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Acquisitions | 9 Months Ended
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Sep. 30, 2021
Business Combinations [Abstract] |
Acquisitions | ACQUISITIONS Transaction with Nutrition & Biosciences, Inc. On February 1, 2021, IFF completed the Merger with N&B. Pursuant to the transaction related agreements, DuPont transferred its N&B Business to N&B, a wholly-owned subsidiary of DuPont, and N&B merged with and into a wholly owned subsidiary of IFF in exchange for 141,740,461 shares of IFF common stock, par value $0.125 per share (“IFF Common Stock”). On the Closing Date, the Company completed its Merger with N&B in a Reverse Morris Trust transaction (the “Transactions”), pursuant to which the Company acquired the N&B Business of DuPont. In the Transactions, among other steps (i) DuPont transferred the N&B Business to N&B (the “Separation”); (ii) N&B made a cash distribution to DuPont of approximately $7.359 billion, subject to certain adjustments (the “Special Cash Payments”); (iii) DuPont distributed to its stockholders all of the issued and outstanding shares of N&B common stock by way of an exchange offer (the “Distribution”), and; (iv) N&B merged with and into a wholly owned subsidiary of IFF. As a result of the Merger, the existing shares of N&B common stock were automatically converted into the right to receive a number of shares of IFF Common Stock. Immediately after the Merger, holders of DuPont’s common stock that received shares of N&B common stock in the Distribution owned approximately 55.4% of the outstanding shares of IFF Common Stock on a fully diluted basis and existing holders of IFF Common Stock owned approximately 44.6% of the outstanding shares of IFF on a fully diluted basis. The Merger was accounted for using the purchase method of accounting in accordance with ASC Topic 805, Business Combinations, with IFF identified as the acquirer. As a result of the Merger, N&B’s assets, liabilities and the operating results of N&B were included in the Company’s financial statements from the Closing Date. N&B contributed net sales of approximately $1.640 billion and net income of approximately $93 million for the three months ended September 30, 2021 and net sales of approximately $4.409 billion and net loss of approximately $51 million for the nine months ended September 30, 2021, which includes the effects of purchase accounting adjustments, primarily related to changes in amortization of intangible assets, depreciation of property, plant and equipment and amortization of stepped up inventory. Prior to the Distribution, N&B incurred new indebtedness in the form of term loans and senior notes in an aggregate principal amount of $7.500 billion to pay the Special Cash Payments made to DuPont stockholders. See Note 7 for additional information regarding the new term loans and senior notes incurred by N&B and subsequently assumed by IFF. Purchase Price The following table summarizes the aggregate purchase price consideration paid to acquire N&B (in millions, except share and per share data):
(DOLLARS IN MILLIONS) |
Fair value of common stock issued to DuPont stockholders(1) | $ | 15,929 |
Fair value attributable to pre-merger service for replacement equity awards(2) | 25 |
Total purchase consideration | $ | 15,954 |
_______________________ (1)The fair value of common stock issued to DuPont stockholders represents 141,740,461 shares of the Company's common stock determined based on the number of fully diluted shares of IFF common stock, immediately prior to the Closing Date, multiplied by the quotient of 55.4%/44.6% and IFF common stock closing share price of $112.38 on the New York Stock Exchange on the Closing Date. (2)At the time of the Transactions, each outstanding stock option, cash-settled stock appreciation right (“SAR”), restricted stock unit (“RSU”) award, and restricted stock award (“RSA”) with respect to DuPont common stock held by employees of N&B were canceled and converted into similar classes of equity awards of IFF’s Class A Common Stock. Further, each outstanding Performance Share Unit (“PSU”) award with respect to DuPont common stock held by employees of N&B were canceled and converted into IFF’s RSU awards. The conversion was based on the ratio of the volume-weighted average per share closing price of DuPont stock on the twenty trading days prior to the Closing Date and IFF’s stock on the twenty trading days following the Closing Date. The fair value of replacement equity-based awards attributable to pre-Merger service was recorded as part of the consideration transferred in the Merger (see Note 10 for additional information). Purchase Price Allocation The Merger with N&B was accounted for under the acquisition method under which the Company allocated the purchase consideration to the tangible net assets and identifiable assets acquired based on estimated fair values at the Closing Date, and recorded the excess of consideration over the fair values of net assets acquired as goodwill. The purchase price allocation is preliminary and is subject to change. The Company is still evaluating the valuation and estimated useful lives of property, plant and equipment, goodwill, intangible assets (trade names, customer relationships and technological know-hows), inventory and leases, in addition to ensuring all other assets and liabilities and contingencies have been identified and recorded. The purchase price allocation is expected to be completed in the fourth quarter of 2021. The Company has estimated the preliminary fair value of net assets acquired based on information currently available and will continue to adjust those estimates as additional information becomes available during the measurement period. As of September 30, 2021, the Company has not finalized its assessment of the In-Process Research and Development (IPR&D) assets acquired as part of the Transactions. Further, the assessment of certain contingencies including loss contracts and environmental liabilities, pension and postretirement benefit obligations and taxes remain open for completion of the related analysis. Additionally, the Company is finalizing the projected combined future tax rate to be applied to the valuation of assets, which could impact the valuation of goodwill and intangible assets. The Company will finalize its accounting for the N&B Merger, including the allocation of goodwill to reporting units, within one year of the Closing Date. The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed:
(DOLLARS IN MILLIONS) | Preliminary Estimated Fair Value as Reported in the First Quarter of 2021 |  | Measurement Period Adjustments(1) |  | As Reported in the Third Quarter of 2021
Cash and cash equivalents | $ | 207 |  |  | $ | (14) |  |  | $ | 193 |
Receivables | 962 |  |  | (9) |  |  | 953 |
Inventory | 1,615 |  |  | (29) |  |  | 1,586 |
Prepaid expenses and other current assets | 342 |  |  | 1 |  |  | 343 |
Property, plant and equipment | 3,242 |  |  | (178) |  |  | 3,064 |
Deferred income taxes | 75 |  |  | 2 |  |  | 77 |
Intangible assets | 9,176 |  |  | 122 |  |  | 9,298 |
Other assets | 702 |  |  | 44 |  |  | 746 |
Accounts payable and accrued liabilities | (1,028) |  |  | (19) |  |  | (1,047) |
Accrued payroll and employee benefits | (163) |  |  | 1 |  |  | (162) |
Deferred tax liabilities | (2,369) |  |  | 29 |  |  | (2,340) |
Long-term debt | (7,636) |  |  | — |  |  | (7,636) |
Other long-term liabilities | (907) |  |  | 18 |  |  | (889) |
Total identifiable net assets assumed | 4,218 |  |  | (32) |  |  | 4,186 |
Non-controlling interest | (26) |  |  | (8) |  |  | (34) |
Goodwill | 11,762 |  |  | 40 |  |  | 11,802 |
Preliminary purchase price | $ | 15,954 |  |  | $ | — |  |  | $ | 15,954 |
_______________________ (1)The preliminary fair value purchase price allocation of the assets and liabilities acquired in the N&B Merger as reported in the first quarter of 2021 were updated during the six months ended September 30, 2021 to reflect updated fair values for intangible assets, property, plant and equipment, and inventory. In addition, the carrying amounts of certain assets and liabilities were updated based on additional analysis of acquired assets and liabilities that existed at the acquisition date. The cumulative impact of the adjustments during the six months ended September 30, 2021 resulted in a $40 million increase to goodwill. Acquired inventory is comprised of finished goods, work in process and raw materials. The preliminary fair value of finished goods was calculated as the estimated selling price, adjusted for costs of the selling effort and a reasonable profit allowance relating to the selling effort. The preliminary fair value of work in process inventory was primarily calculated as the estimated selling price, adjusted for estimated costs to complete the manufacturing, estimated costs of the selling effort, as well as a reasonable profit margin on the remaining manufacturing and selling effort. The preliminary fair value of raw materials and supplies was determined based on replacement cost which approximates historical carrying value. The preliminary fair value step-up has been amortized to “Cost of goods sold” in the Consolidated Statements of Income and Comprehensive (Loss) Income as the inventory was sold. The preliminary fair value of property, plant and equipment was primarily calculated using the cost approach, which determines the replacement costs for the assets and adjusts it for their age and condition. The fair value of the land assets was determined via the sales comparison approach. The long-term debt assumed is comprised of a Term Loan Facility and Notes. The fair value of the Notes was determined on the basis of unadjusted quoted prices on an over-the-counter market. The fair value of the long-term debt assumed as part of the Term Loan Facility is based on the total indebtedness at the time of closing the Merger. The Company has recognized $11.802 billion of goodwill to date in connection with the N&B Merger, which is in part attributable to expected synergies generated by the integration of N&B including cross-selling benefits as well as cost synergies, substantially all of which is not deductible for income tax purposes. Any further changes in the estimated fair values of the assets acquired and liabilities assumed in the Merger may change the amount of the purchase consideration allocated to goodwill. Goodwill of $2.702 billion, $6.651 billion, $910 million and $1.539 billion is allocated to the Nourish, Health & Biosciences, Scent and Pharma Solutions segments, respectively. The allocation of goodwill to segments was based on a preliminary analysis and is subject to change during the measurement period. The estimated preliminary fair value and useful lives of the identifiable intangible assets are as follows:
(DOLLARS IN MILLIONS) | Estimated Amounts | Estimated Useful Lives
Finite lived intangible assets |  |
Trade names | $ | 262 |  | 4 to 22 years
Customer relationships | 6,855 |  | 10 to 27 years
Technological know-how | 2,160 |  | 5 to 18 years
Other | 21 |  | 2 years
Total | $ | 9,298 |  |
The fair value of intangible assets is generally determined using an income method, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other market participants, and include the amount and timing of future cash flows (including expected growth rates and profitability), royalty rates used in the relief from royalty method, customer attrition rates, product obsolescence factors, a brand’s relative market position and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances may occur, which could affect the accuracy or validity of the estimates and assumptions. Determining the useful life of an intangible asset also requires significant judgment. Trade names, customer relationships and technological know-hows are expected to have finite lives. The costs of finite-lived intangible assets are amortized through expense over their estimated lives. Lease liabilities, included in “Other current liabilities” and “Operating lease liabilities” in the Consolidated Balance Sheets, at the Closing Date, are remeasured at the present value of the future minimum lease payments over the remaining lease term and the incremental borrowing rate of the Company as if the acquired leases were new leases as of the Closing Date. Right-of-use assets included in "Operating lease right-of-use assets" and “Other assets” in the Consolidated Balance Sheets as of the Closing Date, are equal to the amount of the lease liability at the Closing Date. As of September 30, 2021, the Company has not finalized its assessment of any off-market terms of the leases. The remaining lease term is based on the remaining term at the Closing Date plus any renewal or extension options that the Company is reasonably certain will be exercised. The deferred income tax assets and liabilities include the expected future federal, state and foreign tax consequences associated with temporary differences between the preliminary fair values of the assets acquired and liabilities assumed and the respective tax bases. Tax rates utilized in calculating deferred income taxes generally represent the enacted statutory tax rates at the effective date of the Merger in the jurisdictions in which legal title of the underlying asset or liability resides. See Note 9 for additional information related to income taxes. Pro Forma Financial Information The following unaudited pro forma financial information presents the combined results of operations of IFF and N&B as if the Merger had been completed as of the prior fiscal year, or January 1, 2020. The unaudited pro forma financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the Merger and related borrowings had taken place on January 1, 2020, nor are they indicative of future results. The unaudited pro forma financial information for the nine months ended September 30, 2021 includes IFF results, including the post-Merger results of N&B, since February 1, 2021, and pre-Merger results of N&B for the period January 1, 2021 through January 31, 2021. The unaudited pro forma results for the nine months ended September 30, 2021 and 2020 were as follows:
|  |  | Nine Months Ended September 30,
(DOLLARS IN MILLIONS) |  |  |  |  | 2021 |  | 2020
Unaudited pro forma net sales |  |  |  |  | $ | 9,132 |  |  | $ | 8,371 |
Unaudited pro forma net income attributable to the Company |  |  |  |  | 593 |  |  | 96 |
The unaudited pro forma results for all periods include adjustments made to account for certain costs and transactions that would have been incurred had the Merger been completed as of January 1, 2020, including amortization charges for acquired intangibles assets, adjustments for transaction costs, adjustments for depreciation expense for property, plant and equipment, inventory step-up and adjustments to interest expense. These adjustments are net of any applicable tax impact and were included to arrive at the pro forma results above. For the three months ended September 30, 2021, the transaction-related costs incurred by the Company were not material. For the nine months ended September 30, 2021, the Company incurred transaction-related costs of approximately $91 million. This amount primarily consists of the following: approximately $79 million of merger and acquisition advisory fees and $12 million of professional services fees, legal fees and others.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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