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

OVERVIEW

Company Background

With the Merger with N&B in 2021 and our acquisition of Frutarom Industries Ltd. in 2018, 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 and Probiotics categories.

We are organized into four reportable operating segments: Nourish, Health & Biosciences, Scent and Pharma Solutions.

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 and consists of three business units: Ingredients, Flavors and Food Designs.

Our Health & Biosciences segment consists of the development and production of an advanced biotechnology-derived portfolio of enzymes, food cultures, probiotics and specialty ingredients for food and non-food applications. Among many other applications, this biotechnology-driven portfolio includes cultures for use in fermented foods such as yogurt, cheese and fermented beverages, probiotic strains, many with documented clinical health claims for use as dietary supplements and through industrial fermentation the production of enzymes and microorganisms that provide product and process performance benefits to household detergents, animal feed, ethanol production and brewing. Health & Biosciences is comprised of five business units: Health, Cultures & Food Enzymes, Home & Personal Care, Animal Nutrition and Grain Processing.

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. Consumer insights science and creativity are at the heart of our Scent business, and, along with our unique portfolio of natural and synthetic ingredients, global footprint, innovative technologies and know-how, and customer intimacy, we believe make us a market leader in scent products. The Scent segment is comprised of three business units: Fragrance Compounds, Fragrance Ingredients and Cosmetic Ingredients.

Our Pharma Solutions segment produces, among other things, 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 finished dosage formulations. Our excipients are used in prescription and over-the-counter pharmaceuticals and dietary supplements. Our Pharma Solutions products also serve a variety of other specialty and industrial end-uses including coatings, inks, electronics, agriculture, and consumer products.

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.

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.

For the year ended December 31, 2022, total sales to Russian customers were approximately 2% of total sales. For the three and six months ended June 30, 2023, sales to Russian customers were approximately 1% and 2% of total sales, respectively.

For the year ended December 31, 2022, total sales to Ukrainian customers were less than 1% of total sales. For the three and six months ended June 30, 2023, sales to Ukrainian customers were also less than 1% of total sales.

We have a reserve of approximately $3 million related to expected credit losses on receivables from customers located in Russia and Ukraine. During the second quarter of 2022, we also recorded a charge of $120 million related to the impairment of certain long-lived assets in Russia. For additional information, refer to Note 1 and Part I, Item 1A, “Risk Factors,” of our 2022 Form 10-K filed on February 27, 2023 with the SEC.

Impact of COVID-19 Pandemic

As a result of disruptions or uncertainty relating to the COVID-19 pandemic, we have experienced, 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 2022 Form 10-K filed on February 27, 2023 with the SEC.

Financial Performance Overview

Sales

Sales in the second quarter of 2023 decreased $378 million, or 11% on a reported basis, to $2.929 billion compared to $3.307 billion in the 2022 period. On a currency neutral basis, sales in the second quarter of 2023 decreased 9% compared to the 2022 period. Exchange rate variations had an unfavorable impact on net sales for the second quarter of 2023 of 2%. 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. In addition, the decrease in sales was primarily driven by volume decreases across all businesses and the impact of the divestitures of the Microbial Control business unit and portion of the Savory Solutions business (“change in business portfolio mix due to divestitures”), which was approximately $165 million, offset in part by price increases across all businesses.

Gross Profit

Gross profit in the second quarter of 2023 decreased $203 million, or 18% on a reported basis, to $933 million (31.9% of sales) compared to $1.136 billion (34.4% of sales) in the 2022 period. The decrease in gross profit was primarily driven by volume decreases, change in business portfolio mix due to divestitures, unfavorable manufacturing absorption related to our inventory reduction program and an additional write-down of inventory related to Locust Bean Kernel (“LBK”) in Nourish, offset in part by favorable net pricing across various businesses.

RESULTS OF OPERATIONS

			Three Months Ended																		Six Months Ended
			June 30,																		June 30,
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)			2023						2022						Change						2023						2022						Change
Net sales			$	2,929					$	3,307					(11)		%				$	5,956					$	6,533					(9)		%
Cost of goods sold			1,996						2,171						(8)		%				4,059						4,252						(5)		%
Gross profit			933						1,136						(18)		%				1,897						2,281						(17)		%
Research and development (R&D) expenses			161						158						2		%				322						315						2		%
Selling and administrative (S&A) expenses			445						456						(2)		%				899						915						(2)		%
Amortization of acquisition-related intangibles			172						184						(7)		%				343						370						(7)		%
Impairment of long-lived assets			—						120						(100)		%				—						120						(100)		%
Restructuring and other charges			7						7						—		%				59						9						NMF
Losses (gains) on sale of assets			3						(2)						(250)		%				(2)						(2)						—		%
Operating profit			145						213						(32)		%				276						554						(50)		%
Interest expense			116						77						51		%				227						149						52		%
Other (income) expense, net			(21)						6						NMF						(15)						(10)						50		%
Income before taxes			50						130						(62)		%				64						415						(85)		%
Provision for income taxes			23						21						10		%				45						60						(25)		%
Net income			$	27					$	109					(75)		%				$	19					$	355					(95)		%
Net income attributable to non-controlling interests			—						2						(100)		%				1						4						(75)		%
Net income attributable to IFF shareholders			$	27					$	107					(75)		%				$	18					$	351					(95)		%
Net income per share - diluted			$	0.11					$	0.43					(74)		%				$	0.07					$	1.38					(95)		%
Gross margin			31.9		%				34.4		%				(250)		bps				31.9		%				34.9		%				(300)		bps
R&D as a percentage of sales			5.5		%				4.8		%				70		bps				5.4		%				4.8		%				60		bps
S&A as a percentage of sales			15.2		%				13.8		%				140		bps				15.1		%				14.0		%				110		bps
Operating margin			5.0		%				6.4		%				(140)		bps				4.6		%				8.5		%				NMF
Effective tax rate			46.0		%				16.2		%				NMF						70.3		%				14.5		%				NMF
Segment net sales
Nourish			$	1,564					$	1,818					(14)		%				$	3,217					$	3,549					(9)		%
Health & Biosciences			522						665						(22)		%				1,035						1,326						(22)		%
Scent			592						580						2		%				1,200						1,165						3		%
Pharma Solutions			251						244						3		%				504						493						2		%
Consolidated			$	2,929					$	3,307											$	5,956					$	6,533

---

NMF: Not meaningful

Cost of goods sold includes the cost of materials and manufacturing expenses. R&D expenses include 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 2023 IN COMPARISON TO SECOND QUARTER 2022

Sales

Sales for the second quarter of 2023 decreased $378 million, or 11% on a reported basis, to $2.929 billion compared to $3.307 billion in the prior year period. On a currency neutral basis, sales in the second quarter of 2023 decreased 9% compared to the 2022 period. Exchange rate variations had an unfavorable impact on net sales for the second quarter of 2023 of 2%. 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. In addition, the decrease in sales was primarily driven by volume decreases across all businesses and the change in business portfolio mix due to divestitures, with an impact of approximately $165 million, offset in part by price increases across all businesses.

Sales Performance by Segment

			% Change in Sales - Second Quarter 2023 vs. Second Quarter 2022
			Reported						Currency Neutral**(1)**
Nourish			-14		%				-12		%
Health & Biosciences			-22		%				-20		%
Scent			2		%				5		%
Pharma Solutions			3		%				3		%
Total			-11		%				-9		%

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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.

Nourish

Nourish sales in 2023 decreased $254 million, or 14% on a reported basis, to $1.564 billion compared to $1.818 billion in the prior year period. On a currency neutral basis, Nourish sales decreased 12% in 2023 compared to the prior year period. Performance in the Nourish operating segment was driven by volume decreases across all business units, divestiture of the portion of the Savory Solutions business, with an impact of approximately $49 million, and unfavorable impacts from exchange rate variations, offset in part by price increases across all business units.

Health & Biosciences

Health & Biosciences sales in 2023 decreased $143 million, or 22% on a reported basis, to $522 million compared to $665 million in the prior year period. On a currency neutral basis, Health & Biosciences sales decreased 20% in 2023 compared to the prior year period. Performance in the Health & Biosciences operating segment was driven by the divestiture of the Microbial Control business unit, with an impact of approximately $116 million, volume decreases and unfavorable impacts from exchange rate variations, offset in part by price increases across all business units.

Scent

Scent sales in 2023 increased $12 million, or 2% on a reported basis, to $592 million compared to $580 million in the prior year period. On a currency neutral basis, Scent sales increased 5% in 2023 compared to the prior year period. Performance in the Scent operating segment was driven by price increases primarily in the Fragrance Compounds and Fragrance Ingredients business units, offset in part by unfavorable impacts from exchange rate variations and volume decreases.

Pharma Solutions

Pharma Solutions sales in 2023 increased $7 million, or 3% on a reported basis, to $251 million compared to $244 million in the prior year period. On a currency neutral basis, Pharma Solutions sales increased 3% in 2023 compared to the prior year period. Performance in the Pharma Solutions operating segment was driven by price increases across all business units, offset in part by volume decreases across all business units.

Cost of Goods Sold

Cost of goods sold decreased $175 million to $1.996 billion (68.1% of sales) in the second quarter of 2023 compared to $2.171 billion (65.6% of sales) in the second quarter of 2022. The decrease in cost of goods sold was primarily driven by volume decreases in sales and the change in business portfolio mix due to divestitures, with an impact of approximately $121 million, offset in part by unfavorable manufacturing absorption related to our inventory reduction program and an additional write-down of inventory related to LBK in Nourish, which was approximately $44 million.

Research and Development (R&D) Expenses

R&D expenses increased $3 million to $161 million (5.5% of sales) in the second quarter of 2023 compared to $158 million (4.8% of sales) in the second quarter of 2022. The increase in R&D expenses was primarily driven by higher operating expenses for R&D related activities, offset in part by the change in business portfolio mix due to divestitures.

Selling and Administrative (S&A) Expenses

S&A expenses decreased $11 million to $445 million (15.2% of sales) in the second quarter of 2023 compared to $456 million (13.8% of sales) in the second quarter of 2022. The decrease in S&A expenses was primarily driven by lower professional fees, including consulting costs, and the change in business portfolio mix due to divestitures, offset in part by higher operating expenses for S&A related activities.

Restructuring and Other Charges

Restructuring and other charges was flat at $7 million in the second quarter of 2023 and 2022 (see Note 4 for additional information).

Amortization of Acquisition-Related Intangibles

Amortization expenses decreased to $172 million in the second quarter of 2023 compared to $184 million in the second quarter of 2022. The decrease in amortization expense was primarily driven by the intangible assets of the portion of the Savory Solutions business and Flavor Specialty Ingredients business being classified as “held for sale,” and therefore no longer recognizing amortization expense on those intangible assets. The portion of the Savory Solutions business was classified as held for sale up until May 31, 2023 when we completed the divestiture of the business. In addition, the decrease was due to the reduction in intangible assets as a result of the change in business portfolio mix due to divestitures (see Note 3, Note 6 and Note 18 for additional information).

Impairment of Long-Lived Assets

There was no impairment of long-lived assets in the second quarter of 2023. Impairment of long-lived assets was $120 million in the second quarter of 2022. The impairment charge was due to the uncertainties related to our operations in Russia and Ukraine and was allocated on a pro rata basis to intangible assets and property, plant and equipment (see Note 1, Note 5 and Note 6 for additional information).

Interest Expense

Interest expense increased to $116 million in the second quarter of 2023 compared to $77 million in the 2022 period. The increase in interest expense was due to higher interest rates on the draw downs of commercial paper and higher effective interest rates on the outstanding Term Loan Facilities (see Note 8 for additional information). In addition, the increase was due to higher costs to participate in our factoring programs as a result of higher interest rates (see Note 1 for additional information).

Other (Income) Expense, Net

In the second quarter of 2023, we recognized other income, net, of $21 million compared to other expense, net, of $6 million in the 2022 period. The change of $27 million was primarily due to the gain resulting from the completion of the China facility relocation (see Note 16 for additional information) and higher interest income, offset in part by the losses incurred from the divestiture of the portion of the Savory Solutions business (see Note 3 for additional information) and higher foreign exchange losses.

Income Taxes

The effective tax rate for the three months ended June 30, 2023 was 46.0% compared to 16.2% for the three months ended June 30, 2022. The quarter-over-quarter increase was primarily driven by tax expenses relating to 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.

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)			2023						2022
Segment Adjusted Operating EBITDA:
Nourish			$	181					$	365
Health & Biosciences			145						184
Scent			117						93
Pharma Solutions			67						58
Total			510						700
Depreciation & Amortization			(287)						(301)
Interest Expense			(116)						(77)
Other Income (Expense), net			21						(6)
Restructuring and Other Charges			(7)						(7)
Impairment of Long-Lived Assets			—						(120)
Acquisition, Divestiture and Integration Related Costs			(45)						(61)
Strategic Initiatives Costs			(9)						—
Regulatory Costs			(14)						—
Other			(3)						2
Income Before Taxes			$	50					$	130
Segment Adjusted Operating EBITDA margin:
Nourish			11.6		%				20.1		%
Health & Biosciences			27.8		%				27.7		%
Scent			19.8		%				16.0		%
Pharma Solutions			26.7		%				23.8		%
Consolidated			17.4		%				21.2		%

Nourish Segment Adjusted Operating EBITDA

Nourish Segment Adjusted Operating EBITDA decreased $184 million, or 50% on a reported basis, to $181 million in the second quarter of 2023 (11.6% of segment sales) from $365 million (20.1% of segment sales) in the comparable 2022 period. On a currency neutral basis, Nourish Segment Adjusted Operating EBITDA decreased 43% in 2023 compared to the prior year period. The performance was primarily driven by volume decreases, unfavorable net pricing, unfavorable impacts from exchange rate variations, unfavorable manufacturing absorption related to our inventory reduction program and an additional write-down of inventory related to LBK in the operating segment.

Health & Biosciences Segment Adjusted Operating EBITDA

Health & Biosciences Segment Adjusted Operating EBITDA decreased $39 million, or 21% on a reported basis, to $145 million in the second quarter of 2023 (27.8% of segment sales) from $184 million (27.7% of segment sales) in the comparable 2022 period. On a currency neutral basis, Health & Biosciences Segment Adjusted Operating EBITDA decreased 18% in 2023 compared to the prior year period. The performance was primarily driven by volume decreases, the impact of the divestiture of the Microbial Control business unit, unfavorable impacts from exchange rate variations and unfavorable manufacturing absorption related to our inventory reduction program, offset in part by favorable net pricing.

Scent Segment Adjusted Operating EBITDA

Scent Segment Adjusted Operating EBITDA increased $24 million, or 26% on reported basis, to $117 million in the second quarter of 2023 (19.8% of segment sales) from $93 million (16.0% of segment sales) in the comparable 2022 period. On a currency neutral basis, Scent Segment Adjusted Operating EBITDA increased 41% in 2023 compared to the prior year period. The performance was primarily driven by favorable net pricing, offset in part by unfavorable impacts from exchange rate variations and volume decreases.

Pharma Solutions Segment Adjusted Operating EBITDA

Pharma Solutions Segment Adjusted Operating EBITDA increased $9 million, or 16% on a reported basis, to $67 million in the second quarter of 2023 (26.7% of segment sales) from $58 million (23.8% of segment sales) in the comparable 2022 period. On a currency neutral basis, Pharma Solutions Segment Adjusted Operating EBITDA increased 16% in 2023 compared to the prior year period. The performance was primarily driven by favorable net pricing, offset in part by volume decreases and unfavorable manufacturing absorption related to our inventory reduction program.

FIRST SIX MONTHS 2023 IN COMPARISON TO FIRST SIX MONTHS 2022

Sales

Sales for the first six months of 2023 decreased $577 million, or 9% on a reported basis, to $5.956 billion compared to $6.533 billion in the 2022 period. On a currency neutral basis, sales for the first six months of 2023 decreased 6% compared to the 2022 period. Exchange rate variations had an unfavorable impact on net sales in the first six months of 2023 of 3%. 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. In addition, the decrease in sales was primarily driven by volume decreases across various businesses and the net impact of the divestitures of the Microbial Control business unit and portion of the Savory Solutions business and acquisition of Health Wright Products, Inc. (“net impact of the change in business portfolio mix”), which was approximately $277 million, offset in part by price increases across all businesses.

Sales Performance by Segment

			% Change in Sales - First Six Months 2023 vs. First Six Months 2022
			Reported						Currency Neutral**(1)**
Nourish			-9		%				-6		%
Health & Biosciences			-22		%				-20		%
Scent			3		%				7		%
Pharma Solutions			2		%				4		%
Total			-9		%				-6		%

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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.

Nourish

Nourish sales in 2023 decreased $332 million, or 9% on a reported basis, to $3.217 billion compared to $3.549 billion in the prior year period. On a currency neutral basis, Nourish sales decreased 6% in 2023 compared to the prior year period. Performance in the Nourish operating segment was driven by volume decreases across all business units, unfavorable impacts from exchange rate variations and the divestiture of the portion of the Savory Solutions business, with an impact of approximately $49 million, offset in part by price increases across all business units.

Health & Biosciences

Health & Biosciences sales in 2023 decreased $291 million, or 22% on a reported basis, to $1.035 billion compared to $1.326 billion in the prior year period. On a currency neutral basis, Health & Biosciences sales decreased 20% in 2023 compared to the prior year period. Performance in the Health & Biosciences operating segment was driven by the net impact of the divestiture of the Microbial Control business unit and acquisition of Health Wright Products, Inc., which was approximately $228 million, volume decreases and unfavorable impacts from exchange rate variations, offset in part by price increases across all business units.

Scent

Scent sales in 2023 increased $35 million, or 3% on a reported basis, to $1.200 billion compared to $1.165 billion in the prior year period. On a currency neutral basis, Scent sales increased 7% in 2023 compared to the prior year period. Performance in the Scent operating segment was driven by price increases primarily in the Fragrance Compounds and Fragrance Ingredients business units, offset in part by unfavorable impacts from exchange rate variations.

Pharma Solutions

Pharma Solutions sales in 2023 increased $11 million, or 2% on a reported basis, to $504 million compared to $493 million in the prior year period. On a currency neutral basis, Pharma Solutions sales increased 4% in 2023 compared to the prior year period. Performance in the Pharma Solutions operating segment was driven by price increases across all business units, offset in part by volume decreases across all business units.

Cost of Goods Sold

Cost of goods sold decreased $193 million to $4.059 billion (68.1% of sales) in the first six months of 2023 compared to $4.252 billion (65.1% of sales) in the 2022 period. The decrease in cost of goods sold was primarily driven by volume decreases in sales and the net impact of the change in business portfolio mix, which was approximately $201 million, offset in part by unfavorable manufacturing absorption related to our inventory reduction program and an additional write-down of inventory related to LBK in Nourish, which was approximately $44 million.

Research and Development (R&D) Expenses

R&D expenses increased $7 million to $322 million (5.4% of sales) in the first six months of 2023 compared to $315 million (4.8% of sales) in the 2022 period. The increase in R&D expenses was primarily driven by higher operating expenses for R&D related activities, offset in part by the net impact of the change in business portfolio mix.

Selling and Administrative (S&A) Expenses

S&A expenses decreased $16 million to $899 million (15.1% of sales) in the first six months of 2023 compared to $915 million (14.0% of sales) in the 2022 period. The decrease in S&A expenses was primarily driven by lower professional fees, including consulting costs, and the net impact of the change in business portfolio mix, offset in part by higher operating expenses for S&A related activities.

Restructuring and Other Charges

Restructuring and other charges increased to $59 million in the first six months of 2023 compared to $9 million in the first six months of 2022. The increase was driven by higher severance costs incurred as part of the 2023 Restructuring Program, net of reversals of prior severance cost accruals, in the first six months of 2023 (see Note 4 for additional information).

Amortization of Acquisition-Related Intangibles

Amortization expenses decreased to $343 million in the first six months of 2023 compared to $370 million in the 2022 period. The decrease in amortization expense was primarily driven by the intangible assets of the portion of the Savory Solutions business and Flavor Specialty Ingredients business being classified as “held for sale,” and therefore no longer recognizing amortization expense on those intangible assets. The portion of the Savory Solutions business was classified as held for sale up until May 31, 2023 when we completed the divestiture of the business. In addition, the decrease was due to the reduction in intangible assets as a result of the change in business portfolio mix due to divestitures and an impairment of intangible assets of an asset group that operated primarily in Russia during 2022, offset in part by the impact of acquisitions of intangible assets from Health Wright Products, Inc. (see Note 3, Note 6 and Note 18 for additional information).

Impairment of Long-Lived Assets

There was no impairment of long-lived assets in the first six months of 2023. Impairment of long-lived assets was $120 million in the first six months of 2022. The impairment charge was due to the uncertainties related to our operations in Russia and Ukraine and was allocated on a pro rata basis to intangible assets and property, plant and equipment (see Note 1, Note 5 and Note 6 for additional information).

Interest Expense

Interest expense increased to $227 million in the first six months of 2023 compared to $149 million in the 2022 period. The increase in interest expense was due to higher interest rates on the draw downs of commercial paper and higher effective interest rates on the outstanding Term Loan Facilities (see Note 8 for additional information). In addition, the increase was due to higher costs to participate in our factoring programs as a result of higher interest rates (see Note 1 for additional information).

Other (Income) Expense, Net

In the first six months of 2023, we recognized other income, net, of $15 million compared to $10 million in the comparable 2022 period. The change of $5 million was primarily due to the gain resulting from the completion of the China facility relocation (see Note 16 for additional information) and higher interest income, offset in part by higher foreign exchange losses, losses incurred from the divestiture of the portion of the Savory Solutions business and losses incurred from the liquidation of a business in Russia for the sale of the portion of the Savory Solutions business (see Note 3 for additional information).

Income Taxes

The effective tax rate for the six months ended June 30, 2023 was 70.3% compared to 14.5% for the six months ended June 30, 2022. The year-over-year increase was primarily driven by tax expenses relating to 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.

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)			2023						2022
Segment Adjusted Operating EBITDA:
Nourish			$	389					$	694
Health & Biosciences			276						376
Scent			222						209
Pharma Solutions			126						123
Total			1,013						1,402
Depreciation & Amortization			(563)						(604)
Interest Expense			(227)						(149)
Other Income (Expense), net			15						10
Restructuring and Other Charges			(59)						(9)
Impairment of Long-Lived Assets			—						(120)
Acquisition, Divestiture and Integration Related Costs			(76)						(110)
Strategic Initiatives Costs			(22)						—
Regulatory Costs			(19)						—
Other			2						(5)
Income Before Taxes			$	64					$	415
Segment Adjusted Operating EBITDA margin:
Nourish			12.1		%				19.6		%
Health & Biosciences			26.7		%				28.4		%
Scent			18.5		%				17.9		%
Pharma Solutions			25.0		%				24.9		%
Consolidated			17.0		%				21.5		%

Nourish Segment Adjusted Operating EBITDA

Nourish Segment Adjusted Operating EBITDA decreased $305 million, or 44% on a reported basis, to $389 million in the first six months of 2023 (12.1% of segment sales) from $694 million (19.6% of segment sales) in the comparable 2022 period. On a currency neutral basis, Nourish Segment Adjusted Operating EBITDA decreased 36% in 2023 compared to the prior year period. The performance was primarily driven by volume decreases, unfavorable impacts from exchange rate variations, unfavorable net pricing, unfavorable manufacturing absorption related to our inventory reduction program and an additional write-down of inventory related to LBK in the operating segment.

Health & Biosciences Segment Adjusted Operating EBITDA

Health & Biosciences Segment Adjusted Operating EBITDA decreased $100 million, or 27% on a reported basis, to $276 million in the first six months of 2023 (26.7% of segment sales) from $376 million (28.4% of segment sales) in the comparable 2022 period. On a currency neutral basis, Health & Biosciences Segment Adjusted Operating EBITDA decreased 23% in 2023 compared to the prior year period. The performance was primarily driven by volume decreases, the net impact of the divestiture of the Microbial Control business unit and acquisition of Health Wright Products, Inc., unfavorable impacts from exchange rate variations and unfavorable manufacturing absorption related to our inventory reduction program, offset in part by favorable net pricing.

Scent Segment Adjusted Operating EBITDA

Scent Segment Adjusted Operating EBITDA increased $13 million, or 6% on a reported basis, to $222 million in the first six months of 2023 (18.5% of segment sales) from $209 million (17.9% of segment sales) in the comparable 2022 period. On a currency neutral basis, Scent Segment Adjusted Operating EBITDA increased 19% in 2023 compared to the prior year period. The performance was primarily driven by favorable net pricing, offset in part by unfavorable impacts from exchange rate variations.

Pharma Solutions Segment Adjusted Operating EBITDA

Pharma Solutions Segment Adjusted Operating EBITDA increased $3 million, or 2% on a reported basis, to $126 million in the first six months of 2023 (25.0% of segment sales) from $123 million (24.9% of segment sales) in the comparable 2022 period. On a currency neutral basis, Pharma Solutions Segment Adjusted Operating EBITDA increased 4% in 2023 compared to the prior year period. The performance was primarily driven by favorable net pricing, offset in part by volume decreases and unfavorable manufacturing absorption related to our inventory reduction program.

Liquidity

Cash and Cash Equivalents

We had cash and cash equivalents of $641 million, inclusive of $3 million currently in Assets held for sale on the Consolidated Balance Sheets, at June 30, 2023 compared to $535 million, inclusive of $52 million in Assets held for sale on the Consolidated Balance Sheets, at December 31, 2022 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, 2023, we had a deferred tax liability of approximately $159 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 Provided By (Used In) Operating Activities

Cash flows provided by operating activities for the six months ended June 30, 2023 was $375 million, or 6.3% of sales, compared to cash flows used in operating activities of $51 million, or (0.8)% of sales, for the six months ended June 30, 2022. The increase in cash flows from operating activities during 2023 was primarily driven by the decrease in working capital, largely related to inventories and accounts receivable, offset in part by accounts payable, accrued expenses and lower cash earnings, excluding the impact of non-cash adjustments.

Cash Flows Provided By (Used In) Investing Activities

Cash flows provided by investing activities for the six months ended June 30, 2023 was $552 million compared to cash flows used in investing activities of $346 million in the prior year period. The increase in cash flows from investing activities was primarily driven by the change in net proceeds received from business divestitures and cash paid for acquisitions, net of cash received, offset by higher spending on property, plant and equipment.

We have evaluated and re-prioritized our capital projects and expect that capital spending in 2023 will be approximately 4.4% of sales (net of potential grants and other reimbursements from government authorities), up slightly from 4.1% in 2022.

Cash Flows (Used In) Provided By Financing Activities

Cash flows used in financing activities for the six months ended June 30, 2023 was $866 million compared to cash flows provided by financing activities of $377 million in the prior year period. The decrease in cash flows from financing activities was primarily driven by net repayments of commercial paper and short-term debt for the six months ended June 30, 2023, compared to net borrowings of commercial paper and short-term debt in the prior year period, and higher repayments of long-term debt.

We paid dividends totaling $413 million in the 2023 period. We declared a cash dividend per share of $0.81 in the second quarter of 2023 that was paid on July 11, 2023 to all shareholders of record as of June 23, 2023.

Our capital allocation strategy seeks to maintain our investment grade rating while investing in the business and continuing to pay dividends and repaying debt. The Company does not have any rating downgrade triggers that would accelerate the maturity dates of its senior unsecured debt. However, any downgrade in our credit rating may, depending on the extent of such downgrade, negatively impact our ability to raise additional debt capital, our liquidity and capital position, and may increase our cost of borrowing for new capital raises. In addition, our existing Revolving Credit Facility and Term Loans have pricing grids that are based on credit rating, such that our cost of borrowing may increase as our credit rating decreases. 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.

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, cash proceeds generated from planned business divestitures and availability under our existing credit facilities will be sufficient to meet our investing and financing needs, including our debt service requirements. 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. Refer to Note 8 for additional information.

Term Loans and Revolving Credit Facility

The Credit Agreements contain various covenants, limitations and events of default customary for similar facilities for similarly rated borrowers, including the requirement for us to maintain, at the end of each fiscal quarter, a ratio of net debt for borrowed money to credit adjusted EBITDA in respect of the previous 12-month period. On March 23, 2023, we entered into Term Loan Amendment No. 3, Term Loan Amendment No. 4, Revolver Amendment No. 2 and Revolver Amendment No. 3.

Term Loan Amendment No. 3 and Revolver Amendment No. 2, among other things, extend the period during which a Term Loan Covenant Relief Period and Revolver Covenant Relief Period are provided with respect to the financial covenant contained in the Existing Term Loan Credit Agreement and the Existing Revolving Credit Agreement, respectively, through December 31, 2024, or such earlier date on which we elect to terminate such period, by providing that during the Term Loan Covenant Relief Period and the Revolver Covenant Relief Period, our 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, (vi) 4.00x for the fiscal quarter ending December 31, 2024. During the Term Loan Covenant Relief Period and the Revolver Covenant Relief Period, Term Loan Amendment No. 3 and Revolver Amendment No. 2 prohibit 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, in each case subject to certain exceptions set forth therein.

Additionally, the reference rate for U.S. dollar-denominated loans was updated from LIBOR to Term SOFR. From March 23, 2023, the Term Loans and Revolving Credit Facility now bear interest at a base rate or 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 our public debt rating. Loans may be prepaid without premium or penalty, subject to customary breakage costs. See Note 8 for additional information on the amendments to the Credit Agreements.

As of June 30, 2023, we had no outstanding borrowings under our $2.000 billion Revolving Credit Facility.

The amount that we are able to draw down under the Revolving Credit Facility is limited by financial covenants as described in more detail below. As of June 30, 2023, our draw down capacity was $1.548 billion under the Revolving Credit Facility.

Refer to Note 8 of this Form 10-Q and Part IV, Item 15, “Exhibits and Financial Statement Schedules,” Note 9 of our 2022 Form 10-K, filed on February 27, 2023 with the SEC, for additional information.

Debt Covenants

At June 30, 2023, we were in compliance with all financial and other covenants, including the net debt to credit adjusted EBITDA(1) ratio. At June 30, 2023, our net debt to credit adjusted EBITDA(1) ratio was 4.54 to 1.0 as defined by the credit facility agreements, which is below the relevant level provided by our 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 (loss) income and net debt to total debt are as follows:

(DOLLARS IN MILLIONS)			Twelve Months Ended June 30, 2023
Net (loss)			$	(2,204)
Interest expense			414
Income taxes			224
Depreciation and amortization			1,138
Specified items(1)			2,535
Non-cash items(2)			83
Credit Adjusted EBITDA			$	2,190

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(1)Specified items consisted of restructuring and other charges, impairment of goodwill, acquisition, divestiture and integration related costs, strategic initiatives costs, regulatory costs and other costs that are not related to recurring operations.

(2)Non-cash items consisted of gains on sale of assets, losses on business disposals, gain on China facility relocation, write-down of inventory related to LBK and stock-based compensation.

(DOLLARS IN MILLIONS)			June 30, 2023
Total debt(1)			$	10,591
Adjustments:
Cash and cash equivalents(2)			641
Net debt			$	9,950

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

(2)Cash and cash equivalents included approximately $3 million currently in Assets held for sale on the Consolidated Balance Sheets.

Senior Notes

As of June 30, 2023, we had $9.069 billion aggregate principal amount outstanding in senior unsecured notes, with $1.419 billion principal amount denominated in EUR and $7.650 billion principal amount denominated in USD, which includes the N&B Senior Notes assumed as a result of the Merger with N&B. The notes bear effective interest rates ranging from 1.22% per year to 5.12% per year, with maturities from March 14, 2024 to December 1, 2050. See Note 8 for additional information.

Contractual Obligations

We expect to contribute a total of $5 million to our U.S. pension plans and a total of $32 million to our non-U.S. pension plans during 2023. During the six months ended June 30, 2023, there were no contributions made to the qualified U.S. pension plans, $16 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 $3 million to our postretirement benefits other than pension plans during 2023. During the six months ended June 30, 2023, $2 million of contributions were made to postretirement benefits other than pension plans.

As discussed in Note 16 to the Consolidated Financial Statements, at June 30, 2023, we had entered into various guarantees and had undrawn outstanding letters of credit from financial institutions. These arrangements reflect ongoing business operations, including commercial commitments, and governmental requirements associated with audits or litigation that are in process with various jurisdictions. Based on the current facts and circumstances, these arrangements are not reasonably likely to have a material impact on our consolidated financial condition, results of operations or cash flows.

New Accounting Standards

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

Non-GAAP Financial Measures

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

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

Adjusted operating EBITDA and adjusted operating EBITDA margin exclude depreciation and amortization expense, interest expense, other income (expense), net, restructuring and other charges and certain items unrelated to recurring operations such as impairment of long-lived assets, acquisition, divestiture and integration related costs, strategic initiatives costs, regulatory costs and other costs that are not related to recurring operations.

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 and include statements concerning (i) the expected impact of global supply chain challenges; (ii) expectations regarding sales and profit for the fiscal year 2023, including the impact of foreign exchange, pricing actions, raw materials, energy, sourcing, logistics and manufacturing costs; (iii) expectations of the impact of inflationary pressures and the pricing actions to offset exposure to such impacts; (iv) the impact of high input costs, including commodities, raw materials, transportation and energy; (v) our ability to drive cost discipline measures and the ability to recover margin to pre-inflation levels; (vi) expectations regarding the implementation of our refreshed growth-focused strategy and expectations around our business divestitures and the progress of our portfolio optimization strategy (including the exploration of strategic alternatives for our Cosmetic Ingredients business), through non-core business divestitures and acquisitions; (vii) the ongoing impact of COVID-19 and our plans to respond to its global implications; (viii) the success of our integration efforts, following the N&B Transaction, and ability to deliver on our synergy commitments as well as future opportunities for the combined company; (ix) the success of the optimization of our portfolio; (x) the impact of global economic uncertainty and recessionary pressures on demand for consumer products; (xi) the growth potential of the markets in which we operate, including the emerging markets, (xii) expected capital expenditures in 2023; (xiii) the expected costs and benefits of our ongoing optimization of our manufacturing operations, including the expected number of closings; (xiv) expected cash flow and availability of capital resources to fund our operations and meet our debt service requirements; (xv) our ability to enhance our innovation efforts, drive cost efficiencies and execute on specific consumer trends and demands; (xvi) our strategic investments in capacity and increasing inventory to drive improved profitability; and (xvii) 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, including 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;

• our ability to successfully execute the next phase of our strategic transformation;

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

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

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

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

• 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;

• the impact of global health crises, such as the COVID-19 pandemic, on our supply chains, global operations, our customers and our suppliers;

• disruption in the development, manufacture, distribution or sale of our products from natural disasters (such as the COVID-19 pandemic), public health crises, international conflicts (such as the Russia and Ukraine conflict), terrorist acts, labor strikes, political or economic crises (such as the uncertainty related to protracted U.S. federal debt ceiling negotiations), 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 customer, consumer, shareholder and regulatory focus on sustainability;

• defects, 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 (including increased inflation) 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 our or our counterparties’ failure to comply with the U.S. Foreign Corrupt Practices Act, similar U.S. or foreign anti-bribery and anti-corruption laws and regulations, applicable sanctions laws and regulations in the jurisdictions in which we operate or ethical business practices and related laws and regulations;

• 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 outcomes of legal claims, disputes, regulatory investigations and litigation, related to intellectual property, product liability, competition and anti-trust, environmental matters, indirect taxes or other matters;

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

• the impact of any tax liability resulting from the N&B Transaction; and

• our ability to comply with data protection laws in the U.S. and abroad.

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 2022 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.