Income Taxes

The effective income tax rates for the quarters ended September 30, 2018 and 2017, were -5.2% and 31.6%, respectively. For the nine month periods ended September 30, 2018 and 2017, the effective income tax rates were 12.1% and 28.1%, respectively. The effective tax rates in both 2018 and 2017 were impacted by changes in estimates associated with the finalization of prior year foreign and domestic tax items, audit settlements, adjustments to valuation allowances, and the mix of foreign earnings. The 2018 tax rate was also impacted by the 2017 Tax Cuts and Jobs Act, which is commonly referred to as the “2017 Tax Legislation”, including the filing of certain tax elections in the second quarter of 2018, an adjustment made in the current quarter to the provisional amount recorded in 2017 for the impact of the 2017 Tax Legislation, and the tax benefit associated with certain transactions undertaken in the quarter. These transactions reduced the tax rate by 12.5 and 3.9 percentage points for the three and nine month periods ended September 30, 2018, respectively. The tax rate in 2017 was also impacted by the restructuring activities, the limited tax deductibility of losses related to the Company’s restructuring activities, and the sale of a facility and certain related business lines within the Flavors & Fragrances segment in Strasbourg, France.

Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Legislation. Based on guidance issued by the IRS during the quarter, the Company reduced its 2017 provisional estimate of the impact of the 2017 Tax Legislation by $7.1 million during the current quarter. The reduction is made up of a $4.1 million reduction to the one-time transition tax on earnings of foreign subsidiaries and $3.0 million on the reassessment of the U.S. deferred tax assets and liabilities, including the ability to realize deferred tax assets in the future. The Company is still applying SAB 118, and believes the impact of the 2017 Tax Legislation on the 2018 and 2017 income tax expenses should be considered provisional estimates. The ultimate impact could differ from these provisional amounts, possibly materially, due to additional guidance, changes in interpretation, and additional analysis by the Company. Any adjustments to the 2018 and 2017 provisional estimates will be reported in income tax expense in the reporting period in which any such adjustments are determined, which will be no later than the fourth quarter of 2018.