Item 1. FINANCIAL STATEMENTS.

138K characters. Original on sec.gov · Markdown

Item 1. FINANCIAL STATEMENTS.

INTERNATIONAL FLAVORS & FRAGRANCES INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(DOLLARS IN MILLIONS)	March 31, 2023		December 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents	$	590	$	483
Restricted cash	16		10
Trade receivables (net of allowances of $54 and $53, respectively)	1,899		1,818
Inventories: Raw materials	1,006		1,073
Work in process	473		442
Finished goods	1,467		1,636
Total Inventories	2,946		3,151
Assets held for sale	1,202		1,200
Prepaid expenses and other current assets	789		770
Total Current Assets	7,442		7,432
Property, plant and equipment, at cost	6,309		6,180
Accumulated depreciation	(2,085)		(1,977)
Property, plant and equipment, net	4,224		4,203
Goodwill	13,458		13,355
Other intangible assets, net	8,968		9,082

Operating lease right-of-use assets	634		636
Other assets	744		699
Total Assets	$	35,470	$	35,407
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Bank borrowings, overdrafts, and current portion of long-term debt	$	1,483	$	410
Commercial paper	588		187
Accounts payable	1,197		1,418
Accrued payroll and bonus	218		267
Dividends payable	207		206
Liabilities held for sale	216		212
Other current liabilities	965		1,028
Total Current Liabilities	4,874		3,728
Other Liabilities:
Long-term debt	9,220		10,373

Retirement liabilities	235		231
Deferred income taxes	2,229		2,265
Operating lease liabilities	569		565
Other liabilities	494		472
Total Other Liabilities	12,747		13,906
Commitments and Contingencies (Note 16)
Redeemable non-controlling interests	59		59
Shareholders’ Equity:
Common stock $0.125 par value; 500,000,000 shares authorized; 275,726,629 shares issued as of March 31, 2023 and 275,726,629 shares issued as of December 31, 2022; and 255,067,476 and 254,968,463 shares outstanding as of March 31, 2023 and December 31, 2022, respectively	35		35
Capital in excess of par value	19,844		19,841
Retained earnings	739		955
Accumulated other comprehensive loss	(1,887)		(2,169)
Treasury stock, at cost (20,659,153 and 20,758,166 shares as of March 31, 2023 and December 31, 2022, respectively)	(973)		(978)
Total Shareholders’ Equity	17,758		17,684
Non-controlling interest	32		30
Total Shareholders’ Equity including Non-controlling interest	17,790		17,714
Total Liabilities and Shareholders’ Equity	$	35,470	$	35,407

See Notes to Consolidated Financial Statements

INTERNATIONAL FLAVORS & FRAGRANCES INC.

CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended
	March 31,
(AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS)	2023		2022
Net sales	$	3,027	$	3,226
Cost of goods sold	2,063		2,081
Gross profit	964		1,145
Research and development expenses	161		157
Selling and administrative expenses	454		459
Amortization of acquisition-related intangibles	171		186


Restructuring and other charges	52		2
Gains on sale of fixed assets	(5)		—
Operating profit	131		341
Interest expense	111		72

Other expense (income), net	6		(16)
Income before taxes	14		285
Provision for income taxes	22		39
Net (loss) income	(8)		246
Net income attributable to non-controlling interests	1		2
Net (loss) income attributable to IFF shareholders	$	(9)	$	244

Net (loss) income per share - basic	$	(0.04)	$	0.96
Net (loss) income per share - diluted	$	(0.04)	$	0.96
Average number of shares outstanding - basic	255		255
Average number of shares outstanding - diluted	255		255


Statements of Comprehensive Income
Net (loss) income	$	(8)	$	246
Other comprehensive income (loss), after tax:
Foreign currency translation adjustments	284		(199)

Pension and postretirement liability adjustment	(2)		—
Other comprehensive income (loss)	282		(199)
Comprehensive income	274		47
Net income attributable to non-controlling interests	1		2
Comprehensive income attributable to IFF shareholders	$	273	$	45

See Notes to Consolidated Financial Statements

INTERNATIONAL FLAVORS & FRAGRANCES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
(DOLLARS IN MILLIONS)	2023		2022
Cash flows from operating activities:
Net (loss) income	$	(8)	$	246
Adjustments to reconcile to net cash provided by (used in) operating activities
Depreciation and amortization	276		303
Deferred income taxes	(28)		(65)
Gains on sale of fixed assets	(5)		—
Losses on business divestitures	14		—
Stock-based compensation	12		9
Pension contributions	(7)		(8)








Changes in assets and liabilities, net of acquisitions:
Trade receivables	(63)		(272)
Inventories	219		(311)
Accounts payable	(144)		178
Accruals for incentive compensation	(70)		(101)
Other current payables and accrued expenses	(51)		39
Other assets/liabilities, net	(18)		(22)
Net cash provided by (used in) operating activities	127		(4)
Cash flows from investing activities:

Additions to property, plant and equipment	(175)		(132)
Additions to intangible assets	—		(2)


Proceeds from disposal of assets	7		2
Cash provided by the Merger with N&B	—		11

Net proceeds received from business divestiture	1		—
Net cash used in investing activities	(167)		(121)
Cash flows from financing activities:
Cash dividends paid to shareholders	(206)		(201)
Increase (decrease) in revolving credit facility and short-term borrowings	(100)		1
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)	393		227
Deferred financing costs	(2)		—








Employee withholding taxes paid	(6)		(13)

Other, net	(1)		1
Net cash provided by financing activities	78		95
Effect of exchange rate changes on cash, cash equivalents and restricted cash	27		(24)
Net change in cash, cash equivalents and restricted cash	65		(54)
Cash, cash equivalents and restricted cash at beginning of year	552		716
Cash, cash equivalents and restricted cash at end of period	$	617	$	662
Supplemental Disclosures:
Interest paid, net of amounts capitalized	$	66	$	45
Income taxes paid	227		78
Accrued capital expenditures	71		64

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, 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


(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, 2023	275,726,629		$	35	$	19,841	$	955	$	(2,169)	(20,758,166)	$	(978)	$	30	$	17,714
Net (loss)							(9)							1		(8)

Cumulative translation adjustment									284							284

Pension liability and postretirement adjustment; net of tax of $0									(2)							(2)
Cash dividends declared ($0.81 per share)							(207)									(207)
Stock options/SSARs					(5)						55,617	3				(2)

Vested restricted stock units and awards					(4)						43,396	2				(2)
Stock-based compensation					12											12



Dividends paid on non-controlling interest and Other														1		1
Balance at March 31, 2023	275,726,629		$	35	$	19,844	$	739	$	(1,887)	(20,659,153)	$	(973)	$	32	$	17,790

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 2022 Annual Report on Form 10-K (“2022 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 2022 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.

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 the Company’s judgments and estimates take into account the current economic implications of the novel coronavirus (“COVID-19”), the events in Russia and Ukraine, and the ongoing adverse macroeconomic impacts 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 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, 2023, December 31, 2022, March 31, 2022 and December 31, 2021 were as follows:


(DOLLARS IN MILLIONS)	March 31, 2023		December 31, 2022		March 31, 2022		December 31, 2021
Current assets
Cash and cash equivalents	$	590	$	483	$	657	$	711
Cash and cash equivalents included in Assets held for sale	4		52		—		—
Restricted cash	16		10		4		4
Non-current assets
Restricted cash included in Other assets	7		7		1		1
Cash, cash equivalents and restricted cash	$	617	$	552	$	662	$	716

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 (“Company’s own factoring agreements”). In addition, the Company utilizes 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 Company sold a total of approximately $445 million and $333 million of receivables under the Company’s own factoring agreements and customer sponsored factoring agreements for the three months ended March 31, 2023 and 2022, respectively. The cost of participating in these programs was approximately $5 million and $1 million for the three months ended March 31, 2023 and 2022, respectively, and is included as a component of interest expense. Under the Company’s own factoring agreements, it sold approximately $197 million and $87 million of receivables for the three months ended March 31, 2023 and 2022, respectively. The outstanding principal amounts of receivables under the Company’s own factoring agreements amounted to approximately $163 million and $157 million as of March 31, 2023 and December 31, 2022, respectively. The proceeds from the sales of receivables are included in net cash from operating activities in the Consolidated Statements of Cash Flows.

Revenue Recognition

The Company recognizes revenue from contracts with customers when the contract or purchase order has received approval and commitment from both parties, has the rights of the parties and payment terms (which can vary by customer) identified, has commercial substance, collectability of consideration is probable, and control has transferred. The revenue recognized reflects the consideration the Company 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.

Sales are reduced, at the time revenue is recognized, for applicable discounts, rebates and sales allowances based on historical experience. Related accruals are included in Other current liabilities in the accompanying Consolidated Balance Sheets. The Company considers shipping and handling activities undertaken after the customer has obtained control of the related goods as a fulfillment activity. Net sales include shipping and handling charges billed to customers. Cost of goods sold includes all costs incurred in connection with shipping and handling.

See Note 12 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, 2023 and December 31, 2022, the Company’s gross accounts receivable was $1.953 billion and $1.871 billion, respectively. The Company’s contract assets and contract liabilities as of March 31, 2023 and December 31, 2022 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, 2023, the Company reported $1.899 billion of trade receivables, net of allowances of $54 million. Based on the aging analysis as of March 31, 2023, less than 1% of the Company’s accounts receivable were past due by over 365 days based on the payment terms of the invoice.

The following is a rollforward of the Company’s allowances for bad debts for the three months ended March 31, 2023:


(DOLLARS IN MILLIONS)	Allowances for Bad Debts
Balance at December 31, 2022	$	53
Bad debt expense(1)	1



Balance at March 31, 2023	$	54

(1)The bad debt expense included approximately $9 million related to expected credit losses on receivables from certain customers in Egypt, offset by approximately $8 million of reversals of allowances on receivables from customers located in Russia and Ukraine. The Company will continue to evaluate its credit exposure related to Egypt, Russia and Ukraine.

Long-Lived Assets

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.

Goodwill

Goodwill represents the difference between the total purchase price and the fair value of identifiable assets and liabilities acquired in business acquisitions.

The Company tests goodwill for impairment at the reporting unit level as of November 30 every year, or more frequently if events or changes in circumstances indicate the asset might be impaired. A reporting unit is an operating segment or one level below an operating segment (referred to as a component) to which goodwill is assigned when initially recorded.

The Company identifies its reporting units by assessing whether the components of its reporting segments constitute businesses for which discrete financial information is available and management of each reporting unit regularly reviews the operating results of those components. The Company determined that it has six reporting units under the Nourish, Health & Biosciences, Scent and Pharma Solutions segments: (1) Nourish, (2) Fragrance Compounds, (3) Fragrance Ingredients, (4) Cosmetic Actives, (5) Health & Biosciences and (6) Pharma Solutions. These reporting units were determined based on the level at which the performance is measured and reviewed by segment management. In cases where the components of an operating segment have similar economic characteristics, they are aggregated into a single reporting unit.

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.

Allowances for Bad Debts

As of March 31, 2023, the Company had a reserve of approximately $3 million related to expected credit losses on receivables from customers located in Russia and Ukraine. The Company will continue to evaluate its credit exposure related to Russia and Ukraine.

Recent Accounting Pronouncements

In December 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” The ASU was issued to provide an update on ASU 2020-04 and ASU 2021-01 that were issued in March 2020 and January 2021, respectively, which provided optional accounting guidance for a limited period of time to ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions to existing accounting requirements for contract modifications and hedge accounting related to transitioning from discontinued reference rates, such as London Interbank Offered Rate (“LIBOR”), to alternative reference rates, if certain criteria are met. With the issuance of ASU 2022-06, the sunset date of Topic 848 has been deferred from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. On March 23, 2023, the Company amended certain existing debt agreements where the interest rate benchmark was updated from LIBOR to the Secured Overnight Financing Rate (“Term SOFR”). The Company had adopted Topic 848 and also applied it to its recent amendments of its debt agreements. See Note 8 for additional information on the amendments to the debt agreements.

In September 2022, the FASB issued ASU 2022-04, “Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” The ASU requires that a buyer in a supplier finance program disclose sufficient information about the program to allow users of the financial statements to understand the program’s nature, activity during the period, changes from period to period and potential magnitude. The buyer should disclose qualitative and quantitative information about its supplier finance programs. The ASU requires the buyer’s annual disclosure to include a rollforward of the obligations under the supplier finance programs during the annual period, including the amount of obligations confirmed and subsequently paid. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023, and early adoption is permitted. The Company has adopted this guidance on January 1, 2023, which did not have a material impact on its Consolidated Financial Statements. As of March 31, 2023, the Company did not have any obligations under supplier finance programs.

NOTE 2. NET (LOSS) INCOME PER SHARE

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


	Three Months Ended March 31,
(AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS)	2023		2022
Net (Loss) Income


Net (loss) income available to IFF shareholders	$	(9)	$	244
Shares
Weighted average common shares outstanding (basic)	255		255



Weighted average shares assuming dilution (diluted)	255		255

Net (Loss) Income per Share
Net (loss) income per share - basic	$	(0.04)	$	0.96
Net (loss) income per share - diluted	(0.04)		0.96

The Company declared a quarterly dividend to its shareholders of $0.81 and $0.79 per share for the three months ended March 31, 2023 and 2022, respectively.

There were approximately 0.3 million potentially dilutive securities excluded from the computation of diluted net loss per share for the three months ended March 31, 2023 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.

For the three months ended March 31, 2023 and 2022, there were approximately 0.4 million and 0.2 million share equivalents, respectively, that had an anti-dilutive effect and therefore were excluded from the computation of diluted net (loss) income per share.

The Company has issued shares of Purchased Restricted Stock Units (“PRSUs”) which contain rights to non-forfeitable 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 (loss) income per share for both unrestricted common shareholders and PRSU shareholders for the three months ended March 31, 2023 and 2022. There was no difference between diluted net loss per share for both unrestricted common shareholders and PRSU shareholders for the three months ended March 31, 2023. 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. In addition, the number of PRSUs outstanding as of March 31, 2023 and 2022 was not material. Net loss allocated to such PRSUs was not material for the three months ended March 31, 2023. Net income allocated to such PRSUs was not material for the three months ended March 31, 2022.

NOTE 3. BUSINESS DIVESTITURE

Divestiture of Microbial Control

The Company completed the divestiture of the Microbial Control business unit on July 1, 2022, which was acquired as part of the Company’s merger with Nutrition and Biosciences, Inc. (“N&B”), a wholly-owned subsidiary of DuPont, in 2021 (the “Merger”), and received net cash proceeds of approximately $1.169 billion. The Company also entered into transition services agreements with the buyer for providing certain general accounting, information technology and other services up to 19 months following the date of the sale for minimal consideration. The fair value of these transition services agreements was determined to be approximately $36 million, which was adjusted against the sale consideration and recognized as deferred transition services income. For the three months ended March 31, 2023, the transition services income under the transition services agreements was approximately $5 million and was recognized as a reduction to the costs incurred to provide services under the transition services agreements, which was included in Selling and administrative expenses on the Consolidated Statements of (Loss) Income and Comprehensive Income.

Liquidation of a Business in Russia

As part of the liquidation of a business in Russia in preparation for the sale of the portion of the Savory Solutions business, as disclosed in Note 18, the Company recognized a pre-tax loss of approximately $10 million presented in other expense (income), net, and approximately $2 million of tax benefits presented in provision for income taxes on the Consolidated Statements of (Loss) Income and Comprehensive Income for the three months ended March 31, 2023.

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 (Loss) Income and Comprehensive Income.

Frutarom Integration Initiative

In connection with the acquisition of Frutarom, the Company executed an integration plan that, among other initiatives, sought to optimize its manufacturing network (the “Frutarom Integration Initiative”). Since the inception of the initiative through March 31, 2023, the Company closed 22 sites and expensed total costs of approximately $36 million. As of March 31, 2023, the Frutarom Integration Initiative is complete.

N&B Merger Restructuring Liability

For the three months ended March 31, 2023, the Company had approximately $1 million of reversal to charges related to severance. Since the inception of the restructuring activities, there have been a total of approximately 215 headcount reductions and the Company has expensed approximately $44 million.

2023 Restructuring Program

In December 2022, the Company announced a restructuring program mainly related to headcount reduction to improve its organizational and operating structure, drive efficiencies and achieve cost savings. For the three months ended March 31, 2023, the Company incurred approximately $57 million of charges related to severance and there have been a total of approximately 600 actual and planned headcount reductions. The Company expects to incur a majority of the costs for the 2023 Restructuring Program in the current year.

Changes in Restructuring Liabilities

Changes in restructuring liabilities during the three months ended March 31, 2023 were as follows:


(DOLLARS IN MILLIONS)	Balance at December 31, 2022		Additional Charges (Reversals), Net		Cash Payments		Balance at March 31, 2023




Frutarom Integration Initiative
Severance	$	4	$	(3)	$	(1)	$	—






Other Restructuring Charges
Severance	1		(1)		—		—


N&B Merger Restructuring Liability
Severance	9		(1)		(6)		2

Other	1		—		—		1
2023 Restructuring Program
Severance	—		57		(1)		56
Total Restructuring and other charges	$	15	$	52	$	(8)	$	59

Restructuring liabilities are presented in “Other current liabilities” on 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)	2023		2022
Nourish	$	30	$	2
Health & Biosciences	10		—
Scent	10		—
Pharma Solutions	2		—

Total Restructuring and other charges	$	52	$	2

NOTE 5. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment consisted of the following amounts:


(DOLLARS IN MILLIONS)	March 31, 2023		December 31, 2022
Asset Type
Land	$	191	$	199
Buildings and improvements	1,730		1,697
Machinery and equipment	3,419		3,344
Information technology	329		291
Construction in process	640		649
Total Property, plant and equipment	6,309		6,180
Accumulated depreciation	(2,085)		(1,977)
Total property, plant and equipment, net	$	4,224	$	4,203

Depreciation expense was $105 million and $117 million for the three months ended March 31, 2023 and 2022, respectively.

NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

Movements in goodwill attributable to each reportable segment for the three months ended March 31, 2023 were as follows:


(DOLLARS IN MILLIONS)	Nourish		Health & Biosciences		Scent		Pharma Solutions		Total
Balance at December 31, 2022	$	6,050	$	4,321	$	1,745	$	1,239	$	13,355



Transferred to assets held for sale	(4)		—		—		—		(4)

Foreign exchange	50		32		11		14		107


Balance at March 31, 2023	$	6,096	$	4,353	$	1,756	$	1,253	$	13,458

Other Intangible Assets

Other intangible assets, net consisted of the following amounts:


	March 31,		December 31,
(DOLLARS IN MILLIONS)	2023		2022






Asset Type
Customer relationships	$	8,367	$	8,318
Technological know-how	2,356		2,339
Trade names & patents	360		358

Other	49		47
Total carrying value	11,132		11,062
Accumulated Amortization
Customer relationships	(1,366)		(1,252)
Technological know-how	(648)		(589)
Trade names & patents	(106)		(97)

Other	(44)		(42)
Total accumulated amortization	(2,164)		(1,980)

Other intangible assets, net	$	8,968	$	9,082

Amortization

Amortization expense was $171 million and $186 million for the three months ended March 31, 2023 and 2022, respectively.

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



(DOLLARS IN MILLIONS)	2023		2024		2025		2026		2027
Estimated future intangible amortization expense	$	527	$	702	$	699	$	697	$	598

NOTE 7. OTHER CURRENT ASSETS AND LIABILITIES, AND OTHER ASSETS

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


(DOLLARS IN MILLIONS)	March 31, 2023		December 31, 2022
Value-added tax receivable	$	183	$	212
Income tax receivable	152		129
Packaging materials and supplies	155		148
Prepaid expenses	163		144

Other	136		137
Total	$	789	$	770

Other assets consisted of the following amounts:


(DOLLARS IN MILLIONS)	March 31, 2023		December 31, 2022
Deferred income taxes	$	188	$	158
Overfunded pension plans	180		180
Cash surrender value of life insurance contracts	46		45
Finance lease right-of-use assets	21		22
Equity method investments	11		10

Other(1)	298		284
Total	$	744	$	699

(1)Includes land usage rights in China, long-term deposits and receivables on certain derivative instruments.

Other current liabilities consisted of the following amounts:


(DOLLARS IN MILLIONS)	March 31, 2023		December 31, 2022
Rebates and incentives payable	$	92	$	99
Value-added tax payable	73		65
Interest payable	81		55
Current pension and other postretirement benefit obligation	12		10
Accrued insurance (including workers’ compensation)	10		9

Accrued restructuring	59		15
Current operating lease obligation	84		86


Accrued freight	19		18
Accrued commissions payable	10		11
Accrued income taxes	160		313

Accrued expenses payable	289		256
Other	76		91
Total	$	965	$	1,028

NOTE 8. DEBT

Debt consisted of the following:


(DOLLARS IN MILLIONS)	Effective Interest Rate		March 31, 2023		December 31, 2022



2023 Notes(1)	3.30	%	$	300	$	300
2024 Euro Notes(1)	1.88	%	542		532
2025 Notes(1)	1.22	%	1,000		1,000
2026 Euro Notes(1)	1.93	%	864		845
2027 Notes(1)	1.56	%	1,214		1,215
2028 Notes(1)	4.57	%	398		398
2030 Notes(1)	2.21	%	1,509		1,510
2040 Notes(1)	3.04	%	773		774
2047 Notes(1)	4.44	%	495		495
2048 Notes(1)	5.12	%	787		787
2050 Notes(1)	3.21	%	1,570		1,571


2024 Term Loan Facility(2)	3.75	%	625		625
2026 Term Loan Facility(2)	5.08	%	625		625

Revolving Credit Facility(3)			—		100
Commercial paper(4)			588		187
Bank overdrafts and other			1		6

Total debt			11,291		10,970
Less: Short-term borrowings(5)			(2,071)		(597)
Total Long-term debt			$	9,220	$	10,373

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

(2)Amount is recorded at fair value.

(3)The interest rate on the Amended Revolving Credit Facility is, at the applicable borrower's option, a per annum rate equal to either (x) an eurocurrency rate plus an applicable margin varying from 1.000% to 1.625% or (y) a base rate plus an applicable margin varying from 0.000% to 0.625%, in each case depending on the public debt ratings for non-credit enhanced long-term senior unsecured debt issued by the Company.

(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.

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

Commercial Paper

For the three months ended March 31, 2023, the Company had gross issuances of $1.320 billion and repayments of $919 million under the Commercial Paper Program. The commercial paper issued had original maturities of less than 86 days. For the three months ended March 31, 2022, the Company had gross issuances of $873 million and repayments of $566 million.

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.

Amendments to Existing Credit Agreements

Amendments to Existing Term Loan Credit Agreement

On March 23, 2023, the Company entered into Amendment No. 3 (“Term Loan Amendment No. 3”) and Amendment No. 4 (“Term Loan Amendment No. 4”, and together with Term Loan Amendment No. 3, the “Term Loan Amendments”) to amend that certain term loan credit agreement, dated January 17, 2020 (as amended by that certain Amendment No. 1 to Credit Agreement, dated August 25, 2020, as further amended by that certain Amendment No. 2 to Credit Agreement, dated August 4, 2022, as further supplemented by that certain Icon Debt Assumption Supplement, dated March 4, 2021, the “Existing Term Loan Credit Agreement”, and the Existing Term Loan Credit Agreement, as amended by the Term Loan Amendments, the “Term Loan Credit Agreement”), among the Company (as successor to Nutrition & Biosciences, Inc.), the lenders party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent.

Term Loan Amendment No. 3, among other things, extends the period during which certain relief is provided with respect to the financial covenant contained in the Existing Term Loan Credit Agreement through December 31, 2024, or such earlier date on which the Company elects to terminate such period (the “Term Loan Covenant Relief Period”), by providing that during the Term Loan Covenant Relief Period, the Company’s consolidated leverage ratio shall not exceed as of the end of the fiscal quarter for the period of the four fiscal quarters then ended: (i) 5.25x for any fiscal quarter ending on or before June 30, 2023, (ii) 5.00x for the fiscal quarter ending September 30, 2023, (iii) 4.75x for any subsequent fiscal quarter ending on or before March 31, 2024, (iv) 4.50x for the fiscal quarter ending June 30, 2024, (v) 4.25x for the fiscal quarter ending September 30, 2024 and (vi) 4.00x for the fiscal quarter ending December 31, 2024. During the Term Loan Covenant Relief Period, Term Loan Amendment No. 3 also prohibits the Company from (i) effecting any share repurchases and (ii) creating liens to secure debt in excess of the greater of $400 million and 5.00% of Consolidated Net Tangible Assets (as defined in the Term Loan Credit Agreement), in each case subject to certain exceptions set forth therein. The Company was in compliance with all covenants as of March 31, 2023.

Term Loan Amendment No. 4, among other things, replaces LIBOR with Term SOFR (as defined in the Term Loan Credit Agreement) as the reference rate for U.S. dollar-denominated loans. From March 23, 2023, loans under the Term Loan Credit Agreement now bear interest at a base rate or a rate equal to Term SOFR plus an adjustment of 0.10% per annum, plus, in each case, an applicable margin based on the Company's public debt rating. Loans may be prepaid without premium or penalty, subject to customary breakage costs.

Amendments to Existing Revolving Credit Facility

On March 23, 2023, the Company and certain of its subsidiaries entered into Amendment No. 2 (“Revolver Amendment No. 2”) and Amendment No. 3 (“Revolver Amendment No. 3”, and together with Revolver Amendment No. 2, the “Revolver Amendments”) to amend that certain Third Amended and Restated Credit Agreement, dated July 28, 2021 (as amended by that certain Amendment No. 1 to Credit Agreement, dated August 4, 2022, the “Existing Revolving Credit Agreement”, and the Existing Revolving Credit Agreement, as amended by the Revolver Amendments, the “Revolving Credit Agreement”), among the Company and certain of its subsidiaries (collectively, the “Loan Parties”), the lenders party thereto and Citibank, N.A., as administrative agent.

Revolver Amendment No. 2, among other things, extends the period during which certain relief is provided with respect to the financial covenant contained in the Existing Revolving Credit Agreement through December 31, 2024, or such earlier date on which the Company elects to terminate such period (the “Revolver Covenant Relief Period”), by providing that during the Revolver Covenant Relief Period, the Company’s consolidated leverage ratio shall not exceed as of the end of the fiscal quarter for the period of the four fiscal quarters then ended: (i) 5.25x for any fiscal quarter ending on or before June 30, 2023, (ii) 5.00x for the fiscal quarter ending September 30, 2023, (iii) 4.75x for any subsequent fiscal quarter ending on or before March 31, 2024, (iv) 4.50x for the fiscal quarter ending June 30, 2024, (v) 4.25x for the fiscal quarter ending September 30, 2024 and (vi) 4.00x for the fiscal quarter ending December 31, 2024. During the Revolver Covenant Relief Period, Revolver Amendment No. 2 also prohibits the Loan Parties from (i) effecting any share repurchases and (ii) creating liens to secure debt in excess of the greater of $400 million and 5.00% of Consolidated Net Tangible Assets (as defined in the Revolving Credit Agreement), in each case subject to certain exceptions set forth therein. The Company was in compliance with all covenants as of March 31, 2023.

Revolver Amendment No. 3, among other things, replaces LIBOR with Term SOFR (as defined in the Revolving Credit Agreement) as the reference rate for U.S. dollar-denominated loans. From March 23, 2023, loans under the Revolving Credit Agreement now bear interest at a base rate or, in the case of U.S. dollar-denominated loans, a rate equal to Term SOFR plus an adjustment of 0.10% per annum or, in the case of euro-denominated loans, the Euro interbank offered rate, plus, in each case, an applicable margin based on the Company’s public debt rating. Loans may be prepaid without premium or penalty, subject to customary breakage costs.

For the three months ended March 31, 2023, the Company had issuances of $400 million and repayments of $500 million under the Revolving Credit Facility. For the three months ended March 31, 2022, the Company had no borrowings issuances and no repayments.

Subsequent Events

On May 1, 2023, the Company made a $300 million debt repayment related to the 2023 Notes at maturity, which was funded from the issuance of $400 million under the Revolving Credit Facility.

NOTE 9. 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 7 years.

The components of lease expense were as follows:


	Three Months Ended		Three Months Ended
(DOLLARS IN MILLIONS)	March 31, 2023		March 31, 2022
Operating lease cost	$	49	$	47
Finance lease cost	2		2

Supplemental cash flow information related to leases was as follows:


	Three Months Ended		Three Months Ended
(DOLLARS IN MILLIONS)	March 31, 2023		March 31, 2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows for operating leases	$	33	$	35

Financing cash flows for finance leases	2		2
Right-of-use assets obtained in exchange for lease obligations
Operating leases	23		18
Finance leases	2		1

Operating lease right-of-use assets are presented in “Operating lease right-of-use assets” and finance lease right-of-use assets are presented in “Other assets” on the Consolidated Balance Sheets. Operating lease liabilities are presented in “Operating lease liabilities” and finance lease liabilities are presented in “Other liabilities” on the Consolidated Balance Sheets. Any other current liabilities related to operating and finance lease liabilities are presented in “Other current liabilities” on the Consolidated Balance Sheets.

NOTE 10. INCOME TAXES

The effective tax rate for the three months ended March 31, 2023 was 157.1%, which was primarily driven by tax expenses relating to planned business divestitures and changes in the mix of income and losses, some of which do not give rise to tax benefits due to valuation allowances.

As of March 31, 2023, the Company had approximately $109 million of unrecognized tax benefits recorded in Other liabilities and approximately $5 million recorded to Other current liabilities. If these unrecognized tax benefits were recognized, the effective tax rate would be affected.

As of March 31, 2023, the Company had accrued interest and penalties of approximately $35 million classified in Other liabilities and approximately $2 million classified in Other current liabilities.

As of March 31, 2023, the Company’s aggregate provisions for uncertain tax positions, including interest and penalties, was approximately $151 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, 2023, the Company had a deferred tax liability of approximately $174 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.

NOTE 11. 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, Restricted Stock Units (“RSUs”), Stock-Settled Appreciation Rights (“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)	2023		2022


Total stock-based compensation expense	$	12	$	9
Less: Tax benefit	(2)		(2)
Total stock-based compensation expense, after tax	$	10	$	7

As of March 31, 2023, there was approximately $58 million of total unrecognized compensation cost related to non-vested awards granted under the equity incentive plans.

NOTE 12. SEGMENT INFORMATION

The Company is organized into four reportable operating segments: Nourish, Health & Biosciences, 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 five business units, Health, Cultures & Food Enzymes, Home & Personal Care, Animal Nutrition and Grain Processing, 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.

Scent is comprised of (1) Fragrance Compounds, which are ultimately used by IFF’s 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)	2023		2022
Net sales:
Nourish	$	1,653	$	1,731
Health & Biosciences	513		661
Scent	608		585
Pharma Solutions	253		249
Consolidated	$	3,027	$	3,226
Segment Adjusted Operating EBITDA:
Nourish	$	208	$	329
Health & Biosciences	131		192
Scent	105		116
Pharma Solutions	59		65
Total	503		702
Depreciation & Amortization	(276)		(303)
Interest Expense	(111)		(72)
Other (Expense) Income, net	(6)		16
Restructuring and Other Charges (a)	(52)		(2)
Acquisition, Divestiture and Integration Related Costs (b)	(31)		(49)
Strategic Initiatives Costs (c)	(13)		—
Regulatory Costs (d)	(5)		—
Other (e)	5		(7)









Income Before Taxes	$	14	$	285


(a)			For 2023 and 2022, represents costs primarily related to severance as part of the Company's restructuring efforts.
(b)			For 2023 and 2022, primarily represents costs related to the Company's actual and planned acquisitions, sales and planned sales of businesses and integration related activities primarily for Frutarom and N&B. These costs primarily consisted of external consulting fees, professional and legal fees and salaries of individuals who are fully dedicated to such efforts. For 2023, integration costs primarily relate to IT costs for the N&B integration. For the three months ended March 31, 2023, business divestiture and integration related costs were approximately $21 million and $10 million, respectively. For the three months ended March 31, 2022, business divestiture, integration related and acquisition related costs were $30 million, $18 million and $1 million, respectively.
(c)			Represents costs related to the Company's strategic assessment and business portfolio optimization efforts and reorganizing the Global Shared Services Centers, primarily consulting fees.
(d)			Represents costs primarily related to legal fees incurred for the ongoing investigations of the fragrance businesses.
(e)			For 2023, represents gains from sale of fixed assets. For 2022, represents shareholder activist related costs, primarily professional fees, and severance costs, including accelerated stock compensation expense, for certain executives who have been separated from the Company.

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)	2023		2022
Europe, Africa and Middle East	$	1,070	$	1,128
Greater Asia	688		744
North America	905		1,002
Latin America	364		352
Consolidated	$	3,027	$	3,226


	Three Months Ended March 31,
(DOLLARS IN MILLIONS)	2023		2022
Net sales related to the U.S.	$	871	$	901
Net sales attributed to all foreign countries	2,156		2,325

No non-U.S. country had net sales greater than 6% of total consolidated net sales for the three months ended March 31, 2023 and 2022.

NOTE 13. 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,
2023			2022

Interest cost on projected benefit obligation(2)	$	7		$	4
Expected return on plan assets(2)	(8)			(5)
Net amortization and deferrals(2)	—			2
Net periodic benefit (income) cost	$	(1)		$	1


(DOLLARS IN MILLIONS)	Non-U.S. Plans
Three Months Ended March 31,
2023			2022
Service cost for benefits earned(1)	$	5		$	9
Interest cost on projected benefit obligation(2)	9			5
Expected return on plan assets(2)	(12)			(11)
Net amortization and deferrals(2)	—			3

Net periodic benefit (income) cost	$	2		$	6

(1)Included as a component of Operating profit.

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

The Company expects to contribute a total of $5 million to its U.S. pension plans and a total of $32 million to its non-U.S. pension plans during 2023. During the three months ended March 31, 2023, no contributions were made to the qualified U.S. pension plans, $6 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)	2023		2022

Interest cost on projected benefit obligation	$	1	$	—
Net amortization and deferrals	(1)		(1)
Total postretirement benefit (income) expense	$	—	$	(1)

The Company expects to contribute $3 million to its postretirement benefits other than pension plans during 2023. In the three months ended March 31, 2023, $1 million of contributions were made.

NOTE 14. 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 2022 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, 2023.

The carrying values and the estimated fair values of financial instruments at March 31, 2023 and December 31, 2022 consisted of the following:


	March 31, 2023				December 31, 2022
(DOLLARS IN MILLIONS)	Carrying Value		Fair Value		Carrying Value		Fair Value
LEVEL 1
Cash and cash equivalents(1)	$	590	$	590	$	483	$	483
LEVEL 2
Credit facilities and bank overdrafts(2)	1		1		106		106
Derivatives
Derivative assets(3)	22		22		20		20
Derivative liabilities(3)	65		65		56		56
Commercial paper(2)	588		588		187		187
Long-term debt:

2023 Notes(4)	300		299		300		298
2024 Euro Notes(4)	542		531		532		519
2025 Notes(4)	1,000		895		1,000		884
2026 Euro Notes(4)	864		789		845		774
2027 Notes(4)	1,214		1,020		1,215		1,006
2028 Notes(4)	398		383		398		380
2030 Notes(4)	1,509		1,205		1,510		1,188
2040 Notes(4)	773		535		774		535
2047 Notes(4)	495		393		495		390
2048 Notes(4)	787		689		787		685
2050 Notes(4)	1,570		1,022		1,571		1,021
2024 Term Loan Facility(5)	625		625		625		625
2026 Term Loan Facility(5)	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 Note is obtained from pricing services engaged by the Company, and the Company receives one price for each security. The fair value provided by the pricing services are estimated using pricing models, where the inputs to those models are based on observable market inputs or recent trades of similar securities. The inputs to the valuation techniques applied by the pricing services are typically benchmark yields, benchmark security prices, credit spreads, reported trades and broker-dealer quotes, all with reasonable levels of transparency.

(5)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 and foreign currency receivables and payables. 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.

Hedges Related to Issuances of Debt

As of March 31, 2023, the Company designated approximately $1.406 billion of Euro Notes 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 (Loss) Income and Comprehensive Income.

Cross Currency Swaps

The Company has 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, 2023, the twelve swaps were in a net liability position with an aggregate fair value of $41 million, which were classified as Other assets and Other liabilities on the Consolidated Balance Sheets. 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, 2023 and December 31, 2022:


(DOLLARS IN MILLIONS)	March 31, 2023		December 31, 2022
Foreign currency contracts(1)	$	86	$	92
Commodity contracts(1)	8		(1)
Cross currency swaps	1,400		1,400

(1)Foreign currency contracts and commodity contracts are presented net of contracts bought and sold.

The following tables show the Company’s derivative instruments measured at fair value (Level 2 of the fair value hierarchy), as reflected on the Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022:


	March 31, 2023
(DOLLARS IN MILLIONS)	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
Derivative assets(1)

Cross currency swaps	$	22	$	—	$	22


Derivative liabilities(2)
Foreign currency contracts	$	—	$	2	$	2
Cross currency swaps	63		—		63
Total derivative liabilities	$	63	$	2	$	65


	December 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 assets(1)
Foreign currency contracts	$	—	$	1	$	1
Cross currency swaps	19		—		19

Total derivative assets	$	19	$	1	$	20
Derivative liabilities(2)

Cross currency swaps	$	56	$	—	$	56

(1)Derivative assets are recorded to Other assets on the Consolidated Balance Sheets.

(2)Derivative liabilities are recorded to Other liabilities on 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 (Loss) Income and Comprehensive Income for the three months ended March 31, 2023 and 2022:


	Amount of Gain (Loss)					Location of Gain (Loss) Recognized in Income on Derivative
(DOLLARS IN MILLIONS)	Three Months Ended March 31,
2023			2022
Foreign currency contracts(1)	$	—		$	2	Other expense (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 net investment hedging instruments, net of tax, in the Consolidated Statements of (Loss) Income and Comprehensive Income for the three months ended March 31, 2023 and 2022:


	Amount of Gain (Loss) Recognized in OCI on Derivative and Non-Derivative (Effective Portion)				Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)		Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
	Three Months Ended March 31,					Three Months Ended March 31,
(DOLLARS IN MILLIONS)	2023		2022			2023			2022



Derivatives in Net Investment Hedging Relationships:

Cross currency swaps	$	(3)	$	(1)	N/A		$	—		$	—
Non-Derivatives in Net Investment Hedging Relationships:
2024 Euro Notes	(9)		9		N/A		—			—
2021 Euro Notes & 2026 Euro Notes	(14)		14		N/A		—			—
Total	$	(26)	$	22			$	—		$	—

The ineffective portion of the above noted net investment hedges was not material during the three months ended March 31, 2023 and 2022.

At March 31, 2023, 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 15. 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, 2022	$	(2,037)	$	1	$	(133)	$	(2,169)
OCI before reclassifications	284		—		(1)		283
Amounts reclassified from AOCI	—		—		(1)		(1)
Net current period other comprehensive income (loss)	284		—		(2)		282
Accumulated other comprehensive (loss) income, net of tax, as of March 31, 2023	$	(1,753)	$	1	$	(135)	$	(1,887)


(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)

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


	Three Months Ended March 31,				Affected Line Item in the Consolidated Statements of (Loss) Income and Comprehensive Income
(DOLLARS IN MILLIONS)	2023		2022






Gains (losses) on pension and postretirement liability adjustments

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

Tax	—		—		Provision for income taxes
Total	$	1	$	(3)	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 2022 Form 10-K for additional information regarding net periodic benefit cost.

NOTE 16. 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.

As of March 31, 2023, the Company had a total capacity of approximately $427 million of bank guarantees, commercial guarantees, standby letters of credit and surety bonds with various financial institutions. Included in the above aggregate amount was a total of $9 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 $104 million outstanding under the bank guarantees, standby letters of credit and commercial guarantees as of March 31, 2023.

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, 2023.

Lines of Credit

The Company has various lines of credit which are available to support its ongoing business operations. As of March 31, 2023, the Company had a total capacity of approximately $1.864 billion of lines of credit with various financial institutions, in addition to the $1.465 billion of capacity under the Credit Facility. There were total draw downs of approximately $609 million pursuant to these lines of credit as of March 31, 2023, including approximately $588 million related to the issuance of commercial paper. Refer to Note 8 for additional information.

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 then 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. On September 30, 2022, the Second Circuit affirmed the dismissal of Plaintiffs' claims. On October 14, 2022, Plaintiffs filed a Petition for Rehearing En Banc, which the Second Circuit denied on January 4, 2023. Plaintiffs did not seek review in the United States Supreme Court. The matter is therefore fully resolved in defendants’ favor.

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 former 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, April 7, 2022 and July 10, 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 former 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 July 14, 2022, the court approved the parties’ motion to mediate the dispute, which postpones all case deadlines until after the mediation. In addition, a request to appeal the court’s denial of the motion to dismiss filed by the former Frutarom officers and certain former Frutarom directors has been stayed. The parties held the first of multiple mediation meetings on September 13, 2022, November 22, 2022 and March 1, 2023.

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. Responses to the class action motion were filed in May 2022, and applicant’s response was filed in December 2022.

On March 8, 2023, March 13, 2023, and April 18, 2023, three putative class action lawsuits were filed against IFF, Firmenich International SA, Givaudan SA, and Symrise AG and/or certain affiliates thereof in the Quebec Superior Court, the Federal Court of Canada and the United States District Court for the District of New Jersey, respectively. IFF understands that these actions allege violations of the Canadian Competition Act and the Sherman Act, as applicable, and other related claims, and seek damages and other relief. IFF may face additional civil suits, in the United States or elsewhere, relating to such alleged conduct. At this time, IFF is unable to predict the potential outcome of these lawsuits or any potential effect they may have on the Company’s results of operations, liquidity or financial condition.

Investigations

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.

On March 7, 2023, the European Commission (“EC”) and the United Kingdom Competition and Markets Authority (“CMA”) carried out unannounced inspections of certain of IFF’s facilities. On the same day, IFF was served with a grand jury subpoena by the Antitrust Division of the U.S. Department of Justice (“DOJ”). IFF understands the EC, CMA, DOJ and the Swiss Competition Commission to be investigating potential anticompetitive conduct as it relates to IFF’s fragrance businesses. IFF has been and intends to continue cooperating with these investigations. IFF is unable, however, to predict or determine at this time the scope, duration or outcome of the investigations, or whether the outcome of the investigations will materially impact the Company’s results of operations, liquidity or financial condition.

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 not affect the current operations, but would prevent expansions or other increases in the operating capacity of the 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 Guangzhou and Zhangjiagang Taste plants was approximately $51 million and $37 million as of March 31, 2023.

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. To address the governmental authorities’ requirements, the Company has been transferring certain production capabilities from the Guangzhou Scent plant to the plant in Jiande, China.

The net book value of the Guangzhou Scent plant and the plant in Jiande, China was approximately $7 million and $58 million as of March 31, 2023.

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. The Company received payments totaling $30 million through the end of 2019. Production at the facility ceased during 2019. In the second quarter of 2020, the Company transferred ownership of the site to the government and the remaining net book value of the plant was written off. In the third quarter of 2020, the Company received a payment of approximately $13 million. A final payment is now expected to be received in May 2023 upon final delivery of the land to the government.

The land remediation activities were completed in November 2022, however the Company is still in process of completing the final land restoration activities to restore the land to its original height, per the government’s request. This process is now expected to be completed in April 2023 and final delivery of the land to the government is now expected to be completed in May 2023.

Total China Operations

The total net book value of all plants in China was approximately $242 million as of March 31, 2023.

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.

Environmental Proceedings

The Company is reporting the following environmental matter in compliance with SEC requirements to disclose environmental proceedings where a governmental authority is a party and that involve potential monetary sanctions of $300,000 or greater. On May 27, 2022, the Solae, LLC Memphis site (“Solae”) was served an Administrative Order and Assessment (the “Order”) by the City of Memphis related to alleged wastewater discharge violations. Solae submitted an appeal of the Order on June 24, 2022. Discussions with the City regarding potential resolution of the violations and penalties related to said violations are ongoing. Additionally, the Solae facility has undertaken capital project efforts, some of which began prior to the issuance of the Order, that are anticipated to address, on a schedule consistent with the Order, deadlines for attaining compliance with current wastewater permit requirements. This matter is not expected to have a material adverse effect on the Company’s financial position, cash flows or results of operations.

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 $17 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 2017 the Brazilian Supreme Court (“BSC”) ruled that Brazilian tax authorities should not include a value added tax known as “ICMS” in the calculation of certain indirect taxes (“PIS/COFINS”). By removing the ICMS from the calculation of the indirect tax base, the Court effectively eliminated a “tax on tax”. The Brazilian tax authorities filed an appeal seeking clarification of certain matters, including the amount of ICMS to which taxpayers would be entitled in order to reduce their indirect tax base (i.e. the gross rate or the net rate). In light of the BSC’s decision, in November 2017, the Company filed suit consistent with the BSC decision to require that ICMS be excluded from the PIS/COFINS calculation and received a favorable preliminary decision that was confirmed by the BSC in September 2018. This preliminary ruling granted the Company the right to prospectively exclude ICMS amounts from the PIS/COFINS calculation, but left open the issue of whether the Company could recover the gross or net amount of ICMS amounts paid on PIS/COFINS for the period from November 2011 to December 2018.

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 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.

In February 2023, the BSC made an unfavorable court resolution for the Company related to the use of the gross method, which was only granted to claims submitted prior to March 2017. As a result of this unfavorable court resolution, the Company wrote off approximately $6 million of receivables related to this matter. As of March 31, 2023, the Company had no receivables related to this matter.

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 the OOS conductivity 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, 2023, payments associated with the issue were approximately $34 million, and the Company has a current accrual of approximately $19 million. The total amount of exposure may increase if 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 $50 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 17. REDEEMABLE NON-CONTROLLING INTERESTS

Through certain subsidiaries of the Company’s Frutarom acquisition, there are certain non-controlling interests that carry redemption features. The non-controlling 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). In most cases, these options carry 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 non-controlling interests:


(DOLLARS IN MILLIONS)	Redeemable Non-controlling Interests
Balance at December 31, 2021	$	105

Impact of foreign exchange translation	(4)





Balance at March 31, 2022	$	101

Balance at December 31, 2022	$	59







Balance at March 31, 2023	$	59

NOTE 18. ASSETS AND LIABILITIES HELD FOR SALE

During the fourth quarter of 2022, the Company announced it had entered into an agreement to sell a portion of its Savory Solutions business, which is part of the Nourish segment. In addition, in the first quarter of 2023, the Company announced it had entered into an agreement to sell its Flavor Specialty Ingredients business within the Scent segment. Both transactions are subject to customary closing conditions and are expected to close in the second quarter and third quarter of 2023, respectively.

The sales do not constitute a strategic shift of the Company’s operations and do not, and will not, have major effects on the Company’s operations and financial results; therefore, the transactions do not meet the discontinued operations criteria.

It was determined that the assets and liabilities of these businesses met the criteria to be presented as “held for sale.” As a result, as of March 31, 2023 and December 31, 2022, such assets and liabilities were classified as held for sale and are reported on the Consolidated Balance Sheets. The Company expects that the sale proceeds less costs to sell will exceed the preliminary estimate of the carrying value of the net assets for both businesses. The carrying value is subject to change based on developments leading up to the closing date.

Included in the Company’s Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 are the following carrying amounts of the assets and liabilities held for sale:


(DOLLARS IN MILLIONS)	March 31, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	4	$	52
Trade receivables, net	86		85
Inventories	165		157
Property, plant and equipment, net	104		92
Goodwill	361		348
Other intangible assets, net	440		428
Operating lease right-of-use assets	20		13
Other assets	22		25
Total assets held-for-sale	$	1,202	$	1,200
Liabilities
Accounts payable	$	61	$	56
Deferred tax liability(1)	91		92
Other liabilities	64		64
Total liabilities held-for-sale	$	216	$	212

(1)The Company is currently analyzing the tax impact of the sale transaction and has included preliminary numbers for the deferred tax liability, which are subject to further updates.

Previous: Cover and table of contents · Next: Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.