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SENSIENT TECHNOLOGIES CORP - Quarter Report: 2014 September (Form 10-Q)


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
Washington, DC  20549
 
FORM 10‑Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:                                                                                                     September 30, 2014
 
OR
 
o 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:  1‑7626

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

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
 
 
Large accelerated filer  x
Accelerated filer o
Non-accelerated filer  o
       
 
Smaller reporting company  o
   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                           No x

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 October 31, 2014
Common Stock, par value $0.10 per share
48,156,931
 


SENSIENT TECHNOLOGIES CORPORATION
INDEX

   
Page No.
     
PART I. FINANCIAL INFORMATION:
 
     
Item 1.
Financial Statements:
 
  1
     
  2
 
 
  3
     
  4
     
 
5
     
Item 2.
13
     
Item 3.
17
     
Item 4.
17
     
PART II. OTHER INFORMATION:
 
     
Item 1.
18
     
Item 1A.
18
     
Item 6.
18
     
 
19
     
 
20

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
 
SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In thousands except per share amounts)
(Unaudited)

   
Three Months
   
Nine Months
 
   
Ended September 30,
   
Ended September 30,
 
                 
   
2014
   
2013
   
2014
   
2013
 
                 
Revenue
 
$
364,504
   
$
370,457
   
$
1,105,002
   
$
1,112,006
 
                                 
Cost of products sold
   
243,003
     
250,645
     
729,597
     
752,891
 
                                 
Selling and administrative expenses
   
85,407
     
70,685
     
280,981
     
224,231
 
                                 
Operating income
   
36,094
     
49,127
     
94,424
     
134,884
 
                                 
Interest expense
   
4,016
     
4,048
     
11,866
     
12,317
 
                                 
Earnings before income taxes
   
32,078
     
45,079
     
82,558
     
122,567
 
                                 
Income taxes
   
9,414
     
13,315
     
27,116
     
36,558
 
                                 
Earnings from continuing operations
   
22,664
     
31,764
     
55,442
     
86,009
 
                                 
Loss from discontinued operations, net of tax
   
(1,359
)
   
(239
)
   
(7,151
)
   
(763
)
Net earnings
 
$
21,305
   
$
31,525
   
$
48,291
   
$
85,246
 
                                 
Weighted average number of shares outstanding:
                               
Basic
   
47,902
     
49,761
     
48,799
     
49,741
 
                                 
Diluted
   
48,230
     
49,946
     
49,080
     
49,910
 
                                 
Earnings per common share:
                               
Basic:
                               
Continuing operations
 
$
0.47
   
$
0.64
   
$
1.14
   
$
1.73
 
Discontinued operations
   
(0.03
)
   
-
     
(0.15
)
   
(0.02
)
Earnings per common share
 
$
0.44
   
$
0.63
   
$
0.99
   
$
1.71
 
                                 
Diluted:
                               
Continuing operations
 
$
0.47
   
$
0.64
   
$
1.13
   
$
1.72
 
Discontinued operations
   
(0.03
)
   
-
     
(0.15
)
   
(0.02
)
Earnings per common share
 
$
0.44
   
$
0.63
   
$
0.98
   
$
1.71
 
                                 
Dividends declared per common share
 
$
0.25
   
$
0.23
   
$
0.73
   
$
0.68
 

See accompanying notes to consolidated condensed financial statements.
1

SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
 
Three Months
Nine Months
 
Ended September 30,
Ended September 30,
 
2014
2013
2014
2013
                 
Comprehensive (Loss) Income
 
$
(35,509
)
 
$
58,773
   
$
(3,299
)
 
$
86,816
 

See accompanying notes to consolidated condensed financial statements.

2

SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
 
   
September 30,
     
   
2014
   
December 31,
 
ASSETS
 
(Unaudited)
   
2013
 
         
CURRENT ASSETS:
       
Cash and cash equivalents
 
$
25,789
   
$
19,836
 
Trade accounts receivable, net
   
243,894
     
233,751
 
Inventories
   
475,011
     
474,452
 
Prepaid expenses and other current assets
   
74,729
     
61,786
 
Assets held for sale
   
581
     
-
 
                 
TOTAL CURRENT ASSETS
   
820,004
     
789,825
 
                 
OTHER ASSETS
   
70,870
     
47,786
 
                 
INTANGIBLE ASSETS, NET
   
9,122
     
10,546
 
                 
GOODWILL
   
437,515
     
457,269
 
                 
PROPERTY, PLANT AND EQUIPMENT:
               
Land
   
42,423
     
56,343
 
Buildings
   
292,333
     
374,388
 
Machinery and equipment
   
712,828
     
751,267
 
Construction in progress
   
67,532
     
55,236
 
     
1,115,116
     
1,237,234
 
Less accumulated depreciation
   
(625,396
)
   
(671,926
)
     
489,720
     
565,308
 
                 
TOTAL ASSETS
 
$
1,827,231
   
$
1,870,734
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES:
               
Trade accounts payable
 
$
97,128
   
$
99,117
 
Accrued salaries, wages and withholdings from employees
   
30,427
     
32,669
 
Other accrued expenses
   
79,380
     
78,579
 
Income taxes
   
3,471
     
5,478
 
Short-term borrowings
   
18,953
     
7,050
 
                 
TOTAL CURRENT LIABILITIES
   
229,359
     
222,893
 
                 
OTHER LIABILITIES
   
34,580
     
28,495
 
                 
ACCRUED EMPLOYEE AND RETIREE BENEFITS
   
21,382
     
28,538
 
                 
LONG‑TERM DEBT
   
441,610
     
348,124
 
                 
SHAREHOLDERS' EQUITY:
               
Common stock
   
5,396
     
5,396
 
Additional paid-in capital
   
109,269
     
105,119
 
Earnings reinvested in the business
   
1,230,304
     
1,217,874
 
Treasury stock, at cost
   
(199,081
)
   
(91,707
)
Accumulated other comprehensive (loss) income
   
(45,588
)
   
6,002
 
                 
TOTAL SHAREHOLDERS’ EQUITY
   
1,100,300
     
1,242,684
 
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
1,827,231
   
$
1,870,734
 

See accompanying notes to consolidated condensed financial statements.
3

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

   
Nine Months
 
   
Ended September 30,
 
         
   
2014
   
2013
 
         
Cash flows from operating activities:
       
Net earnings
 
$
48,291
   
$
85,246
 
Adjustments to arrive at net cash provided by operating activities:
               
Depreciation and amortization
   
39,461
     
39,051
 
Share-based compensation
   
4,035
     
1,963
 
Loss on assets
   
66,553
     
357
 
Deferred income taxes
   
(8,562
)
   
(1,100
)
Changes in operating assets and liabilities
   
(22,669
)
   
(7,748
)
 
Net cash provided by operating activities
   
127,109
     
117,769
 
 
Cash flows from investing activities:
               
Acquisition of property, plant and equipment
   
(46,726
)
   
(77,247
)
Proceeds from sale of assets
   
926
     
5,931
 
Other investing activity
   
(685
)
   
(165
)
                 
Net cash used in investing activities
   
(46,485
)
   
(71,481
)
                 
Cash flows from financing activities:
               
Proceeds from additional borrowings
   
191,060
     
80,574
 
Debt payments
   
(115,636
)
   
(82,365
)
Purchase of treasury stock
   
(108,753
)
   
-
 
Dividends paid
   
(35,861
)
   
(34,016
)
Proceeds from options exercised and other equity transactions
   
576
     
513
 
                 
Net cash used in financing activities
   
(68,614
)
   
(35,294
)
                 
Effect of exchange rate changes on cash and cash equivalents
   
(6,057
)
   
(1,801
)
                 
Net increase in cash and cash equivalents
   
5,953
     
9,193
 
Cash and cash equivalents at beginning of period
   
19,836
     
15,062
 
                 
Cash and cash equivalents at end of period
 
$
25,789
   
$
24,255
 

See accompanying notes to consolidated condensed financial statements.
4

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) which are necessary to present fairly the financial position of the Company as of September 30, 2014, and December 31, 2013, the results of operations and comprehensive income for the three and nine months ended September 30, 2014 and 2013, and cash flows for the nine months ended September 30, 2014 and 2013.  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.  However, for interim reporting purposes, certain expenses are charged to operations based on a proportionate share of estimated annual amounts rather than as they are actually incurred. In interim periods, depreciation expense is estimated using actual depreciation on fixed assets that have been placed in service at the beginning of the year, combined with an estimate of depreciation expense on expected current year additions.

On January 1, 2014, the Company adopted Accounting Standards Update (ASU) No. 2013-11, Income Taxes (Topic 740), Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which requires companies to change the balance sheet presentation of certain unrecognized tax benefits and deferred tax assets. The adoption of this ASU had no material impact on the Company’s balance sheet presentation, financial condition or results of operations.

On April 10, 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends the definition of a discontinued operation in Accounting Standards Codification (“ASC”) 205-20 and requires companies to provide additional disclosures for disposal transactions. Under the revised standard, a discontinued operation represents a strategic shift that has or will have a major impact on an entity’s operations or financial results. ASU 2014-08 is required to be applied prospectively to all disposals that occur in annual periods beginning on or after December 15, 2014, with early adoption permitted.  The Company will prospectively apply the guidance to applicable transactions beginning in 2015.

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers.  The requirements of the new standard are effective for interim and annual periods beginning after December 15, 2016 with early adoption not permitted. We are currently evaluating the expected impact of this new standard.

Refer to the notes in the Company’s annual consolidated financial statements for the year ended December 31, 2013, 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. Fair Value

ASC 820, Fair Value Measurements and Disclosures, defines fair value for financial assets and liabilities, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. As of September 30, 2014, and December 31, 2013, the Company’s assets and liabilities subject to this standard are forward exchange contracts and investments in a money market fund and municipal investments. The fair value of the forward exchange contracts based on current pricing obtained for comparable derivative products (Level 2 inputs) was negligible and an asset of $0.2 million as of September 30, 2014 and December 31, 2013, respectively. The fair value of the investments based on September 30, 2014, and December 31, 2013, market quotes (Level 1 inputs) was an asset of $2.0 million and $19.8 million, respectively, and is reported in Other Assets in the Consolidated Condensed Balance Sheets.

The carrying values of the Company’s cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses and short-term borrowings approximated fair values as of September 30, 2014. The fair value of the Company’s long-term debt, including current maturities, is estimated using discounted cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 2 inputs). The carrying value of the long-term debt at September 30, 2014, was $441.6 million. The fair value of the long-term debt at September 30, 2014, was $452.3 million.
5

3. Debt

On October 24, 2014, the Company entered into a $450 million credit facility, consisting of a $350 million revolver and a $100 million term loan. The revolver will mature on October 24, 2019. Interest rates on borrowings under the revolver are at LIBOR plus a margin based on the Company’s leverage ratio. Currently, when fully drawn, the interest rate is at LIBOR plus 1.375% under the new agreement. The term loan bears interest at LIBOR plus 1.375% and matures on October 24, 2019. The credit facility will be used to repay maturing debt and for general corporate purposes.

4. Segment Information

Operating results by segment for the periods and at the dates presented are as follows:

(In thousands)
 
Flavors & Fragrances
   
 
Color
   
Corporate
& Other
   
 
Consolidated
 
Three months ended September 30, 2014:
               
Revenue from external customers
 
$
206,474
   
$
121,856
   
$
36,174
   
$
364,504
 
Intersegment revenue
   
9,028
     
5,986
     
27
     
15,041
 
Total revenue
 
$
215,502
   
$
127,842
   
$
36,201
   
$
379,545
 
                                 
Operating income (loss)
 
$
30,169
   
$
29,100
   
$
(23,175
)
 
$
36,094
 
Interest expense
   
-
     
-
     
4,016
     
4,016
 
Earnings (loss) before income taxes
 
$
30,169
   
$
29,100
   
$
(27,191
)
 
$
32,078
 
                                 
Three months ended September 30, 2013:
                               
Revenue from external customers
 
$
216,076
   
$
118,209
   
$
36,172
   
$
370,457
 
Intersegment revenue
   
8,926
     
5,848
     
20
     
14,794
 
Total revenue
 
$
225,002
   
$
124,057
   
$
36,192
   
$
385,251
 
                                 
Operating income (loss)
 
$
31,205
   
$
27,902
   
$
(9,980
)
 
$
49,127
 
Interest expense
   
-
     
-
     
4,048
     
4,048
 
Earnings (loss) before income taxes
 
$
31,205
   
$
27,902
   
$
(14,028
)
 
$
45,079
 

(In thousands)
 
Flavors & Fragrances
   
 
Color
   
Corporate
& Other
   
 
Consolidated
 
Nine months ended September 30, 2014:
               
Revenue from external customers
 
$
618,555
   
$
376,050
   
$
110,397
   
$
1,105,002
 
Intersegment revenue
   
26,518
     
16,356
     
138
     
43,012
 
Total revenue
 
$
645,073
   
$
392,406
   
$
110,535
   
$
1,148,014
 
                                 
Operating income (loss)
 
$
93,662
   
$
89,960
   
$
(89,198
)
 
$
94,424
 
Interest expense
   
-
     
-
     
11,866
     
11,866
 
Earnings (loss) before income taxes
 
$
93,662
   
$
89,960
   
$
(101,064
)
 
$
82,558
 
                                 
Nine months ended September 30, 2013:
                               
Revenue from external customers
 
$
641,387
   
$
361,966
   
$
108,653
   
$
1,112,006
 
Intersegment revenue
   
26,082
     
16,904
     
68
     
43,054
 
Total revenue
 
$
667,469
   
$
378,870
   
$
108,721
   
$
1,155,060
 
                                 
Operating income (loss)
 
$
91,595
   
$
83,758
   
$
(40,469
)
 
$
134,884
 
Interest expense
   
-
     
-
     
12,317
     
12,317
 
Earnings (loss) before income taxes
 
$
91,595
   
$
83,758
   
$
(52,786
)
 
$
122,567
 

6

Beginning in the first quarter of 2014, the results of operations for the Company’s fragrances businesses in Asia Pacific and China, previously reported in the Corporate & Other segment, are reported in the Flavors & Fragrances segment, and the results of operations for the Company’s pharmaceutical flavors business, previously reported in the Flavors & Fragrances segment, are reported in the Color segment with the pharmaceutical colors business. Results for 2013 have been restated to reflect these changes. 
 
During the quarter ended September 30, 2014, one of the business units in the Color segment met the criteria to be presented as a discontinued operation and is classified accordingly in the Company’s Consolidated Condensed Statement of Earnings for all reported periods. See Note 12 Discontinued Operations for additional information.  The Company evaluates performance based on operating income of the respective segments before restructuring and other costs, interest expense and income taxes. The 2014 and 2013 restructuring and other costs related to continuing operations are reported in the Corporate & Other segment.

5. Inventories

At September 30, 2014, and December 31, 2013, inventories included finished and in-process products totaling $333.4 million and $317.1 million, respectively, and raw materials and supplies of $141.6 million and $157.4 million, respectively.

6. Retirement Plans

The Company’s components of annual benefit cost for the defined benefit plans for the periods presented are as follows:
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
(In thousands)
 
2014
   
2013
   
2014
   
2013
 
                 
Service cost
 
$
610
   
$
752
   
$
1,877
   
$
2,265
 
Interest cost
   
502
     
599
     
1,704
     
1,803
 
Expected return on plan assets
   
(478
)
   
(362
)
   
(1,432
)
   
(1,089
)
Amortization of prior service cost
   
43
     
43
     
129
     
129
 
Amortization of actuarial (gain) loss
   
(14
)
   
798
     
(331
)
   
2,397
 
Settlement expense
   
289
     
-
     
289
     
-
 
Curtailment gain
   
-
     
-
     
(115
)
   
-
 
                                 
Total defined benefit expense
 
$
952
   
$
1,830
   
$
2,121
   
$
5,505
 

7. Shareholders’ Equity

During the nine months ended September 30, 2014, the Company repurchased 2 million shares of its common stock for an aggregate price of $108.8 million. The Company did not repurchase any shares during the three months ended September 30, 2014.

8. 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 by reducing 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 have maturities of less than twelve months. The Company’s primary hedging activities and their accounting treatment are summarized below:

Forward exchange contracts – The forward exchange contracts that have been designated as hedges are accounted for as cash flow hedges. The Company had $24.7 million and $29.6 million of forward exchange contracts, designated as hedges, outstanding as of September 30, 2014, and December 31, 2013, respectively. Due to the short-term nature of these contracts, the results of these transactions are not material to the financial statements. In addition, the Company utilizes forward exchange contracts that are not designated as cash flow hedges and the results of these transactions are not material to the financial statements.

Net investment hedges – The Company has certain debt denominated in Euros and Swiss Francs. These debt instruments have been designated as partial hedges of the Company’s Euro and Swiss Franc net asset positions. 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”). As of September 30, 2014, and December 31, 2013, the total value of the Company’s Euro and Swiss Franc debt was $101.5 million and $96.5 million, respectively.  For the three and nine months ended September 30, 2014, the impact of foreign exchange rates on these debt instruments decreased debt by $8.3 million and $8.5 million, respectively, and has been recorded as foreign currency translation in OCI.
7

9. Income Taxes

The effective income tax rates for the quarters ended September 30, 2014 and 2013, were 29.3% and 29.5%, respectively. For the nine-month periods ended September 30, 2014 and 2013, the effective income tax rates were 32.8% and 29.8%, respectively. The effective tax rates in both 2014 and 2013 were impacted by restructuring activities and changes in estimates associated with the finalization of prior year foreign and domestic tax items, including the reversal of valuation allowances related to the impact of restructuring activities on tax loss and credit carryovers.

10. Accumulated Other Comprehensive Income

The following tables summarize the changes in Accumulated Other Comprehensive Income (OCI) during the three- and nine-month periods ended September 30, 2014:

Three Months Ended September 30, 2014
 
(In thousands)
 
Cash Flow Hedges (a)
   
Pension
Items (a)
   
Foreign Currency
Items
   
Total
 
Balance as of June 30, 2014
 
$
341
   
$
(6,890
)
 
$
17,775
   
$
11,226
 
Other comprehensive income (loss) before reclassifications
   
207
     
-
     
(57,020
)
   
(56,813
)
Amounts reclassified from OCI
   
(28
)
   
27
     
-
     
(1
)
Balance as of September 30, 2014
 
$
520
   
$
(6,863
)
 
$
(39,245
)
 
$
(45,588
)
                                 
Nine Months Ended September 30, 2014
 
(In thousands)
 
Cash Flow Hedges (a)
   
Pension
Items (a)
   
Foreign Currency
Items
   
Total
 
Balance as of December 31, 2013
 
$
(99
)
 
$
(6,768
)
 
$
12,869
   
$
6,002
 
Other comprehensive income (loss) before reclassifications
   
957
     
-
     
(52,114
)
   
(51,157
)
Amounts reclassified from OCI
   
(338
)
   
(95
)
   
-
     
(433
)
Balance as of September 30, 2014
 
$
520
   
$
(6,863
)
 
$
(39,245
)
 
$
(45,588
)

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

8

The following tables summarize the pension items reclassified out of OCI and into the Statement of Earnings during the three- and nine-month periods ended September 30, 2014 and 2013:

   
Three Months Ended September 30,
 
(In thousands)
 
2014
   
2013
 
Amortization of pension expense included in selling and administrative expense:
       
Prior service cost
 
$
43
   
$
43
 
Actuarial (gain) loss
   
(14
)
   
798
 
Total before income taxes
   
29
     
841
 
Income tax benefit
   
(2
)
   
(315
)
Total net of tax
 
$
27
   
$
526
 

   
Nine Months Ended September 30,
 
(In thousands)
 
2014
   
2013
 
Amortization of pension expense included in selling and administrative expense:
       
Prior service cost
 
$
129
   
$
129
 
Actuarial (gain) loss
   
(331
)
   
2,397
 
Total before income taxes
   
(202
)
   
2,526
 
Income tax expense (benefit)
   
107
     
(945
)
Total net of tax
 
$
(95
)
 
$
1,581
 

11. Restructuring

The Company incurred restructuring costs in both continuing and discontinued operations.  The discussion in this note relates to the combination of both continuing and discontinued operations unless otherwise noted. Restructuring costs related to discontinued operations are recorded in discontinued operations within the Company’s Consolidated Condensed Statements of Earnings and are discussed in Note 12 Discontinued Operations in more detail.

In March of this year, the Company announced the 2014 Restructuring Plan related to eliminating underperforming operations, consolidating manufacturing facilities and improving efficiencies within the Company. The Company anticipates that the 2014 Restructuring Plan will impact several facilities and will generate cost savings estimated to be approximately $30 million per year, with incremental savings expected to be achieved over the next few years and the full benefit expected to be achieved after 2016. The Company also anticipates that the 2014 Restructuring Plan will include a reduction in headcount by approximately 300 employees, primarily direct and indirect manufacturing labor, and pre-tax charges of approximately $120 million to $130 million. In connection with the 2014 Restructuring Plan, less than 50 employees were terminated as of September 30, 2014 and limited savings were recognized by September 30, 2014.

The Company determined that certain long-lived assets, including land, buildings and certain pieces of equipment associated with the identified underperforming operations were impaired. As a result, the Company has reduced the carrying amounts of these assets to approximately $34.9 million, their aggregate respective fair values, which were determined based on independent market valuations for these assets.

For the three and nine months ended September 30, 2014, the Company recorded restructuring and other costs of $23.1 million and $88.8 million, respectively. The Company determined that this was the appropriate amount of costs to record in each period in accordance with GAAP and based on an internal review of the affected facilities and consultation with legal and other advisors. Included within the restructuring and other costs, the Company incurred $3.2 million for the nine months ended September 30, 2014, related to the 2014 proxy contest.  The 2014 proxy contest costs recorded for the three months ended September 30, 2014, was not material.
9

The Company evaluates performance based on operating income of each segment before restructuring costs. The restructuring and other costs related to continuing operations are recorded in the Corporate & Other segment. The following table summarizes the restructuring and other costs by segment and discontinued operations for the three-and nine-month periods ended September 30, 2014 and 2013:

   
Three Months Ended September 30,
 
(In thousands)
 
2014
   
2013
 
Flavors & Fragrances
 
$
20,064
   
$
4,167
 
Color
   
-
     
1,497
 
Corporate & Other
   
968
     
922
 
                 
Total Continuing Operations
 
$
21,032
   
$
6,586
 
                 
Discontinued Operations
   
2,071
     
-
 
                 
Total Restructuring
 
$
23,103
   
$
6,586
 

   
Nine Months Ended September 30,
 
(In thousands)
 
2014
   
2013
 
Flavors & Fragrances
 
$
74,115
   
$
18,657
 
Color
   
-
     
5,807
 
Corporate & Other
   
4,672
     
1,537
 
                 
Total Continuing Operations
 
$
78,787
   
$
26,001
 
                 
Discontinued Operations
   
10,017
     
-
 
                 
Total Restructuring
 
$
88,804
   
$
26,001
 

Details of the restructuring and other costs recorded during the three and nine month periods ended September 30, 2014 are as follows:

(In thousands)
 
Three Months Ended
September 30, 2014
   
Nine Months Ended
September 30, 2014
 
Employee separation
 
$
1,033
   
$
14,611
 
Long-lived asset impairment
   
18,210
     
66,082
 
Intangibles impairment
   
-
     
1,049
 
Write-down of inventory
   
2,671
     
2,671
 
Gain on asset sales
   
-
     
(602
)
Other costs (1)
   
1,189
     
4,993
 
                 
Total
 
$
23,103
   
$
88,804
 
 
(1) Other costs include decommissioning costs, professional services, personnel moving costs, other related costs and 2014 proxy contest costs.

The Company expects to incur approximately $12 million to $17 million of additional restructuring costs by the end of December 2014 and $20 million to $25 million of additional restructuring costs by the end of 2016, consisting primarily of employee separations, asset impairments, and other restructuring related costs. These estimates relate to both continuing operations and discontinued operations.

For the three- and nine-month periods ended September 30, 2013, the Company recorded restructuring costs of $6.6 million ($4.4 million after-tax) and $26.0 million ($18.5 million after-tax), respectively, related to the 2013 restructuring program to relocate the Flavors & Fragrances Group headquarters to Chicago, and to implement a profit improvement plan across all segments of the Company. Details of the restructuring expenses recorded in Corporate & Other segment are as follows:
10

Three months ended September 30, 2013
   
Selling &
   
Cost of
     
(In thousands)
 
Administrative
   
Products Sold
   
Total
 
Employee separation
 
$
5,002
   
$
-
   
$
5,002
 
Long-lived asset impairment
   
220
     
-
     
220
 
Gain on asset sales
   
(3,019
)
   
-
     
(3,019
)
Write-down of inventory
   
-
     
545
     
545
 
Other costs(1)
   
3,838
     
-
     
3,838
 
                         
Total
 
$
6,041
   
$
545
   
$
6,586
 

Nine months ended September 30, 2013
   
Selling &
   
Cost of
     
(In thousands)
 
Administrative
   
Products Sold
   
Total
 
Employee separation
 
$
16,342
   
$
-
   
$
16,342
 
Long-lived asset impairment
   
3,626
     
-
     
3,626
 
Gain on asset sales
   
(3,019
)
   
-
     
(3,019
)
Write-down of inventory
   
-
     
1,417
     
1,417
 
Other costs(1)
   
7,635
     
-
     
7,635
 
                         
Total
 
$
24,584
   
$
1,417
   
$
26,001
 
 
(1) Other costs include decommissioning, professional services, personnel (other than employee separations) and moving related costs.

The following table summarizes the accrual for the restructuring and other charges for the nine months ended September 30, 2014:

   
Employee
   
Asset Related
     
(In thousands)
 
Separations
   
and Other
   
Total
 
Balance as of December 31, 2013
 
$
4,562
   
$
1,588
   
$
6,150
 
Restructuring and other costs
   
14,611
     
74,193
     
88,804
 
Gain on sale of assets
   
-
     
602
     
602
 
Cash spent
   
(4,812
)
   
(4,613
)
   
(9,425
)
Reduction of assets
   
-
     
(69,802
)
   
(69,802
)
Translation adjustment
   
(1,034
)
   
-
     
(1,034
)
Balance as of September 30, 2014
 
$
13,327
   
$
1,968
   
$
15,295
 
 
12. Discontinued Operations
 
In connection with the 2014 Restructuring Plan, the Company approved a plan to dispose of a business unit within the Color segment. As of September 30, 2014, production ceased and the business met the criteria to be presented as a discontinued operation as established in ASC Subtopic 205-20, Discontinued Operations. The results of this business have been reported as a discontinued operation in the Consolidated Condensed Statements of Earnings for all periods presented. The corresponding current assets, which include property, plant, and equipment, have met the held for sale criteria and have been properly presented on the Consolidated Condensed Balance Sheet.

11

The following tables summarize the discontinued operation’s results for the three and nine months ended September 30, 2014:

   
Three Months Ended September 30,
 
(In thousands)
 
2014
   
2013
 
Revenue
 
$
910
   
$
1,536
 
Loss before income taxes
   
(2,351
)
   
(338
)
Income taxes
   
(992
)
   
(99
)
                 
Loss from discontinued operations, net of tax
 
$
(1,359
)
 
$
(239
)

   
Nine Months Ended September 30,
 
(In thousands)
 
2014
   
2013
 
Revenue
 
$
3,209
   
$
4,433
 
Loss before income taxes
   
(10,893
)
   
(1,079
)
Income taxes
   
(3,742
)
   
(316
)
                 
Loss from discontinued operations, net of tax
 
$
(7,151
)
 
$
(763
)

Included in the loss before income taxes from discontinued operations are pre-tax restructuring costs of $2.1 million and $10.0 million for the three and nine months ended September 30, 2014, respectively. See Note 11 Restructuring for additional information.
 
13. Commitments and Contingencies
 
The Company is involved in various claims and litigation arising in the normal course of business. In the judgment of management, which relies in part on information from Company counsel, the ultimate resolution of these actions will not materially affect the consolidated financial statements of the Company.
12

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following discussion of the financial condition and results of operations exclude the results of discontinued operations unless otherwise indicated.

Revenue was $364.5 million and $370.5 million for the three months ended September 30, 2014 and 2013, respectively. Revenue for the nine months ended September 30, 2014 and 2013 was $1.1 billion in both periods. Revenue for the Flavors & Fragrances segment decreased 4.2% and 3.4% for the quarter and nine months ended September 30, 2014, respectively, from the comparable periods last year.  Color segment revenue increased 3.1% and 3.6% for the quarter and nine months ended September 30, 2014, respectively, from the comparable periods last year. Corporate & Other revenue was consistent with last year for the current quarter and increased 1.7% for the nine months ended September 30, 2014, respectively. The impact of foreign exchange rates decreased consolidated revenue by approximately 30 basis points for the quarter ending September 30, 2014, and decreased revenue by 20 basis points for the nine months ended September 30, 2014. Revenue growth has been affected by the Company’s continuing efforts to shift to value added and technology driven products, while actively rationalizing non-strategic and low margin business. Most of the impact from rationalizing non-strategic and low margin business has been in the Flavors & Fragrances Segment for the three and nine months ended September 30, 2014.

The gross profit margin increased 100 basis points to 33.3% for the quarter ended September 30, 2014, from 32.3% for the same period in 2013. The gross profit margin increased 170 basis points to 34.0% for the nine months ended September 30, 2014, from 32.3% for the same period in 2013. Included in the cost of sales are $1.9 million and $0.5 million of restructuring costs for the quarter ended September 30, 2014 and 2013, respectively, which reduced gross profit. Before these restructuring costs, gross margin increased 140 basis points in the third quarter of 2014 primarily due to an increase in selling prices. Included in the cost of sales are $1.9 million and $1.4 million of restructuring costs for the nine months ended September 30, 2014 and 2013, respectively. Before the restructuring costs, gross margin increased 170 basis points primarily due to higher selling prices.

Selling and administrative expenses as a percent of revenue were 23.4% and 19.1% for the quarters ended September 30, 2014 and 2013, respectively. Restructuring costs of $19.1 million and $6.0 million were included in selling and administrative expenses for the three months ended September 30, 2014 and 2013, respectively. Excluding restructuring costs, selling and administrative expenses as a percent of revenue increased 80 basis points to 18.2% for the quarter ended September 30, 2014, primarily due to filling open sales and technical positions and normal inflationary increases. For the nine months ended September 30, 2014 and 2013, selling and administrative expenses as a percent of revenue were 25.4% and 20.2%, respectively. Restructuring costs of $76.9 million and $24.6 million were included in selling and administrative expenses for the nine months ended September 30, 2014 and 2013, respectively. Before the restructuring costs, selling and administrative expenses as a percent of revenue increased 50 basis points for the nine months ended September 30, 2014 primarily due to normal inflationary increases partially offset by savings from the 2013 restructuring program.

Operating income was $36.1 million and $49.1 million for the third quarters of 2014 and 2013, respectively. Before the restructuring costs in both years, operating income for the third quarter of 2014 increased 2.5% to $57.1 million. Operating income for the nine months ended September 30, 2014 and 2013 was $94.4 million and $134.9 million, respectively. Before the restructuring costs in both years, operating income increased 7.7% to $173.2 million. The impact of foreign exchange rates decreased operating profit by approximately 30 basis points and 40 basis points for the three and nine months ended September 30, 2014 and 2013, respectively. Operating margins were 9.9% and 13.3% for the quarters ending September 30, 2014 and 2013, respectively, and 8.5% and 12.1% for the nine months ended September 30, 2014 and 2013, respectively. Before the impact of the restructuring costs, operating margin increased 70 basis points to 15.7% in the third quarter of 2014 and increased 120 basis points to 15.7% for the first nine months of 2014.
13

In March of this year, the Company announced that it was initiating a restructuring plan (2014 Restructuring Plan) to eliminate underperforming operations, consolidate manufacturing facilities and improve efficiencies within the Company. Based on this plan, the Company has determined that certain long-lived assets associated with the underperforming operations were impaired. As a result, the Company has reduced the carrying amounts of these assets to approximately $34.9 million, their aggregate respective fair values, which were determined based on independent market values for these assets. In addition, certain intangible assets and inventory were also determined to be impaired and were written down. Employee separation and other restructuring costs were also incurred during the three and nine months ended September 30, 2014. The Company will reduce headcount by approximately 300 positions at impacted facilities in all segments, primarily direct and indirect labor at manufacturing sites. As of September 30, 2014, less than 50 employees have been terminated. For the three and nine months ended September 30, 2014, the Company recorded total restructuring and other costs of $23.1 million and $88.8 million, respectively. The Company determined that this was the appropriate amount of restructuring and other costs to record in each period in accordance with GAAP and based on an internal review of the affected facilities and consultation with legal and other advisors. The Company expects to incur approximately $12 million to $17 million of additional restructuring costs by the end of December 2014 and approximately $20 million to $25 million of additional restructuring costs by the end of 2016. The 2014 Restructuring Plan is anticipated to reduce annual operating costs by approximately $30 million per year with incremental savings expected to be achieved over the next few years and the full benefit expected to be achieved after 2016. These restructuring costs relate to restructuring activities in both continuing and discontinued operations.

In connection with the 2014 Restructuring Plan, the Company approved a plan to dispose of a certain business within the Color segment. As of September 30, 2014, production ceased and the business met the criteria for discontinued operations. The pre-tax loss from discontinued operations, which includes costs that were previously included in the restructuring costs, was $2.4 million and $10.9 million for the three and nine months ended September 30, 2014, respectively. Included in the pre-tax loss are restructuring costs of $2.1 million and $10.0 million for the three and nine months ended September 30, 2014, respectively.

In 2013, the Company had restructuring costs to relocate the Flavors & Fragrances Group headquarters and consolidate manufacturing facilities resulting in the recording of $6.6 million and $26.0 million of restructuring costs in the three and nine months ended September 30, 2013, respectively.

Interest expense for the third quarters of 2014 and 2013 was $4.0 million in both periods. For the nine months ended September 30, 2014 and 2013, interest expense was $11.9 million and $12.3 million, respectively. The decrease for the nine month period is primarily due to lower average interest rates.

The effective income tax rates were 29.3% and 29.5% for the quarters ended September 30, 2014 and 2013, respectively. The effective income tax rates were 32.8% and 29.8% for the nine months ended September 30, 2014 and 2013, respectively. Before the restructuring costs, the effective tax rate was 28.9% and 30.0% for the three months ended September 30, 2014 and 2013, respectively, and 29.8% and 29.7% for the nine months ended September 30, 2014 and 2013, respectively. The effective tax rates in both 2014 and 2013 were reduced by changes in estimates associated with the finalization of prior year tax items and valuation allowances. The Company expects the effective tax rate for the remainder of 2014 to be between 31.0% and 32.0%, before the income tax expense or benefit related to discrete items and the restructuring and other costs.

The table below reconciles certain reported results for the three and nine months ended September 30, 2014 and 2013, to those results before the impact of the restructuring and costs, which are non-GAAP financial measures.
 
 
 
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
(In thousands, except percentages and per share amounts)
 
2014
   
2013
   
% Change
   
2014
   
2013
   
% Change
 
Operating income from continuing operations (GAAP)
 
$
36,094
   
$
49,127
     
-26.5
%
 
$
94,424
   
$
134,884
     
-30.0
%
Restructuring - Cost of products sold
   
1,914
     
545
             
1,914
     
1,417
         
Restructuring & other - Selling and administrative
   
19,118
     
6,041
             
76,873
     
24,584
         
Adjusted operating income
 
$
57,126
   
$
55,713
     
2.5
%
 
$
173,211
   
$
160,885
     
7.7
%
 
                                               
Net earnings from continuing operations (GAAP)
 
$
22,664
   
$
31,764
     
-28.6
%
 
$
55,442
   
$
86,009
     
-35.5
%
Restructuring & other, before tax
   
21,032
     
6,586
             
78,787
     
26,001
         
Tax impact of restructuring & other
   
(5,941
)
   
(2,206
)
           
(20,901
)
   
(7,512
)
       
Adjusted net earnings
 
$
37,755
   
$
36,144
     
4.5
%
 
$
113,328
   
$
104,498
     
8.4
%
 
                                               
Diluted EPS from continuing operations (GAAP)
 
$
0.47
   
$
0.64
     
-26.6
%
 
$
1.13
   
$
1.72
     
-34.3
%
Restructuring & other, net of tax
   
0.31
     
0.09
             
1.18
     
0.37
         
Adjusted diluted EPS
 
$
0.78
   
$
0.72
     
8.3
%
 
$
2.31
   
$
2.09
     
10.5
%
14

The Company has included non-GAAP financial measures, to remove the costs related to the restructuring activities and provide investors with a view of operating performance excluding the restructuring and other costs. These non-GAAP financial measures are utilized by management in comparing the Company’s operating performance on a consistent basis. The Company believes that these financial measures are appropriate to enhance an overall understanding of the Company’s underlying operating performance trends compared to historical and prospective periods. The Company also believes that these measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP.

SEGMENT INFORMATION

Beginning in the first quarter of 2014, the results of operations for the Company’s fragrances business in Asia Pacific and China, previously reported in the Corporate & Other segment, are reported in the Flavors & Fragrances segment, and the results of operations for the Company’s pharmaceutical flavors business, previously reported in the Flavors & Fragrances segment, are reported in the Color segment with the pharmaceutical colors business. Results for 2013 have been restated to reflect these changes. The Color segment results have been restated to remove the impact of the discontinued operation for both 2014 and 2013. Restructuring and other charges related to continuing operations are reported in the Corporate & Other segment.

Flavors & Fragrances –
Revenue for the Flavors & Fragrances segment was $215.5 million and $225.0 million in the third quarters of 2014 and 2013, respectively. Lower revenue in North America ($10.5 million) and the unfavorable impact of exchange rates ($0.6 million) was partially offset by higher revenue in Europe ($0.8 million) and Mexico ($0.7 million).  As noted above, revenue was impacted by the Company’s continuing effort to shift to value added and technology driven products, while actively rationalizing non-strategic and low margin business.  The lower revenue in North America was primarily related to lower natural ingredient volumes as the Flavors & Fragrances segment focuses on higher margin, value added products. The higher revenue in Europe and Mexico was primarily due to higher volumes.

Flavors & Fragrances segment operating income was $30.2 million and $31.2 million in the third quarters of 2014 and 2013, respectively. Increases in gross profit were offset by higher selling and administrative expenses as the Group filled vacant sales and technical positions.  The lower profit was primarily due to lower profit in North America ($1.5 million) partially offset by higher profit in Mexico ($0.6 million). The lower profit in North America was primarily due to lower volumes. The higher profit in Mexico was due to lower production costs. Operating income as a percent of revenue was 14.0%, an increase of 10 basis points from the prior year’s third quarter.

Revenue for the Flavors & Fragrances segment was $645.1 million and $667.5 million for the nine months ended September 30, 2014 and 2013, respectively. The decrease in revenue was primarily due to lower revenue in North America ($23.8 million) and Europe ($1.1 million) partially offset by higher revenue in Mexico ($0.9 million) combined with the favorable impact of foreign exchange rates ($1.6 million). The lower revenue in North America was primarily related to lower natural ingredient volumes as the Flavors & Fragrances segment focuses on higher margin, value added products. The lower revenue in Europe was primarily due to lower volumes.

Operating income was $93.7 million and $91.6 million for the nine months ended September 30, 2014 and 2013, respectively. Higher profit in North America ($1.3 million) and Mexico ($1.1 million) was partially offset by the unfavorable impact of exchange rates ($0.5 million). The higher profit in North America was primarily due to higher selling prices. The higher profit in Mexico was primarily due to higher selling prices and lower production costs.

Color –
Revenue for the Color segment was $127.8 million and $124.1 million for the quarters ended September 30, 2014 and 2013, respectively. The higher revenue was primarily related to higher sales of food and beverage colors ($2.4 million) and non-food colors ($1.6 million) partially offset by the unfavorable impact of exchange rates ($0.3 million). The higher sales of food and beverage colors was primarily due to both higher volumes and higher selling prices and the higher sales of non-food colors was primarily due to higher volumes.

Operating income for the quarter ended September 30, 2014, was $29.1 million, an increase of 4.3% from the $27.9 million reported in the comparable period last year. The increase was primarily due to higher profit on sales of non-food colors ($1.7 million) partially offset by lower profit for food and beverage colors ($0.5 million). The higher profit on sales of non-food colors was primarily driven by higher volumes. The lower profit for food and beverage colors was primarily a result of higher raw material costs and production costs partially offset by higher selling prices. Operating income as a percent of revenue increased 30 basis points to 22.8% in the third quarter of 2014 from 22.5% in the prior year’s quarter.
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Color segment revenue was $392.4 million and $378.9 million for the nine months ended September 30, 2014 and 2013, respectively. The higher revenue was primarily due to higher sales of non-food colors ($7.8 million) and food and beverage colors ($5.6 million), both due to higher volumes and selling prices.

Operating income for the first nine months of 2014 was $90.0 million an increase of 7.4% from $83.8 million reported in the comparable period last year. The increase was primarily due to the higher profit on sales of non-food colors ($3.6 million) and food and beverage colors ($2.2 million). The higher profit was primarily due to higher volumes of non-food colors and higher selling prices for food and beverage colors. Operating income as a percent of revenue was 22.9%, up from 22.1% in the prior year’s comparable period.

Corporate & Other –
Revenue for the Corporate & Other segment was $36.2 million for both quarters ended September 30, 2014 and 2013. Price increases in both Asia Pacific and the flavors businesses in Central & South America were offset by the impact of unfavorable exchange rates and lower volumes in Asia Pacific.

The Corporate & Other segment reported operating losses of $23.2 million and $10.0 million for the quarters ended September 30, 2014 and 2013, respectively. The lower results were primarily due to $21.0 million and $6.6 million of restructuring charges recorded in the third quarters of 2014 and 2013, respectively, partially offset by higher profit in Asia Pacific. All restructuring charges related to continuing operations for the Company are included in the Corporate & Other segment.

Revenue for the Corporate & Other segment was $110.5 million for the nine months ended September 30, 2014, an increase of 1.7% from the $108.7 million reported in the comparable period of 2013. The increase was primarily due to higher volumes and selling prices in both Asia Pacific and the flavors businesses in Central & South America partially offset by unfavorable exchange rates.

An operating loss of $89.2 million was reported for the nine months ended September 30, 2014 compared to an operating loss of $40.5 million in the prior year period. The lower results were primarily due to $78.8 million and $26.0 million of restructuring charges recorded in 2014 and 2013, respectively, partially offset by the higher profit in Asia Pacific.

LIQUIDITY AND FINANCIAL CONDITION

The Company’s ratio of debt to total capital was 29.5% and 22.2% as of September 30, 2014, and December 31, 2013, respectively. The increase was due to higher debt at September 30, 2014. The Company is in compliance with its loan covenants calculated in accordance with the applicable agreements as of September 30, 2014. Debt increases are discussed below.

Net cash provided by operating activities was $127.1 million and $117.8 million for the nine months ended September 30, 2014 and 2013, respectively. The higher cash provided by operating activities is primarily due to higher net earnings, adjusted for the impact of non-cash restructuring costs, partially offset by a higher use of cash to fund working capital expenditures, which primarily relates to increased inventory at certain locations.

Net cash used in investing activities was $46.5 million and $71.5 million for the nine months ended September 30, 2014 and 2013, respectively. Capital expenditures were $46.7 million and $77.2 million for the nine months ended September 30, 2014 and 2013, respectively.

Net cash used in financing activities was $68.6 million in the nine months ended September 30, 2014, and $35.3 million in the comparable period of 2013. The Company increased its net debt in the first nine months of 2014 by $75.4 million, primarily to fund the repurchase of the Company stock.  For purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates. Dividends of $35.9 million and $34.0 million were paid during the nine months ended September 30, 2014 and 2013, respectively. Dividends paid were 73 cents per share for the nine months ended September 30, 2014, and 68 cents per share in the comparable period of 2013, reflecting the Company’s increase in the quarterly dividend to 25 cents per share beginning in the second quarter of 2014.

The Company’s financial position remains strong. In October 2014, the Company entered into a $450 million credit facility to replace the Company’s existing $350 million revolver. The credit facility will be used to repay maturing debt and for general corporate purposes. See Note 3 Debt for additional information.  The Company expects its cash flow from operations and its available debt capacity can be used to meet future cash requirements for operations, capital expenditures, dividend payments, acquisitions and stock repurchases.
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CONTRACTUAL OBLIGATIONS

There have been no material changes in the Company’s contractual obligations during the quarter ended September 30, 2014.  For additional information about contractual obligations, refer to page 21 of the Company’s 2013 Annual Report, portions of which were filed as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

OFF-BALANCE SHEET ARRANGEMENTS

The Company had no off-balance sheet arrangements as of September 30, 2014.

CRITICAL ACCOUNTING POLICIES

There have been no material changes in the Company’s critical accounting policies during the quarter ended September 30, 2014.  For additional information about critical accounting policies, refer to pages 19 and 20 of the Company’s 2013 Annual Report, portions of which were filed as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the Company’s exposure to market risk during the quarter ended September 30, 2014.  For additional information about market risk, refer to pages 20 and 21 of the Company’s 2013 Annual Report, portions of which were filed as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

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 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 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.

Change in Internal Control Over Financial Reporting:  There has been no change in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the Company’s most recent quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements that reflect management’s current assumptions and estimates of future economic circumstances, industry conditions, Company performance and financial results.  Forward-looking statements include statements in the future tense, statements referring to any period after September 30, 2014, 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 those 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 the pace and nature of new product introductions by the Company’s customers; the Company’s ability to successfully implement its growth strategies and restructuring plan; the outcome of the Company’s various productivity-improvement and cost-reduction efforts; changes in costs of raw materials and energy; industry and economic factors related to the Company’s domestic and international business; competition from other suppliers of colors, flavors and fragrances; growth or contraction in markets for products in which the Company competes; terminations and other changes in customer relationships; industry and customer acceptance of price increases; currency exchange rate fluctuations; cost and availability of credit; results of litigation, environmental investigations or other proceedings; complications as a result of existing or future information technology system applications and hardware; the matters discussed under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013; and the matters discussed above under Item 2 including the critical accounting policies referenced therein.  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.
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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in various claims and litigation arising in the normal course of business. In the judgment of management, which relies in part on information from Company counsel, the ultimate resolution of these actions will not materially affect the consolidated financial statements of the Company.

ITEM 1A. RISK FACTORS

See “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

ITEM 6. EXHIBITS

See Exhibit Index following this report.
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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:
November 6, 2014
By:
/s/  John L. Hammond
 
     
John L. Hammond, Senior Vice President,
     
General Counsel & Secretary
         
Date:
November 6, 2014
By:
/s/  Richard F. Hobbs
 
     
Richard F. Hobbs, Senior Vice President & Chief Financial Officer

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SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2014

Exhibit
Description
Incorporated by Reference From
Filed Herewith
 
3.2
Sensient Technologies Corporation Amended and Restated By-Laws
Exhibit 3.2 to Current Report on Form 8-K dated August 21, 2014 (Commission File No. 1-7626)
 
 
10.1
Amended and Restated Credit Agreement dated as of October 24, 2014
Exhibit 10.1 to Current Report on Form 8-K dated October 24, 2014 (Commission File No. 1-7626)
 
Certifications of the Company’s 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 President & Chief Executive Officer and Senior Vice President & Chief Financial Officer pursuant to 18 United States Code § 1350
 
X

101
Interactive data files pursuant to Rule 405 of Regulation S-T
 
X
 
 
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