SXT 10-Q
Sensient Technologies Corp (SXT)
10-Q
2022-08-02
For: 2022-06-30
View Original
Added on
April 10, 2026
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 July 27, 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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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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Signatures. |
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 June 30,
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Six Months
Ended June 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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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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Basic
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Diluted
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Earnings per common share:
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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 June 30,
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Six Months
Ended June 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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$
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||||||||
See accompanying notes to consolidated condensed financial statements.
SENSIENT TECHNOLOGIES CORPORATION
(In thousands)
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Assets
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June 30,
2022
(Unaudited)
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December 31,
2021
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||||||
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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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Inventories
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Prepaid expenses and other current assets
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Total current assets
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Other assets
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Deferred tax assets
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Intangible assets, net
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Goodwill
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Property, Plant, and Equipment:
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Land
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Buildings
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Machinery and equipment
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Construction in progress
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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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Accrued salaries, wages, and withholdings from employees
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Other accrued expenses
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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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Common stock
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Additional paid-in capital
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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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Accumulated other comprehensive loss
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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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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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Six Months
Ended June 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 (gain) loss on assets
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(
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)
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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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Trade accounts receivable
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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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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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Accounts payable and other accrued expenses
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Accrued salaries, wages, and withholdings from employees
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(
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)
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(
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)
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Income taxes
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Other liabilities
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Net cash provided by operating activities
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Cash flows from investing activities:
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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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Proceeds from sale of assets
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Proceeds from divestiture of businesses
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Other investing activities
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(
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)
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Net cash (used in) provided by investing activities
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(
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)
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Cash flows from financing activities:
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Proceeds from additional borrowings
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Debt payments
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(
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)
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(
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)
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Purchase of treasury stock
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(
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)
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|||||
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Dividends paid
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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 financing 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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Net cash provided by (used in) financing activities
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(
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)
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|||||
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Effect of exchange rate changes on cash and cash equivalents
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||||||
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Net (decrease) increase in cash and cash equivalents
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(
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)
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|||||
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Cash and cash equivalents at beginning of period
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|
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||||||
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Cash and cash equivalents at end of period
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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, except share and per share amounts)
(Unaudited)
|
Common
|
Additional
Paid-In
|
Earnings Reinvested in the
|
Treasury Stock
|
Accumulated
Other
Comprehensive
|
Total
|
|||||||||||||||||||||||
|
Three Months Ended June 30, 2022
|
Stock
|
Capital
|
Business
|
Shares
|
Amount
|
Income (Loss)
|
Equity
|
|||||||||||||||||||||
|
Balances at March 31, 2022
|
$
|
|
$
|
|
$
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|
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$
|
(
|
)
|
$
|
(
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)
|
$
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|
|||||||||||||
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Net earnings
|
|
|
|
-
|
|
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|||||||||||||||||||||
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Other comprehensive loss
|
|
|
|
-
|
|
(
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)
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(
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)
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|||||||||||||||||||
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Cash dividends paid – $
|
|
|
(
|
)
|
-
|
|
|
(
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)
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|||||||||||||||||||
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Share-based compensation
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|
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-
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|||||||||||||||||||||
| Non-vested stock issued upon vesting |
( |
) | ( |
) | ||||||||||||||||||||||||
| Other |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||
|
Balances at June 30, 2022
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||
Three Months Ended June 30, 2021
|
Balances at March 31, 2021
|
$
|
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$
|
|
$
|
|
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$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||
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Net earnings
|
|
|
|
-
|
|
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|||||||||||||||||||||
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Other comprehensive income
|
|
|
|
-
|
|
|
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|||||||||||||||||||||
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Cash dividends paid – $
|
|
|
(
|
)
|
-
|
|
|
(
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)
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|||||||||||||||||||
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Share-based compensation
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-
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|||||||||||||||||||||
| Non-vested stock issued upon vesting |
( |
) | ( |
) | ||||||||||||||||||||||||
| Purchase of treasury stock |
( |
) | ( |
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Other
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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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Balances at June 30, 2021
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
Six Months Ended June 30, 2022
|
Balances at December 31, 2021
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||
|
Net earnings
|
|
|
|
-
|
|
|
|
|||||||||||||||||||||
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Other comprehensive loss
|
|
|
|
-
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
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Cash dividends paid – $
|
|
|
(
|
)
|
-
|
|
|
(
|
)
|
|||||||||||||||||||
|
Share-based compensation
|
|
|
|
-
|
|
|
|
|||||||||||||||||||||
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Non-vested stock issued upon vesting
|
|
(
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)
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(
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)
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|||||||||||||||||||
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Benefit plans
|
|
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(
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)
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||||||||||||||||||||
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Other
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|
(
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)
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(
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)
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|
(
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)
|
||||||||||||||||||
|
Balances at June 30, 2022
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
Six Months Ended June 30, 2021
|
Balances at December 31, 2020
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||
|
Net earnings
|
|
|
|
-
|
|
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|
|||||||||||||||||||||
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Other comprehensive income
|
|
|
|
-
|
|
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|||||||||||||||||||||
|
Cash dividends paid – $
|
|
|
(
|
)
|
-
|
|
|
(
|
)
|
|||||||||||||||||||
|
Share-based compensation
|
|
|
|
-
|
|
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|
|||||||||||||||||||||
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Non-vested stock issued upon vesting
|
|
(
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)
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|
(
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)
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|
|||||||||||||||||||
|
Benefit plans
|
|
|
|
(
|
)
|
|
|
|
||||||||||||||||||||
|
Purchase of treasury stock
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||
|
Other
|
|
(
|
)
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||||
|
Balances at June 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 June 30,
2022, and the results of operations, comprehensive income, and shareholders’ equity for the three and six months ended June 30, 2022 and 2021, and cash flows for the six months ended June 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 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 June 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) |
|
The following table
summarizes the divestiture & other related costs for the six months ended June 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 six months ended June 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 June 30, 2021:
|
(In thousands)
|
Flavors & Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Employee separation costs
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||
| Other income(1) | ( |
) |
( |
) |
||||||||||||
|
Other costs(2)
|
|
|
|
|
||||||||||||
|
Total expense (income)
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
| (1) |
| (2) |
The following table summarizes the Operational
Improvement Plan expenses recorded in Selling and Administrative Expenses by segment for the six months ended June 30, 2021:
|
(In thousands) |
Flavors & Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Employee separation costs
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
Other income(1)
|
|
(
|
)
|
|
(
|
)
|
||||||||||
|
Other costs(2)
|
|
|
|
|
||||||||||||
|
Total expense (income)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
| (1) |
Other income includes cash received for the early termination of a lease less associated expenses.
|
|
|
(2) |
Other costs include professional services, accelerated depreciation, and other related costs.
|
As of June 30, 2022 and December 31 2021, accrued liabilities in Other Accrued Expenses totaled $0.4 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 with approximately $1.0 million of such amount being held back by the Company for 12 months in order to satisfy post-closing indemnification claims that may arise. 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 six month periods ended June 30, 2022 and 2021:
|
(In thousands)
Three Months Ended June 30, 2022
|
Allowance for
Doubtful Accounts
|
|||
|
Balance at
March 31, 2022
|
$
|
|
||
|
Provision for
expected credit losses
|
|
|||
|
Accounts
written off
|
(
|
)
|
||
|
Translation and
other activity
|
(
|
)
|
||
|
Balance at June
30, 2022
|
$
|
|
||
|
(In thousands)
Three Months Ended June 30, 2021
|
Allowance for
Doubtful Accounts
|
|||
|
Balance at March 31, 2021
|
$
|
|
||
|
Provision for
expected credit losses
|
|
|||
|
Accounts
written off
|
(
|
)
|
||
|
Translation and
other activity
|
|
|||
|
Balance at June
30, 2021
|
$
|
|
||
|
(In thousands)
Six
Months Ended June 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 June
30, 2022
|
$
|
|
||
|
(In thousands)
Six
Months Ended June 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 June
30, 2021
|
$ | |||
| 6. |
Inventories
|
At June 30, 2022, and December 31, 2021, inventories included finished and in-process products totaling $294.4
million and $280.2 million, respectively, and raw materials and supplies of $157.7 million and $131.4 million, respectively.
| 7. |
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 June 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 June 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 June 30, 2022 and December 31, 2021, was $499.2 million and $503.5 million, respectively. The fair value of the long-term debt at June 30, 2022 and December 31, 2021, was $497.9 million and $520.0 million, respectively.
| 8. |
Segment Information
|
The Company evaluates performance based on
operating income before divestiture & other related costs, share-based compensation, restructuring and other charges including 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 six months ended June 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 six months ended June 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 June 30, 2022:
|
||||||||||||||||||||
|
Revenue from
external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Intersegment
revenue
|
|
|
|
|
|
|||||||||||||||
|
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Operating
income (loss)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Interest
expense
|
|
|
|
|
|
|||||||||||||||
|
Earnings (loss)
before income taxes
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Three months ended June 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
|
|||||||||||||||
|
Six months ended June 30,
2022:
|
||||||||||||||||||||
|
Revenue from
external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Intersegment
revenue
|
|
|
|
|
|
|||||||||||||||
|
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Operating
income (loss)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Interest
expense
|
|
|
|
|
|
|||||||||||||||
|
Earnings (loss)
before income taxes
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Six months ended June 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 June 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 June 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
|
||||||||||||
|
Six months ended June 30,
2022:
|
||||||||||||||||
|
Flavors,
Extracts & Flavor Ingredients
|
$
|
|
$
|
-
|
$
|
-
|
$
|
|
||||||||
|
Natural
Ingredients
|
|
-
|
-
|
|
||||||||||||
|
Food &
Pharmaceutical Colors
|
-
|
|
-
|
|
||||||||||||
|
Personal Care
|
-
|
|
-
|
|
||||||||||||
|
Inks
|
-
|
|
-
|
|
||||||||||||
|
Asia Pacific
|
-
|
-
|
|
|
||||||||||||
|
Intersegment
Revenue
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Six months ended June 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 June 30, 2022:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Three months ended June 30, 2021:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
(In thousands)
|
Flavors &
Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Six months ended June 30,
2022:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Six months ended June 30,
2021:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|||||||
| 9. |
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
June 30,
|
Six Months Ended
June 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.
| 10. |
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 $37.0 million and $48.6 million of forward
exchange contracts designated as cash flow hedges outstanding as of June 30, 2022 and December 31, 2021, respectively. For the three and six months ended June 30, 2022, 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 three and six months ended June 30, 2021, gains of $0.5 million and $0.8 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 June 30, 2022 and December 31, 2021, the total value of the
Company’s net investment hedges was $265.4 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 June 30, 2022 and 2021, the impact of foreign exchange rates on these debt instruments decreased debt by $16.2 million and increased debt by $2.7 million, respectively, which has
been recorded as foreign currency translation in OCI. For the six months ended June 30, 2022 and 2021, the impact of foreign exchange rates on these debt instruments decreased debt by $24.1 million and $6.9 million, respectively, which has been
recorded as foreign currency translation in OCI. For the three and six months ended June 30, 2021, losses of $4.2
| 11. |
Income Taxes
|
The effective income tax rates for the three months ended June 30, 2022
and 2021 were 25.9 % and 20.0 %,
respectively. For the six months ended June 30, 2022 and 2021, the effective income tax rates were 25.7 % and 24.1 %, respectively. The effective tax rates for the three and six months ended June 30, 2022 and 2021 were both impacted by changes in estimates
associated with the finalization of prior year foreign tax items and the mix of foreign earnings. The three and six months ended June 30, 2021 were also impacted by changes in valuation allowances and an audit settlement.
| 12. |
Accumulated Other Comprehensive Income
|
The following table summarizes the changes in OCI during the three
and six month periods ended June 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 June 30, 2022
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
(In thousands)
|
Cash Flow
Hedges (1)
|
Pension
Items (1)
|
Foreign
Currency
Items
|
Total
|
||||||||||||
|
Balances at March 31, 2022
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
Other comprehensive loss before
reclassifications
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|||||||||
|
Amounts reclassified from OCI
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Balances at June 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 June 30, 2021
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
|
Cash Flow
Hedges (1)
|
Pension
Items (1)
|
Foreign
Currency
Items
|
Total
|
||||||||||||
|
Balances at March 31, 2021
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
Other comprehensive income before
reclassifications
|
|
|
|
|
||||||||||||
|
Amounts reclassified from OCI
|
(
|
)
|
|
|
|
|||||||||||
|
Balances at June 30, 2021
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
| (1) |
|
| 13. |
Commitments and Contingencies
|
Agar
v. Sensient Natural Ingredients LLC
On
March 29, 2019, Calvin Agar (Agar), a former employee, filed a Class Action Complaint in Stanislaus County Superior Court against Sensient Natural Ingredients LLC (SNI). On May 22, 2019, Agar filed a First Amended Class Action Complaint against SNI
(the Complaint). Agar alleges that SNI improperly reported overtime pay on employees’ wage statements, in violation of the California Labor Code. The Complaint alleges two causes of action, both of which concern the wage statements.
The
Complaint does not allege that SNI failed to pay any overtime due to Agar or any of the putative class or group members. The Complaint merely challenges the manner in which SNI has reported overtime pay on its wage statements.
SNI
maintains that it has accurately paid Agar and the putative class members for all overtime worked, and that they have not experienced any harm. SNI further maintains that the format of its wage statements does not violate the requirements of state
law or any specific guidance from California decisional law, the California Division of Labor Standards Enforcement, or the California Labor Commissioner’s Office. Finally, SNI contended that certain of the state law claims are subject to mandatory
individual arbitration.
SNI filed its Answer and Affirmative Defenses
to the Complaint on July 10, 2019. The parties participated in an early mediation in the case in December 2019, which was not successful. On March 17, 2020, the Court granted Agar leave to file a Second Amended Complaint, which removed the claim
that SNI had asserted was subject to mandatory individual arbitration. SNI filed a Demurrer to the Second Amended Complaint, seeking dismissal of the remaining claim, on May 1, 2020. The Court overruled the Demurrer on September 1, 2020. SNI
requested discretionary appellate review of this decision. The Court of Appeal of the State of California, Fifth Appellate District granted SNI’s application on February 19, 2021 and ordered briefing by the Parties. Oral argument was held
on April 5, 2022. On April 18, 2022, the Court of Appeal ruled that a peremptory writ of mandate should be issued directing the trial court to set aside its prior order overruling SNI’s Demurrer to the complaint and to enter an order sustaining
SNI’s Demurrer without leave to amend, which has the effect of dismissing Agar’s complaint against SNI. Agar did not file a petition for review with the California Supreme Court, and therefore, the Court of Appeal’s decision was considered final as
of June 20, 2022.
Kelley
v. Sensient Natural Ingredients LLC; Walters v. Sensient Natural Ingredients LLC
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. SNI filed a Demurrer on May
21, 2020, seeking dismissal of the Complaint in its entirety on the grounds that it contains only boilerplate allegations that fail to state facts sufficient to constitute a cause of action, and it is otherwise uncertain, ambiguous, and
unintelligible. SNI further sought dismissal of one cause of action based upon the statute of limitations. SNI simultaneously filed a Motion to Strike certain allegations in the Complaint as improperly pled. The Court sustained the Demurrer with
leave to amend on August 25, 2020. The Court also granted the Motion to Strike. Ms. Kelley has amended her original pleading, asserting the same causes of action, to which SNI has filed a responsive pleading. The parties have begun discovery.
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 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. Ms. Kelley and Mr. Walters agreed to attempt a joint mediation with Ms. Sofia Rodriguez (see
case description below), which was scheduled for August 2022.
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 cannot bring representative claims on behalf of others. SNI has asserted in its Answer an
affirmative defense based upon the existence of an arbitration agreement between Walters and SNI requiring individual arbitration as the exclusive remedy for his claims. SNI withdrew its agreement to participate in the joint mediation in August
2022, based upon the changed legal landscape post-Viking River Cruises. SNI also has demanded that Walters submit his individual PAGA claims to arbitration in
accordance with his arbitration agreement. SNI intends to vigorously defend its interests in both the Kelley and Walters matters, absent a reasonable resolution.
Sofia
Rodriguez v. Sensient Natural Ingredients LLC and One Source Staffing Solutions, Inc.
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. Ms. Rodriguez agreed to attempt a joint mediation with Ms. Monique Kelley and Mr. Patrick Walters (see case descriptions above), which was
scheduled for August 2022. SNI withdrew its agreement to a joint mediation following the issuance of the decision in Viking River Cruises, Inc. SNI intends to vigorously defend its interests in the
Rodriguez matter, absent a reasonable resolution.
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.
| 14. |
Subsequent Event
|
On July 21, 2022 , the Company announced its quarterly dividend of $0.41 per share would be payable on September 1, 2022 .
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
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 June 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 ongoing 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 $371.7 million and $335.8 million for the three months ended June 30, 2022 and 2021, respectively. Revenue was $727.2 million and $695.5 million for the six months ended June 30, 2022 and 2021, respectively. The increase in revenue
for the three and six months ended June 30, 2022 was primarily due to increased pricing and volumes. The increase in revenue for the six months ended June 30, 2022 was partially offset by the sale of the Company’s Fragrances product line on April
1, 2021. For the three and six months ended June 30, 2022, the impact of foreign exchange rates decreased consolidated revenue by approximately 3%.
Gross Margin
The Company’s gross margin was 35.2% and 33.2% for the three months ended June 30, 2022 and 2021, respectively. The Company’s gross margin was 35.2% and 32.7% for the six months ended June 30, 2022 and 2021, respectively. The increase in gross
margin for both the three and six months ended June 30, 2022 was primarily due to increased pricing and volumes, partially offset by higher input costs. Gross margin was also impacted by unfavorable product mix for the three months ended June 30,
2022.
Selling and Administrative Expenses
Selling and administrative expense as a percent of revenue was 20.4% and 22.6% for the three months ended June 30, 2022 and 2021, respectively. Selling and administrative expense as a percent of revenue was 20.3% and 20.8% for the six months
ended June 30, 2022 and 2021, respectively.
Selling and administrative expenses for the three and six months ended June 30, 2021 included divestiture & other related expenses and operational improvement plan costs totaling $8.2 million and $10.7 million, respectively. There were no
divestiture & other related costs or operational improvement plan costs for the three or six months ended June 30, 2022.
The decrease in selling and administrative expense as a percent of revenue for the three and six months ended June 30, 2022 is primarily due to the lack of divestiture & other related costs and operational improvement plan costs in 2022,
partially 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 250 and 160 basis
points for the three and six months ended June 30, 2021, respectively.
Operating Income
Operating income was $55.2 million and $35.8 million for the three months ended June 30, 2022 and 2021, respectively. Operating margins were 14.9% and 10.6% for the three months ended June 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.
Operating income was $108.0 million and $82.7 million for the six months ended June 30, 2022 and 2021, respectively. Operating margins were 14.9% and 11.9% for the six months ended June 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.
Interest Expense
Interest expense was $3.1 million and $3.3 million for the three months ended June 30, 2022 and 2021, respectively, and $6.1 million and $6.8 million for the six months ended June 30, 2022 and 2021, respectively. The decrease in expense for the
three and six months ended June 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 June 30, 2022 and 2021 were 25.9% and 20.0%, respectively. For the six months ended June 30, 2022 and 2021, the effective income tax rates were 25.7% and 24.1%, respectively. The
effective tax rates for the three and six months ended June 30, 2022 and 2021 were both impacted by changes in estimates associated with the finalization of prior year foreign tax items and the mix of foreign earnings. The three and six months
ended June 30, 2021 were also impacted by changes in valuation allowances and an audit settlement.
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 six months ended June 30, 2021, the Company incurred $11.7 million and $13.3 million, respectively, related to the divestitures, 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 six months ended June 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 six months ended June 30, 2021, the Company recorded income of $3.5 million and $2.5 million, respectively, related to the Operational Improvement Plan, primarily related to a $3.6 million 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 six months ended June 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 with approximately $1.0 million of such amount being held back by the Company for 12 months in order to satisfy post-closing
indemnification claims that may arise. 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 six months ended June 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 June 30,
|
Six Months Ended June 30,
|
|||||||||||||||||||||||
|
(In thousands, except per share amounts)
|
2022
|
2021
|
% Change
|
2022
|
2021
|
% Change
|
||||||||||||||||||
|
Revenue (GAAP)
|
$
|
371,706
|
$
|
335,827
|
10.7
|
%
|
$
|
727,227
|
$
|
695,529
|
4.6
|
%
|
||||||||||||
|
Revenue of the divested product lines
|
-
|
(2,207
|
)
|
-
|
(27,777
|
)
|
||||||||||||||||||
|
Adjusted revenue
|
$
|
371,706
|
$
|
333,620
|
11.4
|
%
|
$
|
727,227
|
$
|
667,752
|
8.9
|
%
|
||||||||||||
|
Operating Income (GAAP)
|
$
|
55,244
|
$
|
35,753
|
54.5
|
%
|
$
|
108,033
|
$
|
82,650
|
30.7
|
%
|
||||||||||||
|
Divestiture & other related costs – Cost of products sold
|
-
|
3
|
-
|
28
|
||||||||||||||||||||
|
Divestiture & other related costs – Selling and administrative expenses
|
-
|
11,685
|
-
|
13,232
|
||||||||||||||||||||
|
Operating loss (income) of the divested product lines
|
-
|
459
|
-
|
(2,468
|
)
|
|||||||||||||||||||
|
Operational improvement plan – Selling and administrative expenses (income)
|
-
|
(3,494
|
)
|
-
|
(2,493
|
)
|
||||||||||||||||||
|
Adjusted operating income
|
$
|
55,244
|
$
|
44,406
|
24.4
|
%
|
$
|
108,033
|
$
|
90,949
|
18.8
|
%
|
||||||||||||
|
Net Earnings (GAAP)
|
$
|
38,647
|
$
|
25,936
|
49.0
|
%
|
$
|
75,718
|
$
|
57,604
|
31.4
|
%
|
||||||||||||
|
Divestiture & other related costs, before tax
|
-
|
11,688
|
-
|
13,260
|
||||||||||||||||||||
|
Tax impact of divestiture & other related costs
|
-
|
(1,689
|
)
|
-
|
(896
|
)
|
||||||||||||||||||
|
Net loss (earnings) of the divested product lines, before tax
|
-
|
459
|
-
|
(2,468
|
)
|
|||||||||||||||||||
|
Tax impact of the divested product lines
|
-
|
(115
|
)
|
-
|
608
|
|||||||||||||||||||
|
Operational improvement plan income, before tax
|
-
|
(3,494
|
)
|
-
|
(2,493
|
)
|
||||||||||||||||||
|
Tax impact of operational improvement plan
|
-
|
455
|
-
|
159
|
||||||||||||||||||||
|
Adjusted net earnings
|
$
|
38,647
|
$
|
33,240
|
16.3
|
%
|
$
|
75,718
|
$
|
65,774
|
15.1
|
%
|
||||||||||||
|
Diluted earnings per share (GAAP)
|
$
|
0.92
|
$
|
0.61
|
50.8
|
%
|
$
|
1.80
|
$
|
1.36
|
32.4
|
%
|
||||||||||||
|
Divestiture & other related costs, net of tax
|
-
|
0.24
|
-
|
0.29
|
||||||||||||||||||||
|
Results of operations of the divested product lines, net of tax
|
-
|
0.01
|
-
|
(0.04
|
)
|
|||||||||||||||||||
|
Operational improvement plan income, net of tax
|
-
|
(0.07
|
)
|
-
|
(0.06
|
)
|
||||||||||||||||||
|
Adjusted diluted earnings per share
|
$
|
0.92
|
$
|
0.79
|
16.5
|
%
|
$
|
1.80
|
$
|
1.55
|
16.1
|
%
|
||||||||||||
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 six months ended June 30, 2022, compared to the results for the three and six months ended June 30, 2021, in the respective financial measures.
|
Three Months Ended June 30, 2022
|
Six Months Ended June 30, 2022
|
||||||||||||||||||||||||||||||
|
Revenue
|
Total
|
Foreign Exchange Rates
|
Adjustments(1)
|
Adjusted Local Currency
|
Total
|
Foreign Exchange Rates
|
Adjustments(1)
|
Adjusted Local Currency
|
|||||||||||||||||||||||
|
Flavors & Extracts
|
5.5
|
%
|
(2.5
|
%)
|
(0.8
|
%)
|
8.8
|
%
|
(2.2
|
%)
|
(2.1
|
%)
|
(7.1
|
%)
|
7.0
|
%
|
|||||||||||||||
|
Color
|
17.3
|
%
|
(3.9
|
%)
|
(0.7
|
%)
|
21.9
|
%
|
13.3
|
%
|
(2.9
|
%)
|
(0.6
|
%)
|
16.8
|
%
|
|||||||||||||||
|
Asia Pacific
|
15.5
|
%
|
(7.5
|
%)
|
0.0
|
%
|
23.0
|
%
|
11.5
|
%
|
(6.6
|
%)
|
(0.5
|
%)
|
18.6
|
%
|
|||||||||||||||
|
Total Revenue
|
10.7
|
%
|
(3.4
|
%)
|
(0.8
|
%)
|
14.9
|
%
|
4.6
|
%
|
(2.8
|
%)
|
(4.2
|
%)
|
11.6
|
%
|
|||||||||||||||
|
Operating Income
|
|||||||||||||||||||||||||||||||
|
Flavors & Extracts
|
22.3
|
%
|
(1.3
|
%)
|
(0.3
|
%)
|
23.9
|
%
|
11.7
|
%
|
(1.2
|
%)
|
(6.4
|
%)
|
19.3
|
%
|
|||||||||||||||
|
Color
|
21.7
|
%
|
(4.6
|
%)
|
2.4
|
%
|
23.9
|
%
|
18.4
|
%
|
(3.6
|
%)
|
1.3
|
%
|
20.7
|
%
|
|||||||||||||||
|
Asia Pacific
|
33.3
|
%
|
(10.0
|
%)
|
0.0
|
%
|
43.3
|
%
|
26.9
|
%
|
(8.9
|
%)
|
(0.9
|
%)
|
36.7
|
%
|
|||||||||||||||
|
Corporate & Other
|
(32.3
|
%)
|
0.0
|
%
|
(46.3
|
%)
|
14.0
|
%
|
(18.8
|
%)
|
0.0
|
%
|
(38.2
|
%)
|
19.4
|
%
|
|||||||||||||||
|
Total Operating Income
|
54.5
|
%
|
(5.8
|
%)
|
31.2
|
%
|
29.1
|
%
|
30.7
|
%
|
(4.3
|
%)
|
12.5
|
%
|
22.5
|
%
|
|||||||||||||||
|
Diluted Earnings per Share
|
50.8
|
%
|
(4.9
|
%)
|
34.2
|
%
|
21.5
|
%
|
32.4
|
%
|
(4.4
|
%)
|
17.4
|
%
|
19.4
|
%
|
|||||||||||||||
| (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 $189.3 million and $179.4 million for the three months ended June 30, 2022 and 2021, respectively, an increase of approximately 6%. Foreign exchange rates decreased segment revenue by approximately 2%.
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 in September of 2020. The higher revenue in Flavors, Extracts & Flavor Ingredients was primarily due to higher volumes, higher selling prices, and the acquisition of Flavor
Solutions, Inc. in July of 2021, 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 $372.1 million and $380.3 million for the six months ended June 30, 2022 and 2021, respectively, a decrease of approximately 2%. 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 in September of 2020 and the divestiture of Fragrances in April of 2021 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 volumes, higher selling prices, 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 $30.0 million and $24.5 million for the three months ended June 30, 2022 and 2021, respectively, an increase of approximately 22%. 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 and Natural Ingredients. The higher operating income in Flavors, Extracts & Flavor Ingredients
was primarily due to higher selling prices, higher volumes, and lower manufacturing and other costs, partially offset by higher raw material costs. The higher operating income in Natural Ingredients was primarily due to higher selling prices,
partially offset by lower volumes, higher raw material costs, and higher manufacturing and other costs. Segment operating income as a percent of revenue was 15.9% in the current quarter compared to 13.7% in the prior year’s comparable quarter.
Flavors & Extracts segment operating income was $57.6 million and $51.6 million for the six months ended June 30, 2022 and 2021, respectively, an increase of approximately 12%. 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, lower manufacturing and other costs, and the acquisition of Flavor Solutions, Inc. in July of 2021, partially offset by higher raw material 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 15.5% in the current six month period
compared to 13.6% in the prior year’s comparable six month period.
Color
Segment revenue for the Color segment was $156.3 million and $133.2 million for the three months ended June 30, 2022 and 2021, respectively, an increase of approximately 17%. 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 revenue for the Color segment was $304.7 million and $268.9 million for the six months ended June 30, 2022 and 2021, respectively, an increase of approximately 13%. 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 3%.
Segment operating income for the Color segment was $31.2 million and $25.6 million for the three months ended June 30, 2022 and 2021, respectively, an increase of approximately 22%. 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. The higher operating income in Food & Pharmaceutical Colors was due to higher volumes and
selling prices, partially offset by higher raw material costs, higher manufacturing and other costs, unfavorable product mix, and the unfavorable impact of foreign exchange rates. The higher operating income in Personal Care was due to higher
volumes and selling prices, partially offset by unfavorable product mix. Segment operating income as a percent of revenue was 20.0% in the current quarter and 19.2% in the prior year’s comparable quarter.
Segment operating income for the Color segment was $61.8 million and $52.2 million for the six months ended June 30, 2022 and 2021, respectively, an increase of approximately 18%. Foreign exchange rates decreased segment operating income by
approximately 4%. The increase in segment operating income was a result of higher operating income in Food & Pharmaceutical Colors and Personal Care. The higher operating income in Food & Pharmaceutical Colors was due to higher volumes and
selling prices, partially offset by higher raw material costs, higher manufacturing and other costs, unfavorable product mix, and the unfavorable impact of foreign exchange rates. The higher operating income in Personal Care was due to higher
volumes and selling prices, partially offset by unfavorable product mix, higher manufacturing and other costs, and the unfavorable impact of foreign exchange rates. Segment operating income as a percent of revenue was 20.3% in the current six month
period and 19.4% in the prior year’s comparable period.
Asia Pacific
Segment revenue for the Asia Pacific segment was $37.3 million and $32.3 million for the three months ended June 30, 2022 and 2021, respectively, an increase of approximately 16%. 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 8%.
Segment revenue for the Asia Pacific segment was $73.8 million and $66.2 million for the six months ended June 30, 2022 and 2021, respectively, an increase of approximately 12%. 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 $7.7 million and $5.8 million for the three months ended June 30, 2022 and 2021, respectively, an increase of approximately 33%. 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 10%. Segment operating income as a percent of revenue was 20.7% in the
current quarter and 17.9% in the prior year’s comparable quarter.
Segment operating income for the Asia Pacific segment was $15.9 million and $12.5 million for the six months ended June 30, 2022 and 2021, respectively, an increase of approximately 27%. The increase was primarily a result of higher volumes and
selling prices, partially offset by higher raw material and other operating costs and the unfavorable impact of foreign exchange rates that decreased segment operating income by approximately 9%. Segment operating income as a percent of revenue was
21.6% in the current six month period and 19.0% in the prior year’s comparable period.
Corporate & Other
The Corporate & Other operating expense was $13.7 million and $20.2 million for the three months ended June 30, 2022 and 2021, respectively. The lower operating expense for the three months ended June 30, 2022 was primarily due to the prior
period including divestiture & other related expenses of $11.7 million, partially offset by higher performance-based executive compensation in 2022 and the prior period including operational improvement plan income of $3.5 million. There were
no divestiture & other related expenses or operational improvement plan income or costs in the current period.
The Corporate & Other operating expense was $27.3 million and $33.7 million for the six months ended June 30, 2022 and 2021, respectively. The lower operating expense for the six months ended June 30, 2022 was primarily due to the prior
period including divestiture & other related expenses of $13.3 million, partially offset by higher performance-based executive compensation in 2022 and the prior period including operational improvement plan income of $2.5 million. There were
no divestiture & other related expenses or operational improvement plan income or costs in the current six 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 June 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 six months ended June 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 $22.8 million and $89.3 million for the six months ended June 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.
Cash Flows from Investing Activities
Net cash used in investing activities was $30.8 million during the six months ended June 30, 2022. Net cash provided by investing activities was $10.6 million during the six months ended June 30, 2021. During the six months ended June 30, 2021,
the Company received cash proceeds of $36.3 million related to the Company’s divestiture activities. Capital expenditures were $32.5 million and $25.6 million during the six months ended June 30, 2022 and 2021, respectively.
Cash Flows from Financing Activities
Net cash provided by financing activities was $1.4 million for the six months ended June 30, 2022, and net cash used in financing activities was $92.7 million for the six months ended June 30, 2021. Net debt increased by $37.9 million and
decreased by $36.6 million for the six months ended June 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 six months ended June
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 $22.5 million during the six months ended June 30, 2021. There were no
repurchases of shares of the Company’s common stock in 2022. Dividends of $34.4 million and $33.0 million were paid during the six months ended June 30, 2022 and 2021, respectively. Dividends paid were $0.82 and $0.78 per share for the six months
ended June 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 June 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 June 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: There have been no 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 June 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
|
| ITEM 1. |
LEGAL PROCEEDINGS
|
See Part I, Item 1, Note 13, Commitments and Contingencies, of this report for information regarding legal proceedings in which the Company is involved.
| ITEM 1A. |
RISK FACTORS
|
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 June 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 June 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 six months ended June 30, 2022.
| ITEM 6. |
EXHIBITS
|
See Exhibit Index following this report.
SENSIENT TECHNOLOGIES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2022
|
Exhibit
|
Description
|
Incorporated by Reference From
|
Filed Herewith
|
|
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:
|
August 2, 2022
|
By:
|
/s/ John J. Manning
|
|
|
John J. Manning, Senior Vice President, General Counsel & Secretary
|
||||
|
Date:
|
August 2, 2022
|
By:
|
/s/ Stephen J. Rolfs
|
|
|
Stephen J. Rolfs, Senior Vice President & Chief Financial Officer
|
||||
25