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SENSIENT TECHNOLOGIES CORP - Quarter Report: 2021 June (Form 10-Q)



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, 2021
 

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 28, 2021
Common Stock, par value $0.10 per share
 
42,156,133





SENSIENT TECHNOLOGIES CORPORATION
INDEX

 
 
Page No.
 
 
 
PART I. FINANCIAL INFORMATION:
 
 
 
 
Item 1.
 
     
 
 1
 
 
 
 
 2
 
 
 
 
 3
 
 
 
 
 4
 
 
 
 
 5
 
 
 
 
6
 
 
 
Item 2.
 19
 
 
 
Item 3.
25
 
 
 
Item 4.
26
 
 
 
PART II. OTHER INFORMATION:
 
 
 
 
Item 1.
27
 
 
 
   Item 1A.
27
 
 
 
Item 2.
27
 
 
 
Item 6.
27
 
 
 
 
28
 
 
 
 
29





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,
 
   
2021
   
2020
   
2021
   
2020
 
                         
Revenue
 
$
335,827
   
$
323,090
   
$
695,529
   
$
673,767
 
Cost of products sold
   
224,233
     
220,876
     
468,322
     
459,660
 
Selling and administrative expenses
   
75,841
     
60,089
     
144,557
     
137,421
 
Operating income
   
35,753
     
42,125
     
82,650
     
76,686
 
Interest expense
   
3,322
     
3,608
     
6,755
     
7,915
 
Earnings before income taxes
   
32,431
     
38,517
     
75,895
     
68,771
 
Income taxes
   
6,495
     
7,897
     
18,291
     
17,378
 
Net earnings
 
$
25,936
   
$
30,620
   
$
57,604
   
$
51,393
 
                                 
Weighted average number of common shares outstanding:
                               
Basic
   
42,135
     
42,305
     
42,199
     
42,294
 
Diluted
   
42,267
     
42,322
     
42,328
     
42,315
 
                                 
Earnings per common share:
                               
Basic
 
$
0.62
   
$
0.72
   
$
1.37
   
$
1.22
 
Diluted
 
$
0.61
   
$
0.72
   
$
1.36
   
$
1.21
 
                                 
Dividends declared per common share
 
$
0.39
   
$
0.39
   
$
0.78
   
$
0.78
 

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,
 
   
2021
   
2020
   
2021
   
2020
 
                         
Comprehensive income
 
$
44,245
   
$
33,257
   
$
60,774
   
$
9,677
 

See accompanying notes to consolidated condensed financial statements.

2


SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)

Assets
 
June 30,
2021
(Unaudited)
   
December 31, 2020
 
             
Current Assets:
           
Cash and cash equivalents
 
$
33,306
   
$
24,770
 
Trade accounts receivable
   
258,411
     
234,132
 
Inventories
   
360,240
     
381,346
 
Prepaid expenses and other current assets
   
56,111
     
48,578
 
Assets held for sale
   
-
     
52,760
 
                 
Total current assets
   
708,068
     
741,586
 
                 
Other assets
   
90,369
     
89,883
 
Deferred tax assets
   
28,067
     
29,678
 
Intangible assets, net
   
10,676
     
10,930
 
Goodwill
   
418,528
     
423,290
 
Property, Plant, and Equipment:
               
Land
   
31,315
     
31,422
 
Buildings
   
318,523
     
316,533
 
Machinery and equipment
   
702,697
     
703,485
 
Construction in progress
   
28,750
     
21,759
 
     
1,081,285
     
1,073,199
 
Less accumulated depreciation
   
(639,263
)
   
(627,706
)
     
442,022
     
445,493
 
                 
Total assets
 
$
1,697,730
   
$
1,740,860
 
                 
Liabilities and ShareholdersEquity
               
                 
Current Liabilities:
               
Trade accounts payable
 
$
115,325
   
$
107,324
 
Accrued salaries, wages, and withholdings from employees
   
30,210
     
34,462
 
Other accrued expenses
   
43,920
     
42,985
 
Income taxes
   
6,190
     
4,598
 
Short-term borrowings
   
771
     
9,247
 
Liabilities held for sale
   
-
     
17,339
 
                 
Total current liabilities
   
196,416
     
215,955
 
                 
Deferred tax liabilities
   
13,444
     
13,411
 
Other liabilities
   
30,500
     
30,213
 
Accrued employee and retiree benefits
   
29,863
     
28,941
 
Long-term debt
   
483,230
     
518,004
 
Shareholders’ Equity:
               
Common stock
   
5,396
     
5,396
 
Additional paid-in capital
   
105,967
     
102,909
 
Earnings reinvested in the business
   
1,603,239
     
1,578,662
 
Treasury stock, at cost
   
(614,404
)
   
(593,540
)
Accumulated other comprehensive loss
   
(155,921
)
   
(159,091
)
                 
Total shareholders’ equity
   
944,277
     
934,336
 
                 
Total liabilities and shareholders’ equity
 
$
1,697,730
   
$
1,740,860
 

See accompanying notes to consolidated condensed financial statements.

3


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

 
Six Months
Ended June 30,
 
   
2021
   
2020
 
             
Cash flows from operating activities:
           
Net earnings
 
$
57,604
   
$
51,393
 
Adjustments to arrive at net cash provided by operating activities:
               
Depreciation and amortization
   
25,817
     
24,522
 
Share-based compensation expense
   
4,188
     
2,662
 
Net loss on assets
   
206
     
50
 
Loss on divestitures and other charges
   
13,511
     
6,634
 
Deferred income taxes
   
1,702
     
1,075
 
Changes in operating assets and liabilities:
               
Trade accounts receivable
   
(26,902
)
   
(20,494
)
Inventories
   
19,357
     
24,816
 
Prepaid expenses and other assets
   
(15,573
)
   
(3,975
)
Accounts payable and other accrued expenses
   
9,632
     
9,961
 
Accrued salaries, wages, and withholdings from employees
   
(3,944
)
   
6,483
 
Income taxes
   
1,953
     
3,899
 
Other liabilities
   
1,710
     
588
 
                 
Net cash provided by operating activities
   
89,261
     
107,614
 
                 
Cash flows from investing activities:
               
Acquisition of property, plant, and equipment
   
(25,550
)
   
(21,417
)
Proceeds from sale of assets
   
169
     
6
 
Proceeds from divesture of businesses
   
36,255
     
11,255
 
Other investing activities
   
(254
)
   
4,395
 
                 
Net cash provided by (used in) investing activities
   
10,620
     
(5,761
)
                 
Cash flows from financing activities:
               
Proceeds from additional borrowings
   
25,997
     
38,670
 
Debt payments
   
(62,578
)
   
(98,849
)
Purchase of treasury stock
   
(22,507
)
   
-
 
Dividends paid
   
(33,027
)
   
(33,018
)
Other financing activities
   
(582
)
   
(414
)
                 
Net cash used in financing activities
   
(92,697
)
   
(93,611
)
                 
Effect of exchange rate changes on cash and cash equivalents
   
1,352
     
(8,519
)
                 
Net increase (decrease) in cash and cash equivalents
   
8,536
     
(277
)
Cash and cash equivalents at beginning of period
   
24,770
     
21,153
 
                 
Cash and cash equivalents at end of period
 
$
33,306
   
$
20,876
 

See accompanying notes to consolidated condensed financial statements.

4


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

 
Common
   
Additional
Paid-In
   
Earnings Reinvested
   
Treasury Stock
   
Accumulated
Other
Comprehensive
   
Total
 
Three Months Ended June 30, 2021
 
Stock
   
Capital
   
in the Business
   
Shares
   
Amount
   
Income (Loss)
   
Equity
 
Balances at March 31, 2021
 
$
5,396
   
$
104,725
   
$
1,593,795
     
11,776,654
   
$
(604,040
)
 
$
(174,230
)
 
$
925,646
 
Net earnings
   
-
     
-
     
25,936
     
-
     
-
     
-
     
25,936
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
18,309
     
18,309
 
Cash dividends paid - $0.39 per share
   
-
     
-
     
(16,492
)
   
-
     
-
     
-
     
(16,492
)
Share-based compensation
   
-
     
2,075
     
-
     
-
     
-
     
-
     
2,075
 
Non-vested stock issued upon vesting
   
-
     
(701
)
   
-
     
(13,666
)
   
701
     
-
     
-
 
Purchase of treasury stock
   
-
     
-
     
-
     
125,150
     
(10,842
)
   
-
     
(10,842
)
Other
   
-
     
(132
)
   
-
     
4,359
     
(223
)
   
-
     
(355
)
Balances at June 30, 2021
 
$
5,396
   
$
105,967
   
$
1,603,239
     
11,892,497
   
$
(614,404
)
 
$
(155,921
)
 
$
944,277
 

Three Months Ended June 30, 2020
                                         
Balances at March 31, 2020
 
$
5,396
   
$
99,080
   
$
1,539,520
     
11,656,206
   
$
(593,977
)
 
$
(207,361
)
 
$
842,658
 
Net earnings
   
-
     
-
     
30,620
     
-
     
-
     
-
     
30,620
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
2,637
     
2,637
 
Cash dividends paid - $0.39 per share
   
-
     
-
     
(16,518
)
   
-
     
-
     
-
     
(16,518
)
Share-based compensation
   
-
     
1,485
     
-
     
-
     
-
     
-
     
1,485
 
Non-vested stock issued upon vesting
   
-
     
(628
)
   
-
     
(12,315
)
   
628
     
-
     
-
 
Other
   
-
     
25
     
-
     
3,736
     
(191
)
   
-
     
(166
)
Balances at June 30, 2020
 
$
5,396
   
$
99,962
   
$
1,553,622
     
11,647,627
   
$
(593,540
)
 
$
(204,724
)
 
$
860,716
 

Six Months Ended June 30, 2021
                                         
Balances at December 31, 2020
 
$
5,396
   
$
102,909
   
$
1,578,662
     
11,647,627
   
$
(593,540
)
 
$
(159,091
)
 
$
934,336
 
Net earnings
   
-
     
-
     
57,604
     
-
     
-
     
-
     
57,604
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
3,170
     
3,170
 
Cash dividends paid - $0.78 per share
   
-
     
-
     
(33,027
)
   
-
     
-
     
-
     
(33,027
)
Share-based compensation
   
-
     
4,188
     
-
     
-
     
-
     
-
     
4,188
 
Non-vested stock issued upon vesting
   
-
     
(1,264
)
   
-
     
(24,711
)
   
1,264
     
-
     
-
 
Benefit plans
   
-
     
338
     
-
     
(14,791
)
   
756
     
-
     
1,094
 
Purchase of treasury stock
   
-
     
-
     
-
     
276,993
     
(22,507
)
   
-
     
(22,507
)
Other
   
-
     
(204
)
   
-
     
7,379
     
(377
)
   
-
     
(581
)
Balances at June 30, 2021
 
$
5,396
   
$
105,967
   
$
1,603,239
     
11,892,497
   
$
(614,404
)
 
$
(155,921
)
 
$
944,277
 

Six Months Ended June 30, 2020
                                         
Balances at December 31, 2019
 
$
5,396
   
$
98,425
   
$
1,536,100
     
11,682,636
   
$
(595,324
)
 
$
(163,008
)
 
$
881,589
 
Net earnings
   
-
     
-
     
51,393
     
-
     
-
     
-
     
51,393
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
(41,716
)
   
(41,716
)
Cash dividends paid - $0.78 per share
   
-
     
-
     
(33,018
)
   
-
     
-
     
-
     
(33,018
)
Share-based compensation
   
-
     
2,662
     
-
     
-
     
-
     
-
     
2,662
 
Non-vested stock issued upon vesting
   
-
     
(1,352
)
   
-
     
(26,515
)
   
1,352
     
-
     
-
 
Benefit plans
   
-
     
241
     
-
     
(16,344
)
   
833
     
-
     
1,074
 
Adoption of ASU 2016-13
   
-
     
-
     
(853
)
   
-
     
-
     
-
     
(853
)
Other
   
-
     
(14
)
   
-
     
7,850
     
(401
)
   
-
     
(415
)
Balances at June 30, 2020
 
$
5,396
   
$
99,962
   
$
1,553,622
     
11,647,627
   
$
(593,540
)
 
$
(204,724
)
 
$
860,716
 

See accompanying notes to consolidated condensed financial statements.

5


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, 2021, and the results of operations, comprehensive income, and shareholders’ equity for the three and six months ended June 30, 2021 and 2020, and cash flows for the six months ended June 30, 2021 and 2020. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Expenses are charged to operations in the period incurred.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which clarifies and simplifies aspects of the accounting for income taxes. ASU 2019-12 is effective for public business entities beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2019-12 on January 1, 2021, using retrospective, modified retrospective or prospective basis for certain amendments. There was no impact to the consolidated financial statements.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other inter-bank offered rates to alternative rates. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements and its related disclosures.

Please refer to the notes in the Company’s annual consolidated financial statements for the year ended December 31, 2020, for additional details of the Company’s financial condition and a description of the Company’s accounting policies, which have been continued without change.

2.
Divestitures

In October 2019, the Company announced its intent to divest its inks, fragrances (excluding its essential oils product line), and yogurt fruit preparations product lines. The divesting and exit of these three product lines does not meet the criteria to be presented as a discontinued operation on the Consolidated Statements of Earnings.

On June 30, 2020, the Company completed the sale of its inks product line. In 2020, the Company received $11.6 million of net cash and expects to receive additional cash when it completes certain post-closing asset sales.

On September 18, 2020, the Company completed the sale of its yogurt fruit preparations product line for $1.0 million. The sale included an earn-out based on future performance, which could result in additional cash consideration for the Company.

On April 1, 2021, the Company completed the sale of its fragrances product line (excluding its essential oils product line). The Company received $36.3 million of net cash, subject to post-closing working capital and net debt adjustments. In addition, the Company expects to receive additional consideration for the collection of certain retained accounts receivable. As a result of the completion of the sale, the Company recorded a non-cash net loss of $11.3 million for the three months ended June 30, 2021, primarily related to the reclassification of accumulated foreign currency translation and related items from Accumulated Other Comprehensive Loss to Selling and Administrative Expenses in the Consolidated Statements of Earnings.
6


The assets and liabilities related to the inks and fragrances (excluding its essential oils product line) product lines are recorded in Assets Held for Sale and Liabilities Held for Sale as of December 31, 2020, as follows:

(In thousands)
 
December 31,
2020
 
Assets held for sale:
     
Trade accounts receivable
 
$
20,722
 
Inventories
   
25,045
 
Prepaid expenses and other current assets
   
1,843
 
Property, plant, and equipment, net
   
3,434
 
Intangible assets
   
1,716
 
Assets held for sale
 
$
52,760
 
         
Liabilities held for sale:
       
Trade accounts payable
 
$
13,967
 
Accrued salaries, wages, and withholdings from employees
   
1,739
 
Other accrued expenses
   
1,633
 
Liabilities held for sale
 
$
17,339
 

The Company reports all costs associated with the divestitures in Corporate & Other. The following table summarizes the divestiture & other related costs for the three months ended June 30, 2021:

(In thousands)
 
Yogurt Fruit Preparations
   
Fragrances
   
Inks
   
Corporate/
Other
   
Total
 
Non-cash impairment charges – Selling and administrative expenses
 
$
-
   
$
1,062
   
$
-
   
$
-
   
$
1,062
 
Non-cash charges – Cost of products sold
   
-
     
3
     
-
     
-
     
3
 
Reclassification of foreign currency translation and related items – Selling and administrative expenses
   
-
     
10,193
     
-
     
-
     
10,193
 
Other costs - Selling and administrative expenses(1)
   
264
     
202
     
(98
)
   
62
     
430
 
Total
 
$
264
   
$
11,460
   
$
(98
)
 
$
62
   
$
11,688
 

(1)
Other costs – Selling and administrative expenses include employee separation costs, professional services, accelerated depreciation, and other related costs.

The Company reports all costs associated with the divestitures in Corporate & Other. The following table summarizes the divestiture & other related costs for the three months ended June 30, 2020:

(In thousands)
 
Yogurt Fruit Preparations
   
Fragrances
   
Inks
   
Corporate/
Other
   
Total
 
Non-cash impairment charges – Selling and administrative expenses
 
$
2,386
   
$
-
   
$
(86
)
 
$
-
   
$
2,300
 
Non-cash charges – Cost of products sold
   
1,679
     
70
     
-
     
-
     
1,749
 
Reclassification of foreign currency translation and related items – Selling and administrative expenses
   
-
     
-
     
(8,217
)
   
-
     
(8,217
)
Other costs - Selling and administrative expenses(1)
   
518
     
1,288
     
194
     
641
     
2,641
 
Total
 
$
4,583
   
$
1,358
   
$
(8,109
)
 
$
641
   
$
(1,527
)

7


(1)
Other costs – Selling and administrative expenses include environmental remediation, employee separation costs, professional services, accelerated depreciation, and other related costs.

The Company reports all costs associated with the divestitures in Corporate & Other. The following table summarizes the divestiture & other related costs for the six months ended June 30, 2021:

(In thousands)
 
Yogurt Fruit Preparations
   
Fragrances
   
Inks
   
Corporate/
Other
   
Total
 
Non-cash impairment charges – Selling and administrative expenses
 
$
-
   
$
1,062
   
$
-
   
$
-
   
$
1,062
 
Non-cash charges – Cost of products sold
   
-
     
37
     
(9
)
   
-
     
28
 
Reclassification of foreign currency translation and related items – Selling and administrative expenses
   
-
     
10,193
     
-
     
-
     
10,193
 
Other costs - Selling and administrative expenses(1)
   
529
     
1,216
     
(205
)
   
437
     
1,977
 
Total
 
$
529
   
$
12,508
   
$
(214
)
 
$
437
   
$
13,260
 

(1)
Other costs – Selling and administrative expenses include environmental remediation, employee separation costs, professional services, and other related costs.

The Company reports all costs associated with the divestitures in Corporate & Other. The following table summarizes the divestiture & other related costs for the six months ended June 30, 2020:

(In thousands)
 
Yogurt Fruit Preparations
   
Fragrances
   
Inks
   
Corporate/
Other
   
Total
 
Non-cash impairment charges – Selling and administrative expenses
 
$
2,386
   
$
339
   
$
9,351
   
$
-
   
$
12,076
 
Non-cash charges – Cost of products sold
   
1,679
     
70
     
-
     
190
     
1,939
 
Reclassification of foreign currency translation and related items – Selling and administrative expenses
   
-
     
-
     
(8,217
)
   
-
     
(8,217
)
Other costs - Selling and administrative expenses(1)
   
586
     
2,106
     
296
     
1,530
     
4,518
 
Total
 
$
4,651
   
$
2,515
   
$
1,430
   
$
1,720
   
$
10,316
 

(1)
Other costs – Selling and administrative expenses include environmental remediation, employee separation costs, professional services, and other related costs.

The Company recorded non-cash impairment charges in Selling and Administrative Expenses, primarily related to property, plant, and equipment and allocated goodwill, when the estimated fair value less costs to sell the product line was lower than its carrying value. The Company recorded non-cash charges in Cost of Products Sold to reduce the carrying value of certain inventories when they were determined to be excess.

In March 2020, the Company was notified by the buyer of the Company’s fragrances product line that environmental sampling conducted at the Company’s Granada, Spain location had identified the presence of contaminants in soil and groundwater in certain areas of the property. The Company records liabilities related to environmental remediation obligations when estimated future expenditures are probable and the amount of the liability is reasonably estimable. The Company recorded $0.8 million in the three months ended June 30, 2020, based upon an environmental investigation and a quantitative risk assessment performed by a consultant hired by the Company. During the six months ended June 30, 2021, the Company recorded an additional $0.3 million related to these obligations in Selling and Administrative Expenses based on further analysis at the site during the period. As of June 30, 2021, the Company estimates remaining 2021 divestiture & other related costs will not be significant.

8


3.
Operational Improvement Plan

During the third quarter of 2020, the Company approved an operational improvement plan (Operational Improvement Plan) to consolidate manufacturing facilities and improve efficiencies within the Company. As part of the Operational Improvement Plan, the Company is combining its New Jersey cosmetics manufacturing facility in the Personal Care product line of the Color segment into its existing Color segment facility in Missouri. In addition, the Company is centralizing certain Flavors & Extracts segment support functions in Europe into one location. In the Asia Pacific segment, the Company incurred costs in connection with the elimination of certain selling and administrative positions.

During the second quarter of 2021, the Company received cash proceeds, net of associated expenses, in connection with the termination of a New Jersey office and laboratory space lease. The terminated lease was originally executed in November 2020 as part of the Operational Improvement Plan; however, the landlord for the property requested to terminate the lease prior to the end of its term and compensated the Company as part of a negotiated resolution for that termination. The Company reports all costs and income associated with the Operational Improvement Plan in Corporate & Other.

The following table summarizes the Operational Improvement Plan income and expenses recorded in Selling and Administrative Expenses by segment for the three months ended June 30, 2021:

(In thousands)
 
Flavors & Extracts
   
Color
   
Asia Pacific
   
Consolidated
 
Employee separation costs
 
$
3
   
$
26
   
$
(24
)
 
$
5
 
Other income(1)
   
-
     
(3,624
)
   
-
     
(3,624
)
Other costs
   
-
     
125
     
-
     
125
 
Total expense (income)
 
$
3
   
$
(3,473
)
 
$
(24
)
 
$
(3,494
)

(1)
Other income includes cash received for the early termination of a lease less associated expenses.

The following table summarizes the Operational Improvement Plan expenses recorded in Selling and Administrative Expenses by segment for the six months ended June 30, 2021:


(In thousands)
 
Flavors & Extracts
   
Color
   
Asia Pacific
   
Consolidated
 
Employee separation costs
 
$
(16
)
 
$
80
   
$
(68
)
 
$
(4
)
Other income(1)
   
-
     
(3,624
)
   
-
     
(3,624
)
Other costs(2)
   
-
     
1,134
     
1
     
1,135
 
Total expense (income)
 
$
(16
)
 
$
(2,410
)
 
$
(67
)
 
$
(2,493
)

(1)
Other income includes cash received for the early termination of a lease less associated expenses.
(2)
Other costs include professional services, accelerated depreciation, and other related costs.

As of June 30, 2021 and December 31, 2020, the Company recorded $1.6 million and $2.2 million, respectively, of accrued liabilities in Other Accrued Expenses on the Company’s Consolidated Balance Sheet related to this plan. The Company estimates remaining 2021 Operational Improvement Plan costs will be approximately $1 million.

4.
Trade Accounts Receivable

Trade accounts receivables are recorded at their face amount, less an allowance for expected losses on doubtful accounts. The allowance for doubtful accounts is calculated based on customer-specific analysis and an aging methodology using historical loss information. The Company believes historical loss information is a reasonable basis for expected credit losses as the Company’s historical credit loss experience correlates with its customer delinquency status. This information is also adjusted for any known current economic conditions, including the current and expected impact of COVID-19. Currently, the COVID-19 pandemic has not had, and is not anticipated to have, a material impact on trade accounts receivable. Forecasted economic conditions have not had a significant impact on the current credit loss estimate due to the short-term nature of the Company’s customer receivables; however, the Company will continue to monitor and evaluate the rapidly changing economic conditions. Additionally, as the Company only has one portfolio segment, there are not different risks between portfolios. Specific accounts are written off against the allowance for doubtful accounts when the receivable is deemed no longer collectible.
9


The following tables summarize the changes in the allowance for doubtful accounts during the three and six month periods ended June 30, 2021 and 2020:

(In thousands)
Three Months Ended June 30, 2021
 
Allowance for
Doubtful Accounts
 
Balance at March 31, 2021
 
$
3,614
 
Provision for expected credit losses
   
138
 
Accounts written off
   
(20
)
Translation and other activity
   
17
 
Balance at June 30, 2021
 
$
3,749
 

(In thousands)
Three Months Ended June 30, 2020
 
Allowance for
Doubtful Accounts
 
Balance at March 31, 2020
 
$
7,027
 
Provision for expected credit losses
   
116
 
Accounts written off
   
(291
)
Divestiture
   
(2,174
)
Translation and other activity
   
212
 
Balance at June 30, 2020
 
$
4,890
 

(In thousands)
Six Months Ended June 30, 2021
 
Allowance for
Doubtful Accounts
 
Balance at December 31, 2020
 
$
3,891
 
Provision for expected credit losses
   
294
 
Accounts written off
   
(373
)
Translation and other activity
   
(63
)
Balance at June 30, 2021
 
$
3,749
 

(In thousands)
Six Months Ended June 30, 2020
 
Allowance for
Doubtful Accounts
 
Balance at December 31, 2019
 
$
6,913
 
Adoption of ASU 2016-13
   
853
 
Provision for expected credit losses
   
356
 
Accounts written off
   
(627
)
Divestiture
   
(2,174
)
Translation and other activity
   
(431
)
Balance at June 30, 2020
 
$
4,890
 

5.
Inventories

At June 30, 2021, and December 31, 2020, inventories included finished and in-process products totaling $250.4 million and $268.1 million, respectively, and raw materials and supplies of $109.8 million and $113.2 million, respectively.

6.
Debt

On May 5, 2021, the Company entered into a Third Amended and Restated Credit Agreement (Credit Agreement). The Credit Agreement provides for a $350 million senior unsecured revolving credit facility, with up to $20 million of the facility being available as a sub-facility for standby and commercial letters of credit and sub-limits of up to $50 million on swing line loans. The Credit Agreement also (i) terminated the $145 million term loan facility (which had no amounts outstanding), (ii) extended the maturity of the Company’s revolving credit facility from May 2022 to May 2026, and (iii) modified certain other provisions. Funds are available in U.S. dollars, Canadian dollars, Euros, Swiss Francs, and other major currencies. Proceeds from the facility will be used to refinance existing indebtedness of the Company, for working capital, and other general corporate purpose needs of the Company. On May 6, 2021, the Company also amended its note purchase agreements to make substantially conforming changes as were made to the Credit Agreement.


10


7.
Fair Value

Accounting Standards Codification 820, Fair Value Measurement, defines fair value for financial assets and liabilities, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. As of June 30, 2021 and December 31, 2020, the Company’s assets and liabilities subject to this standard are forward exchange contracts. The net fair value of the forward exchange contracts based on current pricing obtained for comparable derivative products (Level 2 inputs) was an asset of $0.7 million and $0.5 million as of June 30, 2021 and December 31, 2020, respectively. 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, 2021 and December 31, 2020. 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, 2021 and December 31, 2020, was $483.7 million and $526.9 million, respectively. The fair value of the long-term debt at June 30, 2021 and December 31, 2020, was $507.5 million and $556.1 million, respectively.

8.
Segment Information

The Company evaluates performance based on operating income before divestiture & other related costs, share-based compensation, restructuring and other charges including operational improvement plan costs, interest expense, and income taxes (segment operating income). Total revenue and segment operating income by business segment and geographic region include both sales to customers, as reported in the Company’s Consolidated Statements of Earnings, and intersegment sales, which are accounted for at prices that approximate market prices and are eliminated in consolidation.

The Company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance. The Company’s three reportable segments are the Flavors & Extracts and Color segments, which are both managed on a product line basis, and the Asia Pacific segment, which is managed on a geographic basis. The Company’s Flavors & Extracts segment produces flavor and fragrance products that impart a desired taste, texture, aroma, or other characteristic to a broad range of consumers and other products. The Color segment produces natural and synthetic color systems for foods, beverages, pharmaceuticals and nutraceuticals; colors, ingredients, and systems for cosmetics; and specialty inks and technical colors for industrial applications. The Asia Pacific segment is managed on a geographic basis and produces and distributes color and flavor products for the Asia Pacific countries. The Company’s corporate expenses, divestiture & other related costs, share-based compensation, operational improvement plan expenses, and other costs are included in the “Corporate & Other” category.

Divestiture & other related costs and restructuring and other costs, including the operational improvement plan costs, for the three and six months ended June 30, 2021 and 2020, are further described in Note 2, Divestitures, and Note 3, Operational Improvement Plan, and are included in the operating income (loss) results in Corporate & Other below. In addition, the Company’s corporate expenses and share-based compensation are included in Corporate & Other.
11


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, 2021:
                             
Revenue from external customers
 
$
174,699
   
$
128,830
   
$
32,298
   
$
-
   
$
335,827
 
Intersegment revenue
   
4,702
     
4,377
     
19
     
-
     
9,098
 
Total revenue
 
$
179,401
   
$
133,207
   
$
32,317
   
$
-
   
$
344,925
 
                                         
Operating income (loss)
 
$
24,536
   
$
25,615
   
$
5,793
   
$
(20,191
)
 
$
35,753
 
Interest expense
   
-
     
-
     
-
     
3,322
     
3,322
 
Earnings (loss) before income taxes
 
$
24,536
   
$
25,615
   
$
5,793
   
$
(23,513
)
 
$
32,431
 
                                         
Three months ended June 30, 2020:
                                       
Revenue from external customers
 
$
178,430
   
$
116,879
   
$
27,781
   
$
-
   
$
323,090
 
Intersegment revenue
   
5,181
     
4,417
     
92
     
-
     
9,690
 
Total revenue
 
$
183,611
   
$
121,296
   
$
27,873
   
$
-
   
$
332,780
 
                                         
Operating income (loss)
 
$
22,752
   
$
22,263
   
$
4,849
   
$
(7,739
)
 
$
42,125
 
Interest expense
   
-
     
-
     
-
     
3,608
     
3,608
 
Earnings (loss) before income taxes
 
$
22,752
   
$
22,263
   
$
4,849
   
$
(11,347
)
 
$
38,517
 

(In thousands)
 
Flavors &
Extracts
   
Color
   
Asia
Pacific
   
Corporate
& Other
   
Consolidated
 
Six months ended June 30, 2021:
                             
Revenue from external customers
 
$
369,360
   
$
260,031
   
$
66,138
   
$
-
   
$
695,529
 
Intersegment revenue
   
10,952
     
8,896
     
19
     
-
     
19,867
 
Total revenue
 
$
380,312
   
$
268,927
   
$
66,157
   
$
-
   
$
715,396
 
                                         
Operating income (loss)
 
$
51,554
   
$
52,209
   
$
12,545
   
$
(33,658
)
 
$
82,650
 
Interest expense
   
-
     
-
     
-
     
6,755
     
6,755
 
Earnings (loss) before income taxes
 
$
51,554
   
$
52,209
   
$
12,545
   
$
(40,413
)
 
$
75,895
 
                                         
Six months ended June 30, 2020:
                                       
Revenue from external customers
 
$
359,617
   
$
256,072
   
$
58,078
   
$
-
   
$
673,767
 
Intersegment revenue
   
10,492
     
8,719
     
244
     
-
     
19,455
 
Total revenue
 
$
370,109
   
$
264,791
   
$
58,322
   
$
-
   
$
693,222
 
                                         
Operating income (loss)
 
$
43,623
   
$
51,927
   
$
9,908
   
$
(28,772
)
 
$
76,686
 
Interest expense
   
-
     
-
     
-
     
7,915
     
7,915
 
Earnings (loss) before income taxes
 
$
43,623
   
$
51,927
   
$
9,908
   
$
(36,687
)
 
$
68,771
 
12


Product Lines

(In thousands)
 
Flavors &
Extracts
   
Color
   
Asia Pacific
   
Consolidated
 
Three months ended June 30, 2021:
                       
Flavors, Extracts & Flavor Ingredients
 
$
111,763
   
$
-
   
$
-
   
$
111,763
 
Natural Ingredients
   
60,302
     
-
     
-
     
60,302
 
Fragrances
   
5,921
     
-
     
-
     
5,921
 
Yogurt Fruit Preparations
   
1,415
     
-
     
-
     
1,415
 
Food & Pharmaceutical Colors
   
-
     
94,092
     
-
     
94,092
 
Personal Care
   
-
     
38,323
     
-
     
38,323
 
Inks
   
-
     
792
     
-
     
792
 
Asia Pacific
   
-
     
-
     
32,317
     
32,317
 
Intersegment Revenue
   
(4,702
)
   
(4,377
)
   
(19
)
   
(9,098
)
Total revenue from external customers
 
$
174,699
   
$
128,830
   
$
32,298
   
$
335,827
 
                                 
Three months ended June 30, 2020:
                               
Flavors, Extracts & Flavor Ingredients
 
$
101,642
   
$
-
   
$
-
   
$
101,642
 
Natural Ingredients
   
57,227
     
-
     
-
     
57,227
 
Fragrances
   
21,077
     
-
     
-
     
21,077
 
Yogurt Fruit Preparations
   
3,665
     
-
     
-
     
3,665
 
Food & Pharmaceutical Colors
   
-
     
86,825
     
-
     
86,825
 
Personal Care
   
-
     
31,095
     
-
     
31,095
 
Inks
   
-
     
3,376
     
-
     
3,376
 
Asia Pacific
   
-
     
-
     
27,873
     
27,873
 
Intersegment Revenue
   
(5,181
)
   
(4,417
)
   
(92
)
   
(9,690
)
Total revenue from external customers
 
$
178,430
   
$
116,879
   
$
27,781
   
$
323,090
 

(In thousands)
 
Flavors &
Extracts
   
Color
   
Asia Pacific
   
Consolidated
 
Six months ended June 30, 2021:
                       
Flavors, Extracts & Flavor Ingredients
 
$
219,853
   
$
-
   
$
-
   
$
219,853
 
Natural Ingredients
   
122,506
     
-
     
-
     
122,506
 
Fragrances
   
34,388
     
-
     
-
     
34,388
 
Yogurt Fruit Preparations
   
3,565
     
-
     
-
     
3,565
 
Food & Pharmaceutical Colors
   
-
     
187,877
     
-
     
187,877
 
Personal Care
   
-
     
79,838
     
-
     
79,838
 
Inks
   
-
     
1,212
     
-
     
1,212
 
Asia Pacific
   
-
     
-
     
66,157
     
66,157
 
Intersegment Revenue
   
(10,952
)
   
(8,896
)
   
(19
)
   
(19,867
)
Total revenue from external customers
 
$
369,360
   
$
260,031
   
$
66,138
   
$
695,529
 
                                 
Six months ended June 30, 2020:
                               
Flavors, Extracts & Flavor Ingredients
 
$
203,095
   
$
-
   
$
-
   
$
203,095
 
Natural Ingredients
   
114,827
     
-
     
-
     
114,827
 
Fragrances
   
43,361
     
-
     
-
     
43,361
 
Yogurt Fruit Preparations
   
8,826
     
-
     
-
     
8,826
 
Food & Pharmaceutical Colors
   
-
     
177,618
     
-
     
177,618
 
Personal Care
   
-
     
74,838
     
-
     
74,838
 
Inks
   
-
     
12,335
     
-
     
12,335
 
Asia Pacific
   
-
     
-
     
58,322
     
58,322
 
Intersegment Revenue
   
(10,492
)
   
(8,719
)
   
(244
)
   
(19,455
)
Total revenue from external customers
 
$
359,617
   
$
256,072
   
$
58,078
   
$
673,767
 
13



Geographic Markets

(In thousands)
 
Flavors &
Extracts
   
Color
   
Asia Pacific
   
Consolidated
 
Three months ended June 30, 2021:
                       
North America
 
$
128,665
   
$
57,264
   
$
37
   
$
185,966
 
Europe
   
32,654
     
37,906
     
54
     
70,614
 
Asia Pacific
   
8,161
     
18,543
     
31,794
     
58,498
 
Other
   
5,219
     
15,117
     
413
     
20,749
 
Total revenue from external customers
 
$
174,699
   
$
128,830
   
$
32,298
   
$
335,827
 
                                 
Three months ended June 30, 2020:
                               
North America
 
$
120,827
   
$
61,370
   
$
-
   
$
182,197
 
Europe
   
39,272
     
25,250
     
45
     
64,567
 
Asia Pacific
   
8,103
     
16,195
     
27,135
     
51,433
 
Other
   
10,228
     
14,064
     
601
     
24,893
 
Total revenue from external customers
 
$
178,430
   
$
116,879
   
$
27,781
   
$
323,090
 

(In thousands)
 
Flavors &
Extracts
   
Color
   
Asia Pacific
   
Consolidated
 
Six months ended June 30, 2021:
                       
North America
 
$
258,308
   
$
120,934
   
$
62
   
$
379,304
 
Europe
   
77,222
     
75,184
     
76
     
152,482
 
Asia Pacific
   
17,878
     
33,381
     
64,352
     
115,611
 
Other
   
15,952
     
30,532
     
1,648
     
48,132
 
Total revenue from external customers
 
$
369,360
   
$
260,031
   
$
66,138
   
$
695,529
 
                                 
Six months ended June 30, 2020:
                               
North America
 
$
237,528
   
$
127,635
   
$
-
   
$
365,163
 
Europe
   
83,149
     
63,988
     
67
     
147,204
 
Asia Pacific
   
17,458
     
32,170
     
56,257
     
105,885
 
Other
   
21,482
     
32,279
     
1,754
     
55,515
 
Total revenue from external customers
 
$
359,617
   
$
256,072
   
$
58,078
   
$
673,767
 

9.
Retirement Plans

The Company’s components of annual benefit cost for the defined benefit plans for the periods presented are as follows:

 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
(In thousands)
 
2021
   
2020
   
2021
   
2020
 
Service cost
 
$
437
   
$
396
   
$
873
   
$
796
 
Interest cost
   
214
     
251
     
426
     
507
 
Expected return on plan assets
   
(185
)
   
(204
)
   
(369
)
   
(413
)
Recognized actuarial loss
   
69
     
15
     
138
     
31
 
Total defined benefit expense
 
$
535
   
$
458
   
$
1,068
   
$
921
 

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.


14


10.
Derivative Instruments and Hedging Activity

The Company may use forward exchange contracts and foreign currency denominated debt to manage its exposure to foreign exchange risk in order to reduce the effect of fluctuating foreign currencies on short-term foreign currency denominated intercompany transactions, non-functional currency raw material purchases, non-functional currency sales, and other known foreign currency exposures. These forward exchange contracts generally have maturities of less than 18 months. The Company’s primary hedging activities and their accounting treatment are summarized below.

Forward exchange contracts – Certain forward exchange contracts have been designated as cash flow hedges. The Company had $22.5 million and $54.1 million of forward exchange contracts designated as cash flow hedges outstanding as of June 30, 2021 and December 31, 2020, respectively. For the three and six months ended June 30, 2021, gains of $0.5 million and $0.8 million, respectively, were reclassified into net earnings in the Company’s Consolidated Statement of Earnings that offset the underlying transactions’ impact on earnings in the same period. For the three and six months ended June 30, 2020, 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.

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, 2021 and December 31, 2020, the total value of the Company’s net investment hedges was $300.5 million and $325.0 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, 2021 and 2020, the impact of foreign exchange rates on these debt instruments increased debt by $2.7 million and $5.1 million, respectively, which has been recorded as foreign currency translation in OCI. For the six months ended June 30, 2021 and 2020, the impact of foreign exchange rates on these debt instruments decreased debt by $6.9 million and by $3.3 million, respectively, which has been recorded as foreign currency translation in OCI. For the three and six months ended June 30, 2021, losses of $4.2 million were reclassified into net earnings in the Company’s Consolidated Statement of Earnings related to the Euro net investment hedge in connection with the sale of the fragrances product line. See Note 2, Divestitures, for additional information.

11.
Income Taxes

The effective income tax rates for the three months ended June 30, 2021 and 2020, were 20.0% and 20.5%, respectively. For the six months ended June 30, 2021 and 2020, the effective income tax rates were 24.1% and 25.3%, respectively. The effective tax rates for the three and six months ended June 30, 2021 and 2020 were both impacted by changes in valuation allowances, estimates associated with the finalization of prior year foreign tax items and the mix of foreign earnings. The three and six months ended June 30, 2021, were also impacted by an audit settlement.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The CARES Act allows for the deferral of income and social security tax payments, a five-year carryback for net operating losses, changes to interest expense and business loss limitation rules, certain new tax credits, and certain new loans and grants to businesses. The Company has reviewed its income tax assumptions and projections in light of the CARES Act and has determined the CARES Act does not materially impact the Company’s income tax expense or projections. As of June 30, 2021, the Company has deferred certain payroll tax payments of $5.5 million as permitted by the CARES Act.


15


12.
Accumulated Other Comprehensive Income

The following table summarizes the changes in OCI during the three and six month periods ended June 30, 2021 and 2020:

(In thousands)
 
Cash Flow
Hedges (1)
   
Pension
Items (1)
   
Foreign
Currency
Items
   
Total
 
Balances at December 31, 2020
 
$
749
   
$
(1,965
)
 
$
(157,875
)
 
$
(159,091
)
Other comprehensive income (loss) before reclassifications
   
844
     
-
     
(7,196
)
   
(6,352
)
Amounts reclassified from OCI
   
(776
)
   
104
     
10,194
     
9,522
 
Balances at June 30, 2021
 
$
817
   
$
(1,861
)
 
$
(154,877
)
 
$
(155,921
)

(In thousands)
 
Cash Flow
Hedges (1)
   
Pension
Items (1)
   
Foreign
Currency
Items
   
Total
 
Balances at March 31, 2021
 
$
1,180
   
$
(1,913
)
 
$
(173,497
)
 
$
(174,230
)
Other comprehensive income before reclassifications
   
124
     
-
     
8,427
     
8,551
 
Amounts reclassified from OCI
   
(487
)
   
52
     
10,193
     
9,758
 
Balances at June 30, 2021
 
$
817
   
$
(1,861
)
 
$
(154,877
)
 
$
(155,921
)

(In thousands)
 
Cash Flow
Hedges (1)
   
Pension
Items (1)
   
Foreign
Currency
Items
   
Total
 
Balances at December 31, 2019
 
$
(199
)
 
$
(672
)
 
$
(162,137
)
 
$
(163,008
)
Other comprehensive loss before reclassifications
   
(1,884
)
   
-
     
(32,802
)
   
(34,686
)
Amounts reclassified from OCI
   
1,171
     
16
     
(8,217
)
   
(7,030
)
Balances at June 30, 2020
 
$
(912
)
 
$
(656
)
 
$
(203,156
)
 
$
(204,724
)

(In thousands)
 
Cash Flow
Hedges (1)
   
Pension
Items (1)
   
Foreign
Currency
Items
   
Total
 
Balances at March 31, 2020
 
$
(1,635
)
 
$
(664
)
 
$
(205,062
)
 
$
(207,361
)
Other comprehensive (loss) income before reclassifications
   
(19
)
   
-
     
10,123
     
10,104
 
Amounts reclassified from OCI
   
742
     
8
     
(8,217
)
   
(7,467
)
Balances at June 30, 2020
 
$
(912
)
 
$
(656
)
 
$
(203,156
)
 
$
(204,724
)

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

13.
Commitments and Contingencies

Agar v. Sensient Natural Ingredients LLC

On March 29, 2019, Calvin Agar (Agar), a former employee, filed a Class Action Complaint in Stanislaus County Superior Court against Sensient Natural Ingredients LLC (SNI). On May 22, 2019, Agar filed a First Amended Class Action Complaint against SNI (the Complaint). Agar alleges that SNI improperly reported overtime pay on employees’ wage statements, in violation of the California Labor Code. The Complaint alleges two causes of action, both of which concern the wage statements.

The Complaint does not allege that SNI failed to pay any overtime due to Agar or any of the putative class or group members. The Complaint merely challenges the manner in which SNI has reported overtime pay on its wage statements.
16


SNI maintains that it has accurately paid Agar and the putative class members for all overtime worked, and that they have not experienced any harm. SNI further maintains that the format of its wage statements does not violate the requirements of state law or any specific guidance from California decisional law, the California Division of Labor Standards Enforcement, or the California Labor Commissioner's Office. Finally, SNI contended that certain of the state law claims are subject to mandatory individual arbitration.

SNI filed its Answer and Affirmative Defenses to the Complaint on July 10, 2019. The parties participated in an early mediation in the case in December 2019, which was not successful. On March 17, 2020, the Court granted Agar leave to file a Second Amended Complaint, which removed the claim that SNI had asserted was subject to mandatory individual arbitration. SNI filed a Demurrer to the Second Amended Complaint, seeking dismissal of the remaining claim, on May 1, 2020. The Court overruled the Demurrer on September 1, 2020. SNI requested discretionary appellate review of this decision. The Court of Appeal of the State of California, Fifth Appellate District granted SNI’s application on February 19, 2021 and ordered briefing by the Parties. Discovery is currently stayed in the matter pending the outcome of appellate review. SNI continues to evaluate the developing legal authority on this issue. SNI intends to continue to vigorously defend its interests, absent a reasonable resolution.

Kelley v. Sensient Natural Ingredients LLC; Bryan v. Sensient Natural Ingredients LLC

On March 4, 2020, Monique Kelley filed a Class Action Complaint against SNI in Merced County Superior Court in California. Ms. Kelley worked at SNI for less than a week in 2017 through a temporary staffing company. Ms. Kelley has brought suit for purported violations of the California Labor Code and the California Business and Professions Code on her own behalf, and on behalf of all current and former California-based hourly-paid or non-exempt employees of SNI. Ms. Kelley specifically asserts claims for unpaid overtime wages, unpaid minimum wages, unpaid meal and rest break premiums, failure to timely pay final wages upon termination, non-compliant wage statements, and unreimbursed business expenses. SNI filed a Demurrer on May 21, 2020, seeking dismissal of the Complaint in its entirety on the grounds that it contains only boilerplate allegations that fail to state facts sufficient to constitute a cause of action, and it is otherwise uncertain, ambiguous, and unintelligible. SNI further sought dismissal of one cause of action based upon the statute of limitations. SNI simultaneously filed a Motion to Strike certain allegations in the Complaint as improperly pled. The Court sustained the Demurrer with leave to amend on August 25, 2020. The Court also granted the Motion to Strike. Ms. Kelley has amended her original pleading, asserting the same causes of action, to which SNI has filed a responsive pleading. The parties have begun discovery.

On June 15, 2020, the same law firm representing Ms. Kelley also filed notice with the State of California of the intent to pursue a claim on a representative basis pursuant to the California Private Attorneys General Act of 2004 (PAGA). This notice was served on behalf of Julie Bryan, who worked at SNI through a temporary staffing agency in early 2020. The notice states the intent to pursue relief on behalf of Ms. Bryan as well as other alleged aggrieved employees, identified as all current and former hourly or non-exempt employees of SNI, whether hired directly or through staffing agencies or labor contractors. The notice alleges that SNI failed to properly pay Ms. Bryan and the other alleged aggrieved employees for all hours worked, failed to properly provide or compensate minimum and overtime wages and for meal and rest breaks, failed to issue compliant wage statements, and failed to reimburse for all necessary business-related expenses, in violation of the California Labor Code and California Industrial Welfare Commission Orders. On August 19, 2020, Ms. Bryan filed a Complaint in Merced County Superior Court asserting the claims set forth in her PAGA notice. SNI filed its Answer and Affirmative Defenses, and the parties entered the discovery phase of the case. On May 20, 2021, however, Ms. Bryan filed a Request for Dismissal of her action, without prejudice.

On April 26, 2021, prior to the filing of the above-referenced Notice of Dismissal, the same law firm filed an additional notice with the State of California of the intent to pursue a claim on a representative basis pursuant to PAGA. This notice was served on behalf of Patrick Walters, an employee of SNI. The notice states the intent to pursue relief on behalf of Mr. Walters as well as other alleged aggrieved employees, identified as all current and former hourly or non-exempt employees of SNI, whether hired directly or through staffing agencies. The notice alleges that SNI failed to properly pay Mr. Walters and the other alleged aggrieved employees for all hours worked, failed to properly provide or compensate minimum and overtime wages and for meal and rest breaks, failed to issue compliant wage statements, and failed to reimburse for all necessary business-related expenses, in violation of the California Labor Code and California Industrial Welfare Commission Orders. SNI intends to vigorously defend its interests in both the Kelley and Walters matters, absent a reasonable resolution.

Other Claims
The Company is subject to various claims and litigation arising in the normal course of business. The Company establishes reserves for claims and proceedings when it is probable that liabilities exist and reasonable estimates of loss can be made. While it is not possible to predict the outcome of these matters, based on our assessment of the facts and circumstances now known, we do not believe that these matters, individually or in the aggregate, will have a material adverse effect on our financial position. However, actual outcomes may be different from those expected and could have a material effect on our results of operations or cash flows in a particular period.
17


See Note 2, Divestitures, for information about estimated environmental remediation costs associated with our Granada, Spain, location.

14.
Subsequent Events

On July 15, 2021, the Company acquired substantially all of the assets of Flavor Solutions, Inc., a flavors business located in New Jersey. The Company paid $15 million in cash for this acquisition with approximately $1.1 million of such amount being held back by the Company for 12 months in order to satisfy post-closing indemnification claims that may arise. This business will be part of the Flavors & Extracts segment.

On July 22, 2021, the Company announced its quarterly dividend of $0.39 per share would be payable on September 1, 2021.

18



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, 2021, and statements including the terms “expect,” “believe,” “anticipate,” and other similar terms that express expectations as to future events or conditions. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors that could cause actual events to differ materially from those expressed in the forward-looking statements. A variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results. These factors and assumptions include, among others, the impact and uncertainty created by the ongoing COVID-19 pandemic, including, but not limited to, its effects on our employees, facilities, customers, and suppliers, the availability and cost of raw materials and other supplies, the availability of logistics and transportation, governmental regulations and restrictions, and 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; the effectiveness of the Company’s past restructuring activities; changes in costs of raw materials, including energy; industry, regulatory, legal, and economic factors related to the Company’s domestic and international business; the effects of tariffs, trade barriers, and disputes; growth in markets for products in which the Company competes; industry and customer acceptance of price increases; actions by competitors; currency exchange rate fluctuations; and the matters discussed under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. 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 $335.8 million and $323.1 million for the three months ended June 30, 2021 and 2020, respectively. Revenue was $695.5 million and $673.8 million for the six months ended June 30, 2021 and 2020, respectively. For the three and six months ended June 30, 2021, the impact of foreign exchange rates increased consolidated revenue by approximately 4%.

Gross Margin
The Company’s gross margin was 33.2% and 31.6% for the three months ended June 30, 2021 and 2020, respectively. The increase in gross margin was primarily due to the impact of the divestiture and other related costs in the prior year period.

The Company’s gross margin was 32.7% and 31.8% for the six months ended June 30, 2021 and 2020, respectively. The increase in gross margin was primarily due to the impact of the divestiture and other related costs in the prior year period.

Selling and Administrative Expenses
Selling and administrative expense as a percent of revenue was 22.6% and 18.6% for the three months ended June 30, 2021 and 2020, respectively. Selling and administrative expense as a percent of revenue was 20.8% and 20.4% for the six months ended June 30, 2021 and 2020, respectively.

Selling and administrative expenses included divestiture & other related expenses and operational improvement plan costs and income totaling $8.2 million and $10.7 million for the three and six months ended June 30, 2021, respectively. Selling and administrative expenses included divestiture & other related expenses totaling $3.3 million of income and $8.4 million of expense for the three and six months ended June 30, 2020, respectively. There were no operational improvement plan costs for the three or six months ended June 30, 2020.

Operating Income
Operating income was $35.8 million and $42.1 million for the three months ended June 30, 2021 and 2020, respectively. Operating margins were 10.6% and 13.0% for the three months ended June 30, 2021 and 2020, respectively. The decrease in operating margin is primarily due to the net impact of higher divestiture & other related costs offset by operational improvement plan income, which decreased operating margins by 240 basis points for the three months ended June 30, 2021. For the three months ended June 30, 2020, divestiture & other related costs increased operating margins by 50 basis points.

19

Operating income was $82.7 million and $76.7 million for the six months ended June 30, 2021 and 2020, respectively. Operating margins were 11.9% and 11.4% for the six months ended June 30, 2021 and 2020, respectively. The net impact of divestiture & other related costs offset by operational improvement plan income decreased operating margins by 160 basis points for the six months ended June 30, 2021. For the six months ended June 30, 2020, divestiture & other related costs decreased operating margins by 150 basis points.

Interest Expense
Interest expense was $3.3 million and $3.6 million for the three months ended June 30, 2021 and 2020, respectively, and $6.8 million and $7.9 million for the six months ended June 30, 2021 and 2020, respectively. For the three months ended June 30, 2021, the decrease in expense compared to the prior year period was due to the decrease in the average debt outstanding. For the six months ended June 30, 2021, the decrease in expense compared to the prior year comparable period was due to the decrease in the average debt outstanding and lower average interest rates.

Income Taxes
The effective income tax rates for the three months ended June 30, 2021 and 2020, were 20.0% and 20.5%, respectively. For the six months ended June 30, 2021 and 2020, the effective income tax rates were 24.1% and 25.3%, respectively. The effective tax rates for the three and six months ended June 30, 2021 and 2020 were both impacted by changes in valuation allowances, estimates associated with the finalization of prior year foreign tax items and the mix of foreign earnings. The three and six months ended June 30, 2021, were also impacted by an audit settlement.

Divestitures
In October 2019, the Company announced its intent to divest its inks, fragrances (excluding its essential oils product line), and yogurt fruit preparations product lines.

On June 30, 2020, the Company completed the sale of its inks product line. In 2020, the Company received $11.6 million of net cash and expects to receive additional cash when it completes certain post-closing asset sales.

On September 18, 2020, the Company completed the sale of its yogurt fruit preparations product line for $1.0 million. The sale included an earn-out based on future performance, which could result in additional cash consideration for the Company.

On April 1, 2021, the Company completed the sale of its fragrances product line (excluding its essential oils product line). The Company received $36.3 million of net cash, subject to post-closing working capital and net debt adjustments. In addition, the Company expects to receive additional consideration for the collection of certain retained accounts receivable. As a result of the completion of the sale, the Company recorded a non-cash net loss of $11.3 million for the three months ended June 30, 2021, primarily related to the reclassification of accumulated foreign currency translation and related items from Accumulated Other Comprehensive Loss to Selling and Administrative Expenses in the Consolidated Statements of Earnings.

Operational Improvement Plan
During the third quarter of 2020, the Company approved an operational improvement plan (Operational Improvement Plan) to consolidate manufacturing facilities and improve efficiencies within the Company. As part of the Operational Improvement Plan, the Company is combining its New Jersey cosmetics manufacturing facility in the Personal Care product line of the Color segment into its existing Color segment facility in Missouri. In addition, the Company is centralizing certain Flavors & Extracts segment support functions in Europe into one location. In the Asia Pacific segment, the Company incurred costs in connection with the elimination of certain selling and administrative positions. The Company reports all costs associated with the Operational Improvement Plan in Corporate & Other.

During the second quarter of 2021, the Company received cash proceeds, net of associated expenses, in connection with the termination of a New Jersey office and laboratory space lease. The terminated lease was originally executed in November 2020 as part of the Operational Improvement Plan; however, the landlord for the property requested to terminate the lease prior to the end of its term and compensated the Company as part of a negotiated resolution for that termination.

In the three and six months ended June 30, 2021, the Company recorded income of $3.5 million and $2.5 million, respectively, related to the Operational Improvement Plan, primarily related to a $3.6 million gain associated with the terminated New Jersey lease.

20

COVID-19
COVID-19 has adversely affected, and is expected to continue to adversely affect, most of the world, including through widespread illness, quarantines, factory shutdowns, and travel and transportation disruptions. While the Company’s financial position remains strong, the Company has seen several financial and operational impacts from the pandemic as of this filing.

For the three and six months ended June 30, 2021, demand for many of the Company’s products remained strong, especially in product lines that serve the food and beverage markets. There has been continued softer demand in other product lines the Company serves, particularly in the cosmetics product line and some product lines that supply the quick service restaurant segment due to continued widespread restaurant capacity and other operating restrictions. While COVID-19 appears to have initially contributed to demand for food-related products and dampened demand for personal care related products, it is difficult to quantify the continuing and future impact of COVID-19 on demand for the Company’s products.

During the first quarter of 2020, the Company had a production facility in China and a production facility in India that were required to temporarily suspend operations. In addition, during the fourth quarter of 2020, the Company had a production facility in China that was required to temporarily suspend operations. All of the Company’s production facilities are open and operating as of this filing, but the Company continues to monitor developments and regulations in regions where its production facilities are located. The Company also continues to monitor supply chains and has increased inventory in certain key raw materials. The Company did not experience any significant supply disruptions related to COVID-19 during the three and six months ended June 30, 2021.

As of June 30, 2021, the Company continues to be in compliance with its financial loan covenants and does not anticipate any non-compliance in the future. COVID-19 has not adversely impacted the Company’s capital or financial resources. Furthermore, the Company expects its forecasted cash flows from operations and its available debt capacity will be able to meet future cash requirements for operations, capital expenditures, contractual maturities on long-term debt, stock repurchases, and dividend payments.

The Company continues to monitor its trade accounts receivables for potential collection issues and has not identified any significant concerns as of this filing. The Company will continue to monitor cash collections and review trade receivable aging to identify any deterioration in quality.

The Company continues to believe its internal controls over financial reporting and its disclosure controls and procedures are effective to ensure their design and operation continue to be effective as some employees outside the United States perform tasks from alternative work locations. Internal audit continues to perform their audit procedures, remotely for locations outside the United States, as planned.

Overall, governmental and social responses to the COVID-19 pandemic continue to evolve. In particular, there continues to be uncertainty related to the timing and extent of vaccination programs, especially outside of the U.S., as well as the impacts of new COVID-19 variants, and we expect that the situation will remain dynamic and difficult to predict for the foreseeable future. There can be no assurance that our experience to date with respect to facility operations, customer demand, the availability of supplies and transportation, and other factors impacting our results and financial condition will be predictive of the ongoing impacts in the short or long term. Even as stay-home orders and quarantines are eventually lifted, it is difficult to predict how economic conditions and changes in customer and consumer behavior may impact our results over the longer term. As a result of any of the foregoing, our results or financial condition could be adversely impacted and the impacts could be material.

NON-GAAP FINANCIAL MEASURES

Within the following tables, the Company reports certain non-GAAP financial measures, including: (1) adjusted revenue, adjusted operating income, adjusted net earnings, and adjusted diluted earnings per share, which exclude the results of the divested product lines, the divestiture & other related costs, and the operational improvement plan costs and income, and (2) percentage changes in revenue, operating income, and diluted earnings per share on an adjusted local currency basis, which eliminate the effects that result from translating its international operations into U.S. dollars, the results of divested product lines, the divestiture & other related costs or income, and the operational improvement plan costs or income.

21

The Company has included each of these non-GAAP measures in order to provide additional information regarding our underlying operating results and comparable year-over-year performance. Such information is supplemental to information presented in accordance with GAAP and is not intended to represent a presentation in accordance with GAAP. These non-GAAP measures should not be considered in isolation. Rather, they should be considered together with GAAP measures and the rest of the information included in this report. Management internally reviews each of these non-GAAP measures to evaluate performance on a comparative period-to-period basis and to gain additional insight into underlying operating and performance trends, and the Company believes the information can be beneficial to investors for the same purposes. These non-GAAP measures may not be comparable to similarly titled measures used by other companies.

 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
(In thousands, except per share amounts)
 
2021
   
2020
   
% Change
   
2021
   
2020
   
% Change
 
Revenue (GAAP)
 
$
335,827
   
$
323,090
     
3.9
%
 
$
695,529
   
$
673,767
     
3.2
%
Revenue of the divested product lines
   
(2,207
)
   
(28,217
)
           
(27,777
)
   
(64,802
)
       
Adjusted revenue
 
$
333,620
   
$
294,873
     
13.1
%
 
$
667,752
   
$
608,965
     
9.7
%
                                                 
Operating Income (GAAP)
 
$
35,753
   
$
42,125
     
(15.1
%)
 
$
82,650
   
$
76,686
     
7.8
%
Divestiture & other related costs – Cost of products sold
   
3
     
1,749
             
28
     
1,939
         
Divestiture & other related costs (income)  – Selling and administrative expenses
   
11,685
     
(3,276
)
           
13,232
     
8,377
         
Operating loss (income) of the divested product lines
   
459
     
(331
)
           
(2,468
)
   
(1,716
)
       
Operational improvement plan – Selling and administrative expenses (income)
   
(3,494
)
   
-
             
(2,493
)
   
-
         
Adjusted operating income
 
$
44,406
   
$
40,267
     
10.3
%
 
$
90,949
   
$
85,286
     
6.6
%
                                                 
Net Earnings (GAAP)
 
$
25,936
   
$
30,620
     
(15.3
%)
 
$
57,604
   
$
51,393
     
12.1
%
Divestiture & other related costs (income), before tax
   
11,688
     
(1,527
)
           
13,260
     
10,316
         
Tax impact of divestiture & other related costs
   
(1,689
)
   
509
             
(896
)
   
(425
)
       
Net loss (earnings) of the divested product lines, before tax
   
459
     
(331
)
           
(2,468
)
   
(1,716
)
       
Tax impact of the divested product lines
   
(115
)
   
203
             
608
     
500
         
Operational improvement plan income, before tax
   
(3,494
)
   
-
             
(2,493
)
   
-
         
Tax impact of operational improvement plan
   
455
     
-
             
159
     
-
         
Adjusted net earnings
 
$
33,240
   
$
29,474
     
12.8
%
 
$
65,774
   
$
60,068
     
9.5
%
                                                 
Diluted earnings per share (GAAP)
 
$
0.61
   
$
0.72
     
(15.3
%)
 
$
1.36
   
$
1.21
     
12.4
%
Divestiture & other related costs (income), net of tax
   
0.24
     
(0.02
)
           
0.29
     
0.23
         
Results of operations of the divested product lines, net of tax
   
0.01
     
-
             
(0.04
)
   
(0.03
)
       
Operational improvement plan income, net of tax
   
(0.07
)
   
-
             
(0.06
)
   
-
         
Adjusted diluted earnings per share
 
$
0.79
   
$
0.70
     
12.9
%
 
$
1.55
   
$
1.42
     
9.2
%

Divestiture & other related costs are discussed under “Divestitures” above and Note 2, Divestitures, in the Notes to the Consolidated Condensed Financial Statements included in this report. Operational improvement plan is discussed under “Operational Improvement Plan” above and Note 3, Operational Improvement Plan, in the Notes to the Consolidated Condensed Financial Statements included in this report.

Note: Earnings per share calculations may not foot due to rounding differences.

22

The following table summarizes the percentage change for the results of the three and six months ended June 30, 2021, compared to the results for the three and six months ended June 30, 2020, in the respective financial measures.

 
Three Months Ended June 30, 2021
 
 
Six Months Ended June 30, 2021
 
Revenue
 
Total
 
 
Foreign
Exchange
Rates
 
 
Adjustments(1)
 
 
Adjusted
Local
Currency
 
 
Total
 
 
Foreign
Exchange
Rates
 
 
Adjustments(1)
 
 
Adjusted
Local
Currency
 
Flavors & Extracts
 
 
(2.3
%)
 
 
3.7
%
 
 
(15.1
%)
 
 
9.1
%
 
 
2.8
%
 
 
3.1
%
 
 
(9.3
%)
 
 
9.0
%
Color
 
 
9.8
%
 
 
5.3
%
 
 
(2.6
%)
 
 
7.1
%
 
 
1.6
%
 
 
3.8
%
 
 
(4.5
%)
 
 
2.3
%
Asia Pacific
 
 
15.9
%
 
 
5.5
%
 
 
(0.9
%)
 
 
11.3
%
 
 
13.4
%
 
 
5.7
%
 
 
(0.1
%)
 
 
7.8
%
Total Revenue
 
 
3.9
%
 
 
4.4
%
 
 
(9.6
%)
 
 
9.1
%
 
 
3.2
%
 
 
3.5
%
 
 
(6.7
%)
 
 
6.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Flavors & Extracts
 
 
7.8
%
 
 
3.1
%
 
 
(8.5
%)
 
 
13.2
%
 
 
18.2
%
 
 
2.6
%
 
 
(1.5
%)
 
 
17.1
%
Color
 
 
15.1
%
 
 
5.4
%
 
 
4.5
%
 
 
5.2
%
 
 
0.5
%
 
 
4.1
%
 
 
1.4
%
 
 
(5.0
%)
Asia Pacific
 
 
19.5
%
 
 
(0.6
%)
 
 
(1.5
%)
 
 
21.6
%
 
 
26.6
%
 
 
0.3
%
 
 
(0.3
%)
 
 
26.6
%
Corporate & Other
 
 
160.9
%
 
 
0.1
%
 
 
131.4
%
 
 
29.4
%
 
 
17.0
%
 
 
0.1
%
 
 
(7.1
%)
 
 
24.0
%
Total Operating Income
 
 
(15.1
%)
 
 
4.5
%
 
 
(25.4
%)
 
 
5.8
%
 
 
7.8
%
 
 
4.3
%
 
 
0.6
%
 
 
2.9
%
Diluted Earnings per Share
 
 
(15.3
%)
 
 
5.5
%
 
 
(29.4
%)
 
 
8.6
%
 
 
12.4
%
 
 
5.0
%
 
 
1.8
%
 
 
5.6
%

(1)
For Revenue, adjustments consist of revenues of the divested product lines. For Operating Income and Diluted Earnings per Share, adjustments consist of the results of the divested product lines, divestiture & other related costs, and 2021 operational improvement plan costs and income.

Note: Refer to table above for a reconciliation of these non-GAAP measures.

SEGMENT INFORMATION

The Company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance. Segment performance is evaluated on operating income before any applicable divestiture & other related costs, share-based compensation, acquisition, restructuring including the operational improvement plan, and other costs (which are reported in Corporate & Other), interest expense, and income taxes.

The Company’s reportable segments consist of the Flavors & Extracts, Color, and Asia Pacific segments.

Flavors & Extracts
Flavors & Extracts segment revenue was $179.4 million and $183.6 million for the three months ended June 30, 2021 and 2020, respectively, a decrease of approximately 2%. Foreign exchange rates increased segment revenue by approximately 4%. The decrease was a result of higher revenue in Flavors, Extracts & Flavor Ingredients, and Natural Ingredients, which was more than offset by lower revenue due to the divestitures of Yogurt Fruit Preparations in September of 2020 and Fragrances on April 1, 2021. The higher revenue in Flavors, Extracts & Flavor Ingredients was primarily due to higher volumes and the favorable impact of exchange rates. The higher revenue in Natural Ingredients was primarily due to higher volumes and selling prices.

Flavors & Extracts segment revenue was $380.3 million and $370.1 million for the six months ended June 30, 2021 and 2020, respectively, an increase of approximately 3%. Foreign exchange rates increased segment revenue by approximately 3%. The increase was a result of higher revenue in Flavors, Extracts & Flavor Ingredients, and Natural Ingredients, which was partially offset by lower revenue due to the divestitures of Yogurt Fruit Preparations in September of 2020 and Fragrances on April 1, 2021. The higher revenue in Flavors, Extracts & Flavor Ingredients was primarily due to higher volumes and the favorable impact of exchange rates. The higher revenue in Natural Ingredients was primarily due to higher volumes and selling prices.

Flavors & Extracts segment operating income was $24.5 million and $22.8 million for the three months ended June 30, 2021 and 2020, respectively, an increase of approximately 8%. Foreign exchange rates increased segment operating income by approximately 3%. The increase was a result of higher segment operating income in Flavors, Extracts & Flavor Ingredients and Natural Ingredients, partially offset by lower segment operating income due to the divestiture of Fragrances on April 1, 2021. The higher segment operating income in Flavors, Extracts & Flavor Ingredients was primarily a result of higher volumes, which was partially offset by higher raw material costs.  The higher segment operating income in Natural Ingredients was primarily a result of higher volumes and selling prices. Segment operating income as a percent of revenue was 13.7% in the current quarter compared to 12.4% in the prior year’s comparable quarter.

23

Flavors & Extracts segment operating income was $51.6 million and $43.6 million for the six months ended June 30, 2021 and 2020, respectively, an increase of approximately 18%. Foreign exchange rates increased segment operating income by approximately 3%. The increase was a result of higher segment operating income in Flavors, Extracts & Flavor Ingredients and Natural Ingredients. The higher segment operating income in Flavors, Extracts & Flavor Ingredients was primarily a result of higher volumes, lower manufacturing and other costs, and the favorable impact of foreign exchange rates. The higher segment operating income in Natural Ingredients was primarily a result of higher volumes and selling prices. Segment operating income as a percent of revenue was 13.6% in the current six month period compared to 11.8% in the prior year’s comparable six month period.

Color
Segment revenue for the Color segment was $133.2 million and $121.3 million for the three months ended June 30, 2021 and 2020, respectively, an increase of approximately 10%. Foreign exchange rates increased segment revenue by approximately 5%. The increase was a result of higher segment revenue in Food & Pharmaceutical Colors and Personal Care, due to higher volumes and the favorable impact of foreign exchange rates, partially offset by lower revenue due to the divestiture of Inks on June 30, 2020.

Segment revenue for the Color segment was $268.9 million and $264.8 million for the six months ended June 30, 2021 and 2020, respectively, an increase of approximately 2%. Foreign exchange rates increased segment revenue by approximately 4%. The increase was a result of higher segment revenue in Food & Pharmaceutical Colors and Personal Care due to higher volumes and the favorable impact of foreign exchange rates, partially offset by lower revenue due to the divestiture of Inks on June 30, 2020.

Segment operating income for the Color segment was $25.6 million and $22.3 million for the three months ended June 30, 2021 and 2020, respectively, an increase of approximately 15%. Foreign exchange rates increased segment operating income by approximately 5%. The increase in segment operating income was a result of higher segment operating income in Food & Pharmaceutical Colors due to higher volumes and the favorable impact of foreign exchange rates. Segment operating income also increased due to the favorable impact of the Inks divestiture on June 30, 2020. Segment operating income as a percent of revenue was 19.2% in the current quarter and 18.4% in the prior year’s comparable quarter.

Segment operating income for the Color segment was $52.2 million and $51.9 million for the six months ended June 30, 2021 and 2020, respectively, an increase of approximately 1%. Foreign exchange rates increased segment operating income by approximately 4%. Segment operating income was comparable to the prior year period as the lower operating income in Personal Care was mostly offset by the favorable impact of the Inks divestiture. Segment operating income as a percent of revenue was 19.4% in the current six month period and 19.6% in the prior year’s comparable period.

Asia Pacific
Segment revenue for the Asia Pacific segment was $32.3 million and $27.9 million for the three months ended June 30, 2021 and 2020, respectively, an increase of approximately 16%. The increase was a result of higher volumes and the favorable impact of foreign exchange rates, which increased segment revenue by approximately 6%.

Segment revenue for the Asia Pacific segment was $66.2 million and $58.3 million for the six months ended June 30, 2021 and 2020, respectively, an increase of approximately 13%. The increase was a result of higher volumes and the favorable impact of foreign exchange rates, which increased segment revenue by approximately 6%.

Segment operating income for the Asia Pacific segment was $5.8 million and $4.8 million for the three months ended June 30, 2021 and 2020, respectively, an increase of approximately 20%. The increase was primarily a result of higher volumes. Foreign exchange rates decreased segment operating income by approximately 1%. Segment operating income as a percent of revenue was 17.9% in the current quarter and 17.4% in the prior year’s comparable quarter.

Segment operating income for the Asia Pacific segment was $12.5 million and $9.9 million for the six months ended June 30, 2021 and 2020, respectively, an increase of approximately 27%. The increase was primarily a result of higher volumes. Foreign exchange rates did not have a significant effect on segment operating income. Segment operating income as a percent of revenue was 19.0% in the current six month period and 17.0% in the prior year’s comparable period.

24

Corporate & Other
The Corporate & Other operating expense was $20.2 million and $7.7 million for the three months ended June 30, 2021 and 2020, respectively. The higher operating expense for the three months ended June 30, 2021 was primarily due to higher divestiture & other related expenses and performance-based executive compensation, partially offset by the operational improvement plan income in the current period. There were no operational improvement plan income or costs in the prior year’s comparable period.

The Corporate & Other operating expense was $33.7 million and $28.8 million for the six months ended June 30, 2021 and 2020, respectively. The higher operating expense for the six months ended June 30, 2021 was primarily due to higher divestiture & other related expenses and performance-based executive compensation, partially offset by the operational improvement plan income in the current six month period. There were no operational improvement plan income or costs in the prior year’s comparable period.

LIQUIDITY AND FINANCIAL CONDITION

Financial Condition
The Company’s financial position remains strong. The Company is in compliance with its loan covenants calculated in accordance with applicable agreements as of June 30, 2021. The Company expects its cash flow from operations and its existing debt capacity can be used to meet anticipated future cash requirements for operations, capital expenditures, dividend payments, acquisitions, and stock repurchases. The impact of inflation on both the Company’s financial position and its results of operations has been minimal and is not expected to significantly affect 2021 results.

Cash Flows from Operating Activities
Net cash provided by operating activities was $89.3 million and $107.6 million for the six months ended June 30, 2021 and 2020, respectively. The decrease in net cash provided by operating activities was primarily due to the change in cash used in working capital during the six months ended June 30, 2021, compared to the six months ended June 30, 2020.

Cash Flows from Investing Activities
Net cash provided by investing activities was $10.6 million during the six months ended June 30, 2021. Net cash used in investing activities was $5.8 million during the six months ended June 30, 2020. During the six months ended June 30, 2021 and 2020, the Company received cash proceeds of $36.3 million and $11.3 million, respectively, related to the Company’s divestiture activities. In the six months ended June 30, 2020, the Company received $4.6 million related to the redemption of miscellaneous investments. Capital expenditures were $25.6 million and $21.4 million during the six months ended June 30, 2021 and 2020, respectively.

Cash Flows from Financing Activities
Net cash used in financing activities was $92.7 million and $93.6 million for the six months ended June 30, 2021 and 2020, respectively. Net debt decreased by $36.6 million and $60.2 million for the six months ended June 30, 2021 and 2020, respectively. For purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates. The Company repurchased shares of its common stock for $22.5 million during the six months ended June 30, 2021. There were no repurchases of shares of the Company’s common stock in the comparable prior year’s period. Dividends of $33.0 million were paid during both the six months ended June 30, 2021 and 2020. Dividends paid were $0.78 per share for both the six months ended June 30, 2021 and 2020.

CRITICAL ACCOUNTING POLICIES

There have been no material changes in the Company’s critical accounting policies during the quarter ended June 30, 2021. For additional information about 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, 2020.

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, 2021. 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, 2020.

25

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, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

26

PART II.          OTHER INFORMATION

ITEM 1.          LEGAL PROCEEDINGS

See Part I, Item 1, Note 13, Commitments and Contingencies, of this report for information regarding legal proceedings in which the Company is involved.

ITEM 1A.          RISK FACTORS

There were no material changes to the risk factors previously disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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, 2021, 1,051,967 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, 2021, the maximum number of shares that may be purchased under publicly announced plans is 1,948,033.

The following table sets forth information with respect to our purchases of shares of our common stock during the three months ended June 30, 2021:

 
 
Total
Number of
Shares
Purchased
 
 
Average
Price
Paid per
Share
 
 
Total Number of
shares purchased
as part of
publicly
announced plans
or programs
 
 
Maximum number
of shares that may
yet be purchased
under the plans or
programs
April 1 to April 30, 2021
 
 
10,900
 
 
$
82.77
 
 
 
10,900
 
 
 
2,062,283
May 1 to May 31, 2021
 
 
64,250
 
 
 
85.81
 
 
 
64,250
 
 
 
1,998,033
June 1 to June 30, 2021
 
 
50,000
 
 
 
88.54
 
 
 
50,000
 
 
 
1,948,033
Total
 
 
125,150
 
 
 
 
 
 
 
125,150
 
 
 
 

ITEM 6.          EXHIBITS

See Exhibit Index following this report.

27

SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2021

Exhibit
 
Description
 
Incorporated by Reference From
 
Filed Herewith
 
Fourth Amendment dated as of May 6, 2021 to Note Purchase Agreement dated as of April 5, 2013
 
Exhibit 4.1 to Current Report on Form 8-K filed May 11, 2021 (Commission File No. 1-7626)
 
 
 
 
 
 
 
 
 
 
Third Amendment dated as of May 6, 2021 to Note Purchase Agreement dated as of November 6, 2015
 
Exhibit 4.2 to Current Report on Form 8-K filed May 11, 2021 (Commission File No. 1-7626)
 
 
 
 
 
 
 
 
 
 
Second Amendment dated as of May 6, 2021 to Note Purchase Agreement dated as of May 3, 2017
 
Exhibit 4.3 to Current Report on Form 8-K filed May 11, 2021 (Commission File No. 1-7626)
 
 
 
 
 
 
 
 
 
 
First Amendment dated as of May 6, 2021 to Note Purchase Agreement dated as of November 1, 2018
 
Exhibit 4.4 to Current Report on Form 8-K filed May 11, 2021 (Commission File No. 1-7626)
 
 
 
 
 
 
 
 
 
 
Third Amended and Restated Credit Agreement dated as of May 5, 2021
 
Exhibit 10.1 to Current Report on Form 8-K filed May 11, 2021 (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


28

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 3, 2021
By:
 /s/  John J. Manning
 
 
 
 
John J. Manning, Senior Vice President, General Counsel & Secretary
 
 
 
 
Date:
August 3, 2021
By:
 /s/  Stephen J. Rolfs
 
 
 
 
Stephen J. Rolfs, Senior Vice President & Chief Financial Officer


29