filings.toolsItem 1. FINANCIAL STATEMENTS.
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Item 1. FINANCIAL STATEMENTS.
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||||||||||||||||||||
| (AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS) | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 2,925 | $ | 2,820 | $ | 8,713 | $ | 8,776 | ||||||||||||||||||||||||||||||||||||
| Cost of Sales | 1,873 | 1,896 | 5,569 | 5,955 | ||||||||||||||||||||||||||||||||||||||||
| Gross profit | 1,052 | 924 | 3,144 | 2,821 | ||||||||||||||||||||||||||||||||||||||||
| Research and development expenses | 162 | 157 | 501 | 479 | ||||||||||||||||||||||||||||||||||||||||
| Selling and administrative expenses | 495 | 444 | 1,478 | 1,343 | ||||||||||||||||||||||||||||||||||||||||
| Amortization of acquisition-related intangibles | 146 | 170 | 467 | 513 | ||||||||||||||||||||||||||||||||||||||||
| Impairment of goodwill | — | — | 64 | — | ||||||||||||||||||||||||||||||||||||||||
| Restructuring and other charges | 1 | 2 | 6 | 61 | ||||||||||||||||||||||||||||||||||||||||
| (Gains) losses on sale of assets | (1) | 1 | (11) | (1) | ||||||||||||||||||||||||||||||||||||||||
| Operating profit | 249 | 150 | 639 | 426 | ||||||||||||||||||||||||||||||||||||||||
| Interest expense | 74 | 90 | 236 | 291 | ||||||||||||||||||||||||||||||||||||||||
| (Gains) losses on business disposals | 20 | 10 | (348) | 29 | ||||||||||||||||||||||||||||||||||||||||
| Loss on assets classified as held for sale | 32 | — | 314 | — | ||||||||||||||||||||||||||||||||||||||||
| Other expense (income), net | 28 | (9) | 44 | (17) | ||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 95 | 59 | 393 | 123 | ||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | 35 | 32 | 100 | 77 | ||||||||||||||||||||||||||||||||||||||||
| Net income | 60 | 27 | 293 | 46 | ||||||||||||||||||||||||||||||||||||||||
| Net income attributable to non-controlling interests | 1 | 2 | 4 | 3 | ||||||||||||||||||||||||||||||||||||||||
| Net income attributable to IFF shareholders | $ | 59 | $ | 25 | $ | 289 | $ | 43 | ||||||||||||||||||||||||||||||||||||
| Net income per share - basic and diluted | $ | 0.23 | $ | 0.10 | $ | 1.13 | $ | 0.16 | ||||||||||||||||||||||||||||||||||||
| Average number of shares outstanding - basic | 256 | 255 | 255 | 255 | ||||||||||||||||||||||||||||||||||||||||
| Average number of shares outstanding - diluted | 257 | 256 | 256 | 255 | ||||||||||||||||||||||||||||||||||||||||
| Statements of Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 60 | $ | 27 | $ | 293 | $ | 46 | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss), after tax: | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | 555 | (476) | 134 | (132) | ||||||||||||||||||||||||||||||||||||||||
| Gains (losses) on derivatives qualifying as hedges | 1 | — | (5) | — | ||||||||||||||||||||||||||||||||||||||||
| Pension and postretirement liability adjustment | (1) | (3) | 7 | (6) | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | 555 | (479) | 136 | (138) | ||||||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | 615 | (452) | 429 | (92) | ||||||||||||||||||||||||||||||||||||||||
| Comprehensive income attributable to non-controlling interests | 1 | 2 | 4 | 3 | ||||||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) attributable to IFF shareholders | $ | 614 | $ | (454) | $ | 425 | $ | (95) |
See Notes to Consolidated Financial Statements
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| (AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS) | September 30, 2024 | December 31, 2023 | |||||||||
| ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash, cash equivalents, and restricted cash | $ | 567 | $ | 709 | |||||||
| Trade receivables (net of allowances) | 1,772 | 1,726 | |||||||||
| Inventories | 2,200 | 2,477 | |||||||||
| Assets held for sale | 3,114 | 506 | |||||||||
| Prepaid expenses and other current assets | 770 | 875 | |||||||||
| Total Current Assets | 8,423 | 6,293 | |||||||||
| Property, plant and equipment, net | 3,772 | 4,240 | |||||||||
| Goodwill | 9,349 | 10,635 | |||||||||
| Other intangible assets, net | 6,770 | 8,357 | |||||||||
| Operating lease right-of-use assets | 646 | 689 | |||||||||
| Other assets | 968 | 764 | |||||||||
| Total Assets | $ | 29,928 | $ | 30,978 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current Liabilities: | |||||||||||
| Short-term debt and current portion of long-term debt | $ | 468 | $ | 885 | |||||||
| Accounts payable | 1,211 | 1,378 | |||||||||
| Accrued payroll and bonus | 382 | 265 | |||||||||
| Dividends payable | 102 | 207 | |||||||||
| Liabilities held for sale | 304 | 46 | |||||||||
| Other current liabilities | 751 | 977 | |||||||||
| Total Current Liabilities | 3,218 | 3,758 | |||||||||
| Other Liabilities: | |||||||||||
| Long-term debt | 8,631 | 9,186 | |||||||||
| Retirement liabilities | 182 | 253 | |||||||||
| Deferred income taxes | 1,869 | 1,937 | |||||||||
| Operating lease liabilities | 605 | 642 | |||||||||
| Other liabilities | 613 | 560 | |||||||||
| Total Other Liabilities | 11,900 | 12,578 | |||||||||
| Commitments and Contingencies (Note 17) | |||||||||||
| Shareholders’ Equity: | |||||||||||
| Common stock $0.125 par value; 500.0 shares authorized; 275.7 shares issued as of September 30, 2024 and December 31, 2023; and 255.7 and 255.3 shares outstanding as of September 30, 2024 and December 31, 2023, respectively | 35 | 35 | |||||||||
| Capital in excess of par value | 19,902 | 19,874 | |||||||||
| Accumulated deficit | (2,457) | (2,439) | |||||||||
| Accumulated other comprehensive loss | (1,760) | (1,896) | |||||||||
| Treasury stock, at cost (20.0 and 20.4 shares as of September 30, 2024 and December 31, 2023, respectively) | (945) | (963) | |||||||||
| Total Shareholders’ Equity | 14,775 | 14,611 | |||||||||
| Non-controlling interests | 35 | 31 | |||||||||
| Total Shareholders’ Equity including Non-controlling interests | 14,810 | 14,642 | |||||||||
| Total Liabilities and Shareholders’ Equity | $ | 29,928 | $ | 30,978 |
See Notes to Consolidated Financial Statements
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
| (AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS) | 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 July 1, 2023 | 275.7 | $ | 35 | $ | 19,851 | $ | 560 | $ | (1,857) | (20.5) | $ | (966) | $ | 32 | $ | 17,655 | |||||||||||||||||||||||||||||||||||||
| Net income | 25 | 2 | 27 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive (loss) income, after tax | (479) | (479) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared(1) | (207) | (207) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options/SSARs | (2) | 1 | (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Vested restricted stock units and awards | (2) | 1 | (1) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 18 | 18 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | (3) | (3) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | 275.7 | $ | 35 | $ | 19,865 | $ | 378 | $ | (2,336) | (20.5) | $ | (964) | $ | 31 | $ | 17,009 | |||||||||||||||||||||||||||||||||||||
| (AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS) | Common stock | Capital in excess of par value | Accumulated deficit | Accumulated other comprehensive (loss) income | Treasury stock | Non-controlling interest | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Cost | Shares | Cost | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at July 1, 2024 | 275.7 | $ | 35 | $ | 19,894 | $ | (2,414) | $ | (2,315) | (20.1) | $ | (946) | $ | 37 | $ | 14,291 | |||||||||||||||||||||||||||||||||||||
| Net income | 59 | 1 | 60 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive (loss) income, after tax | 555 | 555 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared(1) | (102) | (102) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options/SSARs | 1 | 0.1 | 1 | 2 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Vested restricted stock units and awards | (9) | (9) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 16 | 16 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | (3) | (3) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | 275.7 | $ | 35 | $ | 19,902 | $ | (2,457) | $ | (1,760) | (20.0) | $ | (945) | $ | 35 | $ | 14,810 |
| (AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS) | 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 | 275.7 | $ | 35 | $ | 19,841 | $ | 955 | $ | (2,198) | (20.8) | $ | (978) | $ | 30 | $ | 17,685 | |||||||||||||||||||||||||||||||||||||
| Net income | 43 | 3 | 46 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive (loss) income, after tax | (138) | (138) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared(1) | (620) | (620) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options/SSARs | (5) | 0.1 | 4 | (1) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Vested restricted stock units and awards | (20) | 0.2 | 10 | (10) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 50 | 50 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of NCI | (1) | (1) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | (2) | (2) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | 275.7 | $ | 35 | $ | 19,865 | $ | 378 | $ | (2,336) | (20.5) | $ | (964) | $ | 31 | $ | 17,009 |
See Notes to Consolidated Financial Statements
| (AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS) | 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, 2024 | 275.7 | $ | 35 | $ | 19,874 | $ | (2,439) | $ | (1,896) | (20.4) | $ | (963) | $ | 31 | $ | 14,642 | |||||||||||||||||||||||||||||||||||||
| Net income | 289 | 4 | 293 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Comprehensive (loss) income, after tax | 136 | 136 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared(1) | (306) | (306) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock options/SSARs | (1) | 0.1 | 2 | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Vested restricted stock units and awards | (30) | 0.3 | 16 | (14) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 59 | 59 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | (1) | (1) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | 275.7 | $ | 35 | $ | 19,902 | $ | (2,457) | $ | (1,760) | (20.0) | $ | (945) | $ | 35 | $ | 14,810 |
(1)Cash dividends declared per common share were $0.40 and $0.81 for the three months ended September 30, 2024 and September 30, 2023, respectively, and $1.20 and $2.43 per share for the nine months ended September 30, 2024 and September 30, 2023, respectively.
See Notes to Consolidated Financial Statements
INTERNATIONAL FLAVORS & FRAGRANCES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| (DOLLARS IN MILLIONS) | 2024 | 2023 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 293 | $ | 46 | |||||||
| Adjustments to reconcile to net cash provided by operating activities | |||||||||||
| Depreciation and amortization | 772 | 855 | |||||||||
| Deferred income taxes | (128) | (59) | |||||||||
| Loss on assets classified as held for sale | 314 | — | |||||||||
| Gains on sale of assets | (11) | (1) | |||||||||
| (Gains) Losses on business disposals | (348) | 29 | |||||||||
| Stock-based compensation | 59 | 50 | |||||||||
| Pension contributions | (17) | (25) | |||||||||
| Impairment of goodwill | 64 | — | |||||||||
| Inventory write-down | — | 62 | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Trade receivables | (276) | (78) | |||||||||
| Inventories | (3) | 489 | |||||||||
| Accounts payable | (34) | (240) | |||||||||
| Accruals for incentive compensation | 119 | (40) | |||||||||
| Other current payables and accrued expenses | 65 | (216) | |||||||||
| Other assets/liabilities, net | (167) | (77) | |||||||||
| Net cash provided by operating activities | 702 | 795 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Additions to property, plant and equipment | (303) | (390) | |||||||||
| Additions to intangible assets | (5) | — | |||||||||
| Proceeds from sale of assets | 18 | 22 | |||||||||
| Net proceeds received from business disposals | 876 | 1,006 | |||||||||
| Net cash provided by investing activities | 586 | 638 | |||||||||
| Cash flows from financing activities: | |||||||||||
| Cash dividends paid to shareholders | (411) | (619) | |||||||||
| Decrease in revolving credit facility and short-term borrowings | — | (100) | |||||||||
| Net borrowings of commercial paper (maturities less than three months) | — | (187) | |||||||||
| Principal payments of debt | (974) | (355) | |||||||||
| Deferred and contingent consideration paid | (36) | (6) | |||||||||
| Withholding tax paid on stock-based compensation | (15) | (12) | |||||||||
| Other, net | (8) | (14) | |||||||||
| Net cash used in financing activities | (1,444) | (1,293) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (10) | (30) | |||||||||
| Net change in cash, cash equivalents and restricted cash | (166) | 110 | |||||||||
| Cash, cash equivalents and restricted cash at beginning of year | 735 | 552 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 569 | $ | 662 | |||||||
| Supplemental Disclosures: | |||||||||||
| Interest paid, net of amounts capitalized | $ | 216 | $ | 261 | |||||||
| Income taxes paid, net | 248 | 450 | |||||||||
| Accrued capital expenditures | 74 | 67 | |||||||||
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 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 2023 Annual Report on Form 10-K (“2023 Form 10-K”), filed on February 28, 2024 with the Securities and Exchange Commission (“SEC”).
The interim Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America for interim financial information and with the rules and regulations for reporting on Form 10-Q, and are unaudited. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP in the United States of America have been condensed or omitted, if not materially different from the 2023 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.
Correction of Prior Year Consolidated Financial Statements
The Company revised Interest expense from $110 million to $90 million, and Other income, net from $29 million to $9 million, on its Consolidated Statements of Income and Comprehensive Income (Loss) for the three months ended September 30, 2023. The Company also revised Interest expense from $337 million to $291 million and Other income, net from $63 million to $17 million for the nine months ended September 30, 2023. These adjustments had no impact on net income and reflect certain adjustments made to interest expense associated with the Company’s cash pooling arrangements. The impacts of these corrections are also presented in the related footnotes.
Use of Estimates
The preparation of financial statements 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 ongoing global current events and 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 September 30, 2024, December 31, 2023, September 30, 2023 and December 31, 2022 were as follows:
| (DOLLARS IN MILLIONS) | September 30, 2024 | December 31, 2023 | September 30, 2023 | December 31, 2022 | |||||||||||||||||||
| Current assets | |||||||||||||||||||||||
| Cash and cash equivalents | $ | 567 | $ | 703 | $ | 629 | $ | 483 | |||||||||||||||
| Cash and cash equivalents included in Assets held for sale | 2 | 26 | 23 | 52 | |||||||||||||||||||
| Restricted cash | — | 6 | 10 | 10 | |||||||||||||||||||
| Non-current assets | |||||||||||||||||||||||
| Restricted cash included in Other assets | — | — | — | 7 | |||||||||||||||||||
| Cash, cash equivalents and restricted cash | $ | 569 | $ | 735 | $ | 662 | $ | 552 |
Accounts Receivable
The Company has various factoring agreements globally under which it can factor up to approximately $329 million of its trade 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 trade receivables on a non-recourse basis to unrelated financial institutions and accounts for the transactions as sales 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 $1,320 million and $1,302 million of receivables under the Company’s own factoring agreements and customer sponsored factoring agreements for the nine months ended September 30, 2024 and 2023, respectively. The cost of participating in these programs was approximately $7 million and $6 million for the three months ended September 30, 2024 and 2023, respectively, and was approximately $21 million and $18 million for the nine months ended September 30, 2024 and 2023, respectively. These costs are included as a component of interest expense. Under the Company’s own factoring agreements for which the Company has continued responsibility to collect receivables and provide to its sponsor, it sold approximately $654 million and $632 million of receivables for the nine months ended September 30, 2024 and 2023, respectively. The outstanding principal amounts of receivables under the Company’s own factoring agreements amounted to approximately $201 million and $196 million as of September 30, 2024 and December 31, 2023, respectively. The proceeds from the sales of receivables are included in Net cash provided by operating activities in the Consolidated Statements of Cash Flows.
Expected Credit Losses
As of September 30, 2024, the Company reported $1.772 billion of trade receivables, net of allowances of $26 million. Based on the aging analysis as of September 30, 2024, 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 roll-forward of the Company’s allowances for bad debts for the nine months ended September 30, 2024 and 2023.
| Nine Months Ended September 30, | |||||||||||
| (DOLLARS IN MILLIONS) | 2024 | 2023 | |||||||||
| Balance at January 1 | $ | 52 | $ | 53 | |||||||
| Bad debt expense (reversals) | (8) | 9 | |||||||||
| Write-offs | (17) | (6) | |||||||||
| Foreign exchange (gains) losses | (1) | (1) | |||||||||
| Balance at September 30 | $ | 26 | $ | 55 |
Inventories
Inventories are stated at the lower of cost (on a weighted-average basis) or net realizable value. The Company’s inventories consisted of the following:
| (DOLLARS IN MILLIONS) | September 30, 2024 | December 31, 2023 | |||||||||
| Raw materials | $ | 727 | $ | 779 | |||||||
| Work in process | 384 | 406 | |||||||||
| Finished goods | 1,089 | 1,292 | |||||||||
| Total | $ | 2,200 | $ | 2,477 |
Supply Chain Financing Program
In the fourth quarter of 2023, the Company entered into a supply chain financing (“SCF”) program. The SCF program is expected to be available to U.S. based suppliers starting in the fourth quarter of 2024. The Company makes continuous efforts to improve working capital efficiency and has worked with suppliers to optimize payment terms and conditions. The Company’s current payment terms with a majority of suppliers range from 0 to 180 days, which the Company believes is consistent with commercial practice. The Company’s SCF program is voluntary and will allow its suppliers to elect to sell the receivables owed to them by the Company to a third-party financial institution. The suppliers, at their own discretion, will determine the invoices they want to sell and directly negotiate the arrangements with the participating third-party financial institution. Supplier participation in the program is solely the decision of the supplier and has no bearing on the Company’s payment terms and amounts due with the supplier. The Company’s responsibility will be limited to making payments based upon the agreed contractual terms and arrangements. The Company will not provide any form of guarantees under the SCF program and will have no economic interest in the suppliers’ decision to participate in the SCF program. Amounts due to
suppliers that elect to participate in the SCF program will be included in Accounts payable on the Consolidated Balance Sheets. The Company, or the third-party financial institution, may choose to terminate the agreement of the SCF program at any time upon 30 days’ prior written notice. The third-party financial institution may also terminate the agreement of the SCF program at any time upon three business days’ prior written notice in the event there are insufficient funds available for disbursements. As of September 30, 2024 and December 31, 2023, there were no amounts outstanding related to suppliers’ participation in the SCF program.
Recent Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The ASU was issued to further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and may be applied either prospectively or retrospectively. The Company is currently evaluating the impact that this guidance will have on its income tax disclosures.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The ASU intends to improve reportable segment disclosure requirements, primarily through enhanced disclosures of significant segment expenses that are regularly provided to the Chief Operating Decision Maker and included within segment profit and loss. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and applied retrospectively to all prior periods presented in the financial statements. The Company expects that the adoption of the standard will impact certain segment reporting disclosures in the Notes to the Consolidated Financial Statements, but will otherwise not have a material impact on the Company's results of operations.
NOTE 2. NET INCOME PER SHARE
A reconciliation of the shares used in the computation of basic and diluted net income per share is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net Income | |||||||||||||||||||||||
| Net income attributable to IFF shareholders | $ | 59 | $ | 25 | $ | 289 | $ | 43 | |||||||||||||||
| Adjustment related to (increase) in redemption value of redeemable non-controlling interests in excess of earnings allocated | — | — | — | (1) | |||||||||||||||||||
| Net income available to IFF shareholders | $ | 59 | $ | 25 | $ | 289 | $ | 42 | |||||||||||||||
| Shares | |||||||||||||||||||||||
| Weighted average common shares outstanding (basic) | 256 | 255 | 255 | 255 | |||||||||||||||||||
| Adjustment for assumed dilution: | |||||||||||||||||||||||
| Stock options and restricted stock awards | 1 | 1 | 1 | — | |||||||||||||||||||
| Weighted average shares assuming dilution (diluted) | 257 | 256 | 256 | 255 | |||||||||||||||||||
| Net Income per Share | |||||||||||||||||||||||
| Net income per share - basic and diluted | $ | 0.23 | $ | 0.10 | $ | 1.13 | $ | 0.16 | |||||||||||||||
The Company declared a quarterly dividend to its shareholders of $0.40 and $0.81 per share for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 and 2023, the Company declared quarterly dividends to its shareholders totaling $1.20 and $2.43, respectively.
For the three and nine months ended September 30, 2024, there were approximately 0.3 million share equivalents that had an anti-dilutive effect and therefore were excluded from the computation of diluted net income per share in the period. For the three and nine months ended September 30, 2023, there were approximately 0.4 million share equivalents that had an anti-dilutive effect and therefore were excluded from the computation of diluted net loss 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 the difference between basic net income per share for both unrestricted common shareholders and PRSU shareholders for the three and nine months ended September 30, 2024 and 2023 was less than $0.01 per share.
NOTE 3. BUSINESS DIVESTITURES AND ASSETS AND LIABILITIES HELD FOR SALE
Divestiture of the Cosmetic Ingredients Business
During the third quarter of 2023, the Company announced it had entered into an agreement to sell its Cosmetic Ingredients business, which was a part of the Scent segment. The Company completed the divestiture on April 2, 2024, and received cash proceeds of approximately $841 million. The sale consideration is subject to certain post-closing adjustments, which is primarily related to cash, indebtedness and working capital balances.
The following table summarizes the fair value of sale consideration received in connection with the business divestiture:
| (DOLLARS IN MILLIONS) | |||||
| Cash proceeds from the buyer | $ | 841 | |||
| Direct costs to sell | (10) | ||||
| Fair value of sale consideration | $ | 831 |
The Net proceeds received from business disposals presented under Cash flows from investing activities represent the cash portion of the sale consideration, which was determined as the fair value of sale consideration adjusted by the cash transferred to the buyer as part of the transaction. Amounts paid for direct costs to sell are presented under Cash flows from operating activities. The following table summarizes the different components of Net proceeds received from business disposals presented under Cash flows from investing activities:
| (DOLLARS IN MILLIONS) | |||||
| Cash proceeds from the buyer | $ | 841 | |||
| Cash transferred to the buyer | (32) | ||||
| Net Cash flows from investing activities | $ | 809 |
The carrying amount of net assets associated with the business unit, adjusted for currency translation adjustment, was approximately $466 million. The major classes of assets and liabilities sold consisted of the following:
| (DOLLARS IN MILLIONS) | April 2, 2024 | ||||
| Assets | |||||
| Cash and cash equivalents | $ | 32 | |||
| Trade receivables, net | 18 | ||||
| Inventories | 17 | ||||
| Property, plant and equipment, net | 7 | ||||
| Goodwill | 271 | ||||
| Other intangible assets, net | 144 | ||||
| Operating lease right-of-use assets | 10 | ||||
| Other assets | 11 | ||||
| Total assets | 510 | ||||
| Liabilities | |||||
| Accounts payable | $ | (5) | |||
| Deferred tax liability | (25) | ||||
| Other liabilities | (18) | ||||
| Total liabilities | (48) | ||||
| Equity | |||||
| Accumulated other comprehensive income - currency translation adjustment | 4 | ||||
| Total equity | 4 | ||||
| Carrying value of net asset (adjusted for currency translation adjustment) | $ | 466 |
As a result of the business divestiture, the Company recognized a pre-tax gain of approximately $365 million, subject to certain post-closing adjustments, presented in (Gains) losses on business disposals on the Consolidated Statements of Income and Comprehensive Income (Loss) for the nine months ended September 30, 2024. The total income tax expense/(benefit) recognized was approximately $34 million, with approximately $(7) million that was recognized during the year ended December 31, 2023.
Divestiture of the Flavors and Essences UK Business
During the third quarter of 2024, the Company completed the divestiture of its Flavors and Essences UK (“F&E”) business, which was a part of the Nourish segment. The Company completed the divestiture on September 1, 2024, and received net cash proceeds of approximately $28 million. The carrying amount of net assets associated with the business unit, adjusted for currency translation adjustment, was approximately $48 million. The majority of net assets sold included intangible assets and goodwill attributable to the F&E business. As part of the business divestiture, the Company recognized a pre-tax loss of approximately $20 million presented in (Gains) losses on business disposals and a tax benefit of approximately $1 million presented in Provision for income taxes on the Consolidated Statements of Income and Comprehensive Income (Loss) for the three and nine months ended September 30, 2024.
Divestiture of the Flavors Specialty Ingredients Business
The Company completed the divestiture of the Flavors Specialty Ingredients business on August 1, 2023, and received net cash proceeds of approximately $185 million, which included $1 million related to the delayed transfer of the control of specific assets and liabilities of non-U.S. jurisdiction business. In addition, approximately $15 million of proceeds were held in escrow and were released upon satisfaction of certain conditions during the fourth quarter of 2023. Concurrent with the completion of the business divestiture, the Company entered into a supply agreement with the buyer. Based on the terms of the supply agreement, an adjustment of $4 million was made against the fair value of sale consideration.
As a result of the business divestiture, the Company recognized a pre-tax loss of approximately $10 million presented in (Gains) losses on business disposals on the Consolidated Statements of Income and Comprehensive Income (Loss) for the three and nine months ended September 30, 2023. There was a net working capital adjustment of $(3) million for the nine months ended September 30, 2024, resulting in a cumulative pre-tax loss of approximately $7 million.
Divestiture of a Portion of the Savory Solutions Business
The Company completed the divestiture of a Portion of the Savory Solutions business on May 31, 2023, and received net cash proceeds of approximately $821 million. In addition, a receivable of approximately $37 million was recorded which reflected the remaining sale consideration that was received in January 2024.
As a result of the divestiture, the Company recognized a pre-tax loss of approximately $10 million presented in (Gains) losses on business disposals on the Consolidated Statements of Income and Comprehensive Income (Loss) for the nine months ended September 30, 2023. There was a net working capital adjustment of $7 million for the three months ended December 31, 2023, resulting in a cumulative pre-tax loss of approximately $3 million.
Liquidation of a Business in Russia
As part of the liquidation of a business in Russia for the sale of the portion of the Savory Solutions business, the Company recognized a pre-tax loss of approximately $10 million presented in the (Gains) losses on business disposals, and tax benefits of approximately $2 million presented in Provision for income taxes on the Consolidated Statements of Income and Comprehensive Income (Loss) for the nine months ended September 30, 2023.
Assets and Liabilities Held for Sale
Pharma Solutions
During the first quarter of 2024, the Company announced it had entered into an agreement to sell its Pharma Solutions business, that is primarily made up of most businesses within the Company's existing Pharma Solutions reportable operating segment as well as certain adjacent businesses (the “Pharma Solutions disposal group”). The transaction is subject to customary closing conditions and is expected to close in the second quarter of 2025.
The sale does not constitute a strategic shift of the Company’s operations and does not, and will not, have major effects on the Company’s operations and financial results. Therefore, the transaction does not meet the discontinued operations criteria.
The Company determined that the assets and liabilities of the Pharma Solutions disposal group met the criteria to be presented as “held for sale” during the second quarter of 2024. As a result, at September 30, 2024, such assets and liabilities were classified as held for sale on the Consolidated Balance Sheets.
The classification of the Pharma Solutions disposal group as held for sale was considered an event or change in circumstance which required an assessment of the existing Pharma Solutions reporting unit. The Company performed a pre-classification goodwill impairment test and determined that the fair value of the Pharma Solutions reporting unit exceeded the carrying value.
The Company engaged an independent third party to determine the fair value of the assets held for sale as of May 1, 2024, based upon the sale price including earn outs expected to be received from the buyer. The fair value of the earn out was based on a Monte Carlo simulation. Goodwill was allocated to the Pharma Solutions disposal group based upon the relative fair value of the businesses included in the disposal group compared to the reporting units to which the businesses relate. The Company then performed a post-classification goodwill impairment test and determined that the fair value was less than the carrying value of the Pharma Solutions disposal group. As such, the Company recorded a non-cash goodwill impairment charge of $64 million which is presented in Impairment of goodwill on the Consolidated Statements of Income and Comprehensive Income (Loss) for the nine months ended September 30, 2024.
The Company also performed a goodwill impairment test of the remaining businesses in the Pharma Solutions reporting unit that were not classified as held for sale and determined that the fair value exceeded the carrying value.
At September 30, 2024, the Company engaged an independent third-party to determine an updated fair value of the Pharma Solutions disposal group. The Company determined that the fair value of $2,708 million (fair value of $2,740 million less estimated costs to sell of $32 million) of the Pharma Solutions disposal group was less than the carrying value. As such, the Company recorded a loss in the third quarter of 2024 of $22 million to adjust the carrying value of the disposal group to its fair value less cost to sell, bringing the total year-to-date loss to $304 million. This is presented in Loss on assets classified as held for sale on the Consolidated Statements of Income and Comprehensive Income (Loss) for the three and nine months ended September 30, 2024. The Company recorded the loss on classification of held for sale as a valuation allowance on the group of assets held for sale, without allocation to the individual assets or major classes of assets within the group.
For the nine months ended September 30, 2024, the Company recognized total income tax benefits of $62 million related to loss on assets classified as held for sale for the Pharma Solutions disposal group.
In addition, pursuant to the terms agreed under the 2026 Term Loan Facility, a portion of the net cash proceeds received from the sale of the Pharma Solutions disposal group, when and if completed, must be used to repay our borrowings under the 2026 Term Loan Facility. Therefore, the Company reclassified the 2026 Term Loan Facility balance from “Long-term debt” to “Short-term debt and current portion of long-term debt” (see Note 13).
Nitrocellulose
During October of 2024, the Company entered into an agreement to sell its nitrocellulose business (including the related industrial park in Germany), which is within the Company's existing Pharma Solutions reportable operating segment. The transaction is subject to customary closing conditions and is expected to close in the second quarter of 2025.
The Company determined that the assets and liabilities of the nitrocellulose business met the criteria to be presented as “held for sale” during the third quarter of 2024. As a result, as of September 30, 2024, such assets and liabilities were classified as held for sale on the Consolidated Balance Sheets. The Company determined that, as of September 30, 2024, the fair value less estimated costs to sell of the nitrocellulose business exceeded the underlying carrying value.
The sale does not constitute a strategic shift of the Company’s operations and does not, and will not, have major effects on the Company’s operations and financial results. Therefore, the transaction does not meet the discontinued operations criteria.
Portion of the Savory Solutions Business in Turkey
During the third quarter of 2024, the Company entered into an agreement to sell assets of the Savory Solutions business in Turkey. The transaction is expected to close in the first quarter of 2025. The Company has determined that the assets meet the criteria to be held for sale as of September 30, 2024. The Company recorded a loss of $10 million in the third quarter of 2024 to adjust the carrying value of the assets to its fair value based on the agreed sales price. This is presented in Loss on assets classified as held for sale on the Consolidated Statements of Income and Comprehensive Income (Loss) for the three and nine months ended September 30, 2024. The Company recognized total income tax benefits of $1 million related to loss on assets classified as held for sale for the portion of the Savory Solutions business in Turkey.
Carrying Amount of Assets and Liabilities Held for Sale
As of December 31, 2023, the assets and liabilities of the Cosmetic Ingredients business met the criteria to be presented as “held for sale”. The Company completed the divestiture on April 2, 2024 and therefore the assets and liabilities of the Cosmetic Ingredients business are not included in the Company's Consolidated Balance Sheets as of September 30, 2024.
Included in the Company’s Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023 are the following carrying amounts of the assets and liabilities held for sale:
| (DOLLARS IN MILLIONS) | September 30, 2024 | December 31, 2023 | ||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 2 | $ | 26 | ||||
| Trade receivables, net | 195 | 15 | ||||||
| Inventories | 286 | 18 | ||||||
| Property, plant and equipment, net | 438 | 7 | ||||||
| Goodwill(1) | 1,264 | 276 | ||||||
| Other intangible assets, net | 1,119 | 146 | ||||||
| Operating lease right-of-use assets | 15 | 9 | ||||||
| Other assets | 109 | 9 | ||||||
| Less: Loss recognized on assets held-for-sale(2) | (314) | — | ||||||
| Total assets held-for-sale | $ | 3,114 | $ | 506 | ||||
| Liabilities | ||||||||
| Accounts payable | $ | 83 | $ | 4 | ||||
| Deferred tax liability | 63 | 24 | ||||||
| Other liabilities | 158 | 18 | ||||||
| Total liabilities held-for-sale | $ | 304 | $ | 46 | ||||
(1)The goodwill balance in assets held for sale for the Pharma Solutions disposal group as of September 30, 2024, is presented net of $64 million of goodwill impairment.
(2)Includes the impact of $51 million, primarily related to losses on foreign currency translation, expected to be reclassified out of accumulated other comprehensive loss upon close of the sales.
NOTE 4. RESTRUCTURING AND OTHER CHARGES
Restructuring and other charges primarily consist of separation costs for employees including severance, outplacement and other employee benefit costs (“Severance”), charges related to the write-down of fixed assets of plants to be closed (“Fixed asset write-down”) and all other related restructuring (“Other”) costs. All restructuring and other charges are separately stated on the Consolidated Statements of Income and Comprehensive Income (Loss).
N&B Merger Restructuring Liability
For the three and nine months ended September 30, 2024, the Company had no charges related to severance. For the nine months ended September 30, 2024, the Company had approximately $2 million of charges related to a lease impairment. For the three and nine months ended September 30, 2023, the Company had approximately $3 million and $2 million of charges, respectively. Since the inception of the restructuring activities, there have been a total of approximately 215 headcount reductions and the Company has expensed approximately $49 million. As of December 31, 2023, the restructuring activities were completed related to employee exits. The Company continues to evaluate its owned and leased properties following the combination of IFF and DuPont de Nemours, Inc’s nutrition and biosciences business (“Merger with N&B”) and may incur additional costs to further consolidate its footprint.
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 and nine months ended September 30, 2024, the Company incurred approximately $1 million and $4 million of charges related to severance, respectively. For the three and nine months ended September 30, 2023, the Company incurred approximately $1 million of reversals and $63 million of charges related to severance, respectively. Since the inception of the restructuring program, the Company has expensed approximately $74 million and there have been a total of approximately 670 actual headcount reductions.
Changes in Restructuring Liabilities
Changes in restructuring liabilities during the nine months ended September 30, 2024 were as follows:
| (DOLLARS IN MILLIONS) | Balance at January 1, 2024 | Additional Charges (Reversals), Net | Non-Cash Charges | Cash Payments | Balance at September 30, 2024 | ||||||||||||||||||||||||||||||
| N&B Merger Restructuring Liability | |||||||||||||||||||||||||||||||||||
| Other | $ | — | $ | 2 | $ | (2) | $ | — | $ | — | |||||||||||||||||||||||||
| 2023 Restructuring Program | |||||||||||||||||||||||||||||||||||
| Severance | 14 | 4 | — | (16) | 2 | ||||||||||||||||||||||||||||||
| Total Restructuring and other charges | $ | 14 | $ | 6 | $ | (2) | $ | (16) | $ | 2 |
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 the restructuring programs and activities by segment.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (DOLLARS IN MILLIONS) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Nourish | $ | — | $ | 1 | $ | 3 | $ | 33 | |||||||||||||||
| Health & Biosciences | — | 1 | 1 | 12 | |||||||||||||||||||
| Scent | — | — | 1 | 14 | |||||||||||||||||||
| Pharma Solutions | 1 | — | 1 | 2 | |||||||||||||||||||
| Total Restructuring and other charges | $ | 1 | $ | 2 | $ | 6 | $ | 61 |
NOTE 5. 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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (DOLLARS IN MILLIONS) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Equity-based awards | $ | 16 | $ | 18 | $ | 59 | $ | 50 | |||||||||||||||
| Liability-based awards | 1 | — | 3 | — | |||||||||||||||||||
| Total stock-based compensation expense | 17 | 18 | 62 | 50 | |||||||||||||||||||
| Less: Tax benefit | (3) | (5) | (12) | (11) | |||||||||||||||||||
| Total stock-based compensation expense, after tax | $ | 14 | $ | 13 | $ | 50 | $ | 39 |
As of September 30, 2024, there was approximately $96 million of total unrecognized compensation cost related to non-vested awards granted under the equity incentive plans.
NOTE 6. SEGMENT INFORMATION
The Company is organized into four reportable operating segments: Nourish, Health & Biosciences, Scent and Pharma Solutions.
Reportable segment information was as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| (DOLLARS IN MILLIONS) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net sales: | |||||||||||||||||||||||
| Nourish | $ | 1,486 | $ | 1,449 | $ | 4,460 | $ | 4,666 | |||||||||||||||
| Health & Biosciences | 570 | 518 | 1,659 | 1,553 | |||||||||||||||||||
| Scent | 613 | 615 | 1,861 | 1,815 | |||||||||||||||||||
| Pharma Solutions | 256 | 238 | 733 | 742 | |||||||||||||||||||
| Consolidated | $ | 2,925 | $ | 2,820 | $ | 8,713 | $ | 8,776 | |||||||||||||||
| Segment Adjusted Operating EBITDA: | |||||||||||||||||||||||
| Nourish | $ | 206 | $ | 178 | $ | 654 | $ | 567 | |||||||||||||||
| Health & Biosciences | 173 | 150 | 497 | 426 | |||||||||||||||||||
| Scent | 127 | 131 | 421 | 353 | |||||||||||||||||||
| Pharma Solutions | 62 | 47 | 162 | 173 | |||||||||||||||||||
| Total | 568 | 506 | 1,734 | 1,519 | |||||||||||||||||||
| Depreciation & Amortization | (248) | (292) | (772) | (855) | |||||||||||||||||||
| Interest Expense | (74) | (90) | (236) | (291) | |||||||||||||||||||
| Other (Expense) Income, net | (28) | 9 | (44) | 17 | |||||||||||||||||||
| Restructuring and Other Charges a) | (1) | (2) | (6) | (61) | |||||||||||||||||||
| Impairment of Goodwill b) | — | — | (64) | — | |||||||||||||||||||
| Gains (Losses) on Business Disposals c) | (20) | (10) | 348 | (29) | |||||||||||||||||||
| Loss on Assets Classified as Held for Sale d) | (32) | — | (314) | — | |||||||||||||||||||
| Acquisition, Divestiture and Integration Costs e) | (55) | (42) | (172) | (118) | |||||||||||||||||||
| Strategic Initiatives Costs f) | (6) | (6) | (22) | (28) | |||||||||||||||||||
| Regulatory Costs g) | (10) | (13) | (64) | (32) | |||||||||||||||||||
| Other h) | 1 | (1) | 5 | 1 | |||||||||||||||||||
| Income Before Taxes | $ | 95 | $ | 59 | $ | 393 | $ | 123 | |||||||||||||||
| a) | For 2024, represents costs related to lease impairment and severance as part of the Company's restructuring efforts. For 2023, represents costs primarily related to severance as part of the Company's restructuring efforts. | |||||||
| b) | For 2024, represents costs related to the impairment of goodwill related to the Pharma Solutions disposal group. |
| c) | For 2024, primarily represents gains recognized as part of the sale of the Cosmetic Ingredients business and losses recognized as part of the sale of the F&E UK business. For 2023, primarily represents losses recognized as part of the sale of the Flavors Specialty Ingredients business, the sale of a portion of the Savory Solutions business, and liquidation of a business in Russia for the sale of the portion of the Savory Solutions business. | |||||||
| d) | For 2024, represents the losses recognized on assets classified as held for sale of the Pharma Solutions disposal group and portion of the Savory Solutions business in Turkey. | |||||||
| e) | For 2024 and 2023, primarily represents costs related to the Company's actual and planned acquisitions and divestitures and integration related activities primarily for 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 the three months ended September 30, 2024, business divestiture costs were approximately $55 million. For the three months ended September 30, 2023, business divestiture, integration and acquisition costs were approximately $29 million, $12 million and $1 million, respectively. For the nine months ended September 30, 2024, business divestiture and integration costs were approximately $167 million and $5 million, respectively. For the nine months ended September 30, 2023, business divestiture, integration and acquisition costs were approximately $70 million, $42 million, and $6 million, respectively. | |||||||
| f) | Represents costs related to the Company's strategic assessment and business portfolio optimization efforts and reorganizing the Global Business Services Centers, primarily consulting fees. | |||||||
| g) | Represents costs primarily related to legal fees incurred and provisions recognized for the ongoing investigations of the fragrance businesses. | |||||||
| h) | Represents gains (losses) from sale of assets, executive employee separation costs and costs related to the Company's entity realignment project to optimize the structure of holding companies, primarily consulting fees. | |||||||
Net sales, which are attributed to individual regions based upon the destination of product delivery, were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (DOLLARS IN MILLIONS) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Europe, Africa and Middle East | $ | 964 | $ | 918 | $ | 2,913 | $ | 2,958 | |||||||||||||||
| Greater Asia | 694 | 670 | 2,057 | 2,031 | |||||||||||||||||||
| North America | 886 | 853 | 2,628 | 2,668 | |||||||||||||||||||
| Latin America | 381 | 379 | 1,115 | 1,119 | |||||||||||||||||||
| Consolidated | $ | 2,925 | $ | 2,820 | $ | 8,713 | $ | 8,776 |
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (DOLLARS IN MILLIONS) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Net sales related to the U.S. | $ | 834 | $ | 782 | $ | 2,467 | $ | 2,430 | |||||||||||||||
| Net sales attributed to all foreign countries | 2,091 | 2,038 | 6,246 | 6,346 |
No non-U.S. country had net sales greater than 10% of total consolidated net sales for each of the three and nine months ended September 30, 2024 and 2023.
NOTE 7. EMPLOYEE BENEFITS
Pension and other defined contribution retirement plan expenses included the following components:
| (DOLLARS IN MILLIONS) | U.S. Plans | ||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Interest cost on projected benefit obligation(2) | $ | 6 | $ | 6 | $ | 17 | $ | 19 | |||||||||||||||
| Expected return on plan assets(2) | (6) | (7) | (18) | (23) | |||||||||||||||||||
| Net amortization and deferrals(2) | 1 | — | 3 | 1 | |||||||||||||||||||
| Net periodic benefit (income) cost | $ | 1 | $ | (1) | $ | 2 | $ | (3) |
| (DOLLARS IN MILLIONS) | Non-U.S. Plans | ||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Service cost for benefits earned(1) | $ | 6 | $ | 5 | $ | 18 | $ | 15 | |||||||||||||||
| Interest cost on projected benefit obligation(2) | 9 | 9 | 27 | 27 | |||||||||||||||||||
| Expected return on plan assets(2) | (13) | (11) | (38) | (34) | |||||||||||||||||||
| Net amortization and deferrals(2) | 2 | — | 5 | (1) | |||||||||||||||||||
| Net periodic benefit (income) cost | $ | 4 | $ | 3 | $ | 12 | $ | 7 |
(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 $23 million to its non-U.S. pension plans during 2024. During the nine months ended September 30, 2024, $1 million of contributions were made to the qualified U.S. pension plans, $14 million of contributions were made to the non-U.S. pension plans and $3 million of contributions were made with respect to the Company’s non-qualified U.S. pension plan.
(Income) expense recognized for post-retirement benefits other than pensions included the following components:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (DOLLARS IN MILLIONS) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Interest cost on projected benefit obligation | $ | 1 | $ | — | $ | 2 | $ | 2 | |||||||||||||||
| Net amortization and deferrals | (1) | (1) | (2) | (4) | |||||||||||||||||||
| Total postretirement benefit (income) expense | $ | — | $ | (1) | $ | — | $ | (2) |
The Company expects to make $4 million of payments related to its postretirement benefits other than pension plans during 2024. In the nine months ended September 30, 2024, $2 million of benefit payments were made.
NOTE 8. OTHER (EXPENSE) INCOME, NET
Other (expense) income, net consisted of the following:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (DOLLARS IN MILLIONS) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Foreign exchange losses | $ | (31) | $ | — | $ | (72) | $ | (34) | |||||||||||||||
| Interest income | 3 | 1 | 9 | 3 | |||||||||||||||||||
| Gain on China facility relocation | — | — | — | 22 | |||||||||||||||||||
| Pension-related benefit | 1 | 6 | 4 | 16 | |||||||||||||||||||
| Other | (1) | 2 | 15 | 10 | |||||||||||||||||||
| Other (expense) income, net | $ | (28) | $ | 9 | $ | (44) | $ | 17 |
NOTE 9. INCOME TAXES
The effective tax rate for the three months ended September 30, 2024 was 36.8%, which was primarily driven by tax impacts on business divestitures and changes in the mix of earnings, some of which do not give rise to tax benefits due to valuation allowances.
The effective tax rate for the nine months ended September 30, 2024 was 25.4%, which was primarily driven by tax impacts on business divestitures and changes in the mix of earnings, some of which do not give rise to tax benefits due to valuation allowances.
As of September 30, 2024, the Company had approximately $128 million of unrecognized tax benefits recorded in Other liabilities. If these unrecognized tax benefits were recognized, the effective tax rate would be affected.
As of September 30, 2024, the Company had accrued interest and penalties of approximately $54 million classified in Other liabilities.
As of September 30, 2024, the Company’s aggregate provisions for uncertain tax positions, including interest and penalties, was approximately $182 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., there will be required income taxes payable in certain U.S. states and applicable foreign withholding taxes during the period when such repatriation occurs. Accordingly, as of September 30, 2024, the Company had a deferred tax liability of approximately $167 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 the Company intends to indefinitely reinvest the earnings to fund local operations and/or capital projects.
NOTE 10. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the following amounts:
| (DOLLARS IN MILLIONS) | September 30, 2024 | December 31, 2023 | |||||||||
| Asset Type | |||||||||||
| Land | $ | 142 | $ | 195 | |||||||
| Buildings and improvements | 1,747 | 1,822 | |||||||||
| Machinery and equipment | 3,527 | 3,752 | |||||||||
| Information technology | 527 | 473 | |||||||||
| Construction in process | 323 | 400 | |||||||||
| Total Property, plant and equipment | 6,266 | 6,642 | |||||||||
| Accumulated depreciation | (2,494) | (2,402) | |||||||||
| Total Property, plant and equipment, net | $ | 3,772 | $ | 4,240 |
Depreciation expense was $102 million and $122 million for the three months ended September 30, 2024 and 2023, respectively, and $305 million and $342 million for the nine months ended September 30, 2024 and 2023, respectively.
Interest incurred during the construction period of certain property, plant and equipment is capitalized until the underlying assets are placed in service, at which time straight-line amortization of the capitalized interest begins over the estimated useful lives of the related assets. Capitalized interest was approximately $3 million and $4 million for the three months ended September 30, 2024 and 2023, and approximately $10 million and $13 million for the nine months ended September 30, 2024 and 2023.
NOTE 11. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
Movements in goodwill attributable to each reportable segment for the nine months ended September 30, 2024 were as follows:
| (DOLLARS IN MILLIONS) | Nourish | Health & Biosciences | Scent | Pharma Solutions | Total | ||||||||||||||||||||||||||||||
| Balance at January 1, 2024 | $ | 3,489 | $ | 4,391 | $ | 1,490 | $ | 1,265 | $ | 10,635 | |||||||||||||||||||||||||
| Transferred to assets held for sale(1) | (55) | — | — | (1,248) | (1,303) | ||||||||||||||||||||||||||||||
| Reduction from business divestitures(2) | (10) | — | — | — | (10) | ||||||||||||||||||||||||||||||
| Foreign exchange | 20 | 20 | 4 | (17) | 27 | ||||||||||||||||||||||||||||||
| Balance at September 30, 2024 | $ | 3,444 | $ | 4,411 | $ | 1,494 | $ | — | $ | 9,349 |
(1)Recognized $64 million of impairment related to the Pharma Solutions disposal group classified as held for sale as of September 30, 2024. See Note 3 for additional information.
(2)Relates to the divestiture of the Flavors & Essences UK business. See Note 3 for additional information.
The goodwill balances at January 1, 2024 and September 30, 2024 included $2.623 billion and $2.250 billion of accumulated impairment related to the Nourish and Health & Biosciences reportable segments. The accumulated impairment relates to impairment charges recorded in 2023 and 2022.
Other Intangible Assets
Other intangible assets, net consisted of the following amounts:
| September 30, | December 31, | ||||||||||
| (DOLLARS IN MILLIONS) | 2024 | 2023 | |||||||||
| Asset Type | |||||||||||
| Customer relationships | $ | 7,209 | $ | 8,211 | |||||||
| Technological know-how | 1,992 | 2,355 | |||||||||
| Trade names & patents | 277 | 337 | |||||||||
| Other | 25 | 44 | |||||||||
| Total carrying value | 9,503 | 10,947 | |||||||||
| Accumulated Amortization | |||||||||||
| Customer relationships | (1,733) | (1,619) | |||||||||
| Technological know-how | (853) | (813) | |||||||||
| Trade names & patents | (126) | (117) | |||||||||
| Other | (21) | (41) | |||||||||
| Total accumulated amortization | (2,733) | (2,590) | |||||||||
| Other intangible assets, net | $ | 6,770 | $ | 8,357 |
Amortization
Amortization expense was $146 million and $170 million for the three months ended September 30, 2024 and 2023, respectively, and $467 million and $513 million for the nine months ended September 30, 2024 and 2023, respectively.
Amortization expense for the next five years, based on valuations and determinations of useful lives, is expected to be as follows:
| (DOLLARS IN MILLIONS) | Remainder of 2024 | 2025 | 2026 | 2027 | 2028 | ||||||||||||||||||||||||
| Estimated future intangible amortization expense | $ | 146 | $ | 583 | $ | 580 | $ | 493 | $ | 480 |
NOTE 12. OTHER CURRENT ASSETS AND LIABILITIES, AND OTHER ASSETS
Prepaid expenses and other current assets consisted of the following amounts:
| (DOLLARS IN MILLIONS) | September 30, 2024 | December 31, 2023 | |||||||||
| Value-added tax receivable | $ | 163 | $ | 187 | |||||||
| Prepaid income taxes | 126 | 178 | |||||||||
| Packaging materials and supplies | 135 | 161 | |||||||||
| Prepaid expenses | 229 | 184 | |||||||||
| Other | 117 | 165 | |||||||||
| Total | $ | 770 | $ | 875 |
Other assets consisted of the following amounts:
| (DOLLARS IN MILLIONS) | September 30, 2024 | December 31, 2023 | |||||||||
| Deferred income taxes | $ | 401 | $ | 278 | |||||||
| Overfunded pension plans | 129 | 139 | |||||||||
| Cash surrender value of life insurance contracts | 52 | 49 | |||||||||
| Finance lease right-of-use assets | 28 | 26 | |||||||||
| Equity method investments | 10 | 11 | |||||||||
| Other(1) | 348 | 261 | |||||||||
| Total | $ | 968 | $ | 764 |
(1)Includes long-term receivables, deposits, land usage rights in China, and derivative assets.
Other current liabilities consisted of the following amounts:
| (DOLLARS IN MILLIONS) | September 30, 2024 | December 31, 2023 | |||||||||
| Rebates and incentives payable | $ | 123 | $ | 105 | |||||||
| Value-added tax payable | 56 | 77 | |||||||||
| Interest payable | 70 | 65 | |||||||||
| Current pension and other postretirement benefit obligation | 13 | 13 | |||||||||
| Earn outs payable(1) | — | 32 | |||||||||
| Accrued restructuring | 2 | 14 | |||||||||
| Current operating lease obligation | 88 | 85 | |||||||||
| Accrued income taxes | 67 | 194 | |||||||||
| Accrued expenses payable(1) | 251 | 295 | |||||||||
| Other | 81 | 97 | |||||||||
| Total | $ | 751 | $ | 977 |
(1)During the nine months ended September 30, 2024, the Company paid $36 million to the Seller as part of the acquisition of Health Wright Products, Inc., out of which $30 million related to “Earn outs payable”, and $6 million related to escrow funds which were recorded within “Accrued expenses payable”.
NOTE 13. DEBT
Debt consisted of the following:
| (DOLLARS IN MILLIONS) | Effective Interest Rate | September 30, 2024 | December 31, 2023 | ||||||||||||||
| 2024 Euro Notes(1) | 1.88 | % | $ | — | $ | 552 | |||||||||||
| 2025 Notes(1) | 1.22 | % | 1,000 | 1,000 | |||||||||||||
| 2026 Euro Notes(1) | 1.93 | % | 892 | 879 | |||||||||||||
| 2027 Notes(1) | 1.56 | % | 1,210 | 1,212 | |||||||||||||
| 2028 Notes(1) | 4.57 | % | 398 | 398 | |||||||||||||
| 2030 Notes(1) | 2.21 | % | 1,508 | 1,508 | |||||||||||||
| 2040 Notes(1) | 3.04 | % | 772 | 773 | |||||||||||||
| 2047 Notes(1) | 4.44 | % | 494 | 495 | |||||||||||||
| 2048 Notes(1) | 5.12 | % | 787 | 787 | |||||||||||||
| 2050 Notes(1) | 3.21 | % | 1,568 | 1,569 | |||||||||||||
| 2024 Term Loan Facility(1) | 3.75 | % | — | 270 | |||||||||||||
| 2026 Term Loan Facility(1) | 5.21 | % | 468 | 625 | |||||||||||||
| Revolving Credit Facility(2) | — | — | |||||||||||||||
| Commercial paper(3) | — | — | |||||||||||||||
| Bank overdrafts and other | 2 | 3 | |||||||||||||||
| Total debt | 9,099 | 10,071 | |||||||||||||||
| Less: Short-term borrowings(4) | (468) | (885) | |||||||||||||||
| Total Long-term debt | $ | 8,631 | $ | 9,186 |
(1)Amount is net of unamortized discount and debt issuance costs.
(2)The interest rate on the 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 1.125% to 1.750% or (y) a base rate plus an applicable margin varying from 0.125% to 0.750%, in each case depending on the public debt ratings for non-credit enhanced long-term senior unsecured debt issued by the Company.
(3)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.
(4)Includes current portion of long-term debt, commercial paper, and overdrafts.
Commercial Paper
For the nine months ended September 30, 2024, the Company had gross issuances of $3.653 billion and repayments of $3.653 billion under the commercial paper program. The commercial paper issued had original maturities of less than 42 days. For the nine months ended September 30, 2023, the Company had gross issuances of $4.283 billion and repayments of $4.470 billion under the commercial paper program. The commercial paper issued had original maturities of less than 86 days.
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.
Revolving Credit Facility
For the nine months ended September 30, 2024, the Company had drawdowns of $250 million under the Revolving Credit Facility and repayments of $250 million under the Revolving Credit Facility. For the nine months ended September 30, 2023, the Company had drawdowns of $800 million and repayments of $900 million under the Revolving Credit Facility.
Term Loan Facility
Pursuant to the terms agreed under the 2026 Term Loan Facility, a portion of the net cash proceeds received from the sale of the Pharma Solutions disposal group, when and if completed, must be used to repay our borrowings under the 2026 Term Loan Facility. Therefore, the Company reclassified the 2026 Term Loan Facility balance from “Long-term debt” to “Short-term debt and current portion of long-term debt” (see Note 3).
Repayments of Debt
For the nine months ended September 30, 2024, the Company made a $270 million and €500 million (approximately $547 million) debt repayment at maturity related to the 2024 Term Loan Facility and 2024 Euro Notes, respectively, which were primarily funded from commercial paper issuances, which were subsequently repaid using proceeds received from the divestiture of the Cosmetic Ingredients business. The Company also made quarterly debt repayments totaling approximately $47 million related to the 2026 Term Loan Facility in accordance with the terms of the debt agreement, and a voluntary repayment of $110 million related to the 2026 Term Loan Facility.
For the nine months ended September 30, 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. The issuance under the Revolving Credit Facility was repaid in June 2023. The Company also made a voluntary $55 million debt repayment related to the 2024 Term Loan Facility.
NOTE 14. 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 15 years.
The components of lease expense were as follows:
| Three Months Ended | Three Months Ended | Nine Months Ended | Nine Months Ended | ||||||||||||||||||||
| (DOLLARS IN MILLIONS) | September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||||||||
| Operating leases | |||||||||||||||||||||||
| Operating lease cost | $ | 31 | $ | 32 | $ | 95 | $ | 105 | |||||||||||||||
| Variable lease cost | 14 | 10 | 42 | 42 | |||||||||||||||||||
| Total operating lease cost | $ | 45 | $ | 42 | $ | 137 | $ | 147 | |||||||||||||||
| Finance leases | |||||||||||||||||||||||
| Finance lease cost | $ | 3 | $ | 3 | $ | 9 | $ | 7 |
Supplemental cash flow information related to leases was as follows:
| Nine Months Ended | Nine Months Ended | ||||||||||
| (DOLLARS IN MILLIONS) | September 30, 2024 | September 30, 2023 | |||||||||
| Cash paid for amounts included in the measurement of lease liabilities | |||||||||||
| Operating cash flows for operating leases | $ | 90 | $ | 94 | |||||||
| Operating cash flows for finance leases | 1 | 1 | |||||||||
| Financing cash flows for finance leases | 7 | 6 | |||||||||
| Right-of-use assets obtained in exchange for lease obligations | |||||||||||
| Operating leases | 44 | 73 | |||||||||
| Finance leases | 12 | 17 |
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 15. 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 also considers counterparty credit risk in its assessment of 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 Secured Overnight Financing Rate (“Term SOFR”) 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 2023 Form 10-K.
The carrying values and the estimated fair values of financial instruments at September 30, 2024 and December 31, 2023 consisted of the following:
| September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| (DOLLARS IN MILLIONS) | Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||
| LEVEL 1 | |||||||||||||||||||||||
| Cash and cash equivalents(1) | $ | 567 | $ | 567 | $ | 703 | $ | 703 | |||||||||||||||
| LEVEL 2 | |||||||||||||||||||||||
| Credit facilities and bank overdrafts(2) | 2 | 2 | 3 | 3 | |||||||||||||||||||
| Derivatives | |||||||||||||||||||||||
| Derivative assets(3) | 57 | 57 | 41 | 41 | |||||||||||||||||||
| Derivative liabilities(3) | 167 | 167 | 165 | 165 | |||||||||||||||||||
| Commercial paper(2) | — | — | — | — | |||||||||||||||||||
| Long-term debt: | |||||||||||||||||||||||
| 2024 Euro Notes(4) | — | — | 552 | 549 | |||||||||||||||||||
| 2025 Notes(4) | 1,000 | 966 | 1,000 | 924 | |||||||||||||||||||
| 2026 Euro Notes(4) | 892 | 873 | 879 | 835 | |||||||||||||||||||
| 2027 Notes(4) | 1,210 | 1,112 | 1,212 | 1,049 | |||||||||||||||||||
| 2028 Notes(4) | 398 | 402 | 398 | 389 | |||||||||||||||||||
| 2030 Notes(4) | 1,508 | 1,316 | 1,508 | 1,240 | |||||||||||||||||||
| 2040 Notes(4) | 772 | 575 | 773 | 536 | |||||||||||||||||||
| 2047 Notes(4) | 494 | 421 | 495 | 382 | |||||||||||||||||||
| 2048 Notes(4) | 787 | 736 | 787 | 678 | |||||||||||||||||||
| 2050 Notes(4) | 1,568 | 1,066 | 1,569 | 1,029 | |||||||||||||||||||
| 2024 Term Loan Facility(5) | — | — | 270 | 270 | |||||||||||||||||||
| 2026 Term Loan Facility(5) | 468 | 468 | 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 managing our exchange rate risk related to foreign currency denominated monetary assets and liabilities of our operations. These contracts generally involve the exchange of one currency for a second currency at a future date, have maturities not exceeding twelve months and are with counterparties which are major international financial institutions.
Commodity Contracts
The Company utilizes options, futures and swaps that are not designated as hedging instruments to reduce exposure to commodity price fluctuations on purchases of inventory such as soybeans, soybean oil and soybean meal.
The Company also utilizes options, futures and swaps that are designated as hedging instruments to reduce exposure to commodity price fluctuations on purchases of natural gas used in our manufacturing process.
Hedges Related to Issuances of Debt
As of September 30, 2024, the Company designated approximately $892 million 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 Other comprehensive income (“OCI”) as a component of foreign currency translation adjustments in the accompanying Consolidated Statements of Income and Comprehensive Income (Loss).
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 September 30, 2024, the twelve swaps were in a liability position with an aggregate fair value of $164 million, which were classified as 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 September 30, 2024 and December 31, 2023:
| (DOLLARS IN MILLIONS) | September 30, 2024 | December 31, 2023 | |||||||||
| Foreign currency contracts(1) | $ | (3,478) | $ | (1,400) | |||||||
| Commodity contracts(1) | 10 | 7 | |||||||||
| 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 September 30, 2024 and December 31, 2023:
| September 30, 2024 | |||||||||||||||||
| (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 | $ | — | $ | 57 | $ | 57 | |||||||||||
| Total derivative assets | $ | — | $ | 57 | $ | 57 | |||||||||||
| Derivative liabilities(2) | |||||||||||||||||
| Foreign currency contracts | $ | — | $ | 3 | $ | 3 | |||||||||||
| Cross currency swaps | 164 | — | 164 | ||||||||||||||
| Total derivative liabilities | $ | 164 | $ | 3 | $ | 167 |
| December 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) | |||||||||||||||||
| Foreign currency contracts | $ | — | $ | 41 | $ | 41 | |||||||||||
| Total derivative assets | $ | — | $ | 41 | $ | 41 | |||||||||||
| Derivative liabilities(2) | |||||||||||||||||
| Foreign currency contracts | $ | — | $ | 4 | $ | 4 | |||||||||||
| Cross currency swaps | 161 | — | 161 | ||||||||||||||
| Total derivative liabilities | $ | 161 | $ | 4 | $ | 165 |
(1)Derivative assets are recorded to Prepaid expenses and other current assets on the Consolidated Balance Sheets.
(2)Derivative liabilities are recorded to Other current liabilities and 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 on the Consolidated Statements of Income and Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023:
| Amount of Gain (Loss) Recognized in Income on Derivative Settlements | Amount of Gain (Loss) Recognized in Income on Changes in Fair Value | Location of Gain (Loss) Recognized in Income on Derivative | ||||||||||||||||||||||||
| (DOLLARS IN MILLIONS) | Three Months Ended September 30, | Three Months Ended September 30, | ||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Foreign currency contracts(1) | $ | 62 | $ | (26) | $ | 80 | $ | (40) | Other expense (income), net | |||||||||||||||||
| Total | $ | 62 | $ | (26) | $ | 80 | $ | (40) | ||||||||||||||||||
| Amount of Gain (Loss) Recognized in Income on Derivative Settlements | Amount of Gain (Loss) Recognized in Income on Changes in Fair Value | Location of Gain (Loss) Recognized in Income on Derivative | ||||||||||||||||||||||||
| (DOLLARS IN MILLIONS) | Nine Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||
| Foreign currency contracts(1) | $ | 21 | $ | (23) | $ | 16 | $ | (29) | Other expense (income), net | |||||||||||||||||
| Commodity contracts | (1) | — | — | — | Cost of sales | |||||||||||||||||||||
| Total | $ | 20 | $ | (23) | $ | 16 | $ | (29) |
(1)The foreign currency contract net gains (losses) offset any recognized gains (losses) arising from the revaluation of the related intercompany loans during the same respective periods.
The following table shows the effect of the Company’s derivative and non-derivative instruments designated as cash flow and net investment hedging instruments, net of tax, on the Consolidated Statements of Income and Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023:
| Amount of Gain (Loss) Recognized in OCI on Derivative and Non-Derivative (Effective Portion) | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (“AOCI”) into Income (Effective Portion) | Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | |||||||||||||||||||||||||||
| Three Months Ended September 30, | Three Months Ended September 30, | ||||||||||||||||||||||||||||
| (DOLLARS IN MILLIONS) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||
| Derivatives in Cash Flow Hedging Relationships: | |||||||||||||||||||||||||||||
| Commodity contracts | $ | 1 | $ | — | Cost of sales | $ | 1 | $ | — | ||||||||||||||||||||
| Derivatives in Net Investment Hedging Relationships: | |||||||||||||||||||||||||||||
| Cross currency swaps | (38) | 22 | N/A | — | — | ||||||||||||||||||||||||
| Non-Derivatives in Net Investment Hedging Relationships: | |||||||||||||||||||||||||||||
| 2024 Euro Notes | — | 15 | N/A | — | — | ||||||||||||||||||||||||
| 2026 Euro Notes | (28) | 25 | N/A | — | — | ||||||||||||||||||||||||
| Total | $ | (65) | $ | 62 | $ | 1 | $ | — | |||||||||||||||||||||
| 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) | |||||||||||||||||||||||||||
| Nine Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||
| Derivatives in Cash Flow Hedging Relationships: | |||||||||||||||||||||||||||||
| Foreign currency contracts | $ | (7) | $ | — | N/A | $ | — | $ | — | ||||||||||||||||||||
| Commodity contracts | 2 | — | Cost of sales | 1 | — | ||||||||||||||||||||||||
| Derivatives in Net Investment Hedging Relationships: | |||||||||||||||||||||||||||||
| Cross currency swaps | (2) | (11) | N/A | — | — | ||||||||||||||||||||||||
| Non-Derivatives in Net Investment Hedging Relationships: | |||||||||||||||||||||||||||||
| 2024 Euro Notes | 3 | 4 | N/A | — | — | ||||||||||||||||||||||||
| 2026 Euro Notes | (8) | 7 | N/A | — | — | ||||||||||||||||||||||||
| Total | $ | (12) | $ | — | $ | 1 | $ | — |
The ineffective portion of the above noted net investment hedges was approximately $3 million and $11 million for each of the three and nine months ended September 30, 2024 and 2023 respectively, and was recorded as a reduction to Interest expense on the Consolidated Statements of Income and Comprehensive Income (Loss).
At September 30, 2024, based on current market rates, the Company does not expect any material derivative losses (net of tax), included in AOCI, to be reclassified into earnings within the next 12 months.
NOTE 16. 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, for the three and nine months ended September 30, 2024 and 2023:
| (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 July 1, 2024 | $ | (2,073) | $ | (5) | $ | (237) | $ | (2,315) | |||||||||||||||
| OCI before reclassifications | 555 | 2 | (3) | 554 | |||||||||||||||||||
| Amounts reclassified from AOCI | — | (1) | 2 | 1 | |||||||||||||||||||
| Net current period other comprehensive income (loss) | 555 | 1 | (1) | 555 | |||||||||||||||||||
| Accumulated other comprehensive (loss), net of tax, as of September 30, 2024 | $ | (1,518) | $ | (4) | $ | (238) | $ | (1,760) |
| (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 January 1, 2024 | $ | (1,652) | $ | 1 | $ | (245) | $ | (1,896) | |||||||||||||||
| OCI before reclassifications | 130 | (4) | 1 | 127 | |||||||||||||||||||
| Reclassifications due to business divestitures | 4 | — | — | 4 | |||||||||||||||||||
| Amounts reclassified from AOCI | — | (1) | 6 | 5 | |||||||||||||||||||
| Net current period other comprehensive income (loss) | 134 | (5) | 7 | 136 | |||||||||||||||||||
| Accumulated other comprehensive (loss), net of tax, as of September 30, 2024 | $ | (1,518) | $ | (4) | $ | (238) | $ | (1,760) |
| (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 July 1, 2023 | $ | (1,722) | $ | 1 | $ | (136) | $ | (1,857) | |||||||||||||||
| OCI before reclassifications | (477) | — | (2) | (479) | |||||||||||||||||||
| Reclassifications due to business divestitures | 1 | — | — | 1 | |||||||||||||||||||
| Amounts reclassified from AOCI | — | — | (1) | (1) | |||||||||||||||||||
| Net current period other comprehensive income (loss) | (476) | — | (3) | (479) | |||||||||||||||||||
| Accumulated other comprehensive (loss), net of tax, as of September 30, 2023 | $ | (2,198) | $ | 1 | $ | (139) | $ | (2,336) | |||||||||||||||
| (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 January 1, 2023 | $ | (2,066) | $ | 1 | $ | (133) | $ | (2,198) | |||||||||||||||
| OCI before reclassifications | (175) | — | (2) | (177) | |||||||||||||||||||
| Reclassifications due to business divestitures | 43 | — | (1) | 42 | |||||||||||||||||||
| Amounts reclassified from AOCI | — | — | (3) | (3) | |||||||||||||||||||
| Net current period other comprehensive income (loss) | (132) | — | (6) | (138) | |||||||||||||||||||
| Accumulated other comprehensive (loss) income, net of tax, as of September 30, 2023 | $ | (2,198) | $ | 1 | $ | (139) | $ | (2,336) |
The following table provides details about pension and postretirement liability reclassifications out of Accumulated other comprehensive loss to the Consolidated Statements of Income and Comprehensive Income (Loss):
| Three Months Ended September 30, | Affected Line Item in the Consolidated Statements of Income and Comprehensive (Loss) Income | ||||||||||||||||
| (DOLLARS IN MILLIONS) | 2024 | 2023 | |||||||||||||||
| Gains (losses) on pension and postretirement liability adjustments | |||||||||||||||||
| Prior service cost | $ | 1 | $ | 2 | (1) | ||||||||||||
| Actuarial losses | (3) | — | (1) | ||||||||||||||
| Tax | — | (1) | Provision for income taxes | ||||||||||||||
| Total | $ | (2) | $ | 1 | Total, net of income taxes |
| Nine Months Ended September 30, | Affected Line Item in the Consolidated Statements of Income and Comprehensive Income (Loss) | ||||||||||||||||
| (DOLLARS IN MILLIONS) | 2024 | 2023 | |||||||||||||||
| Gains (losses) on pension and postretirement liability adjustments | |||||||||||||||||
| Prior service cost | $ | 2 | $ | 4 | (1) | ||||||||||||
| Actuarial losses | (8) | — | (1) | ||||||||||||||
| Tax | — | (1) | Provision for income taxes | ||||||||||||||
| Total | $ | (6) | $ | 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 2023 Form 10-K for additional information regarding net periodic benefit cost.
NOTE 17. 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 September 30, 2024, the Company had a total of approximately $219 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 approximately $10 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 $64 million outstanding under the bank guarantees, standby letters of credit and commercial guarantees as of September 30, 2024.
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 $7 million as of September 30, 2024.
Lines of Credit
The Company has various lines of credit which are available to support its ongoing business operations. As of September 30, 2024, the Company had a total capacity of approximately $1.883 billion of lines of credit with various financial institutions, in addition to the $1.347 billion of capacity under the Revolving Credit Facility. Pursuant to these lines of credit as of September 30, 2024, there were no draw downs related to the issuances of commercial paper. See Note 13 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
A motion to approve a securities class action was filed in the Tel Aviv District Court, Israel, in August 2019, alleging, among other things, false and misleading statements largely in connection with IFF’s acquisition of Frutarom and improper payments made by Frutarom businesses operating principally in Russia and Ukraine to representatives of customers. The 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 July 14, 2022, the court approved the parties’ motion to mediate the dispute, which postponed all case deadlines until after the mediation. The parties held mediation meetings on September 13, 2022, November 22, 2022, March 1, 2023, November 2023, March 3, 2024 and April 1, 2024. In May 2024, the court granted the parties' joint motion proposing certain case deadlines, setting an evidentiary hearing on the motion to approve class action in February 2025.
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 court held an evidentiary hearing on the motion to approve a class action in March 2024.
Since March 2023, various putative class action lawsuits have been 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, Ontario Superior Court, the Supreme Court of British Columbia and, in several cases, the United States District Court for the District of New Jersey. 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. In December 2023, the Federal Court of Canada proceeding was discontinued in its entirety. 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. On February 26, 2024, the Israeli authorities informed Frutarom that the authorities decided to close the criminal investigation.
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 are investigating potential anticompetitive conduct as it relates to IFF’s fragrance businesses. The Mexican Competition Commission has also announced that it is investigating potential anticompetitive conduct in the fragrance and fragrance ingredients industries. IFF has been and intends to continue cooperating with these investigations. During the first three months of 2024, IFF recognized a provision of €15.9 million (approximately $17.5 million) in connection with a settlement with the EC, which was paid during the third quarter of 2024. This settlement pertains to a charge related to the deletion of messages relevant to the investigation by a former Scent employee. This settlement does not conclude the ongoing antitrust investigation. IFF is currently unable, however, to predict or determine the 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.
Additionally, the Company from time to time receives complaints from customers regarding product quality, performance or other aspects of its ongoing relationships. The Company is unable to determine whether the potential settlement of customer claims, if any, will materially impact the Company's results of operations, liquidity, or financial condition.
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. Effective March 22, 2024, the Solae, LLC Memphis site (“Solae”) signed an Administrative Order on Consent (the “Consent Order”) resolving violations and penalties pertaining to the Administrative Order and Assessment received from the City of Memphis on May 27, 2022 related to alleged wastewater discharge violations. In view of the Consent Order, Solae withdrew its previously filed appeal. Pursuant to the Consent Order, Solae is completing its capital project efforts in accordance with the agreed schedule 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 approximately $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.
Other
During the third quarter of 2024, the Company entered into a confidential agreement with one of its customers, which included a payment that is not material to the financial statements. Under this agreement, the Company will gain access to incremental revenue opportunities and a release from certain claims. This payment has been capitalized as an asset and will be amortized over the period in which the associated revenue is recognized.
The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and have not been fully resolved. Due to the inherent subjectivity and unpredictability of outcomes of legal proceedings, the Company is unable to determine, with certainty, the probability of the outcome of these matters or the range of reasonably possible losses, if any.
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