PART I

For financial information about our reportable operating segments and the geographic areas in which we do business, please see Note 15 of our Consolidated Financial Statements includedperiods presented in this Form 10-K.10-K, our business was organized in three segments: Taste, Scent and Frutarom. Beginning in the first quarter of fiscal year 2020, we are operating our business across two segments, Taste and Scent. As part of this new operating model, nearly all of the former Frutarom business segment was combined with the Taste segment. The financial results presented in this Form 10-K reflect the Taste, Scent and legacy Frutarom business segments prior to the realignment.

Our Taste business comprises a diversified portfolio across flavor compounds, savory solutions, inclusions and nutrition and specialty ingredients. The savory solutions compounds, inclusions and nutrition and specialty ingredients products were included in the legacy Frutarom businesses during 2019 and we will begin reporting them under the Taste business segment in 2020.

Flavor CompoundsCompounds. Our flavor compounds provide unique flavors that are ultimately used by our customers in savory products (soups, sauces, meat, fish, poultry, snacks, etc.), beverages (juice drinks, carbonated or flavored beverages, spirits, etc.), sweets (bakery products, candy, cereal, chewing gum, etc.), and dairy products (yogurt, ice cream, cheese, etc.).

Savory Solutions. Savory solutions include marinades or powder blends of flavors, natural colors, seasonings, functional ingredients and natural anti-oxidants that are primarily designed for the following fourmeat and fish industry.

Our consumer fragrances include five end-use categories of consumer goods:products:

During 2019, our Frutarom business createscreated and manufacturesmanufactured a naturals-focusedbroad suite of Flavor Compoundsflavor compounds and specialty fine ingredients, largely targeting small, local and regional customers. OurAs noted above, beginning in fiscal year 2020, our business segments have been realigned such that nearly all of the Frutarom business seekssegment will combine with our Taste business. The financial results presented in this Form 10-K reflect the Scent, Taste and Frutarom business segments prior to capitalize on the health and wellness focus of consumers and deliver growth by offering customers natural flavor products that combine solutions to create natural colors and natural functional food ingredients, which promote health benefits and extend shelf life. Based on this historical concentration, the majority of Frutarom's raw materials and products come from natural sources.realignment.

We believe that the first step to creating an innovative and unique flavor or fragrance experience begins with gaining insight into the consumer.consumer and emerging trends. By developing a deep understanding of what consumers value and prefer through our consumer insight programs, we are better able to focus our R&Dresearch and development and creative efforts.

Our consumer science, insight and marketing teams interpret trends, monitor product launches, analyze quantitative market data, and conduct numerous consumer interviews annually. Our sensory experts direct research programs exploring topics such as fragrance performance, the psychophysics of sensory perception (including chemesthetic properties such as warming, cooling, and tingling), the genetic basis for flavor and fragrance preference, and the effects of aromas on mood, performance, health, and well-being.

Based on this information, we develop innovative and proprietary programs to evaluate potential products that enable us to understand the emotional connections between a prospective product and the consumer. We believe this ability to pinpoint the likelihood of a product’s success translates into stronger brand equity, resulting in increased returns and greater market share gains for our customers as well as for IFF.

We consider our R&Dresearch and development infrastructure to be one of our key competencies and wecritical to our ability to provide differentiated products to our customers. We focus and invest substantial resources in the research and development of new and innovative molecules, compounds, formulas and technologies and the application of these to our customers’ products. We spend approximately 8% of our sales on the research, development and implementation of new molecules, compounds and technologies that help our customers respond to changing consumer preferences. Using the knowledge gained from our Consumer Insights program,consumer insights programs, we strategically focus our resources around key R&Dresearch and development platforms that address or anticipate consumer needs or preferences, or anticipate future preferences. By aligning our capabilities and resources aroundto these platforms, we ensure the proper support and focus for each program so that it can be further developed and eventually accepted for commercial application.

We currently have 392been granted 415 patents in the United States including those we have acquired from Frutaromsince 2000 and our other transactions. In addition, we have developed many unique molecules and delivery systems for our customers that are used as the foundations of successful flavors and fragrances around the world.

We have traditionally conducted our principal R&Dbasic research and development activities in Union Beach, New Jersey, where we employ scientists and application engineers who collaborate with our other R&Dresearch and development centers around the world, to support the:

Our ingredients research program discovers molecules found in natural substances and creates new molecules that are subsequently tested for their sensorial value. To broaden our offerings of natural, innovative and unique products, we seek collaborations with research institutions and other companies throughout the world. We have established a number of such collaborations to strengthen our innovation pipeline. We may also consider acquiring companies that could provide access to new technologies, consistent with our Vision 2020 strategy.technologies.

The development of new and customized flavor and fragrance compounds is a complex process calling upon the combined knowledge of our scientists, flavorists and perfumers. Scientists from various disciplines work in project teams with flavorists and perfumers to develop flavor and fragrance compounds with consumer preferred performance characteristics. The development of new flavor and fragrance compounds requires (i) an in-depth knowledge of the flavor and fragrance

We also have aThrough our global network of 21 creative centers and application laboratories, including 84 acquired in the Frutarom transaction, around the world where we create or adapt the basic flavors or fragrances compounds that we have developed in the R&Dresearch and development process to commercialize for use in our customers’ consumer products. Our global creative teams consist of perfumers, fragrance evaluators and flavorists, as well as marketing, consumer science, consumer insights, and technical application experts, from a wide range of cultures and nationalities. In close partnership with our customers’ product development groups, our creative teams create the sensory experiences that our customers are seeking in order to satisfy consumer demands in each of their markets.

Development of new flavorsNew flavor and fragrancesfragrance development is driven by a variety of sources including requests from our customers, who are in need of a specific flavors and fragrances for use in a new or modified consumer product, or as a result of internal initiatives stemming from our Consumer Insightsconsumer insights program. Our product development team works in partnership with our scientists and researchers to optimize the consumer appeal and relevance of theour flavors and fragrances. A collaborative process between our researchers, our product development team and our customers then follows to perfect the flavors and fragrances, so that it isthey are ready to be included in the final consumer product.

In addition to creating new flavors and fragrances, our researchers and product development teams advise customers on ways to improve their existing products by adjustingmoderating or substituting current ingredients with more readily accessible or less expensive materials or by modifying the current ingredients to produce an enhancedenhancing their yield. This often results in creating a better value proposition for our customers.

Our flavors and fragrances compound formulas are treated as trade secrets and remain our proprietary asset.assets. Our business is not materially dependent upon any individual patent, trademark or license.

We strive to provide our customers with consistent quality products on a timely and cost-effective basis by managing all aspects of the supply chain, from raw material sourcing through manufacturing, quality assurance, regulatory compliance and distribution.

In connection with the manufacture of compounds, we use natural ingredients and, primarily in our fragrance compounds, synthetic ingredients. We purchase approximately 21,00023,000 different raw materials from about 6,000an extensive network of domestic and international suppliers and distributors.

In order to ensure our supply of raw materials, achieve favorable pricing and provide timely transparency regarding inflationary trends to our customers, we continue to be focused on (i) implementing a forward-buy strategy, (ii) on:

Prior to our acquisitionAs of Frutarom,December 31, 2019, we had 37186 manufacturing facilities and 21 creative centers and application laboratories located in 3544 different countries. Our major manufacturing facilities have beenare located in the United States, the Netherlands, Spain, Great Britain, Germany, Indonesia, Turkey, Brazil, Mexico, Slovenia, China, India, and Singapore. Based on the regional nature of the Taste business and the concerns regarding the fragile nature of transporting raw materials, we have typically established smaller manufacturing facilities in our local markets that are focused on local needs. Products within the Scent business are typically composed of compounds that are more stable and more transportable around the world. Consequently, we have fewer manufacturing facilities within our Scent business, which produce compounds and ingredients for global distribution.

As part of our acquisitionIn connection with the integration of Frutarom, we acquired their 60 manufacturing facilities. In addition, we

Our supply chain initiatives in developing markets are focused on increasing capacity and investments in key technologies. Within our more mature markets, we tend to focus on consolidation and cost optimization as well as implementing new technologies. In addition to our own manufacturing facilities, we develop relationships with third parties, including contract manufacturing organizations, that permit us to expand access to the technologies, capabilities and capacity that we need to better serve our customers.

Over the past several years, we have redefined the way we envision sustainability. Moving from the traditional “take-make-dispose” model, we have embraced the circular economy model - one that is restorative and regenerative by design, which we believe is key in safeguarding the wellbeing of our consumers, the health of our planet and the integrity of our business.

Customers and consumers want to know if the products they are purchasing are responsibly sourced and environmentally conscious. Our sustainability vision and strategy is centeredare designed to meet these global trends, and we are committed to making real progress happen at every opportunity. Following the Frutarom acquisition, we are working on three main platforms: Positive Principles, Regenerative Productsassessing our combined environmental footprint with the intent of identifying synergies, gaps and Sensational Peopleopportunities in our sustainability efforts and is a key enablerupgrading the legacy Frutarom operations to better align them with the legacy IFF sustainability practices.

In line with our Vision 2021 strategy and our goal of redefining how we live in and care for the resources of our overall Vision 2020 business strategy.world, our sustainability goals include:

In 2018, IFF was2019, we were recognized for our sustainability efforts with the 2019 “Industry Mover” award from SAM, a subsidiary of RobecoSAM which specializes in providing environmental, social and governance (ESG) data, benchmarks and ratings. The award acknowledges IFF’s top-scoring performance in economic, social and environmental categories. We also reconfirmed our commitment to mitigate climate change by signing the United Nation’s Business Ambition for 1.5°C: Our Only Future pledge, committing to set science-based emissions targets to limit global temperature rise to 1.5 degrees Celsius. In addition, among other distinctions, we were named to Barron’s 100 Most Sustainable Companies List for the FTSE4Good Index Seriessecond consecutive year, recognizing our exceptional environmental, social and the Euronext Vigeo World 120. Additional achievements included:

For more detailed information about our sustainability programs and performance, please refer to our annual sustainability report.

We develop, produce and market our products in a number of jurisdictions throughoutaround the world and are subject to federal, regional and local legislation and regulations in each of the various countries. Our flavor and many of our fragrance products, which among other industries, are intended for theuse in food, beverage and pharmaceutical industries, which are subject to strict quality and regulatory standards. As a result, we in turn are required to meet these strict standards which, in recent years, have become increasingly stringent.stringent and affect both existing as well as new products.

Our products and operations are subject to regulation by governmental agencies in each of the markets in which we operate. These agencies include (1) the Food and Drug Administration and equivalent international agencies that regulate flavors and other ingredients in consumer products, (2) the Environmental Protection Agency and equivalent international agencies that regulate our manufacturing facilities, (3) the Occupational Safety and Health Administration and equivalent international agencies that regulate the working conditions in our manufacturing, research laboratories and creative centers, (4) local and international agencies that regulate trade and customs, (5) the Drug Enforcement Administration and other local or international agencies that regulate controlled chemicals that we use in our operations and (6) the Chemical Registration/Notification authorities that regulate chemicals that we use in, or transport to, the various countries in which we manufacture and/or market our products. We have seen an increase in registration and reporting requirements concerning the use of certain chemicals in a number of countries, such as Registration, Evaluation, Authorisation and Restriction of Chemicals ("REACH"(“REACH”) regulations in the European Union.Union, as well as similar regulations in other countries. In addition, the acquisition of Frutarom introduced business adjacencies which broaden the landscape of regulatory compliance requirements applicable to IFF.

In addition, we are subject to various rules relating to health, work safety and the environment at the local and international levels in the various countries in which we operate. Our manufacturing facilities throughout the world are subject to environmental standards relating to air emissions, sewage discharges, the use of hazardous materials, waste disposal practices and clean-up of existing environmental contamination. In recent years, there has been a significant increase in the stringency of environmental regulation and enforcement of environmental standards, and the costs of compliance have risen significantly, a trend we expect will continue in the future.

The global market for flavorstaste and fragrancesscent has expanded consistently, primarily as a result of an increase in demand for, and an increase in the variety of, consumer products containing flavors and fragrances.

The market for flavorstaste and fragrancesscent is highly competitive. Based on annual sales, our main competitors consist of (1) the three other large global flavor and fragrance manufacturers, Givaudan, Firmenich and Symrise, (2) mid-sized companies, (3) numerous localregional and regionallocal manufacturers and (4) consumer product companies who may develop their own flavors or fragrances.

We believe that our ability to compete successfully in the flavors and fragrances sub-market is based on:

Large multi-national customers and, increasingly, mid-sized customers, may limit the number of their suppliers by placing some on “core lists,” giving them priority for development and production of their new or modified products.

Private label manufacturers, mostly medium-sized, local or small food manufacturers, constitute a growing segment in the flavor market. Over the last decade, with the strengthening of supermarket chains, online platforms and growing consumer price consciousness, demand and consumption of private label products has grown at a faster rate than the brand food industry rate. We believe that new business opportunities will continue to arise from these clients as they are increasing demandingtheir demand for products that are similar to existing products in the market, distinctive premium products, as well as more innovative products.

The global demand for functional foods, food additives, natural ingredients, nutritional ingredients and supplements and active cosmetic ingredients is also increasing.growing. With our recent acquisitions, we have expanded our offerings to include products withwithin the functional food ingredient market, including ingredients focused on improving the health and wellness characteristics of a consumer good, the nutritional supplement marketand infant nutrition markets and the cosmetic actives markets.market. While the three other large global flavor and fragrance manufacturers, Givaudan, Firmenich and Symrise, are growing their businessactive in these areas, we also compete with specialty chemical companies, other large multi-national companies and smaller regional and local participants that offer products that address these same needs.

The success of our business is built on our talented employees. Our global team uses the latest science, insights, research, creative thinking and customer understanding to develop products that make an impact with customers and consumers across the world. At December 31, 2018,2019, we had approximately 13,00013,600 employees worldwide, of whom approximately 2,1002,000 are employed in the United States. We believe that relations with our employees are good.

We make available free of charge on or through the Investors“Investors” link on our website, www.iff.com, all materials that we file electronically with the Securities and Exchange Commission (“SEC”), including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after electronically filing such materials with, or furnishing them to, the SEC. During the period covered by this Form 10-K, we made all such materials available through our website as soon as reasonably practicable after filing such materials with the SEC.

The SEC maintains an Internet website, www.sec.gov, that contains reports, proxy and information statements and other information that we file electronically with the SEC.

A copy of our Corporate Governance Guidelines, Code of Business Conduct and Ethics, and the charters of the Audit Committee, Compensation Committee and Nominating and Governance Committee of the Board of Directors are posted on the Investors“Investors” section of our website, www.iff.com.

Our principal executive offices are located at 521 West 57th Street, New York, New York 10019 (212-765-5500).

The current executive officers of the Company, as of February 26, 2019,March 3, 2020, are listed below.

PartThe success of our growth strategy has included growth through acquisitions within the fragrance, flavors, natural ingredient industries and adjacencies. The Frutarom acquisition wasultimately depends on our mostability to realize anticipated benefits from the transaction. Since the Frutarom acquisition, we have benefited from, and expect to continue to benefit from cost synergies through global footprint optimization across manufacturing, the realization of significant acquisitionprocurement synergies plus organizational and bringsoperational efficiencies in overhead expenses. We also expect to achieve revenue synergies by leveraging customer relationships across a significantly differentmuch broader customer base and new adjacent product categoriescross-selling legacy IFF and Frutarom technology and capabilities. If we fail to our business. Our expectations aboutrealize all the benefits that we expect to achieve from the Frutarom acquisition, our business could be adversely affected.

The integration of this acquisition are based on projectionsour legacy IFF business and assumptions about our combined businesses which depend on (i)Frutarom’s business is a costly and time-consuming process, and we may face significant implementation challenges that will impact our ability to maintainrealize the current Frutarom business, (ii) our ability to achieveexpected benefits from the anticipated synergies and (iii) our ability to cross-sell the combined company’s products. We may encounter significant challenges achieving these anticipated benefits,acquisition, including the following:without limitation:

Some of the acquisitionthese factors are outside of our control and any one of them if we are unable to identify and implement the anticipated cost savings or if the actions taken to implement such cost-savings have unintended consequences on our other business operations.

Our financial results, followingFollowing the acquisition of Frutarom, our financial results were adversely affected by restructuring charges, cash expenses and non-cash accounting charges incurred in connection with the acquisition. We expect these typesto record total pretax restructuring charges related to the Frutarom acquisition of charges to continue as a resultapproximately $65 million, of which $10.4 million have been recorded since closing of the transaction through December 31, 2019, comprised of approximately $6.1 million of severance and related benefit costs; $0.5 million of asset write-downs and write-offs; and $3.7 million of costs associated with exit and disposal activities. In addition, there are many processes, policies, procedures, operations, technologies and systems that are being integrated across our organization that will result in costs, including financial advisory, tax, information technology, legal, consulting and other professional advisory fees associated with these integration ofactivities. Costs and expenses incurred in connection with the businessintegration limit resources that may otherwise be available for investment in research and operations of Frutarom. development and capital expenditures.

As a result of the acquisition, we assumed all of Frutarom’s liabilities, including unknown and contingent liabilities. Due to the nature of the transaction and the characteristics of Frutarom, our ability to conduct extensive due diligence was limited and we may subsequently identify additional obligations,unknown liabilities, including those that Frutarom assumed in its prior acquisitions during the measurement period.that are not currently probable or estimable. Prior to our acquisition, Frutarom completed 47 acquisitions since 2011, including 22 since the beginning of 2016. Our ability to accurately identify and assess the magnitude of the liabilities assumed by Frutarom in these acquisitions was limited by, among other things, the information available to us and Frutarom and the limited operating experience that Frutarom has with these acquired entities. If we aredo not able to completelyproperly assess the scope of these liabilities or if these liabilities are neither probable nor estimable at this time, our future financial results could be adversely affected by unanticipated reserves or charges, unexpected litigation or regulatory exposure, unfavorable accounting charges, unexpected increases in taxes due, a loss of anticipated tax benefits or other adverse effects on our business, operating results or financial condition.

In connection with the acquisition of Frutarom, we borrowed approximately $3.3 billion of additional debt, consistingthereby significantly increasing our leverage. As of $2.8 billionDecember 31, 2019, our total debt consisted of senior unsecured notes, $350.0 million in term loans and $139.5 million of senior unsecured amortizing notes associated with the tangible equity units. Incurring this new debt significantly increased our leverage.$4.4 billion. There may be circumstances in which required payments of principal and/or interest on this newour debt could adversely affect our cash flows, our operating results or our ability to return capital to our shareholders through dividends or stock repurchases.shareholders. Furthermore, our degree of leverage could adversely affect our future credit ratings. If we are unable to maintain or improve our current investment grade rating, it could adversely affect our future cost of funding, liquidity and access to capital markets. In addition, our current level of leverage could increase our vulnerability to sustained, adverse macroeconomic weakness, limit our ability to obtain further financing, and our ability to pursue certain operational and strategic opportunities, including large acquisitions. Our level of indebtedness as well as our failure to comply with covenants under our debt instruments, could adversely affect our business, results of operation and financial condition.

From time to time, we evaluate acquisition candidates that may strategically fit our business and/or growth objectives. If we are unable to successfully marketintegrate and develop acquired businesses, we could fail to our expandedachieve anticipated synergies and decentralized Tastecost savings, including any expected increase in revenues and Frutarom customer base, our operating results, which could have a material adverse effect on our financial results. We may also incur asset impairment charges related to acquisitions that reduce our earnings.

Additionally, we also evaluate and future growthenter into collaborations, joint ventures or partnerships from time to time to enhance our research and development efforts or expand our product portfolios and technology. The process of establishing and maintaining collaborative relationships is difficult and time-consuming to negotiate, document and implement. We may not be adversely affected.

The market for flavors, fragrances and natural ingredients ismarkets in which we compete are highly competitive. We face vigorous competition from companies throughout the world, including multi-national and specialized flavor, fragranceflavors, fragrances, nutrition and cosmeticspecialty ingredients companies, as well as consumer product companies whowhich may develop their own flavors, fragrances or cosmetic ingredients. In the flavors industry, we also face increasing competition from ingredient suppliers that have expanded their portfolios to include flavor offerings. Some of our competitors specialize in one or more of our product sub-segments, while others participate in many of our product sub-segments. In addition, some of our global competitors may have greatermore resources than we do or may have proprietary products that could permit them to respond to changing business and economic conditions more effectively than we can. Consolidation of our competitors may exacerbate these risks.

As we continue to enter into adjacent markets, such as cosmetic ingredients, and, recently through the Frutarom acquisition, functional foods, specialty fine ingredients and health and wellnessnutrition products, we may face greater competition-related risks in these markets than with our core historic flavor and fragrances businesses. For example, the specialty fine ingredients market is more price sensitive than the flavors market and is characterized by relatively lower profit margins. Some fine ingredients products manufactured by Frutarom are less unique and more replaceable bythan competitors’ products. There is no assurance that operating margins will not erode in the future,remain at current levels, which could substantially impact our business, operating results and financial condition.

Competition in our business is based, among other things, on innovation, product quality, regulatory compliance, pricing, quality of customer service, the support provided by marketing and application groups, and understanding of consumers. It is difficult for us to predict the timing, scale and success of our competitors’ actions in these areas. In particular, the discovery and development of new flavors and fragrance compounds and ingredients, protection of our intellectual property and development and retention of key employees are critical to our ability to effectively compete in our business. Advancement in technologies have also enhanced the ability of our competitors to develop substitutable products. Increased competition by existing or future competitors, including aggressive price competition, could result in the potential loss of substantial sales, or create the need for us to reduce prices or increase spending,reduced pricing and thismargin pressure and could have an adverseadversely impact onour sales and profitability.

As a result of our acquisition of Frutarom, the number of our customers significantly increased and became more diverse. Our historical customer base was primarily comprised of large and medium-sized food, beverage and consumer products companies. As a result of the expansion of our Tastepoint initiative and the Frutarom acquisition, and based on 2019 sales, we currently have approximately 38,000 customers, approximately 65% of which are small and mid-sized companies. This substantial increase in and diversity of our customer base requires us to adjust, among other things, our product development, manufacturing, distribution, marketing, customer relationship and sales strategy as well as adapt corporate, information technology, finance and administrative infrastructures to support different go-to-market models. We may experience difficulty managing the growth of a portfolio of customers that is more diverse in terms of its geographical presence as well as with innovative, cost-effectiverespect to the types of services they require and the infrastructure required to deliver our products. If we are unable to successfully gain market share or maintain our relationships with these customers, our future growth could be adversely affected.

Attracting, developing, and retaining talented employees, including our perfumers, scientists and flavorists, is essential to the successful delivery of our products that allow themand success in the marketplace. Furthermore, as we continue to achieve their own profitability expectations,focus on innovation, our need for scientists and other professionals will increase. An important factor in our ability to realize our anticipated benefits from the Frutarom acquisition is our ability to retain key employees at Frutarom. The ability to attract and retain talented employees is critical in the development of new products and technologies which is an integral component of our growth strategy.

During 2018,2019, our 25 largest customers, each of which was a multi-national consumer products company, accounted for 47%38% of our sales,sales. Large multi-national customers’ market share, especially in the consumer product industry, continues to be pressured by new smaller companies and specialty players that cater to or are more adept at adjusting to the largest customer across all end-use categories accountedlatest consumer trends, including towards natural products and clean labels, changes in the retail landscape (including e-commerce and consolidation), and increased competition from private labels, which have resulted and may continue to result in decreased demand for 9% to 12 % ofour products by such multi-national customers and volume erosion, especially in our Taste business. Furthermore, consolidations amongst our customers have resulted in larger and more sophisticated customers with greater buying power and additional negotiating strength. If such trends continue, our sales for each of the last three fiscal years. Loss of or a reduction in salescould be adversely impacted if we are not able to our largest customer or any of our otherreplace these sales.

In addition, large customers for an extended period of time could adversely affect our business or financial results.

Our ability to differentiate ourselves and deliver growth in line with our Vision 20202021 strategy largely depends on our ability to successfully develop and introduce new products and product improvements that meet our customers’ needs, and ultimately appeal to consumers. Innovation is a key element of our ability to develop and introduce new products. We cannot be certain that we will be successful in achieving our innovation goals, such as the development of new molecules, new and

As a company engaged in the global development, manufacture and distribution of products, we are subject to the risks inherent in such activities, including industrial accidents, environmental events, strikes and other labor disputes, product quality control issues, safety, licensing requirements and other regulatory issues, as well as natural disasters, public health crises, such as pandemics or epidemics, international conflicts, terrorist acts and other external factors over which we have no control.

While we operate research and development, manufacturing and distribution facilities throughout the world, many of these facilities are extremely specialized and certain of our R&Dresearch and development or creative laboratories facilities are uniquely situated to support our research and development efforts while certain of our manufacturing facilities are the sole location where a specific ingredient or product is produced. If our research and development activities or the manufacturing of ingredients or products were disrupted, the cost of relocating or replacing these activities or reformulating these ingredients or products may be substantial, which could result in production or development delays or otherwise have an adverse effect on our margins, operating results and future growth.

In connection with our manufacture of our fragrance and flavor compounds,products, we often rely on third party suppliers for ingredients and raw materials that are integral to our manufacture of such compounds. Our purchases of raw materials are subject to fluctuations in market price and availability caused by weather conditions, climate change, growing and harvesting conditions,as further discussed below, market conditions, governmental actions and other factors beyond our control. Our natural products and ingredients may also be subject to importcontrol affecting us and/or our suppliers. Import alerts or specific country regulations that wouldmay impair or delay our ability to obtain sufficient quantity of certain ingredients, raw materials and naturals at the relevant manufacturing facility. In addition, our ingredient or raw material suppliers, similar to us, are subject to the risks, as applicable, inherent in agriculture, manufacturing and distribution on a global scale, including industrial accidents, environmental events, strikes and other labor disputes, disruptions in supply chain or information systems, disruption or loss of key research or manufacturing sites, product quality control, safety and environmental compliance issues, licensing requirements and other regulatory issues, as well as natural disasters, global or local health crisis, international conflicts, terrorist acts and other external factors over which they have no control. These suppliers also could become insolvent or experience other financial distress. For example, in 2017, a fire at the manufacturing facility of BASF Group (“BASF”), one of

These risks are enhanced since we often rely on a limited number of our fragrance and flavor compounds.suppliers for particular ingredients. If our suppliers are unable to supply us with sufficient quantities of ingredients and raw materials to meet our needs, we would need to seek alternative sources of such materials or pursue our own production of such ingredients or direct acquisition of such raw materials. However, for certain of our raw ingredients and raw materials we rely on a limited number of suppliers where there are not readily available alternatives. If we are unable to obtain or manufacture alternative sources of such ingredients or raw materials at a similar cost, we would seek to (i) reformulate our compounds and/or (ii) increase pricing to reflect the higher supply cost. However, if we are not able to successfully implement any of these alternatives, we could experience disruptions in production, increased cost of sales and a corresponding decrease in gross margin or reduced sales, especially if our competitors were able to more successfully adjust to such market disruption. At the same time, industry-wide supply disruptions, such as the one caused by the BASF incident, may lead to broader market shortages and sales volatility. Such fluctuations and decrease in gross margin could have a material adverse effect on our business, results of operations and financial condition.

We use many different raw materials for our business, particularly natural products, including essential oils, extracts and concentrates derived from fruits, vegetables, flowers, woods and other botanicals, animal products, raw fruits, organic chemicals and petroleum-based chemicals. Historically, weWe have experienced a considerable amount of price volatility in natural products that represent approximately half of ourwith respect to raw material purchases, and we expect this volatility to continue in the near future.materials. For example, duringthere has been industry-wide price volatility of certain ingredients used in fragrance compounds due to the BASF incident and in 2018,2019 we experienced increases in the prices of certain naturals, including citrus.naturals.

Similarly, commodities and energy prices are subject to significant volatility caused by, among other things, market fluctuations, supply and demand, currency fluctuations, production and transportation disruptions, climate change and weather conditions, and other world events. As we source many of our raw materials globally to help ensure quality control, if the cost of energy, shipping or transportation increases and we are unable to pass along these costs to our customers, our profit margins would be adversely affected. Furthermore, increasing our prices to our customers could result in long-term sales declines or loss of market share if our customers find alternative suppliers or choose to reformulate their consumer products to use fewer ingredients, which could have an adverse long-term impact on our results of operations.

The development, manufacture and sale of our products are subject to various regulatory requirements in each of the countries in which our products are developed, manufactured and sold. In addition, we are subject to product safety and compliance requirements established by thegovernments, industry or similar oversight bodies, or contractually by our customers, including requirements concerning product safety, quality and efficacy, environmental impacts (including packaging, energy and water use and waste management) and other sustainability or similar issues. We use a variety of strategies, methodologies and tools to (i) identify current product standards, (ii) assess relative risks in our supply chain that can impact product integrity, (iii) monitor internal and external performance and (iv) test raw materials and finished goods to minimize the likelihood of product or process non-compliance.non-compliance with these regulations and standards by (i) identifying current product standards, (ii) assessing relative risks in our supply chain, (iii) monitoring internal and external performance and (iv) testing raw materials and finished goods. As concerns regarding safety, quality and environmental impact become more pressing, we may see new, more restrictive regulations adopted that impact our products. For example, the European Chemicals Agency has proposed that the European Commission adopt a ban on microplastics, including those found in personal care items, detergents and cosmetics, to reduce plastics pollution. If this ban is adopted, we will be required to modify our products and/or innovate new solutions to replace microplastics in our products. If we are unable to adapt to these new regulations or standards in a cost effective and timely manner, we may lose business to competitors who are able to provide compliant products.

Gaps in our operational processes or those of our suppliers or distributors can result in products that do not meet our quality control standards or industry standards or fail to comply with the relevant regulatory requirements, which in turn can result in finished consumer goods that do not comply with theseapplicable standards and requirements. Products that are mislabeled,

We must continually anticipate and react, in a timely and cost-effective manner, to changes in consumer preferences and demands, including changes in demand driven by increasing awareness of health and wellness and demands for transparency or cleaner labels with respect to product ingredients.ingredients by consumers and regulators. Consumers, especially in developed economies such as the U.S. and Western Europe, are rapidly shifting away from products containing artificial ingredients to all natural,all-natural, healthier alternatives. In addition, there has been a growing demand by consumers, non-governmental organizations and, to a lesser extent, governmental agencies to provide more transparency in product labeling and our customers have been taking steps to address this demand, including by voluntarily providing product-specific ingredients disclosure. These two trends could affect the types and volumes of our ingredients and compounds that our customers include in their consumer product offerings.offerings and, therefore, affect the demand for our products. If we are unable to react to or anticipate these trends in a timely and cost-effective manner, our results of operations and future growth may be adversely affected.

Despite our efforts, the increased focus on sustainability may result in new regulations and customer requirements that could negatively affect us. These could cause us to incur additional direct costs or to make changes to our operations in order to comply with any new regulations and customer requirements. We could also lose revenue if our customers divert business from us because we have not complied with their sustainability requirements or if we are unable to successfully establishnot successful in improving Frutarom’s sustainability metrics. These potential costs, changes and manage collaborations, joint ventures or partnerships that lead to development or commercializationloss of products, itrevenue could adversely affect our growth.

As part of our growth strategy, we have increased our presence in emerging markets by expanding our manufacturing presence, sales organization and product offerings in these markets, and we expect to continue to expand our business in these markets. With our combination withacquisition of Frutarom in 2018, who also had a significant presence in emerging markets, our business in these markets has meaningfully grown. In addition to the currency and international risks described below, our operations in these markets may be subject to a variety of other risks. Emerging markets typically have a consumer base with limited or fluctuating disposable income and customer demand in these markets may fluctuate accordingly. As a result, decrease in customer demand in emerging markets may have an adverse effect on our ability to execute our growth strategy.

Further, there is no assurance that our existing products, variants of our existing products or new products that we make, manufacture, distribute or sell will be accepted or be successful in any particular developing or emerging market, due to local or global competition, product price, cultural differences, consumer preferences or otherwise. In addition, emerging markets may have weak legal systems which may affect our ability to enforce our intellectual property and contractual rights, exchange controls, unstable governments and privatization or other government actions that may affect taxes, subsidies and incentive programs and the flow of goods and currency. In conducting our business, we move products from one country to another and may provide services in one country from a subsidiary located in another country. Accordingly, we are vulnerable to abrupt changes in trade, customs and tax regimes in these markets. If we are unable to expand our business in developing and emerging

We have significant operations outside the US,U.S., the results of which are reported in the local currency and then translated into U.S. dollars at applicable exchange rates for inclusion in our consolidated financial statements. The exchange rates between these currencies and the U.S. dollar have fluctuated and will continue to do so in the future. For example, as of July 1, 2018, we concluded that Argentina’s economy is highly inflationary under US GAAP, as it has experienced cumulative inflation of approximately 100% or more over a three-year period. While our current operations in Argentina represent less than 3% of our consolidated net sales and less than 1% of our consolidated total assets, continuing inflation in Argentina could adversely affect our profitability in a specific period. With our increased operations in emerging markets arising from our Frutarom acquisition, these risks will become exacerbated. Changes in exchange rates between these local currencies and the U.S. dollar will affect the recorded levels of sales, profitability, assets and/or liabilities. Additionally, volatility in currency exchange rates may adversely impact our financial condition, cash flows or liquidity. Although we employ a variety of techniques to mitigate the impact of exchange rate fluctuations, including sourcing strategies and a limited number of foreign currency hedging activities, we cannot guarantee that such hedging and risk management strategies will be effective, and our results of operations could be adversely affected.

We operate on a global basis, with manufacturing and sales facilities in the US,U.S., Europe, Africa, the Middle East, Latin America, Israel and Greater Asia. During 2018, 75% of our net sales and, as a result of our acquisition of Frutarom,2019, 80% of our combined net sales were to customers outside the U.S. and we intend to continue expansion of our international operations. As a result, our business is increasingly exposed to risks inherent in international operations. These risks, which can vary substantially by location, include the following:

The occurrence of any one or more of these factors could increase our costs and adversely affect our results of operations.

Our flavors and fragrance compounds and our fragrance, cosmetic active and functional food ingredients are components of a wide assortment of global consumer products throughout the world. Historically, demand for consumer products using these compounds and ingredients was stimulated and broadened by changing social habits and consumer needs, population growth, an expanding global middle-class and general economic growth, especially in emerging markets. The global economy has experienced significant recessionary pressures and declines in consumer confidence and economic growth. While some segments of the global economy appear to be recovering, the predictions surrounding the global recessionary economic environment in Europe has, and may in the near future, increase unemployment and underemployment, decrease salaries and wage rates, increase inflation or result in other market-wide cost pressures that will adversely affect demand for consumer products in both developed and emerging markets. In addition, growth rates in the emerging markets have moderated from previous levels. Reduced consumer spending may cause changes in our customer orders including reduced demand for our flavors and fragrances compounds or ingredients, or order cancellations.

Our business operations and properties procure, make use of, manufacture, sell, and distribute substances that are sometimes considered hazardous and are therefore subject to extensive and increasingly stringent federal, state, local and foreign laws and regulations pertaining to protection of the environment, including air emissions, sewage discharges, the use of hazardous materials, waste disposal practices and clean-up of existing environmental contamination. Failure to comply with these laws and regulations or any future changes to them may result in significant consequences to us, including the need to close or relocate one or more of our production facilities, administrative, civil and criminal penalties, fines, sanctions, litigation, costly remediation measures, liability for damages and negative publicity. If we are unable to meet production requirements, we can lose customer orders, which can adversely affect our future growth or we may be required to make incremental capital investments to ensure supply. For example, in 2015 Chinese authorities notified us of compliance issues pertaining to the emission of odors from several of our plants in China and, consequently, we invested approximately $6.5 million in odor-abatement equipment at these facilities and have built a second flavors manufacturing facility in China, with an estimated cost of $45 million. We have also recently completed negotiations with the Chinese government concerning the relocation of a second Fragrance facility in China. Idling of facilities or production modifications has caused or may cause customers to seek alternate suppliers due to concerns regarding supply interruptions and these customers may not return or may order at reduced levels even once issues are remediated. If these non-compliance issues reoccur in China or occur or in any other jurisdiction, we may lose business and may be required to incur capital spending above previous expectations, close a plant, or operate a plant at significantly reduced production levels on a permanent basis, and our operating results and cash flows from operations may be adversely affected.

We evaluate our inventory balances of materials based on shelf life, expected sourcing levels, known uses and anticipated demand based on forecasted customer order activity and changes in our product/sales mix. Efficient inventory management is a key component of our business success, financial returns and profitability. To be successful, we must maintain sufficient inventory levels and an appropriate product/sales mix to meet our customers’ demands, without allowing those levels to increase to such an extent that the costs associated with storing and holding other inventory adversely impact our financial results. If our buying decisions do not accurately predict sourcing levels, customer trends or our expectations about customer

We sell certain accounts receivable on a non-recourse basis to unrelated financial institutions under “factoring” agreements that are sponsored, solely and individually, by certain customers. The cost of participating in these programs was immaterial to our results in all periods. Should we choose not to participate, or if these programs were no longer available, it could reduce our cash flows from operations in the period in which the arrangement ends.

The global nature of our business, the significance of our international revenue and our focus on emerging markets create various domestic and local regulatory challenges and subject us to risks associated with our international operations. The U.S. Foreign Corrupt Practices Act, or FCPA, and similar anti-bribery and anti-corruption laws and regulations in other countries generally prohibit companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business or for other commercial advantage. In addition, U.S. public companies are required to maintain records that accurately and fairly represent their transactions and have an adequate system of internal accounting controls. Under the FCPA, U.S. companies may be held liable for the corrupt actions taken by directors, officers, employees,

We rely on patents and trade secrets to protect our intellectual property rights. We often rely on trade secrets to protect our proprietary fragrance and flavor formulations, as well as our extract methodologies, and processes for our nutraceutical,nutrition, natural colors for food and natural antioxidants for food protection, as this does not require us to publicly file information regarding our intellectual property. From time to time, a third party may claim that we have infringed upon or misappropriated their intellectual property rights, or a third party may infringe upon or misappropriate our intellectual property rights. We could incur significant costs in connection with legal actions to assert our intellectual property rights against third parties or to defend ourselves from third partythird-party assertions of invalidity, infringement, or misappropriation or other claims. Any settlement or adverse judgment resulting from such litigation could require us to obtain a license to continue to use the intellectual property rights that are the subject of the claim, or otherwise restrict or prohibit our use of such intellectual property rights. Any required licensing fees may not be available to us on acceptable terms, if at all. For those intellectual property rights that are protected as trade secrets, this litigation could result in even higher costs, and potentially the loss of certain rights, since we would not have a perfected intellectual property right that precludes others from making, using or selling our products or processes. The ongoing trend among our customers towards more transparent labeling could further diminish our ability to effectively protect our proprietary flavor formulations.

For intellectual property rights that we seek to protect through patents, we cannot be certain that these rights, if obtained, will not later be opposed, invalidated, or circumvented. In addition, even if such rights are obtained in the US,U.S., the laws of some of the other countries in which our products are or may be sold do not protect intellectual property rights to the same extent as the laws of the US. If other parties were to infringe on our intellectual property rights, or if a third party successfully asserted that we had infringed on their intellectual property rights, it could materially and adversely affect our future results of operations by, among other things, (i) reducing the price that we could obtain in the marketplace for products which are based on such rights, (ii) increasing the royalty or other fees that we may be required to pay in connection with such rights, or (iii) limiting the volume, if any, of such products that we can sell.sell or (iv) resulting in significant litigation costs and potential liability.

From time to time we are involved in a number of legal claims, regulatory investigations and litigation, including claims related to intellectual property, product liability, environmental matters and indirect taxes. For instance, product liability claims may arise due to the fact that we supply flavors and fragrances to the food and beverage, functional food, pharma/nutraceutical and personal care industries. Our manufacturing and other facilities may expose us to environmental claims and regulatory investigations. In addition, as we expand our product offering into functional food, nutraceuticals, and natural antioxidants, we may also be subject to claims of false or deceptive advertising claims in the U.S., Europe and other foreign jurisdictions in which we offer these types of products. These claims can arise as a result of function claims, health claims, nutrient content claims and other claims that impermissibly suggest therapeutic benefits for certain foods or food

As a result of the acquisition of Frutarom, we assumed a number of legal claims, regulatory investigations and litigation and we may become involved in additional actions in the future arising from the acquired operations. Specifically, as Frutarom has a significantly greater number of facilities that are located globally and a significantly larger number of customers, our

Our insurance may not be adequate to protect us from all material expenses related to pending and future claims and our current levels of insurance may not be available in the future at commercially reasonable prices. Any of these factors could adversely affect our profitability and results of operations.

The funding obligations for our pension plans are impacted by the performance of the financial markets, particularly the equity markets and interest rates. Funding obligations are determined under government regulations and are measured each year based on the value of assets and liabilities on a specific date. If the financial markets do not provide the long-term returns that are expected under the governmental funding calculations, we could be required to make larger contributions. The equity markets can be very volatile, and therefore our estimate of future contribution requirements can change dramatically in relatively short periods of time. Similarly, changes in interest rates and legislation enacted by governmental authorities can impact the timing and amounts of contribution requirements. An adverse change in the funded status of the plans could significantly increase our required contributions in the future and adversely impact our liquidity.

Assumptions used in determining projected benefit obligations and the fair value of plan assets for our pension and other postretirement benefit plans are determined by us in consultation with outside consultants and advisors. In the event that we determine that changes are warranted in the assumptions used, such as the discount rate, expected long-term rate of return on assets, or expected health care costs, our future pension and postretirement benefit expenses could increase or decrease. Due to changing market conditions or changes in the participant population, the assumptions that we use may differ from actual results, which could have a significant impact on our pension and postretirement liabilities and related costs and funding requirements.

We are subject to taxes in the U.S. and numerous foreign jurisdictions. Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in liabilities for uncertain tax positions, cost of repatriations or changes in tax laws or their interpretation. Any of these changes could have a material adverse effect on our profitability.

We have and will continue to implement transfer pricing policies among our various operations located in different countries. These transfer pricing policies are a significant component of the management and compliance of our operations across international boundaries and overall financial results. Many countries routinely examine transfer pricing policies of

We are subject to the continual examination of our income tax returns by the Internal Revenue Service and foreign tax authorities in those countries in which we operate, and we may be subject to assessments or audits in the future in any of the countries in which we operate. The final determination of tax audits and any related litigation could be materially different from our historical income tax provisions and accruals, and while we do not believe the results that follow would have a material adverse effect on our financial condition, such results could have a material effect on our income tax provision, net income or cash flows in the period or periods in which that determination is made.

In addition, a number of international legislative and regulatory bodies have proposed legislation and begun investigations of the tax practices of multi-national companies and, in the European Union, the tax policies of certain European Union member states. One of these efforts has been led by the Organisation for Economic Co-operation and Development, an international association of 34 countries including the U.S., which has finalized recommendations to revise corporate tax, transfer pricing, and tax treaty provisions in member countries. Since 2013, the European Commission (“EC”) has been investigating tax rulings granted by tax authorities in a number of European Union member states with respect to specific

We currently manufacture goods in the United Kingdom for distribution in the European Union and vice-versa and therefore may be adversely affected as a result of the United Kingdom’s expected departure from the European Union (“Brexit”) in 2019.2020. The United Kingdom is expected to withdraw from the European Union in March 2019, commonly referred to as “Brexit”. Negotiations are still underway to determine the termsimpact of the United Kingdom’s withdrawal from the European Union. The progress and outcomes of Brexit negotiations have, and may continue to, create global economic uncertainty, especially as customers and potential customers are unable to currently gauge the future regulations, and therefore costs, that will apply to their operations in the United Kingdom, and between the United Kingdom and the European Union. The withdrawal could, among other outcomes, exacerbate the disruption of the free movement of goods, services and people between the United Kingdom and the European Union, undermine bilateral cooperation in key geographic areas and significantly disrupt trade between the United Kingdom and the European Union or other nations as the United Kingdom pursues independent trade relations. In addition, Brexit has caused legal uncertainty, which could last indefinitely, and may potentially create divergent national laws and regulations as the United Kingdom determines which European Union laws to replace or replicate.