determined that the assets and liabilities of the Microbial Control business unit met the criteria to be presented as “held for sale" and such assets and liabilities were classified as held for sale and are reported on the Consolidated Balance Sheets. The Company expects that the transaction will close for approximately $1.282 billion in the third quarter of 2022 and that the sale proceeds less costs to sell will exceed the carrying value of the net assets.

Included in the Company's Consolidated Balance Sheets as of March 31, 2022 are the following carrying amounts of the assets and liabilities held for sale:


(DOLLARS IN MILLIONS)	March 31, 2022
Assets
Trade Receivables, net	$	78
Inventories	129
Property, plant and equipment, net	28
Goodwill	536
Other intangible assets, net	349
Operating lease right-of-use assets	4
Other assets	17
Total assets held-for-sale	$	1,141
Liabilities
Accounts payable	$	55
Deferred tax liability	24
Other liabilities	8
Total liabilities held-for-sale	$	87

NOTE 18. SUBSEQUENT EVENT

Acquisition of Health Wright Products

On April 1, 2022 ("Acquisition Date"), the Company completed its acquisition of Health Wright Products, Inc. (“Health Wright”). IFF acquired 100% of the equity of Health Wright pursuant to a purchase agreement entered into on February 16, 2022. Health Wright is known in the consumer Health and Nutrition industries for providing high quality nutritional supplements. The acquisition was made in order to strengthen formulation and finished format capabilities to IFF’s Health & Biosciences probiotics, natural extracts and botanical businesses.

Under the terms of the purchase agreement, the Company agreed to pay approximately $131 million, of which approximately $123 million was paid on the Acquisition Date. Further contingent consideration will be payable upon achievement of certain earnout milestones, which is estimated to be approximately $44 million.

The acquisition will be accounted for using the purchase method of accounting, and Health Wright’s assets, liabilities and results of operations will be included in the Company’s financial statements from the Acquisition Date. The Company is in the process of completing the purchase price allocation.

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