International Flavors & Fragrances(IFF) - 2023 Q2 - Quarterly Report

PART I - Financial Information This section provides the unaudited consolidated financial statements and management's discussion and analysis for the periods ended June 30, 2023 ITEM 1. Financial Statements This section presents the unaudited consolidated financial statements of International Flavors & Fragrances Inc. for the periods ended June 30, 2023, and December 31, 2022, including balance sheets, income statements, cash flow statements, and statements of shareholders' equity, along with detailed notes explaining significant accounting policies, business divestitures, debt, and other financial instruments Consolidated Balance Sheets This section presents the company's financial position at June 30, 2023, and December 31, 2022, detailing assets, liabilities, and equity Consolidated Balance Sheet Data | (DOLLARS IN MILLIONS) | June 30, 2023 | December 31, 2022 | | :------------------------------------------------ | :------------ | :---------------- | | ASSETS | | | | Total Current Assets | $6,436 | $7,432 | | Property, plant and equipment, net | $4,218 | $4,203 | | Goodwill | $13,498 | $13,355 | | Other intangible assets, net | $8,813 | $9,082 | | Total Assets | $34,459 | $35,504 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | |\ | Total Current Liabilities | $3,932 | $3,728 | | Long-term debt | $9,208 | $10,373 | | Total Other Liabilities | $12,811 | $14,032 | | Total Shareholders' Equity including Non-controlling interest | $17,655 | $17,685 | | Total Liabilities and Shareholders' Equity | $34,459 | $35,504 | - Total Assets decreased by $1,045 million from $35,504 million at December 31, 2022, to $34,459 million at June 30, 2023[9] - Total Current Assets decreased by $996 million, primarily due to a significant reduction in Assets held for sale from $1,200 million to $212 million[9] - Long-term debt decreased by $1,165 million from $10,373 million to $9,208 million[9] Consolidated Statements of Income and Comprehensive Income (Loss) This section details the company's financial performance, including net sales, gross profit, operating profit, and net income for the three and six months ended June 30, 2023 and 2022 Consolidated Income and Comprehensive Income (Loss) Data | (AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $2,929 | $3,307 | $5,956 | $6,533 | | Gross profit | $933 | $1,136 | $1,897 | $2,281 | | Operating profit | $145 | $213 | $276 | $554 | | Net income attributable to IFF shareholders | $27 | $107 | $18 | $351 | | Net income per share - diluted | $0.11 | $0.43 | $0.07 | $1.38 | - Net sales decreased by 11% for the three months ended June 30, 2023, and by 9% for the six months ended June 30, 2023, compared to the prior year periods[10] - Net income attributable to IFF shareholders significantly decreased by 75% for the three months and 95% for the six months ended June 30, 2023, compared to the prior year periods[10] - Operating profit decreased by 32% for the three months and 50% for the six months ended June 30, 2023, compared to the prior year periods[10] Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 Consolidated Cash Flow Data | (DOLLARS IN MILLIONS) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $375 | $(51) | | Net cash provided by (used in) investing activities | $552 | $(346) | | Net cash (used in) provided by financing activities | $(866) | $377 | | Net change in cash, cash equivalents and restricted cash | $100 | $(94) | | Cash, cash equivalents and restricted cash at end of period | $652 | $622 | - Net cash provided by operating activities significantly improved to $375 million for the six months ended June 30, 2023, compared to cash used of $51 million in the prior year[13] - Investing activities generated $552 million in cash, a substantial increase from $346 million used in the prior year, primarily due to net proceeds from business divestitures[13] - Financing activities used $866 million in cash, a reversal from $377 million provided in the prior year, mainly due to net repayments of commercial paper and long-term debt[13] Consolidated Statements of Shareholders' Equity This section presents changes in shareholders' equity, including net income, dividends, and other comprehensive income components, for the period ended June 30, 2023 Consolidated Shareholders' Equity Data | (DOLLARS IN MILLIONS) | Balance at December 31, 2022 | Net income | Cumulative translation adjustment | Pension liability and postretirement adjustment; net of tax | Cash dividends declared | Stock options/SSARs | Vested restricted stock units and awards | Stock-based compensation | Redeemable NCI | Dividends paid on non controlling interest and Other | Balance at June 30, 2023 | | :------------------------------------------ | :--------------------------- | :--------- | :-------------------------------- | :-------------------------------------------------------- | :---------------------- | :------------------ | :--------------------------------------- | :----------------------- | :------------- | :--------------------------------------------------- | :----------------------- | | Total Shareholders' Equity | $17,685 | $19 | $344 | $(3) | $(413) | $3 | $9 | $32 | $(1) | $1 | $17,655 | - Total Shareholders' Equity decreased slightly from $17,685 million at December 31, 2022, to $17,655 million at June 30, 2023[16] - Cumulative translation adjustments positively impacted equity by $344 million, while cash dividends declared reduced equity by $413 million[16] NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note describes IFF's business operations and outlines the significant accounting policies applied in preparing the financial statements - IFF is a leading creator and manufacturer of food, beverage, health & biosciences, scent, and pharma solutions, serving a wide range of consumer product manufacturers[19] - The Company corrected prior year financial statements for errors related to cash flows, operating lease assets/liabilities, and derivative fair values, impacting balances as of June 30, 2022, and December 31, 2022[22] - The allowance for bad debts increased to $63 million at June 30, 2023, from $53 million at December 31, 2022, primarily due to expected credit losses on receivables from certain customers in Egypt, partially offset by reversals for Russia and Ukraine[35] - An impairment charge of $120 million was recognized in Q2 2022 for long-lived assets in Russia due to declining sales and margins, allocated to intangible assets ($92 million) and property, plant and equipment ($28 million)[44] NOTE 2. NET INCOME PER SHARE This note provides details on the calculation of basic and diluted net income per share, along with related dividend information Net Income Per Share Data | (AMOUNTS IN MILLIONS EXCEPT PER SHARE AMOUNTS) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income available to IFF shareholders | $26 | $109 | $17 | $353 | | Weighted average common shares outstanding (basic) | 255 | 255 | 255 | 255 | | Net income per share - basic | $0.11 | $0.43 | $0.07 | $1.38 | | Net income per share - diluted | $0.11 | $0.43 | $0.07 | $1.38 | - The Company declared quarterly dividends of $0.81 per share for Q2 2023 and $0.79 per share for Q2 2022, totaling $1.62 and $1.58 for the six months ended June 30, 2023 and 2022, respectively[49] NOTE 3. BUSINESS DIVESTITURES This note details the completed and planned divestitures of various business units, including their financial impacts and proceeds - The Company completed the divestiture of a portion of its Savory Solutions business on May 31, 2023, receiving approximately $840 million in cash proceeds and recognizing a pre-tax loss of $10 million[53][55] - The Microbial Control business unit was divested on July 1, 2022, yielding net cash proceeds of approximately $1.169 billion[58] - The Flavor Specialty Ingredients business was divested on August 1, 2023, with net cash proceeds of approximately $205 million[59] NOTE 4. RESTRUCTURING AND OTHER CHARGES This note outlines the restructuring programs and associated charges, primarily severance costs, incurred during the reporting periods - Restructuring and other charges for the six months ended June 30, 2023, increased to $59 million, primarily due to the 2023 Restructuring Program[64][65] - The 2023 Restructuring Program, initiated in December 2022, incurred $64 million in severance charges for the six months ended June 30, 2023, targeting approximately 630 headcount reductions[63][64] Restructuring and Other Charges by Segment | (DOLLARS IN MILLIONS) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------------- | :----------------------------- | :----------------------------- | | Nourish | $32 | $3 | | Health & Biosciences | $11 | $1 | | Scent | $14 | $5 | | Pharma Solutions | $2 | $0 | | Total | $59 | $9 | NOTE 5. PROPERTY, PLANT AND EQUIPMENT, NET This note provides a breakdown of the company's property, plant, and equipment, including depreciation and impairment charges Property, Plant and Equipment, Net Data | (DOLLARS IN MILLIONS) | June 30, 2023 | December 31, 2022 | | :---------------------- | :------------ | :---------------- | | Total Property, plant and equipment | $6,404 | $6,180 | | Accumulated depreciation | $(2,186) | $(1,977) | | Total property, plant and equipment, net | $4,218 | $4,203 | - Depreciation expense for the six months ended June 30, 2023, was $220 million, down from $234 million in the prior year[66] - An impairment charge of $28 million was recorded in Q2 2022 for property, plant and equipment in Russia[67] NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS, NET This note details the company's goodwill and other intangible assets, including changes due to foreign exchange, divestitures, amortization, and impairment Goodwill and Other Intangible Assets Data | (DOLLARS IN MILLIONS) | June 30, 2023 | December 31, 2022 | | :---------------------- | :------------ | :---------------- | | Goodwill | $13,498 | $13,355 | | Other intangible assets, net | $8,813 | $9,082 | - Goodwill increased by $143 million to $13,498 million at June 30, 2023, primarily due to foreign exchange impacts ($147 million), partially offset by business divestitures ($4 million)[68] - Amortization expense for other intangible assets was $343 million for the six months ended June 30, 2023, down from $370 million in the prior year[70] - An impairment charge of $92 million was recorded in Q2 2022 for intangible assets (customer relationships and technological know-how) in Russia[71] NOTE 7. OTHER CURRENT ASSETS AND LIABILITIES, AND OTHER ASSETS This note provides a breakdown of other current assets and liabilities, as well as other non-current assets, and their changes Other Current Assets and Liabilities Data | (DOLLARS IN MILLIONS) | June 30, 2023 | December 31, 2022 | | :---------------------- | :------------ | :---------------- | | Prepaid expenses and other current assets | $898 | $770 | | Other assets | $754 | $689 | | Other current liabilities | $919 | $1,028 | - Prepaid expenses and other current assets increased by $128 million, driven by higher income tax receivables and prepaid expenses[73] - Other current liabilities decreased by $109 million, mainly due to lower accrued income taxes[74] NOTE 8. DEBT This note details the company's debt structure, including long-term debt, credit facilities, and recent repayment activities Debt Summary | (DOLLARS IN MILLIONS) | June 30, 2023 | December 31, 2022 | | :---------------------- | :------------ | :---------------- | | Total debt | $10,570 | $10,970 | | Total Long-term debt | $9,208 | $10,373 | - Total debt decreased by $400 million to $10,570 million at June 30, 2023, with long-term debt decreasing by $1,165 million[76] - The Company amended its Term Loan and Revolving Credit Facilities on March 23, 2023, extending financial covenant relief periods through December 31, 2024, and replacing LIBOR with Term SOFR as the reference rate for U.S. dollar-denominated loans[80][81][82][83][84][85] - A $300 million debt repayment for the 2023 Notes was made on May 1, 2023, funded by the Revolving Credit Facility, which was subsequently repaid in June 2023[87] NOTE 9. LEASES This note outlines the company's lease obligations, distinguishing between operating and finance leases, and their associated costs and cash flows Lease Cost and Cash Flow Data | (DOLLARS IN MILLIONS) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------------- | :----------------------------- | :----------------------------- | | Operating lease cost | $105 | $92 | | Finance lease cost | $4 | $4 | | Operating cash flows for operating leases | $64 | $70 | | Financing cash flows for finance leases | $4 | $3 | - Operating lease costs increased to $105 million for the six months ended June 30, 2023, from $92 million in the prior year[88] NOTE 10. INCOME TAXES This note explains the company's effective tax rates, unrecognized tax benefits, and deferred tax liabilities, highlighting factors influencing tax expense - The effective tax rate for the three months ended June 30, 2023, was 46.0% (vs. 16.2% in 2022), and for the six months was 70.3% (vs. 14.5% in 2022), primarily due to tax expenses from business divestitures and changes in income/loss mix[89][90] - As of June 30, 2023, the Company had $111 million in unrecognized tax benefits and $37 million in accrued interest and penalties[91] - A deferred tax liability of approximately $159 million was recorded for the effect of repatriating funds from non-U.S. subsidiaries[93] NOTE 11. STOCK COMPENSATION PLANS This note details the company's stock-based compensation expense and unrecognized compensation costs related to non-vested awards Stock-Based Compensation Expense | (DOLLARS IN MILLIONS) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total stock-based compensation expense | $20 | $17 | $32 | $26 | | Total stock-based compensation expense, after tax | $16 | $14 | $26 | $21 | - Total unrecognized compensation cost related to non-vested awards was approximately $105 million as of June 30, 2023[95] NOTE 12. SEGMENT INFORMATION This note provides financial information by reportable segment, including net sales and adjusted operating EBITDA, reflecting distinct business performance - The Company operates in four reportable segments: Nourish, Health & Biosciences, Scent, and Pharma Solutions, each with distinct product portfolios and market focuses[96][97][98][99][100] Segment Net Sales and Adjusted Operating EBITDA | (DOLLARS IN MILLIONS) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales: | | | | | | Nourish | $1,564 | $1,818 | $3,217 | $3,549 | | Health & Biosciences | $522 | $665 | $1,035 | $1,326 | | Scent | $592 | $580 | $1,200 | $1,165 | | Pharma Solutions | $251 | $244 | $504 | $493 | | Consolidated | $2,929 | $3,307 | $5,956 | $6,533 | | Segment Adjusted Operating EBITDA: | | | | | | Nourish | $181 | $365 | $389 | $694 | | Health & Biosciences | $145 | $184 | $276 | $376 | | Scent | $117 | $93 | $222 | $209 | | Pharma Solutions | $67 | $58 | $126 | $123 | | Total | $510 | $700 | $1,013 | $1,402 | - Nourish and Health & Biosciences segments experienced significant sales and EBITDA declines, while Scent and Pharma Solutions showed modest growth in both metrics[101] NOTE 13. EMPLOYEE BENEFITS This note outlines the company's pension and postretirement benefit plans, including net periodic benefit costs and expected contributions Net Periodic Benefit (Income) Cost | (DOLLARS IN MILLIONS) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :---------------------- | :----------------------------- | :----------------------------- | | U.S. Plans Net periodic benefit (income) cost | $(2) | $1 | | Non-U.S. Plans Net periodic benefit (income) cost | $4 | $12 | | Total postretirement benefit (income) expense | $(1) | $(1) | - The Company expects to contribute $5 million to U.S. pension plans and $32 million to non-U.S. pension plans in 2023[110] NOTE 14. FINANCIAL INSTRUMENTS This note describes the company's use of financial instruments, including derivatives, for managing market risks and their fair value measurements - The Company uses a fair value hierarchy (Level 1, 2, 3) for financial instruments, with most derivatives classified as Level 2[113][115] Fair Value of Financial Instruments | (DOLLARS IN MILLIONS) | June 30, 2023 Carrying Value | June 30, 2023 Fair Value | December 31, 2022 Carrying Value | December 31, 2022 Fair Value | | :---------------------- | :--------------------------- | :----------------------- | :------------------------------- | :----------------------------- | | Cash and cash equivalents | $638 | $638 | $483 | $483 | | Derivative assets | $17 | $17 | $1 | $1 | | Derivative liabilities | $119 | $119 | $75 | $75 | | Total debt | $10,570 | $9,006 | $10,970 | $9,005 | - The Company uses foreign currency forward contracts and commodity contracts to reduce exposure to volatility, and cross currency swaps as net investment hedges for European investments[120][121][122][123] Derivative Financial Instruments | (DOLLARS IN MILLIONS) | June 30, 2023 | December 31, 2022 | | :---------------------- | :------------ | :---------------- | | Foreign currency contracts | $(758) | $92 | | Commodity contracts | $7 | $(1) | | Cross currency swaps | $1,400 | $1,400 | NOTE 15. ACCUMULATED OTHER COMPREHENSIVE LOSS This note details the components of accumulated other comprehensive loss, including foreign currency translation adjustments and pension liability adjustments Accumulated Other Comprehensive Loss Components | (DOLLARS IN MILLIONS) | December 31, 2022 | June 30, 2023 | | :---------------------- | :---------------- | :------------ | | Accumulated other comprehensive (loss) income, net of tax | $(2,198) | $(1,857) | | Foreign Currency Translation Adjustments | $(2,066) | $(1,722) | | Pension and Postretirement Liability Adjustment | $(133) | $(136) | - Accumulated other comprehensive loss improved from $(2,198) million at December 31, 2022, to $(1,857) million at June 30, 2023, primarily due to positive foreign currency translation adjustments[130] NOTE 16. COMMITMENTS AND CONTINGENCIES This note outlines the company's various commitments and contingencies, including legal proceedings, guarantees, and potential loss estimates - The Company has $431 million in bank guarantees, letters of credit, and surety bonds, with $94 million outstanding as of June 30, 2023[132] - The Company is involved in various legal proceedings, including securities class actions, a challenge to a former CEO's bonus, and antitrust investigations by the EC, CMA, and DOJ related to its fragrance businesses[137][138][139][140][141][142][143] - The Company completed the relocation of its Zhejiang Fragrance Ingredients plant, receiving a final payment of $5 million in June 2023 and recognizing a pre-tax gain of $22 million[148][149] - The aggregate range of reasonably possible losses from third-party contingencies, in excess of accrued liabilities, is estimated at $0 to $50 million[158] NOTE 17. REDEEMABLE NON-CONTROLLING INTERESTS This note details the changes in redeemable non-controlling interests, influenced by foreign exchange and redemption value adjustments Redeemable Non-controlling Interests Data | (DOLLARS IN MILLIONS) | December 31, 2022 | June 30, 2023 | | :---------------------- | :---------------- | :------------ | | Redeemable Non-controlling Interests | $59 | $61 | - Redeemable non-controlling interests increased slightly to $61 million at June 30, 2023, from $59 million at December 31, 2022, primarily due to foreign exchange translation and redemption value adjustments[160] NOTE 18. ASSETS AND LIABILITIES HELD FOR SALE This note provides information on assets and liabilities classified as held for sale, primarily due to business divestitures - The Flavor Specialty Ingredients business was classified as held for sale, with the transaction completed on August 1, 2023[161] Assets and Liabilities Held for Sale Data | (DOLLARS IN MILLIONS) | June 30, 2023 | December 31, 2022 | | :---------------------- | :------------ | :---------------- | | Total assets held-for-sale | $212 | $1,200 | | Total liabilities held-for-sale | $13 | $212 | - The significant decrease in assets held for sale from $1,200 million to $212 million is primarily due to the divestiture of the Savory Solutions business in May 2023[164][165] NOTE 19. ACQUISITIONS This note details recent acquisition activities, including the integration of acquired businesses and related contingent consideration adjustments - The acquisition of Health Wright Products, Inc. was completed on April 1, 2022, integrating it into the Health & Biosciences segment[166] - An expense of approximately $5 million was recognized for changes in the fair value of contingent consideration obligations related to the Health Wright Products acquisition for the three and six months ended June 30, 2023[167] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance, condition, and results of operations for the three and six months ended June 30, 2023, compared to the prior year periods, covering sales, gross profit, operating expenses, segment performance, liquidity, capital resources, and key risk factors, highlighting the impacts of divestitures, macroeconomic conditions, and strategic initiatives OVERVIEW This section provides an overview of IFF's business, market position, and key financial highlights for the reporting period - IFF has expanded its global leadership in Food & Beverage, Home & Personal Care, and Health & Wellness markets through mergers and acquisitions, operating in four segments: Nourish, Health & Biosciences, Scent, and Pharma Solutions[170][171][172][173][174] - Sales to Russian customers were approximately 1% of total sales for Q2 2023 and 2% for the six months ended June 30, 2023, with operations limited to essential needs[177] - Sales in Q2 2023 decreased by 11% (9% currency neutral) to $2.929 billion, primarily due to volume decreases and divestitures, partially offset by price increases[181] - Gross profit decreased by 18% to $933 million (31.9% of sales) in Q2 2023, driven by volume declines, divestitures, unfavorable manufacturing absorption, and an inventory write-down[182] RESULTS OF OPERATIONS This section analyzes the company's financial performance, including net sales, gross profit, operating profit, and net income, across different segments and periods Key Financial Performance Indicators | (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Change (%) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | Change (%) | | :----------------------------------------------- | :------------------------------- | :------------------------------- | :--------- | :----------------------------- | :----------------------------- | :--------- | | Net sales | $2,929 | $3,307 | (11)% | $5,956 | $6,533 | (9)% | | Gross profit | $933 | $1,136 | (18)% | $1,897 | $2,281 | (17)% | | Operating profit | $145 | $213 | (32)% | $276 | $554 | (50)% | | Net income attributable to IFF shareholders | $27 | $107 | (75)% | $18 | $351 | (95)% | | Net income per share - diluted | $0.11 | $0.43 | (74)% | $0.07 | $1.38 | (95)% | | Gross margin | 31.9% | 34.4% | (250)bps | 31.9% | 34.9% | (300)bps | | Operating margin | 5.0% | 6.4% | (140)bps | 4.6% | 8.5% | NMF | | Effective tax rate | 46.0% | 16.2% | NMF | 70.3% | 14.5% | NMF | - Nourish sales decreased 14% (12% currency neutral) in Q2 2023 due to volume declines, Savory Solutions divestiture, and unfavorable exchange rates[188] - Health & Biosciences sales decreased 22% (20% currency neutral) in Q2 2023, primarily due to the Microbial Control divestiture and volume decreases[189] - Scent sales increased 2% (5% currency neutral) in Q2 2023, driven by price increases in Fragrance Compounds and Ingredients[190] - Pharma Solutions sales increased 3% (3% currency neutral) in Q2 2023, driven by price increases[191] - Interest expense increased by 51% in Q2 2023 and 52% for the six months, driven by higher interest rates on commercial paper and Term Loan Facilities, and increased factoring program costs[198][220] - Segment Adjusted Operating EBITDA for Nourish decreased 50% in Q2 2023, and for Health & Biosciences decreased 21%, while Scent increased 26% and Pharma Solutions increased 16%[203][204][205][207] Liquidity This section discusses the company's ability to meet its short-term and long-term financial obligations, focusing on cash flows and available resources - Cash and cash equivalents increased to $641 million at June 30, 2023, from $535 million at December 31, 2022[229] - Cash flows from operating activities significantly improved to $375 million for the six months ended June 30, 2023, compared to a $51 million use in the prior year, driven by working capital reduction[231] - Investing activities provided $552 million in cash, up from a $346 million use, primarily due to business divestitures[232] - Financing activities used $866 million in cash, compared to $377 million provided in the prior year, due to net repayments of commercial paper and long-term debt[234] - Capital spending in 2023 is expected to be approximately 4.4% of sales, slightly up from 4.1% in 2022[233] Capital Resources This section details the company's capital allocation strategy, debt structure, and compliance with financial covenants - The Company's capital allocation strategy focuses on maintaining an investment-grade rating, investing in the business, paying dividends, and repaying debt[236] - As of June 30, 2023, the Company was in compliance with all debt covenants, with a net debt to credit adjusted EBITDA ratio of 4.54 to 1.0, below the covenant limit[243] - The Company had $9.069 billion in senior unsecured notes outstanding as of June 30, 2023, with maturities ranging from 2024 to 2050[247] Non-GAAP Financial Measures This section explains the company's use of non-GAAP financial measures to provide additional insights into its operational performance - The Company uses non-GAAP financial measures, including currency neutral metrics, adjusted operating EBITDA, adjusted operating EBITDA margin, and net debt to credit adjusted EBITDA, to provide additional insight into underlying operating results and comparable performance[251][253][254][255] Cautionary Statement Under the Private Securities Litigation Reform Act of 1995 This section highlights the inherent risks and uncertainties associated with forward-looking statements made by the company - Forward-looking statements are subject to significant risks and uncertainties, including inflationary trends, supply chain disruptions, integration risks from the N&B merger, substantial indebtedness, and global economic uncertainty[256][257][259] ITEM 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the Company's exposure to market risks, particularly foreign currency risk, and its use of derivative instruments to manage these risks, highlighting the impact of hypothetical changes in currency values on cross currency swaps - The Company uses derivative instruments, specifically cross currency swap agreements, to mitigate foreign currency risk on its net European investments[264] - As of June 30, 2023, these swaps were in a net liability position with an aggregate fair value of $117 million[264] - A hypothetical 10% decrease or increase in the U.S. dollar's value against the Euro would change the estimated fair value of cross currency swaps by approximately $144 million[264] ITEM 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter ended June 30, 2023 - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023[265] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023[267] PART II - Other Information This section covers legal proceedings, risk factors, equity security sales, other information, and exhibits related to the company's operations ITEM 1. Legal Proceedings This section updates disclosures on legal proceedings, referring to Note 16 of the Consolidated Financial Statements for details on ongoing litigation, including securities class actions, antitrust investigations, and other claims - Updates on legal proceedings are provided in Note 16 to the Consolidated Financial Statements[270] ITEM 1A. Risk Factors This section highlights key risk factors that could negatively impact the Company's operations, liquidity, or financial condition, particularly emphasizing the potential adverse outcomes of legal claims, disputes, and investigations, especially those related to antitrust and product liability - The Company's results may be negatively impacted by legal claims, disputes, investigations, and litigation, including those related to intellectual property, product liability, competition, and antitrust[272] - Ongoing antitrust and competition investigations by the EC, CMA, and DOJ, along with related class action lawsuits, pose significant risks[272] - Acquisitions like N&B and Frutarom have increased exposure to legal and environmental claims, potentially raising defense and settlement costs[274] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[276] ITEM 5. Other Information This section reports on Rule 10b5-1 trading plans, noting no new plans adopted by directors or executive officers during the quarter, and the termination of one executive's plan - No new Rule 10b5-1 trading plans were adopted by directors or executive officers during the quarter ended June 30, 2023[278] - Christophe Fauchon de Villeplee, President, Scent, terminated his Rule 10b5-1 trading arrangement effective May 23, 2023[279] ITEM 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications under the Sarbanes-Oxley Act and XBRL interactive data files - Exhibits include certifications by Frank Clyburn and Glenn Richter under Sections 302 and 1350 of the Sarbanes-Oxley Act of 2002[281] - XBRL Instance Document and Taxonomy Extensions are provided for interactive data filing[281] Signatures This section provides the official signatures of the company's principal executive, financial, and accounting officers, certifying the report - The report was signed on August 9, 2023, by Frank Clyburn (CEO), Glenn Richter (EVP & CFO), and Beril Yildiz (SVP, Corporate Controller & Chief Accounting Officer)[283]