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SENSIENT TECHNOLOGIES CORP — Interim / Quarterly Report 2024
Nov 5, 2024
31054_10-q_2024-11-05_94e1f14f-72b6-4b60-aa83-28faf52b8126.zip
Interim / Quarterly Report
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2024
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 Corp oration
(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 ☐ |
|---|---|
| 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 October 23, 2024 |
|---|---|
| Common Stock, par value $0.10 per share | 42,360,785 |
SENSIENT TECHNOLOGIES CORPORATION
Anchor
INDEX Anchor
| Page No. | ||
|---|---|---|
| PART I. FINANCIAL INFORMATION: | ||
| Item 1. | Financial Statements: | |
| Consolidated Statements of Earnings ‑ Three and Nine Months Ended September 30, 2024 and 2023. | 1 | |
| Consolidated Condensed Statements of Comprehensive Income ‑ Three and Nine Months Ended September 30, 2024 and 2023. | 2 | |
| Consolidated Balance Sheets - September 30, 2024 and December 31, 2023. | 3 | |
| Consolidated Statements of Cash Flows ‑ Nine Months Ended September 30, 2024 and 2023. | 4 | |
| Consolidated Statements of Shareholders’ Equity ‑ Three and Nine Months Ended September 30, 2024 and 2023. | 5 | |
| Notes to Consolidated Condensed Financial Statements. | 6 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 14 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 19 |
| Item 4. | Controls and Procedures. | 19 |
| PART II. OTHER INFORMATION: | ||
| Item 1. | Legal Proceedings. | 19 |
| Item 1A. | Risk Factors. | 20 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 20 |
| Item 5. | Other Information. | 20 |
| Item 6. | Exhibits. | 20 |
| Exhibit Index. | 21 | |
| Signatures. | 22 |
Index
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SENSIENT TECHNOLOGIES CORPORATION
Anchor Anchor CONSOLIDATED Anchor STATEMENTS OF Anchor EARNINGS Anchor Anchor
(In thousands except per share amounts)
(Unaudited)
| Three Months Ended September 30, — 2024 | 2023 | Nine Months Ended September 30, — 2024 | 2023 | |
|---|---|---|---|---|
| Revenue | $ 392,613 | $ 363,829 | $ 1,180,808 | $ 1,107,148 |
| Cost of products sold | 262,209 | 250,202 | 793,133 | 746,681 |
| Selling and administrative expenses | 79,884 | 69,096 | 238,092 | 213,507 |
| Operating income | 50,520 | 44,531 | 149,583 | 146,960 |
| Interest expense | 7,696 | 6,294 | 22,394 | 18,648 |
| Earnings before income taxes | 42,824 | 38,237 | 127,189 | 128,312 |
| Income taxes | 10,134 | 6,694 | 32,627 | 29,085 |
| Net earnings | $ 32,690 | $ 31,543 | $ 94,562 | $ 99,227 |
| Weighted average number of common shares outstanding: | ||||
| Basic | 42,159 | 42,045 | 42,139 | 42,020 |
| Diluted | 42,429 | 42,233 | 42,377 | 42,241 |
| Earnings per common share: | ||||
| Basic | $ 0.78 | $ 0.75 | $ 2.24 | $ 2.36 |
| Diluted | $ 0.77 | $ 0.75 | $ 2.23 | $ 2.35 |
| Dividends declared per common share | $ 0.41 | $ 0.41 | $ 1.23 | $ 1.23 |
See accompanying notes to consolidated condensed financial statements.
1
Index
SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF Anchor Anchor Anchor Anchor COMPREHEN Anchor SIVE INCOME Anchor Anchor
(In thousands)
(Unaudited)
| Three Months Ended September 30, — 2024 | 2023 | Nine Months Ended September 30, — 2024 | 2023 | |
|---|---|---|---|---|
| Comprehensive income | $ 38,257 | $ 18,229 | $ 74,069 | $ 109,380 |
See accompanying notes to consolidated condensed financial statements.
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Index
SENSIENT TECHNOLOGIES CORPORATION
Anchor CONSOLIDATED Anchor Anchor Anchor Anchor BALANCE SHEETS Anchor Anchor Anchor Anchor
(In thousands)
| September 30, 2024 (Unaudited) | ||||
|---|---|---|---|---|
| Assets | ||||
| Current Assets: | ||||
| Cash and cash equivalents | $ 36,969 | $ | 28,934 | |
| Trade accounts receivable | 302,012 | 272,164 | ||
| Inventories | 580,847 | 598,399 | ||
| Prepaid expenses and other current assets | 38,973 | 37,119 | ||
| Total current assets | 958,801 | 936,616 | ||
| Other assets | 96,241 | 94,873 | ||
| Deferred tax assets | 54,731 | 41,564 | ||
| Intangible assets, net | 12,271 | 12,112 | ||
| Goodwill | 425,949 | 424,065 | ||
| Property, Plant, and Equipment: | ||||
| Land | 33,615 | 31,901 | ||
| Buildings | 355,357 | 343,594 | ||
| Machinery and equipment | 815,608 | 781,789 | ||
| Construction in progress | 37,724 | 59,091 | ||
| 1,242,304 | 1,216,375 | |||
| Less accumulated depreciation | ( 747,685 | ) | ( 711,098 | ) |
| 494,619 | 505,277 | |||
| Total assets | $ 2,042,612 | $ | 2,014,507 | |
| Liabilities and Shareholders ’ Equity | ||||
| Current Liabilities: | ||||
| Trade accounts payable | $ 119,238 | $ | 131,114 | |
| Accrued salaries, wages, and withholdings from employees | 43,020 | 26,412 | ||
| Other accrued expenses | 62,099 | 52,024 | ||
| Income taxes | 14,287 | 13,296 | ||
| Short-term borrowings | 17,811 | 13,460 | ||
| Total current liabilities | 256,455 | 236,306 | ||
| Deferred tax liabilities | 14,500 | 14,260 | ||
| Other liabilities | 39,449 | 37,817 | ||
| Accrued employee and retiree benefits | 26,130 | 27,715 | ||
| Long-term debt | 625,627 | 645,085 | ||
| Shareholders’ Equity: | ||||
| Common stock | 5,396 | 5,396 | ||
| Additional paid-in capital | 116,303 | 115,941 | ||
| Earnings reinvested in the business | 1,769,400 | 1,726,872 | ||
| Treasury stock, at cost | ( 618,038 | ) | ( 622,768 | ) |
| Accumulated other comprehensive loss | ( 192,610 | ) | ( 172,117 | ) |
| Total shareholders’ equity | 1,080,451 | 1,053,324 | ||
| Total liabilities and shareholders’ equity | $ 2,042,612 | $ | 2,014,507 |
See accompanying notes to consolidated condensed financial statements.
3
Index
SENSIENT TECHNOLOGIES CORPORATION
Anchor CONSOLIDATED STATEMENTS OF Anchor Anchor Anchor Anchor CASH FLOWS Anchor Anchor Anchor Anchor
(In thousands)
(Unaudited)
| Nine Months Ended September 30, — 2024 | 2023 | |||
|---|---|---|---|---|
| Cash flows from operating activities: | ||||
| Net earnings | $ 94,562 | $ | 99,227 | |
| Adjustments to arrive at net cash provided by operating activities: | ||||
| Depreciation and amortization | 45,185 | 43,360 | ||
| Share-based compensation expense | 6,980 | 7,285 | ||
| Net gain on assets | ( 210 | ) | ( 81 | ) |
| Portfolio Optimization Plan costs | 1,406 | - | ||
| Deferred income taxes | ( 11,117 | ) | 2,082 | |
| Changes in operating assets and liabilities: | ||||
| Trade accounts receivable | ( 32,138 | ) | 18,830 | |
| Inventories | 14,902 | ( 21,455 | ) | |
| Prepaid expenses and other assets | 221 | 842 | ||
| Accounts payable and other accrued expenses | ( 4,664 | ) | ( 20,572 | ) |
| Accrued salaries, wages, and withholdings from employees | 16,769 | ( 16,749 | ) | |
| Income taxes | 854 | ( 6,536 | ) | |
| Other liabilities | 3,011 | 587 | ||
| Net cash provided by operating activities | 135,761 | 106,820 | ||
| Cash flows from investing activities: | ||||
| Acquisition of property, plant, and equipment | ( 36,088 | ) | ( 67,718 | ) |
| Proceeds from sale of assets | 338 | 130 | ||
| Other investing activities | ( 1,444 | ) | 2,036 | |
| Net cash used in investing activities | ( 37,194 | ) | ( 65,552 | ) |
| Cash flows from financing activities: | ||||
| Proceeds from additional borrowings | 134,432 | 197,577 | ||
| Debt payments | ( 154,219 | ) | ( 174,083 | ) |
| Dividends paid | ( 52,034 | ) | ( 51,900 | ) |
| Other financing activities | ( 3,317 | ) | ( 8,034 | ) |
| Net cash used in financing activities | ( 75,138 | ) | ( 36,440 | ) |
| Effect of exchange rate changes on cash and cash equivalents | ( 15,394 | ) | 6,236 | |
| Net increase in cash and cash equivalents | 8,035 | 11,064 | ||
| Cash and cash equivalents at beginning of period | 28,934 | 20,921 | ||
| Cash and cash equivalents at end of period | $ 36,969 | $ | 31,985 |
See accompanying notes to consolidated condensed financial statements.
4
Index
SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF Anchor Anchor Anchor Anchor SHAREHOLDERS’ Anchor EQUITY Anchor Anchor
(In thousands, except share and per share amounts)
(Unaudited)
| Three Months Ended September 30 , 2024 | Common Stock | Additional Paid-In Capital | Earnings Reinvested in the Business | Shares | Amount | Accumulated Other Comprehensive Income (Loss) | Total Equity | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balances at June 30, 2024 | $ 5,396 | $ 114,730 | $ | 1,754,059 | 11,798,853 | $ | ( 618,233 | ) | $ ( 198,177 | ) | $ 1,057,775 | ||
| Net earnings | - | - | 32,690 | - | - | - | 32,690 | ||||||
| Other comprehensive income | - | - | - | - | - | 5,567 | 5,567 | ||||||
| Cash dividends paid – $ 0.41 per share | - | - | ( 17,349 | ) | - | - | - | ( 17,349 | ) | ||||
| Share-based compensation | - | 2,069 | - | - | - | - | 2,069 | ||||||
| Non-vested stock issued upon vesting | - | ( 390 | ) | - | ( 7,438 | ) | 390 | - | - | ||||
| Other | - | ( 106 | ) | - | 3,719 | ( 195 | ) | - | ( 301 | ) | |||
| Balances at September 30 , 2024 | $ 5,396 | $ 116,303 | $ | 1,769,400 | 11,795,134 | $ | ( 618,038 | ) | $ ( 192,610 | ) | $ 1,080,451 |
| Three Months Ended September 30 , 2023 — Balances at June 30, 2023 | $ 5,396 | $ 114,330 | $ | 1,735,807 | 11,909,833 | $ | ( 624,048 | ) | $ ( 177,221 | ) | $ 1,054,264 | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net earnings | - | - | 31,543 | - | - | - | 31,543 | ||||||
| Other comprehensive loss | - | - | - | - | - | ( 13,314 | ) | ( 13,314 | ) | ||||
| Cash dividends paid – $ 0.41 per share | - | - | ( 17,323 | ) | - | - | - | ( 17,323 | ) | ||||
| Share-based compensation | - | 2,519 | - | - | - | - | 2,519 | ||||||
| Non-vested stock issued upon vesting | - | ( 67 | ) | - | ( 1,285 | ) | 67 | - | - | ||||
| Other | - | ( 7 | ) | - | 492 | ( 26 | ) | - | ( 33 | ) | |||
| Balances at September 30 , 2023 | $ 5,396 | $ 116,775 | $ | 1,750,027 | 11,909,040 | $ | ( 624,007 | ) | $ ( 190,535 | ) | $ 1,057,656 |
| Nine Months Ended September 30 , 2024 — Balances at December 31 , 2023 | $ 5,396 | $ 115,941 | $ | 1,726,872 | 11,885,398 | $ | ( 622,768 | ) | $ ( 172,117 | ) | $ 1,053,324 | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net earnings | - | - | 94,562 | - | - | - | 94,562 | ||||||
| Other comprehensive loss | - | - | - | - | - | ( 20,493 | ) | ( 20,493 | ) | ||||
| Cash dividends paid – $ 1.23 per share | - | - | ( 52,034 | ) | - | - | - | ( 52,034 | ) | ||||
| Share-based compensation | - | 6,980 | - | - | - | - | 6,980 | ||||||
| Non-vested stock issued upon vesting | - | ( 6,283 | ) | - | ( 119,910 | ) | 6,283 | - | - | ||||
| Benefit plans | - | 299 | - | ( 21,405 | ) | 1,122 | - | 1,421 | |||||
| Other | - | ( 634 | ) | - | 51,051 | ( 2,675 | ) | - | ( 3,309 | ) | |||
| Balances at September 30 , 2024 | $ 5,396 | $ 116,303 | $ | 1,769,400 | 11,795,134 | $ | ( 618,038 | ) | $ ( 192,610 | ) | $ 1,080,451 |
| Nine Months Ended September 30 , 2023 — Balances at December 31, 2022 | $ 5,396 | $ 124,043 | $ | 1,702,700 | 12,058,773 | $ | ( 631,853 | ) | $ ( 200,688 | ) | $ 999,598 | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net earnings | - | - | 99,227 | - | - | - | 99,227 | ||||||
| Other comprehensive income | - | - | - | - | - | 10,153 | 10,153 | ||||||
| Cash dividends paid – $ 1.23 per share | - | - | ( 51,900 | ) | - | - | - | ( 51,900 | ) | ||||
| Share-based compensation | - | 7,285 | - | - | - | - | 7,285 | ||||||
| Non-vested stock issued upon vesting | - | ( 12,686 | ) | - | ( 242,110 | ) | 12,686 | - | - | ||||
| Benefit plans | - | 375 | - | ( 18,172 | ) | 952 | - | 1,327 | |||||
| Other | - | ( 2,242 | ) | - | 110,549 | ( 5,792 | ) | - | ( 8,034 | ) | |||
| Balances at September 30 , 2023 | $ 5,396 | $ 116,775 | $ | 1,750,027 | 11,909,040 | $ | ( 624,007 | ) | $ ( 190,535 | ) | $ 1,057,656 |
See accompanying notes to consolidated condensed financial statements.
5
Index
Anchor SENSIENT TECHNOLOGIES CORPORATION
Anchor Anchor Anchor Anchor Anchor Anchor Anchor Anchor NOTES Anchor TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
- Accounting Policies
In the opinion of Sensient Technologies Corporation (the Company), the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) that are necessary to present fairly the financial position of the Company as of September 30, 2024, and the results of operations, comprehensive income, and shareholders’ equity for the three and nine months ended September 30, 2024 and 2023, and cash flows for the nine months ended September 30, 2024 and 2023. 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 Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosur es , which will require the Company to disclose segment expenses that are significant and regularly provided to the Company’s chief operating decision maker (CODM). In addition, this ASU will require the Company to disclose the title and position of its CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources . This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company will adopt this ASU in the fourth quarter of 2024 using a retrospective transition method .
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. This ASU will also require the Company to disaggregate its income taxes paid disclosure by federal, state, and foreign taxes, with further disaggregation required for significant individual jurisdictions. This ASU is effective for fiscal years beginning after December 15, 2024. The Company will adopt this ASU in the fourth quarter of 2025 using a prospective transition method.
Please refer to the notes in the Company’s annual consolidated financial statements for the year ended December 31, 2023, for additional details of the Company’s financial condition and a description of the Company’s accounting policies, which have been continued without change.
- Portfolio Optimization Plan
During the fourth quarter of 2023, the Board of Directors of the Company approved a plan to undertake an effort to optimize certain production facilities and improve efficiencies within the Company (Portfolio Optimization Plan). As part of the Portfolio Optimization Plan, in the Flavors & Extracts segment, the Company evaluated the closure of its manufacturing facility in Felinfach, Wales, United Kingdom, the closure of its sales office in Granada, Spain, and the centralization and elimination of certain selling and administrative positions. In addition, in the Color segment, the Company evaluated the closure of a manufacturing facility in Delta, British Columbia, Canada, the closure of a sales office in Argentina, and centralizing and eliminating certain production positions and selling and administrative positions. The Company reports all costs associated with the Portfolio Optimization Plan in the Corporate & Other segment.
The Company’s Felinfach site will continue to operate until all production activities have successfully transferred to other locations, and then will be closed. The Company has substantially completed all other actions contemplated under the Portfolio Optimization Plan in accordance with local laws.
The Company recorded non-cash impairment charges in Selling and Administrative Expenses , primarily related to certain property, plant, and equipment during the nine months ended September 30, 2024, when the estimated fair value of these assets was lower than the carrying value. The property, plant, and equipment related to a product line that was shut down and determined to not be usable at other plant locations.
6
Index
The Company recorded $ 2.7 million and $ 3.7 million of accrued liabilities in Other Accrued Expenses on the Company’s Consolidated Balance Sheet related to the Portfolio Optimization Plan as of September 30, 2024 and December 31, 2023, respectively. The Company expects the Portfolio Optimization Plan will cost approximately $ 40 million, of which $ 33.6 million has been incurred through September 30, 2024, primarily related to non-cash impairment charges and proposed employee separation costs, and upon completion would reduce annual operating costs by approximately $ 8 million to $ 10 million, with the full benefit expected to be achieved after 2025. The Company anticipates it would reduce headcount by approximately 100 positions, primarily in the Flavors & Extracts and Color segments, related to certain production and selling and administrative positions.
The following table summarizes the Portfolio Optimization Plan expenses by segment for the three months ended September 30, 2024:
| (In thousands) | Flavors & Extracts | Color | Corporate & Other | Consolidated | |
|---|---|---|---|---|---|
| Employee separation – Selling and administrative expenses | $ 490 | $ 68 | $ - | $ 558 | |
| Other production costs – Cost of products sold | 209 | - | - | 209 | |
| Other costs – Selling and administrative expenses (1) | 447 | 9 | ( 12 | ) | 444 |
| Total | $ 1,146 | $ 77 | $ ( 12 | ) | $ 1,211 |
(1) O ther costs include professional services, accelerated depreciation, and other related cost s.
The following table summarizes the Portfolio Optimization Plan expenses by segment for the nine months ended September 30, 2024:
| (In thousands) — Non-cash impairment charges – Selling and administrative expenses | Flavors & Extracts — $ - | Color — $ 1,129 | $ | - | Consolidated — $ 1,129 | |
|---|---|---|---|---|---|---|
| Non-cash charges – Cost of products sold | 408 | ( 194 | ) | - | 214 | |
| Employee separation – Selling and administrative expenses | 1,341 | 594 | 28 | 1,963 | ||
| Other production costs – Cost of products sold | 309 | - | - | 309 | ||
| Other costs – Selling and administrative expenses (1) | 1,506 | 693 | ( 39 | ) | 2,160 | |
| Total | $ 3,564 | $ 2,222 | $ | ( 11 | ) | $ 5,775 |
(1) Other costs include professional services, decommissioning costs, accelerated depreciation, accelerated lease costs, and other related costs.
3 . Trade Accounts Receivable
Trade accounts receivables are recorded at their face amount, less an allowance for expected losses on doubtful accounts. The allowance for doubtful accounts is calculated based on customer-specific analysis and an aging methodology using historical loss information. The Company believes historical loss information is a reasonable basis for expected credit losses as the Company’s historical credit loss experience correlates with its customer delinquency status. This information is also adjusted for any known current economic conditions. Forecasted economic conditions have not had a significant impact on the current credit loss estimate due to the short-term nature of the Company’s customer receivables; however, the Company will continue to monitor and evaluate as economic conditions change. Additionally, as the Company only has one portfolio segment, there are not different risks between portfolios. Specific accounts are written off against the allowance for doubtful accounts when the receivable is deemed no longer collectible.
7
Index
The following table summarizes the changes in the allowance for doubtful accounts during the three and nine month periods ended September 30, 2024 and 2023:
| (In thousands) Three Months Ended September 30, 2024 | Allowance for Doubtful Accounts | |
|---|---|---|
| Balance at June | ||
| 30, 2024 | $ 4,275 | |
| Provision for | ||
| expected credit losses | 410 | |
| Accounts | ||
| written off | ( 56 | ) |
| Translation and | ||
| other activity | 71 | |
| Balance at | ||
| September 30, 2024 | $ 4,700 |
| (In thousands) Three Months Ended September 30, 2023 | Allowance for Doubtful Accounts | |
|---|---|---|
| Balance at June 30, 2023 | $ 4,293 | |
| Provision for | ||
| expected credit losses | 13 | |
| Accounts | ||
| written off | ( 244 | ) |
| Translation and | ||
| other activity | ( 76 | ) |
| Balance at | ||
| September 30, 2023 | $ 3,986 |
| (In thousands) Nine
| Months Ended September 30, 2024 | Allowance for Doubtful Accounts | |
|---|---|---|
| Balance at | ||
| December 31, 2023 | $ 4,373 | |
| Provision for | ||
| expected credit losses | 1,213 | |
| Accounts | ||
| written off | ( 808 | ) |
| Translation and | ||
| other activity | ( 78 | ) |
| Balance at | ||
| September 30, 2024 | $ 4,700 |
| (In thousands) Nine
| Months Ended September 30, 2023 | Allowance for Doubtful Accounts | |
|---|---|---|
| Balance at | ||
| December 31, 2022 | $ 4,436 | |
| Provision for | ||
| expected credit losses | 504 | |
| Accounts | ||
| written off | ( 1,051 | ) |
| Translation and | ||
| other activity | 97 | |
| Balance at | ||
| September 30, 2023 | $ 3,986 |
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- Inventories
At September 30, 2024, and December 31, 2023, inventories included finished and in-process products totaling $ 415.4 million and $ 437.1 million, respectively, and raw materials and supplies of $ 165.4 million and $ 161.3 million, respectively.
- Debt
On August 30, 2024, the Company entered into Amendment No. 11 ( Receivables Amendment) to the Receivables Purchase Agreement, dated as of October 3, 2016 . The Receivables Amendment extended the termination date of the Receivables Purchase Agreement from August 30, 2024 to August 29, 2025 .
On October 31, 2024, the Company entered into Amendment No. 1 (Loan Amendment) to the Loan Agreement with PNC Bank, N.A., dated as of November 7, 2022. The Loan Amendment extended the maturity date of the Loan Agreement from November 7, 2024 to November 7, 2025 .
- Fair Value
Accounting Standards Codification 820, Fair Value Measurement , defines fair value for financial assets and liabilities, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. The carrying values of the Company’s cash and cash equivalents, trade accounts receivable, trade accounts payable, accrued expenses, and short-term borrowings were approximately the same as the fair values as of September 30, 2024 and December 31, 2023. The net fair value of the forward exchange contracts based on current pricing obtained for comparable derivative products (Level 2 inputs) was a liability of $ 0.3 million and an asset of $ 1.0 million as of September 30, 2024 and December 31, 2023, respectively. The fair value of the Company’s long-term debt, including current maturities, is estimated using discounted cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 2 inputs). The carrying value of the long-term debt at September 30, 2024 and December 31, 2023 was $ 625.8 million and $ 645.2 million, respectively. The fair value of the long-term debt at September 30, 2024 and December 31, 2023 was $ 638.4 million and $ 653.7 million, respectively.
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Index
7 . Segment Information
The Company evaluates performance based on operating income before share-based compensation; restructuring and other charges, including Portfolio Optimization 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, extracts, and essential oils products that impart a desired taste, texture, aroma, or other characteristics to a broad range of consumer and other products. The Color segment produces natural and synthetic color systems for use in foods, beverages, pharmaceuticals, and nutraceuticals; colors and other ingredients for personal care, such as active ingredients, solubilizers, and surface treated pigments; pharmaceutical and nutraceutical excipients, such as colors, flavors, coatings, and nutraceutical ingredients; and technical colors for industrial applications. The Asia Pacific segment is managed on a geographic basis and produces and distributes color, flavor, and essential oils products in the Asia Pacific countries. The Company’s corporate expenses, share-based compensation, and restructuring and other charges, including Portfolio Optimization Plan costs, are included in the “Corporate & Other” category.
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Operating results by segment for the periods presented are as follows:
| (In thousands) | Flavors & Extracts | Color | Asia Pacific | Corporate & Other | Consolidated | |
|---|---|---|---|---|---|---|
| Three months ended September 30 , 2024 : | ||||||
| Revenue from | ||||||
| external customers | $ 194,222 | $ 156,672 | $ 41,719 | $ - | $ 392,613 | |
| Intersegment | ||||||
| revenue | 9,057 | 5,408 | 59 | - | 14,524 | |
| Total revenue | $ 203,279 | $ 162,080 | $ 41,778 | $ - | $ 407,137 | |
| Operating | ||||||
| income (loss) | $ 25,862 | $ 29,806 | $ 9,307 | $ ( 14,455 | ) | $ 50,520 |
| Interest | ||||||
| expense | - | - | - | 7,696 | 7,696 | |
| Earnings (loss) | ||||||
| before income taxes | $ 25,862 | $ 29,806 | $ 9,307 | $ ( 22,151 | ) | $ 42,824 |
| Three months ended September 30 , 2023 : | ||||||
| Revenue from | ||||||
| external customers | $ 185,029 | $ 142,026 | $ 36,774 | $ - | $ 363,829 | |
| Intersegment | ||||||
| revenue | 5,968 | 2,913 | - | - | 8,881 | |
| Total revenue | $ 190,997 | $ 144,939 | $ 36,774 | $ - | $ 372,710 | |
| Operating | ||||||
| income (loss) | $ 23,078 | $ 22,925 | $ 8,095 | $ ( 9,567 | ) | $ 44,531 |
| Interest | ||||||
| expense | - | - | - | 6,294 | 6,294 | |
| Earnings (loss) | ||||||
| before income taxes | $ 23,078 | $ 22,925 | $ 8,095 | $ ( 15,861 | ) | $ 38,237 |
| (In thousands) | Flavors & Extracts | Color | Asia Pacific | Corporate & Other | Consolidated | |
|---|---|---|---|---|---|---|
| Nine months ended September 30 , 2024 : | ||||||
| Revenue from | ||||||
| external customers | $ 584,264 | $ 475,961 | $ 120,583 | $ - | $ 1,180,808 | |
| Intersegment | ||||||
| revenue | 21,320 | 13,844 | 81 | - | 35,245 | |
| Total revenue | $ 605,584 | $ 489,805 | $ 120,664 | $ - | $ 1,216,053 | |
| Operating | ||||||
| income (loss) | $ 75,749 | $ 92,987 | $ 25,963 | $ ( 45,116 | ) | $ 149,583 |
| Interest | ||||||
| expense | - | - | - | 22,394 | 22,394 | |
| Earnings (loss) | ||||||
| before income taxes | $ 75,749 | $ 92,987 | $ 25,963 | $ ( 67,510 | ) | $ 127,189 |
| Nine months ended September 30 , 2023 : | ||||||
| Revenue from | ||||||
| external customers | $ 538,753 | $ 455,507 | $ 112,888 | $ - | $ 1,107,148 | |
| Intersegment | ||||||
| revenue | 19,380 | 11,056 | - | - | 30,436 | |
| Total revenue | $ 558,133 | $ 466,563 | $ 112,888 | $ - | $ 1,137,584 | |
| Operating | ||||||
| income (loss) | $ 69,714 | $ 84,027 | $ 24,911 | $ ( 31,692 | ) | $ 146,960 |
| Interest | ||||||
| expense | - | - | - | 18,648 | 18,648 | |
| Earnings (loss) | ||||||
| before income taxes | $ 69,714 | $ 84,027 | $ 24,911 | $ ( 50,340 | ) | $ 128,312 |
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Product Lines
| (In thousands) | Flavors & Extracts | |||||||
|---|---|---|---|---|---|---|---|---|
| Three months ended September 30 , 2024 : | ||||||||
| Flavors, | ||||||||
| Extracts & Flavor Ingredients | $ 128,990 | $ | - | $ | - | $ | 128,990 | |
| Natural | ||||||||
| Ingredients | 74,289 | - | - | 74,289 | ||||
| Food & | ||||||||
| Pharmaceutical Colors | - | 118,883 | - | 118,883 | ||||
| Personal Care | - | 43,197 | - | 43,197 | ||||
| Asia Pacific | - | - | 41,778 | 41,778 | ||||
| Intersegment | ||||||||
| Revenue | ( 9,057 | ) | ( 5,408 | ) | ( 59 | ) | ( 14,524 | ) |
| Total revenue | ||||||||
| from external customers | $ 194,222 | $ | 156,672 | $ | 41,719 | $ | 392,613 | |
| Three months ended September 30 , 2023 : | ||||||||
| Flavors, | ||||||||
| Extracts & Flavor Ingredients | $ 124,697 | $ | - | $ | - | $ | 124,697 | |
| Natural | ||||||||
| Ingredients | 66,300 | - | - | 66,300 | ||||
| Food & | ||||||||
| Pharmaceutical Colors | - | 107,723 | - | 107,723 | ||||
| Personal Care | - | 37,216 | - | 37,216 | ||||
| Asia Pacific | - | - | 36,774 | 36,774 | ||||
| Intersegment | ||||||||
| Revenue | ( 5,968 | ) | ( 2,913 | ) | - | ( 8,881 | ) | |
| Total revenue | ||||||||
| from external customers | $ 185,029 | $ | 142,026 | $ | 36,774 | $ | 363,829 |
| (In thousands) | Flavors & Extracts | |||||||
|---|---|---|---|---|---|---|---|---|
| Nine months ended September 30 , 2024 : | ||||||||
| Flavors, | ||||||||
| Extracts & Flavor Ingredients | $ 388,544 | $ | - | $ | - | $ | 388,544 | |
| Natural | ||||||||
| Ingredients | 217,040 | - | - | 217,040 | ||||
| Food & | ||||||||
| Pharmaceutical Colors | - | 361,268 | - | 361,268 | ||||
| Personal Care | - | 128,537 | - | 128,537 | ||||
| Asia Pacific | - | - | 120,664 | 120,664 | ||||
| Intersegment | ||||||||
| Revenue | ( 21,320 | ) | ( 13,844 | ) | ( 81 | ) | ( 35,245 | ) |
| Total revenue | ||||||||
| from external customers | $ 584,264 | $ | 475,961 | $ | 120,583 | $ | 1,180,808 | |
| Nine months ended September 30, 2023: | ||||||||
| Flavors, | ||||||||
| Extracts & Flavor Ingredients | $ 383,210 | $ | - | $ | - | $ | 383,210 | |
| Natural | ||||||||
| Ingredients | 174,923 | - | - | 174,923 | ||||
| Food & | ||||||||
| Pharmaceutical Colors | - | 346,635 | - | 346,635 | ||||
| Personal Care | - | 119,928 | - | 119,928 | ||||
| Asia Pacific | - | - | 112,888 | 112,888 | ||||
| Intersegment | ||||||||
| Revenue | ( 19,380 | ) | ( 11,056 | ) | - | ( 30,436 | ) | |
| Total revenue | ||||||||
| from external customers | $ 538,753 | $ | 455,507 | $ | 112,888 | $ | 1,107,148 |
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Geographic Markets
| (In thousands) | Flavors & Extracts | Color | Asia Pacific | Consolidated |
|---|---|---|---|---|
| Three months ended September 30 , 2024 : | ||||
| North America | $ 152,753 | $ 78,187 | $ 15 | $ 230,955 |
| Europe | 30,908 | 37,089 | 32 | 68,029 |
| Asia Pacific | 4,500 | 16,477 | 40,101 | 61,078 |
| Other | 6,061 | 24,919 | 1,571 | 32,551 |
| Total revenue | ||||
| from external customers | $ 194,222 | $ 156,672 | $ 41,719 | $ 392,613 |
| Three months ended September 30 , 2023 : | ||||
| North America | $ 147,992 | $ 75,417 | $ - | $ 223,409 |
| Europe | 25,298 | 36,816 | 57 | 62,171 |
| Asia Pacific | 4,881 | 13,344 | 35,791 | 54,016 |
| Other | 6,858 | 16,449 | 926 | 24,233 |
| Total revenue | ||||
| from external customers | $ 185,029 | $ 142,026 | $ 36,774 | $ 363,829 |
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| (In thousands) | Flavors & Extracts | Color | Asia Pacific | Consolidated |
|---|---|---|---|---|
| Nine months ended September 30 , 2024 : | ||||
| North America | $ 456,355 | $ 235,842 | $ 97 | $ 692,294 |
| Europe | 95,129 | 129,076 | 138 | 224,343 |
| Asia Pacific | 13,309 | 49,544 | 115,803 | 178,656 |
| Other | 19,471 | 61,499 | 4,545 | 85,515 |
| Total revenue | ||||
| from external customers | $ 584,264 | $ 475,961 | $ 120,583 | $ 1,180,808 |
| Nine months ended September 30 , 2023 : | ||||
| North America | $ 417,095 | $ 231,348 | $ 124 | $ 648,567 |
| Europe | 86,092 | 124,465 | 184 | 210,741 |
| Asia Pacific | 16,372 | 47,801 | 110,380 | 174,553 |
| Other | 19,194 | 51,893 | 2,200 | 73,287 |
| Total revenue | ||||
| from external customers | $ 538,753 | $ 455,507 | $ 112,888 | $ 1,107,148 |
- Retirement Plans
The Company’s components of annual benefit cost for the defined benefit plans for the periods presented are as follows:
| (In thousands) | Three Months Ended September 30, — 2024 | 2023 | 2024 | 2023 | ||||
|---|---|---|---|---|---|---|---|---|
| Service cost | $ 430 | $ | 372 | $ | 1,311 | $ | 1,111 | |
| Interest cost | 459 | 415 | 1,389 | 1,237 | ||||
| Expected return on plan assets | ( 252 | ) | ( 248 | ) | ( 754 | ) | ( 732 | ) |
| Recognized actuarial loss | ( 91 | ) | ( 138 | ) | ( 273 | ) | ( 415 | ) |
| Total defined benefit expense | $ 546 | $ | 401 | $ | 1,673 | $ | 1,201 |
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.
- 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 $ 24.3 million and $ 58.4 million of forward exchange contracts designated as cash flow hedges outstanding as of September 30, 2024 and December 31, 2023, respectively. For the three and nine months ended September 30 , 2024, the amounts reclassified into net earnings in the Company’s Consolidated Statements of Earnings that offset the underlying transactions’ impact on earnings in the same period were not material. For the three months ended September 30, 2023, a gain of $ 0.8 million was reclassified into net earnings in the Company’s Consolidated Statements of Earnings that offset the underlying transactions’ impact on earnings in the same period. For the nine months ended September 30, 2023, a gain of $ 1.4 million was reclassified into net earnings in the Company’s Consolidated Statements of Earnings that offset the underlying transactions’ impact on earnings in the same period. In addition, the Company utilizes forward exchange contracts that are not designated as cash flow hedges. The results of these transactions were not material to the financial statements of the Company.
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Net investment hedges – The Company has designated certain foreign currency denominated long-term borrowings as partial hedges of the Company’s foreign currency net asset positions. As of September 30 , 2024 and December 31, 2023 , the total value of the Company’s net investment hedges was $ 317.4 million and $ 313.3 million, respectively. These net investment hedges included Euro and British Pound denominated long-term debt. Changes in the fair value of this debt attributable to changes in the spot foreign exchange rate are recorded in foreign currency translation in Other Comprehensive Income (OCI). For the three months ended September 30, 2024 and 2023, the impact of foreign exchange rates on these debt instruments increased debt by $ 12.6 million and decreased debt by $ 11.0 million, respectively, which has been recorded as foreign currency translation in OCI. For the nine months ended September 30, 2024 and 2023, the impact of foreign exchange rates on these debt instruments increased debt by $ 4.1 million and decreased debt by $ 2.8 million, respectively, which has been recorded as foreign currency translation in OCI.
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- Income Taxes
The effective income tax rates for the three months ended September 30, 2024 and 2023 were 23.7 % and 17.5 %, respectively. For the nine months ended September 30, 2024 and 2023, the effective income tax rates were 25.7 % and 22.7 %, respectively. The effective tax rates for the three and nine months ended September 30, 2024 and 2023, were impacted by changes in estimates associated with the finalization of prior year foreign tax items and the mix of foreign earnings. The effective tax rates for both the three and nine months ended September 30, 2024, were also impacted by the limited tax deductibility of costs related to the Portfolio Optimization Plan. The effective tax rates for both the three and nine months ended September 30, 2023, were also impacted by changes in valuation allowances.
- Accumulated Other Comprehensive Income
The following table summarizes the changes in OCI during the three and nine month periods ended September 30, 2024 and 2023:
| (In thousands) — Balances at December 31, 2023 | Cash Flow Hedges (1) — $ 997 | $ | ( 2,079 | ) | Foreign Currency Items — $ ( 171,035 | ) | Total — $ ( 172,117 | ) |
|---|---|---|---|---|---|---|---|---|
| Other comprehensive loss before | ||||||||
| reclassifications | ( 843 | ) | - | ( 19,446 | ) | ( 20,289 | ) | |
| Amounts reclassified from OCI | - | ( 204 | ) | - | ( 204 | ) | ||
| Balances at September 30 , 2024 | $ 154 | $ | ( 2,283 | ) | $ ( 190,481 | ) | $ ( 192,610 | ) |
| (In thousands) — Balances at June 30, 2024 | Cash Flow Hedges (1) — $ 236 | $ | ( 2,215 | ) | Foreign Currency Items — $ ( 196,198 | ) | Total — $ ( 198,177 | ) |
|---|---|---|---|---|---|---|---|---|
| Other comprehensive (loss) income | ||||||||
| before reclassifications | ( 306 | ) | - | 5,717 | 5,411 | |||
| Amounts reclassified from OCI | 224 | ( 68 | ) | - | 156 | |||
| Balances at September 30 , 2024 | $ 154 | $ | ( 2,283 | ) | $ ( 190,481 | ) | $ ( 192,610 | ) |
| (In thousands) — Balances at December 31, 2022 | Cash Flow Hedges (1) — $ ( 599 | ) | Pension Items (1) — $ ( 1,792 | ) | Foreign Currency Items — $ ( 198,297 | ) | Total — $ ( 200,688 | ) |
|---|---|---|---|---|---|---|---|---|
| Other comprehensive income before | ||||||||
| reclassifications | 2,974 | - | 8,977 | 11,951 | ||||
| Amounts reclassified from OCI | ( 1,432 | ) | ( 366 | ) | - | ( 1,798 | ) | |
| Balances at September 30 , 2023 | $ 943 | $ ( 2,158 | ) | $ ( 189,320 | ) | $ ( 190,535 | ) |
| (In thousands) — Balances at June 30, 2023 | Cash Flow Hedges (1) — $ 1,997 | $ | ( 2,036 | ) | Foreign Currency Items — $ ( 177,182 | ) | Total — $ ( 177,221 | ) |
|---|---|---|---|---|---|---|---|---|
| Other comprehensive loss before | ||||||||
| reclassifications | ( 239 | ) | - | ( 12,138 | ) | ( 12,377 | ) | |
| Amounts reclassified from OCI | ( 815 | ) | ( 122 | ) | - | ( 937 | ) | |
| Balances at September 30 , 2023 | $ 943 | $ | ( 2,158 | ) | $ ( 189,320 | ) | $ ( 190,535 | ) |
(1) Cash Flow Hedges and Pension Items are net of tax.
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- Commitments and Contingencies
The Company is subject to various claims and litigation arising in the normal course of business. The Company establishes reserves for claims and proceedings when it is probable that liabilities exist and reasonable estimates of loss can be made. While it is not possible to predict the outcome of these matters, based on our assessment of the facts and circumstances now known, we do not believe that these matters, individually or in the aggregate, will have a material adverse effect on our financial position. However, actual outcomes may be different from those expected and could have a material effect on our results of operations or cash flows in a particular period.
- Subsequent Events
On October 24, 2024 , the Company announced its quarterly dividend of $ 0.41 per share would be payable on December 2, 2024 .
On October 31, 2024, the Company entered into an amendment to its existing Loan Agreement with PNC Bank, N.A. See Note 5, Debt , for further details.
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Anchor
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that reflect management’s current assumptions and estimates of future economic circumstances, industry conditions, Company performance, and financial results. Forward-looking statements include statements in the future tense, statements referring to any period after September 30, 2024, and statements including the terms “expect,” “believe,” “anticipate,” and other similar terms that express expectations as to future events or conditions. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors that could cause actual events to differ materially from those expressed in the forward-looking statements. A variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results. These factors and assumptions include, among others, the Company’s ability to manage general business, economic, and capital market conditions, including actions taken by customers in response to such market conditions, and the impact of recessions and economic downturns; the impact of macroeconomic and geopolitical volatility, including inflation and shortages impacting the availability and cost of raw materials, energy, and other supplies, disruptions and delays in the Company’s supply chain, and the conflicts between Russia and Ukraine and Israel and Hamas and other parties in the Middle East; the availability and cost of labor, logistics, and transportation; 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 Portfolio Optimization Plan; industry, regulatory, legal, and economic factors related to the Company’s domestic and international business; the effects of tariffs, trade barriers, and disputes; growth in markets for products in which the Company competes; industry and customer acceptance of price increases; actions by competitors; the Company’s ability to enhance its innovation efforts and drive cost efficiencies; 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, 2023. 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 $392.6 million and $363.8 million for the three months ended September 30, 2024 and 2023, respectively. Revenue was $1.2 billion and $1.1 billion for the nine months ended September 30, 2024 and 2023, respectively. The increase in revenue for the three and nine months ended September 30, 2024 was primarily due to higher volumes and selling prices. For the three months ended September 30, 2024, the impact of foreign exchange rates decreased consolidated revenue by approximately 1%. Foreign exchange rates had an immaterial impact on consolidated revenue for the nine months ended September 30, 2024.
Gross Margin
The Company’s gross margin was 33.2% and 31.2% for the three months ended September 30, 2024 and 2023, respectively. The Company’s gross margin was 32.8% and 32.6% for the nine months ended September 30, 2024 and 2023, respectively. The increase in gross margin for both the three and nine months ended September 30, 2024 was primarily due to the higher volumes and selling prices, partially offset by higher raw material costs.
Selling and Administrative Expenses
Selling and administrative expense as a percent of revenue was 20.3% and 19.0% for the three months ended September 30, 2024 and 2023, respectively. Selling and administrative expense as a percent of revenue was 20.2% and 19.3% for the nine months ended September 30, 2024 and 2023, respectively. For the three months ended September 30, 2024, selling and administrative expenses were increased by Portfolio Optimization Plan costs totaling $1.0 million, which increased selling and administrative expenses as a percent of revenue by approximately 20 basis points. For the nine months ended September 30, 2024, selling and administrative expenses were increased by Portfolio Optimization Plan costs totaling $5.3 million, which increased selling and administrative expenses as a percent of revenue by approximately 50 basis points. See Portfolio Optimization Plan below for further information. The remaining increase in selling and administrative expense as a percent of revenue for the three and nine months ended September 30, 2024, was primarily due to higher performance-based executive compensation costs in 2024.
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Operating Income
Operating income was $50.5 million and $44.5 million for the three months ended September 30, 2024 and 2023, respectively. Operating margins were 12.9% and 12.2% for the three months ended September 30, 2024 and 2023, respectively. The increase in operating margin was primarily due to the higher volumes and selling prices, partially offset by higher raw material costs and higher performance-based executive compensation costs in 2024. Portfolio Optimization Plan costs also offset the increase, decreasing operating margins by approximately 30 basis points for the three months ended September 30, 2024.
Operating income was $149.6 million and $147.0 million for the nine months ended September 30, 2024 and 2023, respectively. Operating margins were 12.7% and 13.3% for the nine months ended September 30, 2024 and 2023, respectively. Portfolio Optimization Plan costs decreased operating margins by approximately 50 basis points for the nine months ended September 30, 2024.
Interest Expense
Interest expense was $7.7 million and $6.3 million for the three months ended September 30, 2024 and 2023, respectively, and $22.4 million and $18.6 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in interest expense for the three and nine months ended September 30, 2024, was primarily due to an increase in the average interest rate.
Income Taxes
The effective income tax rates for the three months ended September 30, 2024 and 2023 were 23.7% and 17.5%, respectively. The effective income tax rates for the nine months ended September 30, 2024 and 2023 were 25.7% and 22.7%, respectively. The effective tax rates for the three and nine months ended September 30, 2024 and 2023 were impacted by changes in estimates associated with the finalization of prior year foreign tax items and the mix of foreign earnings. The effective tax rates for both the three and nine months ended September 30, 2024, were also impacted by the limited tax deductibility of costs related to the Portfolio Optimization Plan. The effective tax rates for both the three and nine months ended September 30, 2023, were also impacted by changes in valuation allowances.
Portfolio Optimization Plan
During the fourth quarter of 2023, the Board of Directors of the Company approved a plan to undertake an effort to optimize certain production facilities and improve efficiencies within the Company (Portfolio Optimization Plan). As part of the Portfolio Optimization Plan, in the Flavors & Extracts segment, the Company evaluated the closure of its manufacturing facility in Felinfach, Wales, United Kingdom, the closure of its sales office in Granada, Spain, and the centralization and elimination of certain selling and administrative positions. In addition, in the Color segment, the Company evaluated the closure of a manufacturing facility in Delta, British Columbia, Canada, the closure of a sales office in Argentina, and centralizing and eliminating certain production positions and selling and administrative positions. The Company reports all costs associated with the Portfolio Optimization Plan in the Corporate & Other segment.
T he Company’s Felinfach site will continue to operate until all production activities have successfully transferred to other locations, and then will be closed. The Company has substantially completed all other actions contemplated under the Portfolio Optimization Plan in accordance with local laws.
For the three months ended September 30, 2024, the Company incurred costs of $1.2 million related to the Portfolio Optimization Plan recorded in Corporate & Other, primarily for costs associated with employee separation and professional services.
For the nine months ended September 30, 2024, the Company incurred costs of $5.8 million related to the Portfolio Optimization Plan recorded in Corporate & Other, primarily for costs associated with employee separation, impairment of fixed assets, decommissioning, and professional services.
NON-GAAP FINANCIAL MEASURES
Within the following tables, the Company reports certain non-GAAP financial measures, including: (1) adjusted operating income, adjusted net earnings, and adjusted diluted earnings per share, which exclude restructuring and other costs, including the Portfolio Optimization Plan costs, 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 and restructuring and other costs, including the Portfolio Optimization Plan costs.
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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.
| (In thousands, except per share amounts) | Three Months Ended September 30, — 2024 | 2023 | % Change | Nine Months Ended September 30, — 2024 | 2023 | % Change | |||
|---|---|---|---|---|---|---|---|---|---|
| Operating Income (GAAP) | $ 50,520 | $ | 44,531 | 13.4 % | $ 149,583 | $ | 146,960 | 1.8 | % |
| Portfolio Optimization Plan costs – Cost of products sold | 209 | - | 523 | - | |||||
| Portfolio Optimization Plan costs – Selling and administrative expenses | 1,002 | - | 5,252 | - | |||||
| Adjusted operating income | $ 51,731 | $ | 44,531 | 16.2 % | $ 155,358 | $ | 146,960 | 5.7 | % |
| Net Earnings (GAAP) | $ 32,690 | $ | 31,543 | 3.6 % | $ 94,562 | $ | 99,227 | (4.7 | %) |
| Portfolio Optimization Plan costs, before tax | 1,211 | - | 5,775 | - | |||||
| Tax impact of Portfolio Optimization Plan costs (1) | (17 | ) | - | (586 | ) | - | |||
| Adjusted net earnings | $ 33,884 | $ | 31,543 | 7.4 % | $ 99,751 | $ | 99,227 | 0.5 | % |
| Diluted earnings per share (GAAP) | $ 0.77 | $ | 0.75 | 2.7 % | $ 2.23 | $ | 2.35 | (5.1 | %) |
| Portfolio Optimization Plan costs, net of tax | 0.03 | - | 0.12 | - | |||||
| Adjusted diluted earnings per share | $ 0.80 | $ | 0.75 | 6.7 % | $ 2.35 | $ | 2.35 | 0.0 | % |
(1) Tax impact adjustments were determined based on the nature of the underlying non-GAAP adjustments and their relevant jurisdictional tax rates.
Portfolio Optimization Plan costs are discussed under “Portfolio Optimization Plan” above and Note 2, Portfolio Optimization Plan, in the Notes to the Consolidated Financial Statements included in this report.
Note: Earnings per share calculations may not foot due to rounding differences .
The following table summarizes the percentage change for the results of the three and nine months ended September 30, 2024, compared to the results for the three and nine months ended September 30, 2023, in the respective financial measures.
| Revenue | Three Months Ended September 30, 2024 — Total | Foreign Exchange Rates | Adjustments (1) | Adjusted Local Currency | Total | Foreign Exchange Rates | Adjustments (1) | Adjusted Local Currency | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Flavors & Extracts | 6.4 % | (0.4 | %) | N/A | 6.8 % | 8.5 | % | 0.2 | % | N/A | 8.3 % | ||
| Color | 11.8 % | (1.2 | %) | N/A | 13.0 % | 5.0 | % | (0.2 | %) | N/A | 5.2 % | ||
| Asia Pacific | 13.6 % | 0.2 | % | N/A | 13.4 % | 6.9 | % | (2.5 | %) | N/A | 9.4 % | ||
| Total Revenue | 7.9 % | (0.7 | %) | N/A | 8.6 % | 6.7 | % | (0.2 | %) | N/A | 6.9 % | ||
| Operating Income | |||||||||||||
| Flavors & Extracts | 12.1 % | (0.7 | %) | 0.0 | % | 12.8 % | 8.7 | % | (0.1 | %) | 0.0 | % | 8.8 % |
| Color | 30.0 % | (0.9 | %) | 0.0 | % | 30.9 % | 10.7 | % | (0.1 | %) | 0.0 | % | 10.8 % |
| Asia Pacific | 15.0 % | (0.3 | %) | 0.0 | % | 15.3 % | 4.2 | % | (3.3 | %) | 0.0 | % | 7.5 % |
| Corporate & Other | 51.1 % | 0.1 | % | 12.6 | % | 38.4 % | 42.4 | % | 0.1 | % | 18.2 | % | 24.1 % |
| Total Operating Income | 13.4 % | (1.0 | %) | (2.7 | %) | 17.1 % | 1.8 | % | (0.7 | %) | (3.9 | %) | 6.4 % |
| Diluted Earnings per Share | 2.7 % | (1.3 | %) | (4.0 | %) | 8.0 % | (5.1 | %) | (0.8 | %) | (5.2 | %) | 0.9 % |
(1) Adjustments consist of Portfolio Optimization Plan costs.
Note: Refer to table above for a reconciliation of these non-GAAP measures.
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SEGMENT INFORMATION
The Company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance. Segment performance is evaluated on operating income before share-based compensation, restructuring and other costs, including the Portfolio Optimization Plan costs, 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 $203.3 million and $191.0 million for the three months ended September 30, 2024 and 2023, respectively, an increase of approximately 6%. The increase was a result of higher revenue in Natural Ingredients and Flavors, Extracts & Flavor Ingredients, primarily due to higher volumes and selling prices. Foreign exchange rates had an immaterial impact on segment revenue for the three months ended September 30, 2024.
Flavors & Extracts segment revenue was $605.6 million and $558.1 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of approximately 9%. The increase was a result of higher revenue in Natural Ingredients and Flavors, Extracts & Flavor Ingredients. The increase in Natural Ingredients was a result of higher volumes and selling prices. The increase in Flavors, Extracts & Flavor Ingredients was primarily a result of higher selling prices. Foreign exchange rates had an immaterial impact on segment revenue for the nine months ended September 30, 2024.
Flavors & Extracts segment operating income was $25.9 million and $23.1 million for the three months ended September 30, 2024 and 2023, respectively, an increase of approximately 12%. The higher segment operating income was primarily a result of higher operating income in Flavors, Extracts & Flavor Ingredients, partially offset by lower operating income in Natural Ingredients. The higher segment operating income in Flavors, Extracts, & Flavor Ingredients was primarily due to lower raw material costs, higher selling prices, lower manufacturing and other costs, higher volumes, and savings generated from the Portfolio Optimization Plan. The lower segment operating income in Natural Ingredients was primarily a result of higher raw material costs, partially offset by higher selling prices and volumes. Foreign exchange rates decreased segment operating income by approximately 1%. Segment operating income as a percent of revenue was 12.7% in the current quarter compared to 12.1% in the prior year’s comparable quarter.
Flavors & Extracts segment operating income was $75.7 million and $69.7 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of approximately 9%. The increase was a result of higher segment operating income in Flavors, Extracts & Flavor Ingredients, partially offset by lower segment operating income in Natural Ingredients. The higher segment operating income in Flavors, Extracts & Flavor Ingredients was primarily a result of lower raw material costs, higher selling prices, and savings generated from the Portfolio Optimization Plan. The lower segment operating income in Natural Ingredients was primarily a result of higher raw material costs, partially offset by higher volumes and selling prices. Foreign exchange rates had an immaterial impact on segment operating income for the nine months ended September 30, 2024. Segment operating income as a percent of revenue was 12.5% in both the current nine month period and the prior year’s comparable nine month period.
Color
Color segment revenue was $162.1 million and $144.9 million for the three months ended September 30, 2024 and 2023, respectively, an increase of approximately 12%. The increase was a result of higher revenue in Food & Pharmaceutical Colors and Personal Care. The higher revenue in Food & Pharmaceutical Colors was due to higher volumes and selling prices, partially offset by the unfavorable impact of foreign exchange rates that decreased segment revenue by approximately 1%. The higher revenue in Personal Care was primarily due to higher volumes.
Color segment revenue was $489.8 million and $466.6 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of approximately 5%. The increase was a result of higher revenue in Food & Pharmaceutical Colors and Personal Care, primarily due to higher volumes and selling prices. Foreign exchange rates had an immaterial impact on segment revenue for the nine months ended September 30, 2024.
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Segment operating income for the Color segment was $29.8 million and $22.9 million for the three months ended September 30, 2024 and 2023, respectively, an increase of approximately 30%. The increase in segment operating income was a result of higher operating income in Personal Care and Food & Pharmaceutical Colors. The higher operating income in Personal Care was primarily due to higher volumes and lower raw material costs. The higher operating income in Food & Pharmaceutical Colors was primarily due to higher volumes, selling prices, and savings generated from the Portfolio Optimization Plan, partially offset by higher manufacturing and other costs. Foreign exchange rates decreased segment operating income by approximately 1%. Segment operating income as a percent of revenue was 18.4% in the current quarter and 15.8% in the prior year’s comparable quarter.
Segment operating income for the Color segment was $93.0 million and $84.0 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of approximately 11%. The increase in segment operating income was primarily a result of higher operating income in Personal Care and savings generated from the Portfolio Optimization Plan. The higher operating income in Personal Care was primarily due to higher volumes and selling prices and lower manufacturing and other costs. Foreign exchange rates had an immaterial impact on segment operating income for the nine months ended September 30, 2024. Segment operating income as a percent of revenue was 19.0% in the current nine month period and 18.0% in the prior year’s comparable period.
Asia Pacific
Segment revenue for the Asia Pacific segment was $41.8 million and $36.8 million for the three months ended September 30, 2024 and 2023, respectively, an increase of approximately 14%. The increase was primarily a result of higher volumes. Foreign exchange rates had an immaterial impact on segment revenue for the three months ended September 30, 2024.
Segment revenue for the Asia Pacific segment was $120.7 million and $112.9 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of approximately 7%. The increase was a result of higher volumes and selling prices, partially offset by the unfavorable impact of foreign exchange rates that decreased segment revenue by approximately 3%.
Segment operating income for the Asia Pacific segment was $9.3 million and $8.1 million for the three months ended September 30, 2024 and 2023, respectively, an increase of approximately 15%. The increase was primarily a result of the higher volumes. Foreign exchange rates had an immaterial impact on segment operating income for the three months ended September 30, 2024. Segment operating income as a percent of revenue was 22.3% in the current quarter and 22.0% in the prior year’s comparable quarter.
Segment operating income for the Asia Pacific segment was $26.0 million and $24.9 million for the nine months ended September 30, 2024 and 2023, respectively, an increase of approximately 4%. The increase was primarily a result of the higher volumes and selling prices, partially offset by higher raw material and manufacturing and other costs and the unfavorable impact of foreign exchange rates that decreased segment operating income by approximately 3%. Segment operating income as a percent of revenue was 21.5% in the current nine month period and 22.1% in the prior year’s comparable period.
Corporate & Other
The Corporate & Other operating expense was $14.5 million and $9.6 million for the three months ended September 30, 2024 and 2023, respectively. The higher operating expense was primarily a result of Portfolio Optimization Plan costs totaling $1.2 million negatively impacting the three months ended September 30, 2024, and higher performance-based executive compensation costs. See the Portfolio Optimization Plan section above for further information.
The Corporate & Other operating expense was $45.1 million and $31.7 million for the nine months ended September 30, 2024 and 2023, respectively. The higher operating expense was primarily a result of Portfolio Optimization Plan costs totaling $5.8 million negatively impacting the nine months ended September 30, 2024, and higher performance-based executive compensation costs. See the Portfolio Optimization Plan section above for further information.
LIQUIDITY AND FINANCIAL CONDITION
Financial Condition
The Company’s financial position remains strong. The Company is in compliance with its loan covenants calculated in accordance with applicable agreements as of September 30, 2024. The Company expects its cash flow from operations and its existing debt capacity can be used to meet anticipated future cash requirements for operations, capital expenditures, and dividend payments, as well as potential acquisitions and stock repurchases. The Company’s contractual obligations consist primarily of operational commitments, which we expect to continue to be able to satisfy through cash generated from operations and debt. The Company has various series of notes outstanding that mature from 2025 through 2029. The Company believes that it has the ability to refinance or repay these obligations through a combination of cash flow from operations, issuance of additional notes, and sufficient borrowing capacity under the Company’s revolving credit facility, which matures in 2026.
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As a result of our ability to manage the impact of inflation through pricing and other actions, the impact of inflation was not material to the Company’s financial position and its results of operations for the three or nine months ended September 30, 2024. The Company has experienced increased costs for certain inputs, such as raw materials, shipping and logistics, and labor-related costs. We continue to expect to manage these impacts in the near term, but persistent, accelerated, or expanded inflationary conditions could exacerbate these challenges and impact our profitability.
Cash Flows from Operating Activities
Net cash provided by operating activities was $135.8 million and $106.8 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in net cash from operating activities was primarily due to a decrease in cash used for performance-based compensation payments (which are determined based on prior year performance) made during 2024 compared to 2023 and an increase in cash provided by inventory during 2024 compared to 2023, partially offset by a decrease in cash provided by accounts receivable.
Cash Flows from Investing Activities
Net cash used in investing activities was $37.2 million and $65.6 million during the nine months ended September 30, 2024 and 2023, respectively. Capital expenditures were $36.1 million and $67.7 million during the nine months ended September 30, 2024 and 2023, respectively.
Cash Flows from Financing Activities
Net cash used in financing activities was $75.1 million and $36.4 million for the nine months ended September 30, 2024 and 2023, respectively. Net debt decreased by $19.8 million and increased by $23.5 million for the nine months ended September 30, 2024 and 2023, respectively. For purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates. Dividends of $52.0 million and $51.9 million were paid during the nine months ended September 30, 2024 and 2023, respectively. Total dividends of $1.23 per share were paid for both the nine months ended September 30, 2024 and 2023.
CRITICAL ACCOUNTING POLICIES
There have been no material changes in the Company’s critical accounting policies during the quarter ended September 30, 2024. For additional information about the Company’s critical accounting policies, refer to “Critical Accounting Policies” under Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company’s exposure to market risk during the quarter ended September 30, 2024. 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, 2023.
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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 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 Vice President and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting: There have been no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS
See Part I, Item 1, Note 12, Commitments and Contingencies , of this report for information regarding legal proceedings in which the Company is involved.
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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, 2023.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On October 19, 2017, the Board of Directors authorized the repurchase of up to three million shares (2017 Authorization). As of September 30, 2024, 1,267,019 shares had been repurchased under the 2017 Authorization. There is no expiration date for the 2017 Authorization. The 2017 Authorization may be modified, suspended, or discontinued by the Board of Directors at any time. As of September 30, 2024, the maximum number of shares that may be purchased under publicly announced plans is 1,732,981. No shares were purchased by the Company during the three or nine months ended September 30, 2024.
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ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Arrangements
During the three months ended September 30, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Amendment to Term Loan
On October 31, 2024, the Company entered into Amendment No. 1 (the Amendment) to that certain Loan Agreement, by and between the Company and PNC Bank, National Association. The Amendment amends the Loan Agreement to, among other things, (i) extend the maturity date of the Loan Agreement to November 7, 2025, and (ii) set the margin on the borrowings, which was previously determined on the basis of the Company’s leverage ratio, to a fixed rate. The borrowings under the Loan Agreement bear interest on the unpaid principal amount at the Eurocurrency Rate (defined as reserve-adjusted EURIBOR) plus such margin.
The foregoing summary does not purport to be complete and is qualified in its entirety by reference to the Amendment, which is filed with this Quarterly Report on Form 10-Q as Exhibit 10.2 and is incorporated herein by reference.
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ITEM 6. EXHIBITS
The exhibits listed in the following Exhibit Index are filed as part of this Quarterly Report on Form 10-Q.
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SENSIENT TECHNOLOGIES CORPORATION
Anchor EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2024
| Exhibit | Description | Incorporated by Reference From |
|---|---|---|
| 10.1 | Amendment No. 11 to Receivables Purchase Agreement, dated as of August 30, 2024, among Sensient Receivables LLC, Sensient Technologies Corporation, and Wells Fargo Bank, National Association. | Exhibit 10.1 to Current Report on Form 8-K dated September 4, 2024 (Commission File No. 1-7626) |
| 10.2 | Amendment No. 1 to Loan Agreement, dated as of October 31, 2024, between Sensient Technologies Corporation and PNC Bank, National Association. | X |
| 31 | Certifications of the Company’s Chairman, President & Chief Executive Officer and Vice President & Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act | X |
| 32 | Certifications of the Company’s Chairman, President & Chief Executive Officer and 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 |
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SIGNATURES Anchor
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.
| /s/ John J. Manning |
|---|
| John J. Manning, Senior Vice President, General Counsel & Secretary |
| Date: |
|---|
| Tobin Tornehl, Vice President & Chief Financial Officer |
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