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, 2017~~March 31, 2018



¨	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

Number of shares outstanding as of ~~July~~April 24, ~~2017~~2018: ~~78,975,735~~78,943,811

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL ~~STATEMENTS~~STATEMENTS.

INTERNATIONAL FLAVORS & FRAGRANCES INC.

CONSOLIDATED BALANCE SHEET

~~(DOLLARS IN THOUSANDS)~~

(Unaudited)

June 30, 2017 December 31, 2016
ASSETS
Current Assets:
Cash and cash equivalents $ 491,386
$ 323,992
Trade receivables (net of allowances of $12,772 and $9,995, respectively) 665,511
550,658
Inventories: Raw materials 309,544
288,629
Work in process 17,828
13,792
Finished goods 296,390
289,596
Total Inventories 623,762
592,017
Prepaid expenses and other current assets 213,267
142,347
Total Current Assets 1,993,926
1,609,014
Property, plant and equipment, at cost 2,022,866
1,913,333
Accumulated depreciation (1,211,040 ) (1,137,617 )
811,826
775,716
Goodwill 1,145,165
1,000,123
Other intangible assets, net 426,064
365,783
Deferred income taxes 150,359
138,636
Other assets 91,535
127,712
Total Assets $ 4,618,875
$ 4,016,984
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Bank borrowings and overdrafts and current portion of long-term debt $ 257,873
$ 258,516
Accounts payable 265,900
274,815
Accrued payroll and bonus 53,833
64,357
Dividends payable 50,621
50,678
Other current liabilities 232,996
249,931
Total Current Liabilities 861,223
898,297
Long-term debt 1,636,338
1,066,855
Deferred gains 38,529
39,816
Retirement liabilities 251,154
243,407
Other liabilities 151,545
137,475
Total Other Liabilities 2,077,566
1,487,553
Commitments and Contingencies (Note 13)

Shareholders’ Equity:
Common stock 12 1/2¢ par value; authorized 500,000,000 shares; issued 115,858,190 shares as of June 30, 2017 and December 31, 2016 and outstanding 78,975,563 and 79,213,037 shares as of June 30, 2017 and December 31, 2016 14,470
14,470
Capital in excess of par value 148,445
152,481
Retained earnings 3,909,200
3,818,535
Accumulated other comprehensive loss (676,201 ) (680,095 )
Treasury stock, at cost - 36,882,627 shares as of June 30, 2017 and 36,645,153 shares as of December 31, 2016 (1,721,556 ) (1,679,147 )
Total Shareholders’ Equity 1,674,358
1,626,244
Noncontrolling interest 5,728
4,890
Total Shareholders’ Equity including noncontrolling interest 1,680,086
1,631,134
Total Liabilities and Shareholders’ Equity $ 4,618,875
$ 4,016,984

~~See Notes to Consolidated Financial Statements~~



(DOLLARS IN THOUSANDS)	March 31, 2018			December 31, 2017
ASSETS
Current Assets:
Cash and cash equivalents	$	305,276		$	368,046
Trade receivables (net of allowances of $13,484 and $13,392, respectively)	734,378			663,663
Inventories: Raw materials	346,948			326,140
Work in process	22,357			16,431
Finished goods	318,512			306,877
Total Inventories	687,817			649,448
Prepaid expenses and other current assets	242,870			215,387
Total Current Assets	1,970,341			1,896,544
Property, plant and equipment, at cost	2,139,372			2,090,755
Accumulated depreciation	(1,251,889		)	(1,210,175		)
	887,483			880,580
Goodwill	1,166,022			1,156,288
Other intangible assets, net	414,055			415,787
Deferred income taxes	88,231			99,777
Other assets	155,144			149,950
Total Assets	$	4,681,276		$	4,598,926
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Short term borrowings	$	36,819		$	6,966
Accounts payable	324,262			338,188
Accrued payroll and bonus	51,194			88,361
Dividends payable	54,404			54,420
Other current liabilities	250,073			280,833
Total Current Liabilities	716,752			768,768
Long-term debt	1,676,211			1,632,186
Deferred gains	36,930			37,344
Retirement liabilities	226,937			228,936
Other liabilities	245,484			242,398
Total Other Liabilities	2,185,562			2,140,864
Commitments and Contingencies (Note 13)
Shareholders’ Equity:
Common stock 12 1/2¢ par value; 500,000,000 shares authorized; 115,858,190 shares issued as of March 31, 2018 and December 31, 2017; and 78,920,199 and 78,947,381 shares outstanding as of March 31, 2018 and December 31, 2017, respectively	14,470			14,470
Capital in excess of par value	166,517			162,827
Retained earnings	3,947,791			3,870,621
Accumulated other comprehensive loss	(620,579		)	(637,482		)
Treasury stock, at cost (36,937,991 and 36,910,809 shares as of March 31, 2018 and December 31, 2017, respectively)	(1,735,049		)	(1,726,234		)
Total Shareholders’ Equity	1,773,150			1,684,202
Noncontrolling interest	5,812			5,092
Total Shareholders’ Equity including noncontrolling interest	1,778,962			1,689,294
Total Liabilities and Shareholders’ Equity	$	4,681,276		$	4,598,926

INTERNATIONAL FLAVORS & FRAGRANCES INC.

CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME

~~(AMOUNT IN THOUSANDS EXCEPT PER SHARE AMOUNTS)~~

(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016
Net sales $ 842,861
$ 793,478
$ 1,671,154
$ 1,576,789
Cost of goods sold 468,272
427,837
931,899
850,940
Gross profit 374,589
365,641
739,255
725,849
Research and development expenses 70,320
63,252
140,031
126,637
Selling and administrative expenses 135,910
132,784
276,240
256,327
Amortization of acquisition-related intangibles 8,494
5,130
15,561
11,191
Restructuring and other charges, net 791
—
10,934
—
Gain on sales of fixed assets (68 ) (197 ) (89 ) (2,910 )
Operating profit 159,142
164,672
296,578
334,604
Interest expense 17,556
15,060
30,363
27,539
Other (income) expense, net (454 ) (2,438 ) (14,312 ) 118
Income before taxes 142,040
152,050
280,527
306,947
Taxes on income 32,245
35,317
54,968
71,610
Net income 109,795
116,733
225,559
235,337
Other comprehensive income (loss), after tax:
Foreign currency translation adjustments 13,347
(4,689 ) 10,090
9,389
(Losses) gains on derivatives qualifying as hedges (11,768 ) 800
(13,519 ) (9,392 )
Pension and postretirement net liability 3,688
2,578
7,323
5,133
Other comprehensive income (loss) 5,267
(1,311 ) 3,894
5,130
Total comprehensive income $ 115,062
$ 115,422
$ 229,453
$ 240,467

Net income per share - basic $ 1.39
$ 1.46
$ 2.85
$ 2.94
Net income per share - diluted $ 1.38
$ 1.46
$ 2.84
$ 2.93
Average number of shares outstanding - basic 79,072
79,764
79,088
79,809
Average number of shares outstanding - diluted 79,305
80,040
79,360
80,141
Dividends declared per share $ 0.64
$ 0.56
$ 1.28
$ 1.12

~~See Notes to Consolidated Financial Statements~~



	Three Months Ended March 31,
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)	2018			2017
Net sales	$	930,928		$	828,293
Cost of goods sold	525,119			465,210
Gross profit	405,809			363,083
Research and development expenses	78,476			72,126
Selling and administrative expenses	142,644			143,704
Amortization of acquisition-related intangibles	9,185			7,066
Restructuring and other charges, net	717			10,143
Gain on sales of fixed assets	(69		)	(21		)
Operating profit	174,856			130,065
Interest expense	16,595			12,807
Other (income), net	(576		)	(21,229		)
Income before taxes	158,837			138,487
Taxes on income	29,421			22,723
Net income	129,416			115,764
Other comprehensive income (loss), after tax:
Foreign currency translation adjustments	14,803			(3,257		)
(Losses) on derivatives qualifying as hedges	(529		)	(1,751		)
Pension and postretirement net liability	2,629			3,635
Other comprehensive income (loss)	16,903			(1,373		)
Total comprehensive income	$	146,319		$	114,391

Net income per share - basic	$	1.63		$	1.46
Net income per share - diluted	$	1.63		$	1.45
Average number of shares outstanding - basic	79,018			79,098
Average number of shares outstanding - diluted	79,393			79,409
Dividends declared per share	$	0.69		$	0.64

INTERNATIONAL FLAVORS & FRAGRANCES INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

~~(DOLLARS IN THOUSANDS)~~

(Unaudited)

Six Months Ended June 30,
2017 2016
Cash flows from operating activities:
Net income $ 225,559
$ 235,337
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 55,805
49,743
Deferred income taxes 1,505
16,543
Gain on disposal of assets (89 ) (2,910 )
Stock-based compensation 12,893
13,774
Pension contributions (31,557 ) (39,510 )
Litigation settlement (56,000 ) —
Foreign currency gain on liquidation of entity (12,214 ) —
Changes in assets and liabilities, net of acquisitions:
Trade receivables (77,580 ) (70,361 )
Inventories (4,228 ) (7,271 )
Accounts payable (23,479 ) (29,167 )
Accruals for incentive compensation (12,316 ) (2,001 )
Other current payables and accrued expenses (3,099 ) 13,400
Other assets 18,007
4,054
Other liabilities (35,286 ) (9,335 )
Net cash provided by operating activities 57,921
172,296
Cash flows from investing activities:
Cash paid for acquisitions, net of cash received (191,304 ) —
Additions to property, plant and equipment (46,153 ) (43,236 )
Proceeds from life insurance contracts 1,941
—
Maturity of net investment hedges 3,016
(641 )
Proceeds from disposal of assets 473
3,630
Net cash used in investing activities (232,027 ) (40,247 )
Cash flows from financing activities:
Cash dividends paid to shareholders (101,184 ) (89,463 )
Increase (decrease) in revolving credit facility borrowings and overdrafts 21,595
(138,142 )
Deferred financing costs (5,373 ) (4,796 )
Proceeds from issuance of long-term debt 498,250
555,559
Loss on pre-issuance hedges (5,310 ) (3,244 )
Proceeds from issuance of stock under stock plans 329
494
Employee withholding taxes paid (11,485 ) (13,315 )
Purchase of treasury stock (53,211 ) (71,714 )
Net cash provided by financing activities 343,611
235,379
Effect of exchange rate changes on cash and cash equivalents (2,111 ) (9,424 )
Net change in cash and cash equivalents 167,394
358,004
Cash and cash equivalents at beginning of year 323,992
181,988
Cash and cash equivalents at end of period $ 491,386
$ 539,992
Interest paid, net of amounts capitalized $ 21,817
$ 24,971
Income taxes paid $ 50,962
$ 52,719

~~See Notes to Consolidated Financial Statements~~



	Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	2018			2017
Cash flows from operating activities:
Net income	$	129,416		$	115,764
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization	33,384			26,802
Deferred income taxes	18,404			(3,766		)
Gain on disposal of assets	(69		)	(21		)
Stock-based compensation	7,620			5,819
Pension contributions	(4,387		)	(25,263		)
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	(61,301		)	(60,858		)
Inventories	(30,185		)	(109		)
Accounts payable	(8,435		)	(1,978		)
Accruals for incentive compensation	(36,583		)	(23,485		)
Other current payables and accrued expenses	(18,540		)	(7,586		)
Other assets	(26,035		)	30,284
Other liabilities	(1,715		)	(24,894		)
Net cash (used in) provided by operating activities	(11,395		)	18,495
Cash flows from investing activities:
Cash paid for acquisitions, net of cash received	(22		)	(138,093		)
Additions to property, plant and equipment	(33,105		)	(26,662		)
Maturity of net investment hedges	(2,405		)	1,948
Proceeds from disposal of assets	293			619
Net cash used in investing activities	(35,239		)	(162,188		)
Cash flows from financing activities:
Cash dividends paid to shareholders	(54,420		)	(50,677		)
Increase in revolving credit facility borrowings and overdrafts	23,762			100,481
Increase in commercial paper	29,926			107,441
Loss on pre-issuance hedges	—			300
Employee withholding taxes paid	(3,266		)	(3,000		)
Purchase of treasury stock	(10,617		)	(37,612		)
Net cash (used in) provided by financing activities	(14,615		)	116,933
Effect of exchange rate changes on cash and cash equivalents	(1,521		)	2,835
Net change in cash and cash equivalents	(62,770		)	(23,925		)
Cash and cash equivalents at beginning of year	368,046			323,992
Cash and cash equivalents at end of period	$	305,276		$	300,067
Cash paid for:
Interest paid, net of amounts capitalized	$	20,236		$	25,590
Income taxes paid	$	24,939		$	20,043
Noncash investing activities:
Accrued capital expenditures	$	18,868		$	5,433

~~Notes to Consolidated Financial Statements~~INTERNATIONAL FLAVORS & FRAGRANCES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Note~~NOTE 1. ~~Consolidated Financial Statements:~~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 ~~2016~~2017 Annual Report on Form 10-K (“~~2016~~2017 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 ~~2017~~2018 and ~~2016~~2017 quarters, the actual closing dates were ~~June~~March 30 and ~~July 1,~~March 31, 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 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 ~~with~~to current year presentation.

~~The Consolidated Statement~~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 Comprehensive Income has been revised to properly reflect Gain on sales of fixed assets within Operating profit for the three and six months ending June 30, 2016. These amounts were previously included in Othernet periodic benefit expense (income) ~~expense, net. The Consolidated Statement of Cash Flows has been revised to properly reclassify $5.4 million from Other current payables~~ to Other ~~assets for the six months ending June 30, 2016. This adjustment had no impact on Net cash provided from operating activities. In addition,~~income (expense), net.

Additionally, approximately $5.4 million of expense was recorded during the first quarter of 2017 for a tax assessment relating to prior periods. The Consolidated Statement of Cash Flows for the three months ended March 31, 2017 has been revised to properly reclassify $3.2 million from Net cash used in financing activities to reduce Net cash provided by operating activities, and has also been revised to correctly state the amount of Cash paid for interest, net of amounts capitalized, for the three months ended March 31, 2017. These adjustments were not material to the current ~~and~~or previously-issued financial statements.

~~Recent Accounting Pronouncements~~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 ~~May~~the fourth quarter of 2017, the ~~Financial Accounting Standards Board (“FASB”) issued amendments~~Company recorded approximately $139.2 million in charges related to the ~~Compensation - Stock Compensation~~impact of the Tax Act. Given the significant complexity of the Tax Act, anticipated guidance ~~which clarifies which changes~~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 ~~terms or conditions~~provisional charge. Any material revisions in our computations could adversely affect our cash flows and results of a share-based payment award require an entity to apply modification accounting. This guidance is effective, and should be applied prospectively, for fiscal years beginning after December 15, 2017. Early adoption is permitted. The Company does not expect this guidance to 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.operations.

In March 2017, the FASB issued amendments to the Compensation - Retirement Benefits guidance which requires employers that 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 should be applied retroactively, for fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period. The Company expects the impact that this guidance will have on its Consolidated Statement of Comprehensive Income will be an increase in operating expenses of approximately $15 million and $30 million for the fiscal years 2016 and 2017, respectively.

In January 2017, the FASB issued amendments to the Business Combination guidance which clarifies the definition of a business in order to assist companies when evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. This guidance will be effective prospectively for annual and interim periods beginning after December 15, 2017. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements and on accounting for future acquisitions.

In January 2017, the FASB issued an amendment to the Goodwill Impairment guidance which eliminates Step 2 from the goodwill impairment test. This guidance will be effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company plans to adopt this guidance in accordance with its existing annual impairment review policy in fiscal year 2017. The Company does not expect this adoption to have an impact on its consolidated financial statements.

In October 2016, the FASB issued authoritative guidance which allows for the immediate recognition of current and deferred income tax impact on intra-entity asset transfers, excluding inventory. This guidance will be effective for fiscal years beginning after December 15, 2017. The Company adopted this guidance inDuring the first quarter of fiscal year 2017 and accordingly, recorded a cumulative-effect adjustment to Retained earnings that reduced Other assets and adjusted Deferred income taxes by a net amount of approximately $33 million.

In August 2016, the FASB issued authoritative guidance which requires changes to the classification of certain activities within the statement of cash flows. This guidance will be effective for annual and interim periods beginning after December 15, 2017. Early adoption will be permitted for all entities. The Company does not expect this adoption to have a significant impact on its Consolidated Statement of Cash Flows.

In March 2016, the FASB issued authoritative guidance which requires changes to several aspects of the accounting for share-based payment transactions, including the treatment of income tax consequences, classification of awards as either equity or liabilities, and classification of certain items on the statement of cash flows. This guidance was effective for annual and interim periods beginning after December 15, 2016. The Company adopted this standard during the first quarter of 2017. The standard requires that employee taxes paid when an employer withholds shares be presented in the Consolidated Statement of Cash Flows as a financing activity instead of an operating activity. The Company adopted this change retrospectively, resulting in a $11.5 million and $13.3 million increase to Net cash provided by operating activities on the Consolidated Statement of Cash Flows as of June 30, 2017 and 2016, respectively. In addition, the standard requires that excess tax benefits presented in the Consolidated Statement of Cash Flows be classified as an operating activity instead of a financing activity. The Company adopted this change retrospectively, resulting in a $3.2 million and $4.4 million increase to Net cash provided by operating activities on the Consolidated Statement of Cash Flows as of June 30, 2017 and 2016, respectively.

The standard also requires all excess tax benefits/deficiencies be recognized as income tax expense/benefit in the Consolidated Statement of Comprehensive Income. This guidance has been applied prospectively. This change resulted in a $3.2 million benefit to income tax expense for the period ended June 30, 2017. The 2016 period included a $4.2 million benefit to equity, which has not been retrospectively adjusted. The full year 2016 benefit to equity was $5.3 million. Additionally, the standard allows2018, the Company recorded an additional charge of $0.6 million to ~~make~~adjust an entity-wide accounting policy election to either estimate the number of awards that are expected to be forfeited or account for forfeitures as they occur. The Company has elected to continue to account for forfeitures using an estimate of awards expected to be forfeited.

In February 2016, the FASB issued authoritative guidance which requires changes to the accounting for leases. The new guidance establishes a new lease accounting model, that requires entities to record assets and liabilitiesaccrual related to ~~leases~~withholding taxes on the balance sheet for certain types of leases. The guidance will be effective for annual and interim periods beginning after December 31, 2018. Early adoption will be permitted for all entities. The Company expects the adoption of this guidance will result in significant increases to assets and liabilities on its Consolidated Balance Sheet and is still evaluating the impact on its Consolidated Statement of Comprehensive Income.planned repatriations.

In May 2014, the FASB issued authoritative guidance that provides for a comprehensive model to be used in accounting for revenue arising from contracts with customers. Under this standard, revenue will be recognized to depict 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. This guidance is applicable to all entities and is effective for annual and interim periods beginning after December 15, 2017. 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 Company is evaluating the impact of the new standard, including updates to the standard that were issued by the FASB. In particular, the Company has reviewed the nature of its larger customer relationships and is in the process of reviewing the nature of potential regional variations in all aspects of its customer base regardless of size. Based on the work performed to date, the Company expects to conduct further review and analysis of certain areas that may lead to changes in the manner in which the Company recognizes revenue, including the customized nature of the product, consignment arrangements, rebates, upfront costs, shipping terms and documentation other than formal contracts. As a result, the financial statement impact has not yet been determined. The Company is also currently evaluating the method of adoption and the potential impacts to its consolidated financial statements and related disclosures.

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 ~~$4.7~~$11.0 million for the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 compared to ~~an increase~~a decrease of approximately ~~$17.7~~$27.1 million for the ~~six~~three months ended ~~June 30, 2016.~~March 31, 2017. The cost of participating in these programs was immaterial to our results in all periods.

~~Currency Translation Adjustment Reclassification~~Recent Accounting Pronouncements

~~During~~In February 2018, FASB issued amendments to the ~~first quarter~~Income Statement - Reporting Comprehensive Income guidance 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 amendments to the Derivatives and Hedging guidance 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 ~~Company recorded income of approximately $12.2 million related~~FASB issued amendments to ~~a foreign currency exchange gain from~~ the ~~release~~Compensation - Stock Compensation guidance which clarifies changes to the terms or conditions of a ~~currency translation adjustment upon~~share-based payment award that require an entity to apply modification accounting. This guidance is effective for the ~~liquidation~~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 ~~foreign entity~~share-based payment award after it has been granted.

In March 2017, the FASB issued amendments to the Compensation - Retirement Benefits guidance which requires employers who present a measure of operating income in ~~2017.~~their statement of income to include only the service cost component of net periodic pension cost and postretirement costs in operating expenses. This ~~amount~~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 ~~recorded to~~a decrease in operating profit of $7.3 million for the three months ended March 31, 2017, and an increase in income within Other (income) expense, ~~net.~~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 authoritative guidance 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 a significant impact on its Consolidated Statement of Cash Flows.

In June 2016, the FASB issued authoritative guidance 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.

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 30, 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 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 authoritative guidance 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 Company’s contracts related to Ingredients products, the Company currently recognizes revenue on the transfer of control of the product at a point 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 for three months ended March 31, 2018 were reductions of $0.6 million, $0.4 million and $0.3 million, respectively, as a result of applying the Revenue Standard as compared to the amounts that would have been recognized under ASC Topic 605.

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:



	Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	2018	2017^(a)
Flavor Compounds	449,019	406,164
Fragrance Compounds
Consumer Fragrances	280,238	252,695
Fine Fragrances	98,395	87,705
Fragrance Ingredients	103,276	81,729
Total revenues	930,928	828,293

_______________________


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

The following table presents our revenues disaggregated by region, based on the region of our customers:



	Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	2018	2017^(a)
Europe, Africa and Middle East	309,312	257,684
Greater Asia	243,557	222,820
North America	241,146	218,828
Latin America	136,913	128,961
Total revenues	930,928	828,293

_______________________


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

Flavors and Fragrances Compounds Revenues

The Company accounts for a contract when it has approval and commitment from both parties, 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 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 of the goods has transferred to the customer. The amount of consideration received and revenue recognized is impacted by the Variable Consideration the Company has agreed with its customers. The Company estimates Variable Consideration amounts for each customer based on the specific agreement, an analysis of historical volumes 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 commencing with the manufacturing of the goods. When revenue 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 contracts 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

The Company generates revenues primarily by manufacturing Ingredients products for the 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.

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 transferred to the customer. The amount of consideration received 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 changes in our contract assets and accounts receivable for the three months ended March 31, 2018 and December 31, 2017:



(DOLLARS IN THOUSANDS)	March 31, 2018	At adoption
Receivables (included in Trade receivables)	747,862	677,055
Contract asset - Short term	3,839	4,449

~~Note~~NOTE 2. ~~Net Income Per Share:~~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,		Three Months Ended March 31,
(SHARES IN THOUSANDS)	2017	2016	2017	2016	2018	2017
Basic	79,072	79,764	79,088	79,809	79,018	79,098
Assumed dilution under stock plans	233	276	272	332	375	311
Diluted	79,305	80,040	79,360	80,141	79,393	79,409

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,~~March 31, 2018 and 2017. ~~An immaterial amount of SSARs were excluded from the 2016 period.~~

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 per share for each period presented, and the number of PRSUs outstanding as of ~~June 30, 2017~~March 31, 2018 and ~~2016~~2017 was immaterial. Net income allocated to such PRSUs was $~~0.2~~0.3 million ~~and $0.3 million~~ for both the three months ended ~~June 30, 2017~~March 31, 2018 and ~~2016~~2017~~, respectively and $0.5 million during each of the six months ended June 30, 2017 and 2016.~~.

~~Note~~NOTE 3. ~~Acquisitions:~~

~~2017 Activity~~ACQUISITIONS

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 ~~$55~~$54.6 million, including ~~$0.3~~$0.4 million of cash acquired for this acquisition, which was funded from existing ~~resources including use of its revolving credit facility.~~resources. Additionally, the Company recorded an accrual of approximately $1.4 million representing the ~~current~~ estimate at acquisition of additional contingent consideration payable to the former owners of ~~PowderPure. (The~~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 ~~$46.7~~$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, ~~and~~ approximately $0.8 million to customer relationships, and approximately ~~$13.9~~$15.2 million of goodwill ~~(which~~which is deductible for tax ~~purposes).~~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 ~~Company's~~ existing Flavors business. The intangible assets are being amortized over the following estimated useful lives: proprietary technology, 14 ~~years,~~years; trade name, 14 ~~years,~~years; and customer relationships, 42 years.

The purchase price allocation ~~is preliminary pending~~was completed in the ~~finalization~~first quarter of 2018. No material adjustments have been made to the ~~values of intangible assets, finalization of working capital and the finalization of estimated useful lives. The~~ purchase price allocation ~~is expected to be completed by~~since the ~~fourth~~preliminary valuation performed in the second quarter of 2017. The estimated amount of the contingent consideration payable was revised during the first quarter of 2018 and resulted in a decrease in administrative expense of approximately $0.6 million.

No pro forma financial information for 2017 ~~and 2016~~ is presented as the acquisition was not material to the consolidated financial statements.

Fragrance Resources

On January 17, 2017, the Company completed the acquisition 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 accounted for under the purchase method. Fragrance Resources was acquired to strengthen the North American and German Fragrances business.

The Company paid approximately ~~Euro 142.0~~€143.4 million (approximately ~~$150.5~~$151.9 million) including approximately ~~Euro 13.7~~€13.7 million (approximately ~~$14.5~~$14.4 million) of cash acquired 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 ~~preliminary~~ fair value of existing net assets by approximately ~~$122.1~~$122.0 million. The excess was allocated principally to identifiable intangible assets including approximately ~~$59.6~~$51.7 million related to customer relationships, ~~approximately $6.1~~approximately$13.6 million related to proprietary technology and trade name, and approximately ~~$79.4~~$72.0 million of goodwill (which is not deductible for tax purposes) and approximately ~~$23.0~~$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,~~years; proprietary technology, 5 ~~years~~years; and customer relationships, 12 - 16 years.

The purchase price allocation ~~is preliminary pending~~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 ~~values~~purchase price, the allocation of ~~intangible assets, principally customer relationships, finalization of working capital calculations~~certain intangibles and the ~~finalization~~calculation of ~~estimated useful lives.~~applicable deferred taxes. The ~~purchase price allocation is expected to be completed by~~additional amortization of intangibles required as a result of the ~~third quarter of 2017.~~measurement period adjustments was not material.

No pro forma financial information for ~~2017 and~~ 2016 is presented as the acquisition was not material to the consolidated financial statements.

~~2016 Activity~~

~~David Michael~~

On October 7, 2016, the Company completed the acquisition of 100% of the outstanding shares of David Michael & Company, Inc. ("David Michael"). The acquisition was accounted for under the purchase method. David Michael was acquired to strengthen the North American flavors business. The Company paid approximately $242.6 million (including $5.1 million of cash acquired) for this acquisition, which was funded from existing resources. The preliminary purchase price allocation was updated during the first quarter of 2017, resulting in a reduction in allocation of value to customer relationships. The related reduction in amortization expense was not material to the Consolidated Statement of Comprehensive Income. The purchase price allocation was finalized during the second quarter of 2017. Additionally, during the second quarter of 2017, the Company finalized the working capital adjustment and paid an additional $0.6 million. The purchase price exceeded the fair value of existing net assets by approximately $168.7 million. The excess was allocated principally to identifiable intangible assets including approximately $50.0 million related to customer relationships, approximately $8.4 million related to proprietary technology and trade name and approximately $110.2 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 synergies from the addition of David Michael to the Company's existing Flavors business. The intangible assets are being amortized over the following estimated useful lives: trade name, 2 years, proprietary technology, 5 years and customer relationships, 18 - 20 years.

~~No pro forma financial information for 2016 is presented as the impact of the acquisition was immaterial to the Consolidated Statement of Comprehensive Income.~~

~~Note~~NOTE 4. RESTRUCTURING AND OTHER CHARGES, NET

Restructuring and ~~Other Charges, Net:~~

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

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, the Company expects to incur cumulative, pre-tax cash charges of between $30-$35 million, consisting primarily of ~~$21-~~$24-$2226 million in personnel-related costs and an estimated ~~$9-$13~~$6 million in facility-related costs, such as lease termination, and integration-related costs. ~~In addition, the Company may incur up to $5 million of accelerated depreciation.~~

The Company recorded ~~$10.1 million and $3.1~~$21.3 million of charges related to ~~personnel-related~~personnel costs and lease termination costs ~~during~~through the first ~~and second~~ quarter of ~~2017, respectively,~~2018, with the remainder of the ~~personnel-related~~personnel related and other costs expected to be recognized by the end of 2018. The Company recorded $0.7 million and $10.1 million of charges related to personnel costs and lease termination costs during the three months ended March 31, 2018 and 2017, ~~and the other costs expected to be recognized over the following six quarters.~~ respectively.

The Company made payments of ~~$2.1 million and $4.5~~$1.7 million related to severance in ~~the first and second quarters of 2017, respectively.~~2018. The overall charges were split approximately evenly between Flavors and Fragrances. 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.

~~2015 Severance Charges~~

During 2015, the Company established a series of initiatives intended to streamline its management structure, simplify decision-making and accountability, better leverage and align its capabilities across the organization and improve efficiency of its global manufacturing and operations network. As a result, the Company recorded charges for severance and related costs pertaining to approximately 150 positions that were affected. During the first quarter of 2017, the Company made payments of $0.2 million related to severance. During the second quarter of 2017, the Company recorded a credit of $2.3 million related to the reversal of severance accruals that were determined to be no longer required. No further actions are expected related to these 2015 initiatives.

Changes in employee-related restructuring liabilities during the ~~six~~three months ended ~~June 30, 2017~~,March 31, 2018, were as follows:


(DOLLARS IN THOUSANDS)	Employee-Related Costs			Other			Total			Employee-Related Costs			Other		Total
Balance at December 31, 2016	$	3,277		$	—		$	3,277
Balance at December 31, 2017										$	7,539		$	418	$	7,957
Additional charges (reversals), net	9,984			950			10,934			717			—		717
Non-cash charges	—			(950		)	(950		)	—			—		—
Payments	(6,776		)	—			(6,776		)	(1,696		)	—		(1,696		)
Balance at June 30, 2017	$	6,485		$	—		$	6,485
Balance at March 31, 2018										$	6,560		$	418	$	6,978

~~Note~~NOTE 5. ~~Goodwill and Other Intangible Assets, Net:~~GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

Movements in goodwill during ~~2017~~2018 were as follows:

(DOLLARS IN THOUSANDS) Goodwill
Balance at December 31, 2016 $ 1,000,123
Acquisitions 93,223
Foreign exchange 15,782
Other 36,037
Balance at June 30, 2017 $ 1,145,165

Other above principally represents the increase to Goodwill associated with the update of certain customer relationship assumptions in the final purchase price allocation of David Michael, as disclosed in Note 3.



(DOLLARS IN THOUSANDS)	Goodwill
Balance at December 31, 2017	$	1,156,288
Acquisitions	22
Foreign exchange	9,712
Balance at March 31, 2018	$	1,166,022

Other Intangible Assets

Other intangible assets, net ~~consist~~consisted of the following amounts:


	June 30,			December 31,			March 31,			December 31,
(DOLLARS IN THOUSANDS)	2017			2016			2018			2017
Cost
Asset Type
Customer relationships	$	407,612		$	371,270		$	414,684		$	407,636
Trade names & patents	37,817			30,679			39,556			38,771
Technological know-how	153,090			119,544			162,515			161,856
Other	24,692			24,470			24,909			24,814
Total carrying value	623,211			545,963			641,664			633,077
Accumulated Amortization
Customer relationships	(93,289		)	(82,555		)	(111,796		)	(104,800		)
Trade names & patents	(13,625		)	(12,198		)	(16,175		)	(15,241		)
Technological know-how	(71,404		)	(68,292		)	(79,929		)	(76,766		)
Other	(18,829		)	(17,135		)	(19,709		)	(20,483		)
Total accumulated amortization	(197,147		)	(180,180		)	(227,609		)	(217,290		)

Other intangible assets, net	$	426,064		$	365,783		$	414,055		$	415,787

Amortization

Amortization expense was ~~$8.5~~$9.2 million and ~~$5.1~~$7.1 million for the three months ended ~~June 30,~~March 31, 2018 and 2017, ~~and 2016, respectively and $15.6 million and $11.2 million for the six months ended June 30, 2017 and 2016,~~ respectively. Annual amortization is expected to be ~~$34.5~~$36.7 million for the full year ~~2017,~~2018, $35.2 million for the year 2019, $34.5 million for the year ~~2018, $32.9 million for the year 2019, $32.2 million for the year~~ 2020, ~~$27.5~~$29.7 million for the year 2021, ~~and $25.1~~$25.5 million for the year ~~2022.~~2022 and $25.4 million for the year 2023.

~~Note~~NOTE 6. ~~Borrowings:~~BORROWINGS

Debt consists of the following:


(DOLLARS IN THOUSANDS)	Rate		Maturities	June 30, 2017			December 31, 2016			Effective Interest Rate			March 31, 2018			December 31, 2017
Senior notes - 2007 ⁽¹⁾	6.40	%	2017-27	499,735			499,676			6.40% - 6.82%			$	249,800		$	249,765
Senior notes - 2013 ⁽¹⁾	3.20	%	2023	298,519			297,986			3.39	%		298,747			298,670
Euro Senior notes - 2016 ⁽¹⁾	1.75	%	2024	563,981			512,764			1.99	%		611,030			589,848
Senior notes - 2017 ⁽¹⁾	4.38	%	2047	492,877			—			4.50	%		492,880			492,819
Credit facility	1.13	%	2021	28,445			—			LIBOR + 1.125%		(2)	24,617			—
Commercial paper										—	%	(3)	29,926			—
Bank overdrafts and other				10,275			13,599						5,973			7,993
Deferred realized gains on interest rate swaps				379			1,346						57			57
				1,894,211			1,325,371						1,713,030			1,639,152
Less: Current portion of debt				(257,873		)	(258,516		)
Less: Short term borrowings ⁽⁴⁾													(36,819		)	(6,966		)
				$	1,636,338		$	1,066,855					$	1,676,211		$	1,632,186

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

On May 18, 2017, the Company issued $500.0 million face amount of 4.375% Senior Notes ("Senior Notes - 2017") due 2047 at a discount of $1.8 million. The Company received proceeds related to the issuance of these Senior Notes - 2017 of $493.9 million which was net of the $1.8 million discount and $4.4 million in underwriting fees (recorded as deferred financing costs). In addition, the Company incurred $0.9 million in legal and professional costs associated with the issuance and such costs were recorded as deferred financing costs. In connection with the debt issuance, the Company entered into pre-issuance hedging transactions that were settled upon issuance of the debt and resulted in a loss of approximately $5.3 million. The discount, deferred financing costs and pre-issuance hedge loss are being amortized as interest expense over the 30 year term of the debt. The Senior Notes - 2017 bear interest at a rate of 4.375% per annum, with interest payable semi-annually on June 1 and December 1 of each year, commencing on December 1, 2017. The Senior Notes - 2017 will mature on June 1, 2047.

Upon 30 days’ notice to holders of the Senior Notes - 2017, the Company may redeem the Senior Notes - 2017 for cash in whole, at any time, or in part, from time to time, prior to maturity, at redemption prices that include accrued and unpaid interest and a make-whole premium, as specified in the Indenture governing the Senior Notes - 2017. However, no make-whole premium will be paid for redemptions of the Senior Notes - 2017 on or after December 1, 2046. The Indenture provides for customary events of default and contains certain negative covenants that limit the ability of the Company and its subsidiaries to grant liens on assets, or to enter into sale-leaseback transactions. In addition, subject to certain limitations, in the event of the occurrence of both (1) a change of control of the Company and (2) a downgrade of the Senior Notes - 2017 below investment grade rating by both Moody’s Investors Services, Inc. and Standard & Poor’s Ratings Services within a specified time period, the Company will be required to make an offer to repurchase the Senior Notes - 2017 at a price equal to 101% of the principal amount of the Senior Notes - 2017, plus accrued and unpaid interest to the date of repurchase.


(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)	The effective interest rate of commercial paper issuances fluctuate as short term interest rates and demand fluctuate, and deferred debt issuance costs are immaterial. Additionally, the effective interest rate of commercial paper is not meaningful as issuances do not materially differ from short term interest rates.


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

Commercial Paper

Commercial paper issued by the Company generally has terms of 90 days or less. As of ~~June 30, 2017,~~March 31, 2018, there was $29.9 million of commercial paper outstanding and no commercial paper ~~outstanding.~~outstanding as of December 31, 2017. The revolving credit facility is used as a backstop for the Company's commercial paper program. NoThe maximum amount of commercial paper ~~was issued during~~outstanding for the ~~six~~three months ended ~~June 30, 2016.~~March 31, 2018 and 2017 was $40.0 million and $107.5 million, respectively.

~~Note~~NOTE 7. ~~Income Taxes:~~INCOME TAXES

U.S. Tax Reform

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 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, 2017~~,March 31, 2018, the Company had ~~$17.6~~$28.5 million of unrecognized tax benefits recorded in Other liabilities and ~~$5.9~~$5 million in Other current liabilities. If these unrecognized tax benefits were recognized, the effective tax rate would be affected.

At ~~June 30, 2017~~,March 31, 2018, the Company had accrued interest and penalties of ~~$1.7~~$2.3 million classified in Other liabilities and $0.5 million in Other current liabilities.

As of ~~June 30, 2017~~,March 31, 2018, the Company’s aggregate provisions for uncertain tax positions, including interest and penalties, was ~~$25.7~~$36.3 million associated with various tax positions asserted in ~~foreign~~various jurisdictions, none of which is individually material.

The Company regularly repatriates a portion of current year earnings from select non–U.S. subsidiaries. No provision is made for additional taxes on undistributed earnings of subsidiary companies that are intended and planned to 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.

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 ~~2007~~2008 to ~~2016.~~2017. Based on currently available information, we do 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.

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.

Effective Tax Rate

The effective tax rate for the three months ended ~~June 30, 2017~~March 31, 2018 was ~~22.7%~~18.5% compared with ~~23.2%~~16.4% for the three months ended ~~June 30, 2016.~~March 31, 2017. The ~~quarter-over-quarter decrease~~year-over-year increase was largely due to ~~a more favorable~~the impact of U.S. tax reform and increased loss provisions, partially offset by mix of earnings, a lower cost of repatriation (principally due to tax reform) and the ~~impact~~release of ~~the global supply chain hub, offset by unfavorable repatriation costs as compared~~a State valuation allowance that related to ~~the~~ prior year. The effective tax rate for the six months ended June 30, 2017 was 19.6% compared with 23.3% for the six months ended June 30, 2016. The year-over-year decrease was primarily due to various items (including certain non-taxable gains on foreign currency and the impact of adopting the new accounting guidance on the tax effect of stock compensation vesting), a more favorable mix of earnings and the impact of the global supply chain hub, offset by unfavorable repatriation costs as compared to the prior year.years.

~~Note~~NOTE 8. ~~Stock Compensation Plans:~~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")~~(RSUs), ~~stock options,~~ SSARs and Long-Term Incentive Plan ~~awards; liability-based~~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)	2017			2016			2017			2016			2018			2017
Equity-based awards	$	7,074		$	7,844		$	12,893		$	13,774		$	7,620		$	5,819
Liability-based awards	1,298			1,739			3,051			2,332			155			1,753
Total stock-based compensation expense	8,372			9,583			15,944			16,106			7,775			7,572
Less: tax benefit	(2,336		)	(2,816		)	(4,549		)	(4,789		)	(1,563		)	(2,213		)
Total stock-based compensation expense, after tax	$	6,036		$	6,767		$	11,395		$	11,317		$	6,212		$	5,359

~~Note~~NOTE 9. ~~Segment Information:~~SEGMENT INFORMATION

The Company is organized into two operating segments: Flavors and Fragrances. These segments align with the internal structure of the Company used to manage these businesses. Performance of these operating segments is evaluated based on segment profit which is defined as operating profit before Restructuring and other charges, ~~net,~~net; 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 ~~represent~~represents corporate and headquarters-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 operating segments.

Reportable segment information is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	2017			2016			2017			2016			2018				2017
Net sales:																��
Flavors	$	414,323		$	379,504		$	820,487		$	752,012		$	449,019			$	406,164
Fragrances	428,538			413,974			850,667			824,777			481,909				422,129
Consolidated	$	842,861		$	793,478		$	1,671,154		$	1,576,789		$	930,928			$	828,293
Segment profit:
Flavors	$	100,338		$	90,337		$	198,346		$	182,151		$	111,564			$	94,556
Fragrances	84,860			87,596			166,557			176,833			93,277				77,875
Global expenses	(13,398		)	(12,268		)	(29,594		)	(26,141		)	(23,825		)		(16,293		)
Restructuring and other charges, net ⁽¹⁾	(791		)	(182		)	(10,934		)	(283		)
Acquisition-related costs ⁽²⁾	(6,278		)	(213		)	(15,066		)	(1,249		)
Operational improvement initiative costs ⁽³⁾	(445		)	(831		)	(1,066		)	(1,099		)
Legal (charges) credits ⁽⁴⁾	(1,000		)	36			(1,000		)	1,482
Gain on sales of assets ⁽⁵⁾	68			197			89			2,910
Tax assessment ⁽⁶⁾	19			—			(5,331		)	—
Integration-related costs ⁽⁷⁾	(731		)	—			(1,923		)	—
FDA mandated product recall ⁽⁸⁾	(3,500		)	—			(3,500		)	—
Operational Improvement Initiatives (a)													(1,026		)		(621		)
Acquisition Related Costs (b)													514				(8,788		)
Integration Related Costs (c)													—				(1,192		)
Tax Assessment (d)													—				(5,350		)
Restructuring and Other Charges, net (e)													(717		)		(10,143		)
Gain on Sale of Assets													69				21
FDA Mandated Product Recall (f)													(5,000		)		—
Operating profit	159,142			164,672			296,578			334,604			174,856				130,065
Interest expense	(17,556		)	(15,060		)	(30,363		)	(27,539		)	(16,595		)		(12,807		)
Other income (expense)	454			2,438			14,312			(118		)	576				21,229
Income before taxes	$	142,040		$	152,050		$	280,527		$	306,947		$	158,837			$	138,487



~~(1)~~(a)	InFor 2018, represents accelerated depreciation related to a plant relocation in India and a lab closure in Taiwan. For 2017, ~~charges represent severance~~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 ~~2017 Productivity Program. In 2016, charges relate~~amortization of inventory "step-up" related to ~~accelerated depreciation which were recorded~~the acquisitions of David Michael and Fragrance Resources, included in ~~Cost~~cost of goods ~~sold.~~

~~(2)~~

~~Represents~~sold and transaction costs related to the acquisitions of ~~Fragrance Resources and PowderPure as well as the amortization of inventory "step-up" related to~~ David Michael, Fragrance Resources and PowderPure, included in ~~the 2017 period~~Selling and ~~expense related to the amortization of inventory "step-up" and additional transaction costs related to the acquisition of Lucas Meyer in the 2016 period.~~

	administrative expenses.
~~(3)~~	~~Represents accelerated depreciation in Hangzhou, China in both the 2017 and 2016 periods.~~


~~(4)~~	~~Represents additional charges related to litigation settlement in 2017 and income receivable from the Spanish government related to the Spanish capital tax case in 2016.~~


~~(5)~~	~~Represents gains on sale of assets in Latin America in the 2017 period and in Europe in the 2016 period.~~


~~(6)~~	~~Represents the reserve for a tax assessment related to commercial rent for prior periods.~~


~~(7)~~(c)	Represents costs related to the integration of the David Michael and Fragrance Resources ~~acquisitions in~~acquisitions.
(d)	Represents the reserve for payment of a tax assessment related to commercial rent for prior periods.
(e)	Represents severance costs related to the 2017 ~~period.~~

Productivity Program and Taiwan lab closure.

~~(8)~~(f)

Represents anmanagement's best estimate of losses related to the ~~Company's incremental direct costs and customer reimbursement obligations, in excess of the Company's sales value of the recalled products, arising from an~~previously disclosed FDA mandated recall of consumer products as a result of raw material received and identified by the Company as containing contamination. (As discussed in Note 13, the sales value of the recalled products was reserved in the first quarter of 2017). While the Company does not believe that any of the affected raw material was included in its finished products delivered to the customer, as the delivered product included raw material of the same vendor lot that tested positive, the FDA, after being notified by the Company, initiated a recall of all consumer products including raw material from the affected vendor lot due to the potential for product contamination.recall.

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 ~~June 30, 2017~~March 31, 2018 and ~~2016~~2017 were $~~244~~230.2 million and ~~$185 million, respectively and for the six months ended June 30, 2017 and 2016 were $449 million and $365~~$227.6 million, respectively. Net sales attributed to all foreign countries in total for the three months ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~ were ~~$599~~$700.7 million and ~~$608 million, respectively and for the six months ended June 30, 2017 and 2016 were $1,222 million and $1,212~~$600.7 million, respectively. No country other than the U.S. had net sales in any period presented greater than ~~10%~~6% of total consolidated net sales.

~~Note~~NOTE 10. ~~Employee Benefits:~~

EMPLOYEE BENEFITS

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


U.S. Plans	Three Months Ended June 30,						Six Months Ended June 30,
(DOLLARS IN THOUSANDS)													U.S. Plans						Location of Pension Benefit (Income)
													Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017
Service cost for benefits earned	$	698		$	772		$	1,395		$	1,543		$	596		$	698		Included as a component of Operating Profit
Interest cost on projected benefit obligation	4,561			6,006			9,122			12,013			4,790			4,560			Included as a component of Other Income (Expense), net
Expected return on plan assets	(9,246		)	(8,070		)	(18,492		)	(16,139		)	(7,739		)	(9,246		)	Included as a component of Other Income (Expense), net
Net amortization and deferrals	1,793			1,385			3,585			2,772			1,549			1,793			Included as a component of Other Income (Expense), net
Net periodic benefit cost	(2,194		)	93			(4,390		)	189
Net periodic benefit income													(804		)	(2,195		)
Defined contribution and other retirement plans	2,524			2,211			4,779			4,612			2,690			2,255			Included as a component of Operating Profit
Total expense	$	330		$	2,304		$	389		$	4,801		$	1,886		$	60

Non-U.S. Plans	Three Months Ended June 30,						Six Months Ended June 30,
(DOLLARS IN THOUSANDS)	2017			2016			2017			2016
Service cost for benefits earned	$	5,610		$	3,863		$	11,220		$	7,638
Interest cost on projected benefit obligation	3,911			6,372			7,822			12,737
Expected return on plan assets	(12,334		)	(11,985		)	(24,668		)	(23,934		)
Net amortization and deferrals	3,988			3,286			7,977			6,550
Net periodic benefit cost	1,175			1,536			2,351			2,991
Defined contribution and other retirement plans	1,616			1,763			2,913			3,470
Total expense	$	2,791		$	3,299		$	5,264		$	6,461



(DOLLARS IN THOUSANDS)	Non-U.S. Plans						Location of Pension Benefit (Income)
	Three Months Ended March 31,
	2018			2017
Service cost for benefits earned	$	4,470		$	5,514		Included as a component of Operating Profit
Interest cost on projected benefit obligation	4,338			3,848			Included as a component of Other Income (Expense), net
Expected return on plan assets	(12,032		)	(12,133		)	Included as a component of Other Income (Expense), net
Net amortization and deferrals	2,972			3,923			Included as a component of Other Income (Expense), net
Net periodic benefit (income) cost	(252		)	1,152
Defined contribution and other retirement plans	1,551			1,297			Included as a component of Operating Profit
Total expense	$	1,299		$	2,449

The Company expects to contribute a total of approximately ~~$2 - $10~~$4.1 million to its U.S. pension plans and a total of $17.1 million to its Non-U.S. Plans during ~~2017.~~2018. During the ~~six~~three months ended ~~June 30, 2017,~~March 31, 2018, no contributions were made to the qualified U.S. pension plans, ~~$29.3~~$3.3 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.

As of January 1, 2017, the Company changed its approach for calculating the discount rate which is applied to the Consolidated Balance Sheet and Consolidated Statement of Comprehensive Income from a single weighted-average discount rate approach to a multiple discount rate approach. The impact of this change for the full year 2017 is estimated to be a reduction of approximately $8 million in pension expense.

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


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	2017			2016			2017			2016			2018			2017
Service cost for benefits earned	$	221		$	214		$	442		$	429		$	195		$	221
Interest cost on projected benefit obligation	588			787			1,176			1,574			654			588
Net amortization and deferrals	(1,046		)	(1,355		)	(2,092		)	(2,710		)	(1,189		)	(1,046		)
Total postretirement benefit income	$	(237	)	$	(354	)	$	(474	)	$	(707	)	$	(340	)	$	(237	)

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, 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 $6.1 million and $7.3 million in the three months ended March 31, 2018 and 2017, respectively, compared to what the Other (income) expense, net would have been under the previous method. The retroactive $7.3 million reduction in operating profit for the three months ended March 31, 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 $3.3 million increase in selling and administrative expenses.

The Company expects to contribute approximately $5$5.0 million to its postretirement benefits other than pension plans during ~~2017~~.2018. In the ~~six~~three months ended ~~June 30, 2017, $2.2~~March 31, 2018, $0.9 million of contributions were made.

~~Note~~NOTE 11. ~~Financial Instruments:~~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 ~~our~~the Company's market assumptions. These two types of inputs create the following fair value hierarchy:

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

Level 2–2 — 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 3–3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires usthe Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. ~~We determine~~The Company determines the fair value of structured liabilities (where performance is linked to structured interest rates, inflation or currency risks) using the ~~LIBOR~~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. ~~We do~~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 1314 of our ~~2016~~2017 Form 10-K.

These valuations take into consideration ~~our~~the Company's credit risk and ~~our~~its counterparties’ credit risk. The estimated change in the fair value of these instruments due to such changes in ~~our~~its own credit risk (or instrument-specific credit risk) was immaterial as of ~~June 30, 2017~~.

March 31, 2018.

The principal amounts ~~recorded in the balance sheet (carrying amount)~~ and the estimated fair values of financial instruments at ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 consisted of the following:


	June 30, 2017				December 31, 2016				March 31, 2018				December 31, 2017
(DOLLARS IN THOUSANDS)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Principal		Fair Value		Principal		Fair Value
Cash and cash equivalents ⁽¹⁾	$	491,386	$	491,386	$	323,992	$	323,992	$	305,276	$	305,276	$	368,046	$	368,046
Credit facilities and bank overdrafts ⁽²⁾	38,720		38,720		13,599		13,599		30,589		30,589		7,993		7,993
Commercial paper ⁽²⁾									29,926		29,926		—		—
Long-term debt: ⁽³⁾
Senior notes - 2007	499,735		551,713		499,676		556,222		250,000		285,062		250,000		293,232
Senior notes - 2013	298,519		306,361		297,986		302,376		300,000		297,535		300,000		304,219
Euro Senior notes - 2016	563,981		611,397		512,764		546,006		615,400		642,921		594,400		627,782
Senior notes - 2017	492,877		511,789		—		—		500,000		497,689		500,000		525,906

_______________________


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


(2)	The carrying amount ~~of our credit facilities, bank overdrafts and commercial paper~~ 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 ~~our~~the Company's long-term debt was calculated using discounted cash flows applying current interest rates and current credit spreads based on ~~our~~its own credit risk.

Derivatives

The Company periodically enters into foreign currency forward contracts with the objective of reducing exposure to cash flow volatility associated with ~~our~~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~~three months ended ~~June 30, 2017~~March 31, 2018 and the year ended December 31, ~~2016~~,2017, the Company entered into several forward currency contracts which qualified as net investment hedges, in order to mitigate a portion of ~~our~~its net European investments from foreign currency risk. The effective portions of net investment hedges are recorded in ~~Other~~other comprehensive income (“OCI”) as a component of Foreign currency translation adjustments in the accompanying Consolidated Statement of Income and Comprehensive Income. Realized ~~gains~~ gains/(losses) are deferred in accumulated other comprehensive income (loss) ("AOCI") where they will remain until the net investments in ~~our~~the Company's European subsidiaries are divested. The outstanding forward currency contracts have remaining maturities of ~~approximately~~less than one year. ~~Ten~~Three of these forward currency contracts matured during the ~~six~~three months ended ~~June 30, 2017.~~

March 31, 2018.

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 ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 and the year ended December 31, ~~2016~~,2017, 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)~~("USD") denominated raw material purchases made by Euro ~~(EUR)~~("EUR") functional currency entities which result from changes in the EUR/USD exchange rate. The effective portions of cash flow hedges are recorded in OCI as a component of ~~gains/(losses)~~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 Company ~~has entered into~~maintains various interest rate swap agreements that effectively ~~converted~~convert the fixed rate on a portion of ~~our~~its long-term borrowings to a variable short-term rate based on the LIBOR plus an interest markup. These swaps are designated as fair value hedges. Amounts recognized in Interest expense were immaterial for the three ~~and six~~ months ended ~~June 30,~~March 31, 2018 and 2017.

During the first quarter of 2016, the Company entered into and terminated two Euro interest rate swap agreements to hedge the anticipated issuance of fixed-rate debt. These swaps were designated as cash flow hedges. The effective portions of cash flow hedges are recorded in OCI as a component of Losses on derivatives qualifying as hedges in the accompanying Consolidated Statement of Comprehensive Income. The Company incurred a loss of Euro 2.9 million ($3.2 million) due to the termination of these swaps. The loss is being amortized as interest expense over the life of the Euro Senior Notes - 2016 as discussed in Note 6.

~~During the fourth quarter of 2016 and the first quarter of 2017, the Company~~has previously entered into interest rate swap agreements to hedge the anticipated issuance of fixed-rate debt, which are designated as cash flow hedges. The ~~various hedge instruments were settled~~amount of gains and losses realized upon ~~issuance~~termination of ~~the debt on May 18, 2017 and resulted in a loss of approximately $5.3 million. As discussed in Note 6, the loss~~these agreements is ~~being~~ amortized ~~as interest expense~~ over the life of the ~~Senior Notes - 2017.~~

~~The effective portions of cash flow hedges are recorded in OCI as a component of Losses/gains on derivatives qualifying as hedges in the accompanying Consolidated Statement of Comprehensive Income.~~corresponding debt issuance.

The following table shows the notional amount of the Company’s derivative instruments outstanding as of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~:2017:

(DOLLARS IN THOUSANDS) June 30, 2017 December 31, 2016
Foreign currency contracts $ 687,437
$ 527,500
Interest rate swaps 350,000
412,500



(DOLLARS IN THOUSANDS)	March 31, 2018		December 31, 2017
Forward currency contracts	$	777,134	$	896,947
Interest rate swaps	$	150,000	$	150,000

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 ~~Sheets~~Sheet as of ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017:


	June 30, 2017						March 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	$	927	$	8,055	$	8,982	$	1,053	$	6,307	$	7,360
	$	927	$	8,055	$	8,982
Derivative liabilities ^(b)
Foreign currency contracts	$	7,020	$	8,852	$	15,872	$	6,425	$	743	$	7,168
Interest rate swaps	158		—		158		3,169		—		3,169
	$	7,178	$	8,852	$	16,030
Total Derivative liabilities							$	9,594	$	743	$	10,337


	December 31, 2016						December 31, 2017
(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	$	13,765	$	7,737	$	21,502	$	1,159	$	3,978	$	5,137
Interest rate swaps	335		—		335
	$	14,100	$	7,737	$	21,837
Derivative liabilities ^(b)
Foreign currency contracts	$	46	$	2,209	$	2,255	$	7,842	$	4,344	$	12,186
Interest rate swaps	725		—		725		1,369		—		1,369
	$	771	$	2,209	$	2,980
Total Derivative liabilities							$	9,211	$	4,344	$	13,555

_______________________


(a)	Derivative assets are recorded to Prepaid expenses and other current 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, 2018 and 2017 ~~and~~ ~~2016~~ (in thousands):

Derivatives Not Designated as Hedging Instruments Amount of Gain (Loss)
Recognized in Income on
Derivative
Location of Gain (Loss)
Recognized in Income
on Derivative
Three Months Ended June 30,
2017 2016
Foreign currency contracts $ (3,054 ) $ 1,395
Other (income) expense, net
Derivatives Not Designated as Hedging Instruments Amount of Gain (Loss)
Recognized in Income on
Derivative
Location of Gain (Loss)
Recognized in Income
on Derivative
Six Months Ended June 30,
2017 2016
Foreign currency contracts $ (13,181 ) $ (3,548 ) Other (income) expense, net



	Amount of Gain (Loss)						Location of Gain (Loss) Recognized in Income on Derivative
(DOLLARS IN THOUSANDS)	For the Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	2018			2017
Foreign currency contract	$	(3,615	)	$	(10,127	)	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.

The following table shows the effect of the Company’s derivative instruments designated as cash flow and net investment hedging instruments, net of tax, in the Consolidated ~~Statements~~Statement of Income and Comprehensive Income for the three ~~and six~~ months ended ~~June 30, 2017~~March 31, 2018 and ~~2016~~2017 (in thousands):


	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)						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)
	Three Months Ended June 30,							Three Months Ended June 30,						Three Months Ended March 31,								Three Months Ended March 31,
	2017			2016				2017			2016			2018			2017				2018				2017
Derivatives in Cash Flow Hedging Relationships:
Foreign currency contracts	$	(6,328	)	$	612		Cost of goods sold	$	1,789		$	2,736		$	(743	)	$	(2,948	)		Cost of goods sold		$	(2,193	)		$	458
Interest rate swaps ⁽¹⁾	(5,439		)	171			Interest expense	(186		)	(171		)	216			1,213			Interest expense		$	(216	)		(188		)
Derivatives in Net Investment Hedging Relationships:
Foreign currency contracts	(2,082		)	1,934			N/A	—			—			(696		)	(1,046		)	N/A		—				—
Euro Senior notes - 2016	(19,780		)	9,649			N/A	—			—			(15,977		)	(11,409		)	N/A		—				—
Total	$	(33,629	)	$	12,366			$	1,603		$	2,565		$	(17,200	)	$	(14,190	)			$	(2,409	)		$	270

	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,
	2017			2016				2017			2016
Derivatives in Cash Flow Hedging Relationships:
Foreign currency contracts	$	(9,276	)	$	(6,391	)	Cost of goods sold	$	2,247		$	5,352
Interest rate swaps ⁽¹⁾	(4,243		)	(3,001		)	Interest expense	(357		)	(257		)

Derivatives in Net Investment Hedging Relationships:
Foreign currency contracts	(3,128		)	(470		)	N/A	—			—
Euro Senior notes - 2016	(31,189		)	9,649			N/A	—			—
Total	$	(47,836	)	$	(213	)		$	1,890		$	5,095

_______________________


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

~~(1) Interest rate swaps were entered into as pre-issuance hedges.~~

~~No ineffectiveness was experienced in~~The ineffective portion of the above noted cash flow orhedges and net investment hedges were not material during the three ~~and six~~ months ended ~~June 30, 2017~~March 31, 2018 and ~~2016~~.2017.

The Company expects that approximately ~~$2.9~~$6.4 million (net of tax) of derivative ~~gains~~loss included in AOCI at ~~June 30, 2017~~,March 31, 2018, 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~~NOTE 12. ~~Accumulated Other Comprehensive Income (Loss):~~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:


	Foreign Currency Translation Adjustments			(Losses) Gains on Derivatives Qualifying as Hedges			Pension and Postretirement Liability Adjustment			Total
(DOLLARS IN THOUSANDS)													Foreign Currency Translation Adjustments			(Losses) Gains 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		)	(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	)


	Foreign Currency Translation Adjustments			(Losses) Gains on Derivatives Qualifying as Hedges			Pension and Postretirement Liability Adjustment			Total
(DOLLARS IN THOUSANDS)													Foreign Currency Translation Adjustments				(Losses) Gains on Derivatives Qualifying as Hedges			Pension and Postretirement Liability Adjustment			Total
Accumulated other comprehensive (loss) income, net of tax, as of December 31, 2015	$	(297,499	)	$	9,401		$	(325,342	)	$	(613,440	)
Accumulated other comprehensive (loss) income, net of tax, as of December 31, 2016													$	(352,025	)		$	7,604		$	(335,674	)	$	(680,095	)
OCI before reclassifications	9,389			(4,297		)	—			5,092			8,957				(1,481		)	—			7,476
Amounts reclassified from AOCI	—			(5,095		)	5,133			38			(12,214		)	(a)	(270		)	3,635			(8,849		)
Net current period other comprehensive income (loss)	9,389			(9,392		)	5,133			5,130			(3,257		)		(1,751		)	3,635			(1,373		)
Accumulated other comprehensive (loss) income, net of tax, as of June 30, 2016	$	(288,110	)	$	9		$	(320,209	)	$	(608,310	)
Accumulated other comprehensive (loss) income, net of tax, as of March 31, 2017													$	(355,282	)		$	5,853		$	(332,039	)	$	(681,468	)

_______________________

(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, 2017			Six Months Ended June 30, 2016			Affected Line Item in the Consolidated Statement of Comprehensive Income	Three Months Ended March 31,						Affected Line Item in the Consolidated Statement of Income and Comprehensive Income
(DOLLARS IN THOUSANDS)								2018			2017
(Losses) gains on derivatives qualifying as hedges
Foreign currency contracts	$	2,568		$	6,117		Cost of goods sold	$	(2,506	)	$	524		Cost of goods sold
Interest rate swaps	(357		)	(257		)	Interest expense	(216		)	(188		)	Interest expense
	(321		)	(765		)	Provision for income taxes
	$	1,890		$	5,095		Total, net of income taxes
Tax								313			(66		)	Provision for income taxes
Total								$	(2,409	)	$	270		Total, net of income taxes
(Losses) gains on pension and postretirement liability adjustments
Prior service cost	$	(3,512	)	$	3,735		^(a)	$	1,772		$	1,753		(a)
Actuarial losses	(12,982		)	(10,347		)	^(a)	(5,103		)	(6,423		)	(a)
	9,171			1,479			Provision for income taxes
	$	(7,323	)	$	(5,133	)	Total, net of income taxes
Tax								702			1,035			Provision for income taxes
Total								$	(2,629	)	$	(3,635	)	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 14 of our ~~2016~~2017 Form 10-K for additional information regarding net periodic benefit cost.

~~Note~~NOTE 13. ~~Commitments and Contingencies:~~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, 2017~~,March 31, 2018, we had total bank guarantees and standby letters of credit of approximately ~~$37.1~~$51.7 million with various financial institutions. Included in the above aggregate amount is a total of ~~$15.9~~$15.7 million ~~in bank guarantees which the Company has posted~~ for ~~certain~~other assessments in Brazil for ~~other diverse~~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, 2017~~.March 31, 2018.

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 ~~$15.2~~$15.9 million as of ~~June 30, 2017.~~March 31, 2018.

Lines of Credit

The Company has various lines of credit which are available to support its ongoing business operations. At ~~June 30, 2017~~,As of March 31, 2018, we had available lines of credit ~~(in~~of approximately $106.4 million with various financial institutions, in addition to the ~~$921.6~~$950 million of capacity under the Credit Facility discussed in Note 9 of our ~~2016~~2017 Form ~~10-K) of approximately~~ ~~$75.0 million~~ ~~with various financial institutions.~~10-K. There were no ~~significant~~material amounts drawn down pursuant to these lines of credit as of ~~June 30, 2017~~.March 31, 2018.

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~~Consolidated Financial Statements if it is probable that a liability ~~has been~~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, ~~we assess our~~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 ~~our~~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 ~~has been~~will be incurred and if so, whether the amount of loss can be reasonably estimated. ~~We record~~The Company records the expected liability with respect to claims in Other liabilities and expected recoveries from ~~our~~its insurance carriers in Other assets. ~~We recognize~~The Company recognizes a receivable when ~~we believe~~it believes that realization of the insurance receivable is probable under the terms of the insurance policies and ~~our~~its payment experience to date.

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

$5 million.

While joint and several liability is authorized under federal and state environmental laws, ~~we believe~~the Company believes the amounts ~~we have~~it has paid and ~~anticipate~~anticipates 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~~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 usthe Company to materially increase the amounts ~~we anticipate~~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 ~~our~~its financial condition, results of operations or cash flows.

China Facilities

Guangzhou Flavors plant

During 2015, the Company was notified by Chinese authorities of compliance issues pertaining to the emission of odors from several of its plants in China. As a result, the Company's Guangzhou Flavors plant in China was temporarily idled. The Company has made additional capital improvements in odor-abatement equipment at these plants to address these issues and is in the process of building a second Flavors plant in China, which is expected to begin operating in the first quarter of 2019.

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 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 ~~$67~~$70 million as of ~~June 30, 2017.~~March 31, 2018.

Zhejiang Ingredients plant

~~The~~In the fourth quarter of 2017, the Company ~~has received a request from~~concluded discussions with the ~~Chinese~~ government ~~to relocate~~regarding the relocation of its Fragrance Ingredients plant in Zhejiang ~~China.~~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 isreceived the first payment of $15 million in ~~discussions with~~ the ~~government regarding~~fourth quarter of 2017. No additional amounts have been received in the ~~timing~~first quarter of ~~the requested relocation and the amount and nature of government compensation to be provided to the Company. The Company expects to conclude discussions with the Government in 2017.~~ 2018.

The net book value of the current plant was approximately $25 million as of ~~June 30, 2017. Depending upon the ultimate outcome~~March 31, 2018. The Company expects to relocate approximately half of production capacity of the ~~discussions with~~facility by the ~~Chinese government, between $0-25 million~~middle of 2019 and the remainder of the ~~remaining net book value may be subject to accelerated depreciation.~~production capacity of the facility by the middle of 2020.

Total China Operations

The total ~~carrying~~net book value of ~~our six existing~~all five plants in China ~~(two~~(one of which ~~are~~is currently under construction) was approximately ~~$139~~$160 million as of ~~June 30, 2017.~~March 31, 2018.

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 ~~we operate~~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, ~~we believe we have~~the Company believes it has valid defenses for the underlying positions under dispute; however, in order to pursue these defenses, ~~we are~~the Company is required to, and ~~have~~has provided, bank guarantees and pledged assets in the aggregate amount of ~~$31.1~~$31.6 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 the Company in 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, the Company filed a counterclaim against ZoomEssence alleging trade secret misappropriation, breach of contract, breach 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 Company recorded an additional charge of $1$1.0 million during the second quarter of 2017.

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. ~~As previously disclosed, in~~In the first quarter of 2017, the Company was made aware of a claim for product that was subject to aan FDA-mandated product recall. As of ~~June 30, 2017,~~March 31, 2018, the Company had recorded a total ~~charge~~charges of approximately ~~$5.3~~$17.5 million with respect to this ~~claim. In addition to the charge~~claim, of ~~$1.8~~which $5.0 million was recorded in the ~~first quarter~~three months ended March 31, 2018. The Company settled the claim with the customer for a total of ~~2017, an additional $3.5~~$16.0 million, of which $13.0 million was ~~recorded~~paid during the ~~second quarter~~three months ended March 31, 2018. The remaining accrual of ~~2017. The second~~

~~quarter charge reflects additional information on specific volumes of affected products, which information became available in the second quarter of 2017. This amount principally~~approximately $1.5 million represents ~~an accrual for the claim based on~~ management's best estimate of volumes of customer products subject to the recall. Additionally, appropriate reserves have been established for all remaining inventory at the Company's manufacturing site. While it is probable that the Company will incur additional losses related to this claim, the amount of the ultimate claim that will be paid is not currently estimable as the following information is not yet available: details as to the amount of product that will ultimately be returned and the customer’s direct manufacturing andclaims from other production costs; costs related to the customer’s recall efforts; costs to dispose of defective product; and other claims that the customer may make. While it is not currently possible to estimate the amount of losses, such losses when recorded will affect income from operations in future individual quarters.affected parties. The Company does not believe that the ultimate settlement of the claim will have a material impact on its financial condition. Separately, the Company expects to pursue reimbursement of all or a portion of costs, once incurred, from its insurance company and/or the supplier; however, the nature, timing and amount of any 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 ~~estimable~~ losses in excess of any accrued liabilities is $0 to approximately $8$12 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.

~~We are also~~

NOTE 14. SUBSEQUENT EVENTS

On May 7, 2018, the Company entered into a ~~party~~definitive agreement and plan of merger to acquire Frutarom Industries Ltd. (“Frutarom”). Frutarom is a flavors, savory solutions and natural ingredients company with production and development centers on six continents, that is traded on the Tel Aviv and London Stock Exchanges. The transaction is targeted to close in six to nine months, has been unanimously approved by the Boards of Directors of both companies and is subject to approval by Frutarom shareholders, clearance by the relevant regulatory authorities and other ~~litigation 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.~~customary closing conditions.

Under the terms of the merger agreement, for each share of outstanding stock, Frutarom shareholders will receive $71.19 in cash and 0.2490 of a share of the Company's common stock, which, based on the 10-day volume weighted average price for the Company's common stock for the period ending May 4, 2018, represents a total value of $106.25 per share. The transaction is valued 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 with cash on hand, new mid-term and long-term bonds, term loans and an issuance of equity. 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 number of Frutarom shares of common stock outstanding as of May 4, 2018, the Company anticipates issuing approximately 18.9% of its issued and outstanding shares of common stock as the stock portion of merger consideration. 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 $5.5 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 merger.

~~Item~~ITEM 2. ~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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

Overview

Company background

We are a leading innovator of ~~sensorial~~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. ~~We operate in two business segments, Flavors~~Our flavors and ~~Fragrances.~~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 business consists of Fragrance Compounds and Fragrance Ingredients. Our Fragrance Compounds are ~~organized~~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. ~~Also included in the Fragrances business unit are~~ Fragrance Ingredients ~~consisting~~consist of cosmetic active and functional ~~ingredients. Fragrance Ingredients~~ingredients that are used internally and sold to third parties, including customers and competitors, ~~for use~~and are included in ~~preparation of compounds.~~the Fragrances business unit.

The flavors and fragrances market is part of a larger market which supplies a wide variety of ingredients and compounds that are used in consumer products. The broader market includes large ~~multi-national~~multinational companies and smaller regional and local participants ~~that~~which supply products such as seasonings, texturizers, spices, enzymes, certain food-related commodities, fortified products and active cosmetic ingredients. The global market for flavors and fragrances has expanded consistently, primarily as a result of an increase in demand for, as well as an increase in the variety of, consumer products containing flavors and fragrances. In ~~2016~~2017, the flavors and fragrances ~~and cosmetic actives and functional ingredients~~ market ~~in which we compete,~~ was estimated by management to be approximately ~~$20.0~~$24.8 billion and is forecasted to grow approximately 2-3% by ~~2020,~~2021, primarily driven by expected growth in emerging markets; however the exact size of the global market is not available due to fragmentation of data. We, together with the other top three companies, are estimated to represent approximately two-thirds of the total estimated sales in the global flavors and fragrances sub-segment of the broader market.markets.

Development of new flavors and fragrance compounds is driven by a variety of sources, including requests from our customers who are in need of a specific 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 in partnership with our scientists and researchers to optimize the consumer appeal of the flavor or fragrance. It then becomes a collaborative process ~~between~~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 ~~April~~May 7, ~~2017,~~2018, we ~~completed~~entered into a definitive agreement and plan of merger to acquire Frutarom Industries Ltd. (“Frutarom”). Frutarom is a flavors, savory solutions and natural ingredients company with production and development centers on six continents, that is traded on the ~~acquisition~~Tel Aviv and London Stock Exchanges. The transaction is targeted to close in six to nine months, has been unanimously approved by the Boards of ~~Columbia PhytoTechnology, LLC d/b/a PowderPure ("PowderPure"), a processor~~Directors of all-natural food ingredients, for approximately $55.0 million. The purchase price was funded from existing resources including drawdown on our credit facility and proceeds from commercial paper. This acquisition was accounted for as a business combinationboth companies and is subject to approval by Frutarom shareholders, clearance by the relevant regulatory authorities and other customary closing conditions. The transaction is valued 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 14 to the Consolidated Financial Statements for further details.

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 ~~expected~~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 Footnote 10 to the Consolidated ~~Statement~~Financial Statements, the net effect of ~~Comprehensive Income for 2017.~~

~~On January 17, 2017, we completed~~ the ~~acquisition of Fragrance Resources, a creator of specialty fine fragrances, for approximately Euro 142.0 million (approximately $150.5 million). The purchase price~~change was ~~funded from existing resources including drawdown on our credit facility~~to decrease operating profit and proceeds from commercial paper. The acquisition strengthened our fragrances market position in North America and Germany. This acquisition was accounted for as a business combination and is not expected to have a material impact on the Consolidated Statement of Comprehensive Income for 2017.

~~2017 Overview~~increase Other income.

Net sales during the ~~second~~first quarter of ~~2017~~2018 increased 6%12% on a reported basis and 8%7% on a currency neutral basis (which excludes the effects of changes in currency) versus the ~~2016~~2017 period, with the effect of acquisitions ~~contributing approximately 6%~~being immaterial to both reported and currency neutral growth rates. ~~Sales~~Reported and currency neutral sales growth ~~excluding acquisitions, reflects new win performance (net of losses) partially offset~~was driven by ~~volume declines on existing business~~higher volumes, primarily in ~~both Flavors~~Fragrances, and ~~Fragrances.~~favorable pricing, primarily in Flavors.

Exchange rate ~~fluctuations had~~variations did not have a ~~200 basis point (bps) unfavorable~~material impact on ~~net sales~~Net income for the ~~second quarter, due to the strengthening of the U.S. dollar.~~first quarter. The effect of exchange rates can vary by business and region, depending upon the mix of sales by destination country as well as the relative percentage of local sales priced in U.S. dollars versus local currencies.

Gross margins decreased ~~year-over-year~~ to ~~44.4%~~43.6% in the ~~second~~first quarter of ~~2017~~2018 from ~~46.1%~~43.8% in the ~~2016~~2017 period, driven primarily by unfavorable price versus input costs, ~~and weaker sales mix~~the effect of foreign currency conversion, which were only partially offset by cost savings and productivity ~~initiatives and the impact of acquisitions.~~initiatives. Included in the ~~second~~first quarter of ~~2017~~2018 were ~~$9.6~~$0.5 million of operational improvement costs and $5.0 million related to an FDA mandated product recall compared to $6.0 million of acquisition-related amortization of inventory "step-up" costs, ~~costs associated with product recalls,~~ operational improvement initiative costs and integration-related ~~costs compared to $1.0 million of operational improvement initiative and restructuring~~ costs included in the ~~second~~first quarter of ~~2016.~~2017. Excluding these items, gross margin decreased 6040 bps compared to the prior year period. The ~~overall~~ raw material cost ~~base continues to be relatively stable, but~~environment continued its recent upward ~~trending.~~trend. We believe that in 2018 we will continue to see higher prices ~~in 2017~~ on certain categories (such as vanilla and citrus), increases related to turpentine and oil derived materials and higher costs on a key ingredient due to ~~a lesser extent oil-based derivatives.~~the BASF supply disruption related to one of our key ingredients (as discussed in our 2017 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~~first quarter of ~~2017~~2018 increased approximately ~~6%.~~12% as compared to the 2017 period. We continued to benefit from our diverse portfolio of end-use product categories and geographies and had currency neutral growth in ~~three of our~~all four regions and all four of our Flavors end-use product categories. Sales growth ~~excluding acquisitions~~ was driven by new win performance ~~partially offset by volume declines on existing business~~(net of losses) in both Flavors and ~~Fragrances.~~Fragrances, and price increases in Flavors. Flavors achieved ~~reported~~ sales growth of 9%11% on a reported basis and 6% on a currency neutral ~~growth of~~ ~~11%~~,basis, with the effect of acquisitions contributing approximately 7%1% to both reported and currency neutral growth rates. Fragrances achieved reported sales growth of 4%14% and currency neutral sales growth of ~~5%, with the effect of acquisitions contributing approximately 4% to both reported and currency neutral growth rates.~~8%. Additionally, Fragrance Ingredients sales were up 7%26% on a reported basis and 9%18% on a currency neutral basis. Overall, our ~~second~~first quarter ~~2017~~2018 results ~~reflected flat sales growth from~~continued to be driven by our strong emerging ~~markets and 3% growth from developed markets which each~~market presence that represented ~~50%~~47% of total ~~sales.~~sales and experienced 10% reported and 6% currency neutral growth in the first quarter 2018. From a geographic perspective, for the ~~second~~first quarter of ~~2017,~~2018, North America ~~(NOAM)~~("NOAM"), Europe, Africa and the Middle East ~~(EAME) and~~("EAME"), Latin America ~~(LA)~~("LA") and Greater Asia ("GA") all delivered sales growth, led by ~~NOAM~~EAME with ~~19%. Greater Asia (GA) sales declined 3%.~~20% reported and 7% currency neutral growth.

Operating profit

Operating profit ~~decreased $5.5~~increased $44.8 million to ~~$159.1~~$174.9 million ~~(18.9%~~(18.8% of sales) in the ~~2017 second~~2018 first quarter compared to ~~$164.7~~$130.1 million ~~(20.8%~~(15.7% of sales) in the comparable ~~2016~~2017 period. The ~~second~~first quarter of ~~2017~~2018 included ~~$12.7~~$6.2 million of ~~acquisition-related costs, costs associated with product recalls, legal~~ charges ~~restructuring, integration-related and~~related to operational improvement ~~initiative~~initiatives, acquisition related costs, ~~as well as gains~~a gain on ~~sales~~sale of ~~fixed~~ assets, restructuring and other charges, net and an FDA mandated product recall as compared to ~~$1.0~~$26.1 million of ~~acquisition-related,~~charges related to operational improvement initiatives, acquisition related costs, integration related costs, a tax assessment and restructuring and ~~operational improvement initiative costs~~other charges, net which were partially offset by ~~gains~~a gain on ~~sales~~sale of ~~fixed~~ assets ~~and a favorable legal settlement~~ in the ~~prior year~~2017 period. Excluding these charges, adjusted operating profit was ~~$171.8~~$181.0 million ~~(20.4%~~(19.4% of sales) for the ~~second~~first quarter of ~~2017,~~2018, an increase from ~~$165.7~~$156.1 million ~~(20.9%~~(18.9% of sales) for the ~~second~~first quarter of ~~2016.~~2017, principally driven by volume growth, favorable sales mix, and productivity initiatives which more than offset incentive compensation and the impact of the BASF supply chain disruption. Foreign currency changes had a ~~2.5%~~4% favorable impact on operating profit in the 2018 period compared to a 5% unfavorable impact on operating profit in the 2017 ~~period compared to no impact on operating profit in the 2016 period versus the 2015~~ period.

Other (income) expense, net

Other (income) expense, net decreased ~~$2.0~~$20.7 million to ~~$0.5~~$0.6 million of income in the ~~second~~first quarter of ~~2017~~2018 compared to ~~$2.4~~$21.2 million of income in the ~~second~~first quarter of ~~2016.~~2017. The year-over-year decrease was primarily driven by ~~unfavorable year-over-year~~ foreign exchange ~~gains/(losses)~~losses and the release of a currency translation adjustment ("CTA") upon the liquidation of a foreign entity in 2017.

Net income

Net income ~~decreased~~increased by ~~$6.9~~$13.7 million quarter-over-quarter to ~~$109.8~~$129.4 million for the ~~second~~first quarter of 2018 from $115.8 million in the 2017 period, driven by the factors discussed above.

Cash flows

Cash flows used from operations for the ~~six~~three months ended ~~June 30, 2017 were $57.9~~March 31, 2018 was $11.4 million or ~~7.0%~~1.2% of sales, compared to ~~$172.3~~cash flows provided by operations of $18.5 million or ~~22.0%~~2.2% of sales for the ~~six~~three months ended ~~June 30, 2016.~~March 31, 2017. The ~~decrease~~change in cash flows from operations in ~~2017~~2018 was principally driven by ~~payment~~higher core working capital requirements, the effect of a ~~litigation settlement~~payment for a product claim and the timing of ~~$56 million (as discussed in Note 13 to the Consolidated Financial Statements), lower net income and higher incentive compensation payments~~certain other items for the ~~2017~~2018 period as compared to the ~~2016~~2017 period.

Results of Operations


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended March 31,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)	2017			2016			Change		2017			2016			Change		2018			2017			Change
Net sales	$	842,861		$	793,478		6	%	$	1,671,154		$	1,576,789		6	%	$	930,928		$	828,293		12	%
Cost of goods sold	468,272			427,837			9	%	931,899			850,940			10	%	525,119			465,210			13	%
Gross profit	374,589			365,641					739,255			725,849					405,809			363,083
Research and development (R&D) expenses	70,320			63,252			11	%	140,031			126,637			11	%	78,476			72,126			9	%
Selling and administrative (S&A) expenses	135,910			132,784			2	%	276,240			256,327			8	%	142,644			143,704			(1	)%
Amortization of acquisition-related intangibles	8,494			5,130			66	%	15,561			11,191			39	%	9,185			7,066			30	%
Restructuring and other charges, net	791			—			100	%	10,934			—			100	%	717			10,143			(93	)%
Gain on sales of fixed assets	(68		)	(197		)	(65	)%	(89		)	(2,910		)	(97	)%	(69		)	(21		)	229	%
Operating profit	159,142			164,672					296,578			334,604					174,856			130,065
Interest expense	17,556			15,060			17	%	30,363			27,539			10	%	16,595			12,807			30	%
Other (income) expense	(454		)	(2,438		)	(81	)%	(14,312		)	118			(12,229	)%
Other (income) expense, net																	(576		)	(21,229		)	(97	)%
Income before taxes	142,040			152,050					280,527			306,947					158,837			138,487
Taxes on income	32,245			35,317			(9	)%	54,968			71,610			(23	)%	29,421			22,723			29	%
Net income	$	109,795		$	116,733		(6	)%	$	225,559		$	235,337		(4	)%	$	129,416		$	115,764		12	%
Diluted EPS	$	1.38		$	1.46		(5	)%	$	2.84		$	2.93		(3	)%	$	1.63		$	1.45		12	%
Gross margin	44.4		%	46.1		%	(170	)	44.2		%	46.0		%	(180	)	43.6		%	43.8		%	(20	)
R&D as a percentage of sales	8.3		%	8.0		%	30		8.4		%	8.0		%	40		8.4		%	8.7		%	(30	)
S&A as a percentage of sales	16.1		%	16.7		%	(60	)	16.5		%	16.3		%	20		15.3		%	17.3		%	(200	)
Operating margin	18.9		%	20.8		%	(190	)	17.7		%	21.2		%	(350	)	18.8		%	15.7		%	310
Adjusted operating margin ⁽¹⁾	20.4		%	20.9		%	(50	)	20.1		%	21.1		%	(100	)	19.4		%	18.9		%	50
Effective tax rate	22.7		%	23.2		%	(50	)	19.6		%	23.3		%	(370	)	18.5		%	16.4		%	210
Segment net sales
Flavors	$	414,323		$	379,504		9	%	$	820,487		$	752,012		9	%	$	449,019		$	406,164		11	%
Fragrances	428,538			413,974			4	%	850,667			824,777			3	%	481,909			422,129			14	%
Consolidated	$	842,861		$	793,478				$	1,671,154		$	1,576,789				$	930,928		$	828,293

(1)

Adjusted operating margin excludes ~~$12.7~~$6.2 million ~~consisting~~ of ~~acquisition-related costs, costs associated with product recalls, legal~~ charges ~~restructuring, integration-related and~~related to operational improvement ~~initiative~~initiatives, restructuring and other charges, net, acquisition related costs, ~~as well as gains~~gain on ~~sales~~sale of ~~fixed~~assets and an FDA mandated product recall for the three months ended March 31, 2018, and excludes $26.1 million of charges related to operational improvement initiatives, acquisition related costs, integration related costs, tax assessment, restructuring and other charges, net and gain on sale of assets for the three months ended June 30, 2017 and excludes $1.0 million related to operational improvement initiative, acquisition-relation and restructuring costs which were partially offset by gains on sales of fixed assets and a favorable legal settlement for the three months ended June 30, 2016. For the six months ended June 30, 2017 adjusted operating margin 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 assets and excludes a benefit of $1.8 million related to gains on sales of fixed assets and a favorable legal settlement, which were only partially offset by acquisition-related, operational improvement initiative and restructuring costs for the six months ended June 30, 2016.March 31, 2017. See "Non-GAAP Financial Measures" below.

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

~~SECOND~~FIRST QUARTER ~~2017~~2018 IN COMPARISON TO ~~SECOND~~FIRST QUARTER ~~2016~~2017

Sales

Sales for the ~~second~~first quarter of ~~2017~~2018 totaled ~~$842.9~~$930.9 million, an increase of ~~6% from~~12% on a reported basis and 7% on a currency neutral basis as compared to the prior year quarter. ~~On a currency neutral basis sales increased 8%.~~ Sales growth ~~reflected~~was driven by new win performance ~~partially offset by volume declines on existing business~~(net of losses) in both Flavors and ~~Fragrances. On both a reported~~Fragrances and ~~currency neutral basis, acquisitions accounted for approximately 6% of the net sales growth.~~price increases in Flavors.

Flavors Business Unit

Flavors ~~reported sales increased 9% from the prior year period while currency neutral~~ sales increased 11% ~~during~~on a reported basis and 6% on a currency neutral basis for the ~~second~~first quarter of ~~2017~~2018 compared to the ~~2016 period.~~first quarter of 2017. Acquisitions accounted for approximately 7%1% of the net sales growth on both a reported ~~basis~~ and ~~approximately 8% on~~ a currency neutral basis. Sales growth excluding acquisitions reflected new win performance ~~which was~~ and favorable price increases,

partially offset by lower volume declines on existing business. Overall growth was primarily driven by low to high single-digit growth in all four Flavors end-use ~~categories. The Flavors business delivered sales growth in NOAM, LA and EAME,~~categories, led by ~~NOAM, and experienced sales declines in GA. Sales in NOAM, which included the impact of acquisitions, were led by high~~mid single-digit growth in ~~Savory. LA sales were led by double-digit gains in Savory and Sweet and high single-digit gains in Beverage. Sales in EAME were driven by high single-digit gains in~~ Dairy and ~~mid single-digit gains in Beverage and Sweet. GA sales declines were driven by mid to high single-digit declines in Sweet and Dairy.~~Savory.

Fragrances Business Unit

Fragrances sales increased 4%14% on a reported basis and 5%8% on a currency neutral basis for the ~~second~~first quarter of ~~2017~~2018 compared to the ~~second~~first quarter of ~~2016. Acquisitions accounted for approximately 4% of both reported~~2017. Reported sales growth reflected volume growth on existing business and ~~currency neutral sales growth. Excluding the effect of acquisitions, reported sales were flat reflecting~~ new win ~~performance offset~~performance. Overall growth was primarily driven by ~~volume declines on existing business. Net sales reflected~~ double-digit growth in ~~Fine Fragrances~~Fragrance Ingredients, and by low single-digit to high single-digit growth in ~~Fragrance Ingredients which were offset by double-digit declines in Hair Care and high single-digit declines in Toiletries.~~all end-use categories.

Sales Performance by Region and Category


		% Change in Sales - Second Quarter 2017 vs. Second Quarter 2016													% Change in Sales - First Quarter 2018 vs. First Quarter 2017
		Fine Fragrances		Consumer Fragrances		Ingredients		Total Frag.		Flavors		Total			Fine Fragrances		Consumer Fragrances		Ingredients		Total Frag.		Flavors		Total
NOAM	Reported	12	%	7	%	2	%	7	%	30	%	19	%	Reported	10	%	13	%	6	%	11	%	10	%	10	%
EAME	Reported	15	%	4	%	8	%	8	%	2	%	6	%	Reported	7	%	19	%	28	%	17	%	24	%	20	%
	Currency Neutral ⁽¹⁾	19	%	8	%	11	%	12	%	9	%	11	%	Currency Neutral ⁽¹⁾	-5	%	5	%	15	%	4	%	11	%	7	%
LA	Reported	-5	%	-5	%	35	%	-2	%	13	%	3	%	Reported	37	%	3	%	26	%	11	%	-2	%	6	%
	Currency Neutral ⁽¹⁾	-7	%	-6	%	34	%	-4	%	11	%	1	%	Currency Neutral ⁽¹⁾	35	%	3	%	24	%	11	%	-2	%	6	%
GA	Reported	23	%	-3	%	1	%	-2	%	-3	%	-3	%	Reported	-15	%	8	%	56	%	14	%	6	%	9	%
	Currency Neutral ⁽¹⁾	25	%	-2	%	3	%	-1	%	-2	%	-1	%	Currency Neutral ⁽¹⁾	-17	%	5	%	49	%	11	%	2	%	6	%
Total	Reported	10	%	0	%	7	%	4	%	9	%	6	%	Reported	12	%	11	%	26	%	14	%	11	%	12	%
	Currency Neutral ⁽¹⁾	11	%	1	%	9	%	5	%	11	%	8	%	Currency Neutral ⁽¹⁾	4	%	6	%	18	%	8	%	6	%	7	%

_______________________


(1)	Currency neutral sales growth is calculated by translating prior year sales at the exchange rates for the corresponding ~~2017~~2018 period.

NOAM Flavors sales growth ~~which~~ included the impact of acquisitions and primarily reflected high single-digit growth in Beverage, Sweet and Dairy and low single-digit growth in ~~all four end-use categories.~~Savory. Total Fragrances sales growth reflected double-digit gains in Fine Fragrances, ~~mid to~~Toiletries, Fabric Care and Home Care, as well as high single-digit gains in ~~Fabric Care and Home~~Hair Care and low single-digit gains in Personal Wash and Fragrance ~~Ingredients, which were only partially offset by double-digit declines in Hair Care.~~Ingredients.

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

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

GA Flavors sales growth included the impact of acquisitions and primarily reflected mid to high single-digit growth in Savory and Sweet, respectively, and low single-digit gains in Dairy, which were only partially offset by mid single-digit declines in Beverage. Total Fragrances sales growth was principally driven by double-digit gains in Fragrance Ingredients and ~~low~~Home Care, high single-digit ~~growth~~gains in Fabric ~~Care~~care, and mid single-digit gains in Toiletries, which more than offset double-digit declines in ~~Toiletries and high single-digit declines in Hair Care.~~

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

~~GA Flavors sales declines were driven by mid to high single-digit declines in Sweet and Dairy. Total Fragrances sales declines were principally driven by double-digit gains in~~ Fine Fragrances and low single-digit ~~gains in Fragrance Ingredients which were more than offset by double-digit~~ declines in Personal ~~Wash and Hair Care.~~Wash.

Cost of Goods Sold

Cost of goods sold, as a percentage of sales, increased ~~170~~20 bps to ~~55.6%~~56.4% in the ~~second~~first quarter of ~~2017~~2018 compared to ~~53.9%~~56.2% in the ~~second~~first quarter of ~~2016,~~2017, principally driven by unfavorable price versus input costs, the impact of foreign exchange and ~~manufacturing performance~~the effect of the BASF supply chain disruption, which were only partially offset by cost savings and productivity initiatives and ~~the impact of acquisitions.~~ a favorable product sales mix.

Included in cost of goods sold were ~~$9.6~~$5.0 million related to an FDA mandated product recall and a $0.5 million adjustment to the contingent consideration payable for PowderPure in the first quarter of ~~acquisition-related amortization of inventory "step-up" costs, costs associated with product recalls, operational improvement initiative and integration-related costs in 2017~~2018, as compared to ~~$1.0~~$6.0 million of acquisition-related amortization of inventory "step-up" costs, operational improvement initiative costs and ~~restructuring~~integration-related costs in ~~2016.~~2017.

Research and Development (R&D) Expenses

Overall R&D expenses, as a percentage of sales, ~~increased~~decreased slightly ~~compared to the prior year period~~ to ~~8.3%~~8.4% in the ~~second~~first quarter of 2018 versus 8.7% in the first quarter of 2017 ~~versus~~ ~~8.0%~~. The slight increase in ~~the~~ ~~second~~ ~~quarter of~~ ~~2016. This increase~~2018 was ~~primarily~~principally driven by ~~costs associated with R&D~~the effect of ~~acquired entities.~~foreign currency, and, to a lesser extent, incentive compensation.

Selling and Administrative (S&A) Expenses

S&A expenses ~~increased $3.1~~decreased $1.1 million to ~~$135.9~~$142.6 million, or ~~16.1%,~~15.3% as a percentage of sales, in the ~~second~~first quarter of ~~2017~~2018 compared to ~~$132.8~~$143.7 million, or ~~16.7%,~~17.3% as a percentage of sales, in the ~~second~~first quarter of ~~2016.~~2017. The ~~$3.1~~$1.1 million ~~increase~~decrease from the comparable quarter of the prior year was principally due to the effect of approximately $9.8 million in tax assessment and transaction costs ~~associated with S&A~~in the prior year offset by unfavorable foreign currency effects and increased incentive compensation expenses ~~of acquired entities and~~in the current year. Included in 2018 was approximately ~~$2.2~~$0.5 million of ~~legal charges, acquisition-related~~acquisition related costs, and ~~integration-related costs in 2017. Excluding the $2.2 million~~ included in 2017 ~~and $0.2~~was approximately $9.8 million of ~~acquisition-related costs which were only partially offset by credits~~expense related to ~~adjustment of~~ a ~~legal reserve in 2016,~~tax assessment from prior year and acquisition-related costs. Excluding these costs, adjusted S&A ~~expenses~~expense increased by ~~$1.1~~$9.2 million and was ~~15.9%~~15.4% of sales in 2018 compared to 16.2% of sales in 2017, ~~compared~~principally due to ~~16.7% of sales in 2016.~~the previously mentioned items.

Restructuring and Other Charges

2017 Productivity Program

On February 15, 2017, ~~the Company~~we announced that ~~it was~~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, ~~the Company expects~~we expect to optimize ~~its~~our global footprint and simplify ~~its~~our organizational ~~structures~~structure globally. ~~In connection with this initiative, the Company expects~~We expect to incur cumulative, pre-tax cash charges of between $30-$35 million, consisting primarily of ~~$21-~~$24-$2226 million in personnel-related costs and an estimated ~~$9-$13~~$6 million in facility-related costs, such as lease termination, and integration-related costs. ~~In addition, the Company may incur up to $5 million of accelerated depreciation.~~

~~During the second quarter of 2017, the Company~~We recorded ~~$3.1~~$21.3 million of charges related to ~~personnel-related~~personnel costs and lease termination costs through the first quarter of 2018, with the remainder of the ~~personnel-related~~personnel related and other costs expected to be recognized by the end of ~~2017~~2018. We recorded $.7 million of charges related to personnel costs and ~~the other~~lease termination costs ~~expected to be recognized over the following six quarters. During the second quarter of 2017, the Company~~three months ended March 31, 2018.

We made payments of ~~$4.5~~$1.7 million related to ~~severance.~~severance in 2018. The overall charges were split approximately evenly between Flavors and Fragrances. This initiative is expected to result in the reduction of approximately 370 members of ~~the Company’s~~our global workforce, including acquired entities, in various parts of the organization. ~~Once fully implemented, the Company expects to realize annual run-rate savings of between $40 million and $45 million from this program by 2019.~~

~~2015 Severance Charges~~

During 2015, the Company established a series of initiatives intended to streamline its management structure, simplify decision-making and accountability, better leverage and align its capabilities across the organization and improve efficiency of its global manufacturing and operations network. As a result, the Company recorded charges for severance and related costs pertaining to approximately 150 positions that were affected. During the second quarter of 2017, the Company recorded a credit of $2.3 million related to the reversal of severance accruals that were determined to be no longer required. No further actions are expected related to these 2015 initiatives.

Amortization of Acquisition-Related Intangibles

Amortization expenses increased to ~~$8.5~~$9.2 million in the ~~second~~first quarter of ~~2017~~2018 compared to ~~$5.1~~$7.1 million in the ~~second~~first quarter of ~~2016.~~2017. The increase was principally driven by the ~~acquisitions~~impact of ~~Fragrance Resources and PowderPure in 2017 and David Michael during the second half of 2016.~~acquisitions.

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,~~net; Global expenses (as discussed in Note 9 to the Consolidated Financial Statements) and certain non-recurring items, ~~net,~~net; Interest ~~expense,~~expense; Other (expense) income, ~~net~~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,						Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	2017			2016			2018			2017
Segment profit:
Flavors	$	100,338		$	90,337		$	111,564		$	94,556
Fragrances	84,860			87,596			93,277			77,875
Global expenses	(13,398		)	(12,268		)	(23,825		)	(16,293		)
Restructuring and other charges, net	(791		)	(182		)
Acquisition and related costs	(6,278		)	(213		)
Operational improvement initiative costs	(445		)	(831		)
Legal (charges) credits	(1,000		)	36
Gain on sales of assets	68			197
Tax assessment	19			—
Integration-related costs	(731		)	—
FDA mandated product recall	(3,500		)	—
Operational Improvement Initiatives							(1,026		)	(621		)
Acquisition Related Costs							514			(8,788		)
Integration Related Costs							—			(1,192		)
Tax Assessment							—			(5,350		)
Restructuring and Other Charges, net							(717		)	(10,143		)
Gain on Sale of Assets							69			21
FDA Mandated Product Recall							(5,000		)	—
Operating profit	159,142			164,672			174,856			130,065
Profit margin:
Flavors	24.2		%	23.8		%	24.8		%	23.3		%
Fragrances	19.8		%	21.2		%	19.4		%	18.4		%
Consolidated	18.9		%	20.8		%	18.8		%	15.7		%

Flavors Segment Profit

Flavors segment profit increased $17.0 million to ~~$100.3~~$111.6 million in the ~~second~~first quarter of ~~2017, or 24.2% as a percentage~~2018 (24.8% of ~~sales, compared to $90.3~~segment sales) from $94.6 million ~~or 23.8% as a percentage~~(23.3% of ~~sales,~~sales) in the comparable ~~2016~~2017 period. The increase principally reflected new win performance and favorable ~~volume and costs savings and productivity initiatives which were only~~price increases, partially offset by ~~unfavorable manufacturing variances and mix.~~lower volume declines on existing business.

Fragrances Segment Profit

Fragrances segment profit decreased approximately 3.1% to $84.9 million in the second quarter of 2017, or 19.8% as a percentage of sales, compared to $87.6 million, or 21.2% as a percentage of sales, in the comparable 2016 period. The decrease in segment profit and profit margin was primarily due to unfavorable price versus input cost and the impact from acquisitions which was only partially offset by the cost savings and productivity initiatives.

~~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 second quarter of 2017, Global expenses were $13.4 million compared to $12.3 million during the second quarter of 2016. The increase was principally driven by lower benefits from our currency hedging program and higher incentive compensation expense.

~~Interest Expense~~

~~Interest expense~~ increased to ~~$17.6 million~~ ~~in the~~ ~~second~~ ~~quarter of~~ ~~2017~~ ~~compared to $15.1 million in the~~ ~~2016~~ ~~period reflecting the issuance of the Senior Notes - 2017. Average cost of debt was 4.1% for the 2017 period compared to 4.0% for the 2016 period.~~

~~Other (Income) Expense, Net~~

~~Other (income) expense, net decreased by approximately $2.0~~$15.4 million to $0.5 million of income in the second quarter of 2017 versus $2.4 million of income in the comparable 2016 period. The year-over-year decrease was primarily driven by unfavorable year-over-year foreign exchange gains/(losses) in 2017.

~~Income Taxes~~

The effective tax rate for the three months ended June 30, 2017 was 22.7% compared with 23.2% for the three months ended June 30, 2016. The quarter-over-quarter decrease was largely due to a more favorable mix of earnings and the impact of the global supply chain hub, offset by unfavorable repatriation costs as compared to the prior year. Excluding $3.3 million of benefits 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 in the current quarter, the second quarter 2017 adjusted effective tax rate was 23.0%, or 10 bps lower than the second quarter 2016 adjusted effective tax rate of 23.1%. The 2016 adjusted effective tax rate excluded $0.1 million of tax benefit associated with restructuring and operational improvement initiative costs which were only partially offset by tax charges associated with acquisition related costs and gains on the sales of fixed assets and a favorable legal settlement.

~~FIRST SIX MONTHS 2017 IN COMPARISON TO FIRST SIX MONTHS 2016~~

~~Sales~~

Sales for the first six months of 2017 totaled $1,671.2 million, an increase of 6% from the 2016 period. On a currency neutral basis sales increased 7%. Sales growth reflected new win performance partially offset by volume declines on existing business in both Flavors and Fragrances and unfavorable pricing in Fragrances. On both a reported and currency neutral basis, acquisitions accounted for approximately 5% of the net sales growth.

~~Flavors Business Unit~~

Flavors sales increased 9% on a reported basis and increased 11% on a currency neutral basis during the first six months of 2017 compared to the 2016 period. Acquisitions accounted for approximately 7% of the net sales growth on both a reported and currency neutral basis. Sales growth excluding acquisitions reflected new win performance which was partially offset by volume declines on existing business. Overall growth was primarily driven by low to high single-digit growth in all four end-use categories. The Flavors business delivered sales growth in NOAM, LA and EAME, led by NOAM, and experienced declines in GA. Sales growth in NOAM, which included the impact of acquisitions, were led by double-digit growth in Savory and Dairy. LA sales growth was led by double-digit gains in Savory and Dairy and high single-digit gains in Sweet. Sales in EAME were driven by mid to high single-digit gains in Savory and Sweet. GA sales experienced mid single-digit gains in Beverage which were more than offset by high single-digit declines in Dairy and low single-digit declines in Sweet.

~~Fragrances Business Unit~~

Fragrances sales increased 3% on a reported basis and 4% on a currency neutral basis for the first six months of 2017 compared to the 2016 period. Acquisitions accounted for approximately 4% of both reported and currency neutral sales growth. Excluding the effect of acquisitions, reported sales declines reflected new win performance which was more than offset by volume declines on existing business and unfavorable price versus input costs. Net sales reflected double-digit gains in Fine Fragrances, mid single-digit gains in Fragrance Ingredients and low single-digit growth in Fabric Care which were more than offset by double-digit declines in Hair Care and mid single-digit declines in Toiletries and Personal Wash.

~~Sales Performance by Region and Category~~

% Change in Sales - First Six Months 2017 vs. First Six Months 2016
Fine Fragrances Consumer Fragrances Ingredients Total Frag. Flavors Total
NOAM Reported 10 % 6 % -4 % 4 % 28 % 17 %
EAME Reported 18 % 4 % 10 % 10 % 1 % 6 %

Currency Neutral ⁽¹⁾
22 % 8 % 13 % 13 % 7 % 11 %
LA Reported -9 % -7 % 25 % -5 % 11 % 0 %

Currency Neutral ⁽¹⁾
-14 % -7 % 24 % -7 % 8 % -1 %
GA Reported 18 % 0 % -6 % 0 % -1 % 0 %

Currency Neutral ⁽¹⁾
20 % 1 % -4 % 1 % 0 % 0 %
Total Reported 10 % 1 % 4 % 3 % 9 % 6 %

Currency Neutral ⁽¹⁾
11 % 2 % 5 % 4 % 11 % 7 %


~~(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, which included the impact of acquisitions, were led by double-digit growth in Savory and Dairy. Total Fragrances sales growth, which included the impact of acquisitions, reflected double-digit gains in Fine Fragrances and mid to high single-digit growth in Home Care and Fabric Care, which was partially offset by mid single-digit declines in Fragrance Ingredients.

EAME Flavors sales experienced mid to high single-digit gains in Savory and Sweet. Total Fragrances sales growth, which included the impact of acquisitions, was driven mainly by double-digit growth in Fine Fragrances and Fragrance Ingredients as well as mid single-digit growth in Home Care.

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

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

~~Cost of Goods Sold~~

Cost of goods sold, as a percentage of sales, increased 180 bps to 55.8% in the first six months of 2017 compared to 54.0% in the 2016 period, principally driven by unfavorable manufacturing performance and price versus input costs which were only partially offset by cost savings and productivity initiatives and the impact of acquisitions. Included in cost of goods sold were $15.7 million of acquisition-related amortization of inventory "step-up", costs associated with product recalls, operational improvement initiative and integration-related costs in 2017 compared to $2.3 million of acquisition-related amortization of inventory "step-up", operational improvement initiative and restructuring costs in 2016.

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

Overall R&D expenses, as a percentage of sales, increased compared to the prior year period to 8.4% in the first six months of 2017 versus 8.0% in the 2016 period. This increase was primarily driven by costs associated with R&D of acquired entities.

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

S&A expenses increased $19.9 million to $276.2 million or 16.5%, as a percentage of sales, in the first six months of 2017 compared to 16.3% in the 2016 period. The $19.9 million increase was principally due to costs associated with S&A expenses of acquired entities and approximately $12.0 million of expense related to a tax assessment from prior year, legal charges and acquisition-related and integration-related costs in 2017. Excluding the $12.0 million included in 2017 and the benefit of $1.1 million of credits related to legal credits which were only partially offset by acquisition-related costs in 2016, adjusted S&A expenses increased by $6.8 million and was 15.8% of sales in 2017 compared to 16.3% in 2016.

~~Restructuring and Other Charges~~

~~2017 Productivity Program~~

During the first six months of 2017, the Company recorded charges of $13.2 million related to personnel-related costs and lease termination costs and made payments of $6.8 million related to severance. The overall charges were split approximately evenly between Flavors and Fragrances. This initiative is expected to result in the reduction of approximately 370 members of the Company’s global workforce in various parts of the organization. Once fully implemented, the Company expects to realize annual run-rate savings of between $40 million and $45 million from this program by 2019.

~~2015 Severance Charges~~

During the first six months of 2017, the Company made payments of $0.2 million related to severance and recorded a credit of $2.3 million related to the reversal of severance accruals that were determined to be no longer required. No further actions are expected related to these 2015 initiatives.

~~Amortization of Acquisition-Related Intangibles~~

~~Amortization expenses increased to $15.6~~$93.3 million in the first ~~six months~~quarter of ~~2017 compared to $11.2~~2018 (19.4% of segment sales) from $77.9 million ~~in the 2016 period. The increase was principally driven by the acquisitions~~(18.4% of ~~Fragrance Resources and PowderPure in 2017 and David Michael during the second half of 2016.~~

~~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) 2017 2016
Segment profit:
Flavors $ 198,346
$ 182,151
Fragrances 166,557
176,833
Global expenses (29,594 ) (26,141 )
Restructuring and other charges, net (10,934 ) (283 )
Acquisition and related costs (15,066 ) (1,249 )
Operational improvement initiative costs (1,066 ) (1,099 )
Legal (charges) credits (1,000 ) 1,482
Gain on sales of assets 89
2,910
Tax assessment (5,331 ) —
Integration-related costs (1,923 ) —
FDA mandated product recall (3,500 ) —
Operating profit 296,578
334,604
Profit margin:
Flavors 24.2 % 24.2 %
Fragrances 19.6 % 21.4 %
Consolidated 17.7 % 21.2 %

~~Flavors Segment Profit~~

~~Flavors segment profit increased to $198.3 million in the first six months of 2017, or 24.2% as a percentage of sales, compared to $182.2 million, or 24.2% as a percentage of sales,~~sales) in the comparable ~~2016~~2017 period. The increase in segment profit ~~principally reflected~~was primarily due to higher volumes, favorable ~~volume~~sales mix, and ~~costs~~cost savings and productivity initiatives, which ~~were only partially~~more than offset by unfavorable price versus input costs ~~as well as a reserve for a product liability sales allowance.~~

~~Fragrances Segment Profit~~

Fragrances segment profit decreased to $166.6 million in the first six months of 2017, or 19.6% as a percentage of sales, compared to $176.8 million, or 21.4% as a percentage of sales, in the comparable 2016 period. The decrease in segment profit and profit margin was primarily due to ~~unfavorable price versus input cost and~~ the impact of ~~acquisitions which was only partially offset by~~ the ~~cost savings and productivity initiatives.~~BASF supply chain disruption.

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 ~~2017,~~2018, Global expenses were ~~$29.6~~$23.8 million compared to ~~$26.1~~$16.3 million during the first ~~six months~~quarter of ~~2016.~~2017. The increase was principally driven by higher incentive compensation expense and the effect of lower ~~benefits~~gains from our currency hedging ~~program and slightly higher incentive compensation expense.~~program.

Interest Expense

Interest expense increased to ~~$30.4~~$16.6 million in the first quarter of 2018 compared to $12.8 million in the ~~first six months of~~ 2017 ~~compared to $27.5 million in the 2016~~ period reflecting the issuance of the Senior Notes - 2017. Average cost of debt was ~~3.8%~~3.9% for the 2018 period compared to 3.7% for the 2017 ~~period compared to 3.9% for the 2016~~ period.

Other (Income) Expense, Net

Other (income) expense, net ~~increased~~decreased by approximately ~~$14.4~~$20.7 million to ~~$14.3~~$0.6 million of income in the first ~~six months~~quarter of ~~2017~~2018 versus ~~$0.1~~$21.2 million of ~~expense~~income in the comparable ~~2016~~2017 period. The year-over-year ~~increase~~decrease was primarily driven by lower foreign exchange gains and the release of a currency translation adjustment ~~(CTA) of $12.2 million related to~~("CTA") upon the liquidation of a foreign entity in 2017.

Income Taxes

The effective tax rate for the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 was ~~19.6%~~18.5% compared with ~~23.3%~~16.4% for the ~~six~~three months ended ~~June 30, 2016.~~March 31, 2017. The year-over-year ~~decrease~~increase was ~~primarily~~largely due to ~~various items (including certain non-taxable gains on foreign currency and~~ the impact of ~~adopting~~U.S. tax reform and increased loss provisions, partially offset by mix of earnings, a lower cost of repatriation (principally due to tax reform) and the ~~new accounting guidance on~~release of a State valuation allowance that related to prior years. Excluding the $0.9 million tax benefit associated with the pre-tax restructuring, and operational improvement initiative costs which were partially offset by the tax ~~effect~~charge associated with gains on sales of ~~stock compensation vesting), a more favorable mix of earnings~~fixed assets, acquisition-related costs, and the impact of the ~~global supply chain hub, offset by unfavorable repatriation costs as compared to~~U.S. tax reform in the ~~prior year. Excluding $11.8~~current quarter, the adjusted effective tax rate for three months ended March 31, 2018 was 18.4%. For the first quarter of 2017, the adjusted tax rate was 20.5% excluding the $8.5 million of tax ~~benefits~~benefit associated with the pre-tax restructuring, acquisition-related, ~~product liability,~~tax assessment, integration-related and operational improvement initiative costs ~~as well as a tax assessment which were only~~ partially offset by the tax charge associated with gains on sales of fixed assets and the non-taxable gains on foreign ~~currency~~currency. The year-over-year decrease was largely due to mix of earnings a lower cost of repatriation (principally due to tax reform) and the release of a State valuation allowance that related to prior years.

U.S. Tax Reform

During the first quarter ~~the first six months 2017 adjusted effective tax rate was 21.8%, or 150 bps lower than the first six months 2016 adjusted effective tax rate~~ of ~~23.3%. The 2016 adjusted effective tax rate excluded $0.5~~2018, we recorded an additional charge of $0.6 million ~~of tax charges associated with gains on sales of fixed assets and a favorable legal settlement which were only partially offset by tax benefits~~to adjust an accrual related to ~~the pre-tax acquisition-related, restructuring and operational improvement initiative costs.~~

As a result of the adoption of ASU 2016-09, as discussed in Note 1 to our Consolidated Financial Statements, current income tax expense now includes the tax benefit of equity award vestings of $3.2 million for the six months ended June 30, 2017. In recent years, the tax benefitwithholding taxes on ~~these vestings was $4.5 million, $9.9 million and $5.3 million in fiscal 2014, 2015 and 2016, respectively.~~

planned repatriations.

Liquidity and Capital Resources

Cash and Cash Equivalents

We had cash and cash equivalents of ~~$491.4~~$305.3 million at ~~June 30, 2017~~March 31, 2018 compared to ~~$324.0~~$368.0 million at December 31, ~~2016,~~2017, of which ~~$198.5~~$243.0 million of the balance at ~~June 30, 2017~~March 31, 2018 was held outside the United States. Cash balances held in foreign jurisdictions are, in most circumstances, available to be repatriated to the United States; however, they would be subject to United States federal income taxes, less applicable foreign tax credits. We have not provided U.S. income tax expense on substantially all of the accumulated undistributed earnings of our foreign subsidiaries because we have the ability and plan to reinvest these indefinitely.States.

Effective utilization of the cash generated by our international operations is a critical component of our tax strategy. Strategic dividend repatriation from foreign subsidiaries creates U.S. taxable income, which enables us to realize deferred tax assets. The Company regularly repatriates, in the form of dividends from its non-U.S. subsidiaries, a portion of its current year earnings to fund financial obligations in the U.S.

Cash Flows (Used In) Provided By Operating Activities

Net cash ~~from~~used in operating activities in the first ~~six~~three months of ~~2017~~2018 was ~~$57.9~~$11.4 million compared to ~~$172.3~~net cash provided by operating activities of $18.5 million in the first ~~six~~three months of ~~2016.~~2017. The decrease in cash from operating activities for the first ~~six~~three months of ~~2017~~2018 compared to ~~2016~~2017 was principally driven by ~~payment~~higher core working capital requirements, the effect of a ~~litigation settlement~~payment for a product claim and the timing of ~~$56 million (as discussed in Note 13 to the Consolidated Financial Statements), lower net income and higher incentive compensation payments~~certain other items, for the ~~2017~~2018 period as compared to ~~2016~~2017 period.

Working capital (current assets less current liabilities) totaled ~~$1,132.7~~$1,253.6 million at ~~June 30, 2017,~~March 31, 2018, compared to ~~$710.7~~$1,127.8 million at December 31, ~~2016 reflecting higher cash balances as a result of proceeds from the Senior Notes -~~ 2017.

The Company 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 ~~$4.7~~$11.0 million for the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 compared to ~~an increase~~a decrease of approximately ~~$17.7~~$27.1 million for the ~~six~~three months ended ~~June 30, 2016.~~March 31, 2017. 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 ~~2017~~2018 used ~~$232.0~~$35.2 million compared to ~~$40.2~~$162.2 million in the prior year period. The ~~increase~~decrease in cash used in investing activities principally reflected the acquisition of Fragrance Resources and PowderPure in 2017 for approximately ~~$136.0~~$137.5 million (net of cash acquired) and ~~$54.7~~$54.2 million (net of cash acquired), respectively. Additions to property, plant and equipment were ~~$46.2~~$33.1 million during the first ~~six~~three months of ~~2017~~2018 compared to ~~$43.2~~$26.7 million in the first ~~six~~three months of ~~2016. We~~2017. In light of our requirement to begin relocating our Fragrance facility in China and the ongoing construction of a new facility in India, we expect ~~additions to property, plant and equipment~~that capital spending in 2018 will be ~~approximately 4.5% - 5%~~about 4.5-5% of ~~our~~ sales (net of potential grants and other reimbursements from government authorities) ~~in 2017.~~.

Cash Flows (Used In) Provided By Financing Activities

Net financing activities in the first ~~six~~three months of ~~2017 increased~~2018 decreased to ~~$343.6~~$14.6 million compared to ~~$235.4~~$116.9 million of cash inflows in the first ~~six~~three months of ~~2016,~~2017, principally driven by ~~higher proceeds from the~~decreased utilization of our revolving credit facility and ~~the~~ issuance of ~~the Senior Notes - 2017 as well as lower share repurchases which were only~~commercial paper, partially offset by higher dividend payments in the ~~2017~~2018 period compared to the ~~2016 period, which included the issuance of the Euro Senior Notes - 2016.~~2017 period.

At ~~June 30, 2017,~~March 31, 2018, we had ~~$1,894.2~~$1,713.0 million of debt outstanding compared to ~~$1,325.4~~$1,639.2 million outstanding at December 31, ~~2016.~~2017.

We paid dividends totaling ~~$101.2~~$54.4 million in the ~~2017~~2018 period. We declared a cash dividend per share of ~~$0.64~~$0.69 in the ~~second~~first quarter of ~~2017~~2018 that was paid on ~~July 7, 2017~~April 6, 2018 to all shareholders of record as of ~~June~~March 26, ~~2017. In August 2017, the Board of Directors approved an increase in our quarterly dividend for the third quarter of 2017 by 8%, to $0.69 per share.~~2018.

In December 2012, the Board of Directors authorized a ~~$250~~$250.0 million share 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 the 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 $284.2 million available under the amended repurchase program, approximately ~~0.4~~2.1 million shares, or ~~0.5%~~2.6% of shares outstanding (based on the market price and shares outstanding as of ~~June 30, 2017) could be repurchased~~March 31, 2018) were remaining for repurchase under the program as of June 30, 2017. During the three months ended June 30, 2017, we repurchased 114,930 shares on the open market at an aggregate cost of $15.6 million or an average of $135.7 per share. During the six months ended June 30, 2017, we repurchased 427,219 shares on the open market at an aggregate cost of $53.2 million or an average of $124.6 per share.March 31, 2018. The purchases ~~will~~are authorized to be made from time to time on the open market or through private transactions as market and business conditions ~~warrant. Repurchased~~warrant, with the repurchased shares ~~will~~to be placed into treasury stock. ~~The ultimate level~~On May 7, 2018, we announced plans to suspend share repurchases until our deleveraging target is met following our planned acquisition of ~~purchases will be a function of the daily purchase limits established in the pre-approved program according to the share price at that time.~~Frutarom.

Capital Resources

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

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. ~~The maximum commercial~~

~~paper borrowings outstanding during the first and second quarters of 2017 were approximately $107.5 million and $50 million, respectively.~~ As of ~~June 30, 2017,~~March 31, 2018, there was $29.9 million of commercial paper outstanding and no commercial paper ~~outstanding.~~outstanding as of December 31, 2017. The revolving credit facility is used as a backstop for the Company's commercial paper program. NoThe maximum amount of commercial paper ~~was issued during~~outstanding for the ~~six~~three months ended ~~June 30, 2016.~~March 31, 2018 and 2017 was $40.0 million and $107.5 million, respectively.

We expect to contribute a total of approximately ~~$2 - $10~~$4.1 million to its U.S. pension plans and a total of $17.1 million to our ~~U.S. pension plans~~Non-U.S. Plans during ~~2017.~~2018. During the ~~six~~three months ended ~~June 30, 2017,~~March 31, 2018, no contributions were made to ~~our~~the qualified U.S. pension plans, ~~and $29.3~~$3.3 million of contributions were made to ~~our~~the non-U.S. pension ~~plans.~~

~~On May 18, 2017, the Company issued $500.0~~plans, and $1.1 million ~~face amount~~ of ~~4.375% Senior Notes ("Senior Notes - 2017") due 2047 at a discount of $1.8 million. The Company received proceeds related~~benefit payments were made with respect to the ~~issuance of these Senior Notes - 2017 of $493.9~~Company's non-qualified U.S. pension plan. We also expect to contribute approximately $5.0 million which was net of the $1.8 million discount and $4.4 million in underwriting fees (recorded as deferred financing costs). In addition, the Company incurred $0.9 million in legal and professional costs associated with the issuance and such costs were recorded as deferred financing costs. In connection with the debt issuance, the Company entered into pre-issuance hedging transactions that were settled upon issuance of the debt and resulted in a loss of approximately $5.3 million. The discount, deferred financing costs and pre-issuance hedge loss are being amortized as interest expense over the 30 year term of the debt. The Senior Notes - 2017 bear interest at a rate of 4.375% per annum, with interest payable semi-annually on June 1 and December 1 of each year, commencing on December 1, 2017. The Senior Notes - 2017 will mature on June 1, 2047.to our postretirement benefits other than pension plans during 2018.

As of ~~June 30, 2017,~~March 31, 2018, we had ~~$28.4~~$24.6 million ~~of borrowings~~outstanding under our revolving credit facility. The amount which we are able to draw down on under the facility is limited by financial covenants as described in more detail below. Our draw down capacity on the facility was ~~$921.6~~$950.0 million at ~~June 30, 2017. We expect interest expense to increase in the third quarter of 2017 as a result of a full quarter of interest related to the Senior Notes - 2017.~~March 31, 2018.

Under our revolving credit facility, we are required 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 of not more than 3.5 to 1. Based on this ratio, at ~~June 30, 2017~~March 31, 2018 our covenant compliance provided overall borrowing capacity of ~~$1,279~~$1,481 million.

At ~~June 30, 2017,~~March 31, 2018, we were in compliance with all financial and other covenants, including the net debt to adjusted EBITDA ratio. At ~~June 30, 2017~~March 31, 2018, our Net Debt/adjusted EBITDA ⁽¹⁾ ratio, as defined by the debt agreements, was ~~1.83~~1.71 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:


	Twelve Months Ended June 30,
(DOLLARS IN MILLIONS)	2017		Twelve Months Ended March 31, 2018
Net income	$	395.3	$	309.3
Interest expense	55.8		69.2
Income taxes	102.0		248.1
Depreciation and amortization	108.3		124.6
Specified items ⁽¹⁾	89.0		46.3
Non-cash items ⁽²⁾	15.8		28.2
Adjusted EBITDA	$	766.2	$	825.7


(1)	Specified items for the 12 months ended ~~June 30, 2017~~March 31, 2018 of ~~$89.0~~$46.3 million ~~consist~~consisted of legal charges/credits, acquisition-related costs, costs associated with product recalls, operational improvement initiative costs, restructuring and other charges, gains on sales of fixed assets, integration-related costs, tax assessment and CTA realization.


(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.


	June 30,
(DOLLARS IN MILLIONS)	2017			March 31, 2018
Total debt	$	1,894.2		$	1,713.0
Adjustments:
Deferred gain on interest rate swaps	(0.4		)	1.1
Cash and cash equivalents	(491.4		)	(305.3		)
Net debt	$	1,402.4		$	1,408.8

As discussed in Note 13 to the Consolidated Financial Statements, at ~~June 30, 2017~~,March 31, 2018, 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, ~~they~~these arrangements are not reasonably likely to have a material impact on our consolidated financial condition, results of operations, or cash flows.

~~Cautionary Statement Under~~As discussed above under Recent Developments and in Note 14 to the ~~Private Securities Litigation Reform Act~~Consolidated Financial Statements, in connection with our planned acquisition of ~~1995~~

~~This Quarterly Report includes “forward-looking statements” under~~Frutarom, we intend to finance the Federal Private Securities Litigation Reform Act of 1995, including statements regarding (i) expected raw material costs in 2017, (ii) the expected impact of operational improvements, cost reduction efforts and mix enhancements on margins, (iii) the expected impactcash portion of the ~~multi-year productivity program announced~~transaction consideration through a combination of existing cash on hand, significant new debt and equity. We have secured a bridge facility commitment letter to finance the cash portion of the merger consideration in ~~2017, (iv) cash flows to fund future operations and to meet debt service requirements, and (v)~~the event we have not completed our plans and intentions to indefinitely reinvest undistributed foreign earnings in our foreign subsidiaries to fund local operations and/or capital projects. These forward-looking statements should be evaluated with consideration givenanticipated financing transactions prior 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 “will,” “expect,” “anticipate,” “believe,” “outlook,” “may,” “estimate,” “should,” “intend,” “plan” and “predict” 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:

~~macroeconomic trends affecting the emerging markets;~~

~~our ability to implement and adapt our Vision 2020 strategy;~~

~~our ability to successfully identify and complete acquisitions in line with our Vision 2020 strategy, and to realize the anticipated benefits of those acquisitions;~~

~~our ability to effectively compete in our market, and to successfully develop new and competitive products that appeal to our customers and consumers;~~

~~changes in consumer preferences and demand for our products or a decline in consumer confidence and spending;~~

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

~~the impact of currency fluctuations or devaluations in the principal foreign markets in which we operate, including the devaluation~~consummation of the ~~Euro;~~

~~the impact of customer claims or product recalls;~~

~~the potential adverse impact of Brexit on currency exchange rates, global economic conditions and cross-border agreements that affect our business;~~

~~the economic and political risks associated with our international operations, including challenging economic conditions in China and Latin America;~~

~~the impact of any failure of our key information technology systems or costs that could be incurred due to a breach of data privacy or information security;~~

~~our ability to attract and retain talented employees;~~

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

~~our ability to realize expected 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;~~

~~fluctuations in the quality and availability of raw materials;~~

~~the impact of a disruption in our supply chain or our relationship with our suppliers;~~

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

~~our ability to successfully manage our working capital and inventory balances;~~merger.

~~uncertainties regarding~~New Accounting Standards

In February 2018, FASB issued amendments to the ~~outcome~~Income Statement - Reporting Comprehensive Income guidance 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 May 2017, the FASB issued amendments to the Compensation - Stock Compensation guidance which clarifies changes to the terms or ~~funding requirements, related~~conditions of a share-based payment award that require an entity to ~~litigation or settlement of pending litigation, uncertain tax positions or other contingencies;~~

apply modification accounting. This guidance is effective for the ~~effect of legal and regulatory proceedings,~~current year. The Company has determined that this guidance does not have an impact on its Consolidated Financial Statements as ~~well as restrictions imposed on us, our operations, or our representatives by U.S. and foreign governments;~~

adverse changes in federal, state, local and international tax legislation or policies, including with respect to transfer pricing and state aid, and adverse results of tax audits, assessments, or disputes; and

~~changes in market conditions or governmental regulations relating to our pension and postretirement obligations.~~

~~New risks emerge from time to time and~~ it is not ~~possible~~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 amendments to the Compensation - Retirement Benefits guidance 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 an increase in operating expenses of $7.3 million for ~~management~~the three months ended March 31, 2017, and an increase in income within Other (income) expense, net, as presented in the Company's Consolidated Statement of Income and Comprehensive Income. There was no impact to ~~predict all such risk factors~~Net income or Net Income per share in either period.

The new guidance also limits the amount of net periodic benefit cost eligible for capitalization to ~~assess~~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 authoritative guidance which requires changes to the classification of certain activities within the statement of cash flows. This guidance is effective, and the Company has determined that this adoption does not have a significant impact on its Consolidated Statement of Cash Flows.

In February 2016, the FASB issued authoritative guidance 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 30, 2018, the first day of the Company’s 2018 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 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 authoritative guidance 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 (i) when control of the promised goods is transferred to customers and (ii) 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 Section 606-10-25-27(c) of 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 ~~risks on~~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 ~~business. Accordingly,~~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 $2.2 million as of December 30, 2017 due to the cumulative impact of adopting the Revenue Standard. As of the date of adoption, we ~~undertake no obligation~~also recorded an increase of $4.1 million in contract assets (which are included in Prepaid expenses and other assets), a decrease of $1.3 million in inventory, and an increase in taxes payable of $0.7 million.

The impact to ~~publicly update or revise any forward-looking statements, whether~~revenues, gross profit and net income for three months ended March 31, 2018 were reductions of $0.5 million, $0.3 million and $0.2 million, respectively as a result of ~~new information, future events, or otherwise.~~

~~Any public statements or disclosures by~~applying the ~~Company following this report~~Revenue Standard as compared to the amounts that ~~modify or impact any of the forward-looking statements contained in or accompanying this report will~~would be ~~deemed~~been presented prior 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 2016 Form 10-K for additional information regarding factors that could affect our results of operations, financial condition and cash flow.adoption.

Non-GAAP Financial Measures

The Company uses non-GAAP financial operating measures in this ~~Quarterly Report,~~Form 10-Q, including: (i) currency neutral sales (which eliminates the effects that result from translating its international sales in U.S. dollars), (ii) adjusted gross margin (which excludes operational improvement ~~initiative~~initiatives, acquisition related costs, ~~acquisition-related~~integration related costs ~~costs associated with~~and FDA mandated product ~~recalls and integration-related costs)~~recall), (iii) adjusted operating profit and adjusted operating margin (which excludes ~~legal charges/credits, acquisition-related costs, costs associated with product recalls,~~ operational improvement ~~initiative~~initiatives, acquisition related costs, integration related costs, tax assessment, restructuring and other charges, ~~gains~~net, gain on ~~sales~~sale of ~~fixed~~ assets ~~integration-related costs~~ and ~~tax assessments)~~FDA mandated product recall), (iv) adjusted selling and administrative expenses (which excludes ~~acquisition-related~~acquisition related costs, integration related costs, tax ~~assessments, integration-related costs~~assessment and ~~legal charges/credits)~~restructuring and other charges, net) and (v) adjusted effective tax rate (which excludes ~~legal charges/credits, acquisition-related costs, costs associated with product recalls,~~ operational improvement ~~initiative~~initiatives, acquisition related costs, integration related costs, tax assessment, restructuring and other charges, ~~gains~~net, gain on ~~sales~~sale of ~~fixed~~ assets, ~~integration-related costs,~~CTA realization, FDA mandated product recall and U.S. tax ~~assessment and CTA realization)~~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

~~Three Months Ended June 30, 2017~~



Reconciliation of Gross Profit
	Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	2018		2017
Reported (GAAP)	$	405,809	$	363,083
Operational Improvement Initiatives (a)	453		621
Acquisition Related Costs (b)	—		5,301
Integration Related Costs (c)	—		88
FDA Mandated Product Recall (g)	5,000		—
Adjusted (Non-GAAP)	$	411,262	$	369,093


Reconciliation of Selling and Administrative Expenses									Reconciliation of Selling and Administrative Expenses
									Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	Reconciliation of Gross Profit								2018		2017
	Reported (GAAP)		Operational Improvement Initiative Costs (a)	Acquisition and Related Costs (b)	Integration related costs (c)	FDA mandated product recall (h)	Adjusted (Non-GAAP)
Gross profit	$	374,589	445	5,606	98	3,500	$	384,238
Reported (GAAP)									$	142,644	$	143,704
Acquisition Related Costs (b)									514		(3,487		)
Integration Related Costs (c)									—		(943		)
Tax Assessment (d)									—		(5,350		)
Adjusted (Non-GAAP)									$	143,158	$	133,924

(DOLLARS IN THOUSANDS) Reconciliation of Selling and Administrative Expenses
Reported (GAAP) Acquisition and Related Costs (b) Integration related costs (c) Legal Charges/Credits (d) Tax Assessment (e) Adjusted (Non-GAAP)
Selling and administrative expenses $ 135,910
(672 ) (542 ) (1,000 ) 19
$ 133,715

(DOLLARS IN THOUSANDS) Reconciliation of Operating Profit
Reported (GAAP) Operational Improvement Initiative Costs (a) Acquisition Related Costs (b) Integration related costs (c) Legal Charges/Credits (d) Tax Assessment (e) Restructuring and Other Charges (f) Gain on Sale of Asset (g) FDA mandated product recall (h) Adjusted (Non-GAAP)
Operating profit $ 159,142
445
6,278
731
1,000
(19 ) 791
(68 ) 3,500
$ 171,800

(DOLLARS IN THOUSANDS) Reconciliation of Net Income
Reported (GAAP) Operational Improvement Initiative Costs (a) Acquisition Related Costs (b) Integration related costs (c) Legal Charges/Credits (d) Tax Assessment (e) Restructuring and Other Charges (f) Gain on Sale of Asset (g) FDA mandated product recall (h)
Adjusted (Non-GAAP)
Income before taxes $ 142,040
445
6,278
731
1,000
(19 ) 791
(68 ) 3,500
$ 154,698
Taxes on income (i) $ 32,245
111
1,472
243
354
(7 ) (75 ) (22 ) 1,238
$ 35,559
Net income $ 109,795
334
4,806
488
646
(12 ) 866
(46 ) 2,262
$ 119,139

~~____________________~~

~~(a) Represents accelerated depreciation and idle labor costs in Hangzhou, China.~~

(b) 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 Fragrance Resources and PowderPure, included in Selling and administrative expenses.

~~(c) Represents costs related to the integration of the David Michael and Fragrance Resources acquisitions.~~

~~(d) Represents additional charge related to litigation settlement.~~

~~(e) Represents the reversal of a portion of 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 which were partially offset by the reversal of 2015 severance charges that were no longer needed.~~

~~(g) Represents gains on sale of assets.~~

(h) Represents an estimate of the Company's incremental direct costs and customer reimbursement obligations, in excess of the Company's sales value of the recalled products, arising from an FDA mandated recall of consumer products as a result of raw material received and identified by the Company as containing contamination. (As discussed in Note 13 of the Consolidated Financial Statements, the sales value of the recalled products was reserved in the first quarter of 2017). While the Company does not believe that any of the affected raw material was included in its finished products delivered to the customer, as the delivered product included raw material of the same vendor lot that tested positive, the FDA, after being notified by the Company, initiated a recall of all consumer products including raw material from the affected vendor lot due to the potential for product contamination.

(i) 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. For the second quarter of 2017, these non-GAAP adjustments were not subject to foreign tax credits or valuation allowances, 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).

~~Three Months Ended June 30, 2016~~

(DOLLARS IN THOUSANDS) Reconciliation of Gross Profit
Reported (GAAP) Restructuring and Other Charges (a) Operational Improvement Initiative Costs (b) Adjusted (Non-GAAP)
Gross profit $ 365,641
182
831
366,654

(DOLLARS IN THOUSANDS) Reconciliation of Selling and Administrative Expenses
Reported (GAAP) Acquisition and Related Costs (c) Legal Charges/Credits (d) Adjusted (Non-GAAP)
Selling and administrative expenses $ 132,784
(213 ) 36
132,607

(DOLLARS IN THOUSANDS) Reconciliation of Operating Profit
Reported (GAAP) Restructuring and Other Charges (a) Operational Improvement Initiative Costs (b) Acquisition Related Costs (c) Legal Charges/Credits (d) Gain on Sale of Asset (e) Adjusted (Non-GAAP)
Operating profit $ 164,672
182
831
213
(36 ) (197 ) 165,665

(DOLLARS IN THOUSANDS) Reconciliation of Net Income
Reported (GAAP) Restructuring and Other Charges (a) Operational Improvement Initiative Costs (b) Acquisition Related Costs (c) Legal Charges/Credits (d) Gain on Sale of Asset (e) Adjusted (Non-GAAP)
Income before taxes $ 152,050
182
831
213
(36 ) (197 ) $ 153,043
Taxes on income (f) $ 35,317
35
208
(102 ) (9 ) (65 ) $ 35,384
Net income $ 116,733
147
623
315
(27 ) (132 ) $ 117,659

~~____________________~~

~~(a) Accelerated depreciation related to restructuring activities.~~

~~(b) Accelerated depreciation and severance costs in Hangzhou, China.~~

~~(c) Additional transaction costs related to the acquisition of Lucas Meyer, included in Selling and administrative expenses.~~

~~(d) Principally related to favorable tax rulings.~~

~~(e) Principally related to gain on sale of property in Europe.~~

(f) 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. For the second quarter of 2016, these non-GAAP adjustments were not subject to foreign tax credits or valuation allowances, 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).

~~Six Months Ended June 30, 2017~~

(DOLLARS IN THOUSANDS) Reconciliation of Gross Profit
Reported (GAAP) Operational Improvement Initiative Costs (a) Acquisition and Related Costs (b) Integration related costs (c) FDA mandated product recall (i) Adjusted (Non-GAAP)
Gross profit $ 739,255
1,066
10,908
186
3,500
$ 754,915


Reconciliation of Operating Profit													Reconciliation of Operating Profit
													Three Months Ended March 31,
(DOLLARS IN THOUSANDS)	Reconciliation of Selling and Administrative Expenses												2018			2017
	Reported (GAAP)		Acquisition and Related Costs (b)		Integration related costs (c)		Legal Charges/Credits (d)		Tax Assessment (e)		Adjusted (Non-GAAP)
Selling and administrative expenses	$	276,240	(4,158	)	(1,485	)	(1,000	)	(5,331	)	$	264,266
Reported (GAAP)													$	174,856		$	130,065
Operational Improvement Initiatives (a)													1,026			621
Acquisition Related Costs (b)													(514		)	8,788
Integration Related Costs (c)													—			1,192
Tax Assessment (d)													—			5,350
Restructuring and Other Charges, net (e)													717			10,143
Gain on Sale of Assets													(69		)	(21		)
FDA Mandated Product Recall (g)													5,000			—
Adjusted (Non-GAAP)													$	181,016		$	156,138



Reconciliation of Net Income
	Three Months Ended March 31,
	2018											2017
(DOLLARS IN THOUSANDS)	Income before taxes			Taxes on income (i)			Net income			EPS (j)		Income before taxes			Taxes on income (i)			Net income			EPS
Reported (GAAP)	$	158,837		$	29,421		$	129,416		1.63		$	138,487		$	22,723		$	115,764		$	1.45
Operational Improvement Initiatives (a)	1,026			294			732			0.01		621			155			466			0.01
Acquisition Related Costs (b)	(514		)	(134		)	(380		)	—		8,788			3,138			5,650			0.07
Integration Related Costs (c)	—			—			—			—		1,191			362			829			0.01
Tax Assessment (d)	—			—			—			—		5,350			1,892			3,458			0.04
Restructuring and Other Charges, net (e)	717			169			548			0.01		10,143			2,967			7,176			0.09
Gain on Sale of Assets	(69		)	(17		)	(52		)	—		(21		)	(7		)	(14		)	—
CTA Realization (f)	—			—			—			—		(12,214		)	—			(12,214		)	(0.15		)
FDA Mandated Product Recall (g)	5,000			1,196			3,804			0.05		—			—			—			—
U.S. Tax Reform (h)	—			(649		)	649			0.01		—			—			—			—
Adjusted (Non-GAAP)	$	164,997		$	30,280		$	134,717		$	1.69	$	152,345		$	31,230		$	121,115		$	1.52

(DOLLARS IN THOUSANDS) Reconciliation of Operating Profit
Reported (GAAP) Operational Improvement Initiative Costs (a) Acquisition Related Costs (b) Integration related costs (c) Legal Charges/Credits (d) Tax Assessment (e) Restructuring and Other Charges (f) Gain on Sale of Asset (g) FDA mandated product recall (i) Adjusted (Non-GAAP)
Operating profit $ 296,578
1,066
15,066
1,923
1,000
5,331
10,934
(89 ) 3,500
$ 335,309



(a)	For 2018, represents accelerated depreciation related to a plant relocation in India and a lab closure in Taiwan. 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 and Fragrance Resources, 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)	Represents costs related to the integration of the David Michael and Fragrance Resources acquisitions.
(d)	Represents the reserve for payment of a tax assessment related to commercial rent for prior periods.
(e)	Represents severance costs related to the 2017 Productivity Program and Taiwan lab closure.
(f)	Represents the release of CTA related to the liquidation of a foreign entity.
(g)	Represents management's best estimate of losses related to the previously disclosed FDA mandated recall.
(h)	Represents charges incurred related to enactment of certain U.S. tax legislation changes in December 2017.
(i)	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 first quarter of 2018, these non-GAAP adjustments were not subject to foreign tax credits or valuation allowances, 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).
(j)	The sum of these items does not foot due to rounding.

(DOLLARS IN THOUSANDS) Reconciliation of Net Income
Reported (GAAP) Operational Improvement Initiative Costs (a) Acquisition Related Costs (b) Integration related costs (c) Legal Charges/Credits (d) Tax Assessment (e) Restructuring and Other Charges (f) Gain on Sale of Asset (g) CTA Realization (h) FDA mandated product recall (i) Adjusted (Non-GAAP)
Income before taxes $ 280,527
1,066
15,066
1,922
1,000
5,331
10,934
(89 ) (12,217 ) 3,500
$ 307,040
Taxes on income (j) $ 54,968
266
4,610
606
354
1,885
2,892
(29 ) —
1,238
$ 66,790
Net income $ 225,559
800
10,456
1,316
646
3,446
8,042
(60 ) (12,217 ) 2,262
$ 240,250

~~____________________~~

~~(a) Represents accelerated depreciation and idle labor costs in Hangzhou, China.~~

~~(c) Represents costs related to the integration of the 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 which were partially offset by the reversal of 2015 severance charges that were no longer needed.~~

~~(g) Represents gains on sale of assets.~~

~~(h) Represents the release of CTA related to the liquidation of a foreign entity.~~

(i) Represents an estimate of the Company's incremental direct costs and customer reimbursement obligations, in excess of the Company's sales value of the recalled products, arising from an FDA mandated recall of consumer products as a result of raw material received and identified by the Company as containing contamination. (As discussed in Note 13 of the Consolidated Financial Statements, the sales value of the recalled products was reserved in the first quarter of 2017). While the Company does not believe that any of the affected raw material was included in its finished products delivered to the customer, as the delivered product included raw material of the same vendor lot that tested positive, the FDA, after being notified by the Company, initiated a recall of all consumer products including raw material from the affected vendor lot due to the potential for product contamination.

(j) 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 the first six months of 2017, these non-GAAP adjustments were not subject to foreign tax credits or valuation allowances, 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).

~~Six Months Ended June 30, 2016~~

(DOLLARS IN THOUSANDS) Reconciliation of Gross Profit
Reported (GAAP) Restructuring and Other Charges (a) Operational Improvement Initiative Costs (b) Acquisition and Related Costs (c) Adjusted (Non-GAAP)
Gross profit $ 725,849
283
1,099
889
728,120

(DOLLARS IN THOUSANDS) Reconciliation of Selling and Administrative Expenses
Reported (GAAP) Acquisition and Related Costs (c) Legal Charges/Credits (d) Adjusted (Non-GAAP)
Selling and Administrative Expenses $ 256,327
(360 ) 1,482
$ 257,449

(DOLLARS IN THOUSANDS) Reconciliation of Net Income
Reported (GAAP) Restructuring and Other Charges (a) Operational Improvement Initiative Costs (b) Acquisition Related Costs (c) Legal Charges/Credits (d) Gain on Sale of Asset (e) Adjusted (Non-GAAP)
Income before taxes $ 306,947
283
1,099
1,249
(1,482 ) (2,910 ) $ 305,186
Taxes on income (f) $ 71,610
54
275
266
(411 ) (637 ) $ 71,157
Net income $ 235,337
229
824
983
(1,071 ) (2,273 ) $ 234,029

~~____________________~~

~~(a) Accelerated depreciation related to restructuring activities.~~

~~(b) Accelerated depreciation and severance costs in Hangzhou, China.~~

(c) Expense related to the amortization of inventory step-up, included in Cost of goods sold, and additional transaction costs related to the acquisition of Lucas Meyer, included in Selling and administrative expenses.

~~(d) Settlements due to favorable tax rulings in jurisdictions for which reserves were previously recorded for ongoing tax disputes.~~

~~(e) Principally related to gain on sale of property in Europe.~~

(f) 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. For the first six months of 2016, these non-GAAP adjustments were not subject to foreign tax credits or valuation allowances, 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).

B. Foreign Currency Reconciliation


	Three Months Ended June 30,			Six Months Ended June 30,		Three Months Ended March 31,
	2017		2016	2017	2016	2018	2017
Operating Profit:
% Change - Reported (GAAP)	(3)%		11%	(11)%	7%	34%	(21)%
Items impacting comparability ⁽¹⁾	7%		(4)%	12%	(2)%	(19)%	18%
% Change - Adjusted (Non-GAAP)	4%		7%	1%	5%	16%	(3)%
Currency Impact	3%		—%	4%	2%	(4)%	5%
% Change Year-over-Year - Currency Neutral Adjusted (Non-GAAP)**	6%	*	7%	5%	7%	12%	2%

_______________________

⁽¹⁾ Includes ~~$12.7~~items impacting comparability of $6.2 million ~~of acquisition-related costs, costs associated with product recalls, legal charges, restructuring, integration-related~~ and ~~operational improvement initiative costs as well as gains on sales of fixed assets and $1.0~~$26.1 million ~~related to operational improvement initiative, acquisition-relation and restructuring costs which were partially offset by gains on sales of fixed assets and a favorable legal settlement~~ for the three months ended ~~June 30,~~March 31, 2018 and March 31, 2017, ~~and June 30, 2016,~~ respectively. Includes $38.7 million consisting of acquisition-related costs, costs associated with product recalls, legal charges, restructuring, integration-related and operational improvement initiative costs as well as gains on sales of fixed assets and excludes a benefit of $1.8 million related to gains on sales of fixed assets and a favorable legal settlement, which were only partially offset by acquisition-related, operational improvement initiative and restructuring costs for the six months ended June 30, 2017 and June 30, 2016, respectively.

** Currency neutral amount is calculated by translating prior year amounts at the exchange rates used for the corresponding ~~2017~~2018 period. Currency neutral operating profit also eliminates the year-over-year impact of cash flow hedging.

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

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 June 30,		Six Months Ended June 30,		Three Months Ended March 31,
(DOLLARS IN MILLIONS)	2017	2016	2017	2016
Amortization Expense:
(DOLLARS IN THOUSANDS)					2018	2017
PowderPure	$0.6	$—	$0.6	$—	$690	$—
Fragrance Resources	1.5	—	2.8	—	1,959	1,257
David Michael	1.1	—	1.7	—	1,131	595
Lucas Meyer	1.9	1.7	3.8	4.3	1,973	1,859
Ottens Flavors	1.6	1.6	3.1	3.2	1,571	1,571

Cautionary Statement Under the Private Securities Litigation Reform Act of 1995

Statements in this Form 10-Q, which are not historical facts or information, are “forward-looking statements” within the meaning 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 increases in raw material costs in 2018, (ii) the impact of operational performance, cost reduction efforts and mix enhancement on margin improvement, (iii) estimates of provisional tax charges related to the Tax Act and the impact on our effective tax rate for 2018; and (iv) the amount of expected pension contributions in 2018. 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:

the impact of the planned acquisition of Frutarom;

our ability to effectively compete in our market, and to successfully develop new products that appeal to our customers and consumers;

our ability to provide our customers with innovative, cost-effective products;

the impact of a disruption in our manufacturing operations;

the impact of the BASF supply chain disruption on the supply and price of a key ingredient in 2018;

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

our ability to react in a timely manner to changes in the consumer products industry related to health and wellness;

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

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 cost savings and efficiencies from our profitability improvement initiatives and the optimization of our manufacturing facilities;

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

our ability to maintain the integrity of our raw materials, supply chain and finished goods, and comply with applicable regulations;

uncertainties regarding the outcome of, or funding requirements, related to litigation or settlement of pending litigation, uncertain tax positions or other contingencies;

the impact of changes in our tax rates, tax liabilities, the adoption of new United States or international tax legislation, or changes in existing tax laws; and

our ability to successfully estimate the impact of certain accounting and tax matters.

New risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the 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, future events, or otherwise.

Any public statements or disclosures by the Company 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 Form 10-K, 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~~ITEM 3. ~~Quantitative and Qualitative Disclosures about Market Risk~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There are no material changes in market risk from the information provided in our ~~2016~~2017 Form 10-K.

~~Item~~ITEM 4. ~~Controls and Procedures~~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.

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, 2017~~March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

~~Item~~ITEM 1. ~~Legal Proceedings~~LEGAL PROCEEDINGS.

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

Environmental

We have been identified as a PRP at eight 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$5.0 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.

Risks Related to Our Planned Acquisition of Frutarom

If we are unable to complete our planned 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 our planned acquisition of Frutarom are subject to the satisfaction or waiver of the following customary conditions (i) the approval of the merger agreement and the merger by the shareholders of Frutarom; (ii) the expiration or early termination of the waiting period applicable to the consummation of the merger 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; (iii) receipt of all governmental and stock exchange approvals necessary for the issuance of shares as contemplated by the merger agreement, (iv) the absence of any order, or the enactment of any law, prohibiting the merger; (v) 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 (vi) the absence of any material adverse effect on Frutarom or our company since the date of the merger agreement. 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 planned acquisition of Frutarom and the associated financings will be satisfied in a timely manner or at all which may affect when and whether the merger will occur. If our planned acquisition of Frutarom is not completed, our share price could fall to the extent that our current price reflects an assumption that we will complete the planned acquisition. Furthermore, if the planned acquisition of Frutarom 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 planned acquisition (including significant legal and financial advisory fees) and many of these costs are payable by us whether or not the planned acquisition is completed;

matters relating to the planned 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 acquisition or the failure to complete the acquisition;

the failure to consummate the 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 merger is not consummated.

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

Our planned acquisition of Frutarom, if completed, will be our largest acquisition to date. The anticipated benefits from the planned 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 potential 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 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 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 transaction; 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 transactions 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 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 our planned acquisition of Frutarom may adversely affect our relationships with customers and employees, which could negatively affect our business, whether or not the planned acquisition is completed.

The announcement of our planned acquisition of Frutarom May 7, 2018, whether or not completed, 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 planned 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 acquisition of Frutarom may result in significant charges or other liabilities that could adversely affect the financial results of the combined company.

The financial results of the combined company 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 transaction.

In addition, upon the acquisition of Frutarom we will assume all their liabilities, including unknown and contingent liabilities that Frutarom assumed in connection with their acquisitions, that we failed or were 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 in the past two years. 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 target company, which we will assume upon consummation of the transaction. 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 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 our planned acquisition of Frutarom may not be obtained or may contain materially burdensome conditions.

Completion of our planned 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 acquisition are required to obtain these regulatory approvals, they may have the effect of jeopardizing or delaying completion of the planned acquisition or reducing the anticipated benefits of the planned acquisition. If we agree to any material conditions in order to obtain any approvals required to complete the planned 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 our planned Frutarom acquisition 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 planned 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 March 31, 2018, we had approximately $305.3 million of cash and cash equivalents and approximately $1.7 billion of total debt outstanding. In connection with the planned 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 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 our planned acquisition of Frutarom and to finance part of the cash consideration for the acquisition, and any future offerings of securities by us, will dilute our shareholders’ ownership interest in the company.

Our planned 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 Frutarom acquisition. 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.

~~Item~~ITEM 2. ~~Unregistered Sales of Equity Securities and Use of Proceeds~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

~~(c)~~ Issuer Purchases of Equity ~~Securities~~Securities.

The following table ~~below~~ reflects purchases made by, or on behalf of, the Company, of shares of the Company’s common stock, ~~we repurchased~~reported based on the trade date, during the ~~second~~ ~~quarter of~~ ~~2017~~.three months ended March 31, 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, 2017 42,654 $133.63 42,654
$ 65,986,090
May 1 - 31, 2017 37,372 136.45 37,372
60,886,514
June 1 - 30, 2017 34,904 137.50 34,904
56,087,164
Total 114,930 $135.72 114,930
$ 56,087,164



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
January 1 - 31, 2018	24,553	$	153.91	24,553	$	291,362,668
February 1 - 28, 2018	23,861	143.28		23,861	287,943,855
March 1 - 31, 2018	27,381	138.02		27,381	284,164,750
Total	75,795	$	144.82	75,795	$	284,164,750

_______________________

(1)

Shares were repurchased pursuant to the Company’s share repurchase program originally announced in December 2012 and amended in August 2015 (i) to increase from $250 million to $500 million the total purchase price of shares that may be repurchased under the program and (ii) to extend the program through December 31, 2017.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 planned acquisition of Frutarom.

~~Item~~ITEM 6. ~~Exhibits~~EXHIBITS.



~~4.7~~3(ii)		~~Second Supplemental Indenture, dated as~~Bylaws of ~~May 18, 2017, among~~ International Flavors & Fragrances Inc. ~~and U.S. Bank National Association,~~, effective as ~~trustee (including the form~~ of ~~Notes),~~May 3, 2018, incorporated by reference to Exhibit ~~4.7~~3(ii) to the Registrant's Current Report on Form 8-K filed on May ~~18, 2017.~~3, 2018.
12		Statement re: Computation of ~~Ratios~~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

~~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.~~

~~INTERNATIONAL FLAVORS & FRAGRANCES INC.~~



~~Dated:~~	~~August 8, 2017~~	~~By:~~	~~/s/ Andreas Fibig~~
			~~Andreas Fibig~~
			~~Chairman of the Board and Chief Executive Officer~~

~~Dated:~~	~~August 8, 2017~~	~~By:~~	~~/s/ Richard A. O'Leary~~
			~~Richard A. O'Leary~~
			~~Executive Vice President and Chief Financial Officer~~

EXHIBIT INDEX



Number		Description
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.
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

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:	May 7, 2018	By:	/s/ Andreas Fibig
			Andreas Fibig
			Chairman of the Board and Chief Executive Officer

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



Derivatives Not Designated as Hedging Instruments	Amount of Gain (Loss) Recognized in Income on Derivative						Location of Gain (Loss) Recognized in Income on Derivative
	Three Months Ended June 30,
	2017			2016
Foreign currency contracts	$	(3,054	)	$	1,395		Other (income) expense, net
Derivatives Not Designated as Hedging Instruments	Amount of Gain (Loss) Recognized in Income on Derivative						Location of Gain (Loss) Recognized in Income on Derivative
	Six Months Ended June 30,
	2017			2016
Foreign currency contracts	$	(13,181	)	$	(3,548	)	Other (income) expense, net