INTERNATIONAL FLAVORS & FRAGRANCES INC (IFF) FY 2022 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

(UNLESS INDICATED OTHERWISE, DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)

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Overview

Company Background

On February 1, 2021, one of our wholly owned subsidiaries merged with and into the N&B Business (the “Merger”), pursuant to a Merger Agreement with DuPont. The shares issued in the Merger represented approximately 55.4% of the common stock of IFF on a fully diluted basis, after giving effect to the Merger, as of February 1, 2021. The N&B Business is an innovation-driven and customer-focused business that provides solutions for the global food and beverage, dietary supplements, home and personal care, energy, animal nutrition and pharma markets. The transaction was made in order to strengthen IFF's customer base and market presence, with an enhanced position in the food & beverage, home & personal care and health & wellness markets. See Note 3 to the Consolidated Financial Statements for additional information related to the N&B Transaction.

As a result of the N&B Transaction, and following our 2018 acquisition of Frutarom Industries Ltd., we have expanded our global leadership positions, which now include high-value ingredients and solutions in the Food & Beverage, Home & Personal Care and Health & Wellness markets, and across key Taste, Texture, Scent, Nutrition, Enzymes, Cultures, Soy Proteins, Pharmaceutical Excipients and Probiotics categories.

We are organized into four segments: Nourish, Health & Biosciences, Scent and Pharma Solutions. The Company’s consolidated financial information for the year ended December 31, 2022 reflects the results of N&B for the full twelve months of 2022, whereas the Company’s consolidated financial information for the year ended December 31, 2021 reflects the results of N&B for eleven months of 2021, and 2020 does not include any amounts related to N&B.

Our Nourish segment consists of an innovative and broad portfolio of natural-based ingredients to enhance nutritional value, texture and functionality in a wide range of beverage, dairy, bakery, confectionery and culinary applications and consists of three business units: Ingredients, Flavors and Food Designs.

Our Health & Biosciences segment consists of the development and production of an advanced biotechnology-derived portfolio of enzymes, food cultures, probiotics and specialty ingredients for food and non-food applications. Among many other applications, this biotechnology-driven portfolio includes cultures for use in fermented foods such as yogurt, cheese and fermented beverages, probiotic strains, many with documented clinical health claims for use as dietary supplements and through industrial fermentation the production of enzymes and microorganisms that provide product and process performance benefits to household detergents, animal feed, ethanol production and brewing. Health & Biosciences is comprised of five business units: Health, Cultures & Food Enzymes, Home & Personal Care, Animal Nutrition and Grain Processing. On July 1, 2022, we completed the divestiture of our Microbial Control business unit (formerly a part of the Health & Biosciences segment).

Our Scent segment creates fragrance compounds, fragrance ingredients and cosmetic ingredients that are integral elements in the world’s finest perfumes and best-known household and personal care products. Consumer insights science and creativity are at the heart of our Scent business, and, along with our unique portfolio of natural and synthetic ingredients, global footprint, innovative technologies and know-how, and customer intimacy, we believe make us a market leader in scent products. The Scent segment is comprised of three business units: Fragrance Compounds, Fragrance Ingredients and Cosmetic Actives.

Our Pharma Solutions segment produces, among other things, a vast portfolio of cellulosics and seaweed-based pharmaceutical excipients, used to improve the functionality and delivery of active pharmaceutical ingredients, including controlled or modified drug release formulations, and enabling the development of more effective pharmaceutical finished dosage formulations. Our excipients are used in prescription and over-the-counter pharmaceuticals and dietary supplements. Our Pharma Solutions products also serve a variety of other specialty and industrial end-uses including coatings, inks, electronics, agriculture, and consumer products.

Financial Measures — Currency Neutral

Our financial results include the impact of foreign currency exchange rates. We provide currency neutral calculations in this report to remove the impact of these items. We calculate currency neutral numbers by translating current year invoiced sale amounts at the exchange rates used for the corresponding prior year period. We use currency neutral results in our analysis of subsidiary and/or segment performance. We also use currency neutral numbers when analyzing our performance against our competitors.

Due to the Merger with N&B, for the fiscal year 2022 we will not be presenting currency neutral impacts for the Nourish, Health & Biosciences and Pharma Solutions operating segments as the performance in these operating segments includes effects of N&B for the full twelve months of 2022 while the 2021 period does not, and thus the periods’ results are not equally comparable. We present the currency neutral impacts for the Scent operating segment as this operating segment does not have any effects of N&B.

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Impairment of Goodwill

For the third quarter of 2022, we determined that goodwill impairment triggering events occurred for our Nourish, Health & Biosciences and Pharma Solutions reporting units, which required us to complete an interim impairment assessment.

In performing the quantitative impairment test, we determined that the fair value of the Nourish and Pharma Solutions reporting units exceeded their carrying values, and determined that there was no impairment of goodwill relating to these reporting units. We determined that the carrying value of the Health & Biosciences reporting unit exceeded its fair value and recorded a goodwill impairment charge of $2.250 billion in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the year ended December 31, 2022. See “Critical Accounting Policies and Use of Estimates” and Note 6 to the Consolidated Financial Statements for additional information.

Impact of the Events in Russia and Ukraine

We maintain operations in both Russia and Ukraine and, additionally, export products to customers in Russia and Ukraine from operations outside the region. In response to the events in Ukraine, we have limited the production and supply of ingredients in and to Russia to only those that meet the essential needs of people, including food, hygiene and medicine.

In 2021, total sales to Russian customers were approximately 2% of total sales. For the year ended December 31, 2022, sales to Russian customers were also approximately 2% of total sales.

In 2021, total sales to Ukrainian customers were less than 1% of total sales. For the year ended December 31, 2022, sales to Ukrainian customers were also less than 1% of total sales.

See Note 1, Note 5 and Note 6 to the Consolidated Financial Statements for additional information.

Impact of COVID-19 Pandemic

On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Various policies and initiatives have been implemented around the world to reduce the global transmission of COVID-19. Although there continue to be minor operational disruptions, all of IFF’s manufacturing facilities remain open and continue to manufacture products.

The COVID-19 pandemic remains a serious threat to the health of the world’s population and certain countries and regions continue to suffer from outbreaks or have seen a recurrence of infections, especially with the emergence of new variants of the virus. Accordingly, the Company continues to take the threat from COVID-19 seriously. The impact that COVID-19 will have on our consolidated results of operations for the remainder of 2023 remains uncertain. Due to the length and severity of the COVID-19 pandemic, there is continued volatility as a result of retail and travel, consumer shopping and consumption behavior. Moreover, as a result of disruptions or uncertainty relating to the COVID-19 pandemic, we are experiencing, and may continue to experience, increased costs, delays or limited availability related to raw materials, strain on shipping and transportation resources, and higher energy prices, which have negatively impacted, and may continue to negatively impact, our margins and operating results. We will continue to evaluate the nature and extent of these potential impacts to our business, consolidated results of operations, segment results, liquidity and capital resources.

Although IFF has not experienced and does not currently anticipate any impairment charges related to COVID-19, the continuing effects of a prolonged pandemic could result in increased risk of asset write-downs and impairments. Any of these events could potentially result in a material adverse impact on IFF’s business and results of operations.

For more detailed information about risks related to COVID-19, refer to Item 1A, “Risk Factors” - Global health crises, such as the COVID-19 pandemic, have had an impact on our supply chain and could have a material impact on global operations, our customers and our suppliers, which could adversely impact our business and results of operations.

2023 Restructuring Program

In December 2022, we announced a restructuring program mainly related to headcount reduction to improve our organizational and operating structure, drive efficiencies and achieve cost savings (the “Program”). Once the Program is finalized we expect to incur one-time costs of approximately $70 million and expect to achieve run-rate savings of approximately $100 million, with approximately $75 million targeted to be realized in 2023. We expect to complete the program by the end of 2023. The final amount and timing of this charge will be determined once the plan is finalized.

2022 Financial Performance Overview

For a reconciliation between reported and adjusted figures, please refer to the “Non-GAAP Financial Measures” section.

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Sales

Sales in 2022 increased $784 million, or 7% on a reported basis, to $12.440 billion compared to $11.656 billion in the 2021 period. Sales included approximately $568 million of incremental sales attributable to N&B for the month of January in the 2022 period. In addition, the increase in sales was primarily driven by price increases across various businesses, offset in part by the net impact of the divestiture of the Microbial Control business unit and acquisition of Health Wright Products, Inc. (“change in business portfolio mix”) and volume decreases across various businesses.

Our 25 largest customers accounted for approximately 28% of total sales in 2022. In 2022, no customer accounted for more than 10% of sales. A key factor for commercial success is our inclusion on strategic customers’ core supplier lists, which provides opportunities to expand and win new business. We are on the core supplier lists of a large majority of our global and strategic customers.

Gross Profit

Gross profit in 2022 increased $416 million, or 11% on a reported basis, to $4.151 billion (33.4% of sales) compared to $3.735 billion (32.0% of sales) in the 2021 period. Approximately $179 million of gross profit was attributable to N&B for the month of January in the 2022 period. The increase in gross profit was primarily driven by favorable net pricing across various businesses and the impact of N&B inventory step-up costs from the prior year period, offset in part by the change in business portfolio mix and volume decreases.

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Results of Operations

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NMF: Not meaningful

Cost of goods sold includes the cost of materials and manufacturing expenses. R&D includes expenses related to the development of new and improved products and technical product support. S&A expenses include expenses necessary to support our commercial activities and administrative expenses supporting our overall operating activities including compliance with governmental regulations.

2022 IN COMPARISON TO 2021

Sales

Sales for 2022 increased $784 million, or 7% on a reported basis, to $12.440 billion compared to $11.656 billion in the 2021 period. Sales included approximately $568 million of incremental sales attributable to N&B for the month of January in the 2022 period. In addition, the increase in sales was primarily driven by price increases across various businesses, offset in part by the change in business portfolio mix and volume decreases across various businesses.

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Sales performance by segment was as follows:

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

NMF: Not meaningful

Nourish

Nourish sales in 2022 increased $565 million, or 9% on a reported basis, to $6.829 billion compared to $6.264 billion in the 2021 period. Nourish sales included approximately $293 million of incremental sales attributable to N&B for the month of January in the 2022 period. In addition, performance in the Nourish operating segment was primarily driven by price increases, particularly in the Ingredients and Food Design business units, offset in part by volume decreases across various business units.

Health & Biosciences

Health & Biosciences sales in 2022 increased $10 million, or 0.4% on a reported basis, to $2.339 billion compared to $2.329 billion in the 2021 period. Health & Biosciences sales included approximately $202 million of incremental sales attributable to N&B for the month of January in the 2022 period. The decrease in Health & Biosciences sales, excluding the impact of N&B for the month of January in the 2022 period, was primarily driven by the change in business portfolio mix, offset in part by price increases across various business units.

Scent

Scent sales in 2022 increased $47 million, or 2% on a reported basis, to $2.301 billion compared to $2.254 billion in the 2021 period. Scent sales in 2022 also increased 8% on a currency neutral basis. Performance in the Scent operating segment was driven by price and volume increases in Fragrance Compounds and price increases in Fragrance Ingredients business units, offset in part by unfavorable impacts from exchange rate variations.

Pharma Solutions

Pharma Solutions sales in 2022 increased $162 million, or 20% on a reported basis, to $971 million compared to $809 million. Pharma Solutions sales included approximately $73 million of incremental sales attributable to N&B for the month of January in the 2022 period. In addition, performance in the Pharma Solutions operating segment was primarily driven by price and volume increases.

Cost of Goods Sold

Cost of goods sold increased $368 million to $8.289 billion (66.6% of sales) in 2022 compared to $7.921 billion (68.0% of sales) in 2021. Cost of goods sold included approximately $389 million of incremental costs attributable to N&B for the month of January in the 2022 period. In addition, excluding the impact of N&B for the month of January in the 2022 period and the N&B inventory step-up costs from the prior year period, the increase in cost of goods sold was primarily driven by higher material costs, due to higher commodity prices, offset in part by the change in business portfolio mix and volume decreases in sales.

Research and Development (R&D) Expenses

R&D expenses decreased $26 million to $603 million (4.8% of sales) in 2022 compared to $629 million (5.4% of sales) in 2021. R&D expenses included approximately $20 million of incremental expenses attributable to N&B for the month of January in the 2022 period, which consisted primarily of employee related expenses, including salaries, wages and bonuses and operating expenses for R&D related activities. In addition, excluding the impact of N&B for the month of January in the 2022 period, R&D expenses decreased primarily due to lower employee related expenses, including salaries, wages and bonuses, and professional fees, including consulting costs, offset in part by higher operating expenses for R&D related activities.

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Selling and Administrative (S&A) Expenses

S&A expenses increased $19 million to $1.768 billion (14.2% of sales) in 2022 compared to $1.749 billion (15.0% of sales) in 2021. S&A expenses included approximately $51 million of incremental expenses attributable to N&B for the month of January in the 2022 period, which consisted primarily of employee related expenses, including salaries, wages and bonuses, professional fees, including consulting costs, and operating expenses for S&A related activities. In addition, excluding the impact of N&B for the month of January in the 2022 period, S&A expenses decreased primarily due to lower employee related expenses, including salaries, wages and bonuses, and professional fees, including consulting costs, offset in part by higher operating expenses for S&A related activities.

Restructuring and Other Charges

Restructuring and other charges decreased to $12 million in 2022 compared to $41 million in 2021. The decrease was primarily driven by lower severance costs incurred in 2022 (see Note 2 for additional information).

Amortization of Acquisition-Related Intangibles

Amortization expenses decreased to $727 million in 2022 compared to $732 million in 2021. Amortization expense included approximately $47 million attributable to N&B for the month of January in the 2022 period related to the intangible assets acquired through the Merger with N&B. Excluding the impact of N&B for the month of January in the 2022 period, the decrease in amortization expense was primarily driven by the reduction in intangible assets as a result of the divestiture of the Microbial Control business unit and impairment of intangible assets of an asset group that operates primarily in Russia, offset in part by the impact of acquisitions of intangible assets from Health Wright Products, Inc. (see Note 3, Note 4 and Note 6 for additional information).

Impairment of Goodwill

Impairment of goodwill was $2.250 billion in 2022, which was related to the Health & Biosciences reporting unit. See Note 1 and Note 6 for additional information.

Impairment of Long-Lived Assets

Impairment of long-lived assets was $120 million in 2022. The impairment charge was due to the uncertainties related to our operations in Russia and Ukraine and was allocated on a pro rata basis to intangible assets and property, plant and equipment (see Note 1, Note 5 and Note 6 for additional information).

Interest Expense

Interest expense increased $47 million to $336 million in 2022 compared to $289 million in 2021. Interest expense included approximately $13 million attributable to N&B for the month of January in the 2022 period, which included the impact of the additional debt assumed in the Merger with N&B. In addition, the increase in interest expense was due to higher interest rates, which led to an increase in the cost for participating in our factoring programs (see Note 1 for additional information), higher effective interest rates on the outstanding Term Loan Facilities and an increase in draw downs of the Revolving Credit Facility and commercial paper (see Note 9 for additional information).

Other Income, Net

Other income, net, decreased $21 million to $37 million in 2022 versus $58 million in 2021. Other income, net includes approximately $6 million attributable to N&B for the month of January in the 2022 period. Excluding the impact of N&B for the month of January in the 2022 period, the decrease in other income, net was primarily due to foreign exchange losses in 2022 compared to foreign exchange gains in the 2021 period and lower pension income in 2022 compared to the 2021 period, due to the adjustment during the 2021 period to correct net income amounts related to certain defined benefit plans in prior years, offset in part by higher interest income.

Income Taxes

The effective tax rate in 2022 was (14.7)% compared to 21.2% in 2021. The year-over-year change was primarily due to the recording of non-tax-deductible impairment charges related to goodwill in the Health & Biosciences operating segment and the tax effects of the divestiture of the Microbial Control business unit.

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Segment Adjusted Operating EBITDA Results by Business Unit

We use Segment Adjusted Operating EBITDA for internal reporting and performance measurement purposes. Segment Adjusted Operating EBITDA is defined as (Loss) Income Before Taxes before depreciation and amortization expense, interest expense, restructuring and other charges and certain non-recurring items. Our determination of reportable segments was made on the basis of our strategic priorities within each segment and corresponds to the manner in which our Chief Operating Decision Maker reviews and evaluates operating performance to make decisions about resources to be allocated to the segment. In addition to our strategic priorities, segment reporting is also based on differences in the products and services we provide.

Nourish Segment Adjusted Operating EBITDA

Nourish Segment Adjusted Operating EBITDA increased $4 million, or 0.3% on a reported basis, to $1.176 billion (17.2% of segment sales) in 2022 from $1.172 billion (18.7% of segment sales) in the comparable 2021 period. Nourish Segment Adjusted Operating EBITDA included approximately $65 million attributable to N&B for the month of January in the 2022 period. The decrease in Nourish Segment Adjusted Operating EBITDA, excluding the impact of N&B for the month of January in the 2022 period, was primarily driven by volume decreases, offset in part by favorable net pricing.

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Health & Biosciences Segment Adjusted Operating EBITDA

Health & Biosciences Segment Adjusted Operating EBITDA increased $9 million, or 1% on a reported basis, to $634 million (27.1% of segment sales) in 2022 from $625 million (26.8% of segment sales) in the comparable 2021 period. Health & Biosciences Segment Adjusted Operating EBITDA included approximately $60 million attributable to N&B for the month of January in the 2022 period. The decrease in Health & Biosciences Segment Adjusted Operating EBITDA, excluding the impact of N&B for the month of January in the 2022 period, was primarily driven by volume decreases and the change in business portfolio mix, offset in part by favorable net pricing.

Scent Segment Adjusted Operating EBITDA

Scent Segment Adjusted Operating EBITDA decreased $40 million, or 9% on a reported basis, to $423 million (18.4% of segment sales) in 2022 from $463 million (20.5% of segment sales) in the comparable 2021 period. On a currency neutral basis, Scent Segment Adjusted Operating EBITDA increased 1% in 2022 compared to the prior year period. The decrease, on a reported basis, was primarily driven by unfavorable impacts from exchange rate variations and net pricing, offset in part by volume increases in Fragrance Compounds.

Pharma Solutions Segment Adjusted Operating EBITDA

Pharma Solutions Segment Adjusted Operating EBITDA increased $57 million, or 35% on a reported basis, to $222 million (22.9% of segment sales) in 2022 from $165 million (20.4% of segment sales) in the comparable 2021 period. Pharma Solutions Segment Adjusted Operating EBITDA included approximately $12 million attributable to N&B for the month of January in the 2022 period. In addition, the increase in Pharma Solutions Segment Adjusted Operating EBITDA, excluding the impact of N&B for the month of January in the 2022 period, was primarily driven by favorable net pricing and volume increases.

2021 IN COMPARISON TO 2020

For a comparison of our results of operations for the fiscal years ended December 31, 2021 and December 31, 2020, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 28, 2022.

Liquidity and Capital Resources

Cash and Cash Equivalents

We had cash and cash equivalents of approximately $535 million, inclusive of $52 million currently in Assets held for sale on the Consolidated Balance Sheets, at December 31, 2022 compared to $711 million at December 31, 2021 and of this balance, a portion was held outside the United States. Cash balances held in foreign jurisdictions are, in most circumstances, available to be repatriated to the United States.

Effective utilization of the cash generated by our international operations is a critical component of our strategy. We regularly repatriate cash from our non-U.S. subsidiaries to fund financial obligations in the U.S. As we repatriate these funds to the U.S. we will be required to pay income taxes in certain U.S. states and applicable foreign withholding taxes during the period when such repatriation occurs. Accordingly, as of December 31, 2022, we have a deferred tax liability of approximately $166 million for the effect of repatriating the funds to the U.S.

Cash Flows Provided By Operating Activities

Cash flows provided by operating activities in 2022 were $397 million, or 3.2% of sales, compared to $1.437 billion, or 12.3% of sales, in 2021 and $714 million, or 14.0% of sales, in 2020. The decrease in cash flows provided by operating activities from 2021 to 2022 was primarily driven by the increase in working capital, largely related to inventories and accounts payable. The increase in cash flows provided by operating activities from 2020 to 2021 was primarily driven by higher cash earnings, excluding the impact of non-cash adjustments, offset in part by the increase in working capital, largely related to inventories and accounts receivable.

Cash Flows Provided By (Used In) Investing Activities

Cash flows provided by investing activities in 2022 were $745 million compared to cash flows used in investing activities of $18 million and $187 million in 2021 and 2020, respectively. The increase in cash flows from investing activities from 2021 to 2022 was primarily driven by the change in proceeds received from business divestiture and unwinding of derivative instruments, offset in part by the change in cash provided by the Merger with N&B, higher spending on property, plant and equipment and cash paid for acquisitions, net of cash received, in the current year period. The decrease in cash flows used in investing activities from 2020 to 2021 was primarily driven by the increase in cash provided by the Merger with N&B and higher net proceeds received from the sale of the Fruit Preparation business, offset in part by higher spending on property, plant and equipment in the 2021 period.

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Additions to property, plant and equipment were $504 million, $393 million and $192 million in 2022, 2021 and 2020, respectively (net of grants and other reimbursements from government authorities). These investments largely arise from our ongoing focus to align our manufacturing facilities with customer demand, primarily in emerging markets, and new technology consistent with our strategy.

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

Cash Flows Used In Financing Activities

Cash flows used in financing activities in 2022 were $1.229 billion compared to $1.304 billion and $512 million in 2021 and 2020, respectively. The decrease in cash used in financing activities from 2021 to 2022 was primarily driven by less repayments of long-term debt and an increase in revolving credit facility and short-term borrowings, offset in part by higher repayments of commercial paper, net of borrowings, higher cash dividend payments and higher purchases of redeemable non-controlling interest. The increase in cash flows used in financing activities from 2020 to 2021 was primarily driven by higher repayments of both short-term and long-term debt and higher cash dividend payments, offset in part by proceeds from issuance of commercial paper.

We paid dividends totaling $810 million, $667 million and $323 million in 2022, 2021 and 2020, respectively. The cash dividend declared per share in 2022, 2021 and 2020 was $3.20, $3.12 and $3.04, respectively.

Our capital allocation strategy is primarily focused on debt repayment to maintain our investment grade rating. We will also prioritize capital investment in our businesses to support the strategic long-term plans. We are also committed to maintaining our history of paying a dividend to investors determined by our Board of Directors at its discretion based on various factors.

We had a board approved stock repurchase program and as of May 7, 2018, we suspended our share repurchases. As of November 1, 2022, the program has expired.

Capital Resources

Operating cash flow provides the primary source of funds for capital investment needs, dividends paid to shareholders and debt service repayments. We anticipate that cash flows from operations and availability under our existing credit facilities will be sufficient to meet our investing and financing needs. We regularly assess our capital structure, including both current and long-term debt instruments, as compared to our cash generation and investment needs in order to provide ample flexibility and to optimize our leverage ratios. We believe our existing cash balances are sufficient to meet our debt service requirements.

Refer to Note 9 for additional information.

Transaction with Nutrition & Biosciences, Inc.

On February 1, 2021, the N&B Term Loan Facility was funded, which provided for a senior unsecured term loan credit facility in an aggregate principal amount of $1.250 billion, comprised of a $625 million three-year tranche (“2024 Term Loan Facility”) and a $625 million five-year tranche (“2026 Term Loan Facility”). Following the Merger, we assumed the indebtedness incurred by N&B in the debt financings, which included (i) the 2024 Term Loan Facility and 2026 Term Loan Facility and (ii) a series of Senior Notes in the aggregate amount of $6.250 billion with maturities ranging from 2 to 30 years. N&B’s indebtedness raised prior to the Merger was used to finance the Special Cash Payment to DuPont, which has been paid, and for the satisfaction of the related transaction fees and expenses.

Refer to Note 3 and Note 9 for additional information.

In connection with the N&B Transaction, a wholly owned subsidiary of IFF merged with and into N&B in exchange for 141,740,461 shares of IFF common stock, par value $0.125 per share (“IFF Common Stock”), which had been approved in the special shareholder meeting that occurred on August 27, 2020 where IFF shareholders voted to approve the issuance of shares of IFF common stock in connection with the N&B Transaction pursuant to the Merger Agreement. In connection with the N&B Transaction, DuPont received a one-time $7.359 billion special cash payment (the “Special Cash Payment”). The shares issued in the Merger represented approximately 55.4% of the common stock of IFF on a fully diluted basis, after giving effect to the Merger, as of February 1, 2021 (see Note 3 for additional information).

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Amended Revolving Credit Facility and Term Loans

The Credit Agreements contain various covenants, limitations and events of default customary for similar facilities for similarly rated borrowers, including the requirement for us to maintain, at the end of each fiscal quarter, a ratio of net debt for borrowed money to Credit Adjusted EBITDA in respect of the previous 12-month period. On and after the Closing Date of the N&B Transaction, the 2024 Term Loan Facility and 2026 Term Loan Facility are also subject to a financial covenant requiring maintenance of a maximum consolidated leverage ratio of 4.75 to 1.0, with step downs to 3.50 to 1.0 over time, with the first step-down which occurred after the fiscal quarter ended December 31, 2021 and the final step-down occurring after the fiscal quarter ending June 30, 2023, with a step-up if the Company consummates certain qualified acquisitions. On August 4, 2022, we amended our existing Term Loan Credit Agreement and Amended Revolving Credit Facility, and the amendment delays certain step-downs from the maximum permitted leverage ratio of 4.50 to 1.0, stepping down to 3.50 to 1.0 over time, with the first step-down now occurring after the fiscal quarter ending June 30, 2023 and the final step-down now occurring after the fiscal quarter ending September 30, 2024, with a step-up if the Company consummates certain qualified acquisitions.

As of December 31, 2022, we had $100 million outstanding borrowings under our $2.000 billion Revolving Credit Facility. The amount that we are able to draw down under the Revolving Credit Facility is limited by financial covenants as described in more detail below. As of December 31, 2022, our borrowing capacity was approximately $902 million under the Revolving Credit Facility.

See Note 9 to the Consolidated Financial Statements for additional information on our Credit Agreements.

Debt Covenants

At December 31, 2022 and 2021 we were in compliance with all financial and other covenants, including the net debt to credit adjusted EBITDA(1) ratio. At December 31, 2022 our net debt to credit adjusted EBITDA(1) ratio was 4.14 to 1.0 as defined by the credit facility agreements, which is below the relevant level provided by our financial covenants of existing outstanding debt.

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(1)Credit adjusted EBITDA and net debt, which are non-GAAP measures used for these covenants, are calculated in accordance with the definition in the debt agreements. In this context, these measures are used solely to provide information on the extent to which we are in compliance with debt covenants and may not be comparable to credit adjusted EBITDA and net debt used by other companies. Reconciliations of credit adjusted EBITDA to net (loss) income and net debt to total debt are as follows:

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(1)Specified items for the 12 months ended December 31, 2022 of $2.605 billion consisted of acquisition related costs, restructuring and other charges, impairment of goodwill, impairment of long-lived assets, shareholder activism related costs, business divestiture costs, employee separation costs, strategic initiative costs, Global Shared Services implementation costs, Frutarom acquisition related costs and integration related costs.

(2)Non-cash items represent all other adjustments to reconcile net (loss) income to net cash provided by operations as presented on the Statements of Cash Flows, including gains on sale of fixed assets, gains on business disposal and stock-based compensation.

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

(2)Cash and cash equivalents includes approximately $52 million currently in Assets held for sale on the Consolidated Balance Sheets.

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Senior Notes

As of December 31, 2022, we had $9.330 billion aggregate principal amount outstanding in senior unsecured notes, with $1.380 billion principal amount denominated in EUR and $7.950 billion principal amount denominated in USD, which includes the N&B Senior Notes assumed as a result of the Merger. The notes bear interest ranging from 1.22% per year to 5.12% per year, with maturities from May 1, 2023 to December 1, 2050. See Note 9 to the Consolidated Financial Statements for additional information.

Tangible Equity Units - Senior Unsecured Amortizing Notes

On September 14, 2021, the Company notified holders of the tangible equity units (“TEUs”) that the final settlement rate in respect of each of the prepaid stock purchase contracts (“SPCs”) was 0.330911 shares of IFF’s common stock. On September 15, 2021, 5,460,031 shares of IFF’s common stock were issued in settlement of the SPCs. See Note 11 to the Consolidated Financial Statements for additional information.

Other Contingencies

See Note 19 to the Consolidated Financial Statements for information related to Other Contingencies.

Other Commitments

Compliance with existing governmental requirements regulating the discharge of materials into the environment has not materially affected our operations, earnings or competitive position. In 2022 and 2021, we spent approximately $30 million and $64 million on capital projects and $135 million and $78 million in operating expenses and governmental charges, respectively, for the purpose of complying with such regulations. Expenditures for these purposes will continue for the foreseeable future. In addition, we are party to a number of proceedings brought under the Comprehensive Environmental Response, Compensation and Liability Act or similar state statutes. It is expected that the impact of any judgments in or voluntary settlements of such proceedings will not be material to our financial condition, results of operations or liquidity.

Contractual Obligations

The Company believes its balances of cash and cash equivalents, which totaled approximately $535 million as of December 31, 2022, inclusive of $52 million currently in Assets held for sale on the Consolidated Balance Sheets, along with cash generated by ongoing operations and continued access to debt markets, will be sufficient to satisfy its cash requirements and capital return program over the next 12 months and beyond. The Company's material cash requirements include the following contractual and other obligations.

Borrowings and Interest on Borrowings

As of December 31, 2022, the Company had outstanding floating and fixed rate notes with varying maturities for an aggregate principal amount of approximately $10.580 billion (collectively the “Notes”), with $300 million payable within 12 months. Future interest payments associated with the Notes total approximately $4.006 billion, with $258 million payable within 12 months.

The Company also issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program. As of December 31, 2022, the Company had $187 million of Commercial Paper outstanding, all of which is payable within 12 months.

As of December 31, 2022, the Company had $100 million outstanding under the Amended Revolving Credit Facility.

See Note 9 to the Consolidated Financial Statements for a further discussion of our various borrowing facilities.

Leases

The Company has lease arrangements for certain corporate offices, manufacturing facilities, research and development facilities, and certain transportation and office equipment. As of December 31, 2022, the Company had fixed lease payment obligations of approximately $828 million, with $117 million payable within 12 months. See Note 8 to the Consolidated Financial Statements for a further discussion of our various lease arrangements.

Pension and Other Postretirement Obligations

As of December 31, 2022, the Company had pension funding obligations of approximately $788 million, with $73 million payable within 12 months. See Note 15 to the Consolidated Financial Statements for a further discussion of our retirement plans.

As of December 31, 2022, the Company had postretirement obligations of approximately $36 million, with $3 million payable within 12 months.

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Purchase Commitments

The Company has various purchase commitments that include agreements for raw material procurement and contractual capital expenditures. As of December 31, 2022, the Company had purchase commitment obligations of approximately $231 million, with $222 million payable within 12 months.

U.S. Tax Reform Toll-Charge

The Company has obligations related to a 2017 U.S. tax reform “toll-charge” that is payable in installments over 8 years beginning in 2018. As a result of the Merger with N&B, the remaining toll-charge obligations were accelerated and paid in full in the amount of approximately $39 million in 2022. As of December 31, 2022, there were no toll-charge obligations remaining.

Critical Accounting Policies and Use of Estimates

Our significant accounting policies are more fully described in Note 1 to the Consolidated Financial Statements. As disclosed in Note 1, the preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect reported amounts and accompanying disclosures. These estimates are based on management’s best judgment of current events and actions that we may undertake in the future. Actual results may ultimately differ from these estimates.

Those areas requiring the greatest degree of management judgment or deemed most critical to our financial reporting involve:

Business Combinations

From time to time we enter into strategic acquisitions in an effort to better service existing customers and to attain new customers. When we acquire a controlling financial interest in an entity or group of assets that are determined to meet the definition of a business, we apply the acquisition method described in ASC Topic 805, Business Combinations. In accordance with GAAP, the results of the acquisitions we have completed are reflected in our financial statements from the date of acquisition forward.

We allocate the purchase consideration paid to acquire the business to the assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the net assets acquired recorded as goodwill. If during the measurement period (a period not to exceed twelve months from the acquisition date) we receive additional information that existed as of the acquisition date but at the time of the original allocation described above was unknown to us, we make the appropriate adjustments to the purchase price allocation in the reporting period in which the amounts are determined.

Significant judgment is required to estimate the intangibles and fair value of fixed assets and in assigning their respective useful lives. Accordingly, we typically engage third-party valuation specialists, who work under the direction of management, to assist in valuing significant tangible and intangible assets acquired.

The fair value estimates are based on available historical information, future expectations and assumptions deemed reasonable by management, but are inherently uncertain.

We typically use an income method to estimate the fair value of intangible assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants, and include the amount and timing of future cash flows (including expected growth rates, discount rates and profitability), royalty rates used in the relief of royalty method, customer attrition rates, product obsolescence factors, a brand’s relative market position and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions.

Determining the useful life of an intangible asset also requires significant judgment. All of our acquired intangible assets (e.g., trademarks, product formulas, non-compete agreements and customer relationships) are expected to have finite useful lives. Our estimates of the useful lives of finite-lived intangible assets are based on a number of factors including competitive environment, market share, brand history, operating plans and the macroeconomic environment of the regions in which the brands are sold.

The costs of finite-lived intangible assets are amortized through expense over their estimated lives. The value of residual goodwill is not amortized, but is tested at least annually for impairment as described in the following note. For acquired intangible assets, the remaining useful life of the trade names and trademarks, product formulas, and customer relationships was estimated at the point at which substantially all of the present value of cumulative cash flows have been earned.

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The Periodic Assessment of Potential Impairment of Goodwill

As of December 31, 2022, we have goodwill of approximately $13.355 billion. We test goodwill for impairment at the reporting unit level as of November 30 every year or more frequently if events or changes in circumstances indicate the asset might be impaired. A reporting unit is an operating segment or one level below an operating segment (referred to as a component) to which goodwill is assigned when initially recorded.

We identify our reporting units by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available and management of each operating segment regularly reviews the operating results of those components. Components within a segment that have similar economic characteristics have been aggregated as a single reporting unit. We determined that we have six reporting units under the Nourish, Health & Biosciences, Scent and Pharma Solutions segments: (1) Nourish, (2) Fragrance Compounds, (3) Fragrance Ingredients, (4) Cosmetic Actives, (5) Health & Biosciences and (6) Pharma Solutions.

For the annual impairment test as of November 30, 2022, we elected to bypass the qualitative assessment for all reporting units, Step 0 of the guidance in ASC Topic 350, Intangibles – Goodwill and Other, which allows for the assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. For all six reporting units, we performed a Step 1 test.

We assessed the fair value of the reporting units using an income approach. Under the income approach, we determined the fair value by using a discounted cash flow method at a rate of return that reflects the relative risk of the projected future cash flows of each reporting unit, as well as a terminal value. We used the most current actual and forecasted operating data available. Key estimates and assumptions used in these valuations include revenue growth rates, gross margins, EBITDA margins, terminal growth rates and discount rates.

In performing the quantitative impairment test, we determined that the fair value of the six reporting units exceeded their carrying values and determined that there was no further impairment of goodwill at any of our six reporting units as of November 30, 2022. Based on the quantitative impairment test performed, we determined that all reporting units except the Health & Biosciences reporting unit had excess fair value over carrying value of more than 25%. The Health & Biosciences reporting unit had excess fair value over carrying value of approximately 3%.

If current long-term projections for these reporting units are not realized or materially decrease, we may be required to write-off all or a portion of the goodwill. Such charge could have a material effect on the Consolidated Statements of Operations and Balance Sheets.

For the third quarter of 2022, we determined that goodwill impairment triggering events occurred for our Nourish, Health & Biosciences and Pharma Solutions reporting units, which required us to complete an interim impairment assessment. As a result of the triggering events, we assessed the fair value of the reporting units using the income approach.

In performing the quantitative impairment test, we determined that the fair value of the Nourish and Pharma Solutions reporting units exceeded their carrying value, and determined that there was no impairment of goodwill relating to these reporting units. We determined that the carrying value of the Health & Biosciences reporting unit exceeded its fair value and recorded a goodwill impairment charge of $2.250 billion in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the year ended December 31, 2022 (see Note 6 to the Consolidated Financial Statements for additional information).

The Periodic Assessment of Potential Impairment of Long-lived Assets

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

As previously mentioned, due to the uncertainties related to our operations in Russia and Ukraine, we recorded a charge of approximately $120 million related to the impairment of certain long-lived assets in Russia in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the year ended December 31, 2022 (see Note 1 to the Consolidated Financial Statements for additional information).

New Accounting Standards

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

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Non-GAAP Financial Measures

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

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

Adjusted operating EBITDA and adjusted operating EBITDA margin exclude depreciation and amortization expense, interest expense, other (expense) income, net, restructuring and other charges and certain non-recurring or unusual items such as acquisition related costs, gains on sale of fixed assets, impairment of goodwill, impairment of long-lived assets, shareholder activism related costs, business divestiture costs, employee separation costs, strategic initiative costs, Global Shared Services implementation costs, Frutarom acquisition related costs, N&B inventory step-up costs, N&B transaction related costs and integration related costs.

Net debt to credit adjusted EBITDA is the leverage ratio used in our credit agreement and defined as net debt divided by credit adjusted EBITDA. However, as credit adjusted EBITDA for these purposes was calculated in accordance with the provisions of the credit agreement, it may differ from the calculation used for adjusted operating EBITDA.

Cautionary Statement Under the Private Securities Litigation Reform Act of 1995

Statements in this Form 10-K, which are not historical facts or information, are “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management’s current assumptions, estimates and expectations and include statements concerning (i) the expected impact of global supply chain challenges; (ii) expectations regarding sales and profit for the fiscal year 2023, including the impact of foreign exchange, pricing actions, raw materials, energy, and sourcing, logistics and manufacturing costs; (iii) expectations of the impact of inflationary pressures and the pricing actions to offset exposure to such impacts; (iv) the impact of high input costs, including commodities, raw materials, transportation and energy; (v) our ability to drive cost discipline measures and the ability to recover margin to pre-inflation levels; (vi) the progress of our portfolio optimization strategy, through non-core business divestitures and acquisitions, and expectations regarding the implementation of our refreshed growth-focused strategy; (vii) the ongoing impact of COVID-19 and our plans to respond to its global implications; (viii) the success of our integration efforts, following the N&B Transaction, and ability to deliver on our synergy commitments as well as future opportunities for the combined company; (ix) the success of the optimization of our portfolio; (x) the impact of global economic uncertainty and recessionary pressures on demand for consumer products; (xi) the growth potential of the markets in which we operate, including the emerging markets, (xii) expected capital expenditures in 2023; (xiii) the expected costs and benefits of our ongoing optimization of our manufacturing operations, including the expected number of closings; (xiv) expected cash flow and availability of capital resources to fund our operations and meet our debt service requirements; (xv) our ability to enhance our innovation efforts, drive cost efficiencies and execute on specific consumer trends and demands; (xvi) our strategic investments in capacity and increasing inventory to drive improved profitability; and (xvii) our ability to continue to generate value for, and return cash to, our shareholders. These forward-looking statements should be evaluated with consideration given to the many risks and uncertainties inherent in our business that could cause actual results and events to differ materially from those in the forward-looking statements. Certain of such forward-looking information may be identified by such terms as “expect”, “anticipate”, “believe”, “intend”, “outlook”, “may”, “estimate”, “should”, “predict” and similar terms or variations thereof. Such forward-looking statements are based on a series of expectations, assumptions, estimates and projections about the Company, are not guarantees of future results or performance, and involve significant risks, uncertainties and other factors, including assumptions and projections, for all forward periods. Our actual results may differ materially from any future results expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include, among others, the following:

•inflationary trends, including in the price of our input costs, such as raw materials, transportation and energy;

•supply chain disruptions, geopolitical developments, including the Russia-Ukraine conflict, or climate-change related events (including severe weather events) that may affect our suppliers or procurement of raw materials;

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

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

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

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

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

•our ability to effectively compete in our market and develop and introduce new products that meet customers’ needs;

•our ability to retain key employees;

•changes in demand from large multi-national customers due to increased competition and our ability to maintain “core list” status with customers;

•our ability to successfully develop innovative and cost-effective products that allow customers to achieve their own profitability expectations;

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

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

•volatility and increases in the price of raw materials, energy and transportation;

•the impact of a significant data breach or other disruption in our information technology systems, and our ability to comply with data protection laws in the U.S. and abroad;

•our ability to comply with, and the costs associated with compliance with, regulatory requirements and industry standards, including regarding product safety, quality, efficacy and environmental impact;

•our ability to meet increasing customer, consumer, shareholder and regulatory focus on sustainability;

•defects, quality issues (including product recalls), inadequate disclosure or misuse with respect to the products and capabilities;

•our ability to react in a timely and cost-effective manner to changes in consumer preferences and demands, including increased awareness of health and wellness;

•our ability to benefit from our investments and expansion in emerging markets;

•the impact of currency fluctuations or devaluations in the principal foreign markets in which we operate;

•economic, regulatory and political risks associated with our international operations;

•the impact of global economic uncertainty (including increased inflation) on demand for consumer products;

•our ability to comply with, and the costs associated with compliance with, U.S. and foreign environmental protection laws;

•our ability to successfully manage our working capital and inventory balances;

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

•any impairment on our tangible or intangible long-lived assets, including goodwill associated with the N&B merger and the acquisition of Frutarom;

•our ability to protect our intellectual property rights;

•the impact of the outcomes of legal claims, regulatory investigations and litigation;

•changes in market conditions or governmental regulations relating to our pension and postretirement obligations;

•the impact of changes in federal, state, local and international tax legislation or policies, including the Tax Cuts and Jobs Act, with respect to transfer pricing and state aid, and adverse results of tax audits, assessments, or disputes;

•the impact of the United Kingdom’s departure from the European Union;

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

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

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

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The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by the Company (such as in our other filings with the SEC or in company press releases) for other factors that may cause actual results to differ materially from those projected by the Company. Please refer to Part I. Item 1A., Risk Factors, of this Form 10-K for additional information regarding factors that could affect our results of operations, financial condition and liquidity.

We intend our forward-looking statements to speak only as of the time of such statements and do not undertake or plan to update or revise them as more information becomes available or to reflect changes in expectations, assumptions or results. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of, or any material adverse change in, one or more of the risk factors or risks and uncertainties referred to in this report or included in our other periodic reports filed with the SEC could materially and adversely impact our operations and our future financial results.

Any public statements or disclosures made by us following this report that modify or impact any of the forward-looking statements contained in or accompanying this report will be deemed to modify or supersede such outlook or other forward-looking statements in or accompanying this report.