INTERNATIONAL FLAVORS & FRAGRANCES INC. (UNLESS INDICATED OTHERWISE, DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
The following management's discussion and analysis should be read in conjunction
with the management's discussion and analysis of financial condition and results
of operations, liquidity and capital resources included in our 2021 Annual
Report on Form 10-K ("2021 Form 10-K").
OVERVIEW
Company Background
OnFebruary 1, 2021 , the Company completed its Merger withNutrition & Biosciences, Inc. ("N&B"), a subsidiary of DuPont formed to hold theNutrition and Biosciences business (the "N&B Business", and such transaction, the "N&B Transaction") pursuant to an Agreement and Plan of Merger (the "Merger Agreement") with DuPont de Nemours, Inc. ("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 ofFebruary 1, 2021 .
As a result of the N&B Transaction, and following our 2018 acquisition of
We are organized into four reportable operating segments: Nourish, Health & Biosciences, Scent, and Pharma Solutions. The Company's consolidated financial information for the three months endedMarch 31, 2022 reflect the results of N&B for the full three months in the first quarter of 2022, whereas the three months endedMarch 31, 2021 reflect only two months of results of N&B in the first quarter of 2021.
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.
Our Health & Biosciences segment consists of a biotechnology-driven portfolio where enzymes, food cultures, probiotics and specialty ingredients for food and non-food applications are developed and produced. The biotechnology-driven portfolio of this segment produces cultures for use in fermented foods such as yogurt, cheese and fermented beverages. It also uses industrial fermentation to produce enzymes and microorganisms that provide product and process performance benefits to household detergents, animal feed, ethanol production and brewing. Health & Biosciences is comprised of six business units: Health, Cultures & Food Enzymes, Home & Personal Care, Animal Nutrition, Grain Processing and Microbial Control. 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. The Scent segment is comprised of three business units: Fragrance Compounds, Fragrance Ingredients and Cosmetic Actives. Our Pharma Solutions segment produces 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 formulations.
Financial Measures - Currency Neutral
Changes in our financial results include the impact of changes in foreign currency exchange rates. We provide currency neutral calculations in this report to remove the impact of these items. Our method in calculating currency neutral numbers is conducted by translating current year invoiced sale amounts at the exchange rates used for the corresponding prior year period. We use currency neutral results in our analysis of subsidiary or segment performance. We also use currency neutral numbers when analyzing our performance against our competitors and believe the change in method better allows us to do so. For the first quarter of 2022, the Company is not presenting currency neutral numbers for the Nourish, Health & Biosciences and Pharma Solutions operating segments as these operating segments include the effects of the Merger with N&B, which closed onFebruary 1, 2021 . As a result, the three months endedMarch 31, 2022 reflect the results of N&B for the full three months in the first quarter of 2022, whereas the three months endedMarch 31, 2021 reflect only two months of results of N&B in the first quarter of 2021, which do not present equally comparable periods.
Impact of COVID-19 Pandemic
OnMarch 11, 2020 , theWorld 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 disruptions, all of IFF's manufacturing facilities remain open and continue to manufacture products. 27 -------------------------------------------------------------------------------- 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 2022 remains uncertain. Due to the length and severity of COVID-19, 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
Part I, Item 1A, "Risk Factors," of our 2021 Form 10-K filed on
Impact of the Events in
We maintain operations in bothRussia andUkraine and, additionally, export products to customers inRussia andUkraine from operations outside the region. In response to the events inUkraine , we have limited the production and supply of ingredients in and toRussia 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 three months endedMarch 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 three months endedMarch 31, 2022 sales to Ukrainian customers were also less than 1% of total sales. For the first quarter of 2022, we recorded a charge of approximately$20 million related to expected credit losses on receivables from customers located inRussia andUkraine (for both export and domestic sales) and performed a test of recoverability of certain long-lived assets in the affected countries. For additional information, refer to Note 1 to the Consolidated Financial Statements and Part I, Item 1A, "Risk Factors," of our 2021 Form 10-K filed onFebruary 28, 2022 with theSEC .
Financial Performance Overview
For a reconciliation between reported and adjusted figures, please refer to the "Non-GAAP Financial Measures" section.
Sales
Sales in the first quarter of 2022 increased$761 million , or 31% on a reported basis, to$3.226 billion compared to$2.465 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 driven by volume and price increases across the business.
Gross Profit
Gross profit in the first quarter of 2022 increased$391 million , or 52% on a reported basis, to$1.145 billion (35.5% of sales) compared to$754 million (30.6% of sales) in the 2021 period. Gross profit included approximately$179 million attributable to N&B for the month of January in the 2022 period. In addition, the increase in gross profit was driven by price and volume increases in the overall business. Adjusted Operating EBITDA Adjusted operating EBITDA in the first quarter of 2022 increased$133 million , or 23% on a reported basis, to$702 million (21.8% of sales) compared to$569 million (23.1% of sales) in the comparable 2021 period. Adjusted operating EBITDA included approximately$137 million attributable to N&B for the month of January in the 2022 period. 28 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Three Months Ended
March 31,
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 2022 2021 Change
Net sales $ 3,226 $ 2,465 31 %
Cost of goods sold 2,081 1,711 22 %
Gross profit 1,145 754 52 %
Research and development (R&D) expenses 157 143 10 %
Selling and administrative (S&A) expenses 459 451 2 %
Amortization of acquisition-related intangibles 186 152 22 %
Restructuring and other charges 2 4 (50) %
Operating profit 341 4 NMF
Interest expense 72 65 11 %
Other income, net (16) (7) 129 %
Income (loss) before taxes 285 (54) NMF
Provision for (benefit from) income taxes 39 (14) NMF
Net income (loss) $ 246 $ (40) NMF
Net income attributable to noncontrolling interests 2 2 - %
Net income (loss) attributable to IFF stockholders
NMF
Net income (loss) per share - diluted $ 0.96 $ (0.21) NMF
Gross margin 35.5 % 30.6 % 490 bps
R&D as a percentage of sales 4.9 % 5.8 % (90) bps
S&A as a percentage of sales 14.2 % 18.3 % (410) bps
Operating margin 10.6 % 0.2 % NMF
Effective tax rate 13.7 % 25.9 % NMF
Segment net sales
Nourish $ 1,731 $ 1,308 32 %
Health & Biosciences 661 426 55 %
Scent 585 569 3 %
Pharma Solutions 249 162 54 %
Consolidated $ 3,226 $ 2,465
_______________________
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.
FIRST QUARTER 2022 IN COMPARISON TO FIRST QUARTER 2021
Sales
Sales for the first quarter of 2022 increased$761 million , or 31% on a reported basis, to$3.226 billion , compared to$2.465 billion in the prior year quarter. 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 driven by volume and price increases across the business. 29 --------------------------------------------------------------------------------
Sales Performance by Segment
% Change in Sales - First Quarter 2022 vs. First Quarter
2021
Reported Currency Neutral(1)
Nourish 32 % NMF
Health & Biosciences 55 % NMF
Scent 3 % 6 %
Pharma Solutions 54 % NMF
Total 31 % NMF
_______________________(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$423 million , or 32% on a reported basis, to$1.731 billion compared to$1.308 billion in the prior year 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 driven by price and volume increases, with price increases primarily in the Ingredients and Food Design business units and volume increases primarily in the Flavors and Food Design business units.
Health & Biosciences
Health & Biosciences sales in 2022 increased$235 million , or 55% on a reported basis, to$661 million compared to$426 million in the prior year period. Health & Biosciences sales included approximately$202 million of incremental sales attributable to N&B for the month of January in the 2022 period. In addition, performance in the Health & Biosciences operating segment was primarily driven by volume increases across various business units.
Scent
Scent sales in 2022 increased$16 million , or 3% on a reported basis, to$585 million , compared to$569 million in the prior year period. On a currency neutral basis, Scent sales increased 6% in the 2022 period. Sales growth in the Scent operating segment was driven by volume and price increases in both Fragrance Compounds and Fragrance Ingredients, offset by unfavorable impacts from exchange rate variations.
Pharma Solutions
Pharma Solutions sales in 2022 increased$87 million , or 54% on a reported basis, to$249 million compared to$162 million in the prior year period. 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$370 million to$2.081 billion (64.5% of sales) in the first quarter of 2022 compared to$1.711 billion (69.4% of sales) in the first quarter of 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.
Research and Development (R&D) Expenses
R&D expenses increased$14 million to$157 million (4.9% of sales) in the first quarter of 2022 compared to$143 million (5.8% of sales) in the first quarter of 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, primarily offset by lower Applied R&D expenses.
Selling and Administrative (S&A) Expenses
S&A expenses increased$8 million to$459 million (14.2% of sales) in the first quarter of 2022 compared to$451 million (18.3% of sales) in the first quarter of 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, primarily offset by lower administrative expenses principally due to lower professional fees, including consulting costs. 30 --------------------------------------------------------------------------------
Restructuring and Other Charges
Restructuring and other charges decreased to$2 million in the first quarter of 2022 compared to$4 million in the first quarter of 2021. The decrease was driven by lower severance costs in the first quarter of 2022 (see Note 4 for additional information).
Amortization of Acquisition-Related Intangibles
Amortization expenses increased to$186 million in the first quarter of 2022 compared to$152 million in the first quarter of 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 (see Notes 3 and 5 for additional information).
Interest Expense
Interest expense increased to$72 million in the first quarter of 2022 compared to$65 million in the 2021 period. 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 (see Note 7 for additional information). Average cost of debt was 2.5% for the 2022 period compared to 3.8% for the 2021 period.
Other Income, Net
In the first quarter of 2022, we recognized other income, net, of$16 million compared to$7 million in the 2021 period. The change of$9 million includes approximately$6 million attributable to N&B for the month of January in the 2022 period. In addition, the change, excluding the impact of N&B for the month of January in the 2022 period, was due to foreign exchange gains in the first quarter of 2022 compared to foreign exchange losses in the 2021 period.
Income Taxes
The effective tax rate for the three months endedMarch 31, 2022 was 13.7% compared to 25.9% for the three months endedMarch 31, 2021 . The quarter-over-quarter decrease was primarily due to a favorable mix of earnings and a one-time benefit associated with the proceedings of a bi-lateral advance pricing agreement.
Segment Adjusted Operating EBITDA Results by Business Unit
The Company uses Segment Adjusted Operating EBITDA for internal reporting and
performance measurement purposes. Segment Adjusted Operating EBITDA is defined
as Income Before Taxes before depreciation and amortization expense, interest
expense, restructuring and other charges and certain non-recurring items. Our
determination of reportable segments was made on the basis of our strategic
priorities within each segment and corresponds to the manner in which our Chief
Operating Decision Maker reviews and evaluates operating performance to make
decisions about resources to be allocated to the segment. In addition to our
strategic priorities, segment reporting is also based on differences in the
products and services we provide.
31
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Three Months Ended March 31 ,
(DOLLARS IN MILLIONS) 2022 2021
Segment Adjusted Operating EBITDA: Nourish $ 329$ 270 Health & Biosciences 192 128 Scent 116 128 Pharma Solutions 65 43 Total 702 569 Depreciation & Amortization (303) (242) Interest Expense (72) (65) Other income, net 16 7 Restructuring and Other Charges (2)
(4)
Shareholder Activism Related Costs (3) (7) Business Divestiture Costs (30) - Employee Separation Costs (4) (3) Frutarom Acquisition Related Costs (1) - N&B Inventory Step-Up Costs - (182) N&B Transaction Related Costs - (89) Integration Related Costs (18) (38) Income (Loss) Before Taxes $ 285$ (54) Segment Adjusted Operating EBITDA margin: Nourish 19.0 % 20.6 % Health & Biosciences 29.0 % 30.0 % Scent 19.8 % 22.5 % Pharma Solutions 26.1 % 26.5 % Consolidated 21.8 % 23.1 %
Nourish Segment Adjusted Operating EBITDA
Nourish Segment Adjusted Operating EBITDA increased$59 million to$329 million in the first quarter of 2022 (19.0% of segment sales) from$270 million (20.6% 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.
Health & Biosciences Segment Adjusted Operating EBITDA
Health & Biosciences Segment Adjusted Operating EBITDA increased$64 million to$192 million in the first quarter of 2022 (29.0% of segment sales) from$128 million (30.0% 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. In addition, the increase was driven by volume increases across various business units in the operating segment. The decrease in Health & Biosciences Segment Adjusted Operating EBITDA margin, as a percentage of sales, excluding the impact of N&B for the month of January in the 2022 period, was due to an increase in cost of goods sold as a result of higher commodity prices.
Scent Segment Adjusted Operating EBITDA
Scent Segment Adjusted Operating EBITDA decreased$12 million to$116 million in the first quarter of 2022 (19.8% of segment sales) from$128 million (22.5% of segment sales) in the comparable 2021 period. The decrease reflected increases in material costs and unfavorable impacts from exchange rate variations in the operating segment, partially offset by volume increases. 32 --------------------------------------------------------------------------------
Pharma Solutions Segment Adjusted Operating EBITDA
Pharma Solutions Segment Adjusted Operating EBITDA increased$22 million to$65 million in the first quarter of 2022 (26.1% of segment sales) from$43 million (26.5% of segment sales). 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 was driven by price and volume increases. The increase in Pharma Solutions Segment Adjusted Operating EBITDA margin, as a percentage of sales, excluding the impact of N&B for the month of January in the 2022 period, was due to a greater increase in sales than cost of goods sold, which helped to offset the impact of the increase in the cost of goods sold as a result of higher commodity prices. Liquidity Cash and Cash Equivalents We had cash and cash equivalents of$657 million atMarch 31, 2022 compared to$711 million atDecember 31, 2021 and of this balance, a portion was held outsidethe United States . Cash balances held in foreign jurisdictions are, in most circumstances, available to be repatriated tothe 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 theU.S. As we repatriate these funds to theU.S. we will be required to pay income taxes in certainU.S. states and applicable foreign withholding taxes during the period when such repatriation occurs. Accordingly, as ofMarch 31, 2022 , we had a deferred tax liability of approximately$87 million for the effect of repatriating the funds to theU.S. , attributable to various non-U.S. subsidiaries. There is no deferred tax liability associated with non-U.S. subsidiaries where we intend to indefinitely reinvest the earnings to fund local operations and/or capital projects.
Cash Flows (Used In) Provided By Operating Activities
Cash flows used in operating activities for the three months endedMarch 31, 2022 was$4 million , or (0.1)% of sales, compared to cash provided by operating activities of$358 million , or 14.5% of sales, for the three months endedMarch 31, 2021 . The decrease in cash flows from operating activities during 2022 was primarily driven by changes related to inventories, accounts receivables, accrual for incentive compensation, accounts payable and accrued expenses, largely offset by higher cash earnings excluding the impact of non-cash adjustments.
Working capital (current assets less current liabilities) totaled
We have various factoring agreements in theU.S. andThe Netherlands under which we can factor up to approximately$250 million in receivables. In addition, we have factoring agreements sponsored by certain customers. Under all of the arrangements, we sell the receivables on a non-recourse basis to unrelated financial institutions and account for the transactions as a sale of receivables. The applicable receivables are removed from our Consolidated Balance Sheets when the cash proceeds are received. The impact on cash provided by operations from participating in these programs decreased approximately$45 million and increased approximately$29 million for the three months endedMarch 31, 2022 and 2021, respectively. The cost of participating in these programs was approximately$1 million for both the three months endedMarch 31, 2022 and 2021.
Cash Flows (Used In) Provided By Investing Activities
Cash flows used in investing activities during the first three months of 2022 was$121 million compared to$115 million provided by investing activities in the prior year period. The decrease in cash flows from investing activities was primarily driven by the change in cash provided by the Merger with N&B in the current year period, which was related to a pension true-up payment received from DuPont. Additionally, the decrease was due to higher spending on property, plant and equipment in the current year period. We have evaluated and re-prioritized our capital projects and expect that capital spending in 2022 will be approximately 5.0% of sales (net of potential grants and other reimbursements from government authorities), up from 3.4% in 2021. 33 --------------------------------------------------------------------------------
Cash Flows Provided By (Used In) Financing Activities
Cash flows provided by financing activities in the first three months of 2022 was$95 million compared to$215 million used in financing activities in the prior year period. The increase in cash flows from financing activities was primarily driven by higher proceeds from issuance of commercial paper, net of repayments, slight increase in short-term debt compared to repayments of short-term debt from the prior year period, less repayments of long-term debt and less contingent considerations paid, largely offset by higher cash dividend payments, higher employee taxes paid and higher purchases of noncontrolling interest. We paid dividends totaling$201 million in the 2022 period. We declared a cash dividend per share of$0.79 in the first quarter of 2022 that was paid onApril 6, 2022 to all shareholders of record as ofMarch 25, 2022 . Our capital allocation strategy seeks to maintain our investment grade rating while investing in the business and continuing to pay dividends and repaying debt. We make capital investments in our businesses to support our operational needs and strategic long term plans. We are committed to maintaining our history of paying a dividend to investors which is determined by our Board of Directors at its discretion based on various factors.
We currently have a board approved stock repurchase program with a total
remaining value of
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 7 for additional information.
Revolving Credit Facility and Term Loans
As ofMarch 31, 2022 , we had no outstanding borrowings under our$2.000 billion Revolving Credit Facility. The amount that we are able to draw down under the Revolving Credit Facility is limited by financial covenants as described in more detail below. As ofMarch 31, 2022 , our draw down capacity was$842 million under the Revolving Credit Facility. Refer to Note 7 of this Form 10-Q and Part IV, Item 15, "Exhibits and Financial Statement Schedules," Note 9 of our 2021 Form 10-K, filed onFebruary 28, 2022 , for additional information.
Debt Covenants
AtMarch 31, 2022 , we were in compliance with all financial and other covenants, including the Net Debt to Credit Adjusted EBITDA ratio. AtMarch 31, 2022 our Net Debt/Credit Adjusted EBITDA(1) ratio was 4.18 to 1.0 as defined by the credit facility agreements, which is below the financial covenants of existing outstanding debt. _______________________ (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 income and net debt to total debt are as follows: (DOLLARS IN MILLIONS) Twelve Months Ended March 31, 2022 Net income $ 556 Interest expense 296 Income taxes 128 Depreciation and amortization 1,217 Specified items(1) 405 Non-cash items(2) 38 Credit Adjusted EBITDA $ 2,640 _______________________ (1)Specified items for the 12 months endedMarch 31, 2022 of$405 million , consisted of restructuring and other charges, shareholder activism related costs, business divestiture costs, employee separation costs, pension income adjustment, pension settlement,Frutarom acquisition related costs, N&B inventory step-up costs, N&B transaction related costs and integration related costs. 34 --------------------------------------------------------------------------------
(2)Non-cash items represent all other adjustments to reconcile net income to net cash provided by operations as presented on the Statement of Cash Flows, including gains on disposal of assets, gains on business disposal and stock-based compensation.
(DOLLARS IN MILLIONS) March 31, 2022 Total debt(1)$ 11,695 Adjustments: Cash and cash equivalents 657 Net debt$ 11,038 _______________________ (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. Senior Notes As ofMarch 31, 2022 , we had$9.691 billion aggregate principal amount outstanding in senior unsecured notes, with$1.441 billion principal amount denominated in EUR and$8.250 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 0.69% per year to 5.12% per year, with maturities fromSeptember 2022 toDecember 1, 2050 . See Note 7 for additional information.
Contractual Obligations
We expect to contribute a total of$5 million to ourU.S. pension plans and a total of$33 million to our non-U.S. pension plans during 2022. During the three months endedMarch 31, 2022 , there were no contributions made to the qualifiedU.S. pension plans,$7 million of contributions were made to the non-U.S. pension plans, and$1 million of benefit payments were made with respect to our non-qualifiedU.S. pension plan. We also expect to contribute$4 million to our postretirement benefits other than pension plans during 2022. During the three months endedMarch 31, 2022 ,$1 million of contributions were made to postretirement benefits other than pension plans. As discussed in Note 15 to the Consolidated Financial Statements, atMarch 31, 2022 , we had entered into various guarantees and had undrawn outstanding letters of credit from financial institutions. These arrangements reflect ongoing business operations, including commercial commitments, and governmental requirements associated with audits or litigation that are in process with various jurisdictions. Based on the current facts and circumstances, these arrangements are not reasonably likely to have a material impact on our consolidated financial condition, results of operations, or cash flows.
New Accounting Standards
Refer to Note 1 to the Consolidated Financial Statements for a discussion of recent accounting pronouncements.
Non-GAAP Financial Measures
We use non-GAAP financial measures in this Form 10-Q, including: (i) currency neutral metrics and (ii) adjusted operating EBITDA and adjusted operating EBITDA margin. We also provide the non-GAAP measure net debt solely for the purpose of providing information on the extent to which the Company is in compliance with debt covenants contained in its debt agreements. Our non-GAAP financial measures are defined below. These non-GAAP financial measures are intended to provide additional information regarding our underlying operating results and comparable year-over-year performance. Such information is supplemental to information presented in accordance with GAAP and is not intended to represent a presentation in accordance with GAAP. In discussing our historical and expected future results and financial condition, we believe it is meaningful for investors to be made aware of and to be assisted in a better understanding of, on a period-to-period comparable basis, financial amounts both including and excluding these identified items, as well as the impact of exchange rate fluctuations. These non-GAAP measures should not be considered in isolation or as substitutes for analysis of the Company's results under GAAP and may not be comparable to other companies' calculation of such metrics. Adjusted operating EBITDA and adjusted operating EBITDA margin exclude depreciation and amortization expense, interest expense, other income (expense), net, restructuring and other charges and certain non-recurring items such as shareholder activism related costs, business divestiture costs, employee separation 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. 35
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Cautionary Statement Under the Private Securities Litigation Reform Act of 1995
Statements in this Form 10-Q, which are not historical facts or information, are "forward-looking statements" within the meaning ofThe Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management's current assumptions, estimates and expectations including those concerning (i) the impacts of COVID-19 and our plans to respond to its implications; (ii) the expected impact of global supply chain challenges; (iii) expectations regarding sales and profit for the fiscal year 2022, including the impact of foreign exchange, pricing actions, raw materials, and sourcing, logistics and manufacturing costs; (iv) expectations of the impact of inflationary pressures and the pricing actions to offset exposure to such impacts; (v) the impact of high input costs, including raw materials, transportation and energy; (vi) our ability to drive cost discipline measures and the ability to recover margin to pre-inflation levels; (vii) the divestiture of our Microbial Control business and the progress of our portfolio optimization strategy, through non-core business divestitures; (viii) our combination with N&B, including the expected benefits and synergies of the N&B Transaction and future opportunities for the combined company; (ix) the success of our integration efforts and ability to deliver on our synergy commitments as well as future opportunities for the combined company; (x) our ability to achieve the anticipated benefits of theFrutarom acquisition, including$145 million of expected synergies; (xi) the growth potential of the markets in which we operate, including the emerging markets, (xii) expected capital expenditures in 2022; (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 innovate and execute on specific consumer trends and demands; and (xvi) 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 in the price of our input costs, such as raw materials, transportation and energy;
•supply chain disruptions, geopolitical developments, including the
•disruption in the development, manufacture, distribution or sale of our products from COVID-19 and other public health crises;
•risks related to the integration of N&B and theFrutarom business, including whether we will realize the benefits anticipated from the acquisitions in the expected time frame; •our ability to successfully establish and manage acquisitions, collaborations, joint ventures or partnerships, or the failure to close strategic transactions or divestments;
•our ability to successfully market to our expanded and diverse customer base;
•our substantial amount of indebtedness and its impact on our liquidity and ability to return capital to its shareholders;
•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;
•disruption in the development, manufacture, distribution or sale of our products from natural disasters, public health crises, international conflicts, terrorist acts, labor strikes, political crisis, 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 theU.S. and abroad; 36 --------------------------------------------------------------------------------
•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 consumer, customer, shareholder and regulatory focus on sustainability;
•defect, 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 on demand for consumer products;
•our ability to comply with, and the costs associated with compliance with,
•our ability to successfully manage our working capital and inventory balances;
•the impact of the failure to comply withU.S. or foreign anti-corruption and anti-bribery laws and regulations, including theU.S. Foreign Corrupt Practices Act;
•any impairment on our tangible or intangible long-lived assets, including
goodwill associated with the N&B merger and the acquisition of
•our ability to protect our intellectual property rights;
•the impact of the outcome 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
•the impact of the phase out of the London Interbank Offered Rate (LIBOR) on interest expense; and
•risks associated with our CEO transition, including the impact of employee hiring and retention.
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 theSEC or in company press releases) for other factors that may cause actual results to differ materially from those projected by the Company. Please refer to Part I. Item 1A., Risk Factors of the 2021 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 theSEC 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.
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