UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2018~~March 31, 2019



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-4858

INTERNATIONAL FLAVORS &

FRAGRANCES INC.

(Exact name of registrant as specified in its charter)




New York		13-1432060
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

521 West 57th Street, New York, N.Y. 10019-2960

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (212) 765-5500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	þ	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value 12 1/2¢ per share	IFF	New York Stock Exchange
6.00% Tangible Equity Units	IFFT	New York Stock Exchange
0.500% Senior Notes due 2021	IFF 21	New York Stock Exchange
1.750% Senior Notes due 2024	IFF 24	New York Stock Exchange
1.800% Senior Notes due 2026	IFF 26	New York Stock Exchange

Number of shares outstanding as of ~~July~~April 24, ~~2018~~2019: ~~79,047,426~~106,691,137

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

INTERNATIONAL FLAVORS & FRAGRANCES INC.

CONSOLIDATED BALANCE SHEET

(Unaudited)


(DOLLARS IN THOUSANDS)	June 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
ASSETS
Current Assets:
Cash and cash equivalents	$	322,423		$	368,046		$	483,504		$	634,897
Trade receivables (net of allowances of $13,622 and $13,392, respectively)	723,855			663,663
Restricted cash							13,625			13,625
Trade receivables (net of allowances of $8,815 and $9,173, respectively)							1,003,965			937,765
Inventories: Raw materials	353,220			326,140			586,175			568,916
Work in process	23,671			16,431			52,033			48,819
Finished goods	318,301			306,877			476,280			460,802
Total Inventories	695,192			649,448			1,114,488			1,078,537
Prepaid expenses and other current assets	285,110			215,387			310,243			277,036
Total Current Assets	2,026,580			1,896,544			2,925,825			2,941,860
Property, plant and equipment, at cost	2,098,513			2,090,755			2,581,131			2,492,938
Accumulated depreciation	(1,230,884		)	(1,210,175		)	(1,287,102		)	(1,251,786		)
	867,629			880,580			1,294,029			1,241,152
Goodwill	1,148,586			1,156,288			5,434,000			5,378,388
Other intangible assets, net	391,426			415,787			2,974,177			3,039,322
Deferred income taxes	82,204			99,777
Other assets	157,017			149,950			583,389			288,673
Total Assets	$	4,673,442		$	4,598,926		$	13,211,420		$	12,889,395
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short term borrowings	$	6,500		$	6,966
Bank borrowings, overdrafts, and current portion of long-term debt							$	84,003		$	48,642
Accounts payable	315,656			338,188			476,413			471,382
Accrued payroll and bonus	59,278			88,361			91,293			121,080
Dividends payable	54,488			54,420			77,799			77,779
Other current liabilities	263,448			280,833			414,626			409,428
Total Current Liabilities	699,370			768,768			1,144,134			1,128,311
Long-term debt	1,717,189			1,632,186			4,421,430			4,504,417
Deferred gains	35,824			37,344
Retirement liabilities	226,221			228,936			225,834			227,172
Deferred income taxes							658,804			655,879
Other liabilities	238,635			242,398			492,029			248,436
Total Other Liabilities	2,217,869			2,140,864			5,798,097			5,635,904
Commitments and Contingencies (Note 13)
Commitments and Contingencies (Note 15)
Redeemable noncontrolling interests							114,711			81,806
Shareholders’ Equity:
Common stock 12 1/2¢ par value; 500,000,000 shares authorized; 115,858,190 shares issued as of June 30, 2018 and December 31, 2017; and 79,046,217 and 78,947,381 shares outstanding as of June 30, 2018 and December 31, 2017, respectively	14,470			14,470
Common stock 12 1/2¢ par value; 500,000,000 shares authorized; 128,526,137 shares issued as of March 31, 2019 and December 31, 2018; and 106,646,581 and 106,619,202 shares outstanding as of March 31, 2019 and December 31, 2018, respectively							16,066			16,066
Capital in excess of par value	167,432			162,827			3,802,602			3,793,609
Retained earnings	3,992,452			3,870,621			4,011,326			3,956,221
Accumulated other comprehensive loss	(692,498		)	(637,482		)	(657,354		)	(702,227		)
Treasury stock, at cost (36,811,973 and 36,910,809 shares as of June 30, 2018 and December 31, 2017, respectively)	(1,732,001		)	(1,726,234		)
Treasury stock, at cost (21,879,556 and 21,906,935 shares as of March 31, 2019 and December 31, 2018, respectively)							(1,029,429		)	(1,030,718		)
Total Shareholders’ Equity	1,749,855			1,684,202			6,143,211			6,032,951
Noncontrolling interest	6,348			5,092			11,267			10,423
Total Shareholders’ Equity including noncontrolling interest	1,756,203			1,689,294			6,154,478			6,043,374
Total Liabilities and Shareholders’ Equity	$	4,673,442		$	4,598,926		$	13,211,420		$	12,889,395

INTERNATIONAL FLAVORS & FRAGRANCES INC.

CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)


													Three Months Ended
	Three Months Ended June 30,						Six Months Ended June 30,						March 31,
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)	2018			2017			2018			2017			2019			2018
Net sales	$	920,016		$	842,861		$	1,850,944		$	1,671,154		$	1,297,402		$	930,928
Cost of goods sold	521,299			469,877			1,046,419			935,088			766,143			525,119
Gross profit	398,717			372,984			804,525			736,066			531,259			405,809
Research and development expenses	74,767			72,761			153,244			144,887			90,596			78,476
Selling and administrative expenses	157,407			139,319			300,051			283,023			213,182			142,644
Amortization of acquisition-related intangibles	9,584			8,494			18,769			15,561			47,625			9,185
Restructuring and other charges, net	1,186			791			1,903			10,934			16,174			717
Losses (gains) on sales of fixed assets	1,264			(68		)	1,195			(89		)
Gains on sales of fixed assets													(188		)	(69		)
Operating profit	154,509			151,687			329,363			281,750			163,870			174,856
Interest expense	53,246			17,556			69,841			30,363			36,572			16,595
Other (income), net	(20,655		)	(7,909		)	(21,232		)	(29,140		)
Other income, net													(7,278		)	(576		)
Income before taxes	121,918			142,040			280,754			280,527			134,576			158,837
Taxes on income	22,769			32,245			52,190			54,968			23,362			29,421
Net income	99,149			109,795			228,564			225,559			111,214			129,416
Other comprehensive income (loss), after tax:
Net income attributable to noncontrolling interests													2,385			—
Net income attributable to IFF stockholders													108,829			129,416
Other comprehensive income, after tax:
Foreign currency translation adjustments	(85,264		)	13,347			(70,461		)	10,090			42,377			14,803
Gains (losses) on derivatives qualifying as hedges	10,455			(11,768		)	9,926			(13,519		)
Losses on derivatives qualifying as hedges													(97		)	(529		)
Pension and postretirement net liability	2,890			3,688			5,519			7,323			2,593			2,629
Other comprehensive income (loss)	(71,919		)	5,267			(55,016		)	3,894
Total comprehensive income	$	27,230		$	115,062		$	173,548		$	229,453
Other comprehensive income													44,873			16,903
Comprehensive income attributable to IFF stockholders													$	153,702		$	146,319

Net income per share - basic	$	1.25		$	1.39		$	2.89		$	2.85		$	0.97		$	1.63
Net income per share - diluted	$	1.25		$	1.38		$	2.87		$	2.84		0.96			1.63
Average number of shares outstanding - basic	79,065			79,072			79,041			79,088			111,864			79,018
Average number of shares outstanding - diluted	79,303			79,305			79,347			79,360			113,389			79,393
Dividends declared per share	$	0.69		$	0.64		$	1.38		$	1.28

INTERNATIONAL FLAVORS & FRAGRANCES INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)

~~(Unaudited)~~


	Six Months Ended June 30,						Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	2018			2017			2019			2018
Cash flows from operating activities:
Net income	$	228,564		$	225,559		$	111,214		$	129,416
Adjustments to reconcile to net cash provided by operating activities:
Adjustments to reconcile to net cash provided by (used in) operating activities
Depreciation and amortization	64,968			55,805			81,775			33,384
Deferred income taxes	14,342			1,505			(12,389		)	18,404
Loss (gain) on disposal of assets	1,195			(89		)
Gains on sale of assets							(188		)	(69		)
Stock-based compensation	15,173			12,893			7,604			7,620
Pension contributions	(9,963		)	(31,557		)	(3,956		)	(4,387		)
Litigation settlement	—			(56,000		)	—			(12,969		)
Product recall claim settlement	(12,969		)	—
Foreign currency gain on liquidation of entity	—			(12,214		)
Changes in assets and liabilities, net of acquisitions:
Trade receivables	(99,963		)	(77,580		)	(55,935		)	(61,301		)
Inventories	(67,940		)	(4,228		)	(24,719		)	(30,185		)
Accounts payable	(7,139		)	(23,479		)	8,988			(8,435		)
Accruals for incentive compensation	(25,158		)	(12,316		)	(36,969		)	(36,583		)
Other current payables and accrued expenses	11,028			(3,099		)	(11,321		)	(18,540		)
Other assets	(65,620		)	18,007			(9,978		)	(26,035		)
Other liabilities	8,651			(35,286		)	(6,894		)	(1,715		)
Net cash provided by operating activities	55,169			57,921
Net cash provided by (used in) operating activities							47,232			(11,395		)
Cash flows from investing activities:
Cash paid for acquisitions, net of cash received	(22		)	(191,304		)	(33,895		)	(22		)
Additions to property, plant and equipment	(67,421		)	(46,153		)	(57,609		)	(33,105		)
Proceeds from life insurance contracts	—			1,941			1,890			—
Maturity of net investment hedges	(2,642		)	3,016			—			(2,405		)
Proceeds from disposal of assets	618			473			3,970			293
Contingent consideration paid							(4,655		)	—
Net cash used in investing activities	(69,467		)	(232,027		)	(90,299		)	(35,239		)
Cash flows from financing activities:
Cash dividends paid to shareholders	(108,824		)	(101,184		)	(77,779		)	(54,420		)
Increase in revolving credit facility borrowings and overdrafts	110,259			21,595
Deferred financing costs	(1,401		)	(5,373		)
Proceeds from issuance of long-term debt	—			498,250
Loss on pre-issuance hedges	—			(5,310		)
Proceeds from issuance of stock under stock plans	—			329
Increase in revolving credit facility and short term borrowings							2,895			53,688
Repayments on debt							(36,156		)	—
Proceeds from issuance of stock in connection with stock options							200			—
Employee withholding taxes paid	(9,096		)	(11,485		)	(1,339		)	(3,266		)
Purchase of treasury stock	(15,475		)	(53,211		)	—			(10,617		)
Net cash (used in) provided by financing activities	(24,537		)	343,611
Net cash used in financing activities							(112,179		)	(14,615		)
Effect of exchange rate changes on cash and cash equivalents	(6,788		)	(2,111		)	3,853			(1,521		)
Net change in cash and cash equivalents	(45,623		)	167,394			(151,393		)	(62,770		)
Cash and cash equivalents at beginning of year	368,046			323,992			648,522			368,046
Cash and cash equivalents at end of period	$	322,423		$	491,386		$	497,129		$	305,276
Supplemental Disclosures:
Interest paid, net of amounts capitalized	$	74,422		$	32,039		$	48,506		$	20,236
Income taxes paid	$	57,809		$	50,962		33,326			24,939
Accrued capital expenditures	$	19,160		$	13,589		14,241			18,868

INTERNATIONAL FLAVORS & FRAGRANCES INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(Unaudited)



(DOLLARS IN THOUSANDS)	Common stock		Capital in excess of par value			Retained earnings			Accumulated other comprehensive (loss) income			Treasury stock					Non-controlling interest		Total
(DOLLARS IN THOUSANDS)	Common stock		Capital in excess of par value			Retained earnings			Accumulated other comprehensive (loss) income			Shares		Cost			Non-controlling interest		Total
Balance at January 1, 2018	$	14,470	$	162,827		$	3,870,621		$	(637,482	)	(36,910,809	)	$	(1,726,234	)	$	5,092	$	1,689,294
Net income						129,416											720		130,136
Adoption of ASU 2014-09						2,158													2,158
Cumulative translation adjustment									14,803										14,803
Losses on derivatives qualifying as hedges; net of tax $106									(529		)								(529		)
Pension liability and postretirement adjustment; net of tax $1,894									2,629										2,629
Cash dividends declared ($0.69 per share)						(54,404		)											(54,404		)
Stock options/SSARs			(226		)							15,678		736					510
Treasury share repurchases												(73,154	)	(10,977		)			(10,977		)
Vested restricted stock units and awards			(3,704		)							30,294		1,426					(2,278		)
Stock-based compensation			7,620																7,620
Balance at March 31, 2018	$	14,470	$	166,517		$	3,947,791		$	(620,579	)	(36,937,991	)	$	(1,735,049	)	$	5,812	$	1,778,962



(DOLLARS IN THOUSANDS)	Common stock		Capital in excess of par value			Retained earnings			Accumulated other comprehensive (loss) income			Treasury stock					Non-controlling interest		Total
(DOLLARS IN THOUSANDS)	Common stock		Capital in excess of par value			Retained earnings			Accumulated other comprehensive (loss) income			Shares		Cost			Non-controlling interest		Total
Balance at January 1, 2019	$	16,066	$	3,793,609		$	3,956,221		$	(702,227	)	(21,906,935	)	$	(1,030,718	)	$	10,423	$	6,043,374
Net income						108,829											844		109,673
Adoption of ASU 2016-02						23,094													23,094
Adoption of ASU 2017-12						981													981
Cumulative translation adjustment									42,377										42,377
Losses on derivatives qualifying as hedges; net of tax $44									(97		)								(97		)
Pension liability and postretirement adjustment; net of tax $836									2,593										2,593
Cash dividends declared ($0.73 per share)						(77,799		)											(77,799		)
Stock options/SSARs			3,424									13,978		660					4,084
Vested restricted stock units and awards			(2,405		)							13,401		629					(1,776		)
Stock-based compensation			7,604																7,604
Redeemable NCI			370																370
Balance at March 31, 2019	$	16,066	$	3,802,602		$	4,011,326		$	(657,354	)	(21,879,556	)	$	(1,029,429	)	$	11,267	$	6,154,478

INTERNATIONAL FLAVORS & FRAGRANCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These interim statements and related management’s discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the related notes and management’s discussion and analysis of results of operations, liquidity and capital resources included in our ~~2017~~2018 Annual Report on Form 10-K (“~~2017~~2018 Form 10-K”). These interim statements are unaudited. The year-end balance sheet data included in this Form 10-Q was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America. We have historically operated and continue to operate on a 52/53 week fiscal year ending on the Friday closest to the last day of the quarter. For ease of presentation, ~~June 30~~March 31 and December 31 are used consistently throughout this Form 10-Q and these interim financial statements and related notes to represent the period-end dates. For the ~~2018~~2019 and ~~2017~~2018 quarters, the actual closing dates were ~~June~~March 29 and ~~June~~March 30, respectively. The unaudited interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented. When used herein, the terms “IFF,” the “Company,” “we,” “us” and “our” mean International Flavors & Fragrances Inc. and its consolidated subsidiaries.

Use of Estimates

The preparation of financial statements in conformity with U.S. ~~GAAP~~generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

~~Reclassifications and Revisions~~

~~Certain prior year amounts have been reclassified and revised to conform to current year presentation.~~

As discussed below and in conformity with the Financial Accounting Standards Board's ("FASB") amendments to the Compensation - Retirement Benefits guidance, the Company has reclassified certain components of net periodic benefit expense (income) to Other income (expense), net.

~~U.S. Tax Reform~~

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) that significantly revised the U.S. tax code effective January 1, 2018 by, among other things, lowering the corporate income tax rate from a top marginal rate of 35% to a flat 21%, limiting deductibility of interest expense and performance based incentive compensation, transitioning to a territorial system and creating new taxes associated with global operations.

In the fourth quarter of 2017, the Company recorded approximately $139.2 million in charges related to the impact of the Tax Act. Given the significant complexity of the Tax Act, anticipated guidance from the U.S. Treasury about implementing the Tax Act and the potential for additional guidance from the SEC or the FASB, the amount recorded by the Company in the fourth quarter of 2017 was provisional and will continue to be adjusted during 2018. The impact of the Tax Act is expected to be finalized no later than the fourth quarter of 2018. The aforementioned guidance and additional information regarding the Tax Act may also impact the Company's 2018 effective income tax rate, exclusive of any adjustment to the provisional charge. Any material revisions in our computations could adversely affect our cash flows and results of operations.

~~During the six months ended June 30, 2018, the Company recorded an additional charge of $0.6 million to adjust an accrual related to withholding taxes on planned repatriations.~~

Accounts Receivable

The Company sells 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 Company accounts for these transactions as sales of receivables, removes the receivables sold from its financial statements, and records cash proceeds when received by the Company. The beneficial impact on cash provided by operations from participating in these programs decreased approximately ~~$25.5~~$0.3 million for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 compared to a decrease of approximately ~~$4.7~~$11.0 million for the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018. The cost of participating in these programs was immaterial to our results in all periods.

Contract Assets

~~Recent Accounting Pronouncements~~

In June 2018, the FASB issued Accounting Standards Update ("ASU") 2018-07, "Compensation—Stock Compensation (Topic 718)" intended to reduce cost and complexity and to improve financial reporting for nonemployee share-based payments. This guidance expands the scope of Topic 718, Compensation-Stock Compensation which currently only includes share-based payments to employees to include share-based payments issued to nonemployees for goods or services. This guidance is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company is currently evaluating the impact this guidance will have on its Consolidated Financial Statements, but does not expect this guidance to have a material impact on its Consolidated Financial Statements.

In February 2018, FASB issued ASU 2018-02, "Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act, in addition to requiring certain disclosures about stranded tax effects. This guidance is effective for periods beginning after December 15, 2018, with an election to adopt early. The Company is currently evaluating the impact this guidance may have on its Consolidated Financial Statements.

In August 2017, FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" which eliminates the requirement to separately measure and present hedge ineffectiveness and aligns the presentation of hedge gains and losses with the underlying hedge item. This guidance is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The amended presentation and disclosure requirements are to be applied prospectively while the amendments to cash flow and net investment hedge relationships are to be applied on a modified retrospective basis. The Company is currently evaluating the impact this guidance will have on its Consolidated Financial Statements, but does not expect this guidance to have a material impact on its Consolidated Financial Statements.

In May 2017, the FASB issued 2017-09, "Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting" which clarifies changes to the terms or conditions of a share-based payment award that require an entity to apply modification accounting. This guidance is effective for the current year. The Company has determined that this guidance does not have an impact on its Consolidated Financial Statements as it is not the Company's practice to modify the terms or conditions of a share-based payment award after it has been granted.

In March 2017, the FASB issued 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" which requires employers who present a measure of operating income in their statement of income to include only the service cost component of net periodic pension cost and postretirement costs in operating expenses. This guidance is effective, and as required, has been applied on a full retrospective basis. The impact of the adoption of this standard on January 1, 2018 was a decrease in operating profit by approximately $7.4 million in the three months ended June 30, 2017 and by approximately $14.9 million in the six months ended June 30, 2017, and a corresponding increase in Other (income) expense, net as presented in the Company's Consolidated Statement of Income and Comprehensive Income. There was no impact to Net income or Net Income per share in either period. See Note 10 of the Consolidated Financial Statements for further details.

The new guidance also limits the amount of net periodic benefit cost eligible for capitalization to assets. The new guidance permits only the service cost component of net periodic benefit cost to be eligible for capitalization. The Company applied the practical expedient that permits the use of amounts previously disclosed as the basis for retrospective application and, as provided under the practical expedient, has not presented the income statement impact based on the capitalization of the applicable costs.

In August 2016, the FASB issued 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments" which requires changes to the classification of certain activities within the statement of cash flows. This guidance is effective for the current year, and the Company has determined that this adoption does not have an impact on its Consolidated Statement of Cash Flows.

In June 2016, the FASB issued 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" which requires issuers to measure expected credit losses for financial assets based on historical experience, current conditions and reasonable and supportable forecasts. As such, an entity will use forward-looking information to estimate credit losses. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements, but does not expect this guidance to have a material impact on its Consolidated Financial Statements.

In February 2016, the FASB issued 2016-02, "Leases (Topic 842)", with subsequent amendments, which requires changes to the accounting for leases. The new guidance establishes a new lease accounting model that requires entities to record assets and liabilities related to leases on the balance sheet for certain types of leases. The guidance will be effective for annual and interim periods beginning after December 15, 2018. The Company expects to adopt this guidance effective December 29, 2018, the first day of the Company’s 2019 fiscal year, and that the adoption of this guidance will result in significant increases to assets and liabilities on its Consolidated Balance Sheet. The Company is still evaluating the impact of this guidance on its Consolidated Statement of Income and Comprehensive Income and Consolidated Statement of Cash Flows. The Company has begun to evaluate the nature of its leases and has compiled a preliminary analysis of the type and location of its leases. The Company expects that the significant portion of its lease liabilities and right of use assets will relate to property, with additional lease and corresponding right of use assets in existence that relate to vehicles and machinery.

~~Adoption of ASC Topic 606, Revenue from Contracts with Customers~~

In May 2014, the FASB issued 2014-09, "Revenue from Contracts with Customers", with subsequent amendments, that provides for a comprehensive model to be used in accounting for revenue arising from contracts with customers (ASC Topic 606, Revenue from Contracts with Customers) (the “Revenue Standard”). Under the Revenue Standard, revenue is recognized to reflect the transfer of goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Companies have the option to apply the new guidance under a retrospective approach to each prior reporting period presented or a modified retrospective approach with the cumulative effect of initially applying the new guidance recognized at the date of initial application within the Consolidated Balance Sheet. The new Revenue Standard became effective for annual reporting periods beginning after December 15, 2017, and the Company has adopted the new revenue standard using the modified retrospective approach on December 30, 2017, the first day of the Company’s 2018 fiscal year.

The Company creates and manufactures flavors and fragrances. Approximately 90% of its products, principally Flavors compounds and Fragrances compounds, are customized to customer specifications and have no alternative use other than the sale to the specific customer (“Compounds products”). The remaining revenue is derived largely from Fragrance Ingredients products that, generally, are commodity products with alternative uses and not customized (“Ingredients products”).

With respect to the vast majority of the Company’s contracts for Compounds products, the Company currently recognizes revenue on the transfer of control of the product at a point in time as the Company does not have an “enforceable right to payment for performance to date” (as set out in the Revenue Standard). With respect to a small number of contracts for the sale of Compounds, the Company has an “enforceable right to payment for performance to date” and as the products do not have an alternative use, the Company recognizes revenue for these contracts over time and records a contract asset using the output method. The output method recognizes revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract.

~~With respect to~~The following table reflects the ~~Company’s contracts related to Ingredients products, the Company currently recognizes revenue on the transfer of control of the product at a point~~balances in ~~time as such products generally have alternative uses and the Company does not have an “enforceable right to payment for performance to date.”~~

As the Company adopted the Revenue Standard using the modified retrospective method effective the first day of its 2018 fiscal year, results for its 2018 fiscal year are presented under the Revenue Standard while prior period amounts are not adjusted and continue to be reported in accordance with our ~~historic accounting under ASC Topic 605, which required that revenue was accounted for when the earnings process was complete.~~

The Company recorded a net increase to retained earnings of $2.1 million as of the first day of its 2018 fiscal year due to the cumulative impact of adopting the Revenue Standard. In connection with the adjustment to retained earnings, the Company also recorded an increase of $4.4 million in contract assets ~~(which are included in Prepaid expenses~~ and ~~other assets), a decrease of $1.7 million in inventory, and an increase in taxes payable of $0.6 million.~~

~~The impact to revenues, gross profit and net income~~accounts receivable for the three months ended ~~June 30, 2018 were reductions of $1.9 million, $1.2 million~~March 31, 2019 and $0.9 million, respectively, and for the six months ended June 30, 2018 were reductions of $2.5 million, $1.6 million and $1.2 million, respectively, as a result of applying the Revenue Standard as compared to the amounts that would have been recognized under ASC Topic 605.December 31, 2018:



(DOLLARS IN THOUSANDS)	March 31, 2019		December 31, 2018
Receivables (included in Trade receivables)	$	1,012,780	$	946,938
Contract asset - Short term	2,149		487

Revenue Recognition

The Company recognizes revenue when control of the promised goods is transferred to its customers in an amount that reflects the consideration it expects to be entitled to in exchange for those goods. Sales, value add, and other taxes the Company collects are excluded from revenues. The Company receives payment in accordance with standard customer terms.

The following table presents the Company's revenues disaggregated by ~~business unit:~~product categories:


									Three Months Ended
	Three Months Ended June 30,				Six Months Ended June 30,				March 31,
(DOLLARS IN THOUSANDS)	2018		2017^(a)		2018		2017^(a)		2019		2018
Flavor Compounds	$	450,540	$	414,323	$	899,559	$	820,487	$	713,560	$	449,019
Fragrance Compounds									389,111		378,633
Consumer Fragrances	274,586		253,258		554,849		505,891
Fine Fragrances	97,448		91,432		195,817		179,199
Fragrance Ingredients	97,442		83,848		200,719		165,577
Ingredients									194,731		103,276
Total revenues	$	920,016	$	842,861	$	1,850,944	$	1,671,154	$	1,297,402	$	930,928

~~_______________________~~ Recent Accounting Pronouncements


~~(a)~~	~~Prior period amounts have not been adjusted based on the modified retrospective method.~~

In October 2018, the FASB issued Accounting Standards Update ("ASU") 2018-16, “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap ("OIS") Rate as a Benchmark Interest Rate for Hedge Accounting Purposes." The ~~following table presents our revenues disaggregated by region,~~ASU allows for the use of the OIS rate based on the ~~region~~SOFR as a U.S. benchmark interest rate for purposes of ~~our customers:~~

Three Months Ended June 30, Six Months Ended June 30,
(DOLLARS IN THOUSANDS) 2018
2017^(a)
2018
2017^(a)
Europe, Africa and Middle East $ 292,848
$ 259,292
$ 602,161
$ 516,976
Greater Asia 242,221
224,703
485,779
447,523
North America 249,054
230,529
490,199
449,357
Latin America 135,893
128,337
272,805
257,298
Total revenues $ 920,016
$ 842,861
$ 1,850,944
$ 1,671,154

~~_______________________~~


~~(a)~~	~~Prior period amounts have not been adjusted based on the modified retrospective method.~~

~~Flavors~~applying hedge accounting under ASC 815, Derivatives and ~~Fragrances Compounds Revenues~~

Hedging. The Company ~~accounts for a contract when it has approval and commitment from both parties,~~applied this new guidance as of December 29, 2018, the rights of the parties and payment terms (which vary by customer) are identified, the contract has commercial substance, and collectability of consideration is probable. Consistent with our past practice, the amount of revenue recognized is adjusted at the time of sale for expected discounts and rebates (“Variable Consideration”).

The Company generates revenues primarily by manufacturing customized Flavor compounds and Fragrance compounds for the exclusive use of our customers. The Company combines the shipment of goods with their manufacture to account for both shipment and manufacture as the sole performance obligation.

~~With respect to the vast majority~~first day of the Company’s ~~contracts for Compounds products, the Company recognizes a sale at the point in time when it ships the product from its manufacturing facility to its customer, as this is the time when control~~2019 fiscal year. The adoption of the guidance did not have a material impact on the Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, “Intangibles - Goodwill and Other - Internal - Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force).” The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This guidance is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact this guidance will have on its Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans (Subtopic 715-20)", which modifies the disclosure requirements on company-sponsored defined benefit plans. The ASU is effective for fiscal years beginning after December 15, 2020 on a retrospective basis to all periods presented. Early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820)", which modifies, removes and adds certain disclosure requirements on fair value measurements. The ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its Consolidated Financial Statements.

In June 2018, the FASB issued ASU 2018-07, "Compensation - Stock Compensation (Topic 718)" intended to reduce cost and complexity and to improve financial reporting for nonemployee share-based payments. This guidance expands the scope of Topic 718, Compensation-Stock Compensation which currently only includes share-based payments to employees to include share-based payments issued to nonemployees for goods ~~has transferred~~or services. The Company applied this new guidance as of December 29, 2018, the first day of the Company’s 2019 fiscal year. The adoption of the guidance did not have a material impact on the Consolidated Financial Statements.

In February 2018, FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the ~~customer.~~Tax Act, in addition to requiring certain disclosures about stranded tax effects. The ~~amount~~guidance was effective as of ~~consideration received and revenue recognized is impacted by~~December 29, 2018, the ~~Variable Consideration~~first day of the Company's fiscal year. The Company has ~~agreed with its customers. The Company estimates Variable Consideration amounts~~elected to not reclassify any stranded tax effects to retained earnings.

In August 2017, FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for ~~each customer based on~~Hedging Activities" which eliminates the ~~specific agreement, an analysis~~requirement to separately measure and present hedge ineffectiveness and aligns the presentation of ~~historical volumes~~hedge gains and the current activity with that customer. The Company reassesses its estimates of Variable Consideration at each reporting date throughout the contract period and updates the estimate until the uncertainty is resolved. During the current period, changes to estimates of Variable Consideration have been immaterial.

With respect to a small number of contracts for the sale of Compounds products, the Company recognizes revenue over time as it manufactures customized compounds that do not have an alternative use and for which the contracts provide the Company with an enforceable right to payment, including a reasonable profit, at all times during the contract term commencinglosses with the ~~manufacturing of the goods.~~ ~~When revenue~~underlying hedge item. This guidance is recognized over time, the amount of revenue recognized is based on the extent of progress towards completion of the promised goods. The Company generally uses the output method to measure progress for its contractseffective, and as this method reflects the transfer of goods to the customer. Once customization begins, the manufacturing process is generally completed within a two week period. Due to the short time frame for production, there is little estimation uncertainty in the process. In addition, due to the customized nature of our products, our returns are not material.

~~Fragrance Ingredients Revenues~~required, has been applied on a modified retrospective basis. The impact of the adoption of this standard on December 29, 2018 was a decrease in the beginning balance of the currency translation adjustment component of Accumulated other comprehensive loss of $1.0 million, and an increase in Retained Earnings, as presented in the Company's Consolidated Balance Sheet. See Note 13 of the Consolidated Financial Statements for further details.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", with subsequent amendments, which requires issuers to measure expected credit losses for financial assets based on historical experience, current conditions and reasonable and supportable forecasts. As such, an entity will use forward-looking information to estimate credit losses. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company ~~accounts for a contract when it has approval and commitment from both parties,~~is currently evaluating the ~~rights of~~impact this guidance will have on its Consolidated Financial Statements.

In February 2016, the ~~parties and payment terms (which vary by customer) are identified, the contract has commercial substance, and collectability of consideration is probable.~~

~~The Company generates revenues primarily by manufacturing Ingredients products for the use of our customers. The Company combines the shipment of goods~~FASB issued ASU 2016-02, "Leases (Topic 842)", with ~~their manufacture to account for both shipment and manufacture as the sole performance obligation.~~

Generally, the Company recognizes a sale at the time when it ships the product from their manufacturing facility to their customer, as this is the point when control of the goods or services has transferredsubsequent amendments, which requires changes to the ~~customer. The amount of consideration received~~accounting for leases and revenue recognized is impacted by discounts offered to its customers. The Company estimates discounts based on an analysis of historical experience and current activity. The Company assesses its estimates of discounts at each reporting date throughout the contract period and updates its estimates until the uncertainty has been resolved. During the current period, changes to estimates of discounts have been immaterial.

~~Contract Asset and Accounts Receivable~~

~~The~~ ~~following~~ ~~table reflects the balances in our contract assets and accounts receivable~~supersedes existing lease guidance, including ASC 840 - Leases. See Note 8 for ~~the six months ended June 30, 2018 and December 31, 2017:~~

(DOLLARS IN THOUSANDS) June 30, 2018 At adoption
Receivables (included in Trade receivables) $ 737,477
$ 677,055
Contract asset - Short term 1,903
4,449
further details.

NOTE 2. NET INCOME PER SHARE

~~Net income per share is based on the weighted average number of shares outstanding.~~ A reconciliation of the shares used in the computation of basic and diluted net income per share is as follows:

Three Months Ended June 30, Six Months Ended June 30,
(SHARES IN THOUSANDS) 2018 2017 2018 2017
Basic 79,065
79,072
79,041
79,088
Assumed dilution under stock plans 238
233
306
272
Diluted 79,303
79,305
79,347
79,360



	Three Months Ended March 31,
(SHARES IN THOUSANDS)	2019		2018
Net Income
Net income attributable to IFF stockholders	$	108,829	$	129,416
Add: Decrease in redemption value of redeemable noncontrolling interests in excess of earnings allocated	370		—
Net income available to IFF stockholders	$	109,199	$	129,416
Shares
Weighted average common shares outstanding (basic)⁽¹⁾	111,864		79,018
Adjustment for assumed dilution⁽²⁾:
Stock options and restricted stock awards	362		375
SPC portion of TEUs	1,163		—
Weighted average shares assuming dilution (diluted)	113,389		79,393

Net Income per Share
Net income per share - basic	$	0.97	$	1.63
Net income per share - dilutive	0.96		1.63

_______________________


(1)	For the three months ended March 31, 2019, the tangible equity units (“TEUs”) were assumed to be outstanding at the minimum settlement amount for weighted-average shares for basic earnings per share. See below for details.


(2)	Effect of dilutive securities includes dilution under stock plans and incremental impact of TEUs. See below for details.

The Company declared a quarterly dividend to its shareholders of $0.73 and $0.69 for the three months ended March 31, 2019 and 2018, respectively.

There were no stock options or stock-settled appreciation rights (“SSARs”) excluded from the computation of diluted net income per share for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 and ~~2017.~~2018.

The Company issued 16,500,000 TEUs, consisting of a prepaid stock purchase contract ("SPC") and a senior amortizing note, for net proceeds of approximately $800.2 million on September 17, 2018. For the periods outstanding, the SPC portion of the TEUs was assumed to be settled at the minimum settlement amount of 0.3134 shares per SPC for weighted-average shares for basic earnings per share. For diluted earnings per share, the shares were assumed to be settled at a conversion factor based on the 20 day volume-weighted average price (“VWAP”) per share of the Company’s common stock not to exceed 0.3839 shares per SPC.

The Company has issued shares of purchased restricted common stock and purchased restricted common stock units (collectively “PRSUs”) which contain rights to nonforfeitable dividends while these shares are outstanding and thus are considered participating securities. Such securities are required to be included in the computation of basic and diluted earnings per share pursuant to the two-class method. The Company did not present the two-class method since the difference between basic and diluted net income per share for both unrestricted common shareholders and PRSU shareholders was less than ~~$0.01~~$0.01 per share for each period presented, and the number of PRSUs outstanding as of ~~June 30,~~March 31, 2019 and 2018 ~~and~~ ~~2017~~ was immaterial. Net income allocated to such PRSUs was ~~$0.2~~$0.1 million for ~~each of~~ the three months ended ~~June 30, 2018~~March 31, 2019 and ~~2017, respectively, and $0.5~~$0.3 million ~~during each of~~for the ~~six~~three months ended ~~June 30, 2018 and 2017.~~March 31, 2018.

NOTE 3. ACQUISITIONS

~~Pending~~2019 Acquisition Activity

During the three months ended March 31, 2019, the Company acquired 70% of a company in Europe and increased its ownership of an Asian company from 49% to 60% after receipt of previously pending regulatory approvals in Thailand. The two acquired entities, which manufacture flavor products, will be managed under the Frutarom segment. The total purchase price for the acquisitions was $46.3 million, excluding cash acquired and including $12.4 million of contingent consideration and deferred payments. A preliminary purchase price allocation has been performed giving rise to goodwill of approximately $55.4 million and intangible assets of $18.4 million. The purchase price allocation is expected to be completed within the measurement period.

Pro forma information has not been presented as the two acquired entities are not material.

Frutarom

On ~~May 7,~~October 4, 2018, the Company ~~entered into a definitive agreement and plan~~completed its acquisition of ~~merger to acquire~~100% of the equity of Frutarom Industries Ltd. (“Frutarom”). ~~Frutarom~~

Purchase Price Allocation

The Company allocated the purchase consideration to the tangible net assets and identifiable intangible assets acquired based on estimated fair values at the acquisition date, and recorded the excess of consideration over the fair values of net assets acquired as goodwill. During the first quarter of 2019, the Company updated the purchase price allocation, principally to reflect updated values for certain entities' fixed assets.

The purchase price allocation is ~~an Israeli company that, through its subsidiaries, develops, produces~~preliminary and ~~markets flavors and fine ingredients used in manufacturing food, beverages, flavors and fragrances, pharma/nutraceuticals, cosmetics and personal care products.~~subject to change. The proposed merger was unanimously approved by the Boards of Directors of both companies and was approved by Frutarom shareholders on August 6, 2018. Closing is dependent upon clearance by the relevant regulatory authorities and other customary closing conditions andCompany is currently finalizing the valuation of fixed assets, goodwill and intangible assets (trade names, product formulas, customer relationships and favorable/unfavorable leases and the related estimated useful lives). Additionally, the Company is finalizing the projected combined future tax rate to be applied to the valuation of assets, which could impact the valuation of goodwill and intangible assets. The determination of the fair value of assets and liabilities, including those related to leases, will be finalized as soon as the valuation is completed which is expected to ~~occur~~be during the third quarter of 2019.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed (in thousands) as of October 4, 2018:



	As reported in the fourth quarter of 2018			Measurement period adjustments		As reported in the first quarter of 2019
Cash and cash equivalents	$	140,747				$	140,747
Other current assets	699,627					699,627
Identifiable intangible assets	2,690,000			(21,700	)	2,668,300
Other assets	353,710			43,200		396,910
Equity method investments	25,791					25,791
Current liabilities	(311,325		)			(311,325		)
Debt assumed	(77,037		)			(77,037		)
Other liabilities	(632,488		)	(12,221	)	(644,709		)
Redeemable noncontrolling interest	(97,510		)	(5,700	)	(103,210		)
Noncontrolling interest	(3,700		)			(3,700		)
Goodwill	4,243,079			(3,579	)	4,239,500
Total Purchase Consideration	$	7,030,894				$	7,030,894

The preliminary fair value purchase price allocation of the assets and liabilities acquired in the acquisition of Frutarom as reported in the fourth quarter of ~~2018.~~

~~Under~~2018 were updated during the ~~terms of the merger agreement, for each share of outstanding stock, Frutarom shareholders will receive $71.19~~quarter ended March 31, 2019 primarily due to: (i) a $21.7 million decrease in cash and 0.2490 of a share of the Company's common stock. The transaction was valued, based on the Company's stock price as of May 7, 2018, at approximately $7.1 billion, including the assumption of approximately $681 million of Frutarom's net debt, which the Company intends to refinance or repay concurrent with the closing of the transaction.

The Company expects to fund the cash portion of the merger consideration through up to $3.1 billion of debt financing, cash on hand and the issuance of up to $2.2 billion in new equity securities. In connection with these financings, the Company also expects to pay its outstanding $250 million of its Senior Notes 2007 and the associated make-whole payments of approximately $35 million.

Based on the exchange ratio of 0.2490 of a share of the Company’s common stock for each ordinary share of Frutarom issued and outstanding at closing, the estimated number of shares of the Company’s common stock issuable as a portion of the merger consideration is approximately 14.88 million shares, which will result in former Frutarom shareholders holding approximately 15.8% of the outstanding fully diluted IFF common stock, based on the number of outstanding shares of common stock and outstanding stock-based awards of IFF and the number of outstanding ordinary shares and share-based awards of Frutarom as of May 4, 2018, the last trading day for IFF common stock prior to the announcement of the acquisition and without taking into account the issuance by IFF of equity securities in connection with the financing of the acquisition.

On May 7, 2018, the Company entered into a bridge facility commitment letter pursuant to which Morgan Stanley Senior Funding, Inc. committed, subject to customary conditions, to provide up to $5.45 billion under a 364-day senior unsecured bridge term loan credit facility to finance the cash portion of the merger consideration if the Company has not completed its anticipated financing transactions prior to the consummation of the acquisition.

~~PowderPure~~

On April 7, 2017, the Company completed the acquisition of 100% of the outstanding shares of Columbia PhytoTechnology, LLC d/b/a PowderPure ("PowderPure"), a privately-held flavors company with facilities in North America. The acquisition was accounted for under the purchase method. PowderPure was acquired to expand expertise in, and product offerings of, clean label solutions within the Flavors business. The Company paid approximately $54.6 million, including $0.4 million of cash acquired for this acquisition, which was funded from existing resources. Additionally, the Company recorded an accrual of approximately $1.4 million representing the estimate at acquisition of additional contingent consideration payable to the former owners of PowderPure (the maximum earnout payable is $10 million upon satisfaction of certain performance metrics).

The purchase price exceeded the preliminary fair value of existing net assets by approximately $48.0 million. The excess was allocated principally to identifiable intangible assets including approximately $27.5 million to proprietary technology, approximately $4.5 million to trade name, approximately $0.8 million to customer relationships, and approximately $15.2 million of goodwill which is deductible for tax purposes. Goodwill is the excess of the purchase price over the fair value of ~~net assets acquired and represents the value the Company expects to achieve from its increased exposure to clean label products within the existing Flavors business. The~~identifiable intangible assets ~~are being amortized over the following estimated useful lives: proprietary technology, 14 years; trade name, 14 years; and~~(principally customer relationships ~~2 years.~~and arising from the updated valuations for certain entities' fixed assets), (ii) a $43.2 million increase to property, plant and equipment (related to certain Frutarom entities), included in Other assets in the accompanying table, (iii) a $1.5 million increase to the noncurrent portion of earn-outs and a $10.7 million increase to deferred income tax liabilities, (iv) a $5.7 million decrease to redeemable noncontrolling interest. The cumulative impact of the adjustment resulted in a $3.6 million decrease to goodwill.

The ~~purchase price allocation was completed in~~measurement period adjustments did not have a material impact on the Company's Statement of Comprehensive Income for the first quarter of ~~2018. No material adjustments~~2019.

The preliminary amounts of the components of intangible assets with finite lives that have been ~~made to~~recorded are as follows:



(IN THOUSANDS)	Estimated Amounts		Weighted-Average Useful Life
Product formula	$	290,000	10 to 12 years
Customer relationships	2,230,000		18 to 23 years
Trade names	140,000		23 to 26 years
Favorable/Unfavorable Leases, net	8,300		5 to 15 years
Total	$	2,668,300

Pro forma financial information

The following unaudited pro forma financial information presents the ~~purchase price allocation since~~combined results of operations of IFF and Frutarom as if the ~~preliminary valuation performed in the second quarter of 2017. The estimated amount~~acquisition had been completed as of the ~~contingent consideration payable was adjusted during~~beginning of the ~~first quarter~~prior fiscal year, or January 1, 2018. The unaudited pro forma financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the acquisition and related borrowings had taken place on January 1, 2018, ~~and resulted in a decrease in administrative expense~~nor are they indicative of ~~approximately $0.6 million.~~

Nofuture results. The unaudited pro forma financial information for ~~2017 is presented as~~ the ~~acquisition was not material to~~three months ended March 31, 2018 included the ~~consolidated financial statements.~~

~~Fragrance Resources~~

~~On January 17, 2017, the Company completed the acquisition~~pre-acquisition results of 100% of the outstanding shares of Fragrance Resources, Inc., Fragrance Resources GmbH, and Fragrance Resources SAS (collectively "Fragrance Resources"), a privately-held fragrance company with facilities in Germany, North America, France, and China. The acquisition was accountedFrutarom for ~~under the purchase method. Fragrance Resources was acquired to strengthen the North American and German Fragrances business.~~that period.

The ~~Company paid approximately €143.4 million (approximately $151.9 million) including approximately €13.7 million (approximately $14.4 million) of cash acquired~~unaudited pro forma results for ~~this acquisition, which was funded from existing resources including use of its revolving credit facility. Of~~ the total paid, approximately €142.0 million (approximately $150.5 million) was paid at closing and an additional €1.4 million (approximately $1.5 million) was paid in connection with the finalization of the working capital adjustment. The purchase price exceeded the fair value of existing net assets by approximately $122.0 million. The excess wasthree months ended March 31, 2018 were as follows:



(IN THOUSANDS)	Three Months Ended March 31, 2018
Unaudited pro forma net sales	$	1,315,733
Unaudited pro forma net income attributable to the Company	112,620

allocated principally to identifiable intangible assets including approximately $51.7 million related to customer relationships, approximately$13.6 million related to proprietary technology and trade name, and approximately $72.0 million of goodwill (which is not deductible for tax purposes) and approximately $15.3 million of net deferred tax liability. Goodwill is the excess of the purchase price over the fair value of net assets acquired and represents synergies from the addition of Fragrance Resources to the Company's existing Fragrances business. The ~~intangible assets are being amortized over the following estimated useful lives: trade name, 2 years; proprietary technology, 5 years; and customer relationships, 12 - 16 years.~~

The purchase price allocation was finalized in the fourth quarter of 2017. Certain measurement period adjustments were made subsequent to the initial purchase price allocation including adjustments related to the finalization of the purchase price, the allocation of certain intangibles and the calculation of applicable deferred taxes. The additional amortization of intangibles required as a result of the measurement period adjustments was not material.

Nounaudited pro forma ~~financial information~~results for ~~2016 is~~all periods presented asinclude adjustments made to account for certain costs and transactions that would have been incurred had the acquisition ~~was not material~~been completed as of January 1, 2018, including amortization charges for acquired intangibles assets, adjustments for acquisition transaction costs, adjustments for depreciation expense for property, plant, and equipment, and adjustments to interest expense. These adjustments are net of any applicable tax impact and were included to arrive at the ~~consolidated financial statements.~~pro forma results above.

NOTE 4. RESTRUCTURING AND OTHER CHARGES, NET

Restructuring and other charges primarily consist of separation costs for employees including severance, outplacement and other benefit costs.

2019 Severance Charges

During the first quarter of 2019, the Company incurred severance charges of $16.2 million related to approximately 190 headcount reductions. The headcount reductions primarily related to the Scent business unit with additional amounts related to headcount reductions in all business units associated with the establishment of a new shared service center in Europe. The Company made payments of$0.9 millionrelated to personnel costs during the three months ended March 31, 2019.

2017 Productivity Program

On February 15, 2017, the Company announced that it was adopting a multi-year productivity program designed to improve overall financial performance, provide flexibility to invest in growth opportunities and drive long-term value creation. In connection with ~~this program, the Company expects to optimize its global footprint and simplify its organizational structures globally. In connection with this initiative,~~2017 Productivity Program, the Company expects to incur cumulative, pre-tax cash charges of between $30-$35 million, consisting primarily of $24-$26 million in personnel-related costs and an estimated $6 million in facility-related costs, such as lease termination, and integration-related costs.

The Company recorded ~~$22.5~~$24.5 million of charges related to personnel costs and lease termination costs through the ~~second~~first quarter of ~~2018, with the remainder of the personnel related and other costs expected to be recognized by the end of 2018.~~ 2019.

The Company ~~recorded $1.2~~made payments of $0.5 million and ~~$3.1~~$1.7 million ~~of charges~~ related to personnel ~~costs and lease termination~~ costs during the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, and $1.9 million and $13.2 million of charges related to personnel costs and~~as well as lease termination costs ~~during the six months ended June 30, 2018 and 2017, respectively.~~

~~The Company made payments of $4.5 million related to severance in~~for March 31, 2018. The overall charges were split approximately evenly between ~~Flavors~~Taste and ~~Fragrances.~~Scent. This initiative is expected to result in the reduction of approximately 370 members of the Company’s global workforce, including acquired entities, in various parts of the organization.

Changes in restructuring liabilities during the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, including both the 2019 severance charges and the 2017 Productivity Program, were as follows:

(DOLLARS IN THOUSANDS) Employee-Related Costs Other Total
Balance at December 31, 2017 $ 7,539
$ 418
$ 7,957
Additional charges (reversals), net 1,903
—
1,903
Payments (4,581 ) —
(4,581 )
Balance at June 30, 2018 $ 4,861
$ 418
$ 5,279



(DOLLARS IN THOUSANDS)	Employee-Related Costs			Other		Total
Balance at December 31, 2018	$	4,125		$	1,075	$	5,200
Additional charges, net	16,174			—		16,174
Payments	(1,393		)	—		(1,393		)
Balance at March 31, 2019	$	18,906		$	1,075	$	19,981

NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

Movements in goodwill during ~~2018~~2019 were as follows:


(DOLLARS IN THOUSANDS)	Goodwill			Goodwill
Balance at December 31, 2017	$	1,156,288
Balance at December 31, 2018				$	5,378,388
Acquisitions(1)	22			61,711
Frutarom measurement period adjustment				(3,579		)
Foreign exchange	(7,724		)	(2,520		)
Balance at June 30, 2018	$	1,148,586
Balance at March 31, 2019				$	5,434,000

_______________________


(1)	Additions relate to the 2019 acquisition activity. See Note 3 for details.

Other Intangible Assets

Other intangible assets, net consisted of the following amounts:


	June 30,			December 31,			March 31,			December 31,
(DOLLARS IN THOUSANDS)	2018			2017			2019			2018
Asset Type
Customer relationships	$	402,032		$	407,636		$	2,638,998		$	2,658,659
Trade names & patents	38,146			38,771			177,566			177,770
Technological know-how	161,331			161,856			463,989			451,016
Other	24,734			24,814			33,009			43,766
Total carrying value	626,243			633,077			3,313,562			3,331,211
Accumulated Amortization
Customer relationships	(116,519		)	(104,800		)	(193,263		)	(156,906		)
Trade names & patents	(16,998		)	(15,241		)	(21,760		)	(19,593		)
Technological know-how	(81,580		)	(76,766		)	(106,181		)	(93,051		)
Other	(19,720		)	(20,483		)	(18,181		)	(22,339		)
Total accumulated amortization	(234,817		)	(217,290		)	(339,385		)	(291,889		)
Other intangible assets, net	$	391,426		$	415,787		$	2,974,177		$	3,039,322

Amortization

Amortization expense was ~~$9,584~~$47,625 and ~~$8,494~~$9,185 for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively and $18,769 and $15,561~~respectively.

Amortization expense for the ~~six~~ ~~months ended~~ ~~June 30, 2018~~next five years and ~~2017, respectively. Annual amortization~~thereafter, based on preliminary valuations and determinations of useful lives, is expected to be ~~$36.0 million for~~as follows:



(DOLLARS IN THOUSANDS)	2019		2020		2021		2022		2023
Estimated future intangible amortization expense	$	190,281	$	185,492	$	180,661	$	176,734	$	176,621

NOTE 6. OTHER ASSETS

Other assets consisted of the ~~full year 2018, $34.6 million for the year 2019, $33.9 million for the year 2020, $29.0 million for the year 2021, $25.0 million for the year 2022 and $24.9 million for the year 2023.~~following amounts:



(DOLLARS IN THOUSANDS)	March 31, 2019		December 31, 2018
Operating lease right-of-use assets	$	300,888	$	—
Deferred income taxes	82,928		89,000
Overfunded pension plans	79,122		75,158
Cash surrender value of life insurance contracts	45,444		43,179
Equity method investments	26,735		31,470
Other^(a)	48,272		49,866
Total	$	583,389	$	288,673

_______________________


(a)	Includes land usage rights in China and long term deposits.

NOTE 6.7. DEBT

Debt ~~consists~~consisted of the following:

(DOLLARS IN THOUSANDS) Effective Interest Rate June 30, 2018 December 31, 2017
Senior notes - 2007⁽¹⁾⁽⁴⁾
6.40% - 6.82%
$ 249,776
$ 249,765
Senior notes - 2013⁽¹⁾
3.39 % 298,823
298,670
Euro Senior notes - 2016⁽¹⁾
1.99 % 573,514
589,848
Senior notes - 2017⁽¹⁾
4.50 % 492,941
492,819
Credit facility LIBOR + 1.125%
(2) 103,988
—
Bank overdrafts and other 4,590
7,993
Deferred realized gains on interest rate swaps 57
57
1,723,689
1,639,152
Less: Short term borrowings⁽³⁾
(6,500 ) (6,966 )
$ 1,717,189
$ 1,632,186



(DOLLARS IN THOUSANDS)	Effective Interest Rate		March 31, 2019			December 31, 2018
2020 Notes⁽¹⁾	3.69	%	$	298,743		$	298,499
2021 Euro Notes⁽¹⁾	0.82	%	334,486			337,704
2023 Notes⁽¹⁾	3.30	%	298,774			298,698
2024 Euro Notes⁽¹⁾	1.88	%	558,869			564,034
2026 Euro Notes⁽¹⁾	1.93	%	891,757			899,886
2028 Notes⁽¹⁾	4.57	%	396,460			396,377
2047 Notes⁽¹⁾	4.44	%	493,256			493,151
2048 Notes⁽¹⁾	5.12	%	785,838			785,788
Term Loan⁽¹⁾	3.65	%	324,295			349,163
Amortizing Notes⁽¹⁾	6.09	%	114,667			125,007
Bank overdrafts and other			8,231			4,695
Deferred realized gains on interest rate swaps			57			57
			4,505,433			4,553,059
Less: Short term borrowings⁽³⁾			(84,003		)	(48,642		)
			$	4,421,430		$	4,504,417

_______________________


(1)	Amount is net of unamortized discount and debt issuance costs.


(2)	Represents the rate on drawn down and outstanding balances. Deferred debt issuance costs are immaterial.


(3)	Includes bank borrowings, ~~commercial paper,~~ overdrafts and current portion of long-term debt.

~~(4)~~

As discussed in Note 3 above, in connection with the pending acquisition of Frutarom and associated financing, the Company also expects to pay its outstanding $250 million of its Senior Notes 2007 and the associated make-whole payments of approximately $35 million. The amount outstanding continues to be reflected as long term given that the Company has not entered into a contractual commitment to repay.

~~Commercial Paper~~

~~Commercial paper issued by~~NOTE 8. LEASES

During the quarter ended March 31, 2019, the Company ~~generally has terms~~adopted ASU No. 2016-02, “Leases (Topic 842),” which requires most leases to be recognized on the balance sheet. The Company adopted the standard using the modified retrospective approach with an effective date of ~~90 days~~December 29, 2018, the beginning of its 2019 fiscal year. Prior year financial statements were not recast. The Company elected various transition provisions available for expired or ~~less. As~~existing contracts, which allows the Company to carryforward historical assessments of ~~June 30, 2018~~(1) whether contracts are or contain leases, (2) lease classification and ~~December 31, 2017, there was no commercial paper outstanding.~~ (3) initial direct costs.

The ~~revolving credit facility is used as~~Company leases property and equipment, principally under operating leases. In accordance with ASU 2016-02, the Company records a ~~backstop for~~right of use asset and related obligation at the present value of lease payments and, over the term of the lease, depreciates the right of use asset and accretes the obligation to future value. Some of the leases include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. The Company does not separate lease and nonlease components of contracts.

When available, the Company uses the rate implicit in the lease to discount lease payments to present value, however, most of the Company's ~~commercial paper program. The maximum amount of commercial paper outstanding for~~leases do not provide a readily determinable implicit rate and the ~~six months ended June 30, 2018 and 2017 was $85 million and $50 million, respectively.~~

~~Financing~~Company calculates the applicable incremental borrowing rate to discount the lease payments based on the term of the ~~Pending Acquisition of Frutarom~~lease at lease commencement. The incremental borrowing rate is determined based on currency and lease terms.

~~Bridge Loan Facility~~

In connection with entering into the merger agreement with Frutarom, the Company entered into a debt commitment letter for up to a $5.45 billion 364-day unsecured bridge loan facility to the extent the Company has not received $5.45 billion of net cash proceeds (and/or qualified bank commitments) from a combination of (a) the issuance by the Company of a combination of equity securities, equity-linked securities and/or unsecured debt securities and/or (b) unsecured term loans, in each case, at or prior to completion of the acquisition. The bridge loan commitment will be reduced to the extent that the Company obtains certain other debt financing and completes certain equity issuances. On May 21, 2018, the Company, Morgan Stanley Senior Funding, Inc. and certain other financial institutions entered into a bridge joinder agreement to the commitment letter to provide for additional bridge commitment parties. In connection with the bridge loan commitment, the Company incurred $37.0 million of feesCertain leases contain variable payments which are ~~being amortized over~~periodically adjusted for changes in an index or rate. Such payments are initially measured using the ~~commitment period~~index or rate at the commencement date and are included in ~~Interest expense in Consolidated Statement of Comprehensive Income.~~

~~Term Facility~~

~~On June 6, 2018,~~ the ~~Company entered into a term loan credit agreement to replace a portion~~measurement of the bridge loan facility, reducing the amount of the bridge loan commitments by $350 million. Under the term loan credit agreement, the lenders thereunder have committed to provide, subject to certain conditions, a senior unsecured term loan facility (as amended, "Term Facility")lease liability. Subsequent changes in ~~an original aggregate principal amount of up to $350.0 million, maturing three years after the funding date thereunder. The debt is expected to be issued~~variable payments are not included in the ~~fourth quarter of 2018.~~lease liability, but are recognized in profit and loss during the period in which the obligation for those payments is incurred.

The ~~Term Facility will bear interest, at~~Company has leases for corporate offices, manufacturing facilities, research and development facilities, and certain transportation and office equipment, all of which are operating leases. The Company has no finance leases. The Company's leases have remaining lease terms of up to 40 years, some of which include options to extend the ~~Company’s option, at a per annum rate equal~~leases for up to either (x) an adjusted LIBOR rate plus an applicable margin varying from 0.75% to 2.00% or (y) a base rate plus an applicable margin varying from 0.00% to 1.00%, in each case depending on the public debt ratings for non-credit enhanced long-term senior unsecured debt issued by the Company. Loans under the Term Facility will amortize quarterly at a per annum rate of 10.0%5 years.

Upon adoption of the aggregate principal amount of the loans made under the Term Facility on the funding date, commencing at the end of the first full fiscal quarter after funding, with the balance payable on the third anniversary of the funding date. The Company may voluntarily prepay the term loans without premium or penalty. The term loan credit agreement contains various covenants, limitations and events of default customary for similar facilities for similarly rated borrowers, including a maximum ratio of net debt to EBITDA of 4.50x with step-downs over time and a temporary step-up to 6.0x for the first full fiscal quarter after funding ifnew guidance, the Company ~~has not issued equity or mandatory convertible securities generating gross proceeds~~recorded a right of ~~at least $1.75 billion on or before the closing date~~use asset of ~~the acquisition.~~

~~Amended Credit Facility~~

~~On May 21, 2018~~$308.3 million and ~~June 6, 2018,~~total operating lease liabilities of $313.3 million. Additionally, the Company recorded a net increase to retained earnings of approximately $23.1 million related to the elimination of deferred gains on certain sale-leaseback transactions that occurred in prior years.

The components of lease expense were as follows:



	Three Months Ended
(DOLLARS IN THOUSANDS)	March 31, 2019
Operating lease cost	$	12,469

Supplemental cash flow information related to leases was as follows:



	Three Months Ended
(DOLLARS IN THOUSANDS)	March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	11,076

Supplemental balance sheet information related to leases was as follows:



(DOLLARS IN THOUSANDS)	March 31, 2019
Operating Leases
Operating lease right of use assets	$	300,888

Other current liabilities	37,198
Operating lease liabilities	266,569
Total operating lease liabilities	$	303,767

Weighted average remaining lease term and ~~certain~~discount rate were as follows:



	Weighted Average Remaining Lease Term (in years)	Weighted Average Discount Rate
Operating leases	11.9	3.75	%

Maturities of ~~its subsidiaries amended and restated~~lease liabilities were as follows:



(DOLLARS IN THOUSANDS)	March 31, 2019
Less than 1 Year	$	37,680
1-3 Years	77,037
3-5 Years	65,087
After 5 years	211,387
Less: Imputed Interest	(87,424		)
Total	$	303,767

Maturities of lease liabilities, as calculated prior to the ~~Company’s existing amended and restated credit agreement with Citibank, N.A.,~~adoption of ASU 2016-02, were as ~~administrative agent, last amended and restated on December 2, 2016 (as amended, the “Amended Credit Facility”) in connection with the pending acquisition~~follows:



(DOLLARS IN THOUSANDS)	December 31, 2018
Less than 1 Year	$	49,350
1-3 Years	78,600
3-5 Years	60,672
After 5 years	201,079
Total	$	389,701

Right of Frutarom, to, among other things (i) extend the maturity date of the Amended Credit Facility until December 2, 2023, (ii) increase the maximum ratio of net debt to EBITDA on and after the closing date of the acquisition and (iii) increase the drawn down capacity to $1.0 billion, consisting of a $585 million tranche A revolving credit facility (which provides for borrowings available in U.S. dollars, euros, Swiss francs, Japanese yen and/or British pounds sterling, with a sublimit of $25 million for swing line borrowings) (“Tranche A”) and a $415 million tranche B revolving credit facility (which provides for borrowings available in U.S. dollars, euros, Swiss francs, Japanese yen and/or British pounds sterling, with sublimits of €50 million and $25 million for swing line borrowings) (“Tranche B” and, together with Tranche A, the “Revolving Facility”). The interest rate on the Revolving Facility will be, at the applicable borrower’s option, a per annum rate equal to either (x) an adjusted LIBOR rate plus an applicable margin varying from 0.75% to 1.75% or (y) a base rate plus an applicable margin varying from 0.00% to 0.750%, in each case depending on the public debt ratings for non-credit enhanced long-term senior unsecured debt issueduse assets by ~~the Company. Other terms and covenants under the Amended Credit Facility remain substantially unchanged.~~region were as follows:

In connection with the Amended Credit Facility, the Company incurred $0.7 million of debt issuance costs. As of June 30, 2018, total availability under the Amended Credit Facility was $1.6 billion, with no outstanding borrowings.



(DOLLARS IN THOUSANDS)	March 31, 2019
North America	$	142,748
Europe, Africa and Middle East	120,785
Greater Asia	23,151
Latin America	14,204
Consolidated	$	300,888

NOTE 7.9. INCOME TAXES

~~U.S. Tax Reform~~

~~During the first quarter of 2018, the Company recorded an additional charge of $0.6 million to adjust an accrual related to withholding taxes on planned repatriations.~~

Uncertain Tax Positions

At ~~June 30, 2018,~~March 31, 2019, the Company had ~~$30.6~~$46 million of unrecognized tax benefits recorded in Other ~~liabilities and $1.2 million in Other current~~ liabilities. If these unrecognized tax benefits were recognized, the effective tax rate would be affected.

At ~~June 30, 2018,~~March 31, 2019, the Company had accrued interest and penalties of ~~$2.5~~$3.2 million classified in Other ~~liabilities and $0.1 million in Other current~~ liabilities.

As of ~~June 30, 2018,~~March 31, 2019, the Company’s aggregate provisions for uncertain tax positions, including interest and penalties, ~~was$34.4~~was $49.2 million associated with various tax positions asserted in various jurisdictions, none of which is individually material.

The Company regularly repatriates ~~a portion of current year~~ earnings from ~~select non–~~non-U.S. subsidiaries. In the fourth quarter of 2018, the Company changed its assertion as part of its final analysis under SAB 118, consistent with the Company’s need to repatriate funds for debt repayment purposes. As the Company repatriates these funds to the U.S., they will be required to pay income taxes in certain U.S. ~~subsidiaries. No provision is made for additional~~states and applicable foreign withholding taxes ~~on undistributed earnings~~during the period when such repatriation occurs. Accordingly, as of ~~subsidiary companies that are intended~~March 31, 2019, the Company had a deferred tax liability of $87.2 million for the effect of repatriating the funds to the U.S. This balance consisted of $42.8 million attributable to IFF non-U.S. subsidiaries, and ~~planned to~~$44.4 million associated with Frutarom which is still preliminary and will be

~~indefinitely invested in such subsidiaries. We intend to, and have plans to, reinvest these earnings indefinitely in our foreign subsidiaries to fund local operations and/or capital projects.~~ refined through the purchase accounting measurement period.

The Company has ongoing income tax audits and legal proceedings which are at various stages of administrative or judicial review. In addition, the Company has open tax years with various taxing jurisdictions that range primarily from ~~2008~~2009 to ~~2017.~~2018. Based on currently available information, ~~we do~~the Company does not believe the ultimate outcome of any of these tax audits and other tax positions related to open tax years, when finalized, will have a material impact on ~~our financial position.~~its results of operations.

The Company also has other ongoing tax audits and legal proceedings that relate to indirect taxes, such as value-added taxes, sales and use taxes and property taxes, which are discussed in Note ~~13.~~15.

Effective Tax Rate

The effective tax rate for the three months ended ~~June 30, 2018~~March 31, 2019 was ~~18.7%~~17.4% compared with ~~22.7%~~18.5% for the three months ended ~~June 30, 2017.~~March 31, 2018. The quarter-over-quarter decrease was largely due to a more favorable mix of earnings ~~a lower cost of repatriation and the re-measurement of loss provisions, partially offset by the impact from U.S. tax reform and other items~~ (including the impact of ~~current year transactions~~integration related costs, restructuring charges and Frutarom acquisition related costs), partially offset by higher repatriation costs, and ~~certain non-taxable gains on foreign currency in prior year).~~

~~The effective tax rate for~~ the ~~six months ended June 30, 2018 was 18.6% compared with 19.6% for~~absence of the ~~six months ended June 30, 2017. The year-over-year decrease was largely due to a more favorable mix of earnings, a lower cost of repatriation, the re-measurement~~remeasurement of loss provisions and the release of a State valuation allowance ~~related to prior years, partially offset by~~which benefited the ~~impact~~first quarter of ~~U.S. tax reform and other items (including the impact of current year transaction costs and certain non-taxable gains on foreign currency in prior year).~~2018.

NOTE 8.10. STOCK COMPENSATION PLANS

The Company has various plans under which its officers, senior management, other key employees and directors may be granted equity-based awards. Equity awards outstanding under the plans include PRSUs, restricted stock units (RSUs), SSARs and Long-Term Incentive Plan awards. Liability-based awards outstanding under the plans are cash-settled RSUs.

Stock-based compensation expense and related tax benefits were as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	2018			2017			2018			2017			2019			2018
Equity-based awards	$	7,554		$	7,074		$	15,173		$	12,893		$	7,604		$	7,620
Liability-based awards	242			1,298			396			3,051			730			155
Total stock-based compensation expense	7,796			8,372			15,569			15,944			8,334			7,775
Less: Tax benefit	(1,335		)	(2,336		)	(2,897		)	(4,549		)	(1,382		)	(1,563		)
Total stock-based compensation expense, after tax	$	6,461		$	6,036		$	12,672		$	11,395		$	6,952		$	6,212

NOTE 9.11. SEGMENT INFORMATION

The Company is organized into ~~two~~three reportable operating ~~segments: Flavors~~segments, Taste, Scent and ~~Fragrances. These~~Frutarom; these segments align with the internal structure ~~of the Company~~ used to manage these businesses. ~~Performance~~

Taste is comprised of Flavor Compounds which are sold to the food and beverage industries for use in consumer products such as prepared foods, beverages, dairy, food and sweet products.

Scent is comprised of (1) Fragrance Compounds, which are ultimately used by our customers in two broad categories: Fine Fragrances, including perfumes and colognes, and Consumer Fragrances, including fragrance compounds for personal care (e.g., soaps), household products (e.g., detergents and cleaning agents) and beauty care, including toiletries; (2) Fragrance Ingredients, consisting of synthetic and natural ingredients that can be combined with other materials to create unique fine fragrance and consumer compounds; and (3) Cosmetic Active Ingredients, consisting of active and functional ingredients, botanicals and delivery systems to support our customers’ cosmetic and personal care product lines. Major fragrance customers include the cosmetics industry, including perfume and toiletries manufacturers, and the household products industry, including manufacturers of soaps, detergents, fabric care, household cleaners and air fresheners.

Frutarom creates and manufactures a naturals-focused suite of flavor compounds, functional foods and specialty fine ingredients, largely targeting small, local and regional customers. Frutarom’s products are focused on three principal areas: (1) Savory Solutions, (2) Natural Product Solutions, which includes natural health ingredients, natural color and natural food protection, and (3) Taste Solutions.

The Company's Chief Operating Decision Maker evaluates the performance of these reportable operating segments ~~is evaluated~~ based on segment profit which is defined as operating profit before ~~Restructuring and other charges, net; Global~~restructuring, global expenses (as discussed below) and certain non-recurring ~~items;~~items, Interest ~~expense;~~expense, Other income (expense), ~~net;~~net and Taxes on income.

The Global expenses caption ~~below~~ represents corporate and ~~headquarters-related~~headquarter-related expenses which include legal, finance, human resources, certain incentive compensation expenses and other R&D and administrative expenses that are not allocated to individual reportable operating segments.

Reportable segment information iswas as follows:


													Three Months Ended
	Three Months Ended June 30,						Six Months Ended June 30,						March 31,
(DOLLARS IN THOUSANDS)	2018			2017			2018			2017			2019			2018
Net sales:
Flavors	$	450,540		$	414,323		$	899,559		$	820,487
Fragrances	469,476			428,538			951,385			850,667
Taste													$	444,602		$	449,019
Scent													488,352			481,909
Frutarom													364,448			—
Consolidated	$	920,016		$	842,861		$	1,850,944		$	1,671,154		$	1,297,402		$	930,928
Segment profit:
Flavors	$	109,605		$	96,840		$	221,169		$	191,395
Fragrances	80,780			80,993			174,056			158,867
Taste													$	108,455		$	111,564
Scent													85,815			93,277
Frutarom													29,091			—
Global expenses	(20,572		)	(13,488		)	(44,398		)	(29,781		)	(18,673		)	(23,825		)
Operational Improvement Initiatives (a)	(403		)	(445		)	(1,429		)	(1,066		)	(406		)	(1,026		)
Acquisition Related Costs (b)	4			(6,278		)	518			(15,066		)	—			514
Integration Related Costs (c)	(993		)	(731		)	(993		)	(1,923		)	(14,897		)	—
Legal Charges/Credits, net (d)	—			(1,000		)	—			(1,000		)
Tax Assessment (e)	—			19			—			(5,331		)
Restructuring and Other Charges, net (f)	(193		)	(791		)	(910		)	(10,934		)
(Losses) Gains on Sale of Assets	(1,264		)	68			(1,195		)	89
FDA Mandated Product Recall (g)	—			(3,500		)	(5,000		)	(3,500		)
Frutarom Acquisition Related Costs (h)	(12,455		)	—			(12,455		)	—
Restructuring and Other Charges, net (d)													(16,174		)	(717		)
Gains on Sale of Assets													188			69
FDA Mandated Product Recall (e)													—			(5,000		)
Frutarom Acquisition Related Costs (f)													(9,529		)	—
Operating profit	154,509			151,687			329,363			281,750			163,870			174,856
Interest expense	(53,246		)	(17,556		)	(69,841		)	(30,363		)	(36,572		)	(16,595		)
Other income (expense)	20,655			7,909			21,232			29,140			7,278			576
Income before taxes	$	121,918		$	142,040		$	280,754		$	280,527		$	134,576		$	158,837



(a)	~~For 2018, represents~~Represents accelerated depreciation related to a plant relocation in ~~India. For 2017, represents accelerated depreciation and idle labor costs~~India, as well as a lab closure in ~~Hangzhou, China.~~Taiwan for 2018.
(b)	~~For 2018, represents~~Represents adjustments to the contingent consideration payable for PowderPure, and transaction costs related to Fragrance Resources and PowderPure within Selling and administrative expenses. For 2017, represents the amortization of inventory "step-up" related to the acquisitions of David Michael, Fragrance Resources and PowderPure, included in cost of goods sold and transaction costs related to the acquisitions of David Michael, Fragrance Resources and PowderPure, included in Selling and administrative expenses.
(c)	~~For 2018, represents~~Represents costs related to the integration of ~~David Michael. For 2017, represents costs related to~~ the ~~integration of David Michael and Fragrance Resources acquisitions.~~Frutarom acquisition, principally advisory expenses.
(d)	~~Represents additional charge~~For 2019, represents severance costs related primarily to ~~litigation settlement.~~
~~(e)~~	~~Represents the reserve for payment of a tax assessment related to commercial rent for prior periods.~~
~~(f)~~	~~Represents~~Scent. For 2018, represents severance costs related to the 2017 Productivity Program and Taiwan lab closure.
~~(g)~~(e)	Represents ~~management's best estimate of~~ losses related to the ~~previously disclosed~~ FDA mandated recall.
~~(h)~~(f)	Represents transaction-related costs and expenses related to the ~~pending~~ acquisition of Frutarom. Amount primarily includes $7.9 million of amortization for inventory "step-up" costs and $1.7 million of transaction costs included in Selling and administrative expenses.

Net sales are attributed to individual regions based upon the destination of product delivery are as follows:

Three Months Ended June 30, Six Months Ended June 30,
(DOLLARS IN THOUSANDS) 2018 2017 2018 2017
Net sales related to the U.S. $ 234,118
$ 243,815
$ 464,521
$ 449,325
Net sales attributed to all foreign countries 685,898
599,046
1,386,423
1,221,829



	Three Months Ended
	March 31,
(DOLLARS IN THOUSANDS)	2019		2018
Europe, Africa and Middle East	$	529,606	$	309,312
Greater Asia	287,962		243,557
North America	301,059		241,146
Latin America	178,775		136,913
Consolidated	$	1,297,402	$	930,928

~~No country other than~~Net sales are attributed to individual regions based upon the destination of product delivery. Net sales related to the U.S. for the three months ended March 31, 2019 and 2018 were $272.8 million and $230.2 million, respectively. Net sales attributed

to all foreign countries in total for the three months ended March 31, 2019 and 2018 were $1.0 billion and $700.7 million, respectively. No non-U.S. country had net sales in any period presented greater than 6%7% of total consolidated net sales.

NOTE ~~10.~~12. EMPLOYEE BENEFITS

Pension and other defined contribution retirement plan expenses included the following components:


(DOLLARS IN THOUSANDS)	U.S. Plans												U.S. Plans
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Service cost for benefits earned⁽¹⁾	$	596		$	698		$	1,192		$	1,395		$	474		$	596
Interest cost on projected benefit obligation⁽²⁾	4,790			4,561			9,580			9,122			5,453			4,790
Expected return on plan assets⁽²⁾	(7,740		)	(9,246		)	(15,479		)	(18,492		)	(6,983		)	(7,739		)
Net amortization and deferrals⁽²⁾	1,549			1,793			3,098			3,585			1,275			1,549
Net periodic benefit income	(805		)	(2,194		)	(1,609		)	(4,390		)
Defined contribution and other retirement plans⁽¹⁾	3,081			2,524			5,771			4,779
Total expense	$	2,276		$	330		$	4,162		$	389
Net periodic benefit (income) cost													$	219		$	(804	)


(DOLLARS IN THOUSANDS)	Non-U.S. Plans												Non-U.S. Plans
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Service cost for benefits earned⁽¹⁾	$	4,470		$	5,610		$	8,939		$	11,220		$	4,873		$	4,470
Interest cost on projected benefit obligation⁽²⁾	4,338			3,911			8,675			7,822			4,435			4,338
Expected return on plan assets⁽²⁾	(12,032		)	(12,334		)	(24,064		)	(24,668		)	(10,904		)	(12,032		)
Net amortization and deferrals⁽²⁾	2,972			3,988			5,943			7,977			2,922			2,972
Net periodic benefit (income) cost	(252		)	1,175			(507		)	2,351			$	1,326		$	(252	)
Defined contribution and other retirement plans⁽¹⁾	1,706			1,616			3,258			2,913
Total expense	$	1,454		$	2,791		$	2,751		$	5,264

_______________________


(1)	Included as a component of Operating ~~Profit~~. Profit.


(2)	Included as a component of Other Income (Expense), net.

The Company expects to contribute a total of approximately ~~$4.1~~$4.2 million to its U.S. pension plans and a total of ~~$17.1~~$19.3 million to its Non-U.S. Plans during ~~2018.~~2019. During the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, no contributions were made to the qualified U.S. pension plans, ~~$7.8~~$2.7 million of contributions were made to the non-U.S. pension plans, and ~~$2.2~~$1.1 million of benefit payments were made with respect to the Company's non-qualified U.S. pension plan.

Expense recognized for postretirement benefits other than pensions included the following components:

Three Months Ended June 30, Six Months Ended June 30,
(DOLLARS IN THOUSANDS) 2018 2017 2018 2017
Service cost for benefits earned $ 196
$ 221
$ 391
$ 442
Interest cost on projected benefit obligation 654
588
1,308
1,176
Net amortization and deferrals (1,189 ) (1,046 ) (2,378 ) (2,092 )
Total postretirement benefit income $ (339 ) $ (237 ) $ (679 ) $ (474 )

The components of net periodic benefit (income) other than the service cost component are included in Other (income) expense, net in the Consolidated Statement of Income and Comprehensive Income. Beginning in 2018, under the revised FASB guidance adopted in the first quarter of 2018, only the service cost component of net periodic benefit (income) cost is a component of operating profit in the Consolidated Statements of Income and Comprehensive Income and the other components of net periodic benefit cost are now included in Other (income), net. As a result of this change, Other income increased by approximately $6.7 million and $7.4 million in the three months ended June 30, 2018 and 2017, respectively, and by approximately $13.3 million and $14.9 million in the six months ended June 30, 2018 and 2017, respectively, compared to what the Other (income) expense, net would have been under the previous method. The retroactive $7.4 million reduction in

operating profit for the three months ended June 30, 2017 was reflected as a $1.6 million increase in cost of goods sold, a $2.4 million increase in research and development expenses, and a $3.4 million increase in selling and administrative expenses. The retroactive $14.9 million reduction in operating profit for the six months ended June 30, 2017 was reflected as a $3.2 million increase in cost of goods sold, a $4.9 million increase in research and development expenses, and a $6.8 million increase in selling and administrative expenses.



	Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	2019			2018
Service cost for benefits earned	$	148		$	195
Interest cost on projected benefit obligation	578			654
Net amortization and deferrals	(1,194		)	(1,189		)
Total postretirement benefit income	$	(468	)	$	(340	)

The Company expects to contribute approximately ~~$5.0~~$3.9 million to its postretirement benefits other than pension plans during ~~2018.~~2019. In the ~~six~~three months ended ~~June 30, 2018 $2.4~~March 31, 2019 $1.1 million of contributions were made.

NOTE ~~11.~~13. FINANCIAL INSTRUMENTS

Fair Value

Accounting guidance on fair value measurements specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 — Quoted prices for identical instruments in active markets.

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The Company determines the fair value of structured liabilities (where performance is linked to structured interest rates, inflation or currency risks) using the London Interbank Offer Rate ("LIBOR") swap curve and forward interest and exchange rates at period end. Such instruments are classified as Level 2 based on the observability of significant inputs to the model. The Company does not have any instruments classified as Level ~~1 or Level~~ 3, other than those included in pension asset trusts as discussed in Note 1416 of our ~~2017~~2018 Form 10-K.

These valuations take into consideration the Company's credit risk and its counterparties’ credit risk. The estimated change in the fair value of these instruments due to such changes in its own credit risk (or instrument-specific credit risk) was immaterial as of ~~June 30, 2018.~~March 31, 2019.

The ~~principal amounts~~carrying values and the estimated fair values of financial instruments at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 consisted of the following:


	June 30, 2018				December 31, 2017				March 31, 2019				December 31, 2018
(DOLLARS IN THOUSANDS)	Principal		Fair Value		Principal		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
LEVEL 1
Cash and cash equivalents⁽¹⁾	$	322,423	$	322,423	$	368,046	$	368,046	$	483,504	$	483,504	$	634,897	$	634,897
LEVEL 2
Credit facilities and bank overdrafts⁽²⁾	115,078		115,078		7,993		7,993		8,231		8,231		4,695		4,695
Derivatives⁽³⁾
Derivative assets									—		21,296		—		7,229
Derivative liabilities									—		3,220		—		6,907
Long-term debt:⁽³⁾
Senior notes - 2007	250,000		278,720		250,000		293,232
Senior notes - 2013	300,000		294,645		300,000		304,219
Euro Senior notes - 2016	577,700		599,111		594,400		627,782
Senior notes - 2017	500,000		452,689		500,000		525,906
2020 Notes									298,743		299,291		298,499		300,356
2021 Euro Notes									334,486		340,073		337,704		341,094
2023 Notes									298,774		298,642		298,698		293,017
2024 Euro Notes									558,869		596,056		564,034		584,129
2026 Euro Notes									891,757		934,385		899,886		909,439
2028 Notes									396,460		414,879		396,377		401,231
2047 Notes									493,256		472,958		493,151		446,725
2048 Notes									785,838		828,682		785,788		783,925
Term Loan⁽²⁾									324,295		325,000		349,163		350,000
Amortizing Notes⁽⁴⁾									114,667		117,579		125,007		127,879

_______________________


(1)	The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of those instruments.


(2)	The carrying amount approximates fair value as the interest rate is reset frequently based on current market rates as well as the short maturity of those instruments.


(3)	The fair value of the Company's long-term debt was calculated using discounted cash flows applying current interest rates and current credit spreads based on its own credit risk.


(4)	The fair value of the Amortizing Notes of the TEUs is based on the most recently quoted price for the outstanding securities, adjusted for any known significant deviation in value. The estimated fair value of these long-term obligations is not necessarily indicative of the amount that would be realized in a current market exchange.

Derivatives

The Company periodically enters into foreign currency forward contracts with the objective of reducing exposure to cash flow volatility associated with its intercompany loans, foreign currency receivables and payables, and anticipated purchases of certain raw materials used in operations. These contracts generally involve the exchange of one currency for a second currency at a future date, have maturities not exceeding twelve months and are with counterparties which are major international financial institutions.

During the six months ended June 30, 2018 and the year ended December 31, 2017, the Company entered into several forward currency contracts which qualified as net investment hedges, in order to mitigate a portion of its net European investments from foreign currency risk. The effective portions of net investment hedges are recorded in other comprehensive income (“OCI”) as a component of Foreign currency translation adjustments in the accompanying Consolidated Statement of Income and Comprehensive Income. Realized gains/(losses) are deferred in accumulated other comprehensive income (loss) ("AOCI") where they will remain until the net investments in the Company's European subsidiaries are divested. Four of these forward currency contracts matured during the six months ended June 30, 2018 and as of June 30, 2018, there were no remaining contracts outstanding.

Subsequent to the issuance of the Euro Senior Notes - 2016 during the first quarter of 2016, the Company designated the debt as a hedge of a portion of its net European investments. Accordingly, the change in the value of the debt that is attributable to foreign exchange movements is recorded in OCI as a component of Foreign currency translation adjustments in the accompanying Consolidated Statement of Income and Comprehensive Income.

~~During the year ended December 31, 2017,~~In prior years, the Company entered into several forward currency contracts which qualified as cash flow hedges. The objective of these hedges is to protect against the currency risk associated with forecasted U.S. dollar ("USD") denominated raw material purchases made by Euro ("EUR") functional currency entities which result from changes in the EUR/USD exchange rate. The ~~effective portions~~change in the value of the cash flow hedges ~~are~~is recorded in OCI as a component of gains/(losses) on derivatives qualifying as hedges in the accompanying Consolidated Statement of Income and Comprehensive Income. Realized gains/(losses) in AOCI related to cash flow hedges of raw material purchases are recognized as a component of Cost of goods sold in the accompanying Consolidated Statement of Income and Comprehensive Income in the same period as the related costs are recognized.

~~The~~In prior years, the Company ~~maintains various interest rate swap agreements that effectively convert~~designated the ~~fixed rate on~~2021 Euro Notes, 2024 Euro Notes and 2026 Euro Notes as a hedge of a portion of its ~~long-term borrowings to a variable short-term rate based on~~net investment in Euro functional currency subsidiaries. Accordingly, the ~~LIBOR plus an interest markup. These swaps are designated as fair value hedges. Amounts recognized~~change in ~~Interest expense were immaterial for~~ the ~~three and six months ended June 30, 2018 and 2017.~~

In the second quarter of 2018, the Company entered into a foreign currency contract and two interest rate swap agreements, which are contingent upon the closing of the Frutarom acquisition, for a total notional amount of $1.9 billion. As of June 30, 2018, the changes in fair value of the debt that is attributable to foreign exchange movements is recorded in OCI as a component of Foreign currency ~~contract resulted in an $11.0 million pre-tax gain included in Other income, net and the two interest rate swaps resulted in a $25.0 million pre-tax loss included in Interest expense~~translation adjustments in the accompanying Consolidated Statement of Income and Comprehensive Income.

~~The~~In prior years, the Company ~~has previously~~entered into certain cross currency swaps which qualified as net investment hedges in order to mitigate a portion of its net European investments from foreign currency risk. Changes in fair value related to cross currency swaps are recorded in OCI as a component of the Foreign currency translation adjustments.

In prior years, the Company entered into interest rate swap agreements to hedge the anticipated issuance of fixed-rate debt, which are designated as cash flow hedges. The amount of gains and losses realized upon termination of these agreements is amortized over the life of the corresponding debt issuance.

The following table shows the notional amount of the Company’s derivative instruments outstanding as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:

(DOLLARS IN THOUSANDS) June 30, 2018 December 31, 2017
Non-Deal Contingent Swaps
Foreign currency contracts $ 531,092
$ 896,947
Interest rate swaps 150,000
150,000
Deal Contingent Swaps
Foreign currency contract 1,000,000
—
Interest rate swaps 898,513
—



(DOLLARS IN THOUSANDS)	March 31, 2019		December 31, 2018
Foreign currency contracts	$	460,758	$	585,581
Cross currency swaps	600,000		600,000

The following tables show the Company’s derivative instruments measured at fair value (Level 2 of the fair value hierarchy), as reflected in the Consolidated Balance Sheet as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018:


	June 30, 2018						March 31, 2019
(DOLLARS IN THOUSANDS)	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value		Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
Derivative assets ^(a)
Foreign currency contracts	$	5,525	$	17,172	$	22,697	$	3,926	$	1,001	$	4,927
Cross currency swaps							16,369		—		16,369
							$	20,295	$	1,001	$	21,296
Derivative liabilities ^(b)
Foreign currency contract	250		5,901		6,151		$	90	$	3,130	$	3,220
Interest rate swaps	3,799		24,937		28,736
Total derivative liabilities	$	4,049	$	30,838	$	34,887


	December 31, 2017						December 31, 2018
(DOLLARS IN THOUSANDS)	Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value		Fair Value of Derivatives Designated as Hedging Instruments		Fair Value of Derivatives Not Designated as Hedging Instruments		Total Fair Value
Derivative assets ^(a)
Foreign currency contracts	$	1,159	$	3,978	$	5,137	$	4,122	$	2,020	$	6,142
Cross currency swaps							1,087		—		1,087
							$	5,209	$	2,020	$	7,229
Derivative liabilities ^(b)
Foreign currency contracts	7,842		4,344		12,186		$	205	$	6,702	$	6,907
Interest rate swaps	1,369		—		1,369
Total derivative liabilities	$	9,211	$	4,344	$	13,555

_______________________


(a)	Derivative assets are recorded to Prepaid expenses and ~~other current~~Other assets in the Consolidated Balance Sheet.


(b)	Derivative liabilities are recorded as Other current liabilities in the Consolidated Balance Sheet.

The following table shows the effect of the Company’s derivative instruments which were not designated as hedging instruments in the Consolidated Statement of Income and Comprehensive Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~ (in thousands):



	Amount of Gain (Loss)					Location of Gain (Loss) Recognized in Income on Derivative
(DOLLARS IN THOUSANDS)	Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	2019		2018
Foreign currency contracts	$	926	$	(3,615	)	Other (income) expense, net

Most of these net gains (losses) offset any recognized gains (losses) arising from the revaluation of the related intercompany loans during the same respective periods.

Amount of Gain (Loss) Location of Gain (Loss) Recognized in Income on Derivative
(DOLLARS IN THOUSANDS) Three Months Ended June 30,
2018 2017
Foreign currency contracts $ 4,685
$ (3,054 ) Other (income), net
Deal contingent swaps
Foreign currency contracts 10,979
—
Other (income), net
Interest rate swaps (24,937 ) —
Interest expense
$ (9,273 ) $ (3,054 )

Amount of Gain (Loss) Location of Gain (Loss) Recognized in Income on Derivative
Six Months Ended June 30,
(DOLLARS IN THOUSANDS) 2018 2017
Foreign currency contracts ⁽¹⁾
$ 1,070
$ (13,181 ) Other (income), net
Deal contingent swaps
Foreign currency contracts 10,979
—
Other (income), net
Interest rate swaps (24,937 ) —
Interest expense
$ (12,888 ) $ (13,181 )

~~_______________________~~


~~(1)~~	~~Most of these net gains (losses) offset any recognized gains (losses) arising from the revaluation of the related intercompany loans during the same respective periods.~~

The following table shows the effect of the Company’s derivative and non-derivative instruments designated as cash flow and net investment hedging instruments, net of tax, in the Consolidated Statement of Income and Comprehensive Income for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 and ~~2017~~2018 (in thousands):


	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)						Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)						Amount of Gain (Loss) Recognized in OCI on Derivative						Location of Gain (Loss) Reclassified from AOCI into Income		Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
	Three Months Ended June 30,							Three Months Ended June 30,						Three Months Ended March 31,							Three Months Ended March 31,
	2018			2017				2018			2017			2019			2018				2019				2018
Derivatives in Cash Flow Hedging Relationships:
Foreign currency contracts	$	10,241		$	(6,328	)	Cost of goods sold	$	(2,330	)	$	1,789		$	(312	)	$	(743	)		Cost of goods sold		$	2,372			$	(2,193	)
Interest rate swaps ⁽¹⁾	216			(5,439		)	Interest expense	(216		)	(186		)	216			216				Interest expense		(216		)		(216		)
Derivatives in Net Investment Hedging Relationships:
Foreign currency contracts	178			(2,082		)	N/A	—			—			—			(696		)	N/A		—				—
Euro Senior notes - 2016	28,682			(19,780		)	N/A	—			—
Cross currency swaps														10,667			—			N/A		—				—
Non-Derivatives in Net Investment Hedging Relationships:
2024 Euro Notes														4,206			(15,977		)	N/A		—				—
2021 Euro Notes & 2026 Euro Notes														9,253			—			N/A		—				—
Total	$	39,317		$	(33,629	)		$	(2,546	)	$	1,603		$	24,030		$	(17,200	)			$	2,156			$	(2,409	)


	Amount of (Loss) Gain Recognized in OCI on Derivative (Effective Portion)						Location of (Loss) Gain Reclassified from AOCI into Income (Effective Portion)	Amount of (Loss) Gain Reclassified from Accumulated OCI into Income (Effective Portion)
	Six Months Ended June 30,							Six Months Ended June 30,
	2018			2017				2018			2017
Derivatives in Cash Flow Hedging Relationships:
Foreign currency contracts	$	9,498		$	(9,276	)	Cost of goods sold	$	(4,523	)	$	2,247
Interest rate swaps ⁽¹⁾	432			(4,243		)	Interest expense	(432		)	(357		)

Derivatives in Net Investment Hedging Relationships:
Foreign currency contracts	(518		)	(3,128		)	N/A	—			—
Euro Senior notes - 2016	12,705			(31,189		)	N/A	—			—
Total	$	22,117		$	(47,836	)		$	(4,955	)	$	1,890

_______________________


(1)	Interest rate swaps were entered into as pre-issuance hedges for bond offerings.

The ineffective portion of the above noted cash flow hedges ~~and net investment hedges~~ were not material during the three ~~and six~~ months ended ~~June 30, 2018 and 2017.~~March 31, 2018.

The Company expects that approximately ~~$2.4~~$6.2 million (net of tax) of derivative ~~loss~~gain included in AOCI at ~~June 30, 2018,~~March 31, 2019, based on current market rates, will be reclassified into earnings within the next 12 months. The majority of this amount will vary due to fluctuations in foreign currency exchange rates.

NOTE ~~12.~~14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables present changes in the accumulated balances for each component of other comprehensive income, including current period other comprehensive income and reclassifications out of accumulated other comprehensive income:


(DOLLARS IN THOUSANDS)	Foreign Currency Translation Adjustments			(Losses) Gains on Derivatives Qualifying as Hedges			Pension and Postretirement Liability Adjustment			Total			Foreign Currency Translation Adjustments			Gains on Derivatives Qualifying as Hedges			Pension and Postretirement Liability Adjustment			Total
Accumulated other comprehensive (loss) income, net of tax, as of December 31, 2017	$	(297,416	)	$	(10,332	)	$	(329,734	)	$	(637,482	)
Accumulated other comprehensive (loss) income, net of tax, as of December 31, 2018													$	(396,996	)	$	4,746		$	(309,977	)	$	(702,227	)
OCI before reclassifications	(70,461		)	4,971			186			(65,304		)	42,377			2,059			—			44,436
Amounts reclassified from AOCI	—			4,955			5,333			10,288			—			(2,156		)	2,593			437
Net current period other comprehensive income (loss)	(70,461		)	9,926			5,519			(55,016		)	42,377			(97		)	2,593			44,873
Accumulated other comprehensive (loss) income, net of tax, as of June 30, 2018	$	(367,877	)	$	(406	)	$	(324,215	)	$	(692,498	)
Accumulated other comprehensive (loss) income, net of tax, as of March 31, 2019													$	(354,619	)	$	4,649		$	(307,384	)	$	(657,354	)


(DOLLARS IN THOUSANDS)	Foreign Currency Translation Adjustments				(Losses) Gains on Derivatives Qualifying as Hedges			Pension and Postretirement Liability Adjustment			Total			Foreign Currency Translation Adjustments			Losses on Derivatives Qualifying as Hedges			Pension and Postretirement Liability Adjustment			Total
Accumulated other comprehensive (loss) income, net of tax, as of December 31, 2016	$	(352,025	)		$	7,604		$	(335,674	)	$	(680,095	)
Accumulated other comprehensive (loss) income, net of tax, as of December 31, 2017														$	(297,416	)	$	(10,332	)	$	(329,734	)	$	(637,482	)
OCI before reclassifications	22,304				(11,629		)	—			10,675			14,803			(2,938		)	—			11,865
Amounts reclassified from AOCI	(12,214		)	(a)	(1,890		)	7,323			(6,781		)	—			2,409			2,629			5,038
Net current period other comprehensive income (loss)	10,090				(13,519		)	7,323			3,894			14,803			(529		)	2,629			16,903
Accumulated other comprehensive (loss) income, net of tax, as of June 30, 2017	$	(341,935	)		$	(5,915	)	$	(328,351	)	$	(676,201	)
Accumulated other comprehensive (loss) income, net of tax, as of March 31, 2018														$	(282,613	)	$	(10,861	)	$	(327,105	)	$	(620,579	)

~~_______________________~~

~~(a)~~ ~~Represents a foreign currency exchange gain from the release of a currency translation adjustment upon the liquidation of a foreign entity in 2017.~~

The following table provides details about reclassifications out of accumulated other comprehensive income to the Consolidated Statement of Income and Comprehensive Income:


	Six Months Ended June 30,						Affected Line Item in the Consolidated Statement of Income and Comprehensive Income	Three Months Ended March 31,						Affected Line Item in the Consolidated Statement of Income and Comprehensive Income
(DOLLARS IN THOUSANDS)	2018			2017				2019			2018
(Losses) gains on derivatives qualifying as hedges
Gains (losses) on derivatives qualifying as hedges
Foreign currency contracts	$	(5,169	)	$	2,568		Cost of goods sold	$	2,711		$	(2,506	)	Cost of goods sold
Interest rate swaps	(432		)	(357		)	Interest expense	(216		)	(216		)	Interest expense
Tax	646			(321		)	Provision for income taxes	(339		)	313			Provision for income taxes
Total	$	(4,955	)	$	1,890		Total, net of income taxes	$	2,156		$	(2,409	)	Total, net of income taxes
(Losses) gains on pension and postretirement liability adjustments
Losses on pension and postretirement liability adjustments
Prior service cost	$	3,543		$	3,512		(a)	$	2,836		$	1,772		(a)
Actuarial losses	(10,206		)	(12,982		)	(a)	168			(5,103		)	(a)
Tax	1,330			2,147			Provision for income taxes	(5,597		)	702			Provision for income taxes
Total	$	(5,333	)	$	(7,323	)	Total, net of income taxes	$	(2,593	)	$	(2,629	)	Total, net of income taxes

_______________________


(a)	The amortization of prior service cost and actuarial loss is included in the computation of net periodic benefit cost. Refer to Note 1416 of our ~~2017~~2018 Form 10-K for additional information regarding net periodic benefit cost.

NOTE ~~13.~~15. COMMITMENTS AND CONTINGENCIES

Guarantees and Letters of Credit

The Company has various bank guarantees and letters of credit which are available for use to support its ongoing business operations and to satisfy governmental requirements associated with pending litigation in various jurisdictions.

At ~~June 30, 2018, we~~March 31, 2019, the Company had total bank guarantees and standby letters of credit of approximately ~~$49.4~~$58.5 million with various financial institutions. Included in the above aggregate amount iswas a total of ~~$13.5~~$17.9 million for other assessments in Brazil for various income tax and indirect tax disputes related to fiscal years 1998-2011. There were no material amounts utilized under the standby letters of credit as of ~~June 30, 2018.~~March 31, 2019.

In order to challenge the assessments in these cases in Brazil, the Company has been required to, and has separately pledged assets, principally property, plant and equipment, to cover assessments in the amount of approximately ~~$11.2~~$10.3 million as of ~~June 30, 2018.~~March 31, 2019.

Lines of Credit

The Company has various lines of credit which are available to support its ongoing business operations. As of ~~June 30, 2018, we~~March 31, 2019, the Company had available lines of credit of approximately ~~$102.3~~$107.7 million with various financial institutions, in addition to the ~~$1.0 billion~~$912.3 million of capacity under the Amended Credit ~~Facility discussed in Note 6 of the Consolidated Financial Statements.~~Facility. There were no material amounts drawn down pursuant to these lines of credit as of ~~June 30, 2018.~~March 31, 2019.

Litigation

The Company assesses contingencies related to litigation and/or other matters to determine the degree of probability and range of possible loss. A loss contingency is accrued in the Company’s Consolidated Financial Statements if it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly sensitive and requires judgments about future events. On at least a quarterly basis, the Company reviews contingencies related to litigation to determine the adequacy of accruals. The amount of ultimate loss may differ from these estimates and further events may require the Company to increase or decrease the amounts it has accrued on any matter.

Periodically, the Company assesses its insurance coverage for all known claims, where applicable, taking into account aggregate coverage by occurrence, limits of coverage, self-insured retentions and deductibles, historical claims experience and claims experience with its insurance carriers. The liabilities are recorded at management’s best estimate of the probable outcome of the lawsuits and claims, taking into consideration the facts and circumstances of the individual matters as well as past experience on similar matters. At each balance sheet date, the key issues that management assesses are whether it is probable that a loss as to asserted or unasserted claims will be incurred and if so, whether the amount of loss can be reasonably estimated. The Company records the expected liability with respect to claims in Other liabilities and expected recoveries from its insurance carriers in Other assets. The Company recognizes a receivable when it believes that realization of the insurance receivable is probable under the terms of the insurance policies and its payment experience to date.

Environmental

Over the past 20 years, various federal and state authorities and private parties have claimed that ~~we are~~the Company is a Potentially Responsible Party (“PRP”) as a generator of waste materials for alleged pollution at a number of waste sites operated by third parties located principally in New Jersey and have sought to recover costs incurred and to be incurred to clean up the sites.

The Company has been identified as a PRP at ~~eight~~seven facilities operated by third parties at which investigation and/or remediation activities may be ongoing. The Company analyzes potential liability on at least a quarterly basis and accrues for environmental liabilities when they are probable and estimable. The Company estimates its share of the total future cost for these sites to be less than $5$3 million.

While joint and several liability is authorized under federal and state environmental laws, the Company believes the amounts it has paid and anticipates paying in the future for clean-up costs and damages at all sites are not and will not have a material adverse effect on its financial condition, results of operations or liquidity. This assessment is based upon, among other things, the involvement of other PRPs at most of the sites, the status of the proceedings, including various settlement agreements and consent decrees, and the extended time period over which payments will likely be made. There can be no assurance, however, that future events will not require the Company to materially increase the amounts it anticipates paying for clean-up costs and damages at these sites, and that such increased amounts will not have a material adverse effect on its financial condition, results of operations or cash flows.

China Facilities

Guangzhou ~~Flavors~~Taste plant

During the fourth quarter of 2016, the Company was notified that certain governmental authorities have begun to evaluate a change in the zoning of the Guangzhou ~~Flavors~~Taste plant. The zoning, if changed, would prevent the Company from continuing to manufacture product at the existing plant. The ultimate outcome of any change that the governmental authorities may propose, the timing of such a change, and the nature of any compensation arrangements that might be provided to the Company are uncertain.

The net book value of the existing plant was approximately ~~$71~~$66 million as of ~~June 30, 2018.~~March 31, 2019.

Zhejiang Ingredients plant

In the fourth quarter of 2017, the Company concluded discussions with the government regarding the relocation of its Fragrance Ingredients plant in Zhejiang and, based on the agreements reached, expects to receive total compensation payments up to approximately $50 million. The relocation compensation will be paid to the Company over the period of the relocation which is expected to be through the end of 2020. The Company received the first payment of $15 million in the fourth quarter of 2017. No additional amounts have been received since the fourth quarter of 2017.

The net book value of the current plant was approximately ~~$23~~$20 million as of ~~June 30, 2018.~~March 31, 2019. The Company expects to relocate approximately half of production capacity of the facility by the middle of 2019 and the remainder of the production capacity of the facility by the middle of 2020.

Total China Operations

The total net book value of all five plants in China (one of which is currently under construction) was approximately ~~$161~~$199 million as of ~~June 30, 2018.~~March 31, 2019.

If the Company is required to close a plant, or operate one at significantly reduced production levels on a permanent basis, the Company may be required to record charges that could have a material impact on its consolidated financial results of operations, financial position and cash flows in future periods.

Other Contingencies

The Company has contingencies involving third parties (such as labor, contract, technology or product-related claims or litigation) as well as government-related items in various jurisdictions in which it operates pertaining to such items as value-added taxes, other indirect taxes, customs and duties and sales and use taxes. It is possible that cash flows or results of operations, in any period, could be materially affected by the unfavorable resolution of one or more of these contingencies.

The most significant government-related contingencies exist in Brazil. With regard to the Brazilian matters, the Company believes it has valid defenses for the underlying positions under dispute; however, in order to pursue these defenses, the Company is required to, and has provided, bank guarantees and pledged assets in the aggregate amount of ~~$24.7~~$28.2 million. The Brazilian matters take an extended period of time to proceed through the judicial process and there are a limited number of rulings to date.

~~ZoomEssence~~

~~As previously disclosed, in March 2012, ZoomEssence, Inc. filed a complaint against~~ During 2018, the Company inreceived an unfavorable ruling with respect to a claim related to potentially unpaid excise taxes from 1993. Based on the U.S. District Court for the District of New Jersey alleging trade secret misappropriation, breach of contract and unjust enrichment in connection with certain spray dry technology disclosed to the Company. ZoomEssence sought an injunction and monetary damages. In November 2014,revised ruling, the Company ~~filed a counterclaim against ZoomEssence alleging trade secret misappropriation, breach of contract, breach~~has determined that it is now probable that it will have to pay the original claim in addition to penalties and interest. The total amount of the implied covenant of good faith and fair dealing, unjust enrichment, misappropriation of confidential and proprietary information, common law unfair competition, tortious interference with contractual relations, and conversion. During the second quarter of 2017, the Company and ZoomEssence mutually agreed to settle all claims and counterclaims. The parties agreed to dismiss their claims against one another, with prejudice and without any admission of liability or wrongful conduct, to avoid any further expense and disruption from the litigation. The complaint was dismissed, with prejudice, on July 5, 2017. Under the settlement agreement, the Company made a one-time payment to ZoomEssence of $56 million during the second quarter of 2017 and the parties exchanged full mutual releases. Accordingly, the Companyclaim that has been recorded ~~an additional charge of $1.0 million during the second quarter of 2017.~~

is $4.8 million.

FDA-Mandated Product Recall

The Company periodically incurs product liability claims based on product that is sold to customers that may be defective or otherwise not in accordance with the customer’s requirements. In the first quarter of 2017, the Company was made aware of a claim for product that was subject to an FDA-mandated product recall. As of ~~June 30, 2018,~~March 31, 2019, the Company had recorded total charges of approximately $17.5 million with respect to this claim, of which $5.0 million was recorded in the three months ended March 31, 2018. The Company settled the claim with the customer in the first quarter of 2018 for a total of $16.0 million, of which $3.0 million was paid in the fourth quarter of 2017 and $13.0 million was paid during the three months ended March 31, 2018. The remaining accrual of approximately ~~$1.5~~$1.0 million represents management's best estimate of losses related to claims from other affected parties. The Company does not believe that the ultimate settlement of the claim will have a material impact on its financial condition.

Subsequent to the end of the second quarter of 2018, the Company finalized an agreement with the supplier of the effected product for reimbursement of $9.8 million, in full and final settlement from the supplier. The Company continues to pursue reimbursement of all or a portion of costs, once incurred, from other parties including its insurance company; however, the nature, timing and amount of any additional such reimbursement cannot be determined at this time.

Other

The Company determines estimates of reasonably possible losses or ranges of reasonably possible losses in excess of related accrued liabilities, if any, when it has determined that either a loss is reasonably possible or a loss in excess of accrued amounts is reasonably possible and the amount of losses or range of losses is determinable. For all third party contingencies (including labor, contract, technology, tax, product-related claims and business litigation), the Company currently estimates that the aggregate range of reasonably possible losses in excess of any accrued liabilities is $0 to approximately ~~$12~~$10 million. The estimates included in this amount are based on the Company’s analysis of currently available information and, as new information is obtained, these estimates may change. Due to the inherent subjectivity of the assessments and the unpredictability of outcomes of legal proceedings, any amounts accrued or included in this aggregate amount may not represent the ultimate loss to the Company from the matters in question. Thus, the Company’s exposure and ultimate losses may be higher or lower, and possibly significantly so, than the amounts accrued or the range disclosed above.

NOTE 16. REDEEMABLE NONCONTROLLING INTERESTS

Through certain subsidiaries of Frutarom, there are certain noncontrolling interests that carry redemption features. The noncontrolling interest holders have the right, over a stipulated period of time, to sell their respective interests to Frutarom, and Frutarom has the option to purchase these interests (subject to the same timing). These options carry identical price and conditions of exercise, and will be settled in accordance with the multiple of the average EBITDA of consecutive quarters to be achieved during the period ending prior to the exercise date.

The following table sets forth the details of the Company's redeemable noncontrolling interests:



(DOLLARS IN THOUSANDS)	Redeemable Noncontrolling Interests
Balance at December 31, 2018	$	81,806
Acquired through acquisitions during 2019	26,224
Impact of foreign exchange translation	(190		)
Share of profit or loss attributable to redeemable noncontrolling interests	1,541
Redemption value mark-up for the current period	(370		)
Measurement period adjustments	5,700
Balance at March 31, 2019	$	114,711

The increase in redeemable noncontrolling interests is primarily due to the interests acquired through acquisitions during the first quarter of 2019, as discussed in Note 3.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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

Overview

Frutarom acquisition

Frutarom's operating results have been included in our operating results from October 4, 2018, the date we completed the acquisition. See our 2018 Form 10-K for further details of the transaction.

Frutarom Integration Initiative

After the completion of the acquisition of Frutarom, we established priorities of driving topline growth by leveraging our combined technologies, expanded product portfolio and significantly expanded customer base to enhance our offerings, including cross-selling opportunities. In addition, we expect to unlock shareholder value by delivering $145 million in cost synergies through procurement excellence, network optimization and a streamlined organization and operating model. We expect to achieve $30-35 million of cost synergies by the end of 2019 across all three workstreams. To achieve these savings, we will incur certain costs such as advisory, personnel or facility related costs.

We have begun to execute our integration plan to simplify and harmonize our go-to-market business models, clarify roles and responsibilities and accelerate decision-making through a series of organizational changes. While organizational moves are the first step, we expect it will take 6-12 months from March 31, 2019 to fully complete the integration efforts including associated process, systems and governance changes.

Company background

We are a leading innovator of sensory experiences, co-creating unique products that consumers taste, smell, or feel in fine fragrances and cosmetics, detergents and household goods, and food and beverages. We take advantage of ~~our capabilities in consumer insights, research and product development (“R&D”), creative expertise and customer intimacy to~~ ~~partner with our customers in developing innovative and differentiated offerings for consumers. We believe that this collaborative approach will generate market share gains for our~~ ~~customers.~~ ~~Our flavors and fragrance compounds combine a number of ingredients that are blended, mixed or reacted together to produce proprietary formulas created by our flavorists and perfumers.~~

Flavors are the key building blocks that impart taste experiences in food and beverage products and, as such, play a significant role in determining consumer preference for the end products in which they are used. As a leading creator of flavors, we help our customers deliver on the promise of delicious and healthy foods and drinks that appeal to consumers. While we are a global leader, our flavors business is more regional in nature, with different formulas that reflect local taste preferences. Our flavors compounds are ultimately used by our customers in four end-use categories: (1) Savory, (2) Beverages, (3) Sweet and (4) Dairy.

We are a global leader in the creation of fragrance compounds that are integral elements in the world’s finest perfumes and best-known consumer products within fabric care, home care, personal wash, hair care and toiletries products. Our ~~Fragrances~~Scent business consists of Fragrance Compounds and Fragrance Ingredients. Our Fragrance Compounds are defined into two broad categories, ~~(1)~~ Fine Fragrances and ~~(2)~~ Consumer Fragrances. Consumer Fragrances consists of five end-use categories of products: (1) Fabric Care, (2) Home Care, (3) Personal Wash, (4) Hair Care and (5) Toiletries. Fragrance Ingredients consist of ~~cosmetic~~ active and functional ingredients that are used internally and sold to third parties, including customers and competitors, and are included in the ~~Fragrances~~Scent business unit.

~~The flavors~~Flavors are the key building blocks that impart taste experiences in food and ~~fragrances market is part of~~beverage products and, as such, play a ~~larger market which supplies a wide variety of ingredients and compounds that are used in consumer products. The broader market includes large multinational companies and smaller regional and local~~

~~participants~~significant role in determining consumer preference for the end products in which ~~supply products such as seasonings, texturizers, spices, enzymes, certain food-related commodities, fortified products~~they are used. As a leading creator of Flavor Compounds, we help our customers deliver on the promise of delicious and ~~active cosmetic ingredients.~~ healthy foods and drinks that appeal to consumers. While we are a global leader, our flavors business i~~The global market for~~s more regional in nature, with different formulas that reflect local taste preferences. Consequently, we manage our flavors business geographically, creating Flavor Compounds in our regional creative centers which allow us to satisfy local taste preferences, while also helping to ensure regulatory compliance and production standards. We develop thousands of different flavors and ~~fragrances has expanded consistently, primarily as a result~~taste offerings for our customers, most of ~~an increase in demand for, as well as an increase~~which are tailor-made. We continually develop new formulas to meet changing consumer preferences and customer needs. Our Flavor Compounds are ultimately used by our customers in the ~~variety~~following four end-use categories of consumer ~~products containing flavors~~goods: (1) Savory, (2) Beverages, (3) Sweet and ~~fragrances.~~ In ~~2017~~, the flavors and fragrances market was estimated by management to be approximately $24.8 billion and is forecasted to grow approximately 2-3% by 2021, primarily driven by expected growth in emerging markets.(4) Dairy.

~~Development~~Our Frutarom business creates and manufactures a naturals-focused suite of ~~new flavors~~Flavor Compounds and ~~fragrance compounds is driven~~specialty fine ingredients, largely targeting small, local and regional customers. Our Frutarom business seeks to capitalize on the health and wellness emphasis of consumers and deliver growth by ~~a variety of sources, including requests from our~~offering customers ~~who are in need of a specific~~natural flavor or fragrance for use in a new or modified consumer product, or as a result of internal initiatives stemming from our consumer insights program. Our product development team works with our scientists and researchersproducts that combine solutions to optimize the consumer appeal of the flavor or fragrance. It then becomes a collaborative process among our researchers, our product development team and our customers to perfect the flavor or fragrance so that it is ready to be included in the final consumer product.

~~On May 7, 2018, we entered into a definitive agreement and plan of merger to acquire Frutarom Industries Ltd. (“Frutarom”). Frutarom is a flavors, savory solutions~~create natural colors, extending shelf life and natural functional food ingredients. Frutarom’s products are focused on three principal areas: (1) Savory Solutions, (2) Natural Product Solutions, which includes natural health ingredients, ~~company with production~~natural color and ~~development centers on six continents, that is traded on the Tel Aviv~~natural food protection, and ~~London Stock Exchanges. The transaction is targeted to close~~(3) Taste Solutions.

FINANCIAL PERFORMANCE OVERVIEW

Sales

Sales in the fourth quarter of 2018, has been unanimously approved by the Boards of Directors of both companies and by the Frutarom shareholders, and is subject to clearance by the relevant regulatory authorities and other customary closing conditions. The transaction was valued, based on our stock price as of May 7, 2018, at approximately $7.1 billion, including the assumption of approximately $681 million of Frutarom's net debt, which the Company intends to refinance or repay concurrent with the closing of the transaction. See Note 3 to the Consolidated Financial Statements for additional information on the pending transaction.

~~2018 Overview~~

~~Effective~~ the first quarter of 2018, we adopted new accounting guidance related to revenue recognition and the presentation of pension costs. The revenue recognition guidance was adopted effective the first day of fiscal 2018 and prior period amounts were not revised to conform to the new guidance. The adoption of the new revenue guidance did not have a material impact on our results of operations. The guidance related to the presentation of pension costs was applied retroactively and prior period amounts have been adjusted to conform to the new guidance. As noted in Note 10 to the Consolidated Financial Statements, the net effect of the change was to decrease operating profit and increase Other income.

~~Net sales during the second quarter of 2018~~2019 increased 9%39% on a reported basis and 5%44% on a currency neutral basis (which excludes the effects of changes in currency) ~~versus~~, with the ~~2017 period. Reported~~effects of the Frutarom acquisition contributing approximately 39% to reported growth rates and 41% to currency neutral growth rates. Taste reported sales declined 1% but achieved currency neutral sales growth ~~were~~of 2%. Scent achieved sales growth of 1% on a reported basis and 4% on a currency neutral basis in the first quarter of 2019. Currency neutral sales growth was driven by new win performance (net of losses) and price increases (principally due to increases in raw material input costs) in both ~~Flavors~~Taste and ~~Fragrances.~~Scent.

Overall, our first quarter 2019 results continued to be driven by our strong emerging market presence that represented 47% of total sales and experienced 40% growth on both a reported and currency neutral basis, due primarily to the acquisition of Frutarom, for the first quarter of 2019. Excluding the impact of our acquisition of Frutarom, we experienced 3% growth on a currency neutral basis and results were flat on a reported basis. From a geographic perspective, North America ("NOAM"), Europe, Africa and Middle East ("EAME"), Greater Asia ("GA") and Latin America ("LA") all delivered sales growth on a consolidated basis, led by EAME.

Exchange rate variations had a ~~400 bps favorable~~material impact on net sales for the ~~second~~first quarter of ~~2018.~~2019. The effect of exchange rates can vary by business and region, depending upon the mix of sales priced in U.S. dollars as compared to other ~~currencies, as well as the relative percentage of local sales priced in U.S. dollars versus local~~ currencies.

Gross Margin

Gross margins decreased to ~~43.3%~~40.9% in the ~~second~~first quarter of ~~2018~~2019 from ~~44.3%~~43.6% in the ~~2017~~2018 period, driven primarily by unfavorable price versus input costs ~~(including the impact of the BASF supply disruption)~~ which ~~was~~were only partially offset by cost ~~savings~~ and productivity ~~initiatives.~~initiatives and product mix. Included in the ~~second~~first quarter of ~~2018 were $0.4~~2019 was $8.4 million of Frutarom inventory "step-"up" costs, operational improvement initiatives, and integration related expenses compared to $5.5 million of operational improvement ~~costs compared to $6.1 million of acquisition-related amortization of inventory "step-up" costs, operational improvement initiative costs~~ and ~~integration-related~~FDA mandated product recall costs included in the ~~second~~first quarter of ~~2017.~~2018. Excluding these items, adjusted gross margin decreased ~~202 bps~~2.6% compared to the prior year period.

We believe that, ~~in 2018,~~for the next several quarters, we will continue to see ~~higher~~lower margins as a result of price versus input costs and increases in Selling and administrative expenses, offset by cost and productivity initiatives and new win performance, net of raw materials across a range of categories (including turpentine, citrus and petro-derived products). Raw material costs incurred by our Fragrance segment continue to be impacted by the BASF supply disruptionlosses (as discussed in our ~~2017~~2018 Form 10-K).

We continue to seek improvements in our margins through operational performance, cost reduction efforts and mix enhancement.

~~FINANCIAL PERFORMANCE OVERVIEW~~

~~Sales~~

Reported sales in the second quarter of 2018 increased approximately 9% as compared to the 2017 period. We continued to benefit from our diverse portfolio of end-use product categories and geographies and achieved currency neutral growth in all four regions. Sales growth was driven by new win performance (net of losses) and price increases (principally due to increases in raw material input costs) in both Flavors and Fragrances. Flavors achieved sales growth of 9% on a reported basis and 6% on a currency neutral basis. Fragrances achieved reported sales growth of 10% and currency neutral sales growth of 5%. Additionally, Fragrance Ingredients sales were up 16% on a reported basis and 10% on a currency neutral basis. Overall, our second quarter 2018 results continued to be driven by our strong emerging market presence that represented 47% of total sales and experienced 14% reported and 7% currency neutral growth in the second quarter 2018. From a geographic perspective, for the second quarter of 2018, North America ("NOAM"), Europe, Africa and the Middle East ("EAME"), Latin America ("LA") and Greater Asia ("GA") all delivered sales growth.

Operating profit

Operating profit ~~increased $2.8~~decreased $11.0 million to ~~$154.5~~$163.9 million (12.6% of sales) in the ~~2018 second~~2019 first quarter compared to ~~$151.7~~$174.9 million (18.8% of sales) in the comparable ~~2017 period while operating profit as a percentage of sales decreased to 16.8% in the~~ 2018 ~~second quarter compared to 18.0% in the comparable 2017~~ period. The ~~second~~first quarter of ~~2018~~2019 included ~~$15.3~~$40.8 million of charges related to operational improvement initiatives, ~~losses on sale of assets, the pending Frutarom acquisition~~integration related costs, restructuring and other charges, net, and Frutarom acquisition related costs, as compared to ~~$12.7~~$6.2 million of charges related to operational improvement initiatives, ~~acquisition related costs, integration related costs, legal charges/credits, net and~~ restructuring and other charges, net and an FDA mandated product recall which were partially offset by acquisition related costs and gains on sale of assets ~~and a favorable tax assessment~~ in the ~~2017~~2018 period.

Excluding these charges, adjusted operating profit was ~~$169.8~~$204.7 million for the ~~second~~first quarter of 2019, an increase from $181.0 million for the first quarter of 2018, ~~an increase from $156.1 million for the second quarter of 2017,~~ principally driven by ~~volume growth,~~the inclusion of Frutarom's operating profit in the first quarter of 2019, offset by the impact of ~~foreign exchange, and cost and productivity initiatives which more than offset price to input costs (including the impact of the BASF supply chain disruption).~~lower margins in IFF's legacy business. Foreign currency had a 6%1.3% unfavorable impact on operating profit in the 2019 period compared to a 4.0% favorable impact on operating profit in the 2018 ~~period compared to a 3% unfavorable impact on operating profit in the 2017~~ period. Operating profit as a percentage of sales, excluding the above charges, decreased ~~from 18.5%~~to 15.8% for the ~~second~~first quarter of ~~2018~~2019 compared to ~~19.5%~~19.4% for the ~~second~~first quarter of ~~2017,~~2018, principally driven by lower margins as a result of price to input costs (including the net impact of the BASF supply chain disruption)~~, partially~~ and increases in Selling and administrative expenses, offset by ~~the impact of foreign exchange,~~ cost and productivity initiatives and volume growth.

Interest Expense

Interest expense increased to ~~$53.2~~$36.6 million in the ~~second~~first quarter of ~~2018~~2019 compared to ~~$17.6~~$16.6 million in the ~~2017~~2018 period driven by ~~$10.7 million of fees incurred in connection with~~increased borrowings to finance the ~~bridge loan commitment and $25.0 million mark-to-market adjustments on deal-contingent interest rate derivatives entered into in connection with the pending acquisition with Frutarom.~~

~~Other (income) expense, net~~

Other (income), net increased $12.6 million to $20.7 million of income in the second quarter of 2018 compared to $7.9 million of income in the second quarter of 2017. The year-over-year increase was primarily driven by an $11.0 million mark-to-market adjustment on a foreign currency derivative entered into in connection with the pending acquisition with Frutarom.

~~Net income~~

Net income decreased by $10.6 million quarter-over-quarter to $99.1 million for the second quarter of 2018 from $109.8 million in the 2017 period, reflecting a small increase in operating profit, an increase in Other (income) primarily driven by the impact of foreign currency (including a foreign currency derivative related to the pending Frutarom ~~acquisition), and offset by a large increase in interest expense.~~acquisition.

Cash flows

Cash flows provided by operations for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 was ~~$55.2~~$47.2 million or ~~3.0%~~3.6% of sales, compared to cash ~~flows provided~~used by operations of ~~$57.9~~$11.4 million or ~~3.5%~~1.2% of sales for the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018. The ~~change~~increase in cash ~~flows from operations in 2018~~provided by operating activities during 2019 was principally driven by ~~fees incurred in connection with the bridge loan commitment,~~ higher ~~working capital (principally related to inventories) and FDA mandated product recall costs, partially offset by~~earnings excluding the impact of depreciation and amortization, legal settlement charges in the ~~litigation settlement~~prior year, and ~~pension contributions~~higher cash inflows related to working capital in ~~2017.~~the current year.

Results of Operations


	Three Months Ended								Six Months Ended								Three Months Ended
	June 30,								June 30,								March 31,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)	2018			2017			Change		2018			2017			Change		2019			2018			Change
Net sales	$	920,016		$	842,861		9	%	$	1,850,944		$	1,671,154		11	%	$	1,297,402		$	930,928		39	%
Cost of goods sold	521,299			469,877			11	%	1,046,419			935,088			12	%	766,143			525,119			46	%
Gross profit	398,717			372,984					804,525			736,066					531,259			405,809
Research and development (R&D) expenses	74,767			72,761			3	%	153,244			144,887			6	%	90,596			78,476			15	%
Selling and administrative (S&A) expenses	157,407			139,319			13	%	300,051			283,023			6	%	213,182			142,644			49	%
Amortization of acquisition-related intangibles	9,584			8,494			13	%	18,769			15,561			21	%	47,625			9,185			NMF
Restructuring and other charges, net	1,186			791			50	%	1,903			10,934			(83	)%	16,174			717			NMF
Losses (gains) on sales of fixed assets	1,264			(68		)	(1,959	)%	1,195			(89		)	(1,443	)%
Gains on sales of fixed assets																	(188		)	(69		)	172	%
Operating profit	154,509			151,687					329,363			281,750					163,870			174,856
Interest expense	53,246			17,556			203	%	69,841			30,363			130	%	36,572			16,595			120	%
Other (income), net	(20,655		)	(7,909		)	161	%	(21,232		)	(29,140		)	(27	)%
Other income, net																	(7,278		)	(576		)	NMF
Income before taxes	121,918			142,040					280,754			280,527					134,576			158,837
Taxes on income	22,769			32,245			(29	)%	52,190			54,968			(5	)%	23,362			29,421			(21	)%
Net income	$	99,149		$	109,795		(10	)%	$	228,564		$	225,559		1	%	$	111,214		$	129,416
Net income attributable to noncontrolling interests																	2,385			—			—	%
Net income attributable to IFF stockholders																	$	108,829		$	129,416		(16	)%
Diluted EPS	$	1.25		$	1.38		(9	)%	$	2.87		$	2.84		1	%	$	0.96		$	1.63		(41	)%
Gross margin	43.3		%	44.3		%	(91	)	43.5		%	44.0		%	(58	)	40.9		%	43.6		%	(264	)
R&D as a percentage of sales	8.1		%	8.6		%	(51	)	8.3		%	8.7		%	(39	)	7.0		%	8.4		%	(145	)
S&A as a percentage of sales	17.1		%	16.5		%	58		16.2		%	16.9		%	(73	)	16.4		%	15.3		%	111
Operating margin	16.8		%	18.0		%	(120	)	17.8		%	16.9		%	93		12.6		%	18.8		%	(615	)
Adjusted operating margin ⁽¹⁾	18.5		%	19.5		%	(104	)	19.0		%	19.2		%	(22	)	15.8		%	19.4		%	(367	)
Effective tax rate	18.7		%	22.7		%	(403	)	18.6		%	19.6		%	(101	)	17.4		%	18.5		%	(116	)
Segment net sales
Flavors	$	450,540		$	414,323		9	%	$	899,559		$	820,487		10	%
Fragrances	469,476			428,538			10	%	951,385			850,667			12	%
Taste																	$	444,602		$	449,019		(1	)%
Scent																	488,352			481,909			1	%
Frutarom																	364,448			—			—	%
Consolidated	$	920,016		$	842,861				$	1,850,944		$	1,671,154				$	1,297,402		$	930,928

NMF: Not meaningful

_______________________

(1)

Adjusted operating margin excludes ~~$15.3~~$40.8 million of charges related to operational improvement initiatives, integration related costs, restructuring and other charges, net, ~~losses on sale of assets~~ and ~~costs related to the pending acquisition of~~ Frutarom ~~which were partially offset by~~ acquisition related costs for the three months ended ~~June 30, 2018,~~March 31, 2019, and excludes ~~$12.7~~$6.2 million of charges related to operational improvement initiatives, ~~acquisition related costs, integration related costs, legal charges/credits, net,~~ restructuring and other charges, net, acquisition related costs, gain on sale of assets and an FDA mandated product recall ~~which were partially offset by gains on sales of fixed assets and a favorable legal settlement~~ for the three months ended June 30, 2017. For the six months ended June 30, 2018, adjusted operating margin excludes $21.5 million of charges related to operational improvement initiatives, integration related costs, restructuring and other charges, net, gains on sale of assets, FDA mandated product recall and costs related to the pending acquisition of Frutarom which were partially offset by acquisition related costs, compared to the six months ended June 30, 2017 adjusted operating margin which excludes $38.7 million consisting of acquisition-related costs, costs associated with product recalls, tax assessment, legal charges, restructuring, integration-related and operational improvement initiative costs as well as gains on sales of fixed assetsMarch 31, 2018. See "Non-GAAP Financial Measures" below.

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.

~~SECOND~~FIRST QUARTER ~~2018~~2019 IN COMPARISON TO ~~SECOND~~FIRST QUARTER ~~2017~~2018

Sales

Sales for the ~~second~~first quarter of ~~2018~~2019 totaled ~~$920.0 million,~~$1.3 billion, an increase of 9%39% on a reported basis and 5%44% on a currency neutral basis as compared to the prior year quarter. Excluding the impact of our acquisition of Frutarom, sales were flat on a reported basis and grew 3% on a currency neutral basis. Sales growth was driven by Frutarom, new win performance (net of losses) and price increases (principally due to increases in raw material input costs) in both ~~Flavors~~Taste and ~~Fragrances.~~

~~Flavors Business Unit~~

Flavors sales increased 9% on a reported basis and 6% on a currency neutral basis for the second quarter of 2018 compared to the second quarter of 2017. Sales growth reflected new win performance (net of losses) and price increases (principally due to increases in raw material input costs). Overall growth was driven by growth in all four Flavors regions and all end-use categories.

~~Fragrances Business Unit~~

Fragrances sales increased 10% on a reported basis and 5% on a currency neutral basis for the second quarter of 2018 compared to the second quarter of 2017. Sales growth reflected new win performance (net of losses) and price increases (principally due to increases in raw material input costs), which were slightly offset by volume reductions on existing business. Overall growth was driven by double-digit growth in Fragrance Ingredients, and by broad based growth in all end-use categories.Scent.

Sales Performance by ~~Region and Category~~Segment

% Change in Sales - Second Quarter 2018 vs. Second Quarter 2017
Fine Fragrances Consumer Fragrances Ingredients
Total
Fragrances
Flavors Total
NOAM Reported 2 % 4 % 20 % 7 % 9 % 8 %
EAME Reported 8 % 15 % 7 % 11 % 16 % 13 %

Currency Neutral ⁽¹⁾
-2 % 4 % -2 % 1 % 5 % 2 %
LA Reported 8 % 6 % 6 % 6 % 5 % 6 %

Currency Neutral ⁽¹⁾
10 % 6 % 5 % 7 % 8 % 7 %
GA Reported -5 % 7 % 39 % 12 % 5 % 8 %

Currency Neutral ⁽¹⁾
-9 % 5 % 34 % 9 % 2 % 5 %
Total Reported 7 % 8 % 16 % 10 % 9 % 9 %

Currency Neutral ⁽¹⁾
1 % 5 % 10 % 5 % 6 % 5 %



	% Change in Sales - First Quarter 2019 vs First Quarter 2018
	Reported		Currency Neutral
Taste	-1	%	2	%
Scent	1	%	4	%
Frutarom	N/A		N/A
Total	39	%	44	%

_______________________


(1)	Currency neutral sales growth is calculated by translating prior year sales at the exchange rates for the corresponding ~~2018~~2019 period.

~~NOAM Flavors~~Taste

Taste sales ~~growth~~in 2019 decreased 1% on a reported basis and increased 2% on a currency neutral basis versus the prior year period. Growth was primarily ~~reflected double-digit~~driven by new win performance (net of losses) and, to a lesser extent, price increases (principally due to increases in raw material input costs).

Sales growth in ~~Dairy, high single-digit~~the Taste business unit was led by GA, which was primarily driven by new win performance (net of losses) and, to a lesser extent, price increases (principally due to increases in raw material input costs), followed by growth in ~~Beverage, mid single-digit growth~~EAME and NOAM primarily driven by new win performance (net of losses).

Scent

Scent sales in ~~Savory,~~2019 increased 1% on a reported basis and ~~low single-digit growth in Sweet. Total Fragrances~~4% on a currency neutral basis. Year-over-year, 2019 sales growth reflected ~~double-digit gains~~price increases (principally due to increases in ~~Toiletries, Hair Care~~raw material input costs) and, Fragrance Ingredients and low single-digit gains in Fine Fragrances and Fabric Care. These gains were partially offset by mid single-digit declines in Personal Wash and low single-digit declines in Home Care.

EAME Flavors sales experienced high single-digit gains in Dairy and Beverage, and mid single-digit growth in Sweet and Savory. Total Fragrances sales growth was driven mainly by double-digit growth in Hair Care, high single-digit gains in Toiletries and Personal Wash, and low single-digit gains in Fabric Care and Home Care. These gains were partially offset by low single-digit declines in Fine Fragrances and Fragrance Ingredients.

~~LA Flavors sales included double-digit gains in Savory and Dairy and mid single-digit gains in Beverage,~~to a lesser extent, new win performance (net of losses), which were partially offset by ~~mid single-digit declines~~volume reductions on existing business.

Sales growth in ~~Sweet. Total Fragrances sales growth reflected double-digit gains in Home Care, high single-digit gains in~~the Scent business unit was led by Fine Fragrances, ~~Hair Care and Fabric Care, and mid single-digit gains in Fragrance Ingredients. These gains more than offset double-digit declines in Toiletries and mid single-digit declines in Personal Wash.~~

~~GA Flavors sales growth~~which were primarily ~~reflected double-digit gains in Savory, high single-digit gains in Sweet, mid single-digit gains in Dairy, and low single-digit gains in Beverage. Total Fragrances sales growth was principally~~ driven by ~~double-digit gains~~new win performance (net of losses), followed by Consumer Fragrances, primarily driven by price increases (principally due to increases in ~~Toiletries, Home Care~~raw material input costs), which were partially offset by volume reductions on existing business.

Frutarom

Frutarom sales in 2019 were $364 million, which included approximately $269 million in sales of Flavor Compounds and ~~Fragrance Ingredients, mid single-digit gains~~approximately $95 million in ~~Hair Care, and low single-digit gains Fabric Care and Personal Wash. These gains more than offset high single-digit declines in Fine Fragrances.~~sales of Ingredient product categories.

Cost of Goods Sold

Cost of goods sold, as a percentage of sales, increased ~~100~~270 bps to ~~56.7%~~59.1% in the ~~second~~first quarter of ~~2018~~2019 compared to ~~55.7%~~56.4% in the ~~second~~first quarter of ~~2017, principally~~2018, driven primarily by unfavorable price versus input costs, ~~(including the impact of the BASF supply chain disruption) and the impact of foreign exchange,~~ which were ~~only~~ partially offset by cost savings and productivity initiatives.

Included in cost of goods sold was ~~$0.4~~$8.4 million of charges related to operational improvement ~~initiative~~initiatives, integration related costs ~~in the second quarter of 2018,~~and Frutarom inventory "step-up", as compared to ~~$6.1~~$5.5 million of ~~acquisition-related amortization of inventory "step-up" costs, operational improvement initiative costs and integration-related costs and $3.5 million~~charges related to an FDA mandated product recall and an adjustment to the contingent consideration payable for PowderPure in ~~2017.~~the first quarter in 2018.

Research and Development (R&D) Expenses

Overall R&D expenses, as a percentage of sales, decreased to ~~8.1%~~7.0% in the ~~second~~first quarter of ~~2018~~2019 versus ~~8.6%~~8.4% in the ~~second~~first quarter of ~~2017.~~2018. The decrease in ~~2018~~2019 was principally ~~driven by the effect of foreign currency, and,~~lower due to ~~a lesser extent, lower personnel costs.~~R&D expenses from our Frutarom's business unit.

Selling and Administrative (S&A) Expenses

S&A expenses increased ~~$18.1~~$70.5 million to ~~$157.4~~$213.2 million, or ~~17.1%~~16.4% as a percentage of sales, in the ~~second~~first quarter of ~~2018~~2019 compared to ~~$139.3~~$142.6 million, or ~~16.5%~~15.3% as a percentage of sales, in the ~~second~~first quarter of ~~2017. The $18.1 million increase from the comparable quarter of the prior year~~2018.

Included in 2019 was ~~principally due to the effect of~~ approximately ~~$12.5~~$14.6 million of ~~professional fees~~integration related costs and ~~services related to the pending acquisition of Frutarom. Included in 2018 was approximately $12.5~~$1.7 million of Frutarom acquisition related costs, and included in ~~2017~~2018 was approximately ~~$2.2~~$0.5 million of ~~expense~~acquisition related ~~to legal charges and acquisition and integration-related~~ costs. Excluding these costs, adjusted S&A expense increased by ~~$7.8~~$53.8 million, ~~and was 15.8%~~but decreased to 15.2% of sales in ~~2018~~2019 compared to ~~16.3%~~15.4% of sales in ~~2017, principally~~2018. The slight decrease is due to a decline in personnel related costs and the ~~effect~~impact of ~~foreign currency and increased personnel costs for new and existing employees.~~our acquisition of Frutarom.

Restructuring and Other Charges

2019 Severance charges

2017 Productivity Program

On February 15, 2017, we announced that we were adopting a multi-year productivity program designed to improve overall financial performance, provide flexibility to invest in growth opportunities and drive long-term value creation. In connection with ~~this program, we expect to optimize our global footprint and simplify our organizational structure globally. We expect~~2017 Productivity Program, the Company expects to incur cumulative, pre-tax cash charges of between $30-$35 million, consisting primarily of $24-$26 million in personnel-related costs and an estimated $6 million in facility-related costs, such as lease termination, and integration-related costs.

We The Company recorded ~~$1.2 million and $3.1~~$24.5 million of charges related to personnel costs and lease termination costs through the first quarter of 2019.

The Company made payments of $0.5 million and $1.7 million related to personnel costs during the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, respectively, with the remainder of the personnel related and other~~as well as lease termination costs ~~expected to be recognized by the end of 2018.~~

~~We made payments of $2.8 million related to severance in~~for March 31, 2018. The overall charges were split approximately evenly between ~~Flavors~~Taste and ~~Fragrances.~~Scent. This initiative is expected to result in the reduction of approximately 370 members of ~~our~~the Company’s global workforce, including acquired entities, in various parts of the organization.

Amortization of Acquisition-Related Intangibles

Amortization expenses increased to ~~$9.6~~$47.6 million in the ~~second~~first quarter of 2019 compared to $9.2 million in the first quarter of 2018 ~~compared~~principally due to ~~$8.5 million in~~ the ~~second quarter~~acquisition of ~~2017. The increase was principally driven by the impact of the acquisitions of Fragrance Resources and PowderPure in 2017.~~Frutarom.

Operating Results by Business Unit

We evaluate the performance of business units based on segment profit which is defined as operating profit before Restructuring and other charges, net; Global expenses (as discussed in Note 911 to the Consolidated Financial Statements) and

certain non-recurring items, net; Interest expense; Other (expense) income, net; and Taxes on income. See Note 9 to the Consolidated Financial Statements for the reconciliation to Income before taxes.

Three Months Ended June 30,
(DOLLARS IN THOUSANDS) 2018 2017
Segment profit:
Flavors $ 109,605
$ 96,840
Fragrances 80,780
80,993
Global expenses (20,572 ) (13,488 )
Operational Improvement Initiatives (403 ) (445 )
Acquisition Related Costs 4
(6,278 )
Integration Related Costs (993 ) (731 )
Legal Charges/Credits, net —
(1,000 )
Tax Assessment —
19
Restructuring and Other Charges, net (193 ) (791 )
Losses (Gains) on Sale of Assets (1,264 ) 68
FDA Mandated Product Recall —
(3,500 )
Frutarom Acquisition Related Costs (12,455 ) —
Operating profit $ 154,509
$ 151,687
Profit margin:
Flavors 24.3 % 23.4 %
Fragrances 17.2 % 18.9 %
Consolidated 16.8 % 18.0 %

~~Flavors~~



	Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	2019			2018
Segment profit:
Taste	$	108,455		$	111,564
Scent	85,815			93,277
Frutarom	29,091			—
Global expenses	(18,673		)	(23,825		)
Operational Improvement Initiatives	(406		)	(1,026		)
Acquisition Related Costs	—			514
Integration Related Costs	(14,897		)	—
Restructuring and Other Charges, net	(16,174		)	(717		)
Gains on Sale of Assets	188			69
FDA Mandated Product Recall	—			(5,000		)
Frutarom Acquisition Related Costs	(9,529		)	—
Operating profit	$	163,870		$	174,856
Profit margin:
Taste	24.4		%	24.8		%
Scent	17.6		%	19.4		%
Frutarom	8.0		%	N/A
Consolidated	12.6		%	18.8		%

Taste Segment Profit

Flavors segment profit ~~increased $12.8~~decreased $3.1 million to ~~$109.6~~$108.5 million in the ~~second~~first quarter of ~~2018 (24.3%~~2019 (24.4% of segment sales) from ~~$96.8~~$111.6 million ~~(23.4%~~(24.8% of sales) in the comparable ~~2017~~2018 period. The ~~increase~~decrease principally reflected ~~new win performance~~the impact of unfavorable foreign exchange rates and ~~the~~price versus input costs, partially offset by impact of cost savings and productivity initiatives.

~~Fragrances~~Scent Segment Profit

~~Fragrances~~Scent segment profit decreased ~~$0.2~~$7.5 million to ~~$80.8~~$85.8 million in the ~~second~~first quarter of ~~2018 (17.2%~~2019 (17.6% of segment sales) from ~~$81.0~~$93.3 million ~~(18.9%~~(19.4% of sales) in the comparable ~~2017~~2018 period. Segment profit as a percentage of sales included the impact of unfavorable foreign exchange rates and price versus input costs, ~~primarily due to the impact of the BASF supply chain disruption,~~as well as increases in Selling and administrative expenses, which were partially offset by ~~higher volumes~~new win performance (net of losses) and the favorable impact of cost savings and productivity initiatives.

~~Global Expenses~~Frutarom Segment Profit

Global expenses represent corporate and headquarters-related expenses which include legal, finance, human resources and R&D and other administrative expenses that are not allocated to an individual business unit. In the second quarterFrutarom segment profit was 8.0% of ~~2018, Global expenses were $20.6 million compared to $13.5 million during the second quarter of 2017. The increase was principally driven by lower gains from our currency hedging program.~~

~~Interest Expense~~

Interest expense increased to $53.2 million in the second quarter of 2018 compared to $17.6 million in the 2017 period driven by $10.7 million of fees incurred in connection with the bridge loan commitment and $25.0 million mark-to-market adjustment on two interest rate derivatives entered into in connection with the pending acquisition of Frutarom. Average cost of debt was 3.9% for the 2018 period compared to 4.6% for the 2017 period.

~~Other (Income) Expense, Net~~

Other (income) expense, net increased by approximately $12.6 million to $20.7 million in income in the second quarter of 2018 versus $7.9 million of income in the comparable 2017 period. The year-over-year increase was primarily driven by an $11.0 million mark-to-market adjustment on a foreign currency derivative entered into in connection with the pending acquisition of Frutarom.

~~Income Taxes~~

The effective tax rate for the three months ended June 30, 2018 was 18.7% compared with 22.7% for the three months ended June 30, 2017. The year-over-year decrease was largely due to a more favorable mix of earnings, a lower cost of repatriation and the re-measurement of loss provisions, partially offset by the impact from U.S. tax reform and other items (including the impact of current year transaction costs and certain non-taxable gains on foreign currency in prior year). Excluding the $7.0 million tax benefit associated with the pre-tax restructuring, operational improvement initiatives, gain on sale of fixed assets and Frutarom acquisition related costs, the adjusted effective tax rate for three months ended June 30, 2018 was 18.4%. For the second quarter of 2017, the adjusted tax rate was 23.0% excluding the $3.3 million tax benefit associated with the pre-tax acquisition-related costs, costs associated with product recalls, legal charges, restructuring, integration-related and operational improvement initiative costs as partially offset by the tax charge associated with gains on sales of fixed assets. The year-over-year decrease was largely due to a more favorable mix of earnings, repatriation costs and the re-measurement of loss provisions, partially offset by the impact from U.S. tax reform.

~~U.S. Tax Reform~~

~~FIRST SIX MONTHS 2018 IN COMPARISON TO FIRST SIX MONTHS 2017~~

~~Sales~~

Sales for the first six months of 2018 totaled $1.9 billion, an increase of 11% from the 2017 period. On a currency neutral basis sales increased 6%. Sales growth reflected new win performance (net of losses), price increases (principally due to increases in raw material input costs) and volume increases on existing business in Fragrances.

~~Flavors Business Unit~~

Flavors sales increased 10% on a reported basis and increased 6% on a currency neutral basis during the first six months of 2018 compared to the 2017 period. Sales growth reflected new win performance and price increases (principally due to increases in raw material input costs). Overall growth was primarily driven by high single-digit to double-digit growth in all four Flavors end-use categories and growth in all regions, led by EAME.

~~Fragrances Business Unit~~

Fragrances sales increased 12% on a reported basis and 6% on a currency neutral basis for the first six months of 2018 compared to the 2017 period. Sales growth reflected new win performance, price increases (principally due to increases in raw material input costs) and volume increases on existing business. Overall growth was primarily driven by double-digit growth in Fragrance Ingredients, and by broad based growth in all end-use categories.

~~Sales Performance by Region and Category~~

% Change in Sales - First Six Months 2018 vs. First Six Months 2017
Fine Fragrances Consumer Fragrances Ingredients
Total
Fragrances
Flavors Total
NOAM Reported 6 % 8 % 13 % 9 % 9 % 9 %
EAME Reported 8 % 17 % 18 % 14 % 20 % 16 %

Currency Neutral ⁽¹⁾
-3 % 4 % 7 % 3 % 8 % 5 %
LA Reported 21 % 4 % 16 % 9 % 2 % 6 %

Currency Neutral ⁽¹⁾
21 % 4 % 14 % 9 % 3 % 7 %
GA Reported -10 % 8 % 47 % 13 % 5 % 9 %

Currency Neutral ⁽¹⁾
-13 % 5 % 41 % 10 % 2 % 5 %
Total Reported 9 % 10 % 21 % 12 % 10 % 11 %

Currency Neutral ⁽¹⁾
3 % 5 % 14 % 6 % 6 % 6 %


~~(1)~~	~~Currency neutral sales growth is calculated by translating prior year sales at the exchange rates for the corresponding 2017 period.~~

NOAM Flavors sales growth was led by double-digit growth in Dairy, high single-digit growth in Beverage, and mid single-digit growth in Savory and Sweet. Total Fragrances sales growth reflected double-digit gains in Toiletries, Hair Care and Fragrance Ingredients, high single-digit gains in Home Care and Fabric Wash, and mid single-digit gains in Fine Fragrances. These gains more than offset low single-digit declines in Personal Wash.

EAME Flavors sales experienced double-digit gains in Beverage and Dairy, high single-digit gains in Savory and low single-digit gains in Sweet. Total Fragrances sales growth was driven mainly by double-digit growth in Hair Care and Toiletries, high single-digit gains in Fragrance Ingredients, mid single-digit gains in Home Care and Personal Wash, and low single-digit gains in Fabric Care. These gains more than offset low single-digit declines in Fine Fragrances.

LA Flavors sales growth was driven by double-digit gains in Savory and Dairy, which were partially offset by mid single-digit declines in Sweet. Total Fragrances sales growth reflected double-digit gains in Fine Fragrances and Fragrance Ingredients, high single-digit gains in Fabric Care, mid single-digit gains in Hair Care, and low single-digit gains in Home Care and Personal Wash. These gains more than offset low single-digit declines in Toiletries.

GA Flavors sales experienced high single-digit gains in Savory and Sweet and low single-digit gains in Dairy, which were partially offset by low single-digit declines in Beverage. Total Fragrances sales growth was driven by double-digit gains in Toiletries, Home Care and Fragrance Ingredients, mid single-digit gains in Fabric Care and low single-digit gains in Hair Care and Personal Wash, which more than offset double-digit declines in Fine Ingredients.

~~Cost of Goods Sold~~

Cost of goods sold, as a percentage of sales, increased 50 bps to 56.5% in the first six months of 2018 compared to 56.0% in the 2017 period, principally driven by unfavorable price versus input costs and the effect of the BASF supply chain disruption, which were only partially offset by cost savings and productivity initiatives and manufacturing performance. Included in cost of goods sold were $21.5 million of acquisition-related amortization of inventory "step-up", operational improvement initiative and integration-related costs, restructuring charges, losses on sales of assets, FDA mandated product recall costs and Frutarom acquisition related costs in 2018 compared to $38.7 million of acquisition-related amortization of inventory "step-up", operational improvement initiative, integration and restructuring costs, legal charges, tax assessments, gain on sales of assets and FDA mandated product recall costs in 2017.

~~Research and Development (R&D) Expenses~~

Overall R&D expenses, as a percentage of sales, decreased to 8.3% in the first six months of 2018 versus 8.7% in the 2017 period. This decrease was primarily driven by the effect of foreign currency and lower personnel costs.

~~Selling and Administrative (S&A) Expenses~~

~~S&A expenses increased $17.0 million to $300.1 million or 16.2%, as a percentage of~~segment sales in the first six months of 2018 compared to 16.9% in the 2017 period. The $17.0 million increase was principally due expenses of $12.5 million related to the pending acquisition of Frutarom. Excluding the $12.5 million included in 2018 and $2.2 million of legal charges, acquisition and integration-related costs, and legal charges in 2017, adjusted S&A expenses increased by $17.1 million and was 15.6% of sales in 2018 compared to 16.2% in 2017 principally due to the effect of foreign currency.

~~Restructuring and Other Charges~~

~~2017 Productivity Program~~

~~We recorded $22.5 million of charges related to personnel costs and lease termination costs through the second~~ quarter of 2018, with the remainder of the personnel related and other costs expected to be recognized by the end of 2018. We recorded $1.9 million and $13.2 million of charges related to personnel costs and lease termination costs during the six months ended June 30, 2018 and 2017, respectively.

~~Amortization of Acquisition-Related Intangibles~~

Amortization expenses increased to $18.8 million in the first six months of 2018 compared to $15.6 million in the 2017 period. The increase was principally driven by the impact of the acquisitions of Fragrance Resources and PowderPure in 2017.

~~Operating Results by Business Unit~~

We evaluate the performance of business units based on segment profit which is defined as operating profit before Restructuring and other charges, net, Global expenses (as discussed in Note 9 to the Consolidated Financial Statements) and certain non-recurring items, net, Interest expense, Other (expense) income, net and Taxes on income. See Note 9 to the Consolidated Financial Statements for the reconciliation to Income before taxes.

Six Months Ended June 30,
(DOLLARS IN THOUSANDS) 2018 2017
Segment profit:
Flavors $ 221,169
$ 191,395
Fragrances 174,056
158,867
Global expenses (44,398 ) (29,781 )
Operational Improvement Initiatives (1,429 ) (1,066 )
Acquisition Related Costs 518
(15,066 )
Integration Related Costs (993 ) (1,923 )
Legal Charges/Credits, net —
(1,000 )
Tax Assessment —
(5,331 )
Restructuring and Other Charges, net (910 ) (10,934 )
Losses (Gains) on Sale of Assets (1,195 ) 89
FDA Mandated Product Recall (5,000 ) (3,500 )
Frutarom Acquisition Related Costs (12,455 ) —
Operating profit $ 329,363
$ 281,750
Profit margin:
Flavors 24.6 % 23.3 %
Fragrances 18.3 % 18.7 %
Consolidated 17.8 % 16.9 %

~~Flavors Segment Profit~~

Flavors segment profit increased to $221.2 million in the first six months of 2018, or 24.6% as a percentage of sales, compared to $191.4 million, or 23.3% as a percentage of sales, in the comparable 2017 period. The increase in segment profit principally reflected new win performance, the benefit of cost savings and productivity initiatives and the impact of foreign currency.

~~Fragrances Segment Profit~~

Fragrances segment profit increased to $174.1 million in the first six months of 2018, or 18.3% as a percentage of sales, compared to $158.9 million, or 18.7% as a percentage of sales, in the comparable 2017 period. Segment profit included the impact of unfavorable price versus input costs primarily due to the BASF supply chain disruption, partially offset by higher volumes and the impact of cost savings and productivity initiatives.2019.

Global Expenses

Global expenses represent corporate and headquarters-related expenses which include legal, finance, human resources and R&D and other administrative expenses that are not allocated to an individual business unit. In the first ~~six months~~quarter of ~~2018,~~2019, Global expenses were ~~$44.4~~$18.7 million compared to ~~$29.8~~$23.8 million during the first ~~six months~~quarter of ~~2017.~~2018. The ~~increase~~decrease was principally driven by lower ~~benefits~~gains from our currency hedging program, ~~and higher~~offset by reductions in incentive compensation expense.

Interest Expense

Interest expense increased to ~~$69.8~~$36.6 million in the first ~~six months~~quarter of ~~2018~~2019 compared to ~~$30.4~~$16.6 million in the ~~2017~~2018 period driven by ~~$10.7 million of fees incurred in connection with~~increased borrowings to finance the ~~bridge loan commitment and $25.0 million mark-to-market adjustment on two interest rate derivatives entered into in connection with the pending~~ acquisition of Frutarom. ~~Average cost of debt was 3.9% for the 2018 period compared to 4.1% for the 2017 period.~~

~~Other (Income) Expense, Net~~

Other (income) expense, net decreased by approximately $7.9 million to $21.2 million of income in the first six months of 2018 versus $29.1 million of income in the comparable 2017 period. The year-over-year decrease was primarily driven by lower foreign exchange gains and the release of a currency translation adjustment upon the liquidation of a foreign entity in 2017.

Income Taxes

The effective tax rate for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 was ~~18.6%~~17.4% compared with ~~19.6%~~18.5% for the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018. The ~~year-over-year~~quarter-over-quarter decrease was largely due to a more favorable mix of earnings ~~a lower cost~~(including the impact of integration related costs, restructuring charges and Frutarom acquisition related costs), partially offset by higher repatriation costs, and the ~~re-measurement~~absence of the remeasurement of loss provisions and the release of a State valuation allowance which benefited the first quarter of 2018.

Excluding the $9.0 million tax benefit associated with the pre-tax operational improvement initiatives, integration related ~~to prior years, partially~~costs, restructuring and other charges, net, and Frutarom acquisition related costs, offset by the ~~impact of U.S.~~ tax ~~reform and other items (including the impact of current year transaction costs and certain non-taxable~~charge associated with gains on ~~foreign currency in prior year.~~sales of fixed assets, the adjusted effective tax rate for three months ended March 31, 2019 was 18.5%. Excluding the ~~$7,852~~$0.9 million tax benefit associated with the pre-tax restructuring, operational improvement initiatives, losses on sales of fixed assets, FDA mandated product recall costs and Frutarom acquisition related costs, which were partially offset by the tax charge associated with acquisition-related costs and the impact of the U.S. tax reform, the adjusted effective tax rate for six months ended June 30, 2018 was 18.4%. For the six months of 2017, the adjusted tax rate was 21.8% excluding the $11,821 tax benefit associated with the pre-tax restructuring, acquisition-related, integration-related and operational improvement initiative costs ~~as well as a tax assessment, favorable legal charges and FDA mandated product recall~~ which were ~~only~~ partially offset by the tax charge associated with gains on sales of fixed ~~assets.~~assets, acquisition-related costs, and the impact of the U.S. tax reform in the current quarter, the adjusted effective tax rate for the first quarter of 2018 was 18.4%. The year-over-year ~~decrease~~increase in the adjusted tax rate was largely due to ~~more favorable mix~~higher repatriation costs, and the absence of ~~earnings, a lower cost of repatriation,~~ the ~~re-measurement~~remeasurement of loss provisions and the release of a State valuation allowance ~~related to prior years,~~which benefited the first quarter of 2018, partially offset by ~~the impact~~a more favorable mix of ~~U.S. tax reform and other items.~~

~~U.S. Tax Reform~~

~~During the six months ended June 30, 2018, we recorded an additional charge of $0.6 million to adjust an accrual related to withholding taxes on planned repatriations.~~earnings.

Liquidity and Capital Resources

Cash and Cash Equivalents

We had cash and cash equivalents of ~~$322.4~~$483.5 million at ~~June 30, 2018~~March 31, 2019 compared to ~~$368.0~~$634.9 million at December 31, ~~2017,~~2018, of which ~~$246.7~~$414.3 million of the balance at ~~June 30, 2018~~March 31, 2019 was held outside the United States. Cash balances held in foreign jurisdictions are, in most circumstances, available to be repatriated to the United States.

~~The Company~~Effective utilization of the cash generated by our international operations is a critical component of our strategy. We regularly ~~repatriates, in the form of dividends~~repatriate cash from ~~its~~our non-U.S. subsidiaries ~~a portion of its current year earnings~~ to fund financial obligations in the U.S. As we repatriate these funds to the U.S. we will be required to pay income taxes in certain U.S. states and applicable foreign withholding taxes during the period when such repatriation occurs. Accordingly, as of March 31, 2019, we have a deferred tax liability of $87.2 million for the effect of repatriating the funds to the U.S. This balance consists of $42.8 million attributable to IFF non-U.S. subsidiaries, and $44.4 million associated with Frutarom which is still preliminary and will be refined through the purchase accounting measurement period.

Restricted Cash

Restricted cash of $13.6 million relates to amounts escrowed related to certain payments to be made to former Frutarom option holders in future periods.

Cash Flows Provided By Operating Activities

~~Net~~Cash flows provided by operations for the three months ended March 31, 2019 was $47.2 million or 3.6% of sales, compared to cash used by operations of $11.4 million or 1.2% of sales for the three months ended March 31, 2018. The increase in cash provided by operating activities in the first six months of 2018 was $55.2 million compared to net cash provided by operating activities of $57.9 million in the first six months of 2017. The decrease in cash from operating activities for the first six months of 2018 compared to 2017during 2019 was principally driven by ~~fees incurred~~higher earnings excluding the impact of depreciation and amortization, legal settlement charges in ~~connection with~~ the ~~bridge loan commitment,~~prior year, and higher cash inflows related to working capital ~~related to inventories and costs associated with an FDA mandated product recall, partially offset by~~in the ~~litigation settlement and pension contribution in 2017.~~current year.

Working capital (current assets less current liabilities) totaled ~~$1,327.2 million~~$1.8 billion at ~~June 30, 2018, compared to $1,127.8 million at~~March 31, 2019 and December 31, ~~2017.~~2018. Working capital has remained constant as additional raw materials and finished goods inventories and prepaid expenses and other current assets have offset the reduction in the cash balance since December 31, 2018.

~~The Company~~We sold certain accounts receivable on a non-recourse basis to unrelated financial institutions under “factoring” agreements that are sponsored, solely and individually, by certain customers. We believe that participating in the factoring programs strengthens our relationships with these customers and provides operational efficiencies. The beneficial impact on cash provided by operations from participating in these programs decreased approximately ~~$25.5~~$0.3 million for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 compared to a decrease of approximately ~~$4.7~~$11.0 million for the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018. The cost of participating in these programs was immaterial to our results in all periods.

Cash Flows Used In Investing Activities

Net investing activities during the first ~~six~~three months of ~~2018~~2019 used ~~$69.5~~$90.3 million compared to ~~$232.0~~$35.2 million in the prior year period. The ~~decrease~~increase in cash used in investing activities principally reflected the current quarter acquisition ~~of Fragrance Resources and PowderPure~~activity

whereas there were no material acquisitions in ~~2017 for approximately $137.5 million (net of cash acquired) and $54.2 million (net of cash acquired), respectively.~~the comparable period. Additions to property, plant and equipment were ~~$67.4~~$57.6 million during the first ~~six~~three months of ~~2018~~2019 compared to ~~$46.2~~$33.1 million in the first ~~six~~three months of ~~2017.~~ 2018.

In light of our requirement to begin relocating one of our Fragrance ~~facility~~Ingredients facilities in China, ~~and~~ the ongoing construction of a new ~~facility~~facilities in India and Indonesia, and capital requirements to integrate our recently acquired Frutarom business, we expect that capital spending in ~~2018~~2019 will be about ~~4.5-5%~~5-6% of sales (net of potential grants and other reimbursements from government authorities).

Frutarom Restructuring

The Company currently expects to incur costs to integrate the legacy IFF and Frutarom businesses (the “Frutarom Integration”). Initially, integration projects will primarily be focused on driving cost synergies in the manufacturing and creative networks, procurement and overhead functions. Restructuring costs associated with these initiatives are expected to include employee-related cash costs, including severance, retirement and other termination benefits, asset write-offs and contract termination and other costs. In addition, other costs associated with the Frutarom Integration are expected to include advisory and personnel costs for managing and implementing integration projects.

During the first quarter of 2019, the Company recorded $2.6 million in costs related to the closure of three sites. The costs principally related to site closure costs and costs associated with the termination of third party contracts.

Cash Flows ~~(Used In) Provided By~~Used In Financing Activities

Cash used in financing activities in the first ~~six~~three months of ~~2018 decreased to $24.5~~2019 was $112.2 million compared to ~~cash provided by financing activities of $343.6~~$14.6 million in the ~~first six months of 2017,~~comparable 2018 period, principally driven by ~~$498.3 million~~repayments of ~~2017 Senior Notes issued~~debt during the first quarter of 2019 and increased dividend payments, which were offset by treasury stock purchases made in the second quarter of 2017, partially offset by an increase utilization of our revolving credit facility during the second quarter of 2018 and a decrease in the repurchase of treasury stock following the suspension of our repurchase program on May 7, 2018.

~~At June 30, 2018, we had $1.7 billion of debt outstanding compared to $1.6 billion outstanding at December 31, 2017.~~prior year.

We paid dividends totaling ~~$108.8~~$77.8 million in the ~~2018~~2019 period. We declared a cash dividend per share of ~~$0.69~~$0.73 in the ~~second~~first quarter of ~~2018~~2019 that was paid on ~~July 6, 2018~~April 5, 2019 to all shareholders of record as of ~~June~~March 25, ~~2018.~~2019.

~~In December 2012,~~Our capital allocation strategy is primarily focused on debt repayment to maintain our investment grade rating. We will also prioritize capital investment in our businesses to support the strategic long term plans. The company is also committed to maintaining its history of paying a dividend to investors determined by our Board of Directors ~~authorized~~(“Board”) at its discretion based on various factors, and finally will be very selective in pursuing value creating strategic M&A over the near term.

We currently have a ~~$250.0 million share~~board approved stock repurchase program which commenced in the first quarter of 2013. In August 2015, the Board of Directors approved an additional $250 million share repurchase authorization and extension through December 31, 2017. Based on thewith a total remaining amount of $56.1 million available under the amended repurchase program as of October 31, 2017, the Board of Directors re-approved on January 1, 2018 a $250.0 million share repurchase authorization and extension for a total value of ~~$300.0 million available under the program. Based on the total remaining amount of~~ $279.7 million available under the amended repurchase program, approximately 2.3 million shares, or 2.9% of shares outstanding (based on the market price and shares outstanding as of June 30, 2018) were remaining for repurchase under the program as of June 30, 2018. The purchases are authorized to be made from time to time on the open

~~market or through private transactions as market and business conditions warrant, with the repurchased shares to be placed into treasury stock.~~million. On May 7, 2018, we announced ~~plans to suspend~~that we were suspending our share repurchases until our deleveraging target is met following our ~~pending~~ acquisition of Frutarom.

Capital Resources

Operating cash flow provides the primary source of funds for capital investment needs, dividends paid to shareholders and debt service repayments. ~~With the exception of the funding requirements for the Frutarom acquisition, we~~We anticipate that cash flows from operations and availability under our existing credit facilities ~~are~~will sufficient to meet our investing and financing ~~needs for at least the next eighteen months.~~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.

As discussed above and in Note 3 to the Consolidated Financial Statements, in connection with our pending acquisition of Frutarom, we intend to finance the cash portion of the transaction consideration through a combination of existing cash on hand, significant new debt and equity, which we expect to issue in the third quarter of 2018. We have secured a bridge facility and term loan facility commitment letters to finance the cash portion of the merger consideration in the event we have not completed our anticipated financing transactions prior to the consummation of the acquisition.

We supplement short-term liquidity with access to capital markets, mainly through bank credit facilities and issuance of commercial paper. Commercial paper issued by the Company generally has terms of 90 days or less. As of June 30, 2018 and December 31, 2017, there was no commercial paper outstanding.facilities. The revolving credit facility is used as a backstop for ~~the Company's~~our commercial paper program. ~~The maximum amount of commercial paper outstanding for the six months ended June 30, 2018 and 2017 was $85 million and $50 million, respectively.~~

We expect to contribute a total of approximately ~~$4.1~~$4.2 million to ~~its~~our U.S. pension plans and a total of ~~$17.1~~$19.3 million to our Non-U.S. ~~Plans~~plans during ~~2018.~~2019. During the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, there were no contributions ~~were~~ made to the qualified U.S. pension plans, ~~$7.8~~$2.7 million of contributions were made to the non-U.S. pension plans, and ~~$2.2~~$1.1 million of benefit payments were made with respect to ~~the Company's~~our non-qualified U.S. pension plan. We also expect to contribute approximately ~~$5.0~~$3.9 million to our postretirement benefits other than pension plans during ~~2018.~~2019. During the ~~six~~three months ended ~~June 30, 2018, $2.4~~March 31, 2019, $1.1 million of contributions were made to postretirement benefits other than pension plans.

AsThe Amended Credit Facility and Term Loan contain various covenants, limitations and events of ~~June 30, 2018, we had $104.0 million outstanding under our revolving credit facility. The amount which we are able to draw down on under~~default customary for similar facilities for similarly rated borrowers, including the ~~facility is limited by financial covenants as described in more detail below. Our draw down capacity on the facility was $1.0 billion at June 30, 2018.~~

~~Under our revolving credit facility, we are required~~requirement for us to maintain, at the end of each fiscal quarter, a ratio of net debt for borrowed money to adjusted EBITDA in respect of the previous 12-month period, including the pro forma effect of the acquisition of Frutarom, of not more than 4.5 to 1.0, which shall be reduced to 4.25 to 1.0 as of the end of September 30, 2019, 4.0 to 1.0 as of the end of March 31, 2020 and to 3.5 to ~~1. Based~~1.0 as of the end of March 31, 2021.

As of March 31, 2019 we had no outstanding borrowings under our Amended Credit Facility but $325 million outstanding for the Term Loan. The amount which we are able to draw down on ~~this ratio, at June 30, 2018~~under the Amended Credit Facility is limited by financial covenants as described in more detail below. As of March 31, 2019, our ~~covenant compliance provided overall borrowing~~draw down capacity ~~of $1,647 million.~~was $912 million on the Amended Credit Facility and $350 million on the Term Loan.

At ~~June 30,~~March 31, 2019 and 2018 we were in compliance with all financial and other covenants, including the net debt to adjusted EBITDA ratio. At ~~June 30, 2018,~~March 31, 2019 our Net Debt/adjusted EBITDA⁽¹⁾ ratio was 3.67 to 1 as defined by the ~~debt~~credit facility agreements, ~~was 1.61 to 1,~~ well below the financial covenants of existing outstanding debt. Failure to comply with the financial and other covenants under our debt agreements would constitute default and would allow the lenders to accelerate the maturity of all indebtedness under the related agreement. If such acceleration were to occur, we would not have sufficient liquidity available to repay the indebtedness. We would likely have to seek amendments under the agreements for relief from the financial covenants or repay the debt with proceeds from the issuance of new debt or equity, and/or asset sales, if necessary. We may be unable to amend the agreements or raise sufficient capital to repay such obligations in the event the maturities are accelerated.

_______________________

(1)

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 adjusted EBITDA and Net Debt used by other companies. Reconciliations of adjusted EBITDA to net income and net debt to total debt are as follows:


(DOLLARS IN MILLIONS)	Twelve Months Ended June 30, 2018		Twelve Months Ended March 31, 2019
Net income	$	298.6	$	365.7
Interest expense	104.8		162.6
Income taxes	238.7		123.3
Depreciation and amortization	127.2		257.7
Specified items ⁽¹⁾	72.2		158.1
Non-cash items ⁽²⁾	30.0		29.1
Adjusted EBITDA	$	871.5	$	1,096.5


(1)	Specified items for the 12 months ended ~~June 30, 2018~~March 31, 2019 of ~~$72.2~~$158.1 million consisted of operational improvement initiatives, ~~acquisition related costs,~~ integration related costs, restructuring and other charges, net, ~~FDA mandated product recall, UK pension settlement charges~~, and Frutarom acquisition related costs.


(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 gain on disposal of assets and stock-based compensation.


(DOLLARS IN MILLIONS)	June 30, 2018			March 31, 2019
Total debt	$	1,723.7		$	4,505.4
Adjustments:
Deferred gain on interest rate swaps	1.6
Cash and cash equivalents	(322.4		)	483.5
Net debt	$	1,402.9		$	4,021.9

As discussed in Note 1315 to the Consolidated Financial Statements, at ~~June 30, 2018,~~March 31, 2019, 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

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

~~Adoption of ASC Topic 606, Revenue from Contracts with Customers~~

In May 2014, the FASB issued 2014-09, "Revenue from Contracts with Customers", with subsequent amendments, that provides for a comprehensive model to be used in accounting for revenue arising from contracts with customers (ASC Topic 606 Revenue from Contracts with Customers) (the “Revenue Standard”). Under the Revenue Standard, revenue is recognized to reflect the transfer of goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Companies have the option to apply the new guidance under a retrospective approach to each prior reporting period presented or a modified retrospective approach with the cumulative effect of initially applying the new guidance recognized at the date of initial application within the Consolidated Balance Sheet. The new Revenue Standard became effective for annual reporting periods beginning after December 15, 2017, and we have adopted the new revenue standard using the modified retrospective approach on December 30, 2017, the first day of our 2018 fiscal year.

We create and manufacture flavors and fragrances. Approximately 90% of products, principally Flavors compounds and Fragrances compounds, are customized to customer specifications and have no alternative use other than the sale to the specific customer (“Compounds products”). The remaining revenue is derived largely from Fragrance Ingredients products that, generally, are commodity products with alternative uses and not customized (“Ingredients products”).

With respect to the vast majority of our contracts for Compounds products, we currently recognize revenue on the transfer of control of the product at a point in time as we do not have an “enforceable right to payment for performance to date” (as set out in the Revenue Standard). With respect to a small number of contracts for the sale of Compounds, we have an “enforceable right to payment for performance to date” and as the products do not have an alternative use and, we recognize revenue for these contracts over time and record a contract asset using the output method. The output method recognizes revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract.

With respect to our contracts related to Ingredients products, we currently recognize revenue on the transfer of control of the product at a point in time as such products generally have alternative uses and we do not have an “enforceable right to payment for performance to date.”

As we adopted the Revenue Standard using the modified retrospective method effective the first day of our 2018 fiscal year, results for reporting periods beginning after December 31, 2017 are presented under the Revenue Standard while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC Topic 605, which required that revenue was accounted for when the earnings process was complete.

We recorded a net increase to retained earnings of $2.1 million as of the first day of its 2018 fiscal year due to the cumulative impact of adopting the Revenue Standard. In connection with the adjustment to retained earnings, we also recorded an increase of $4.4 million in contract assets (which are included in Prepaid expenses and other assets), a decrease of $1.7 million in inventory, and an increase in taxes payable of $0.6 million.

The impact to revenues, gross profit and net income for three months ended June 30, 2018 were reductions of $1.9 million, $1.2 million and $0.9 million, respectively, and for the six months ended June 30, 2018 were $2.5 million, $1.6 million and $1.2 million respectively, as a result of applying the Revenue Standard as compared to the amounts that would have been recognized under ASC Topic 605.

Non-GAAP Financial Measures

The Company uses non-GAAP financial operating measures in this Form 10-Q, including: (i) currency neutral sales (which eliminates the effects that result from translating its international sales to U.S. dollars), (ii) adjusted gross margin (which excludes operational improvement initiatives, ~~acquisition~~integration related costs, ~~integration related costs) and~~ FDA mandated product recall, and Frutarom acquisition related costs, (iii) adjusted operating profit and adjusted operating margin (which excludes operational improvement initiatives, acquisition related costs, integration related costs, ~~legal charges/credits, net, tax assessment,~~ restructuring and other charges, net, ~~losses (gains)~~gains on sale of assets, FDA

mandated product ~~recall)~~recall, and Frutarom acquisition related costs, (iv) adjusted selling and administrative expenses (which excludes acquisition related costs, integration related costs, ~~legal charges/credits, net, tax assessment~~ and Frutarom acquisition related costs) and (v) adjusted effective tax rate (which excludes operational improvement initiatives, acquisition related costs, ~~integration related costs, legal charges/credits, net, tax assessment,~~ restructuring and other charges, net, ~~losses (gains)~~Frutarom acquisition related costs, integration related costs, gains on ~~sale~~sales of assets, ~~CTA realization,~~ FDA mandated product recall, and U.S. tax ~~reform and Frutarom acquisition related costs)~~reform). The Company also provides the non-GAAP measures adjusted EBITDA (which excludes certain specified items and non-cash items as set forth in the Company’s debt agreements) and net debt (which is adjusted for deferred gain on interest rate swaps and cash and cash equivalents) 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.

We provide these metrics because they are used by management as one means by which we assess our financial and operational performance and are also frequently used by analysts, investors and other interested parties in providing period to period comparisons of our operational performance. In addition, we believe that these measures, when used as supplements to GAAP measures of performance, are helpful to management and investors in evaluating the effectiveness of our business strategies and to compare our performance relative to our peers. Such information is supplemental to information presented in accordance with GAAP and is not intended to represent a presentation in accordance with GAAP. Currency neutral sales, adjusted gross margin, adjusted operating profit, adjusted operating margin, adjusted selling and administrative expenses and adjusted effective tax rate should not be considered in isolation or as substitutes for analysis of our results under GAAP and may not be comparable to other companies’ calculation of such metrics.

A. Reconciliation of Non-GAAP Metrics

									Reconciliation of Gross Profit
	Three Months Ended June 30,				Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	2018		2017		2019		2018
Reported (GAAP)	$	398,717	$	372,984	$	531,259	$	405,809
Operational Improvement Initiatives (a)	403		445		406		453
Acquisition Related Costs (b)	—		5,606
Integration Related Costs (c)	—		98		156		—
FDA Mandated Product Recall (g)	—		3,500
FDA Mandated Product Recall (e)					—		5,000
Frutarom Acquisition Related Costs (g)					7,850		—
Adjusted (Non-GAAP)	$	399,120	$	382,633	$	539,671	$	411,262



Reconciliation of Selling and Administrative Expenses
	Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	2019			2018
Reported (GAAP)	$	213,182		$	142,644
Acquisition Related Costs (b)	—			514
Integration Related Costs (c)	(14,557		)	—
Frutarom Acquisition Related Costs (g)	(1,679		)	—
Adjusted (Non-GAAP)	$	196,946		$	143,158



Reconciliation of Operating Profit
	Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	2019			2018
Reported (GAAP)	$	163,870		$	174,856
Operational Improvement Initiatives (a)	406			1,026
Acquisition Related Costs (b)	—			(514		)
Integration Related Costs (c)	14,897			—
Restructuring and Other Charges, net (d)	16,174			717
Gains on Sale of Assets	(188		)	(69		)
FDA Mandated Product Recall (e)	—			5,000
Frutarom Acquisition Related Costs (g)	9,529			—
Adjusted (Non-GAAP)	$	204,688		$	181,016

Reconciliation of Selling and Administrative Expenses
Three Months Ended June 30,
(DOLLARS IN THOUSANDS) 2018 2017
Reported (GAAP) $ 157,407
$ 139,319
Acquisition Related Costs (b) 4
(672 )
Integration Related Costs (c) —
(542 )
Legal Charges/Credits, net (d) —
(1,000 )
Tax Assessment (e) —
19
Frutarom Acquisition Related Costs (h) (12,455 ) —
Adjusted (Non-GAAP) $ 144,956
$ 137,124

Reconciliation of Operating Profit
Three Months Ended June 30,
(DOLLARS IN THOUSANDS) 2018 2017
Reported (GAAP) $ 154,509
$ 151,687
Operational Improvement Initiatives (a) 403
445
Acquisition Related Costs (b) (4 ) 6,278
Integration Related Costs (c) 993
731
Legal Charges/Credits, net (d) —
1,000
Tax Assessment (e) —
(19 )
Restructuring and Other Charges, net (f) 193
791
Losses (Gains) on Sale of Assets 1,264
(68 )
FDA Mandated Product Recall (g) —
3,500
Frutarom Acquisition Related Costs (h) 12,455
—
Adjusted (Non-GAAP) $ 169,813
$ 164,345

																																													Reconciliation of Net Income
	Three Months Ended June 30,																						Three Months Ended March 31,
	2018											2017											2019											2018
	Income before taxes			Taxes on income (i)			Net income			EPS (j)		Income before taxes			Taxes on income (i)			Net income			EPS		Income before taxes			Taxes on income (h)			Net Income Attributable to IFF (i)			Diluted EPS		Income before taxes			Taxes on income (h)			Net Income Attributable to IFF			Diluted EPS (j)
Reported (GAAP)	$	121,918		$	22,769		$	99,149		$	1.25	$	142,040		$	32,245		$	109,795		$	1.38	$	134,576		$	23,362		$	108,829		$	0.96	$	158,837		$	29,421		$	129,416		$	1.63
Operational Improvement Initiatives (a)	403			142			261			—		445			111			334			—		406			142			264			—		1,026			294			732			0.01
Acquisition Related Costs (b)	(4		)	(1		)	(3		)	—		6,278			1,472			4,806			0.06		—			—			—			—		(514		)	(134		)	(380		)	—
Integration Related Costs (c)	993			—			993			0.01		731			243			488			0.01		14,897			3,349			11,548			0.10		—			—			—			—
Legal Charges/Credits, net (d)	—			—			—			—		1,000			354			646			0.01
Tax Assessment (e)	—			—			—			—		(19		)	(7		)	(12		)	—
Restructuring and Other Charges, net (f)	193			46			147			—		791			(75		)	866			0.01
Losses (Gains) on Sale of Assets	1,264			263			1,001			0.01		(68		)	(22		)	(46		)	—
FDA Mandated Product Recall (g)	—			—			—			—		3,500			1,238			2,262			0.03
Frutarom Acquisition Related Costs (h)	36,989			6,543			30,446			0.38		—			—			—			—
Restructuring and Other Charges, net (d)																							16,174			4,031			12,143			0.11		717			169			548			0.01
Gains on Sale of Assets																							(188		)	(43		)	(145		)	—		(69		)	(17		)	(52		)	—
FDA Mandated Product Recall (e)																							—			—			—			—		5,000			1,196			3,804			0.05
U.S. Tax Reform (f)																							—			—			—			—		—			(649		)	649			0.01
Frutarom Acquisition Related Costs (g)																							9,529			1,530			7,999			0.07		—			—			—			—
Adjusted (Non-GAAP)	$	161,756		$	29,762		$	131,994		$	1.66	$	154,698		$	35,559		$	119,139		$	1.50	$	175,394		$	32,371		$	140,638		$	1.24	$	164,997		$	30,280		$	134,717		$	1.69

(a)

~~For 2018, represents~~Represents accelerated depreciation related to a plant relocation in ~~India. For 2017, represents accelerated depreciation and idle labor costs~~India, as well as a lab closure in ~~Hangzhou, China.~~Taiwan for 2018.

(b)

~~For 2017, represents the amortization of inventory "step-up" related~~Represents adjustments to the ~~acquisitions of David Michael, Fragrance Resources and~~contingent consideration payable for PowderPure, ~~included in cost of goods sold~~ and transaction costs related to ~~the acquisitions of David Michael,~~
Fragrance Resources and PowderPure ~~included in~~within Selling and administrative expenses.

(c)

For 2019, represents costs related to the integration of the Frutarom acquisition, principally advisory services. For 2018, represents costs related to the integration of ~~David Michael. For 2017, represents costs related to~~ the ~~integration of~~ David Michael and Fragrance Resources acquisitions.

(d)

~~Represents additional charge~~For 2019, represents severance costs related primarily to ~~litigation settlement.~~

~~(e)~~

~~Represents the reserve for payment of a tax assessment related to commercial rent for prior periods.~~

~~(f)~~

~~Represents~~Scent. For 2018, represents severance costs related to the 2017 Productivity ~~Program.~~Program and Taiwan lab closure.

~~(g)~~(e)

Represents ~~management's best estimate of~~ losses related to the ~~previously disclosed~~ FDA mandated recall.

~~(h)~~(f)

Represents charges incurred related to enactment of certain U.S. tax legislation changes in December 2017.

(g)

Represents transaction-related costs and expenses related to the ~~pending~~ acquisition of Frutarom. Amount primarily includes ~~$10.6~~$7.9 million of ~~bridge loan commitment fees included in Interest expense, $25.0 million mark-to-market loss adjustment on an interest rate derivative~~amortization for inventory "step-up" costs and ~~an $11.0 million mark-to-market gain adjustment on a foreign currency derivative, and $12.5~~$1.7 million of transaction costs included in Selling and administrative expenses.

~~(i)~~(h)

The income tax expense (benefit) on non-GAAP adjustments is computed in accordance with ASC 740 using the same methodology as the GAAP provision of income taxes. Income tax effects of non-GAAP adjustments are calculated based on the applicable statutory tax rate for each jurisdiction in which such charges were incurred, except for those items which are non-taxable for which the tax expense (benefit) was calculated at 0%. For ~~second quarter of 2018, certain~~fiscal year 2019, these non-GAAP adjustments were not subject to foreign tax credits or valuation allowances, ~~and therefore was calculated at 0%~~but to the extent that such factors are applicable to any future non-GAAP adjustments we will take such factors into consideration in calculating the tax expense (benefit).

(i)

For 2019, net income is reduced by income attributable to noncontrolling interest of $2.4M.

(j)

The sum of these items does not foot due to rounding.

Reconciliation of Gross Profit
Six Months Ended June 30,
(DOLLARS IN THOUSANDS) 2018 2017
Reported (GAAP) $ 804,525
$ 736,066
Operational Improvement Initiatives (a) 856
1,066
Acquisition Related Costs (b) —
10,907
Integration Related Costs (c) —
186
FDA Mandated Product Recall (h) 5,000
3,500
Adjusted (Non-GAAP) $ 810,381
$ 751,725

Reconciliation of Selling and Administrative Expenses
Six Months Ended June 30,
(DOLLARS IN THOUSANDS) 2018 2017
Reported (GAAP) $ 300,051
$ 283,023
Acquisition Related Costs (b) 518
(4,159 )
Integration Related Costs (c) —
(1,485 )
Legal Charges/Credits, net (d) —
(1,000 )
Tax Assessment (e) —
(5,331 )
Frutarom Acquisition Related Costs (j) (12,455 ) —
Adjusted (Non-GAAP) $ 288,114
$ 271,048

Reconciliation of Operating Profit
Six Months Ended June 30,
(DOLLARS IN THOUSANDS) 2018 2017
Reported (GAAP) $ 329,363
$ 281,750
Operational Improvement Initiatives (a) 1,429
1,066
Acquisition Related Costs (b) (518 ) 15,066
Integration Related Costs (c) 993
1,923
Legal Charges/Credits, net (d) —
1,000
Tax Assessment (e) —
5,331
Restructuring and Other Charges, net (f) 910
10,934
Losses (Gains) on Sale of Assets 1,195
(89 )
FDA Mandated Product Recall (h) 5,000
3,500
Frutarom Acquisition Related Costs (j) 12,455
—
Adjusted (Non-GAAP) $ 350,827
$ 320,481

Reconciliation of Net Income
Six Months Ended June 30,
2018 2017
(DOLLARS IN THOUSANDS) Income before taxes Taxes on income (k) Net income EPS Income before taxes Taxes on income (k) Net income EPS (l)
Reported (GAAP) $ 280,754
$ 52,190
$ 228,564
$ 2.87
$ 280,527
$ 54,968
$ 225,559
$ 2.84
Operational Improvement Initiatives (a) 1,429
436
993
0.01
1,066
266
800
0.01
Acquisition Related Costs (b) (518 ) (135 ) (383 ) —
15,066
4,610
10,456
0.13
Integration Related Costs (c) 993
—
993
0.01
1,922
605
1,317
0.02
Legal Charges/Credits, net (d) —
—
—
—
1,000
354
646
0.01
Tax Assessment (e) —
—
—
—
5,331
1,885
3,446
0.04
Restructuring and Other Charges, net (f) 910
215
695
0.01
10,934
2,892
8,042
0.1
Losses (Gains) on Sale of Assets 1,195
246
949
0.01
(89 ) (29 ) (60 ) —
CTA Realization (g) —
—
—
—
(12,214 ) —
(12,214 ) (0.15 )
FDA Mandated Product Recall (h) 5,000
1,196
3,804
0.05
3,500
1,238
2,262
0.03
U.S. Tax Reform (i) —
(649 ) 649
0.01
—
—
—
—
Frutarom Acquisition Related Costs (j) 36,989
6,543
30,446
0.38
—
—
—
—
Adjusted (Non-GAAP) $ 326,752
$ 60,042
$ 266,710
$ 3.35
$ 307,043
$ 66,789
$ 240,254
$ 3.02



~~(a)~~	~~For 2018, represents accelerated depreciation related to a plant relocation in India. For 2017, represents accelerated depreciation and idle labor costs in Hangzhou, China.~~
~~(b)~~	For 2018, represents adjustments to the contingent consideration payable for PowderPure, and transaction costs related to Fragrance Resources and PowderPure within Selling and administrative expenses. For 2017, represents the amortization of inventory "step-up" related to the acquisitions of David Michael, Fragrance Resources and PowderPure, included in cost of goods sold and transaction costs related to the acquisitions of David Michael, Fragrance Resources and PowderPure, included in Selling and administrative expenses.
~~(c)~~	~~For 2018, represents costs related to the integration of David Michael. For 2017, represents costs related to the integration of David Michael and Fragrance Resources acquisitions.~~
~~(d)~~	~~Represents additional charge related to litigation settlement.~~
~~(e)~~	~~Represents the reserve for payment of a tax assessment related to commercial rent for prior periods.~~
~~(f)~~	~~Represents severance costs related to the 2017 Productivity Program and Taiwan lab closure.~~
~~(g)~~	~~Represents the release of CTA related to the liquidation of a foreign entity.~~
~~(h)~~	~~Represents management's best estimate of losses related to the previously disclosed FDA mandated recall.~~
~~(i)~~	~~Represents charges incurred related to enactment of certain U.S. tax legislation changes in December 2017.~~
~~(j)~~	Represents transaction-related costs and expenses related to the pending acquisition of Frutarom. Amount includes $10.6 million of bridge loan commitment fees included in Interest expense, $25.0 million mark-to-market loss adjustment on an interest rate derivative and an $11.0 million mark-to-market gain adjustment on a foreign currency derivative, and $12.5 million of transaction costs included in administrative expenses.
~~(k)~~	The income tax expense (benefit) on non-GAAP adjustments is computed in accordance with ASC 740 using the same methodology as the GAAP provision of income taxes. Income tax effects of non-GAAP adjustments are calculated based on the applicable statutory tax rate for each jurisdiction in which such charges were incurred, except for those items which are non-taxable for which the tax expense (benefit) was calculated at 0%. For second quarter of 2018, certain non-GAAP adjustments were subject to valuation allowances and therefore was calculated at 0%.
~~(l)~~	~~The sum of these items does not foot due to rounding.~~

B. Foreign Currency Reconciliation


	Three Months Ended		Six Months Ended		Three Months Ended
	June 30,		June 30,		March 31,
	2018	2017	2018	2017	2019	2018
Operating Profit:
% Change - Reported (GAAP)	1.9%	(5.8)%	16.9%	(14.0)%	(6.3)%	34.0%
Items impacting comparability ⁽¹⁾	1.5%	7.2%	(7.4)%	12.4%	19.4%	(19.0)%
% Change - Adjusted (Non-GAAP)	3.3%	1.4%	9.5%	(1.6)%	13.1%	16.0%
Currency Impact	(5.7)%	2.5%	(4.8)%	3.9%	1.3%	(4.0)%
% Change Year-over-Year - Currency Neutral Adjusted (Non-GAAP)**	(2.4)%	3.9%	4.7%	2.3%
% Change Year-over-Year - Currency Neutral Adjusted (Non-GAAP)*					14.4%	12.0%

_______________________

⁽¹⁾ Includes items impacting comparability of ~~$15.3~~$40.8 million and ~~$12.7~~$6.2 million for the three months ended ~~June 30,~~March 31, 2019 and March 31, 2018, ~~and June 30, 2017, respectively, and $21.5 million and $38.7 million for the six months ended June 30, 2018 and June 30, 2017,~~ respectively.

* Currency neutral amount is calculated by translating prior year amounts at the exchange rates used for the corresponding ~~2018~~2019 period. Currency neutral operating profit also eliminates the year-over-year impact of cash flow hedging.

~~C. Acquisition Related Intangible Asset Amortization~~

The Company tracks the amount of amortization recorded on recent acquisitions in order to monitor its progress with respect to its Vision 2020 goals. The following amounts were recorded with respect to recent acquisitions:

Three Months Ended Six Months Ended
June 30, June 30,
(DOLLARS IN THOUSANDS) 2018 2017 2018 2017
PowderPure $690 $586 $1,379 $586
Fragrance Resources 1,969 1,527 3,928 2,784
David Michael 1,131 1,135 2,261 1,730
Lucas Meyer 2,363 1,891 4,336 3,750
Ottens Flavors 1,571 1,571 3,142 3,142

Cautionary Statement Under the Private Securities Litigation Reform Act of 1995

Statements in this Form 10-Q, ~~which~~that are not historical facts or information, are “forward-looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management’s current assumptions, estimates and expectations and include statements concerning (i) expected cost synergies from the ~~consummation of the pending acquisition~~integration of Frutarom of $30-35 million by the end of 2019, (ii) ~~the timing~~expected capital expenditures in 2019, (iii) expected costs associated with our various restructuring activities, (iv) our margin expectations for 2019, (v) expected cash flow and ~~amount~~availability of ~~planned debt and equity financings~~capital resources to fund ~~the acquisition consideration~~our operations and meet our debt service requirements, (vi) our ability to ~~be paid~~continue to generate value for, and return cash to, our shareholders, and (vii) anticipated contributions to our pension plans and other post-retirement programs in the Frutarom acquisition, (iii) expected increases in raw material costs in 2018, (iii) the impact of operational performance, cost reduction efforts and mix enhancement on margin improvement, (iv) estimates of provisional tax charges related to the Tax Act and the impact on our effective tax rate for 2018; and (v) the amount of expected pension contributions in 2018.2019. 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 factors include, among others, the following:

risks related to the inability to obtain required regulatory approvals for the pending Frutarom acquisition, the timing of obtaining such approvals and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the acquisition;

~~the risk that a condition to closing~~integration of the Frutarom ~~acquisition may not be satisfied on a timely basis or at all;~~

business, including whether we will realize the ~~failure of the pending Frutarom transaction to close for any other reason;~~

~~uncertainties as to access to available financing (including financing for~~benefits anticipated from the acquisition ~~or refinancing of our debt or Frutarom debt) on a timely basis and on reasonable terms;~~in the expected time frame;

~~the impact of our proposed financings on liquidity and flexibility to respond to other business opportunities;~~

~~unexpected~~unanticipated costs, liabilities, charges or expenses resulting from the ~~pending~~ Frutarom acquisition;

~~adverse effects on~~the increase in our ~~stock price~~leverage resulting from the ~~pending~~additional debt incurred to pay a portion of the consideration for Frutarom ~~acquisition;~~and its impact on our liquidity and ability to return capital to its shareholders;

our ability to ~~retain key personnel;~~

~~potential adverse reactions, changes~~successfully market to ~~business relationships or competitive responses resulting from the pending~~its expanded and decentralized Taste and Frutarom ~~acquisition;~~customer base;

our ability to effectively compete in ~~our~~its market and ~~to successfully~~ develop and introduce new products that ~~appeal to our customers and consumers;~~meet customers’ needs;

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

the impact of the disruption in our ~~customers with innovative, cost-effective products;~~manufacturing operations;

the impact of a disruption in our ~~manufacturing operations, our~~ supply chain, or including the inability to obtain ingredients and raw materials from third parties;

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

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

the impact of ~~the BASF supply chain disruption on the supply and price~~any failure or interruption of our key information technology systems or a ~~key ingredient in 2018;~~

~~the impact~~breach of ~~the recently-enacted Tax Act on our effective tax rate in 2018 and beyond;~~information security;

our ability to react in a timely and cost-effective manner to changes in ~~the~~ consumer ~~products industry related~~preferences and demands;

our ability to ~~health~~establish and ~~wellness;~~manage collaborations, joint ventures or partnership that lead to development or commercialization of products;

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

the impact of currency fluctuations or devaluations in the principal foreign markets in which it operates;

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

the impact of global economic uncertainty on demand for consumer products;

the inability to retain key personnel;

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

our ability to realize the ~~expected~~benefits of its cost ~~savings~~ and ~~efficiencies from our profitability improvement initiatives and other optimization activities;~~

~~volatility and increases in the price of raw materials, energy and transportation;~~productivity initiatives;

our ability to ~~maintain~~ successfully manage its working capital and inventory balances;

the ~~integrity~~impact of ~~our raw materials, supply chain and finished goods, and~~the failure to comply with ~~applicable regulations;~~U.S. or foreign anti-corruption and anti-bribery laws and regulations, including the U.S. Foreign Corrupt Practices Act;

~~any adverse~~our ability to protect its intellectual property rights;

the impact ~~on the availability, effectiveness and cost~~ of ~~our hedging and risk management strategies;~~

~~uncertainties regarding~~ the outcome of legal claims, regulatory investigations and litigation;

changes in market conditions or ~~funding requirements, related~~governmental regulations relating to ~~litigation~~our pension and postretirement obligations;

the impact of future impairment of our tangible or ~~settlement of pending litigation, uncertain tax positions or other contingencies;~~intangible long-lived assets;

the impact of changes in ~~our tax rates, tax liabilities, the adoption of new United States or~~federal, state, local and international tax legislation or ~~changes in existing~~policies, including the enacted Tax Cuts and Jobs Act, with respect to transfer pricing and state aid, and adverse results of tax ~~laws;~~audits, assessments, or disputes;

the effect of potential government regulation on certain product development initiatives, and restrictions or costs that may be imposed on the Company or its operations as a result; and

~~our ability to successfully estimate~~ the impact of ~~certain accounting~~the United Kingdom’s expected departure from the European Union in 2019.

We intend our forward-looking statements to speak only as of the time of such statements and ~~tax matters.~~

~~New risks emerge from time~~do not undertake or plan to ~~time and it is not possible for management~~update or revise them as more information becomes available or to ~~predict all~~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 ~~assess~~in this report or included in our other periodic reports filed with the SEC could materially and adversely impact ~~of such risks on~~ our ~~business. Accordingly, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information,~~operations and our future ~~events, or otherwise.~~financial results.

Any public statements or disclosures made by ~~the Company~~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.

The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by the Company (such as in our other filings with the SEC or in company press releases) for other factors that may cause actual results to differ materially from those projected by the Company. Please refer to Part I. Item 1A., Risk Factors of the ~~2017~~2018 Form 10-K ~~Part II. Item 1A. Risk Factors of our Form 10-Q for the quarter ended March 31, 2018, and Part II. Item 1A., Risk Factors of this Form 10-Q~~ for additional information regarding factors that could affect our results of operations, financial condition and cash flow.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There are no material changes in market risk from the information provided in our ~~2017~~2018 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES.

(a) Disclosure Controls and Procedures

The Chief Executive Officer and Chief Financial Officer, with the assistance of other members of our management, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

We have established controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control over Financial Reporting

The Chief Executive Officer and Chief Financial Officer have also concluded that there have not been any changes in our internal control over financial reporting during the quarter ended ~~June 30, 2018~~March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On October 4, 2018, we completed the acquisition of Frutarom. We are in the process of integrating Frutarom into our systems and control environment. As a result of these integration activities, certain controls will be evaluated and may be changed.

The Company implemented changes to internal controls due to the adoption of Accounting Standard Update No. 2016-02, Leases (Accounting Standard Codification Topic 842) effective January 1, 2019. These changes include implementing a new lease accounting system and processes to evaluate and account for contracts under the new accounting standard.

There were no other changes in the company’s internal control over financial reporting during the quarter ended March 31, 2019, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are subject to various claims and legal actions in the ordinary course of our business.

Environmental

Over the past 20 years, various federal and state authorities and private parties have claimed that we are a Potentially Responsible Party (“PRP”) as a generator of waste materials for alleged pollution at a number of waste sites operated by third parties located principally in New Jersey and have sought to recover costs incurred and to be incurred to clean up the sites.

We have been identified as a PRP at ~~eight~~seven facilities operated by third parties at which investigation and/or remediation activities may be ongoing. We analyze our potential liability on at least a quarterly basis. We accrue for environmental liabilities when they are probable and estimable. We estimate our share of the total future cost for these sites to be less than ~~$5.0~~$3 million.

While joint and several liability is authorized under federal and state environmental laws, we believe the amounts we have paid and anticipate paying in the future for clean-up costs and damages at all sites are not material and will not have a material adverse effect on our financial condition, results of operations or liquidity. This assessment is based upon, among other things, the involvement of other PRPs at most of the sites, the status of the proceedings, including various settlement agreements and consent decrees, and the extended time period over which payments will likely be made. There can be no assurance, however, that future events will not require us to materially increase the amounts we anticipate paying for clean-up costs and damages at these sites, and that such increased amounts will not have a material adverse effect on our financial condition, results of operations or cash flows.

Other

We are also a party to other litigations arising in the ordinary course of our business. We do not expect the outcome of these cases, singly or in the aggregate, to have a material effect on our consolidated financial condition.

~~ITEM 1A. RISK FACTORS.~~

The risks and uncertainties discussed below supplement the risks and uncertainties previously disclosed in Part I, Item 1A. of the 2017 Form 10-K and in Part II Item 1A. of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.

~~Risks Related to Our Pending Acquisition of Frutarom~~

~~If we are unable to complete our pending acquisition of Frutarom, in a timely manner or at all, our business and our stock price may be adversely affected.~~

Our and Frutarom’s obligations to consummate the pending acquisition of Frutarom are subject to the satisfaction or waiver of customary conditions, including (i) the expiration or early termination of the waiting period applicable to the consummation of the acquisition under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the receipt of regulatory clearance under certain foreign antitrust laws, including the European Union; (ii) receipt of all governmental and stock exchange approvals necessary for the issuance of shares as contemplated by the merger agreement, (iii) the absence of any order, or the enactment of any law, prohibiting the pending acquisition; (iv) subject to certain exceptions, the accuracy of the representations and warranties of the parties and compliance by the parties with their respective obligations under the merger agreement; and (v) the absence of any material adverse effect on Frutarom or our company since the date of the merger agreement. The required satisfaction of the closing conditions could delay the completion of the pending acquisition for a significant period of time or prevent it from occurring. Any delay in completing the pending acquisition of Frutarom could cause us not to realize some or all of the benefits that we expect to achieve following the pending acquisition. Furthermore, our ability to access the bridge financing facility is subject to customary conditions. As many of these conditions are outside of our control, we cannot assure you if the conditions to the completion of the pending acquisition of Frutarom and the associated financings will be satisfied in a timely manner or at all which may affect when and whether the pending acquisition of Frutarom will occur.

If the pending acquisition of Frutarom is not completed or is delayed, our share price could fall to the extent that our current price reflects an assumption that the pending acquisition will be completed on the expected time line. Furthermore, if the pending acquisition is delayed or is not completed and the merger agreement is terminated, we may suffer other consequences that could adversely affect our business, results of operations and share price, including the following:

we have incurred and will continue to incur costs relating to the pending acquisition (including significant legal and financial advisory fees), and many of these costs are payable by us whether or not the acquisition is completed;

matters relating to the pending acquisition (including integration planning) may require substantial commitments of time and resources by our management team, which could otherwise have been devoted to our historical core businesses or other opportunities that may have been beneficial to us;

~~we may be subject to legal proceedings related to the pending acquisition;~~

~~the failure to consummate the pending acquisition may result in negative publicity and a negative impression of us in the investment community; and~~

any disruptions to our business resulting from the announcement and pendency of the acquisition, including any adverse changes in our relationships with our customers, suppliers and employees, may continue or intensify in the event the pending acquisition is delayed or is not completed.

~~We may not realize the benefits anticipated from the pending acquisition of Frutarom, which could adversely affect our stock price.~~

If completed, the pending acquisition of Frutarom, will be our largest acquisition to date. The anticipated benefits from the pending acquisition are, necessarily, based on projections and assumptions about the combined businesses of our company and Frutarom, which may not materialize as expected or which may prove to be inaccurate. Our ability to achieve the anticipated benefits will depend on our ability to successfully and efficiently integrate the business and operations of Frutarom with our business and achieve the expected synergies. We may encounter significant challenges with successfully integrating and recognizing the anticipated benefits of the pending acquisition, including the following:

~~potential disruption of, or reduced growth in, our historical core businesses, due to diversion of management attention and uncertainty with our current customer and supplier relationships;~~

~~challenges arising from the expansion of our product offerings into adjacencies with which we have limited experience, including flavor ingredients, food additives and nutraceuticals;~~

~~challenges arising from the expansion into those Frutarom jurisdictions where we do not currently operate or have significant operations;~~

~~coordinating and integrating research and development teams across technologies and products to enhance product development while reducing costs;~~

consolidating and integrating corporate, information technology, finance and administrative infrastructures, and integrating and harmonizing business systems, which may be more difficult than anticipated due to the significant number of acquisitions completed by Frutarom over the past few years;

~~coordinating sales and marketing efforts to effectively position our capabilities and the direction of product development;~~

~~difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from combining Frutarom's business with our business;~~

~~limitations prior to the completion of the pending acquisition on the ability of management of our company and of Frutarom to conduct planning regarding the integration of the two companies;~~

~~the increased scale and complexity of our operations resulting from the pending acquisition;~~

~~retaining key employees, suppliers and other partners of our company and Frutarom;~~

~~retaining and efficiently managing Frutarom’s expanded and decentralized customer base;~~

~~obligations that we will have to counterparties of Frutarom that arise as a result of the change in control of Frutarom;~~

~~difficulties in anticipating and responding to actions that may be taken by competitors in response to the pending acquisition; and~~

~~the assumption of and exposure to unknown or contingent liabilities of Frutarom.~~

In addition, our anticipated benefits of the transaction with Frutarom contemplate significant cost-saving synergies. Consequently, even if we are able to successfully integrate the operations of Frutarom with ours, we may not realize the full benefits of the pending acquisition 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.

If we do not successfully manage these issues and the other challenges inherent in integrating an acquired business of the scale of Frutarom, then we may not achieve the anticipated benefits of the pending acquisition of Frutarom, we could incur unanticipated expenses and charges and our operating results and the value of our common stock could be materially and adversely affected.

Uncertainty about the pending acquisition of Frutarom may adversely affect our relationships with our customers and employees, which could negatively affect our business, whether or not the pending acquisition is completed.

The announcement of the pending acquisition of Frutarom may cause uncertainties in our relationships with our customers which could impair our ability to or expand our historical customer sales growth. Furthermore, uncertainties about the pending acquisition may cause our current and prospective employees to experience uncertainty about their future with us. These uncertainties may impair our ability to retain, recruit or motivate key employees which could affect our business.

~~The pending acquisition of Frutarom may result in significant charges or other liabilities that could adversely affect the financial results of the combined company.~~

Our financial results following the acquisition may be adversely affected by cash expenses and non-cash accounting charges incurred in connection with our integration of the business and operations of Frutarom. Furthermore, as a result of the transaction we will record a significant amount of goodwill and other intangible assets on our consolidated financial statements, which could be subject to impairment based upon future adverse changes in our business or prospects including our inability to recognize the benefits anticipated by the pending acquisition.

In addition, upon the completion of the pending acquisition, we will be liable for some or all of Frutarom's liabilities, including unknown and contingent liabilities that Frutarom assumed in connection with their prior acquisitions, that we may have failed to or been unable to identify in the course of performing due diligence. A significant component of Frutarom’s growth in recent years has come through acquisitions, as they have 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 may be limited by, among other things, the information available to us and Frutarom and the limited operating experience that Frutarom has with these acquired entities. Furthermore, Frutarom has additional future obligations regarding certain of these acquisitions, including outstanding earn-out obligations and put options requiring Frutarom to purchase additional shares in the acquired companies. If we are not able to completely 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. The price of our common stock following the pending acquisition could decline to the extent the combined company’s financial results are materially affected by any of these events.

~~The regulatory approvals required in connection with the pending acquisition of Frutarom may not be obtained or may contain materially burdensome conditions.~~

Completion of the pending acquisition of Frutarom is conditioned upon the receipt of certain regulatory approvals, and we cannot provide assurance that these approvals will be obtained. If any conditions or changes to the proposed structure of the pending acquisition are required to obtain these regulatory approvals, they may have the effect of jeopardizing or delaying completion of the pending acquisition or reducing the anticipated benefits of the pending acquisition. If we agree to any material conditions in order to obtain any approvals required to complete the pending acquisition, the business and results of operations of the combined company may be adversely affected.

The use of cash and incurrence of significant indebtedness in connection with the financing of the pending acquisition of Frutarom may have an adverse impact on our liquidity, limit our flexibility in responding to other business opportunities and increase our vulnerability to adverse economic and industry conditions.

Our pending acquisition of Frutarom will be financed in part by the use of our cash on hand, the incurrence of a significant amount of indebtedness and issuances of equity. As of June 30, 2018, we had approximately $322.4 million of cash and cash equivalents and approximately $1.7 billion of total debt outstanding. In connection with the pending acquisition, we expect to incur significant new debt. The proceeds from the new debt are expected to be used to pay part of the purchase price, refinance existing debt of both our company and Frutarom and pay transaction related fees and expenses. If we are unable to raise financing on acceptable terms, we may need to rely on our bridge loan facility, which may result in higher borrowing costs and a shorter maturity than those from other anticipated financing alternatives. The use of cash on hand and indebtedness to finance the pending acquisition will reduce our liquidity and could cause us to place more reliance on cash generated from

operations to pay principal and interest on our debt, thereby reducing the availability of our cash flow for working capital, dividend and capital expenditure needs or to pursue other potential strategic plans. The increased indebtedness may also have the effect, among other things, of limiting our ability to obtain additional financing, if needed, limiting our flexibility in the conduct of our business and making us more vulnerable to economic downturns and adverse competitive and industry conditions.

The issuance of shares of our common stock to Frutarom shareholders in connection with the pending acquisition of Frutarom and to finance part of the cash consideration for the pending acquisition, and any future offerings of securities by us, will dilute our shareholders’ ownership interest in the company.

Our pending acquisition of Frutarom will be financed in part by the issuance of shares of our common stock to shareholders of Frutarom, comprising approximately 18.9% of our issued and outstanding shares of common stock, based on the number of issued and outstanding shares of our common stock on May 4, 2018 and Frutarom’s estimated fully diluted shares of common stock outstanding on March 31, 2018. In addition, we expect to issue approximately $2.2 billion in equity to raise part of the cash consideration for the pending acquisition of Frutarom. These issuances of additional shares of our common stock will dilute our existing shareholders ownership interest in our company, and will result in our existing shareholders having a reduced ownership and voting interest in our company following the completion of these transactions.

~~We may be subject to litigation in connection with the pending acquisition of Frutarom.~~

Lawsuits may be filed against us, Frutarom, our respective subsidiaries, or our respective directors or executive officers in connection with the pending acquisition and the related transactions. In addition, if the pending acquisition is completed, lawsuits may be filed against the combined company following the pending acquisition. If any such lawsuit is filed, it could result in a reduction in our current stock price and our stock price following the pending acquisition, substantial costs and diversion of management’s attention and resources, which could adversely affect our business, financial condition or results of operations, whether or not a settlement or other resolution is achieved.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

~~Issuer Purchases of Equity Securities.~~None.

~~The following table reflects purchases made by, or on behalf of, the Company, of shares of the Company’s common stock, reported based on the trade date, during the three months ended June 30, 2018:~~

Period
Total Number of
Shares
Repurchased ⁽¹⁾

Average
Price Paid
per Share

Total Number of
Shares Purchased as
Part of Publicly
Announced Program

Approximate Dollar Value
of Shares That May Yet
be Purchased Under the
Program
April 1 - 30, 2018 27,211
$ 138.87
27,211
$ 280,385,836
May 1 - 31, 2018 5,103
141.02
5,103
279,666,206
June 1 - 30, 2018 —
—
—
279,666,206
Total 32,314
$ 139.21
32,314
$ 279,666,206

~~_______________________~~


~~(1)~~	Shares were repurchased pursuant to the Company’s share repurchase program. Authorization of the repurchase program may be modified, suspended, or discontinued at any time. On May 7, 2018, we announced plans to suspend share repurchases until our deleveraging target is met following our pending acquisition of Frutarom.

ITEM 6. EXHIBITS.



~~2.1~~		Agreement and Plan of Merger, dated May 7, 2018, by and among the Registrant, Frutarom Industries Ltd. and Icon Newco Ltd., incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on May 9, 2018. *
~~3(ii)~~		~~Bylaws of International Flavors & Fragrances Inc., effective as of May 3, 2018, incorporated by reference to Exhibit 3(ii) to the Registrant's Current Report on Form 8-K filed on May 3, 2018.~~
~~10.1~~		Voting Agreement, dated as of May 7, 2018, by and among the Registrant and the shareholders of Frutarom Industries Ltd. listed on the signature page thereto, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 9, 2018.
~~10.2~~		Amendment No. 1 to Credit Agreement, dated as of May 21, 2018, among the Registrant, International Flavors & Fragrances (Nederland) Holding B.V., International Flavors & Fragrances I.F.F. (Nederland) B.V. and International Flavors & Fragrances (Greater Asia) PTE. Ltd., as borrowers, the lenders signatory thereto and Citibank, N.A. as administrative agent, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 24, 2018.
~~10.3~~		Amendment No. 2 to Credit Agreement, dated as of June 6, 2018, among the Registrant, International Flavors & Fragrances (Nederland) Holding B.V., International Flavors & Fragrances I.F.F. (Nederland) B.V. and International Flavors & Fragrances (Greater Asia) PTE. Ltd., as borrowers, the lenders signatory thereto and Citibank, N.A. as administrative agent, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on June 8, 2018.
~~10.4~~		Amendment No. 3 to Credit Agreement, dated as of July 13, 2018, among the Registrant, International Flavors & Fragrances (Nederland) Holding B.V., International Flavors & Fragrances I.F.F. (Nederland) B.V. and International Flavors & Fragrances (Greater Asia) PTE. Ltd., as borrowers, the lenders signatory thereto and Citibank, N.A. as administrative agent.
~~10.5~~		Term Loan Credit Agreement, dated as of June 6, 2018, among the Registrant, as borrower, the lenders signatory thereto and Morgan Stanley Senior Funding, Inc. as administrative agent, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 8, 2018.
~~10.6~~		~~Amendment No 1 to Credit Agreement, dated as of July 13, 2018, among the Registrant, as borrower, the lenders signatory thereto and Morgan Stanley Senior Funding, Inc. as administrative agent.~~
12		~~Statement re: Computation of Ratios.~~
31.1		Certification of Andreas Fibig pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Richard A. O'Leary pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Andreas Fibig and Richard A. O'Leary pursuant to 18 U.S.C. Section 1350 as adopted pursuant to the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extensions Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase


*	Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the SEC upon request.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Dated:	~~August 7, 2018~~May 6, 2019	By:	/s/ Andreas Fibig
			Andreas Fibig
			Chairman of the Board and Chief Executive Officer

Dated:	~~August 7, 2018~~May 6, 2019	By:	/s/ Richard A. O'Leary
			Richard A. O'Leary
			Executive Vice President and Chief Financial Officer

5241



(DOLLARS IN THOUSANDS)	June 30, 2018		At adoption
Receivables (included in Trade receivables)	$	737,477	$	677,055
Contract asset - Short term	1,903		4,449



Period	Total Number of Shares Repurchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares That May Yet be Purchased Under the Program
April 1 - 30, 2018	27,211	$	138.87	27,211	$	280,385,836
May 1 - 31, 2018	5,103	141.02		5,103	279,666,206
June 1 - 30, 2018	—	—		—	279,666,206
Total	32,314	$	139.21	32,314	$	279,666,206