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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549

FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:
June 30, 2023
  

OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
to
  
Commission file number: 001-07626

Sensient Technologies Corporation
(Exact name of registrant as specified in its charter)

Wisconsin
  
39-0561070
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification Number)

777 EAST WISCONSIN AVENUE, MILWAUKEE, WISCONSIN 53202-5304
(Address of principal executive offices)

Registrant’s telephone number, including area code:
(414) 271-6755

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.10 per share
SXT
New York Stock Exchange LLC

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.

Large Accelerated Filer   ☒
Accelerated Filer ☐
Non-Accelerated Filer ☐
     
Smaller Reporting Company ☐
Emerging Growth Company ☐
  

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.

Class
  
Outstanding at July 31, 2023
Common Stock, par value $0.10 per share
  
42,249,904


SENSIENT TECHNOLOGIES CORPORATION
INDEX

      
Page No.
       
PART I. FINANCIAL INFORMATION:
  
       
 
Item 1.
Financial Statements:
  
 

 
  
 

1
 

 
  
 

2
 
 
  
  
 

3
 

 
  
 

4
 
 
  
  
 

5
       
 

6
       
 
Item 2.
 12
 

 

 
Item 3.
16
       
 
Item 4.
16
       
PART II. OTHER INFORMATION:
  
       
 
Item 1.
17
       
 
Item 1A.
17
       
 
Item 2.
17
       
  Item 5.
 Other Information.
 17
       
 
Item 6.
17
       
 

Exhibit Index.
18
       
 

Signatures.
19

Index
PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS

SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except per share amounts)
(Unaudited)

 
Three Months
Ended June 30,
    
Six Months
Ended June 30,
  
   
2023
    
2022
    
2023
    
2022
  
                         
Revenue
  
$
374,313
    
$
371,706
    
$
743,319
    
$
727,227
  
Cost of products sold
    
252,136
      
240,703
      
496,479
      
471,378
  
Selling and administrative expenses
    
70,586
      
75,759
      
144,411
      
147,816
  
Operating income
    
51,591
      
55,244
      
102,429
      
108,033
  
Interest expense
    
6,352
      
3,083
      
12,354
      
6,076
  
Earnings before income taxes
    
45,239
      
52,161
      
90,075
      
101,957
  
Income taxes
    
11,206
      
13,514
      
22,391
      
26,239
  
Net earnings
  
$
34,033
    
$
38,647
    
$
67,684
    
$
75,718
  
                                 
Weighted average number of common shares outstanding:
                                
Basic
    
42,043
      
41,893
      
42,006
      
41,879
  
Diluted
    
42,235
      
42,208
      
42,245
      
42,178
  
                                 
Earnings per common share:
                                
Basic
  
$
0.81
    
$
0.92
    
$
1.61
    
$
1.81
  
Diluted
  
$
0.81
    
$
0.92
    
$
1.60
    
$
1.80
  
                                 
Dividends declared per common share
  
$
0.41
    
$
0.41
    
$
0.82
    
$
0.82
  

See accompanying notes to consolidated condensed financial statements.

1
SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

 
Three Months
Ended June 30,
    
Six Months
Ended June 30,
  
   
2023
    
2022
    
2023
    
2022
  
                         
Comprehensive income
  
$
41,199
    
$
10,340
    
$
91,151
    
$
47,174
  

See accompanying notes to consolidated condensed financial statements.

2
Index
SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)


  
June 30,
2023
(Unaudited)
    
December 31,
2022
  
Assets
           
Current Assets:
            
Cash and cash equivalents
  
$
36,546
    
$
20,921
  
Trade accounts receivable
    
300,741
      
302,109
  
Inventories
    
588,459
      
564,110
  
Prepaid expenses and other current assets
    
42,945
      
47,640
  
                 
Total current assets
    
968,691
      
934,780
  
                 
Other assets
    
97,050
      
96,609
  
Deferred tax assets
    
35,452
      
32,717
  
Intangible assets, net
    
17,861
      
18,600
  
Goodwill
    
422,177
      
415,715
  
Property, Plant, and Equipment:
                
Land
    
31,767
      
31,444
  
Buildings
    
334,004
      
322,268
  
Machinery and equipment
    
764,228
      
722,294
  
Construction in progress
    
66,808
      
65,809
  
     
1,196,807
      
1,141,815
  
Less accumulated depreciation
    
(691,826
)
    
(658,622
)
     
504,981
      
483,193
  
                 
Total assets
  
$
2,046,212
    
$
1,981,614
  
                 
Liabilities and Shareholders’ Equity
                
                 
Current Liabilities:
                
Trade accounts payable
  
$
119,340
    
$
142,365
  
Accrued salaries, wages, and withholdings from employees
    
24,284
      
43,738
  
Other accrued expenses
    
51,361
      
51,231
  
Income taxes
    
12,225
      
14,446
  
Short-term borrowings
    
15,436
      
20,373
  
                 
Total current liabilities
    
222,646
      
272,153
  
                 
Deferred tax liabilities
    
16,480
      
15,977
  
Other liabilities
    
39,092
      
37,191
  
Accrued employee and retiree benefits
    
27,141
      
26,364
  
Long-term debt
    
686,589
      
630,331
  
Shareholders’ Equity:
                
Common stock
    
5,396
      
5,396
  
Additional paid-in capital
    
114,330
      
124,043
  
Earnings reinvested in the business
    
1,735,807
      
1,702,700
  
Treasury stock, at cost
    
(624,048
)
    
(631,853
)
Accumulated other comprehensive loss
    
(177,221
)
    
(200,688
)
                 
Total shareholders’ equity
    
1,054,264
      
999,598
  
                 
Total liabilities and shareholders’ equity
  
$
2,046,212
    
$
1,981,614
  

See accompanying notes to consolidated condensed financial statements.

3
Index
SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Six Months
Ended June 30,
  
   
2023
    
2022
  
             
Cash flows from operating activities:
            
Net earnings
  
$
67,684
    
$
75,718
  
Adjustments to arrive at net cash provided by operating activities:
                
Depreciation and amortization
    
28,590
      
26,180
  
Share-based compensation expense
    
4,766
      
8,691
  
Net loss (gain) on assets
    
81
      
(38
)
Deferred income taxes
    
(2,643
)
    
12,244
  
Changes in operating assets and liabilities:
                
Trade accounts receivable
    
6,062
      
(41,592
)
Inventories
    
(16,927
)
    
(51,768
)
Prepaid expenses and other assets
    
3,534
      
(25,919
)
Accounts payable and other accrued expenses
    
(18,329
)
    
20,501
  
Accrued salaries, wages, and withholdings from employees
    
(19,713
)
    
(4,188
)
Income taxes
    
(1,998
)
    
2,765
  
Other liabilities
    
595
      
199
  
                 
Net cash provided by operating activities
    
51,702
      
22,793
  
                 
Cash flows from investing activities:
                
Acquisition of property, plant, and equipment
    
(45,137
)
    
(32,468
)
Proceeds from sale of assets
    
53
      
92
  
Other investing activities
    
2,054
      
1,571
  
                 
Net cash used in investing activities
    
(43,030
)
    
(30,805
)
                 
Cash flows from financing activities:
                
Proceeds from additional borrowings
    
187,037
      
69,424
  
Debt payments
    
(143,923
)
    
(31,547
)
Dividends paid
    
(34,577
)
    
(34,446
)
Other financing activities
    
(8,003
)
    
(2,056
)
                 
Net cash provided by financing activities
    
534
      
1,375
  
                 
Effect of exchange rate changes on cash and cash equivalents
    
6,419
      
6,168
  
                 
Net increase (decrease) in cash and cash equivalents
    
15,625
      
(469
)
Cash and cash equivalents at beginning of period
    
20,921
      
25,740
  
Cash and cash equivalents at end of period
  
$
36,546
    
$
25,271
  

See accompanying notes to consolidated condensed financial statements.

4
Index
SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except share and per share amounts)
(Unaudited)

 
Common
    
Additional
Paid-In
    
Earnings Reinvested
in the
    
Treasury Stock
    
Accumulated
Other
Comprehensive
    
Total
  
Three Months Ended June 30, 2023
  
Stock
    
Capital
    
Business
    
Shares
    
Amount
    
Income (Loss)
    
Equity
  
Balances at March 31, 2023
  
$
5,396
    
$
112,589
    
$
1,719,096
      
11,917,944
    
$
(624,473
)
  
$
(184,387
)
  
$
1,028,221
  
Net earnings
    
-
      
-
      
34,033
      
-
      
-
      
-
      
34,033
  
Other comprehensive income
    
-
      
-
      
-
      
-
      
-
      
7,166
      
7,166
  
Cash dividends paid – $0.41 per share
    
-
      
-
      
(17,322
)
    
-
      
-
      
-
      
(17,322
)
Share-based compensation
    
-
      
2,499
      
-
      
-
      
-
      
-
      
2,499
  
Non-vested stock issued upon vesting     -       (663 )     -       (12,644 )     663       -       -  
Other     -       (95 )     -       4,533       (238 )     -       (333 )
Balances at June 30, 2023
  
$
5,396
    
$
114,330
    
$
1,735,807
      
11,909,833
    
$
(624,048
)
  
$
(177,221
)
  
$
1,054,264
  

Three Months Ended June 30, 2022
Balances at March 31, 2022
  
$
5,396
    
$
112,973
    
$
1,650,588
      
12,068,868
    
$
(632,382
)
  
$
(174,865
)
  
$
961,710
  
Net earnings
    
-
      
-
      
38,647
      
-
      
-
      
-
      
38,647
  
Other comprehensive loss
    
-
      
-
      
-
      
-
      
-
      
(28,307
)
    
(28,307
)
Cash dividends paid – $0.41 per share
    
-
      
-
      
(17,235
)
    
-
      
-
      
-
      
(17,235
)
Share-based compensation
    
-
      
4,528
      
-
      
-
      
-
      
-
      
4,528
  
Non-vested stock issued upon vesting     -       (761 )     -       (14,523 )     761       -       -  
Other     -       (144 )     -       4,428       (232 )     -       (376 )
Balances at June 30, 2022
  
$
5,396
    
$
116,596
    
$
1,672,000
      
12,058,773
    
$
(631,853
)
  
$
(203,172
)
  
$
958,967
  

Six Months Ended June 30, 2023
Balances at December 31, 2022
  
$
5,396
    
$
124,043
    
$
1,702,700
      
12,058,773
    
$
(631,853
)
  
$
(200,688
)
  
$
999,598
  
Net earnings
    
-
      
-
      
67,684
      
-
      
-
      
-
      
67,684
  
Other comprehensive income
    
-
      
-
      
-
      
-
      
-
      
23,467
      
23,467
  
Cash dividends paid – $0.82 per share
    
-
      
-
      
(34,577
)
    
-
      
-
      
-
      
(34,577
)
Share-based compensation
    
-
      
4,766
      
-
      
-
      
-
      
-
      
4,766
  
Non-vested stock issued upon vesting
    
-
      
(12,619
)
    
-
      
(240,825
)
    
12,619
      
-
      
-
  
Benefit plans
    
-
      
375
      
-
      
(18,172
)
    
952
      
-
      
1,327
  
Other
    
-
      
(2,235
)
    
-
      
110,057
      
(5,766
)
    
-
      
(8,001
)
Balances at June 30, 2023
  
$
5,396
    
$
114,330
    
$
1,735,807
      
11,909,833
    
$
(624,048
)
  
$
(177,221
)
  
$
1,054,264
  

Six Months Ended June 30, 2022
Balances at December 31, 2021
  
$
5,396
    
$
111,352
    
$
1,630,713
      
12,107,549
    
$
(634,408
)
  
$
(174,628
)
  
$
938,425
  
Net earnings
    
-
      
-
      
75,718
      
-
      
-
      
-
      
75,718
  
Other comprehensive loss
    
-
      
-
      
-
      
-
      
-
      
(28,544
)
    
(28,544
)
Cash dividends paid – $0.82 per share
    
-
      
-
      
(34,446
)
    
-
      
-
      
-
      
(34,446
)
Share-based compensation
    
-
      
8,691
      
-
      
-
      
-
      
-
      
8,691
  
Non-vested stock issued upon vesting
    
-
      
(3,239
)
    
-
      
(61,821
)
    
3,239
      
-
      
-
  
Benefit plans
    
-
      
560
      
-
      
(11,786
)
    
618
      
-
      
1,178
  
Other
    
-
      
(768
)
    
15
      
24,831
      
(1,302
)
    
-
      
(2,055
)
Balances at June 30, 2022
  
$
5,396
    
$
116,596
    
$
1,672,000
      
12,058,773
    
$
(631,853
)
  
$
(203,172
)
  
$
958,967
  

See accompanying notes to consolidated condensed financial statements.

5
Index
SENSIENT TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(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
  
$
4,045
  
Provision for expected credit losses
    
371
  
Accounts written off
    
(193
)
Translation and other activity
    
70
  
Balance at June 30, 2023
  
$
4,293
  

(In thousands)
Three Months Ended June 30, 2022
  
Allowance for
Doubtful Accounts
  
Balance at March 31, 2022
  
$
4,912
  
Provision for expected credit losses
    
547
  
Accounts written off
    
(729
)
Translation and other activity
    
(236
)
Balance at June 30, 2022
  
$
4,494
  

(In thousands)
Six Months Ended June 30, 2023
  
Allowance for
Doubtful Accounts
  
Balance at December 31, 2022
  
$
4,436
  
Provision for expected credit losses
    
491
  
Accounts written off
    
(807
)
Translation and other activity
    
173
Balance at June 30, 2023
  
$
4,293
  

(In thousands)
Six Months Ended June 30, 2022
  
Allowance for
Doubtful Accounts
  
Balance at December 31, 2021
  
$
4,877
  
Provision for expected credit losses
    
832
  
Accounts written off
     (1,096 )
Translation and other activity
     (119 )
Balance at June 30, 2022
   $ 4,494  

6
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 May 2028.

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.

7
Index
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
  
$
181,752
    
$
156,532
    
$
36,029
    
$
-
    
$
374,313
  
Intersegment revenue
    
6,532
      
3,931
      
-
      
-
      
10,463
  
Total revenue
  
$
188,284
    
$
160,463
    
$
36,029
    
$
-
    
$
384,776
  
                                         
Operating income (loss)
  
$
24,456
    
$
29,217
    
$
7,575
    
$
(9,657
)
  
$
51,591
  
Interest expense
    
-
      
-
      
-
      
6,352
      
6,352
  
Earnings (loss) before income taxes
  
$
24,456
    
$
29,217
    
$
7,575
    
$
(16,009
)
  
$
45,239
  
                                         
Three months ended June 30, 2022:
                                        
Revenue from external customers
  
$
182,415
    
$
152,070
    
$
37,221
    
$
-
    
$
371,706
  
Intersegment revenue
    
6,922
      
4,198
      
107
      
-
      
11,227
  
Total revenue
  
$
189,337
    
$
156,268
    
$
37,328
    
$
-
    
$
382,933
  
                                         
Operating income (loss)
  
$
30,013
    
$
31,178
    
$
7,721
    
$
(13,668
)
  
$
55,244
  
Interest expense
    
-
      
-
      
-
      
3,083
      
3,083
  
Earnings (loss) before income taxes
  
$
30,013
    
$
31,178
    
$
7,721
    
$
(16,751
)
  
$
52,161
  

(In thousands)
  
Flavors &
Extracts
    
Color
    
Asia
Pacific
    
Corporate &
Other
    
Consolidated
  
Six months ended June 30, 2023:
                              
Revenue from external customers
  
$
353,724
    
$
313,481
    
$
76,114
    
$
-
    
$
743,319
  
Intersegment revenue
    
13,412
      
8,143
      
-
      
-
      
21,555
  
Total revenue
  
$
367,136
    
$
321,624
    
$
76,114
    
$
-
    
$
764,874
  
                                         
Operating income (loss)
  
$
46,636
    
$
61,102
    
$
16,816
    
$
(22,125
)
  
$
102,429
  
Interest expense
    
-
      
-
      
-
      
12,354
      
12,354
  
Earnings (loss) before income taxes
  
$
46,636
    
$
61,102
    
$
16,816
    
$
(34,479
)
  
$
90,075
  
                                         
Six months ended June 30, 2022:
                                        
Revenue from external customers
  
$
357,617
    
$
295,998
    
$
73,612
    
$
-
    
$
727,227
  
Intersegment revenue
    
14,447
      
8,708
      
181
      
-
      
23,336
  
Total revenue
  
$
372,064
    
$
304,706
    
$
73,793
    
$
-
    
$
750,563
  
                                         
Operating income (loss)
  
$
57,592
    
$
61,835
    
$
15,925
    
$
(27,319
)
  
$
108,033
  
Interest expense
    
-
      
-
      
-
      
6,076
      
6,076
  
Earnings (loss) before income taxes
  
$
57,592
    
$
61,835
    
$
15,925
    
$
(33,395
)
  
$
101,957
  

Product Lines

(In thousands)
  
Flavors &
Extracts
    
Color
    
Asia Pacific
    
Consolidated
  
Three months ended June 30, 2023:
                        
Flavors, Extracts & Flavor Ingredients
  
$
133,688
    
$
-
    
$
-
    
$
133,688
  
Natural Ingredients
    
54,596
      
-
      
-
      
54,596
  
Food & Pharmaceutical Colors
    
-
      
120,165
      
-
      
120,165
  
Personal Care
    
-
      
40,298
      
-
      
40,298
  
Asia Pacific
    
-
      
-
      
36,029
      
36,029
  
Intersegment Revenue
    
(6,532
)
    
(3,931
)
    
-
   
(10,463
)
Total revenue from external customers
  
$
181,752
    
$
156,532
    
$
36,029
    
$
374,313
  
                                 
Three months ended June 30, 2022:
                                
Flavors, Extracts & Flavor Ingredients
  
$
130,578
    
$
-
    
$
-
    
$
130,578
  
Natural Ingredients
    
58,759
      
-
      
-
      
58,759
  
Food & Pharmaceutical Colors
    
-
      
113,784
      
-
      
113,784
  
Personal Care
    
-
      
42,116
      
-
      
42,116
  
Inks
    
-
      
368
      
-
      
368
  
Asia Pacific
    
-
      
-
      
37,328
      
37,328
  
Intersegment Revenue
    
(6,922
)
    
(4,198
)
    
(107
)
    
(11,227
)
Total revenue from external customers
  
$
182,415
    
$
152,070
    
$
37,221
    
$
371,706
  

8
Index
(In thousands)
  
Flavors &
Extracts
    
Color
    
Asia Pacific
    
Consolidated
  
Six months ended June 30, 2023:
                        
Flavors, Extracts & Flavor Ingredients
  
$
258,513
    
$
-
    
$
-
    
$
258,513
  
Natural Ingredients
    
108,623
      
-
      
-
      
108,623
  
Food & Pharmaceutical Colors
    
-
      
238,912
      
-
      
238,912
  
Personal Care
    
-
      
82,712
      
-
      
82,712
  
Asia Pacific
    
-
      
-
      
76,114
      
76,114
  
Intersegment Revenue
    
(13,412
)
    
(8,143
)
    
-
   
(21,555
)
Total revenue from external customers
  
$
353,724
    
$
313,481
    
$
76,114
    
$
743,319
  
                                 
Six months ended June 30, 2022:
                                
Flavors, Extracts & Flavor Ingredients
  
$
257,096
    
$
-
    
$
-
    
$
257,096
  
Natural Ingredients
    
114,968
      
-
      
-
      
114,968
  
Food & Pharmaceutical Colors
    
-
      
216,893
      
-
      
216,893
  
Personal Care
    
-
      
86,962
      
-
      
86,962
  
Inks
    
-
      
851
      
-
      
851
  
Asia Pacific
    
-
      
-
      
73,793
      
73,793
  
Intersegment Revenue
    
(14,447
)
    
(8,708
)
    
(181
)
    
(23,336
)
Total revenue from external customers
  
$
357,617
    
$
295,998
    
$
73,612
    
$
727,227
  

Geographic Markets

(In thousands)
  
Flavors &
Extracts
    
Color
    
Asia Pacific
    
Consolidated
  
Three months ended June 30, 2023:
                        
North America
  
$
137,135
    
$
77,554
    
$
62
    
$
214,751
  
Europe
    
31,867
      
44,397
      
24
      
76,288
  
Asia Pacific
    
6,290
      
16,308
      
35,394
      
57,992
  
Other
    
6,460
      
18,273
      
549
      
25,282
  
Total revenue from external customers
  
$
181,752
    
$
156,532
    
$
36,029
    
$
374,313
  
                                 
Three months ended June 30, 2022:
                                
North America
  
$
138,885
    
$
79,360
    
$
2
    
$
218,247
  
Europe
    
31,165
      
39,615
      
50
      
70,830
  
Asia Pacific
    
6,800
      
16,413
      
36,807
      
60,020
  
Other
    
5,565
      
16,682
      
362
      
22,609
  
Total revenue from external customers
  
$
182,415
    
$
152,070
    
$
37,221
    
$
371,706
  

(In thousands)
  
Flavors &
Extracts
    
Color
    
Asia Pacific
    
Consolidated
  
Six months ended June 30, 2023:
                        
North America
  
$
269,103
    
$
155,931
    
$
124
    
$
425,158
  
Europe
    
60,794
      
87,649
      
127
      
148,570
  
Asia Pacific
    
11,491
      
34,457
      
74,589
      
120,537
  
Other
    
12,336
      
35,444
      
1,274
      
49,054
  
Total revenue from external customers
  
$
353,724
    
$
313,481
    
$
76,114
    
$
743,319
  
                                 
Six months ended June 30, 2022:
                                
North America
  
$
265,587
    
$
149,288
    
$
60
    
$
414,935
  
Europe
    
63,770
      
81,593
      
131
      
145,494
  
Asia Pacific
    
16,537
      
32,429
      
70,789
      
119,755
  
Other
    
11,723
      
32,688
      
2,632
      
47,043
  
Total revenue from external customers
  
$
357,617
    
$
295,998
    
$
73,612
    
$
727,227
 
9
Index
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
  
$
371
    
$
407
    
$
739
    
$
815
  
Interest cost
    
413
      
240
      
822
      
484
  
Expected return on plan assets
    
(245
)
    
(199
)
    
(484
)
    
(404
)
Recognized actuarial (gain) loss
    
(138
)
    
12
      
(277
)
    
24
  
Total defined benefit expense
  
$
401
    
$
460
    
$
800
    
$
919
  
 
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
Index
10.
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.

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
  
$
(599
)
  
$
(1,792
)
  
$
(198,297
)
  
$
(200,688
)
Other comprehensive income before reclassifications
    
3,213
      
-
      
21,115
      
24,328
  
Amounts reclassified from OCI
    
(617
)
    
(244
)
    
-
      
(861
)
Balances at June 30, 2023
  
$
1,997
    
$
(2,036
)
  
$
(177,182
)
  
$
(177,221
)

(In thousands)
  
Cash Flow
Hedges (1)
    
Pension
Items (1)
    
Foreign
Currency
Items
    
Total
  
Balances at March 31, 2023
  
$
983
    
$
(1,914
)
  
$
(183,456
)
  
$
(184,387
)
Other comprehensive income before reclassifications
    
1,513
      
-
      
6,274
      
7,787
  
Amounts reclassified from OCI
    
(499
)
    
(122
)
    
-
      
(621
)
Balances at June 30, 2023
  
$
1,997
    
$
(2,036
)
  
$
(177,182
)
  
$
(177,221
)

(In thousands)
  
Cash Flow
Hedges (1)
    
Pension
Items (1)
    
Foreign
Currency
Items
    
Total
  
Balances at December 31, 2021
  
$
206
    
$
(353
)
  
$
(174,481
)
  
$
(174,628
)
Other comprehensive income (loss) before reclassifications
    
136
      
-
      
(28,202
)
    
(28,066
)
Amounts reclassified from OCI
    
(494
)
    
16
      
-
      
(478
)
Balances at June 30, 2022
  
$
(152
)
  
$
(337
)
  
$
(202,683
)
  
$
(203,172
)

(In thousands)
 
Cash Flow
Hedges (1)
    
Pension
Items (1)
    
Foreign
Currency
Items
    
Total
  
Balances at March 31, 2022
  
$
106
    
$
(345
)
  
$
(174,626
)
  
$
(174,865
)
Other comprehensive loss before reclassifications
    
(106
)
    
-
      
(28,057
)
    
(28,163
)
Amounts reclassified from OCI
    
(152
)
    
8
      
-
      
(144
)
Balances at June 30, 2022
  
$
(152
)
  
$
(337
)
  
$
(202,683
)
  
$
(203,172
)


(1)
Cash Flow Hedges and Pension Items are net of tax.

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.

11
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.

12
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
%)

13
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.

14
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.

15
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.

16
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.

ITEM 5.
OTHER INFORMATION

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.

17
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
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

18
SIGNATURES

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
EX-31 2 brhc20056589_ex31.htm EXHIBIT 31
EXHIBIT 31

CERTIFICATION
Pursuant to Rule 13a-14(a) of the Exchange Act

I, Paul Manning, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Sensient Technologies Corporation;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

  a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):


a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and


b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:     August 8, 2023
  
   
/s/ Paul Manning
  
Paul Manning, Chairman, President &
Chief Executive Officer


EXHIBIT 31
CERTIFICATION
Pursuant to Rule 13a-14(a) of the Exchange Act


I, Stephen J. Rolfs, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of Sensient Technologies Corporation;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):


a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and


b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:     August 8, 2023
  
   
/s/ Stephen J. Rolfs
  
Stephen J. Rolfs, Senior Vice President &
Chief Financial Officer


EX-32 3 brhc20056589_ex32.htm EXHIBIT 32
EXHIBIT 32

CERTIFICATION
Pursuant to 18 United States Code § 1350

The undersigned hereby certifies that the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023, of Sensient Technologies Corporation (the “Company”) filed with the Securities and Exchange Commission on or about the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

   
/s/ Paul Manning
  
 
Name:
Paul Manning
 
Title:
Chairman, President & Chief Executive Officer
 
Date:
August 8, 2023

A signed original of this written statement required by Section 906 has been provided to Sensient Technologies Corporation and will be retained by Sensient Technologies Corporation and furnished to the Securities and Exchange Commission or its staff upon request.


EXHIBIT 32

CERTIFICATION
Pursuant to 18 United States Code § 1350

The undersigned hereby certifies that the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023, of Sensient Technologies Corporation (the “Company”) filed with the Securities and Exchange Commission on or about the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

   
/s/ Stephen J. Rolfs
  
 
Name:
Stephen J. Rolfs
 
Title:
Senior Vice President & Chief Financial Officer
 
Date:
August 8, 2023

A signed original of this written statement required by Section 906 has been provided to Sensient Technologies Corporation and will be retained by Sensient Technologies Corporation and furnished to the Securities and Exchange Commission or its staff upon request.