Sensient Technologies Corp 10-Q for FY2022 Q3
Sensient Technologies Corp (SXT)
10-Q
2022-11-01
For: 2022-09-30
View Original
Added on
April 10, 2026
About this 10-Q
Sensient Technologies Corp filed this 10-Q on November 1, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $361.08M
- up 4.9% from $344.29M a year earlier
- Net income
- $36.05M
- up 6.3% from net income of $33.91M a year earlier
- Diluted EPS
- $0.85
- up 6.3% from $0.80 a year earlier
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended:
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
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to
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Commission file number: 001-07626
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number)
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(Address of principal executive offices)
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Registrant’s telephone number, including area code:
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(
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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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 at least the past 90 days.Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated Filer ☐
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Non-Accelerated Filer ☐
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Smaller Reporting Company
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Emerging Growth Company
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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 ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class
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Outstanding at October 26, 2022
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Common Stock, par value $0.10 per share
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SENSIENT TECHNOLOGIES CORPORATION
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Page No.
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PART I. FINANCIAL INFORMATION:
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Item 1.
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Financial Statements:
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1
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2
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3
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4
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5
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6
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Item 2.
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16
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Item 3.
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23
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Item 4.
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23
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PART II. OTHER INFORMATION:
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Item 1.
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23
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Item 1A.
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23
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Item 2.
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23
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Item 6.
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23
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24
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25
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| PART I. |
FINANCIAL INFORMATION
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| ITEM 1. |
FINANCIAL STATEMENTS
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SENSIENT TECHNOLOGIES CORPORATION
(In thousands except per share amounts)
(Unaudited)
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Three Months
Ended September 30,
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Nine Months
Ended September 30,
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|||||||||||||||
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2022
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2021
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2022
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2021
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|||||||||||||
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Revenue
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$
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$
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$
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$
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||||||||
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Cost of products sold
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Selling and administrative expenses
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Operating income
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Interest expense
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Earnings before income taxes
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Income taxes
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Net earnings
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$
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$
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$
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$
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Weighted average number of common shares outstanding:
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||||||||||||||||
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Basic
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Diluted
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||||||||||||
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Earnings per common share:
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||||||||||||||||
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Basic
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$
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$
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$
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$
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||||||||
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Diluted
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$
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|
$
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$
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$
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||||||||
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Dividends declared per common share
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$
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$
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$
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|
$
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||||||||
See accompanying notes to consolidated condensed financial statements.
SENSIENT TECHNOLOGIES CORPORATION
(In thousands)
(Unaudited)
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Three Months
Ended September 30,
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Nine Months
Ended September 30,
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|||||||||||||||
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2022
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2021
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2022
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2021
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|||||||||||||
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Comprehensive income
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$
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|
$
|
|
$
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|
$
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|
||||||||
See accompanying notes to consolidated condensed financial statements.
SENSIENT TECHNOLOGIES CORPORATION
(In thousands)
| |
September 30,
2022
(Unaudited)
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December 31,
2021
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||||||
| Assets |
||||||||
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Current Assets:
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||||||||
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Cash and cash equivalents
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$
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$
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||||
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Trade accounts receivable
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||||||
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Inventories
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||||||
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Prepaid expenses and other current assets
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||||||
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Total current assets
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Other assets
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||||||
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Deferred tax assets
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||||||
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Intangible assets, net
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||||||
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Goodwill
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||||||
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Property, Plant, and Equipment:
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||||||||
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Land
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||||||
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Buildings
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||||||
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Machinery and equipment
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||||||
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Construction in progress
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||||||
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|||||||
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Less accumulated depreciation
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(
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)
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(
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)
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||||
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|||||||
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Total assets
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$
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$
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||||
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Liabilities
and Shareholders’ Equity
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||||||||
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Current Liabilities:
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||||||||
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Trade accounts payable
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$
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$
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||||
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Accrued salaries, wages, and withholdings from employees
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||||||
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Other accrued expenses
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||||||
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Income taxes
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Short-term borrowings
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Total current liabilities
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Deferred tax liabilities
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Other liabilities
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Accrued employee and retiree benefits
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Long-term debt
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Shareholders’ Equity:
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||||||||
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Common stock
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||||||
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Additional paid-in capital
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||||||
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Earnings reinvested in the business
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Treasury stock, at cost
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(
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)
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(
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)
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||||
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Accumulated other comprehensive loss
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(
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)
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(
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)
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||||
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Total shareholders’ equity
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|
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||||||
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Total liabilities and shareholders’ equity
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$
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$
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|
||||
See accompanying notes to consolidated condensed financial statements.
SENSIENT TECHNOLOGIES CORPORATION
(In thousands)
(Unaudited)
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Nine Months
Ended September 30,
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||||||||
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2022
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2021
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|||||||
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Cash flows from operating activities:
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||||||||
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Net earnings
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$
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$
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||||
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Adjustments to arrive at net cash provided by operating activities:
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||||||||
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Depreciation and amortization
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Share-based compensation expense
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Net loss on assets
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Loss on divestitures and other charges
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Deferred income taxes
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Changes in operating assets and liabilities:
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||||||||
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Trade accounts receivable
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(
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)
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(
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)
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||||
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Inventories
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(
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)
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(
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)
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||||
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Prepaid expenses and other assets
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(
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)
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(
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)
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||||
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Accounts payable and other accrued expenses
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||||||
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Accrued salaries, wages, and withholdings from employees
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||||||
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Income taxes
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(
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)
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(
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)
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||||
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Other liabilities
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|
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||||||
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Net cash provided by operating activities
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|
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||||||
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Cash flows from investing activities:
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||||||||
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Acquisition of property, plant, and equipment
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(
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)
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(
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)
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||||
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Proceeds from sale of assets
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||||||
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Proceeds from divestiture of businesses
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Acquisition of new business
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( |
) | ( |
) | ||||
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Other investing activities
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||||||
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Net cash used in investing activities
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(
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)
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(
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)
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||||
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Cash flows from financing activities:
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||||||||
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Proceeds from additional borrowings
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|
||||||
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Debt payments
|
(
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)
|
(
|
)
|
||||
|
Purchase of treasury stock
|
|
(
|
)
|
|||||
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Dividends paid
|
(
|
)
|
(
|
)
|
||||
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Other financing activities
|
(
|
)
|
(
|
)
|
||||
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Net cash provided by (used in) financing activities
|
|
(
|
)
|
|||||
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Effect of exchange rate changes on cash and cash equivalents
|
|
(
|
)
|
|||||
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Net increase in cash and cash equivalents
|
|
|
||||||
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Cash and cash equivalents at beginning of period
|
|
|
||||||
|
Cash and cash equivalents at end of period
|
$
|
|
$
|
|
||||
See accompanying notes to consolidated condensed financial statements.
SENSIENT TECHNOLOGIES CORPORATION
(In thousands, except share and per share amounts)
(Unaudited)
|
Common
|
Additional
Paid-In
|
Earnings Reinvested
in the
|
Treasury Stock
|
Accumulated
Other
Comprehensive
|
Total
|
|||||||||||||||||||||||
|
Three Months Ended Sept. 30, 2022
|
Stock
|
Capital
|
Business
|
Shares
|
Amount
|
Income (Loss)
|
Equity
|
|||||||||||||||||||||
|
Balances at June 30, 2022
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||
|
Net earnings
|
|
|
|
-
|
|
|
|
|||||||||||||||||||||
|
Other comprehensive loss
|
|
|
|
-
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Cash dividends paid – $
|
|
|
(
|
)
|
-
|
|
|
(
|
)
|
|||||||||||||||||||
|
Share-based compensation
|
|
|
|
-
|
|
|
|
|||||||||||||||||||||
|
Balances at September 30, 2022
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||
Three Months Ended Sept. 30, 2021
|
Balances at June 30, 2021
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||
|
Net earnings
|
|
|
|
-
|
|
|
|
|||||||||||||||||||||
|
Other comprehensive loss
|
|
|
|
-
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Cash dividends paid – $
|
|
|
(
|
)
|
-
|
|
|
(
|
)
|
|||||||||||||||||||
|
Share-based compensation
|
|
|
|
-
|
|
|
|
|||||||||||||||||||||
| Purchase of treasury stock |
( |
) | ( |
) | ||||||||||||||||||||||||
|
Balances at September 30, 2021
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
Nine Months Ended September 30, 2022
|
Balances at December 31, 2021
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||
|
Net earnings
|
|
|
|
-
|
|
|
|
|||||||||||||||||||||
|
Other comprehensive loss
|
|
|
|
-
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Cash dividends paid – $
|
|
|
(
|
)
|
-
|
|
|
(
|
)
|
|||||||||||||||||||
|
Share-based compensation
|
|
|
|
-
|
|
|
|
|||||||||||||||||||||
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Non-vested stock issued upon vesting
|
|
(
|
)
|
|
(
|
)
|
|
|
|
|||||||||||||||||||
|
Benefit plans
|
|
|
|
(
|
)
|
|
|
|
||||||||||||||||||||
|
Other
|
|
(
|
)
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||||
|
Balances at September 30, 2022
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
Nine Months Ended September 30, 2021
|
Balances at December 31, 2020
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||
|
Net earnings
|
|
|
|
-
|
|
|
|
|||||||||||||||||||||
|
Other comprehensive loss
|
|
|
|
-
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Cash dividends paid – $
|
|
|
(
|
)
|
-
|
|
|
(
|
)
|
|||||||||||||||||||
|
Share-based compensation
|
|
|
|
-
|
|
|
|
|||||||||||||||||||||
|
Non-vested stock issued upon vesting
|
|
(
|
)
|
|
(
|
)
|
|
|
|
|||||||||||||||||||
|
Benefit plans
|
|
|
|
(
|
)
|
|
|
|
||||||||||||||||||||
|
Purchase of treasury stock
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||
|
Other
|
|
(
|
)
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||||
|
Balances at September 30, 2021
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
See accompanying notes to consolidated condensed financial statements.
SENSIENT TECHNOLOGIES
CORPORATION
(Unaudited)
|
1.
|
Accounting Policies
|
In the opinion of Sensient Technologies Corporation (the
Company), the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) that are necessary to present fairly the financial position of the Company as of September
30, 2022, and the results of operations, comprehensive income, and shareholders’ equity for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. The results of
operations for any interim period are not necessarily indicative of the results to be expected for the full year.
The
preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. Expenses are charged to operations in the period incurred.
Recently Issued Accounting Pronouncements
In March 2020, the Financial Accounting
Standards Board (FASB) issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and
exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other inter-bank offered rates to alternative rates. The guidance is effective upon
issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements and its related disclosures.
Please refer to the notes in the Company’s
annual consolidated financial statements for the year ended December 31, 2021, for additional details of the Company’s financial condition and a description of the Company’s accounting policies, which have been continued without change.
| 2. |
Divestitures
|
On June 30, 2020, the Company completed the sale of its inks product line. On September 18, 2020, the Company completed the sale of its
yogurt fruit preparations product line. This sale also included an earnout based on future performance, which could result in additional cash consideration for the Company. On April 1, 2021, the Company completed the sale of its fragrances
product line (excluding its essential oils product line) for $36.3 million of net cash.
The Company reports all costs associated with the
divestitures in Corporate & Other. There were no
The following table summarizes the divestiture & other related costs for the three months ended September 30, 2021:
|
(In thousands)
|
Yogurt Fruit Preparations
|
Fragrances
|
Inks
|
Corporate &
Other
|
Total
|
|||||||||||||||
|
Other costs - Selling and administrative expenses(1)
|
$ |
|
$ |
|
$ |
(
|
)
|
$ |
|
$ |
|
|||||||||
| (1) |
|
The following table
summarizes the divestiture & other related costs for the nine months ended September 30, 2021:
|
(In
thousands)
|
Yogurt Fruit Preparations
|
Fragrances
|
Inks
|
Corporate &
Other
|
Total
|
|||||||||||||||
|
Non-cash
impairment charges – Selling and administrative expenses
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Non-cash
charges – Cost of products sold
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Reclassification
of foreign currency translation and related items – Selling and administrative expenses
|
|
|
|
|
|
|||||||||||||||
|
Other costs -
Selling and administrative expenses(1)
|
|
|
(
|
)
|
|
|
||||||||||||||
|
Total
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
| (1) |
|
In March 2020, the Company was notified by the buyer of the Company’s fragrances product line that environmental sampling conducted at the Company’s Granada, Spain location had identified the presence
of contaminants in soil and groundwater in certain areas of the property. The Company records liabilities related to environmental remediation obligations when estimated future expenditures are probable and the amount of the liability is
reasonably estimable. Based upon an environmental investigation and a quantitative risk assessment performed by a consultant hired by the Company, the Company recorded $0.3 million related to these obligations in Selling and Administrative Expenses during the nine months ended September 30, 2021.
| 3. |
Operational Improvement Plan
|
During
the third quarter of 2020, the Company approved an operational improvement plan (Operational Improvement Plan) to consolidate manufacturing facilities and improve efficiencies within the Company. As part of the Operational Improvement Plan, the
Company combined its New Jersey cosmetics manufacturing facility in the Personal Care product line of the Color segment into its existing Color segment facility in Missouri. In addition, the Company centralized certain Flavors & Extracts
segment support functions in Europe into one location. In the Asia Pacific segment, the Company incurred costs in connection with the elimination of certain selling and administrative positions.
The
Company reports all costs and income associated with the Operational Improvement Plan in Corporate & Other. There were no
The
following table summarizes the Operational Improvement Plan expenses recorded in Selling and Administrative Expenses by segment for the three months ended September 30, 2021:
|
(In thousands)
|
Flavors &
Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Employee separation costs
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
Other costs(1)
|
|
|
|
|
||||||||||||
|
Total expense (income)
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
| (1) |
The following table summarizes the Operational
Improvement Plan expenses recorded in Selling and Administrative Expenses by segment for the nine months ended September 30, 2021:
|
(In thousands) |
Flavors &
Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Employee separation costs
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Other income(1)
|
|
(
|
)
|
|
(
|
)
|
||||||||||
|
Other costs(2)
|
|
|
|
|
||||||||||||
|
Total expense (income)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
| (1) |
|
|
|
(2) |
|
As of September 30, 2022 and December 31 2021, accrued liabilities in Other Accrued Expenses totaled $0.3 million and $0.8 million,
respectively, related to the Operational Improvement Plan.
| 4. |
Acquisition
|
On July 15, 2021, the Company acquired substantially all of the assets of Flavor Solutions, Inc., a flavors
business located in New Jersey. The purchase price for this acquisition was $14.9 million in cash. The assets acquired and liabilities
assumed were recorded at their estimated fair value as of the acquisition date. The Company acquired net assets of $0.4 million and
identified intangible assets, principally customer relationships, of $5.0 million. The remaining $9.5 million was allocated to goodwill. This business is now part of the Flavors & Extracts segment.
|
5.
|
Trade Accounts Receivable
|
Trade accounts receivables are recorded at their face amount, less an allowance for expected losses on doubtful accounts. The allowance for doubtful accounts is calculated based on customer-specific analysis and an
aging methodology using historical loss information. The Company believes historical loss information is a reasonable basis for expected credit losses as the Company’s historical credit loss experience correlates with its customer delinquency
status. This information is also adjusted for any known current economic conditions, including the current and expected impact of COVID-19. Currently, the COVID-19 pandemic has not had and is not anticipated to have a material impact on trade
accounts receivable. Forecasted economic conditions have not had a significant impact on the current credit loss estimate due to the short-term nature of the Company’s customer receivables; however, the Company will continue to monitor and evaluate
the rapidly changing economic conditions. Additionally, as the Company only has one portfolio segment, there are not different risks
between portfolios. Specific accounts are written off against the allowance for doubtful accounts when the receivable is deemed no longer collectible.
The following table summarizes the changes in
the allowance for doubtful accounts during the three and nine month periods ended September 30, 2022 and 2021:
|
(In thousands)
Three Months Ended September 30, 2022
|
Allowance for
Doubtful Accounts
|
|||
|
Balance at June
30, 2022
|
$
|
|
||
|
Provision for
expected credit losses
|
|
|||
|
Accounts
written off
|
(
|
)
|
||
|
Translation and
other activity
|
(
|
)
|
||
|
Balance at
September 30, 2022
|
$
|
|
||
|
(In thousands)
Three Months Ended September 30, 2021
|
Allowance for
Doubtful Accounts
|
|||
|
Balance at June 30, 2021
|
$
|
|
||
|
Provision for
expected credit losses
|
|
|||
|
Accounts
written off
|
(
|
)
|
||
|
Translation and
other activity
|
(
|
)
|
||
|
Balance at
September 30, 2021
|
$
|
|
||
|
(In thousands)
Nine
Months Ended September 30, 2022
|
Allowance for
Doubtful Accounts
|
|||
|
Balance at
December 31, 2021
|
$
|
|
||
|
Provision for
expected credit losses
|
|
|||
|
Accounts
written off
|
(
|
)
|
||
|
Translation and
other activity
|
(
|
)
|
||
|
Balance at
September 30, 2022
|
$
|
|
||
|
(In thousands)
Nine
Months Ended September 30, 2021
|
Allowance for
Doubtful Accounts
|
|||
|
Balance at
December 31, 2020
|
$
|
|
||
|
Provision for
expected credit losses
|
|
|||
|
Accounts
written off
|
( |
) | ||
|
Translation and
other activity
|
( |
) | ||
|
Balance at
September 30, 2021
|
$ | |||
| 6. |
Inventories
|
At September 30, 2022, and December 31, 2021, inventories included finished and in-process products totaling $332.1 million and $280.2 million, respectively, and raw materials and supplies of $169.3 million and $131.4 million,
respectively.
| 7. |
Debt
|
On August 31, 2022, the Company entered into Amendment No. 9 (Amendment) to the Receivables Purchase Agreement, dated as of October 3, 2016. The Amendment increased the facility limit from $30 million to $85 million and extended the maturity date from October 1, 2022 to August 31, 2023 . The Amendment also changed the interest rate benchmark from the London Interbank Offered
Rate to the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York and modified certain other provisions.
| 8. |
Fair Value
|
Accounting
Standards Codification 820, Fair Value Measurement, defines fair value for financial assets and liabilities, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value
measurements. The carrying values of the Company’s cash and cash equivalents, trade accounts receivable, trade accounts payable, accrued expenses, and short-term borrowings were approximately the same as the fair values as of September 30, 2022 and
December 31, 2021. The net fair value of the forward exchange contracts based on current pricing obtained for comparable derivative products (Level 2 inputs) was an asset of $0.3 million and $0.1 million as of September 30, 2022 and December
31, 2021, respectively. The fair value of the Company’s long-term debt, including current maturities, is estimated using discounted cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements
(Level 2 inputs). The carrying value of the long-term debt at September 30, 2022 and December 31, 2021 was $547.7 million and $503.5 million, respectively. The fair value of the long-term debt at September 30, 2022 and December 31, 2021 was $539.1 million and $520.0 million,
respectively.
| 9. |
Segment Information
|
The Company evaluates performance based on
operating income before divestiture & other related costs, share-based compensation, restructuring and other charges including the Operational Improvement Plan costs, interest expense, and income taxes (segment operating income). Total revenue
and segment operating income by business segment and geographic region include both sales to customers, as reported in the Company’s Consolidated Statements of Earnings, and intersegment sales, which are accounted for at prices that approximate
market prices and are eliminated in consolidation.
The Company determines its operating segments
based on information utilized by its chief operating decision maker to allocate resources and assess performance. The Company’s three
reportable segments are the Flavors & Extracts and Color segments, which are both managed on a product line basis, and the Asia Pacific segment, which is managed on a geographic basis. The Company’s Flavors & Extracts segment produces flavor,
extracts, and essential oils products that impart a desired taste, texture, aroma, and other characteristics to a broad range of consumer and other products. The Color segment produces natural and synthetic color systems for use in foods, beverages,
pharmaceuticals, and nutraceuticals; colors and other ingredients for cosmetics, such as active ingredients, solubilizers, and surface treated pigments; pharmaceutical and nutraceutical excipients, such as colors, flavors, coatings, and nutraceutical
ingredients; and technical colors for industrial applications. The Asia Pacific segment is managed on a geographic basis and produces and distributes color and flavor products for the Asia Pacific countries. The Company’s corporate expenses,
divestiture & other related costs, share-based compensation, operational improvement plan expenses, and other costs are included in the “Corporate & Other” category.
Divestiture & other related costs and
restructuring and other costs, including the Operational Improvement Plan costs, for the three and nine months ended September 30, 2021, are further described in Note 2, Divestitures, and Note 3, Operational Improvement Plan, and are included in the operating income (loss) results in Corporate & Other below. There were no divestiture & other related costs or Operational Improvement Plan costs for
the three and nine months ended September 30, 2022. In addition, the Company’s corporate expenses and share-based compensation are included in Corporate & Other.
Operating results by segment for the periods
presented are as follows:
|
(In thousands)
|
Flavors &
Extracts
|
Color
|
Asia
Pacific
|
Corporate
& Other
|
Consolidated
|
|||||||||||||||
|
Three months ended September 30, 2022:
|
||||||||||||||||||||
|
Revenue from
external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Intersegment
revenue
|
|
|
|
|
|
|||||||||||||||
|
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Operating
income (loss)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Interest
expense
|
|
|
|
|
|
|||||||||||||||
|
Earnings (loss)
before income taxes
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Three months ended September 30, 2021:
|
||||||||||||||||||||
|
Revenue from
external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Intersegment
revenue
|
|
|
|
|
|
|||||||||||||||
|
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Operating
income (loss)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Interest
expense
|
|
|
|
|
|
|||||||||||||||
|
Earnings (loss)
before income taxes
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
(In thousands)
|
Flavors &
Extracts
|
Color
|
Asia
Pacific
|
Corporate
& Other
|
Consolidated
|
|||||||||||||||
|
Nine months ended September 30,
2022:
|
||||||||||||||||||||
|
Revenue from
external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Intersegment
revenue
|
|
|
|
|
|
|||||||||||||||
|
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Operating
income (loss)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Interest
expense
|
|
|
|
|
|
|||||||||||||||
|
Earnings (loss)
before income taxes
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Nine months ended September 30,
2021:
|
||||||||||||||||||||
|
Revenue from
external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Intersegment
revenue
|
|
|
|
|
|
|||||||||||||||
|
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Operating
income (loss)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Interest
expense
|
|
|
|
|
|
|||||||||||||||
|
Earnings (loss)
before income taxes
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
Product Lines
|
(In thousands)
|
Flavors &
Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Three months ended September 30, 2022:
|
||||||||||||||||
|
Flavors,
Extracts & Flavor Ingredients
|
$
|
|
$
|
-
|
$
|
-
|
$
|
|
||||||||
|
Natural
Ingredients
|
|
-
|
-
|
|
||||||||||||
|
Food &
Pharmaceutical Colors
|
-
|
|
-
|
|
||||||||||||
|
Personal Care
|
-
|
|
-
|
|
||||||||||||
|
Inks
|
-
|
|
-
|
|
||||||||||||
|
Asia Pacific
|
-
|
-
|
|
|
||||||||||||
|
Intersegment
Revenue
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Three months ended September 30, 2021:
|
||||||||||||||||
|
Flavors,
Extracts & Flavor Ingredients
|
$
|
|
$
|
-
|
$
|
-
|
$
|
|
||||||||
|
Natural
Ingredients
|
|
-
|
-
|
|
||||||||||||
|
Yogurt Fruit
Preparations
|
|
-
|
-
|
|
||||||||||||
|
Food &
Pharmaceutical Colors
|
-
|
|
-
|
|
||||||||||||
|
Personal Care
|
-
|
|
-
|
|
||||||||||||
|
Inks
|
-
|
|
-
|
|
||||||||||||
|
Asia Pacific
|
-
|
-
|
|
|
||||||||||||
|
Intersegment
Revenue
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
(In thousands)
|
Flavors &
Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Nine months ended September 30,
2022:
|
||||||||||||||||
|
Flavors,
Extracts & Flavor Ingredients
|
$
|
|
$
|
-
|
$
|
-
|
$
|
|
||||||||
|
Natural
Ingredients
|
|
-
|
-
|
|
||||||||||||
|
Food &
Pharmaceutical Colors
|
-
|
|
-
|
|
||||||||||||
|
Personal Care
|
-
|
|
-
|
|
||||||||||||
|
Inks
|
-
|
|
-
|
|
||||||||||||
|
Asia Pacific
|
-
|
-
|
|
|
||||||||||||
|
Intersegment
Revenue
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Nine months ended September 30, 2021:
|
||||||||||||||||
|
Flavors,
Extracts & Flavor Ingredients
|
$
|
|
$
|
-
|
$
|
-
|
$
|
|
||||||||
|
Natural
Ingredients
|
|
-
|
-
|
|
||||||||||||
|
Fragrances
|
|
-
|
-
|
|
||||||||||||
|
Yogurt Fruit
Preparations
|
|
-
|
-
|
|
||||||||||||
|
Food &
Pharmaceutical Colors
|
-
|
|
-
|
|
||||||||||||
|
Personal Care
|
-
|
|
-
|
|
||||||||||||
|
Inks
|
-
|
|
-
|
|
||||||||||||
|
Asia Pacific
|
-
|
-
|
|
|
||||||||||||
|
Intersegment
Revenue
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Geographic Markets
|
(In thousands)
|
Flavors &
Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Three months ended September 30, 2022:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Three months ended September 30, 2021:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
(In thousands)
|
Flavors &
Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Nine months ended September 30,
2022:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Nine months ended September 30,
2021:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|||||||
| 10. |
Retirement Plans
|
The Company’s components of annual benefit cost for the defined benefit plans for
the periods presented are as follows:
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
(In thousands)
|
2022
|
2021
|
2022
|
2021
|
||||||||||||
|
Service cost
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Interest cost
|
|
|
|
|
||||||||||||
|
Expected return on plan assets
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Recognized actuarial loss
|
|
|
|
|
||||||||||||
|
Total defined benefit expense
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
The Company’s non-service cost portion of defined benefit expense is recorded in Interest Expense on the Company’s Consolidated Statements of Earnings. The Company’s service cost portion of defined benefit expense is recorded in Selling and Administrative
Expenses on the Company’s Consolidated Statements of Earnings.
| 11. |
Derivative Instruments and Hedging
Activity
|
The
Company may use forward exchange contracts and foreign currency denominated debt to manage its exposure to foreign exchange risk in order to reduce the effect of fluctuating foreign currencies on short-term foreign currency denominated intercompany
transactions, non-functional currency raw material purchases, non-functional currency sales, and other known foreign currency exposures. These forward exchange contracts generally have maturities of less than 18 months. The Company’s primary hedging activities and their accounting treatment are summarized below.
Forward exchange contracts – Certain forward exchange contracts have been designated as cash flow hedges. The Company had $35.6 million and $48.6 million of forward
exchange contracts designated as cash flow hedges outstanding as of September 30, 2022 and December 31, 2021, respectively. For the three months ended September 30, 2022 and 2021, amounts reclassified into net earnings in the Company’s Consolidated Statement of Earnings that offset the underlying
transactions’ impact on earnings in the same period were not material. For the nine months ended September 30, 2022 and 2021, gains of $0.6
million and $1.1 million, respectively, were reclassified into net earnings in the Company’s Consolidated Statement of Earnings that
offset the underlying transactions’ impact on earnings in the same period. In addition, the Company utilizes forward exchange contracts that are not designated as cash flow hedges. The results of these transactions were not material to the
financial statements of the Company.
Net investment hedges – The Company has designated certain foreign currency denominated long-term borrowings as partial hedges of the Company’s foreign currency net asset positions. As of September 30, 2022 and December 31, 2021, the total value of the
Company’s net investment hedges was $247.1 million and $289.5 million, respectively. These net investment hedges included Euro and British Pound denominated long-term debt. Changes in the fair value of this debt attributable to changes in the spot foreign exchange rate
are recorded in foreign currency translation in Other Comprehensive Income (OCI). For the three months ended September 30, 2022 and 2021, the impact of foreign exchange rates on these debt instruments decreased debt by $18.4 million and $7.2 million, respectively, which has been recorded as foreign currency
translation in OCI. For the nine months ended September 30, 2022 and 2021, the impact of foreign exchange rates on these debt instruments decreased debt by $42.4 million and $14.1 million, respectively, which has been recorded as foreign
currency translation in OCI. For the nine
months ended September 30, 2021, losses of $4.2 million were reclassified into net earnings in the Company’s Consolidated Statement of
Earnings related to the Euro net investment hedge in connection with the sale of the fragrances product line. See Note 2, Divestitures, for additional information.
| 12. |
Income Taxes
|
The effective income tax rates for the three months ended September 30,
2022 and 2021, were 17.7 % and 22.8 %,
respectively. For the nine months ended September 30, 2022 and 2021, the effective income tax rates were 23.3 % and 23.6 %, respectively. The effective tax rates for the three and nine months ended September 30, 2022 and 2021, were both impacted by changes in
estimates associated with the finalization of prior year foreign tax items, the mix of foreign earnings, and changes in valuation allowances. The three and nine months ended September 30, 2021, were also impacted by audit settlements and changes
in deferred tax assets and liabilities due to newly enacted tax rates.
| 13. |
Accumulated Other Comprehensive Income
|
The following table summarizes the changes in OCI during the three
and nine month periods ended September 30, 2022 and 2021:
|
(In thousands)
|
Cash Flow
Hedges (1)
|
Pension
Items (1)
|
Foreign
Currency
Items
|
Total
|
||||||||||||
|
Balances at December 31, 2021
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
Other comprehensive income (loss)
before reclassifications
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Amounts reclassified from OCI
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Balances at September 30, 2022
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
(In thousands)
|
Cash Flow
Hedges (1)
|
Pension
Items (1)
|
Foreign
Currency
Items
|
Total
|
||||||||||||
|
Balances at June 30, 2022
|
$
|
(
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
Other comprehensive income (loss)
before reclassifications
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Amounts reclassified from OCI
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Balances at September 30, 2022
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
(In thousands)
|
Cash Flow
Hedges (1)
|
Pension
Items (1)
|
Foreign
Currency
Items
|
Total
|
||||||||||||
|
Balances at December 31, 2020
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
Other comprehensive income (loss)
before reclassifications
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Amounts reclassified from OCI
|
(
|
)
|
|
|
|
|||||||||||
|
Balances at September 30, 2021
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
(In thousands)
|
Cash Flow
Hedges (1)
|
Pension
Items (1)
|
Foreign
Currency
Items
|
Total
|
||||||||||||
|
Balances at June 30, 2021
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
Other comprehensive loss before
reclassifications
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|||||||||
|
Amounts reclassified from OCI
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Balances at September 30, 2021
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
| (1) |
|
| 14. |
Commitments and Contingencies
|
Kelley v. Sensient Natural Ingredients LLC
Walters v. Sensient Natural Ingredients LLC
Sofia Rodriguez v. Sensient Natural Ingredients LLC and One
Source Staffing Solutions, Inc.
On March 4, 2020, Monique Kelley filed a Class Action Complaint
against SNI in Merced County Superior Court in California. Ms. Kelley worked at SNI for less than a week in 2017 through a temporary staffing company. Ms. Kelley has brought suit for purported violations of the California Labor Code and the
California Business and Professions Code on her own behalf, and on behalf of all current and former California-based hourly-paid or non-exempt employees of SNI. Ms. Kelley specifically asserts claims for unpaid overtime wages, unpaid minimum wages,
unpaid meal and rest break premiums, failure to timely pay final wages upon termination, non-compliant wage statements, and unreimbursed business expenses. Following motion practice, Ms. Kelley amended her original pleading, asserting the same
causes of action, and SNI filed a responsive pleading. The parties then entered the discovery process.
On April 26, 2021, the same law firm representing Ms. Kelley filed an additional notice with the State of California of the intent to pursue a claim on a representative basis pursuant to the California Private Attorneys General Act of 2004
(PAGA). This notice was served on behalf of Patrick Walters, an employee of SNI. The notice states the intent to pursue relief on behalf of Mr. Walters as well as other alleged aggrieved employees, identified as all current and former hourly or
non-exempt employees of SNI, whether hired directly or through staffing agencies. The notice alleges that SNI failed to properly pay Mr. Walters and the other alleged aggrieved employees for all hours worked, failed to properly provide or
compensate minimum and overtime wages and for meal and rest breaks, failed to issue compliant wage statements, and failed to reimburse for all necessary business-related expenses, in violation of the California Labor Code and California
Industrial Welfare Commission Orders. On July 30, 2021, Mr. Walters filed a Complaint in Merced County Superior Court asserting the claims set forth in his PAGA notice. SNI filed its Answer and Affirmative Defenses in response.
On June 10, 2021, Sofia Rodriguez filed notice with the State of
California of the intent to pursue a claim on a representative basis pursuant to PAGA. The notice was served on behalf of Ms. Rodriguez, who worked at SNI through One Source Staffing Solutions, Inc. for five months in 2020. The notice states the intent to pursue relief on behalf of Ms. Rodriguez as well as other alleged aggrieved employees, identified as all non-exempt
employees who worked for Defendants in the State of California, and who were paid on an hourly basis. The notice alleges that SNI failed to allow Ms. Rodriguez and the other alleged aggrieved employees to take statutorily required meal and rest
periods. The notice further alleges that Defendants suffered and permitted Ms. Rodriguez and other alleged aggrieved employees to work off the clock, failed to pay for all hours worked, failed to properly provide or compensate for minimum and
overtime wages, failed to issue compliant wage statements, and failed to pay wages owed upon termination of employment, in violation of the California Labor Code. Ms. Rodriguez also asserts that she was taken off the schedule and not returned to
work after complaining about the alleged wage and hour violations set forth in the PAGA notice. On August 17, 2021, Ms. Rodriguez filed a Complaint in Stanislaus County Superior Court asserting the claims set forth in her PAGA notice. SNI filed its
Answer and Affirmative Defenses in response.
Previously, SNI had agreed to attempt a joint mediation of the
Kelley, Walters, and Rodriguez matters, which was scheduled for August 2022. Before the mediation occurred, however, on June 15, 2022, the United States Supreme Court issued its decision in Viking River Cruises,
Inc. v. Moriana, 596 U.S. ___ (2022), in which the Court ruled that the Federal Arbitration Act requires enforcement of an arbitration agreement that waives an employee’s right to bring individual claims under PAGA, and that an individual
with such an agreement to arbitrate does not have standing to pursue the remaining non-individual claims in Court. As a result of the decision, SNI withdrew its agreement to mediate.
In the Walters case, SNI has demanded that Walters submit his
individual PAGA claims to arbitration in accordance with his arbitration agreement. Pending litigation in the California Supreme Court concerning the standing issue addressed in Viking River Cruises may
result in a stay of the Walters case. In the Kelley and Rodriguez cases, SNI will seek to compel individual arbitration as to any claims made on behalf of individuals with arbitration agreements. In addition, in the Kelley matter, SNI intends to
seek summary judgment based upon a prior adjudication, in which Kelley settled claims that she now asserts against SNI. In the Rodriguez case, SNI also intends to seek indemnification and contribution from the staffing firm that supplied the
temporary workers in question.
SNI intends to vigorously defend its interests in the Kelley, Walters, and Rodriguez matters, absent a
reasonable resolution. Based upon the legal developments and defenses described above, and the Viking River Cruises decision, we no longer believe these proceedings are material to the business or the
financial condition of the Company nor do we expect the liabilities, if any, which may ultimately result from such lawsuits to have a material adverse effect on our consolidated financial statements.
Other Claims
The Company is subject to various claims and litigation arising
in the normal course of business. The Company establishes reserves for claims and proceedings when it is probable that liabilities exist and reasonable estimates of loss can be made. While it is not possible to predict the outcome of these matters,
based on our assessment of the facts and circumstances now known, we do not believe that these matters, individually or in the aggregate, will have a material adverse effect on our financial position. However, actual outcomes may be different from
those expected and could have a material effect on our results of operations or cash flows in a particular period.
See Note 2, Divestitures,
for information about estimated environmental remediation costs associated with our Granada, Spain location.
| 15. |
Subsequent Events
|
On
October 3, 2022, the Company acquired Endemix Doğal Maddeler A.Ş. and Teknoloji Yatırımları ve Danışmanlık Sanayi ve Ticaret A.Ş. (collectively, Endemix), a natural colors business located in Turkey. The Company paid $23.7 million in cash for this acquisition, which is net of $1.3 million in debt assumed, with $2.0 million of such amount being held back
by the Company for 12 months in connection with the post-closing working capital adjustment and to satisfy any indemnification claims
that may arise. This business will be part of the Colors segment.
On October 20, 2022 , the Company announced its quarterly dividend of $0.41 per share would be payable on December 1, 2022 .
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that reflect management’s current assumptions and estimates of future economic circumstances, industry conditions, Company performance, and financial results. Forward-looking statements include
statements in the future tense, statements referring to any period after September 30, 2022, and statements including the terms “expect,” “believe,” “anticipate,” and other similar terms that express expectations as to future events or
conditions. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks,
uncertainties, and other factors that could cause actual events to differ materially from those expressed in the forward-looking statements. A variety of factors could cause the Company’s actual results and experience to differ materially from
the anticipated results. These factors and assumptions include, among others, the impact and uncertainty created by the COVID-19 pandemic, including, but not limited to, its effects on our employees, facilities, customers, and suppliers, the
availability and cost of raw materials, energy, and other supplies, the availability and cost of labor, logistics, and transportation; governmental regulations and restrictions, and general economic conditions, including inflation; the
uncertain impacts of the ongoing conflict between Russia and Ukraine on our supply chain, input costs, including energy and transportation, and on general economic conditions; the pace and nature of new product introductions by the Company and
the Company’s customers; the Company’s ability to anticipate and respond to changing consumer preferences and changing technologies; the Company’s ability to successfully implement its growth strategies; the outcome of the Company’s various
productivity-improvement and cost-reduction efforts, acquisition and divestiture activities, and operational improvement plan; changes in costs of raw materials, including energy; industry, regulatory, legal, and economic factors related to the
Company’s domestic and international business; the effects of tariffs, trade barriers, and disputes; growth in markets for products in which the Company competes; industry and customer acceptance of price increases; actions by competitors;
currency exchange rate fluctuations; and the matters discussed under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as updated and supplemented in Part II, Item 1A of the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 31, 2022. Except to the extent required by applicable law, the Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that
any projected results expressed or implied therein will not be realized.
OVERVIEW
Revenue
Revenue was $361.1 million and $344.3 million for the three months ended September 30, 2022 and 2021, respectively. Revenue was $1.1 billion and $1.0 billion for the nine months ended September 30, 2022 and 2021, respectively. The increase
in revenue for the three months ended September 30, 2022, was primarily due to higher selling prices. The increase in revenue for the nine months ended September 30, 2022, was primarily due to higher selling prices and volumes, partially
offset by the sale of the Company’s Fragrances product line on April 1, 2021. For the three and nine months ended September 30, 2022, the impact of foreign exchange rates decreased consolidated revenue by approximately 4% and 3%, respectively.
Gross Margin
The Company’s gross margin was 33.7% and 33.4% for the three months ended September 30, 2022 and 2021, respectively. The Company’s gross margin was 34.7% and 32.9% for the nine months ended September 30, 2022 and 2021, respectively. The
increase in gross margin for both the three and nine months ended September 30, 2022, was primarily due to increased pricing and volumes, partially offset by higher input costs and unfavorable product mix.
Selling and Administrative Expenses
Selling and administrative expense as a percent of revenue was 20.6% and 19.8% for the three months ended September 30, 2022 and 2021, respectively. Selling and administrative expense as a percent of revenue was 20.4% and 20.5% for the nine
months ended September 30, 2022 and 2021, respectively.
Selling and administrative expenses for the three and nine months ended September 30, 2021, included divestiture & other related expenses and operational improvement plan costs and income totaling $0.7 million and $11.5 million,
respectively. There were no divestiture & other related costs or operational improvement plan costs for the three or nine months ended September 30, 2022.
The increase in selling and administrative expense as a percent of revenue for the three months ended September 30, 2022 is primarily due to higher performance-based executive compensation in 2022, partially offset by the lack of divestiture
& other related costs and operational improvement plan costs in 2022. The decrease in selling and administrative expense as a percent of revenue for the nine months ended September 30, 2022, is primarily due to the lack of divestiture
& other related costs and operational improvement plan costs in 2022, substantially offset by higher performance-based executive compensation in 2022. The divestiture & other related costs and operational improvement plan costs
increased selling and administrative expense as a percent of revenue by 20 and 110 basis points for the three and nine months ended September 30, 2021, respectively.
Operating Income
Operating income was $47.5 million and $47.0 million for the three months ended September 30, 2022 and 2021, respectively. Operating margins were 13.2% and 13.6% for the three months ended September 30, 2022 and 2021, respectively. The
decrease in operating margin is primarily due to higher input costs and unfavorable product mix, partially offset by higher pricing and volumes and the lack of divestiture & other related costs and operational improvement plan costs in the
current period.
Operating income was $155.5 million and $129.6 million for the nine months ended September 30, 2022 and 2021, respectively. Operating margins were 14.3% and 12.5% for the nine months ended September 30, 2022 and 2021, respectively. The
increase in operating margin is primarily due to higher pricing and volumes and the lack of divestiture & other related costs and operational improvement plan costs in the current period, partially offset by higher input costs and
unfavorable product mix.
Interest Expense
Interest expense was $3.7 million and $3.0 million for the three months ended September 30, 2022 and 2021, respectively, and $9.7 million and $9.8 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in
expense for the three months ended September 30, 2022, was primarily due to a higher average debt balance and higher average interest rate compared to the comparable prior year period. The decrease in expense for the nine months ended
September 30, 2022, was primarily due to the lower average interest rate in the current period compared to the comparable prior year period.
Income Taxes
The effective income tax rates for the three months ended September 30, 2022 and 2021, were 17.7% and 22.8%, respectively. For the nine months ended September 30, 2022 and 2021, the effective income tax rates were 23.3% and 23.6%,
respectively. The effective tax rates for the three and nine months ended September 30, 2022 and 2021, were both impacted by changes in estimates associated with the finalization of prior year foreign tax items, the mix of foreign earnings, and
changes in valuation allowances. The three and nine months ended September 30, 2021, were also impacted by audit settlements and changes in deferred tax assets and liabilities due to newly enacted tax rates.
Divestitures
On June 30, 2020, the Company completed the sale of its inks product line. On September 18, 2020, the Company completed the sale of its yogurt fruit preparations product line. This sale also included an earnout based on future performance,
which could result in additional cash consideration for the Company. On April 1, 2021, the Company completed the sale of its fragrances product line (excluding its essential oils product line) for $36.3 million of net cash.
For the three and nine months ended September 30, 2021, the Company incurred costs of $0.2 million and $13.5 million, respectively, related to the divestitures. The costs incurred in the nine month period primarily related to a non-cash net
loss for the reclassification of accumulated foreign currency translation and related items from Accumulated Other Comprehensive Loss to Selling and Administrative
Expenses in the Consolidated Statements of Earnings. There were no costs related to the divestitures incurred during the three or nine months ended September 30, 2022.
Operational Improvement Plan
During the third quarter of 2020, the Company approved an operational improvement plan (Operational Improvement Plan) to consolidate manufacturing facilities and improve efficiencies within the Company. As part of the Operational Improvement
Plan, the Company combined its New Jersey cosmetics manufacturing facility in the Personal Care product line of the Color segment into its existing Color segment facility in Missouri. In addition, the Company centralized certain Flavors &
Extracts segment support functions in Europe into one location. In the Asia Pacific segment, the Company incurred costs in connection with the elimination of certain selling and administrative positions.
During the second quarter of 2021, the Company received cash proceeds, net of associated expenses, in connection with the termination of a New Jersey office and laboratory space lease. The terminated lease was originally executed in November
2020 as part of the Operational Improvement Plan; however, the landlord for the property requested to terminate the lease prior to the end of its term and compensated the Company as part of a negotiated resolution for that termination.
In the three and nine months ended September 30, 2021, the Company recorded costs of $0.5 million and income of $2.0 million, respectively, related to the Operational Improvement Plan. The income in the nine month period primarily related
to the gain associated with the terminated New Jersey lease. There were no costs or income related to the Operational Improvement Plan incurred during the three or nine months ended September 30, 2022.
Acquisition
On July 15, 2021, the Company acquired substantially all of the assets of Flavor Solutions, Inc., a flavors business located in New Jersey. The purchase price for this acquisition was $14.9 million in cash. The assets acquired and liabilities assumed were recorded at their estimated fair value as of the acquisition date. The
Company acquired net assets of $0.4 million and identified intangible assets, principally customer relationships, of $5.0 million. The remaining $9.5 million was allocated to goodwill. This business is now part of the Flavors & Extracts
segment.
COVID-19
COVID-19 has adversely affected most of the world through widespread illness, quarantines, factory shutdowns, and travel and transportation disruptions and restrictions. These adverse effects could continue in parts of the world. While the
Company’s financial position remains strong, the Company has seen several financial and operational impacts from the pandemic as of this filing. We have experienced various degrees of supply chain challenges and attempted to mitigate those
challenges by increasing inventory in certain key raw materials and using secondary suppliers and new methods of procurement where available. In addition, we have experienced inflationary increases in costs associated with certain raw
materials, logistics, energy, transportation, and labor. In response, we have taken pricing actions to offset these increases.
For the three and nine months ended September 30, 2022, demand for many of the Company’s products remained strong. All of the Company’s production facilities are open and operating as of this filing, but the Company continues to monitor
developments and regulations in regions where its production facilities are located. Governmental and social responses to the COVID-19 pandemic continue to evolve. There continues to be uncertainty related to the impacts of new COVID-19
variants, and we expect that the situation will remain dynamic and difficult to predict for the foreseeable future. There can be no assurance that our experience to date with respect to facility operations, customer demand, the availability of
supplies and transportation, and other factors impacting our results and financial condition will be predictive of the ongoing impacts in the short or long term. It is difficult to predict how economic conditions and changes in customer and
consumer behavior may impact our results over the longer term. As a result of any of the foregoing, our results or financial condition could be adversely impacted and the impacts could be material.
NON-GAAP FINANCIAL MEASURES
Within the following tables, the Company reports certain non-GAAP financial measures, including: (1) adjusted revenue, adjusted operating income, adjusted net earnings, and adjusted diluted earnings per share, which exclude the results of
the divested product lines, the divestiture & other related costs, and the operational improvement plan costs and income and (2) percentage changes in revenue, operating income, and diluted earnings per share on an adjusted local currency
basis, which eliminate the effects that result from translating its international operations into U.S. dollars, the results of the divested product lines, the divestiture & other related costs, and the operational improvement plan costs or
income.
The Company has included each of these non-GAAP measures in order to provide additional information regarding our underlying operating results and comparable year-over-year performance. Such information is supplemental to information
presented in accordance with GAAP and is not intended to represent a presentation in accordance with GAAP. These non-GAAP measures should not be considered in isolation. Rather, they should be considered together with GAAP measures and the rest
of the information included in this report. Management internally reviews each of these non-GAAP measures to evaluate performance on a comparative period-to-period basis and to gain additional insight into underlying operating and performance
trends, and the Company believes the information can be beneficial to investors for the same purposes. These non-GAAP measures may not be comparable to similarly titled measures used by other companies.
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||||||||||
|
(In thousands, except per share amounts)
|
2022
|
2021
|
% Change
|
2022
|
2021
|
% Change
|
||||||||||||||||||
|
Revenue (GAAP)
|
$
|
361,076
|
$
|
344,287
|
4.9
|
%
|
$
|
1,088.303
|
$
|
1,039,816
|
4.7
|
%
|
||||||||||||
|
Revenue of the divested product lines
|
-
|
(1,622
|
)
|
-
|
(29,399
|
)
|
||||||||||||||||||
|
Adjusted revenue
|
$
|
361,076
|
$
|
342,665
|
5.4
|
%
|
$
|
1,088,303
|
$
|
1,010,417
|
7.7
|
%
|
||||||||||||
|
Operating Income (GAAP)
|
$
|
47,493
|
$
|
46,958
|
1.1
|
%
|
$
|
155,526
|
$
|
129,608
|
20.0
|
%
|
||||||||||||
|
Divestiture & other related costs – Cost of products sold
|
-
|
-
|
-
|
28
|
||||||||||||||||||||
|
Divestiture & other related costs – Selling and administrative expenses
|
-
|
241
|
-
|
13,473
|
||||||||||||||||||||
|
Operating loss (income) of the divested product lines
|
-
|
70
|
-
|
(2,398
|
)
|
|||||||||||||||||||
|
Operational improvement plan – Selling and administrative expenses (income)
|
-
|
483
|
-
|
(2,010
|
)
|
|||||||||||||||||||
|
Adjusted operating income
|
$
|
47,493
|
$
|
47,752
|
(0.5
|
%)
|
$
|
155,526
|
$
|
138,701
|
12.1
|
%
|
||||||||||||
|
Net Earnings (GAAP)
|
$
|
36,048
|
$
|
33,912
|
6.3
|
%
|
$
|
111,766
|
$
|
91,516
|
22.1
|
%
|
||||||||||||
|
Divestiture & other related costs, before tax
|
-
|
241
|
-
|
13,501
|
||||||||||||||||||||
|
Tax impact of divestiture & other related costs(1)
|
-
|
1,179
|
-
|
283
|
||||||||||||||||||||
|
Net loss (earnings) of the divested product lines, before tax
|
-
|
70
|
-
|
(2,398
|
)
|
|||||||||||||||||||
|
Tax impact of the divested product lines(1)
|
-
|
(18
|
)
|
-
|
590
|
|||||||||||||||||||
|
Operational improvement plan costs (income), before tax
|
-
|
483
|
-
|
(2,010
|
)
|
|||||||||||||||||||
|
Tax impact of operational improvement plan(1)
|
-
|
(115
|
)
|
-
|
44
|
|||||||||||||||||||
|
Adjusted net earnings
|
$
|
36,048
|
$
|
35,752
|
0.8
|
%
|
$
|
111,766
|
$
|
101,526
|
10.1
|
%
|
||||||||||||
|
Diluted earnings per share (GAAP)
|
$
|
0.85
|
$
|
0.80
|
6.3
|
%
|
$
|
2.65
|
$
|
2.16
|
22.7
|
%
|
||||||||||||
|
Divestiture & other related costs, net of tax
|
-
|
0.03
|
-
|
0.33
|
||||||||||||||||||||
|
Results of operations of the divested product lines, net of tax
|
-
|
-
|
-
|
(0.04
|
)
|
|||||||||||||||||||
|
Operational improvement plan costs (income, net of tax
|
-
|
0.01
|
-
|
(0.05
|
)
|
|||||||||||||||||||
|
Adjusted diluted earnings per share
|
$
|
0.85
|
$
|
0.85
|
0.0
|
%
|
$
|
2.65
|
$
|
2.40
|
10.4
|
%
|
||||||||||||
| (1) |
Tax impact adjustments were determined based on the nature of the underlying non-GAAP adjustments and their relevant jurisdictional tax rates.
|
Divestiture & other related costs are discussed under “Divestitures” above and Note 2, Divestitures, in the Notes to the Consolidated Condensed
Financial Statements included in this report. The Operational Improvement Plan is discussed under “Operational Improvement Plan” above and Note 3, Operational Improvement Plan, in the Notes to the Consolidated
Condensed Financial Statements included in this report.
Note: Earnings per share calculations may not foot due to rounding differences.
The following table summarizes the percentage change for the results of the three and nine months ended September 30, 2022, compared to the results for the three and nine months ended September 30, 2021, in the
respective financial measures.
|
Three Months Ended September 30, 2022
|
Nine Months Ended September 30, 2022
|
|||||||||||||||||||||||||||||||
|
Revenue
|
Total
|
Foreign
Exchange
Rates
|
Adjustments(1)
|
Adjusted
Local
Currency
|
Total
|
Foreign
Exchange
Rates
|
Adjustments(1)
|
Adjusted
Local
Currency
|
||||||||||||||||||||||||
|
Flavors & Extracts
|
3.0
|
%
|
(2.9
|
%)
|
(0.8
|
%)
|
6.7
|
%
|
(0.5
|
%)
|
(2.4
|
%)
|
(5.0
|
%)
|
6.9
|
%
|
||||||||||||||||
|
Color
|
8.8
|
%
|
(5.5
|
%)
|
(0.3
|
%)
|
14.6
|
%
|
11.8
|
%
|
(3.8
|
%)
|
(0.4
|
%)
|
16.0
|
%
|
||||||||||||||||
|
Asia Pacific
|
5.3
|
%
|
(9.2
|
%)
|
0.0
|
%
|
14.5
|
%
|
9.5
|
%
|
(7.4
|
%)
|
(0.3
|
%)
|
17.2
|
%
|
||||||||||||||||
|
Total Revenue
|
4.9
|
%
|
(4.4
|
%)
|
(0.6
|
%)
|
9.9
|
%
|
4.7
|
%
|
(3.3
|
%)
|
(3.0
|
%)
|
11.0
|
%
|
||||||||||||||||
|
Operating Income
|
||||||||||||||||||||||||||||||||
|
Flavors & Extracts
|
4.7
|
%
|
(1.1
|
%)
|
0.2
|
%
|
5.6
|
%
|
9.4
|
%
|
(1.2
|
%)
|
(4.0
|
%)
|
14.6
|
%
|
||||||||||||||||
|
Color
|
3.5
|
%
|
(7.4
|
%)
|
0.0
|
%
|
10.9
|
%
|
13.3
|
%
|
(4.9
|
%)
|
0.9
|
%
|
17.3
|
%
|
||||||||||||||||
|
Asia Pacific
|
5.3
|
%
|
(11.0
|
%)
|
0.0
|
%
|
16.3
|
%
|
19.5
|
%
|
(9.6
|
%)
|
(0.5
|
%)
|
29.6
|
%
|
||||||||||||||||
|
Corporate & Other
|
16.0
|
%
|
(0.1
|
%)
|
(7.4
|
%)
|
23.5
|
%
|
(9.6
|
%)
|
0.0
|
%
|
(30.4
|
%)
|
20.8
|
%
|
||||||||||||||||
|
Total Operating Income
|
1.1
|
%
|
(6.5
|
%)
|
1.8
|
%
|
5.8
|
%
|
20.0
|
%
|
(5.1
|
%)
|
8.4
|
%
|
16.7
|
%
|
||||||||||||||||
|
Diluted Earnings per Share
|
6.3
|
%
|
(6.3
|
%)
|
5.5
|
%
|
7.1
|
%
|
22.7
|
%
|
(5.1
|
%)
|
12.8
|
%
|
15.0
|
%
|
||||||||||||||||
| (1) |
For Revenue, adjustments consist of revenues of the divested product lines. For Operating Income and Diluted Earnings per Share, adjustments consist of the results of the divested
product lines, divestiture & other related costs, and operational improvement plan costs and income.
|
Note: Refer to table above for a reconciliation of these non-GAAP measures.
SEGMENT INFORMATION
The Company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance. Segment performance is evaluated on operating income before any applicable
divestiture & other related costs, share-based compensation, acquisition, restructuring including the Operational Improvement Plan, and other costs (which are reported in Corporate & Other), interest expense, and income taxes.
The Company’s reportable segments consist of the Flavors & Extracts, Color, and Asia Pacific segments.
Flavors & Extracts
Flavors & Extracts segment revenue was $187.0 million and $181.7 million for the three months ended September 30, 2022 and 2021, respectively, an increase of approximately 3%. Foreign exchange rates decreased segment revenue by
approximately 3%. The increase was primarily a result of higher revenue in Flavors, Extracts & Flavor Ingredients, offset by lower revenue in Natural Ingredients and lower revenue due to the completion of post-closing activities associated
with the divestiture of Yogurt Fruit Preparations. The higher revenue in Flavors, Extracts & Flavor Ingredients was primarily due to higher selling prices and higher volumes, partially offset by the unfavorable impact of foreign exchange
rates. The lower revenue in Natural Ingredients was primarily due to lower volumes, partially offset by higher selling prices.
Flavors & Extracts segment revenue was $559.1 million and $562.0 million for the nine months ended September 30, 2022 and 2021, respectively, a decrease of approximately 1%. Foreign exchange rates decreased segment revenue by
approximately 2%. The decrease was primarily a result of lower revenue due to the completion of post-closing activities associated with the divestiture of Yogurt Fruit Preparations and the divestiture of Fragrances and lower revenue in Natural
Ingredients, partially offset by higher revenue in Flavors, Extracts & Flavor Ingredients. The lower revenue in Natural Ingredients was primarily due to lower volumes, partially offset by higher selling prices. The higher revenue in
Flavors, Extracts & Flavor Ingredients was primarily due to higher selling prices, higher volumes, and the acquisition of Flavor Solutions, Inc. in July of 2021, partially offset by the unfavorable
impact of foreign exchange rates.
Flavors & Extracts segment operating income was $26.3 million and $25.2 million for the three months ended September 30, 2022 and 2021, respectively, an increase of approximately 5%. Foreign exchange rates decreased segment operating
income by approximately 1%. The higher segment operating income was primarily a result of higher operating income in Flavors, Extracts & Flavor Ingredients primarily due to higher selling prices and higher volumes, partially offset by
higher raw material costs and higher manufacturing and other costs. Segment operating income as a percent of revenue was 14.1% in the current quarter compared to 13.9% in the prior year’s comparable quarter.
Flavors & Extracts segment operating income was $83.9 million and $76.7 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of approximately 9%. Foreign exchange rates decreased segment operating
income by approximately 1%. The increase was primarily a result of higher segment operating income in Flavors, Extracts & Flavor Ingredients and Natural Ingredients, partially offset by lower segment operating income due to the divestiture
of Fragrances in April of 2021. The higher segment operating income in Flavors, Extracts & Flavor Ingredients was primarily a result of higher selling prices and volumes, partially offset by higher raw material costs, higher manufacturing
and other costs, and the unfavorable impact of foreign exchange rates. The higher segment operating income in Natural Ingredients was primarily a result of higher selling prices and favorable product mix, partially offset by lower volumes,
higher raw material costs, and higher manufacturing and other costs. Segment operating income as a percent of revenue was 15.0% in the current nine month period compared to 13.7% in the prior year’s comparable nine month period.
Color
Segment revenue for the Color segment was $151.5 million and $139.2 million for the three months ended September 30, 2022 and 2021, respectively, an increase of approximately 9%. The increase was a result of higher revenue in Food &
Pharmaceutical Colors, primarily due to higher volumes and selling prices, partially offset by the unfavorable impact of foreign exchange rates that decreased segment revenue by approximately 6%.
Segment revenue for the Color segment was $456.2 million and $408.2 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of approximately 12%. The increase was a result of higher revenue in Food &
Pharmaceutical Colors and Personal Care, primarily due to higher volumes and selling prices, partially offset by the unfavorable impact of foreign exchange rates that decreased segment revenue by approximately 4%.
Segment operating income for the Color segment was $28.2 million and $27.3 million for the three months ended September 30, 2022 and 2021, respectively, an increase of approximately 4%. Foreign exchange rates decreased segment operating
income by approximately 7%. The increase in segment operating income was a result of higher operating income in Food & Pharmaceutical Colors and Personal Care, primarily due to higher selling prices and volumes, partially offset by higher
raw material costs, higher manufacturing and other costs, unfavorable product mix, and the unfavorable impact of foreign exchange rates. Segment operating income as a percent of revenue was 18.6% in the current quarter and 19.6% in the prior
year’s comparable quarter.
Segment operating income for the Color segment was $90.0 million and $79.5 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of approximately 13%. Foreign exchange rates decreased segment operating
income by approximately 5%. The increase in segment operating income was a result of higher operating income in Food & Pharmaceutical Colors and Personal Care, primarily due to higher selling prices and volumes, partially offset by higher
raw material costs, higher manufacturing and other costs, unfavorable product mix, and the unfavorable impact of foreign exchange rates. Segment operating income as a percent of revenue was 19.7% in the current nine month period and 19.5% in
the prior year’s comparable period.
Asia Pacific
Segment revenue for the Asia Pacific segment was $35.2 million and $33.4 million for the three months ended September 30, 2022 and 2021, respectively, an increase of approximately 5%. The increase was a result of higher volumes and selling
prices, partially offset by the unfavorable impact of foreign exchange rates that decreased segment revenue by approximately 9%.
Segment revenue for the Asia Pacific segment was $109.0 million and $99.6 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of approximately 10%. The increase was a result of higher volumes and selling
prices, partially offset by the unfavorable impact of foreign exchange rates, which decreased segment revenue by approximately 7%.
Segment operating income for the Asia Pacific segment was $7.0 million and $6.6 million for the three months ended September 30, 2022 and 2021, respectively, an increase of approximately 5%. The increase was primarily a result of higher
volumes and selling prices, partially offset by higher other operating costs and the unfavorable impact of foreign exchange rates that decreased segment operating income by approximately 11%. Segment operating income as a percent of revenue was
19.7% in both the current quarter and the prior year’s comparable quarter.
Segment operating income for the Asia Pacific segment was $22.9 million and $19.1 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of approximately 20%. The increase was primarily a result of higher
volumes and selling prices, partially offset by higher raw material and other operating costs, unfavorable product mix, and the unfavorable impact of foreign exchange rates that decreased segment operating income by approximately 10%. Segment
operating income as a percent of revenue was 21.0% in the current nine month period and 19.2% in the prior year’s comparable period.
Corporate & Other
The Corporate & Other operating expense was $14.0 million and $12.1 million for the three months ended September 30, 2022 and 2021, respectively. The increase was primarily due to higher performance-based executive compensation in 2022,
partially offset by the prior year including divestiture & other related costs and operational improvement plan costs. There were no divestiture & other related expenses or operational improvement plan income or costs in the current
period.
The Corporate & Other operating expense was $41.3 million and $45.7 million for the nine months ended September 30, 2022 and 2021, respectively. The decrease was primarily due to the prior period including divestiture & other related
expenses of $13.5 million, partially offset by higher performance-based executive compensation in 2022 and the prior period including operational improvement plan income of $2.0 million. There were no divestiture & other related expenses or
operational improvement plan income or costs in the current nine-month period.
LIQUIDITY AND FINANCIAL CONDITION
Financial Condition
The Company’s financial position remains strong. The Company is in compliance with its loan covenants calculated in accordance with applicable agreements as of September 30, 2022. The Company expects its cash flow from operations and its
existing debt capacity can be used to meet anticipated future cash requirements for operations, capital expenditures, dividend payments, acquisitions, and stock repurchases. The Company’s contractual obligations consist primarily of operational
commitments, which we expect to continue to be able to satisfy through cash generated from operations and debt. The Company has various series of notes outstanding that mature from 2022 through 2027. The Company believes that it has the ability
to refinance or repay these obligations through a combination of cash flow from operations, issuance of additional notes, and substantial borrowing capacity under the Company’s revolving credit facility, which matures in 2026.
As a result of our ability to manage the impact of inflation through pricing and other actions, the impact of inflation was not material to the Company’s financial position and its results of operations for the three or nine months ended
September 30, 2022. The Company currently anticipates inflation will not significantly impact the remainder of 2022, as a result of the Company’s pricing and other actions; however, the Company, like others in its industry, has faced challenges
due to conditions in the global supply chain and global economy. In particular, the Company has experienced increased costs for certain inputs, such as energy, raw materials, shipping and logistics, and labor-related costs. We continue to
expect to manage these impacts in the near term, but persistent, accelerated, or expanded inflationary conditions could exacerbate these challenges and impact our profitability.
Cash Flows from Operating Activities
Net cash provided by operating activities was $14.9 million and $116.1 million for the nine months ended September 30, 2022 and 2021, respectively. The decrease in net cash from operating activities was primarily due to an increase in cash
used for inventory in 2022 as the Company invested in its inventory position to support demand and address supply chain challenges.
Cash Flows from Investing Activities
Net cash used in investing activities was $51.7 million and $13.1 million during the nine months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30, 2021, the Company received cash proceeds of $36.8
million related to the Company’s divestiture activities. During the nine months ended September 30, 2022 and 2021, the Company paid $1.0 million and $13.9 million related to the acquisition of Flavors
Solutions, Inc., respectively. Capital expenditures were $51.7 million and $37.6 million during the nine months ended September 30, 2022 and 2021, respectively.
Cash Flows from Financing Activities
Net cash provided by financing activities was $46.3 million for the nine months ended September 30, 2022, and net cash used in financing activities was $93.5 million for the nine months ended September 30, 2021. Net debt increased by $100.1
million and decreased by $11.9 million for the nine months ended September 30, 2022 and 2021, respectively. The cash proceeds from the increase in net debt in the current period were primarily used to support inventory investments during the
nine months ended September 30, 2022. For purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates. The Company repurchased shares of its common stock for $31.5 million during the nine months ended
September 30, 2021. There were no repurchases of shares of the Company’s common stock in 2022. Dividends of $51.7 million and $49.5 million were paid during the nine months ended September 30, 2022 and 2021, respectively. Dividends paid were
$1.23 and $1.17 per share for the nine months ended September 30, 2022 and 2021, respectively.
CRITICAL ACCOUNTING POLICIES
There have been no material changes in the Company’s critical accounting policies during the quarter ended September 30, 2022. For additional information about the Company’s critical accounting policies, refer to “Critical Accounting
Policies” under Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
| ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
There have been no material changes in the Company’s exposure to market risk during the quarter ended September 30, 2022. For additional information about market risk, refer to Part II, Item 7A of the Company’s Annual Report on Form 10-K for
the year ended December 31, 2021.
| ITEM 4. |
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures: The Company carried out an evaluation, under the supervision and with the participation of management, including the Company’s Chairman, President, and Chief Executive Officer and its Senior
Vice President and Chief Financial Officer, of the effectiveness, as of the end of the period covered by this report, of the design and operation of the disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act. Based
upon that evaluation, the Company’s Chairman, President, and Chief Executive Officer and its Senior Vice President and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the end of the period
covered by this report.
Changes in Internal Control over Financial Reporting: During the quarter ended September 30, 2022, the Company upgraded an enterprise resource planning software application used in two business units within the Flavors & Extracts
segment. The upgrade included order taking, manufacturing, general ledger, and financial reporting processes. For the system change, the Company followed an implementation process that required significant pre-implementation planning, design,
and testing. There have been no other changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended September 30, 2022, that have materially affected, or
are reasonably likely to materially affect, the Company’s internal control over financial reporting.
|
PART II.
|
OTHER INFORMATION
|
See Part I, Item 1, Note 14, Commitments and Contingencies, of this report for information regarding legal proceedings in which the Company is involved.
There were no material changes to the risk factors previously disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as updated and supplemented in Part II, Item 1A of the Company’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2022.
| ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
On October 19, 2017, the Board of Directors authorized the repurchase of up to three million shares (2017 Authorization). As of September 30, 2022, 1,267,019 shares had been repurchased under the 2017 Authorization. There is no expiration
date for the 2017 Authorization. The 2017 Authorization may be modified, suspended, or discontinued by the Board of Directors at any time. As of September 30, 2022, the maximum number of shares that may be purchased under publicly announced
plans is 1,732,981. No shares were purchased by the Company during the three or nine months ended September 30, 2022.
| ITEM 6. |
EXHIBITS
|
See Exhibit Index following this report.
SENSIENT TECHNOLOGIES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2022
|
Exhibit
|
Description
|
Incorporated by Reference From
|
Filed Herewith
|
|
Amendment No. 9 to Receivables Purchase Agreement, dated as of August 31, 2022, among Sensient Receivables LLC, Sensient Technologies Corporation, and Wells Fargo Bank, National Association.
|
Exhibit 10.1 to Current Report on Form 8-K filed September 6, 2022 (Commission File No. 1-7626)
|
||
|
Certifications of the Company’s Chairman, President & Chief Executive Officer and Senior Vice President & Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
|
X
|
||
|
Certifications of the Company’s Chairman, President & Chief Executive Officer and Senior Vice President & Chief Financial Officer pursuant to 18 United States Code § 1350
|
X
|
||
|
101.INS
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
|
X
|
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document
|
X
|
|
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
X
|
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
X
|
|
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
X
|
|
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
X
|
|
|
104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
|
X
|
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.
|
SENSIENT TECHNOLOGIES CORPORATION
|
||||
|
Date:
|
November 1, 2022
|
By:
|
/s/ John J. Manning
|
|
|
John J. Manning, Senior Vice
President, General Counsel &
Secretary
|
||||
|
Date:
|
November 1, 2022
|
By:
|
/s/ Stephen J. Rolfs
|
|
|
Stephen J. Rolfs, Senior Vice
President & Chief Financial Officer
|
||||
25
EXHIBIT 31
CERTIFICATION
Pursuant to Rule 13a-14(a) of the Exchange Act
I, Paul Manning, certify that:
| 1. |
I have reviewed this quarterly report on Form 10-Q of Sensient Technologies Corporation;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and
for, the periods presented in this report;
|
| 4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
|
| d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
| 5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or
persons performing the equivalent functions):
|
| a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and
report financial information; and
|
| b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
Date:
|
November 1, 2022
|
|
|
/s/ Paul Manning
|
||
|
Paul Manning, Chairman, President &
|
||
|
Chief Executive Officer
|
||
EXHIBIT 31
CERTIFICATION
Pursuant to Rule 13a-14(a) of the Exchange Act
I, Stephen J. Rolfs, certify that:
| 1. |
I have reviewed this quarterly report on Form 10-Q of Sensient Technologies Corporation;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and
for, the periods presented in this report;
|
| 4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
|
| d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
| 5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or
persons performing the equivalent functions):
|
| a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and
report financial information; and
|
| b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
Date:
|
November 1, 2022
|
|
|
/s/ Stephen J. Rolfs
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||
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Stephen J. Rolfs, Senior Vice President &
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||
|
Chief Financial Officer
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||
EXHIBIT 32
CERTIFICATION
Pursuant to 18 United States Code § 1350
The undersigned hereby certifies that the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2022, of Sensient Technologies Corporation (the “Company”) filed with the Securities and Exchange Commission on or about the date
hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
|
/s/ Paul Manning
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|||
|
Name:
|
Paul Manning
|
||
|
Title:
|
Chairman, President & Chief Executive Officer
|
||
|
Date:
|
November 1, 2022
|
||
A signed original of this written statement required by Section 906 has been provided to Sensient Technologies Corporation and will be retained by Sensient Technologies Corporation and furnished to the Securities and Exchange Commission or its
staff upon request.
EXHIBIT 32
CERTIFICATION
Pursuant to 18 United States Code § 1350
The undersigned hereby certifies that the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2022, of Sensient Technologies Corporation (the “Company”) filed with the Securities and Exchange Commission on or about the date
hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
|
/s/ Stephen J. Rolfs
|
|||
|
Name:
|
Stephen J. Rolfs
|
||
|
Title:
|
Senior Vice President & Chief Financial Officer
|
||
|
Date:
|
November 1, 2022
|
||
A signed original of this written statement required by Section 906 has been provided to Sensient Technologies Corporation and will be retained by Sensient Technologies Corporation and furnished to the Securities and Exchange Commission or its
staff upon request.