SENSIENT TECHNOLOGIES CORP
10-Qs and 10-Ks
PROXIES
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 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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12
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Item 3.
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16
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Item 4.
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16
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PART II. OTHER INFORMATION:
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Item 1.
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17
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Item 1A.
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17
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Item 2.
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17
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Item 5.
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Other Information.
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17
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Item 6.
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17
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Exhibit Index.
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18
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Signatures.
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19
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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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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 June 30,
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Six Months
Ended June 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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|||||||||||||
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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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June 30,
2023
(Unaudited)
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December 31,
2022
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Assets
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||||||||
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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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||||||
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Inventories
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||||||
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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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(
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(
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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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(
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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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Six Months
Ended June 30,
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||||||||
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2023
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2022
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|||||||
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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 loss (gain) on assets
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(
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Deferred income taxes
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(
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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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Inventories
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(
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(
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Prepaid expenses and other assets
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(
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Accounts payable and other accrued expenses
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(
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Accrued salaries, wages, and withholdings from employees
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(
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(
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Income taxes
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(
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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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Proceeds from sale of assets
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Other investing activities
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Net cash used in 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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Dividends paid
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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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Net cash 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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||||||
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Net increase (decrease) 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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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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Common
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Additional
Paid-In
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Earnings Reinvested
in the
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Treasury Stock
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Accumulated
Other
Comprehensive
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Total
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|||||||||||||||||||||||
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Three Months Ended
June 30
,
2023
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Stock
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Capital
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Business
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Shares
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Amount
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Income (Loss)
|
Equity
|
|||||||||||||||||||||
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Balances at
March 31, 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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|||||||||||||
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Net earnings
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|
-
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|||||||||||||||||||||
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Other comprehensive income
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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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(
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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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(
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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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) | ||||||||||||||||||
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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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|
|||||||||||||
Three Months Ended
June 30
,
2022
|
Balances at
March 31, 2022
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||||
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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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|||||||||||||||||||
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Cash 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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|||||||||||||||||||
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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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) |
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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
,
2022
|
$
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|
$
|
|
$
|
|
|
$
|
(
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)
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$
|
(
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)
|
$
|
|
Six
Months Ended
June 30
,
2023
|
Balances at
December 31
,
2022
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
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)
|
$
|
|
|||||||||||||
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Net earnings
|
|
|
|
-
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|
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|
|||||||||||||||||||||
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Other comprehensive income
|
|
|
|
-
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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
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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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Other
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(
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(
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(
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||||||||||||||||||
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Balances at
June 30
,
2023
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
Six
Months Ended
June 30
,
2022
|
Balances at
December 31, 2021
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
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)
|
$
|
|
|||||||||||||
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Net earnings
|
|
|
|
-
|
|
|
|
|||||||||||||||||||||
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Other comprehensive loss
|
|
|
|
-
|
|
(
|
)
|
(
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)
|
|||||||||||||||||||
|
Cash dividends paid – $
|
|
|
(
|
)
|
-
|
|
|
(
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)
|
|||||||||||||||||||
|
Share-based compensation
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|
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-
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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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)
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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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)
|
||||||||||||||||||
|
Balances at
June 30
,
2022
|
$
|
|
$
|
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
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, 2023, and the results of operations, comprehensive income, and shareholders’ equity for the three and six months ended June 30, 2023 and 2022, and cash flows for the six months ended June 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. The Company is still in the process of finalizing the estimated values for identifiable intangible assets and
fixed assets. The Company will complete this analysis in 2023. 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 six month periods ended June 30, 2023 and 2022:
|
(In thousands)
Three Months Ended June 30, 2023
|
Allowance for
Doubtful Accounts
|
|||
|
Balance at
March 31, 2023
|
$
|
|
||
|
Provision for
expected credit losses
|
|
|||
|
Accounts
written off
|
(
|
)
|
||
|
Translation and
other activity
|
|
|||
|
Balance at June
30, 2023
|
$
|
|
||
|
(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)
Six
Months Ended June 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 June
30, 2023
|
$
|
|
||
|
(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
|
$ |
|
||
| 4. |
Inventories
|
At June 30, 2023, and December 31, 2022, inventories included finished and in-process products totaling $
385.2
million as of both period-ends, and raw materials and supplies of $
203.3
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
.
| 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 June 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 $
2.1
million and a liability of $
0.2
million as of June 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 June 30, 2023 and December 31, 2022, was $
686.9
million and $
630.8
million, respectively. The fair value of the long-term debt at June 30, 2023 and December 31, 2022, was $
675.2
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
June 30
,
2023
:
|
||||||||||||||||||||
|
Revenue from
external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Intersegment
revenue
|
|
|
|
|
|
|||||||||||||||
|
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Operating
income (loss)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Interest
expense
|
|
|
|
|
|
|||||||||||||||
|
Earnings (loss)
before income taxes
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Three months ended
June 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
|
|||||||||||||||
|
Six
months ended
June 30
,
2023
:
|
||||||||||||||||||||
|
Revenue from
external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Intersegment
revenue
|
|
|
|
|
|
|||||||||||||||
|
Total revenue
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||
|
Operating
income (loss)
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Interest
expense
|
|
|
|
|
|
|||||||||||||||
|
Earnings (loss)
before income taxes
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||
|
Six
months ended
June 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
June 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
June 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
|
||||||||||||
|
Six
months ended
June 30
,
2023
:
|
||||||||||||||||
|
Flavors,
Extracts & Flavor Ingredients
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Natural
Ingredients
|
|
|
|
|
||||||||||||
|
Food &
Pharmaceutical Colors
|
|
|
|
|
||||||||||||
|
Personal Care
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
-
|
-
|
|
|
||||||||||||
|
Intersegment
Revenue
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
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
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Geographic Markets
|
(In thousands)
|
Flavors &
Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Three months ended
June 30
,
2023
:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Three months ended
June 30
,
2022
:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
(In thousands)
|
Flavors &
Extracts
|
Color
|
Asia Pacific
|
Consolidated
|
||||||||||||
|
Six
months ended
June 30
,
2023
:
|
||||||||||||||||
|
North America
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Europe
|
|
|
|
|
||||||||||||
|
Asia Pacific
|
|
|
|
|
||||||||||||
|
Other
|
|
|
|
|
||||||||||||
|
Total revenue
from external customers
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Six
months ended
June 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
June 30,
|
Six Months Ended
June 30
,
|
||||||||||||||
|
(In thousands)
|
2023
|
2022
|
2023
|
2022
|
||||||||||||
|
Service cost
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Interest cost
|
|
|
|
|
||||||||||||
|
Expected return on plan assets
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
||||||||
|
Recognized actuarial (gain) 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 $
37.7
million and $
70.1
million of forward
exchange contracts designated as cash flow hedges outstanding as of June 30, 2023 and December 31, 2022, respectively. For the three and six months ended June 30
, 2023 and 2022
, the 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. 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, 2023 and December 31, 2022
, the total value of the
Company’s net investment hedges was $
339.8
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
June 30, 2023 and 2022,
the impact of foreign exchange rates on these debt instruments increased debt by $
3.8
million and
decreased debt by
$
16.2
million, respectively, which has been recorded as foreign currency
translation in OCI.
For the six
months ended
June 30, 2023 and 2022,
the impact of foreign exchange rates on these debt instruments increased debt by $
8.2
million and
decreased debt by
$
24.1
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 June 30, 2023
and 2022, were
24.8
% and
25.9
%,
respectively. For the six months ended June 30, 2023 and 2022, the effective income tax rates were
24.9
% and
25.7
%, respectively. The effective tax rates for the three and six months ended June 30, 2023 and 2022, were both impacted by changes in estimates
associated with 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 six month periods ended June 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
June 30
,
2023
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
(In thousands)
|
Cash Flow
Hedges
(1)
|
Pension
Items
(1)
|
Foreign
Currency
Items
|
Total
|
||||||||||||
|
Balances at March 31,
2023
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
|||||
|
Other comprehensive income before
reclassifications
|
|
|
|
|
||||||||||||
|
Amounts reclassified from OCI
|
(
|
)
|
(
|
)
|
|
(
|
)
|
|||||||||
|
Balances at
June 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
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
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
|
(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 Event
|
On
July 20, 2023
, the Company announced its quarterly dividend of $
0.41
per share would be payable on
September 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 June 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 $374.3 million and $371.7 million for the three months ended June 30, 2023 and 2022, respectively. Revenue was $743.3 million and $727.2 million for the six months ended June 30, 2023 and 2022, respectively. The increase in revenue
for the three and six months ended June 30, 2023 was primarily due to increased pricing, offset by lower volumes. For the three months ended June 30, 2023, the impact of foreign exchange rates increased consolidated revenue by approximately 1%.
Foreign exchange rates did not have a material impact on revenue for the six months ended June 30, 2023.
Gross Margin
The Company’s gross margin was 32.6% and 35.2% for the three months ended June 30, 2023 and 2022, respectively. The Company’s gross margin was 33.2% and 35.2% for the six months ended June 30, 2023 and 2022, respectively. The decrease in gross
margin for both the three and six months ended June 30, 2023 was primarily due to the lower volumes, higher input costs, and unfavorable product mix, partially offset by higher pricing.
Selling and Administrative Expenses
Selling and administrative expense as a percent of revenue was 18.9% and 20.4% for the three months ended June 30, 2023 and 2022, respectively. Selling and administrative expense as a percent of revenue was 19.4% and 20.3% for the six months
ended June 30, 2023 and 2022, respectively. The decrease in selling and administrative expense as a percent of revenue for the three and six months ended June 30, 2023 was primarily due to lower performance-based executive compensation in 2023.
Operating Income
Operating income was $51.6 million and $55.2 million for the three months ended June 30, 2023 and 2022, respectively. Operating margins were 13.8% and 14.9% for the three months ended June 30, 2023 and 2022, respectively. The decrease in
operating margin was primarily due to the lower volumes, higher input costs, and unfavorable product mix, partially offset by higher pricing and lower performance-based executive compensation in 2023
.
Operating income was $102.4 million and $108.0 million for the six months ended June 30, 2023 and 2022, respectively. Operating margins were 13.8% and 14.9% for the six months ended June 30, 2023 and 2022, respectively. The decrease in
operating margin was primarily due to higher input costs, lower volumes, and unfavorable product mix, partially offset by higher pricing and lower performance-based executive compensation in 2023.
Interest Expense
Interest expense was $6.4 million and $3.1 million for the three months ended June 30, 2023 and 2022, respectively, and $12.4 million and $6.1 million for the six months ended June 30, 2023 and 2022, respectively. The increase in expense for the
three and six months ended June 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 June 30, 2023 and 2022, were 24.8% and 25.9%, respectively. For the six months ended June 30, 2023 and 2022, the effective income tax rates were 24.9% and 25.7%, respectively. The
effective tax rates for the three and six months ended June 30, 2023 and 2022, were both impacted by changes in estimates associated with 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 six months ended June 30, 2023, compared to the results for the three and six months ended June 30, 2022, in the respective
financial measures.
|
Three Months Ended June 30, 2023
|
Six Months Ended June 30, 2023
|
|||||||||||||||||||||||
|
Revenue
|
Total
|
Foreign
Exchange
Rates
|
Adjusted
Local
Currency
|
Total
|
Foreign
Exchange
Rates
|
Adjusted
Local
Currency
|
||||||||||||||||||
|
Flavors & Extracts
|
(0.6
|
%)
|
1.0
|
%
|
(1.6
|
%)
|
(1.3
|
%)
|
0.1
|
%
|
(1.4
|
%)
|
||||||||||||
|
Color
|
2.7
|
%
|
1.1
|
%
|
1.6
|
%
|
5.6
|
%
|
(0.1
|
%)
|
5.7
|
%
|
||||||||||||
|
Asia Pacific
|
(3.5
|
%)
|
(2.8
|
%)
|
(0.7
|
%)
|
3.1
|
%
|
(3.8
|
%)
|
6.9
|
%
|
||||||||||||
|
Total Revenue
|
0.7
|
%
|
0.7
|
%
|
0.0
|
%
|
2.2
|
%
|
(0.4
|
%)
|
2.6
|
%
|
||||||||||||
|
Operating Income
|
||||||||||||||||||||||||
|
Flavors & Extracts
|
(18.5
|
%)
|
0.6
|
%
|
(19.1
|
%)
|
(19.0
|
%)
|
0.3
|
%
|
(19.3
|
%)
|
||||||||||||
|
Color
|
(6.3
|
%)
|
1.3
|
%
|
(7.6
|
%)
|
(1.2
|
%)
|
(0.5
|
%)
|
(0.7
|
%)
|
||||||||||||
|
Asia Pacific
|
(1.9
|
%)
|
(2.8
|
%)
|
0.9
|
%
|
5.6
|
%
|
(4.1
|
%)
|
9.7
|
%
|
||||||||||||
|
Corporate & Other
|
(29.3
|
%)
|
0.0
|
%
|
(29.3
|
%)
|
(19.0
|
%)
|
0.0
|
%
|
(19.0
|
%)
|
||||||||||||
|
Total Operating Income
|
(6.6
|
%)
|
0.7
|
%
|
(7.3
|
%)
|
(5.2
|
%)
|
(0.8
|
%)
|
(4.4
|
%)
|
||||||||||||
|
Diluted Earnings per Share
|
(12.0
|
%)
|
(0.0
|
%)
|
(12.0
|
%)
|
(11.1
|
)%
|
(1.1
|
%)
|
(10.0
|
%)
|
||||||||||||
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 $188.3 million and $189.3 million for the three months ended June 30, 2023 and 2022, respectively, a decrease of approximately 1%. 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, partially offset by lower volumes. Foreign exchange rates increased segment revenue by approximately 1%.
Flavors & Extracts segment revenue was $367.1 million and $372.1 million for the six months ended June 30, 2023 and 2022, respectively, a decrease of approximately 1%. 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, partially offset by lower volumes. Foreign exchange rates had an immaterial impact on segment revenue for the six months ended June 30, 2023.
Flavors & Extracts segment operating income was $24.5 million and $30.0 million for the three months ended June 30, 2023 and 2022, respectively, a decrease of approximately 19%. The lower segment operating income was primarily a result of
lower operating income in Natural Ingredients due to lower volumes and higher raw material costs, partially offset by higher selling prices and lower manufacturing and other costs. Segment operating income as a percent of revenue was 13.0% in the
current quarter compared to 15.9% in the prior year’s comparable quarter. Foreign exchange rates increased segment operating income by approximately 1%.
Flavors & Extracts segment operating income was $46.6 million and $57.6 million for the six months ended June 30, 2023 and 2022, respectively, a decrease of approximately 19%. 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 unfavorable product mix, 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 costs, lower volumes, and higher manufacturing and other
costs, partially offset by higher selling prices and a favorable product mix. Foreign exchange rates had an immaterial impact on segment operating income for the six months ended June 30, 2023. Segment operating income as a percent of revenue was
12.7% in the current six month period compared to 15.5% in the prior year’s comparable six month period.
Color
Segment revenue for the Color segment was $160.5 million and $156.3 million for the three months ended June 30, 2023 and 2022, respectively, an increase of approximately 3%. 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 exchange rates, partially offset by lower volumes. The lower revenue in Personal Care was primarily due to lower volumes, partially offset by higher selling prices. Foreign exchange rates increased
segment revenue by approximately 1%.
Segment revenue for the Color segment was $321.6 million and $304.7 million for the six months ended June 30, 2023 and 2022, respectively, an increase of approximately 6%. 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 and the acquisition of Endemix in October 2022, partially offset by lower volumes. The
lower revenue in Personal Care was primarily due to lower volumes, partially offset by higher selling prices. Foreign exchange rates had an immaterial impact on segment revenue for the six months ended June 30, 2023.
Segment operating income for the Color segment was $29.2 million and $31.2 million for the three months ended June 30, 2023 and 2022, respectively, a decrease of approximately 6%. 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 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 due to higher selling prices and lower manufacturing and other costs, 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 18.2% in the current quarter and 20.0% in the prior year’s comparable quarter.
Segment operating income for the Color segment was $61.1 million and $61.8 million for the six months ended June 30, 2023 and 2022, respectively, a decrease of approximately 1%. 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 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 due to higher selling prices, partially offset by higher raw material costs, unfavorable product mix, and lower volumes. Foreign exchange
rates decreased segment operating income by approximately 1%. Segment operating income as a percent of revenue was 19.0% in the current six month period and 20.3% in the prior year’s comparable period.
Asia Pacific
Segment revenue for the Asia Pacific segment was $36.0 million and $37.3 million for the three months ended June 30, 2023 and 2022, respectively, a decrease of approximately 4%. The decrease was a result of lower volumes and the unfavorable
impact of foreign exchange rates that decreased segment revenue by approximately 3%, partially offset by higher selling prices.
Segment revenue for the Asia Pacific segment was $76.1 million and $73.8 million for the six months ended June 30, 2023 and 2022, respectively, an increase of approximately 3%. The increase was a result of higher selling prices, partially offset
by the unfavorable impact of foreign exchange rates, which decreased segment revenue by approximately 4%.
Segment operating income for the Asia Pacific segment was $7.6 million and $7.7 million for the three months ended June 30, 2023 and 2022, respectively, a decrease of approximately 2%. The decrease was primarily a result of the decrease in
revenue as described above as well as higher raw material costs, partially offset by higher selling prices. Segment operating income as a percent of revenue was 21.0% in the current quarter and 20.7% in the prior year’s comparable quarter.
Segment operating income for the Asia Pacific segment was $16.8 million and $15.9 million for the six months ended June 30, 2023 and 2022, respectively, an increase of approximately 6%. 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 4%. Segment operating income as a percent of revenue was 22.1% in the current six
month period and 21.6% in the prior year’s comparable period.
Corporate & Other
The Corporate & Other operating expense was $9.7 million and $13.7 million for the three months ended June 30, 2023 and 2022, respectively. The lower operating expense for the three months ended June 30, 2023, was primarily due to lower
performance-based executive compensation in 2023.
The Corporate & Other operating expense was $22.1 million and $27.3 million for the six months ended June 30, 2023 and 2022, respectively. The lower operating expense for the six months ended June 30, 2023, was primarily due to lower
performance-based executive compensation 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 June 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 six months ended June 30,
2023. The Company has experienced increased costs for certain inputs, such as 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 $51.7 million and $22.8 million for the six months ended June 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 $43.0 million and $30.8 million during the six months ended June 30, 2023 and 2022, respectively. Capital expenditures were $45.1 million and $32.5 million during the six months ended June 30, 2023 and
2022, respectively.
Cash Flows from Financing Activities
Net cash provided by financing activities was $0.5 million and $1.4 million for the six months ended June 30, 2023 and 2022, respectively. Net debt increased by $43.1 million and $37.9 million for the six months ended June 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 six months ended June 30, 2023. For purposes of the cash flow statement, net changes in
debt exclude the impact of foreign exchange rates. Dividends of $34.6 million and $34.4 million were paid during the six months ended June 30, 2023 and 2022, respectively. Dividends paid were $0.82 per share for both the six months ended June 30,
2023 and 2022.
CRITICAL ACCOUNTING POLICIES
There have been no material changes in the Company’s critical accounting policies during the quarter ended June 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 June 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 June 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 June 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 June 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 six months ended June 30, 2023.
During the three months ended June 30, 2023, no director or officer of the Company
adopted
or
terminated
a “Rule 10b5-1 trading arrangement” or “non-Rule
10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
| ITEM 6. |
EXHIBITS
|
The exhibits listed in the following Exhibit Index are filed as part of this Quarterly Report on Form 10-Q.
SENSIENT TECHNOLOGIES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2023
|
Exhibit
|
Description
|
Incorporated by Reference From
|
Filed Herewith
|
|
Note Purchase Agreement, dated as of May 31, 2023
|
Exhibit 10.1 to Current Report on Form 8-K filed June 5, 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
|
|
|
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 8, 2023
|
By:
|
/s/ John J. Manning
|
|
|
John J. Manning, Senior Vice
President, General Counsel &
Secretary
|
||||
|
|
||||
|
Date:
|
August 8, 2023
|
By:
|
/s/ Stephen J. Rolfs
|
|
|
Stephen J. Rolfs, Senior Vice
President & Chief Financial Officer
|
||||
19
TABLE OF CONTENTS
Part I. Financial InformationprintItem 1. Financial StatementsprintItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II. Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 5. Other InformationprintItem 6. Exhibitsprint