SENSIENT TECHNOLOGIES CORP
10-Ks and 10-Qs
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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
FORM
10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended:
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
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to
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Commission file number:
001-07626
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Number)
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(Address of principal executive offices)
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Registrant’s telephone number, including area code:
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(
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated Filer
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Non-Accelerated Filer
☐
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Smaller Reporting Company
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Emerging Growth Company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
No
☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class
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Outstanding at October 31, 2023
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Common Stock, par value $0.10 per share
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SENSIENT TECHNOLOGIES CORPORATION
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Page No.
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PART I. FINANCIAL INFORMATION:
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Item 1.
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Financial Statements:
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1
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2
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3
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4
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5
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6
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Item 2.
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13
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Item 3.
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17
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Item 4.
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17
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PART II. OTHER INFORMATION:
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Item 1.
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18
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Item 1A.
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18
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Item 2.
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18
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Item 5.
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Item 6.
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18
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19
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20
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| PART I. |
FINANCIAL INFORMATION
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| ITEM 1. |
FINANCIAL STATEMENTS
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SENSIENT TECHNOLOGIES CORPORATION
(In thousands except per share amounts)
(Unaudited)
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Three Months
Ended September 30,
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Nine Months
Ended September 30,
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2023
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2022
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2023
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2022
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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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Diluted
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$
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$
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$
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$
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Dividends declared per common share
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$
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$
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$
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$
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See accompanying notes to consolidated condensed financial statements.
SENSIENT TECHNOLOGIES CORPORATION
(In thousands)
(Unaudited)
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Three Months
Ended September 30,
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Nine Months
Ended September 30,
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|||||||||||||||
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2023
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2022
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2023
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2022
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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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September 30,
2023
(Unaudited)
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December 31,
2022
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Assets
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Current Assets:
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Cash and cash equivalents
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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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Less accumulated depreciation
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Total assets
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$
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$
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Liabilities
and Shareholders
’
Equity
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Current Liabilities:
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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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Accumulated other comprehensive loss
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(
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(
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Total shareholders’ equity
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Total liabilities and shareholders’ equity
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$
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$
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See accompanying notes to consolidated condensed financial statements.
SENSIENT TECHNOLOGIES CORPORATION
(In thousands)
(Unaudited)
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Nine Months
Ended September 30,
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2023
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2022
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Cash flows from operating activities:
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Net earnings
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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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Depreciation and amortization
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Share-based compensation expense
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Net (gain) loss on assets
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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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Inventories
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(
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Prepaid expenses and other assets
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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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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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Proceeds from sale of assets
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Acquisition of new business
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Other investing activities
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Net cash used in investing activities
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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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Dividends paid
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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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Net cash (used in) provided by financing activities
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(
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Effect of exchange rate changes on cash and cash equivalents
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Net increase in cash and cash equivalents
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Cash and cash equivalents at beginning of period
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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)
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Treasury Stock
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Three Months Ended
September
30
,
2023
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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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Shares
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Amount
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Accumulated
Other
Comprehensive
Income (Loss)
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Total
Equity
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|||||||||||||||||||||
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Balances at
June 30, 2023
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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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$
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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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Cash dividends paid – $
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(
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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
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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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Balances at
September 30
,
2023
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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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(
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$
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Three Months Ended
September 30
,
2022
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Balances at
June 30, 2022
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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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(
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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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Cash dividends paid – $
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(
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-
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(
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Share-based compensation
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-
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Balances at
September 30
,
2022
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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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(
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$
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Nine
Months Ended
September 30
,
2023
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Balances at
December 31
,
2022
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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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(
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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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(
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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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Benefit plans
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(
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Other
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(
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(
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Balances at
September 30
,
2023
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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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(
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$
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Nine
Months Ended
September 30
,
2022
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Balances at
December 31, 2021
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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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(
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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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(
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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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Benefit plans
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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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Balances at
September 30
,
2022
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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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$
|
(
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)
|
$
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|
|||||||||||||
See accompanying notes to consolidated condensed financial statements.
SENSIENT TECHNOLOGIES
CORPORATION
(Unaudited)
|
1.
|
Accounting Policies
|
In the opinion of
Sensient Technologies Corporation (the Company), the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) that are necessary to present fairly the financial
position of the Company as of September 30, 2023, and the results of operations, comprehensive income, and shareholders’ equity for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30,
2023 and 2022. 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.
Please refer to the notes in the Company’s
annual consolidated financial statements for the year ended December 31, 2022, 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. |
Acquisition
|
On October 3, 2022, the Company acquired
Endemix Doğal Maddeler
A.Ş.
and
Teknoloji Yatırımları ve Danışmanlık Sanayi ve Ticaret A.Ş.
(collectively, Endemix), a natural colors business located in Turkey. The
Company paid $
23.3
million in cash for this acquisition, which is net of $
1.3
million in debt assumed, with $
1.7
million of such amount
being held back by the Company for
12
months to satisfy any 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 $
8.9
million and
identified intangible assets, principally technological know-how and customer relationships, of $
4.9
million. The remaining $
9.5
million was allocated to goodwill. This business is part of the Color segment.
|
3
.
|
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. 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 as economic conditions change. Additionally, as the Company only has
one
portfolio segment, there are not different risks between portfolios. Specific accounts are written off against the allowance for doubtful accounts when the receivable is deemed no longer collectible.
The following table summarizes the changes in
the allowance for doubtful accounts during the three and nine month periods ended September 30, 2023 and 2022:
|
(In thousands)
Three Months Ended September 30, 2023
|
Allowance for
Doubtful Accounts
|
|||
|
Balance at June
30, 2023
|
$
|
|
||
|
Provision for
expected credit losses
|
|
|||
|
Accounts
written off
|
(
|
)
|
||
|
Translation and
other activity
|
(
|
)
|
||
|
Balance at
September 30, 2023
|
$
|
|
||
|
(In thousands)
Three Months Ended
September 30, 2022
|
Allowance for
Doubtful Accounts
|
|||
|
Balance at June 30, 2022
|
$
|
|
||
|
Provision for
expected credit losses
|
|
|||
|
Accounts
written off
|
(
|
)
|
||
|
Translation and
other activity
|
(
|
)
|
||
|
Balance at
September 30, 2022
|
$
|
|
||
|
(In thousands)
Nine
Months Ended September 30, 2023
|
Allowance for
Doubtful Accounts
|
|||
|
Balance at
December 31, 2022
|
$
|
|
||
|
Provision for
expected credit losses
|
|
|||
|
Accounts
written off
|
(
|
)
|
||
|
Translation and
other activity
|
|
|
||
|
Balance at
September 30, 2023
|
$
|
|
||
|
(In thousands)
Nine
Months Ended September 30, 2022
|
Allowance for
Doubtful Accounts
|
|||
|
Balance at
December 31, 2021
|
$
|
|
||
|
Provision for
expected credit losses
|
|
|||
|
Accounts
written off
|
(
|
) | ||
|
Translation and
other activity
|
(
|
) | ||
|
Balance at
September 30, 2022
|
$ |
|
||
| 4. |
Inventories
|
At September 30, 2023, and December 31, 2022, inventories included finished and in-process products totaling $
414.8
million and $
385.2
million, respectively, and raw materials and supplies of $
172.2
million and $
178.9
million,
respectively.
| 5. |
Debt
|
On May 31, 2023, the Company entered into an agreement to issue $
75
million and €
40
million in
five-year
, fixed-rate, senior notes at coupon rates of
4.94
% and
4.15
%, respectively. The notes were issued on May 31, 2023, and proceeds have been used to repay a portion of existing indebtedness under
the Company’s Third Amended and Restated Credit Agreement, as amended. The notes will mature in
.
On August 31, 2023, the Company entered into Amendment No. 10 (Amendment) to the Receivables Purchase Agreement, dated as of October
3, 2016. The Amendment extended the termination date from
August 31, 2023
to
August 30, 2024
.
| 6. |
Fair Value
|
Accounting
Standards Codification 820,
Fair Value Measurement
, defines fair value for financial assets and liabilities, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value
measurements. The carrying values of the Company’s cash and cash equivalents, trade accounts receivable, trade accounts payable, accrued expenses, and short-term borrowings were approximately the same as the fair values as of
September
30, 2023 and December 31, 2022. 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 $
1.0
million and a liability of $
0.2
million as of
September
30, 2023 and December 31, 2022, respectively. The fair value of the Company’s long-term debt, including current maturities, is estimated using discounted cash flows based on the Company’s current
incremental borrowing rates for similar types of borrowing arrangements (Level 2 inputs). The carrying value of the long-term debt at
September
30, 2023 and December 31, 2022 was $
648.8
million and $
630.8
million, respectively. The fair value of the long-term debt at
September
30, 2023 and December 31, 2022 was $
639.5
million and $
622.2
million, respectively.
| 7 . |
Segment Information
|
The Company evaluates performance based on
operating income before share-based compensation, 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, or 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 personal care, 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, flavor, and essential oils products in the Asia Pacific countries. The
Company’s corporate expenses and share-based compensation are included in the “Corporate & Other” category.
Operating results by segment for the periods
presented are as follows:
|
(In thousands)
|
Flavors &
Extracts
|
Color
|
Asia
Pacific
|
Corporate &
Other
|
Consolidated
|
|||||||||||||||
|
Three months ended
September 30
,
2023
:
|
||||||||||||||||||||
|
Revenue from
external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Intersegment
revenue
|
|
|
|
|
|
|
|
|
||||||||||||
|
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Operating
income (loss)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Interest
expense
|
|
|
|
|
|
|||||||||||||||
|
Earnings (loss)
before income taxes
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Three months ended
September 30
,
2022
:
|
||||||||||||||||||||
|
Revenue from
external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Intersegment
revenue
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Operating
income (loss)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Interest
expense
|
|
|
|
|
|
|||||||||||||||
|
Earnings (loss)
before income taxes
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
(In thousands)
|
Flavors &
Extracts
|
Color
|
Asia
Pacific
|
Corporate &
Other
|
Consolidated
|
|||||||||||||||
|
Nine
months ended
September 30
,
2023
:
|
||||||||||||||||||||
|
Revenue from
external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Intersegment
revenue
|
|
|
|
|
|
|
|
|
||||||||||||
|
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Operating
income (loss)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Interest
expense
|
|
|
|
|
|
|||||||||||||||
|
Earnings (loss)
before income taxes
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Nine
months ended
September 30
,
2022
:
|
||||||||||||||||||||
|
Revenue from
external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Intersegment
revenue
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Operating
income (loss)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Interest
expense
|
|
|
|
|
|
|||||||||||||||
|
Earnings (loss)
before income taxes
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
Product Lines
|
(In thousands)
|
Flavors &
Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Three months ended
September 30
,
2023
:
|
||||||||||||||||
|
Flavors,
Extracts & Flavor Ingredients
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Natural
Ingredients
|
|
|
|
|
||||||||||||
|
Food &
Pharmaceutical Colors
|
|
|
|
|
||||||||||||
|
Personal Care
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
-
|
-
|
|
|
||||||||||||
|
Intersegment
Revenue
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Three months ended
September 30
,
2022
:
|
||||||||||||||||
|
Flavors,
Extracts & Flavor Ingredients
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Natural
Ingredients
|
|
|
|
|
||||||||||||
|
Food &
Pharmaceutical Colors
|
|
|
|
|
||||||||||||
|
Personal Care
|
|
|
|
|
||||||||||||
|
Inks
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
-
|
-
|
|
|
||||||||||||
|
Intersegment
Revenue
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
(In thousands)
|
Flavors &
Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Nine
months ended
September 30
,
2023
:
|
||||||||||||||||
|
Flavors,
Extracts & Flavor Ingredients
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Natural
Ingredients
|
|
|
|
|
||||||||||||
|
Food &
Pharmaceutical Colors
|
|
|
|
|
||||||||||||
|
Personal Care
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
-
|
-
|
|
|
||||||||||||
|
Intersegment
Revenue
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Nine months ended September 30, 2022:
|
||||||||||||||||
|
Flavors,
Extracts & Flavor Ingredients
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Natural
Ingredients
|
|
|
|
|
||||||||||||
|
Food &
Pharmaceutical Colors
|
|
|
|
|
||||||||||||
|
Personal Care
|
|
|
|
|
||||||||||||
|
Inks
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
-
|
-
|
|
|
||||||||||||
|
Intersegment
Revenue
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Geographic Markets
|
(In thousands)
|
Flavors &
Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Three months ended
September 30
,
2023
:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Three months ended
September 30
,
2022
:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
(In thousands)
|
Flavors &
Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Nine
months ended
September 30
,
2023
:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Nine
months ended
September 30
,
2022
:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
|
|||||||
|
8.
|
Retirement Plans
|
The Company’s components of annual benefit cost for the defined benefit plans for
the periods presented are as follows:
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30
,
|
||||||||||||||
|
(In thousands)
|
2023
|
2022
|
2023
|
2022
|
||||||||||||
|
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.
| 9. |
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 $
16.1
million and $
70.1
million
of forward
exchange contracts designated as cash flow hedges outstanding as of September 30, 2023 and December 31, 2022, respectively. For the three months ended September 30, 2023, gains of $
0.8
million 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. For the three months ended September 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 nine months ended September 30, 2023 and 2022, gains of $
1.4
million and $
0.6
million, respectively, were reclassified into net earnings in the Company’s Consolidated Statement of Earnings that offset the underlying
transactions’ impact on earnings in the same period. In addition, the Company utilizes forward exchange contracts that are not designated as cash flow hedges. The results of these transactions were not material to the financial statements of the
Company.
Net investment hedges
– The Company has designated certain foreign currency denominated long-term borrowings as partial hedges of the Company’s foreign currency net asset positions. As of
September 30, 2023 and December 31, 2022
, the total value of the
Company’s net investment hedges was $
328.8
million and $
315.5
million, respectively. These net investment hedges included Euro and British Pound denominated long-term debt. Changes in the fair value of this debt attributable to changes in the
spot foreign exchange rate are recorded in foreign currency translation in Other Comprehensive Income (OCI). For the three months ended
September 30, 2023 and 2022,
the impact of foreign exchange rates on these debt instruments decreased debt by $
11.0
million and
$
18.4
million, respectively, which has been recorded as
foreign currency translation in OCI.
For the nine months ended
September
30, 2023 and 2022,
the impact of foreign exchange rates on these debt instruments decreased debt by $
2.8
million and
$
42.4
million, respectively, which has been recorded as foreign currency translation in OCI.
| 10. |
Income Taxes
|
The effective income tax ra
tes for the three months ended September 30,
2023 and 2022, were
17.5
% and
17.7
%,
respectively. For the nine months ended September 30, 2023 and 2022, the effective income tax rates were
22.7
% and
23.3
%, respectively. The effective tax rates for the three and nine months ended September 30, 2023 and 2022, were impacted by changes in estimates
associated with changes in valuation allowances, the finalization of prior year foreign tax items, and the mix of foreign earnings.
| 11. |
Accumulated Other Comprehensive Income
|
The following table summarizes the changes in OCI during the three
and nine month periods ended September 30, 2023 and 2022:
|
(In thousands)
|
Cash Flow
Hedges
(1)
|
Pension
Items
(1)
|
Foreign
Currency
Items
|
Total
|
||||||||||||
|
Balances at December 31,
2022
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Other comprehensive income before
reclassifications
|
|
|
|
|
||||||||||||
|
Amounts reclassified from OCI
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||
|
Balances at
September 30
,
2023
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
(In thousands)
|
Cash Flow
Hedges
(1)
|
Pension
Items
(1)
|
Foreign
Currency
Items
|
Total
|
||||||||||||
|
Balances at June 30,
2023
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
Other comprehensive loss before
reclassifications
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|||||||||
|
Amounts reclassified from OCI
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||
|
Balances at
September 30
,
2023
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
(In thousands)
|
Cash Flow
Hedges
(1)
|
Pension
Items
(1)
|
Foreign
Currency
Items
|
Total
|
||||||||||||
|
Balances at December 31, 2021
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
Other comprehensive income (loss)
before reclassifications
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Amounts reclassified from OCI
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Balances at
September 30
,
2022
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
(In thousands)
|
Cash Flow
Hedges
(1)
|
Pension
Items
(1)
|
Foreign
Currency
Items
|
Total
|
||||||||||||
|
Balances at June 30,
2022
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Other comprehensive income (loss)
before reclassifications
|
|
|
(
|
)
|
(
|
)
|
||||||||||
|
Amounts reclassified from OCI
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Balances at
September 30
,
2022
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
|
(1) |
|
| 12. |
Commitments and Contingencies
|
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.
| 13. |
Subsequent Events
|
On
October 19, 2023
, the Company announced its quarterly dividend of $
0.41
per share would be payable on
December 1, 2023
.
| 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 September 30, 2023, 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 Company’s ability to manage economic and capital market conditions and the impact of recessions and economic downturns; the impact of macroeconomic and geopolitical
volatility, including inflation and shortages impacting the availability and cost of raw materials, energy, and other supplies; the availability and cost of labor, logistics, and transportation; the impact and uncertainty created by the COVID-19
pandemic and efforts to manage it on the global economy, including, but not limited to, its effects on our employees, facilities, customers, and suppliers, governmental regulations and restrictions, and general economic conditions; 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; 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, 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 $363.8 million and $361.1 million for the three months ended September 30, 2023 and 2022, respectively. The increase in revenue for the three months ended September 30, 2023, was primarily due to increased pricing, offset by lower
volumes. Revenue was $1.1 billion for both the nine months ended September 30, 2023 and 2022. Revenue for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, was impacted by higher prices, partially
offset by lower volumes. For the three and nine months ended September 30, 2023, the impact of foreign exchange rates increased consolidated revenue by approximately 3% and 1%, respectively.
Gross Margin
The Company’s gross margin was 31.2% and 33.7% for the three months ended September 30, 2023 and 2022, respectively. The Company’s gross margin was 32.6% and 34.7% for the nine months ended September 30, 2023 and 2022, respectively. The
decrease in gross margin for both the three and nine months ended September 30, 2023, was primarily due to the lower volumes, higher input costs, and unfavorable product mix, partially offset by higher prices.
Selling and Administrative Expenses
Selling and administrative expense as a percent of revenue was 19.0% and 20.6% for the three months ended September 30, 2023 and 2022, respectively. Selling and administrative expense as a percent of revenue was 19.3% and 20.4% for the nine
months ended September 30, 2023 and 2022, respectively. The decrease in selling and administrative expense as a percent of revenue for the three and nine months ended September 30, 2023, was primarily due to lower performance-based compensation
expense in 2023.
Operating Income
Operating income was $44.5 million and $47.5 million for the three months ended September 30, 2023 and 2022, respectively. Operating margins were 12.2% and 13.2% for the three months ended September 30, 2023 and 2022, respectively. The
decreases in operating income and operating margin were primarily due to lower volumes, higher input costs, and unfavorable product mix, partially offset by higher pricing and lower performance-based compensation expense in 2023
.
Operating income was $147.0 million and $155.5 million for the nine months ended September 30, 2023 and 2022, respectively. Operating margins were 13.3% and 14.3% for the nine months ended September 30, 2023 and 2022, respectively. The
decreases in operating income and operating margin were primarily due to higher input costs, lower volumes, and unfavorable product mix, partially offset by higher pricing and lower performance-based compensation expense in 2023.
Interest Expense
Interest expense was $6.3 million and $3.7 million for the three months ended September 30, 2023 and 2022, respectively, and $18.6 million and $9.7 million for the nine months ended September 30, 2023 and 2022, respectively. The increase in
interest expense for the three and nine months ended September 30, 2023, was primarily due to an increase in the average interest rate and average debt outstanding.
Income Taxes
The effective income tax rates for the three months ended September 30, 2023 and 2022, were 17.5% and 17.7%, respectively. The effective income tax rates for the nine months ended September 30, 2023 and 2022, were 22.7% and 23.3%,
respectively. The effective tax rates for the three and nine months ended September 30, 2023 and 2022, were impacted by changes in estimates associated with changes in valuation allowances, the finalization of prior year foreign tax items, and
the mix of foreign earnings.
Acquisition
On October 3, 2022, the Company acquired
Endemix Doğal Maddeler A.Ş.
and
Teknoloji Yatırımları ve Danışmanlık Sanayi ve Ticaret A.Ş.
(collectively, Endemix), a natural colors business located in Turkey. The Company paid $23.3 million
in cash for this acquisition, which is net of $1.3 million in debt assumed, with $1.7 million of such amount being held back by the Company for 12 months to satisfy any indemnification claims that may arise. This business is part of the Color
segment.
NON-GAAP FINANCIAL MEASURES
Within the following table, the Company reports certain non-GAAP financial measures, including percentage changes in revenue, operating income, and diluted earnings per share on a local currency basis, which eliminate the effects that result
from translating its international operations into U.S. dollars.
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.
The following table summarizes the percentage change for the results of the three and nine months ended September 30, 2023, compared to the results for the three and nine months ended September 30, 2022, in the respective financial measures.
|
|
|
Three Months Ended September 30, 2023
|
Nine Months Ended September 30, 2023
|
|||||||||||||||||||||
|
Revenue
|
Total
|
Foreign
Exchange
Rates
|
Adjusted
Local
Currency
|
Total
|
Foreign
Exchange
Rates
|
Adjusted
Local
Currency
|
||||||||||||||||||
|
Flavors & Extracts
|
|
2.1
|
%
|
|
2.6
|
%
|
(0.5
|
%)
|
|
(0.2
|
%)
|
|
0.9
|
%
|
|
|
(1.1
|
%)
|
||||||
|
Color
|
|
|
(4.3
|
%)
|
|
3.9
|
%
|
|
(8.2
|
%)
|
|
2.3
|
%
|
|
|
1.2
|
%
|
|
1.1
|
%
|
||||
|
Asia Pacific
|
|
|
4.4
|
%
|
|
|
0.1
|
%
|
|
4.3
|
%
|
|
3.6
|
%
|
|
|
(2.5
|
%)
|
|
|
6.1
|
%
|
||
|
Total Revenue
|
|
0.8
|
%
|
|
2.8
|
%
|
|
(2.0
|
%)
|
|
|
1.7
|
%
|
0.7
|
%
|
|
|
1.0
|
%
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Flavors & Extracts
|
|
|
(12.4
|
%)
|
|
|
1.2
|
%
|
(13.6
|
%)
|
|
|
(16.9
|
%)
|
|
0.6
|
%
|
|
|
(17.5
|
%)
|
|||
|
Color
|
|
(18.7
|
%)
|
|
4.7
|
%
|
|
|
(23.4
|
%)
|
(6.7
|
%)
|
|
|
1.1
|
%
|
|
(7.8
|
%)
|
|||||
|
Asia Pacific
|
|
16.4
|
%
|
|
|
0.6
|
%
|
|
|
15.8
|
%
|
|
8.9
|
%
|
|
|
(2.7
|
%)
|
|
|
11.6
|
%
|
||
|
Corporate & Other
|
|
|
(31.6
|
%)
|
|
|
0.0
|
%
|
|
|
(31.6
|
%)
|
|
(23.3
|
%)
|
|
|
0.0
|
%
|
|
|
(23.3
|
%)
|
|
|
Total Operating Income
|
|
(6.2
|
%)
|
|
3.6
|
%
|
|
|
(9.8
|
%)
|
|
(5.5
|
%)
|
|
|
0.6
|
%
|
|
|
(6.1
|
%)
|
|||
|
Diluted Earnings per Share
|
|
(11.8
|
%)
|
|
|
3.5
|
%
|
|
(15.3
|
%)
|
|
|
(11.3
|
)%
|
|
|
0.4
|
%
|
|
|
(11.7
|
%)
|
||
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 share-based
compensation 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 $191.0 million and $187.0 million for the three months ended September 30, 2023 and 2022, respectively, an increase of approximately 2%. The increase was primarily a result of higher revenue in
Natural Ingredients due to higher selling prices and volumes. Foreign exchange rates increased segment revenue by approximately 3%.
Flavors & Extracts segment revenue was $558.1 million and $559.1 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease was primarily a result of lower revenue in Natural Ingredients, partially offset by
higher revenue in Flavors, Extracts & Flavor Ingredients. The lower revenue in Natural Ingredients was primarily due to lower volumes, partially offset by higher selling prices. The higher revenue in Flavors, Extracts & Flavor Ingredients
was primarily due to higher selling prices and the favorable impact of foreign exchange rates that increased segment revenue by approximately 1%, partially offset by lower volumes.
Flavors & Extracts segment operating income was $23.1 million and $26.3 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of approximately 12%. The decrease was primarily a result of lower segment
operating income in Natural Ingredients and Flavors, Extracts & Flavor Ingredients. The lower segment operating income in Natural Ingredients was primarily a result of higher raw material costs and an unfavorable product mix, partially offset
by higher selling prices. The lower segment operating income in Flavors, Extracts & Flavor Ingredients was primarily a result of higher raw material costs, lower volumes, and an unfavorable product mix, partially offset by higher selling
prices. Foreign exchange rates increased segment operating income by approximately 1%. Segment operating income as a percent of revenue was 12.1% in the current quarter compared to 14.1% in the prior year’s comparable quarter.
Flavors & Extracts segment operating income was $69.7 million and $83.9 million for the nine months ended September 30, 2023 and 2022, respectively, a decrease of approximately 17%. The decrease was primarily a result of lower segment
operating income in Natural Ingredients and Flavors, Extracts & Flavor Ingredients. The lower segment operating income in Natural Ingredients was primarily a result of higher raw material costs, lower volumes, and an unfavorable product mix,
partially offset by higher selling prices and lower manufacturing and other costs. The lower segment operating income in Flavors, Extracts & Flavor Ingredients was primarily a result of higher raw material and manufacturing and other costs
and lower volumes, partially offset by higher selling prices. Foreign exchange rates increased segment operating income by approximately 1%. Segment operating income as a percent of revenue was 12.5% in the current nine month period compared to
15.0% in the prior year’s comparable nine month period.
Color
Color segment revenue was $144.9 million and $151.5 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of approximately 4%. The decrease was a result of lower revenue in Food & Pharmaceutical Colors
and Personal Care due to lower volumes, partially offset by higher selling prices and the favorable impact of foreign exchange rates that increased segment revenue by approximately 4%. The lower volumes in Food & Pharmaceutical Colors were
also partially offset by the favorable impact of the acquisition of Endemix
in October 2022.
Color segment revenue was $466.6 million and $456.2 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of approximately 2%. The increase was a result of higher revenue in Food & Pharmaceutical Colors,
partially offset by lower revenue in Personal Care. The higher revenue in Food & Pharmaceutical Colors was primarily due to higher selling prices, the acquisition of Endemix in October 2022, and the favorable impact of foreign exchange rates
that increased segment revenue by approximately 1%, partially offset by lower volumes. The lower revenue in Personal Care was primarily due to lower volumes, partially offset by higher selling prices.
Segment operating income for the Color segment was $22.9 million and $28.2 million for the three months ended September 30, 2023 and 2022, respectively, a decrease of approximately 19%. The decrease in segment operating income was a result of
lower operating income in Food & Pharmaceutical Colors and Personal Care. The lower operating income in Food & Pharmaceutical Colors was due to higher raw material costs and lower volumes, partially offset by higher selling prices and
lower manufacturing and other costs. The lower operating income in Personal Care was due to higher raw material and manufacturing and other costs and lower volumes, partially offset by higher selling prices. Foreign exchange rates increased
segment operating income by approximately 5%. Segment operating income as a percent of revenue was 15.8% in the current quarter and 18.6% in the prior year’s comparable quarter.
Segment operating income for the Color segment was $84.0 million and $90.0 million for the nine months ended September 30, 2023 and 2022, respectively, a decrease of approximately 7%. The decrease in segment operating income was a result of
lower operating income in Personal Care, partially offset by higher operating income in Food & Pharmaceutical Colors. The lower operating income in Personal Care was primarily due to higher raw material and manufacturing and other costs and
lower volumes, partially offset by higher selling prices. The higher operating income in Food & Pharmaceutical Colors was primarily due to higher selling prices, partially offset by higher raw material costs, lower volumes, and an unfavorable
product mix. Foreign exchange rates increased segment operating income by approximately 1%. Segment operating income as a percent of revenue was 18.0% in the current nine month period and 19.7% in the prior year’s comparable period.
Asia Pacific
Segment revenue for the Asia Pacific segment was $36.8 million and $35.2 million for the three months ended September 30, 2023 and 2022, respectively, an increase of approximately 4%. The increase was primarily a result of higher selling
prices. Foreign exchange rates had an immaterial impact on segment revenue for the three months ended September 30, 2023.
Segment revenue for the Asia Pacific segment was $112.9 million and $109.0 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of approximately 4%. The increase was primarily a result of higher selling
prices, partially offset by the unfavorable impact of foreign exchange rates, which decreased segment revenue by approximately 3%.
Segment operating income for the Asia Pacific segment was $8.1 million and $7.0 million for the three months ended September 30, 2023 and 2022, respectively, an increase of approximately 16%. The increase was primarily a result of higher
selling prices and the favorable impact of foreign exchange rates that increased segment operating income by approximately 1%, partially offset by higher raw material costs. Segment operating income as a percent of revenue was 22.0% in the
current quarter and 19.7% in the prior year’s comparable quarter.
Segment operating income for the Asia Pacific segment was $24.9 million and $22.9 million for the nine months ended September 30, 2023 and 2022, respectively, an increase of approximately 9%. The increase was primarily a result of higher
selling prices, partially offset by higher raw material costs and the unfavorable impact of foreign exchange rates that decreased segment operating income by approximately 3%. Segment operating income as a percent of revenue was 22.1% in the
current nine month period and 21.0% in the prior year’s comparable period.
Corporate & Other
The Corporate & Other operating expense was $9.6 million and $14.0 million for the three months ended September 30, 2023 and 2022, respectively. The Corporate & Other operating expense was $31.7 million and $41.3 million for the nine
months ended September 30, 2023 and 2022, respectively. The lower operating expense for both the three and nine months ended September 30, 2023, was primarily due to lower performance-based compensation expense in 2023.
LIQUIDITY AND FINANCIAL CONDITION
Financial Condition
The Company’s financial position remains strong. The Company is in compliance with its loan covenants calculated in accordance with applicable agreements as of September 30, 2023. 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, and dividend payments, as well as potential 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 2023 through 2028. 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 sufficient borrowing capacity under the Company’s revolving credit facility, which matures in
2026.
As a result of our ability to manage the impact of inflation through pricing and other actions, the impact of inflation was not material to the Company’s financial position and its results of operations for the three or nine months ended
September 30, 2023. The Company continues to experience elevated costs for certain inputs, such as labor, raw materials, energy, and certain agricultural 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 $106.8 million and $14.9 million for the nine months ended September 30, 2023 and 2022, respectively. The increase in net cash from operating activities was primarily due to a decrease in cash used
for inventory investments during 2023 compared to 2022 and an increase in cash provided by accounts receivable.
Cash Flows from Investing Activities
Net cash used in investing activities was $65.6 million and $51.7 million during the nine months ended September 30, 2023 and 2022, respectively. During the nine months ended September 30, 2022, the Company paid $1.0 million related to the
acquisition of
Flavors Solutions, Inc
. Capital expenditures were $67.7 million and $51.7 million during the nine months ended September 30, 2023 and 2022, respectively.
Cash Flows from Financing Activities
Net cash used in financing activities was $36.4 million for the nine months ended September 30, 2023, and net cash provided by financing activities was $46.3 million for the nine months ended September 30, 2022. Net debt increased by $23.5
million and $100.1 million for the nine months ended September 30, 2023 and 2022, respectively. The cash proceeds from the increase in net debt in the current period were primarily used to support capital expenditure investments during the nine
months ended September 30, 2023. For purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates. Dividends of $51.9 million and $51.7 million were paid during the nine months ended September 30, 2023 and
2022, respectively. Dividends paid were $1.23 per share for both the nine months ended September 30, 2023 and 2022.
CRITICAL ACCOUNTING POLICIES
There have been no material changes in the Company’s critical accounting policies during the quarter ended September 30, 2023. 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, 2022.
| ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
There have been no material changes in the Company’s exposure to market risk during the quarter ended September 30, 2023. 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, 2022.
| 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 September 30, 2023,
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 12,
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, 2022.
| ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
On October 19, 2017, the Board of Directors authorized the repurchase of up to three million shares (2017 Authorization). As of September 30, 2023, 1,267,019 shares had been repurchased under the 2017 Authorization. There is no expiration date
for the 2017 Authorization. The 2017 Authorization may be modified, suspended, or discontinued by the Board of Directors at any time. As of September 30, 2023, the maximum number of shares that may be purchased under publicly announced plans is
1,732,981. No shares were purchased by the Company during the three or nine months ended September 30, 2023.
| ITEM 6. |
EXHIBITS
|
See Exhibit Index following this report.
SENSIENT TECHNOLOGIES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2023
|
Exhibit
|
Description
|
Incorporated by Reference From
|
Filed Herewith
|
|
|
|
|
|
|
Amendment No. 10 to Receivables Purchase Agreement, dated as of August 31, 2023, among Sensient Receivables LLC, Sensient Technologies Corporation, and Wells Fargo Bank, National Association.
|
Exhibit 10.1 to Current Report on Form 8-K filed September 6, 2023 (Commission File No. 1-7626)
|
|
|
|
|
|
|
|
|
Certifications of the Company’s Chairman, President & Chief Executive Officer and Senior Vice President & Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
|
|
X
|
|
|
|
|
|
|
|
Certifications of the Company’s Chairman, President & Chief Executive Officer and Senior Vice President & Chief Financial Officer pursuant to 18 United States Code
§
1350
|
|
X
|
|
|
|
|
|
|
|
101.INS
|
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
|
|
X
|
|
|
|
|
|
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document
|
|
X
|
|
|
|
|
|
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
|
X
|
|
|
|
|
|
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
|
X
|
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
|
X
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101.PRE
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Inline XBRL Taxonomy Extension Presentation Linkbase Document
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X
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104
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Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
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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.
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SENSIENT TECHNOLOGIES CORPORATION
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Date:
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November 7, 2023
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By:
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/s/ John J. Manning
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John J. Manning, Senior Vice
President, General Counsel &
Secretary
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| Date: |
November 7, 2023
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By: |
/s/ Stephen J. Rolfs
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Stephen J. Rolfs, Senior Vice
President & Chief Financial Officer
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TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationPart IIItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 5. Other InformationItem 6. Exhibits