Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

(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 and six months ended June 30, 2022 reflect the results of N&B for the full three and six months in the period ended June 30, 2022, respectively, whereas the three and six months ended June 30, 2021 reflect three and five months of results of N&B in the period ended June 30, 2021, respectively.

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 and/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.

We are presenting currency neutral numbers for all operating segments for the three months ended June 30, 2022, but will not be presenting currency neutral numbers for the Nourish, Health & Biosciences and Pharma Solutions operating segments for the six months ended June 30, 2022 as these operating segments include the effects of the Merger with N&B, which closed on February 1, 2021. As a result, the six months ended June 30, 2022 reflect the results of N&B for the full six months in the second quarter of 2022, whereas the six months ended June 30, 2021 reflect five months of results of N&B in the second quarter of 2021, which do not present equally comparable periods.

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 and six months ended June 30, 2022 sales to Russian customers were approximately 1% and 2% of total sales, respectively.

In 2021, total sales to Ukrainian customers were less than 1% of total sales. For the three and six months ended June 30, 2022 sales to Ukrainian customers were also less than 1% of total sales.

For the six months ended June 30, 2022, we recorded a charge of approximately $120 million related to the impairment of certain long-lived assets in Russia. In addition, we recorded a charge of approximately $11 million related to expected credit losses on receivables from customers located in Russia and Ukraine (for export and domestic sales). 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.

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.

Financial Performance Overview

Sales

Sales in the second quarter of 2022 increased $218 million, or 7% on a reported basis, to $3.307 billion compared to $3.089 billion in the 2021 period. The increase in sales was driven by price increases across all businesses. On a currency neutral basis, sales in the second quarter of 2022 increased 11% compared to the 2021 period. Exchange rate variations had an unfavorable impact on net sales for the second quarter of 2022 of 4%. The effect of exchange rates can vary by business and region, depending upon the mix of sales priced in U.S. dollars as compared to other currencies.

Gross Profit

Gross profit in the second quarter of 2022 increased $226 million, or 25% on a reported basis, to $1.136 billion (34.4% of sales) compared to $910 million (29.5% of sales) in the 2021 period. The increase in gross profit was driven by price increases in the overall business and the impact of N&B inventory step-up costs from the prior year period.

Adjusted Operating EBITDA

Adjusted operating EBITDA in the second quarter of 2022 increased $21 million, or 3% on a reported basis, to $700 million (21.2% of sales) compared to $679 million (22.0% of sales) in the comparable 2021 period. The increase in adjusted operating EBITDA was driven by price increases in the overall business. On a currency neutral basis, adjusted operating EBITDA in the second quarter of 2022 increased 7% compared to the 2021 period. Exchange rate variations had an unfavorable impact on adjusted operating EBITDA for the second quarter of 2022 of 4%.

RESULTS OF OPERATIONS

			Three Months Ended																		Six Months Ended
			June 30,																		June 30,
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)			2022						2021						Change						2022						2021						Change
Net sales			$	3,307					$	3,089					7		%				$	6,533					$	5,554					18		%
Cost of goods sold			2,171						2,179						—		%				4,252						3,890						9		%
Gross profit			1,136						910						25		%				2,281						1,664						37		%
Research and development (R&D) expenses			158						164						(4)		%				315						307						3		%
Selling and administrative (S&A) expenses			456						412						11		%				915						863						6		%
Amortization of acquisition-related intangibles			184						200						(8)		%				370						352						5		%
Impairment of long-lived assets			120						—						NMF						120						—						NMF
Restructuring and other charges			7						24						(71)		%				9						28						(68)		%
Gains on sales of fixed assets			(2)						—						NMF						(2)						—						NMF
Operating profit			213						110						94		%				554						114						NMF
Interest expense			77						77						—		%				149						142						5		%
Other expense (income), net			6						(11)						(155)		%				(10)						(18)						(44)		%
Income (loss) before taxes			130						44						195		%				415						(10)						NMF
Provision for income taxes			21						14						50		%				60						—						NMF
Net income (loss)			$	109					$	30					263		%				$	355					$	(10)					NMF
Net income attributable to noncontrolling interests			2						2						—		%				4						4						—		%
Net income (loss) attributable to IFF shareholders			$	107					$	28					282		%				$	351					$	(14)					NMF
Net income (loss) per share - diluted			$	0.43					$	0.11					276		%				$	1.38					$	(0.06)					NMF
Gross margin			34.4		%				29.5		%				490		bps				34.9		%				30.0		%				490		bps
R&D as a percentage of sales			4.8		%				5.3		%				(50)		bps				4.8		%				5.5		%				(70)		bps
S&A as a percentage of sales			13.8		%				13.3		%				50		bps				14.0		%				15.5		%				(150)		bps
Operating margin			6.4		%				3.6		%				280		bps				8.5		%				2.1		%				640		bps
Effective tax rate			16.2		%				31.8		%				NMF						14.5		%				—		%				NMF
Segment net sales
Nourish			$	1,818					$	1,668					9		%				$	3,549					$	2,976					19		%
Health & Biosciences			665						639						4		%				1,326						1,065						25		%
Scent			580						550						5		%				1,165						1,119						4		%
Pharma Solutions			244						232						5		%				493						394						25		%
Consolidated			$	3,307					$	3,089											$	6,533					$	5,554

---

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.

SECOND QUARTER 2022 IN COMPARISON TO SECOND QUARTER 2021

Sales

Sales for the second quarter of 2022 increased $218 million, or 7% on a reported basis, to $3.307 billion, compared to $3.089 billion in the prior year period. The increase in sales was driven by price increases across all businesses. On a currency neutral basis, sales in the second quarter of 2022 increased 11% compared to the 2021 period. Exchange rate variations had an unfavorable impact on net sales for the second quarter of 2022 of 4%. The effect of exchange rates can vary by business and region, depending upon the mix of sales priced in U.S. dollars as compared to other currencies.

Sales Performance by Segment

			% Change in Sales - Second Quarter 2022 vs. Second Quarter 2021
			Reported						Currency Neutral**(1)**
Nourish			9		%				13		%
Health & Biosciences			4		%				8		%
Scent			5		%				9		%
Pharma Solutions			5		%				10		%
Total			7		%				11		%

---

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

Nourish

Nourish sales in 2022 increased $150 million, or 9% on a reported basis, to $1.818 billion compared to $1.668 billion in the prior year period. On a currency neutral basis, Nourish sales increased 13% in 2022 compared to the prior year period. Performance in the Nourish operating segment was driven by price increases, primarily in the Ingredients and Food Design business units, primarily offset by unfavorable impacts from exchange rate variations.

Health & Biosciences

Health & Biosciences sales in 2022 increased $26 million, or 4% on a reported basis, to $665 million compared to $639 million in the prior year period. On a currency neutral basis, Health & Biosciences sales increased 8% in 2022 compared to the prior year period. Performance in the Health & Biosciences operating segment was primarily driven by $26 million of incremental sales attributable to Health Wright Products, Inc. and price increases across various business units, primarily offset by unfavorable impacts from exchange rate variations.

Scent

Scent sales in 2022 increased $30 million, or 5% on a reported basis, to $580 million, compared to $550 million in the prior year period. On a currency neutral basis, Scent sales increased 9% in 2022 compared to the prior year period. Performance 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 $12 million, or 5% on a reported basis, to $244 million compared to $232 million in the prior year period. On a currency neutral basis, Pharma Solutions sales increased 10% in 2022 compared to the prior year period. Performance in the Pharma Solutions operating segment was primarily driven by price increases, primarily offset by unfavorable impacts from exchange rate variations.

Cost of Goods Sold

Cost of goods sold decreased $8 million to $2.171 billion (65.6% of sales) in the second quarter of 2022 compared to $2.179 billion (70.5% of sales) in the second quarter of 2021. Excluding the impact of N&B inventory step-up costs from the prior year period, the increase in cost of goods sold was primarily driven by higher material costs due to higher commodity prices.

Research and Development (R&D) Expenses

R&D expenses decreased $6 million to $158 million (4.8% of sales) in the second quarter of 2022 compared to $164 million (5.3% of sales) in the second quarter of 2021. The decrease was primarily driven by lower Applied R&D expenses, which consisted primarily of lower employee related expenses, including salaries, wages and bonuses, operating expenses for Applied R&D related activities and professional fees, including consulting costs, primarily offset by higher Basic R&D expenses.

Selling and Administrative (S&A) Expenses

S&A expenses increased $44 million to $456 million (13.8% of sales) in the second quarter of 2022 compared to $412 million (13.3% of sales) in the second quarter of 2021. The increase in S&A expenses was driven by higher administrative expenses, which consisted primarily of professional fees, including consulting costs, and higher selling expenses, which consisted primarily of employee related expenses, including salaries, wages and bonuses.

Restructuring and Other Charges

Restructuring and other charges decreased to $7 million in the second quarter of 2022 compared to $24 million in the second quarter of 2021. The decrease was driven by lower severance costs in the second quarter of 2022 (see Note 4 for additional information).

Amortization of Acquisition-Related Intangibles

Amortization expenses decreased to $184 million in the second quarter of 2022 compared to $200 million in the second quarter of 2021. The decrease in amortization expense was primarily driven by the intangible assets of the Microbial Control business unit being classified as “held for sale,” and therefore no longer recognizing amortization expense on those intangible assets (see Notes 3, 5 and 17 for additional information).

Interest Expense

Interest expense remained flat at $77 million between the second quarters of 2022 and 2021 (see Note 7 for additional information). Average cost of debt was 2.6% for the 2022 period compared to 2.9% for the 2021 period.

Other Expense (Income), Net

In the second quarter of 2022, we recognized other expense, net, of $6 million compared to other income, net, of $11 million in the 2021 period. The change of $17 million was primarily due to foreign exchange losses in the second quarter of 2022 compared to foreign exchange gains in the 2021 period.

Income Taxes

The effective tax rate for the three months ended June 30, 2022 was 16.2% compared to 31.8% for the three months ended June 30, 2021. The quarter-over-quarter decrease was primarily due to the release of uncertain tax positions in connection to an audit settlement, a favorable mix of earnings and the impact of a one-time non-cash United Kingdom rate change from the prior year period.

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 June 30,
(DOLLARS IN MILLIONS)			2022						2021
Segment Adjusted Operating EBITDA:
Nourish			$	365					$	324
Health & Biosciences			184						190
Scent			93						117
Pharma Solutions			58						48
Total			700						679
Depreciation & Amortization			(301)						(322)
Interest Expense			(77)						(77)
Other (Expense) Income, net			(6)						11
Acquisition Related Costs			(1)						—
Restructuring and Other Charges			(7)						(24)
Gains on sales of fixed assets			2						—
Impairment of Long-Lived Assets			(120)						—
Business Divestiture Costs			(30)						(5)
Employee Separation Costs			—						(3)
N&B Inventory Step-Up Costs			—						(195)
N&B Transaction Related Costs			—						(2)
Integration Related Costs			(30)						(18)
Income Before Taxes			$	130					$	44
Segment Adjusted Operating EBITDA margin:
Nourish			20.1		%				19.4		%
Health & Biosciences			27.7		%				29.7		%
Scent			16.0		%				21.3		%
Pharma Solutions			23.8		%				20.7		%
Consolidated			21.2		%				22.0		%

Nourish Segment Adjusted Operating EBITDA

Nourish Segment Adjusted Operating EBITDA increased $41 million, or 13% on a reported basis, to $365 million in the second quarter of 2022 (20.1% of segment sales) from $324 million (19.4% of segment sales) in the comparable 2021 period. On a currency neutral basis, Nourish Segment Adjusted Operating EBITDA increased 17% in 2022 compared to the prior year period. The increase was driven by higher prices in the operating segment, primarily offset by unfavorable impacts from exchange rate variations and volume decreases.

Health & Biosciences Segment Adjusted Operating EBITDA

Health & Biosciences Segment Adjusted Operating EBITDA decreased $6 million, or 3% on a reported basis, to $184 million in the second quarter of 2022 (27.7% of segment sales) from $190 million (29.7% of segment sales) in the comparable 2021 period. On a currency neutral basis, Health & Biosciences Segment Adjusted Operating EBITDA decreased 1% in 2022 compared to the prior year period. The decrease was driven by lower volumes, unfavorable impacts from exchange rate variations and unfavorable net pricing in the operating segment.

Scent Segment Adjusted Operating EBITDA

Scent Segment Adjusted Operating EBITDA decreased $24 million, or 21% on reported basis, to $93 million in the second quarter of 2022 (16.0% of segment sales) from $117 million (21.3% of segment sales) in the comparable 2021 period. On a currency neutral basis, Scent Segment Adjusted Operating EBITDA decreased 17% in 2022 compared to the prior year period. The decrease was driven by unfavorable net pricing and impacts from exchange rate variations in the operating segment, offset by volume increases in both Fragrance Compounds and Fragrance Ingredients.

Pharma Solutions Segment Adjusted Operating EBITDA

Pharma Solutions Segment Adjusted Operating EBITDA increased $10 million, or 21% on a reported basis, to $58 million in the second quarter of 2022 (23.8% of segment sales) from $48 million (20.7% of segment sales) in the comparable 2021 period. On a currency neutral basis, Pharma Solutions Segment Adjusted Operating EBITDA increased 25% in 2022 compared to the prior year period. The increase was driven by favorable prices, offset by unfavorable impacts from exchange rate variations in the operating segment.

FIRST SIX MONTHS 2022 IN COMPARISON TO FIRST SIX MONTHS 2021

Sales

Sales for the first six months of 2022 increased $979 million, or 18% on a reported basis, to $6.533 billion, compared to $5.554 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, sales performance reflected price and volume increases across all businesses.

Sales Performance by Segment

			% Change in Sales - First Six Months 2022 vs. First Six Months 2021
			Reported						Currency Neutral**(1)**
Nourish			19		%				NMF
Health & Biosciences			25		%				NMF
Scent			4		%				8		%
Pharma Solutions			25		%				NMF
Total			18		%				NMF

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(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 $573 million, or 19% on a reported basis, to $3.549 billion compared to $2.976 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, Food Design and Flavors business units and volume increases primarily in the Flavors and Food Design business units.

Health & Biosciences

Health & Biosciences sales in 2022 increased $261 million, or 25% on a reported basis, to $1.326 billion compared to $1.065 billion 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 $26 million of incremental sales attributable to Health Wright Products, Inc. and price and volume increases across various business units.

Scent

Scent sales in 2022 increased $46 million, or 4% on a reported basis, to $1.165 billion, compared to $1.119 billion in the prior year period. On a currency neutral basis, Scent sales increased 8% in 2022 compared to the prior year period. Performance 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 $99 million, or 25% on a reported basis, to $493 million compared to $394 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 increases.

Cost of Goods Sold

Cost of goods sold increased $362 million to $4.252 billion (65.1% of sales) in the first six months of 2022 compared to $3.890 billion (70.0% of sales) in the 2021 period. Cost of goods sold included approximately $389 million of incremental costs attributable to N&B for the month of January in the 2022 period. In addition, excluding the impact of N&B for the month of January in the 2022 period and the N&B inventory step-up costs from the prior year period, the increase in cost of goods sold was primarily driven by higher material costs due to higher commodity prices.

Research and Development (R&D) Expenses

R&D expenses increased $8 million to $315 million (4.8% of sales) in the first six months of 2022 compared to $307 million (5.5% of sales) in the 2021 period. 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. In addition, excluding the impact of N&B for the month of January in the 2022 period, R&D expenses decreased due to lower Applied R&D expenses, which consisted primarily of lower employee related expenses, including salaries, wages and bonuses, operating expenses for Applied R&D related activities and professional fees, including consulting costs, primarily offset by higher Basic R&D expenses.

Selling and Administrative (S&A) Expenses

S&A expenses increased $52 million to $915 million (14.0% of sales) in the first six months of 2022 compared to $863 million (15.5% of sales) in the 2021 period. 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 $9 million in the first six months of 2022 compared to $28 million in the first six months of 2021. The decrease was primarily driven by lower severance costs incurred in the first six months of 2022 (see Note 4 for additional information).

Amortization of Acquisition-Related Intangibles

Amortization expenses increased to $370 million in the first six months of 2022 compared to $352 million in the 2021 period. 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. Excluding the impact of N&B for the month of January in the 2022 period, the decrease in amortization expense was primarily due to the intangible assets of the Microbial Control business unit being classified as “held for sale,” and therefore no longer recognizing amortization expense on those intangible assets (see Notes 3, 5 and 17 for additional information).

Interest Expense

Interest expense increased to $149 million in the first six months of 2022 compared to $142 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 2.6% for the 2022 period compared to 3.3% for the 2021 period.

Other Expense (Income), Net

In the first six months of 2022, we recognized other income, net, of $10 million compared to $18 million in the comparable 2021 period. The change of $8 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 losses in the first six months of 2022 compared to foreign exchange gains in the 2021 period.

Income Taxes

The effective tax rate for the six months ended June 30, 2022 was 14.5% compared to 0.0% for the six months ended June 30, 2021. The year-over-year increase was primarily due to the release of uncertain tax positions in connection to an audit settlement, changes in the mix of earnings and a one-time benefit to record a receivable associated with the proceedings of a bi-lateral advance pricing agreement, partially offset by the impact of a one-time non-cash United Kingdom rate change from the prior year period.

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.

			Six Months Ended June 30,
(DOLLARS IN MILLIONS)			2022						2021
Segment Adjusted Operating EBITDA:
Nourish			$	694					$	594
Health & Biosciences			376						318
Scent			209						245
Pharma Solutions			123						91
Total			1,402						1,248
Depreciation & Amortization			(604)						(564)
Interest Expense			(149)						(142)
Other Income, net			10						18
Acquisition Related Costs			(1)						—
Restructuring and Other Charges			(9)						(28)
Gains on sales of fixed assets			2						—
Impairment of Long-Lived Assets			(120)						—
Shareholder Activism Related Costs			(3)						(7)
Business Divestiture Costs			(60)						(5)
Employee Separation Costs			(4)						(6)
Frutarom Acquisition Related Costs			(1)						—
N&B Inventory Step-Up Costs			—						(377)
N&B Transaction Related Costs			—						(91)
Integration Related Costs			(48)						(56)
Income (Loss) Before Taxes			$	415					$	(10)
Segment Adjusted Operating EBITDA margin:
Nourish			19.6		%				20.0		%
Health & Biosciences			28.4		%				29.9		%
Scent			17.9		%				21.9		%
Pharma Solutions			24.9		%				23.1		%
Consolidated			21.5		%				22.5		%

Nourish Segment Adjusted Operating EBITDA

Nourish Segment Adjusted Operating EBITDA increased $100 million, or 17% on a reported basis, to $694 million in the first six months of 2022 (19.6% of segment sales) from $594 million (20.0% 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. In addition, the increase in Nourish Segment Adjusted Operating EBITDA, excluding the impact of N&B for the month of January in the 2022 period, was driven by price increases. The decrease in Nourish 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 unfavorable net pricing as a result of higher commodity prices.

Health & Biosciences Segment Adjusted Operating EBITDA

Health & Biosciences Segment Adjusted Operating EBITDA increased $58 million, or 18% on a reported basis, to $376 million in the first six months of 2022 (28.4% of segment sales) from $318 million (29.9% 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. 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 unfavorable net pricing as a result of higher commodity prices.

Scent Segment Adjusted Operating EBITDA

Scent Segment Adjusted Operating EBITDA decreased $36 million, or 15% on a reported basis, to $209 million in the first six months of 2022 (17.9% of segment sales) from $245 million (21.9% of segment sales) in the comparable 2021 period. On a currency neutral basis, Scent Segment Adjusted Operating EBITDA decreased 9% in 2022 compared to the prior year period. The decrease was driven by unfavorable net pricing and impacts from exchange rate variations in the operating segment, offset by volume increases in both Fragrance Compounds and Fragrance Ingredients.

Pharma Solutions Segment Adjusted Operating EBITDA

Pharma Solutions Segment Adjusted Operating EBITDA increased $32 million, or 35% on a reported basis, to $123 million in the first six months of 2022 (24.9% of segment sales) from $91 million (23.1% of segment sales) in the comparable 2021 period. 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 in Pharma Solutions Segment Adjusted Operating EBITDA, excluding the impact of N&B for the month of January in the 2022 period, was primarily driven by price increases.

Liquidity

Cash and Cash Equivalents

We had cash and cash equivalents of $569 million at June 30, 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 June 30, 2022, we had a deferred tax liability of approximately $92 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 six months ended June 30, 2022 was $100 million, or (1.5)% of sales, compared to cash provided by operating activities of $698 million, or 12.6% of sales, for the six months ended June 30, 2021. The decrease in cash flows from operating activities during 2022 was primarily driven by changes related to inventories, accounts receivables, accounts payable, accrued expenses and accrual for incentive compensation, largely offset by higher cash earnings excluding the impact of non-cash adjustments.

Working capital (current assets less current liabilities) totaled $3.010 billion and $3.354 billion at June 30, 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 flows from operating activities from participating in these programs decreased approximately $59 million and increased approximately $46 million for the six months ended June 30, 2022 and 2021, respectively. The cost of participating in these programs was approximately $2 million for the three months ended June 30, 2022 and 2021, and $3 million for the six months ended June 30, 2022 and 2021.

Cash Flows (Used In) Provided By Investing Activities

Cash flows used in investing activities for the six months ended June 30, 2022 was $346 million compared to $30 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 and cash paid for acquisitions, net of cash received. 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 for the six months ended June 30, 2022 was $377 million compared to $427 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, increase in borrowings of 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 and higher purchases of redeemable noncontrolling interest and noncontrolling interest.

We paid dividends totaling $402 million in the 2022 period. We declared a cash dividend per share of $0.79 in the second quarter of 2022 that was paid on July 6, 2022 to all shareholders of record as of June 24, 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.

Amended Revolving Credit Facility and Term Loans

As of June 30, 2022, we had $350 million outstanding borrowings under our $2.000 billion Amended Revolving Credit Facility.

The amount that we are able to draw down under the Amended Revolving Credit Facility is limited by financial covenants as described in more detail below. As of June 30, 2022, our draw down capacity was $317 million under the Amended Revolving Credit Facility.

Refer to Note 7 and Note 18 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 June 30, 2022, we were in compliance with all financial and other covenants, including the net debt to credit adjusted EBITDA ratio. At June 30, 2022, our net debt to credit adjusted EBITDA(1) ratio was 4.38 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 June 30, 2022
Net income			$	635
Interest expense			296
Income taxes			135
Depreciation and amortization			1,196
Specified items(1)			346
Non-cash items(2)			36
Credit Adjusted EBITDA			$	2,644

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(1)Specified items for the 12 months ended June 30, 2022 of $346 million consisted of acquisition related costs, restructuring and other charges, impairment of long-lived assets, 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 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 Statements of Cash Flows, including gains on disposal of assets, gains on business disposal and stock-based compensation.

(DOLLARS IN MILLIONS)			June 30, 2022
Total debt(1)			$	12,150
Adjustments:
Cash and cash equivalents			569
Net debt			$	11,581

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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 June 30, 2022, we had $9.617 billion aggregate principal amount outstanding in senior unsecured notes, with $1.367 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 six months ended June 30, 2022, there were no contributions made to the qualified U.S. pension plans, $15 million of contributions were made to the non-U.S. pension plans, and $2 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 six months ended June 30, 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 June 30, 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 (expense) income, net, restructuring and other charges and certain non-recurring items such as acquisition related costs, gains on sale of assets, impairment of long-lived assets, 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 commodities, 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 and acquisitions, such as the Health Wright acquisition; (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) the growth potential of the markets in which we operate, including the emerging markets, (xi) expected capital expenditures in 2022; (xii) the expected costs and benefits of our ongoing optimization of our manufacturing operations, including the expected number of closings; (xiii) expected cash flow and availability of capital resources to fund our operations and meet our debt service requirements; (xiv) our ability to innovate and execute on specific consumer trends and demands; and (xv) 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.