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:March 31,September 30, 2022 

OR

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

For the transition period fromto 

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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.10 per shareSXTNew 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 April 27,October 26, 2022
Common Stock, par value $0.10 per share 42,032,76142,037,685

SENSIENT TECHNOLOGIES CORPORATION
INDEXINDEX




Page No.




PART I. FINANCIAL INFORMATION:





Item 1.
Financial Statements:







Consolidated Statements of Earnings ‑ Three and Nine Months Ended March 31,September 30, 2022 and 2021.
1






Consolidated Condensed Statements of Comprehensive Income ‑ Three and Nine Months Ended March 31,September 30, 2022 and 2021.
2






Consolidated Balance Sheets - March 31,September 30, 2022 and December 31, 2021.
3






Consolidated Statements of Cash Flows ‑ ThreeNine Months Ended March 31,September 30, 2022 and 2021.
4






Consolidated Statements of Shareholders’ Equity ‑ Three and Nine Months Ended March 31,September 30, 2022 and 2021.
5






Notes to Consolidated Condensed Financial Statements.
6





Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 1416





Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
2023





Item 4.
Controls and Procedures.
2023




PART II. OTHER INFORMATION:





Item 1.
Legal Proceedings.
2123





Item 1A.
Risk Factors.
2123





Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
2123





Item 6.
Exhibits.
2123






Exhibit Index.
2224






Signatures.
23
25

Index

PART I.FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS

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

 
Three Months
Ended March 31,
 
       
Three Months
Ended September 30,
  
Nine Months
Ended September 30,
 
 2022  2021  2022  2021  2022  2021 
                  
Revenue $355,521  $359,702  $361,076  $344,287  $1,088,303  $1,039,816 
Cost of products sold  230,675   244,089   239,318   229,216   710,696   697,538 
Selling and administrative expenses  72,057   68,716   74,265   68,113   222,081   212,670 
Operating income  52,789   46,897   47,493   46,958   155,526   129,608 
Interest expense  2,993   3,433   3,672   3,037   9,748   9,792 
Earnings before income taxes  49,796   43,464   43,821   43,921   145,778   119,816 
Income taxes  12,725   11,796   7,773   10,009   34,012   28,300 
Net earnings $37,071  $31,668  $36,048  $33,912  $111,766  $91,516 
                        
Weighted average number of common shares outstanding:                        
Basic  41,865   42,263   41,896   42,024   41,885   42,140 
Diluted  42,148   42,389   42,242   42,206   42,199   42,287 
                        
Earnings per common share:                        
Basic $0.89  $0.75  $0.86  $0.81  $2.67  $2.17 
Diluted $0.88  $0.75  $0.85  $0.80  $2.65  $2.16 
                        
Dividends declared per common share $0.41  $0.39  $0.41  $0.39  $1.23  $1.17 
        

See accompanying notes to consolidated condensed financial statements.

1
Index


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

 
Three Months
Ended March 31,
 
  2022  2021 
       
Comprehensive income
 $36,834  $16,529 
 
Three Months
Ended September 30,
  
Nine Months
Ended September 30,
 
  2022  2021  2022  2021 
             
Comprehensive income $8,997  $18,680  $56,171  $79,454 

See accompanying notes to consolidated condensed financial statements.

2
Index

SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)


 
September 30,
2022
(Unaudited)
  
December 31,
2021
 
Assets 
March 31,
2022
(Unaudited)
  
December 31,
2021
       
      
Current Assets:            
Cash and cash equivalents $32,175  $25,740  $46,579  $25,740 
Trade accounts receivable  282,265   261,121   287,197   261,121 
Inventories  422,837   411,635   501,382   411,635 
Prepaid expenses and other current assets  46,081   42,657   45,582   42,657 
                
Total current assets  783,358   741,153   880,740   741,153 
                
Other assets  104,439   92,952   100,277   92,952 
Deferred tax assets  25,757   29,901   12,912   29,901 
Intangible assets, net  14,486   14,975   14,042   14,975 
Goodwill  415,328   420,034   390,798   420,034 
Property, Plant, and Equipment:                
Land  30,723   31,028   28,641   31,028 
Buildings  314,237   315,207   304,928   315,207 
Machinery and equipment  720,107   715,344   705,029   715,344 
Construction in progress  37,721   32,801   55,896   32,801 
  1,102,788   1,094,380   1,094,494   1,094,380 
Less accumulated depreciation  (657,537)  (647,902)  (654,055)  (647,902)
  445,251   446,478   440,439   446,478 
                
Total assets $1,788,619  $1,745,493  $1,839,208  $1,745,493 
                
Liabilities and Shareholders’ Equity
                
                
Current Liabilities:                
Trade accounts payable $114,858  $125,519  $132,904  $125,519 
Accrued salaries, wages, and withholdings from employees  28,388   40,939   40,918   40,939 
Other accrued expenses  45,903   46,292   54,283   46,292 
Income taxes  17,759   11,016   5,373   11,016 
Short-term borrowings  7,475   8,539   21,947   8,539 
                
Total current liabilities  214,383   232,305   255,425   232,305 
                
Deferred tax liabilities  14,178   14,349   16,489   14,349 
Other liabilities  39,902   28,829   37,736   28,829 
Accrued employee and retiree benefits  28,441   28,579   27,854   28,579 
Long-term debt  530,005   503,006   547,190   503,006 
Shareholders’ Equity:                
Common stock  5,396   5,396   5,396   5,396 
Additional paid-in capital  112,973   111,352   120,381   111,352 
Earnings reinvested in the business  1,650,588   1,630,713   1,690,813   1,630,713 
Treasury stock, at cost  (632,382)  (634,408)  (631,853)  (634,408)
Accumulated other comprehensive loss  (174,865)  (174,628)  (230,223)  (174,628)
                
Total shareholders’ equity  961,710   938,425   954,514   938,425 
                
Total liabilities and shareholders’ equity $1,788,619  $1,745,493  $1,839,208  $1,745,493 

See accompanying notes to consolidated condensed financial statements.

3
Index

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

 
Three Months
Ended March 31,
  
Nine Months
Ended September 30,
 
 2022  2021  2022  2021 
            
Cash flows from operating activities:            
Net earnings $37,071  $31,668  $111,766  $91,516 
Adjustments to arrive at net cash provided by operating activities:                
Depreciation and amortization  13,056   12,799   39,262   38,828 
Share-based compensation expense  4,163   2,113   12,476   6,431 
Net (gain) loss on assets  (48)  161 
Net loss on assets  283   203 
Loss on divestitures and other charges  0   1,238   -   13,774 
Deferred income taxes  4,211   4,257   20,465   3,793 
Changes in operating assets and liabilities:                
Trade accounts receivable  (20,841)  (27,237)  (39,520)  (35,290)
Inventories  (11,901)  27,621   (112,021)  (15,898)
Prepaid expenses and other assets  (11,111)  (13,239)  (39,598)  (15,016)
Accounts payable and other accrued expenses  (10,267)  (6,242)  24,110   24,007 
Accrued salaries, wages, and withholdings from employees  (12,425)  (10,872)  1,819   1,763 
Income taxes  7,063   5,742   (4,342)  (1,155)
Other liabilities  137   955   198   3,192 
                
Net cash (used in) provided by operating activities  (892)  28,964 
Net cash provided by operating activities  14,898   116,148 
                
Cash flows from investing activities:                
Acquisition of property, plant, and equipment  (12,736)  (14,244)  (51,703)  (37,608)
Proceeds from sale of assets  89   69   94   201 
Proceeds from divesture of businesses  0   4,059 
Proceeds from divestiture of businesses  -   36,790 
Acquisition of new business  (1,048)  (13,875)
Other investing activities  434   286   947   1,348 
                
Net cash used in investing activities  (12,213)  (9,830)  (51,710)  (13,144)
                
Cash flows from financing activities:                
Proceeds from additional borrowings  40,099   21,530   187,715   55,589 
Debt payments  (6,275)  (8,999)  (87,657)  (67,534)
Purchase of treasury stock  0   (11,665)  -   (31,467)
Dividends paid  (17,211)  (16,535)  (51,681)  (49,468)
Other financing activities  (1,679)  (228)  (2,056)  (582)
                
Net cash provided by (used in) financing activities  14,934   (15,897)  46,321   (93,462)
                
Effect of exchange rate changes on cash and cash equivalents  4,606   (7)  11,330   (1,373)
                
Net increase in cash and cash equivalents  6,435   3,230   20,839   8,169 
Cash and cash equivalents at beginning of period  25,740   24,770   25,740   24,770 
                
Cash and cash equivalents at end of period $32,175  $28,000  $46,579  $32,939 

See accompanying notes to consolidated condensed financial statements.

4
Index

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

 Common  
Additional
Paid-In
  
Earnings
Reinvested
in the
  Treasury Stock  
Accumulated
Other
Comprehensive
  Total 
Three Months Ended March 31, 2021
 Stock  Capital  Business  Shares  Amount  Income (Loss)  Equity 
Balances at December 31, 2020
 $5,396  $102,909  $1,578,662   11,647,627  $(593,540) $(159,091) $934,336 
Net earnings  0   0   31,668   -   0   0   31,668 
Other comprehensive loss  0   0   0   -   0   (15,139)  (15,139)
Cash dividends paid – $0.39 per share
  0   0   (16,535)  -   0   0   (16,535)
Share-based compensation  0   2,113   0   -   0   0   2,113 
Non-vested stock issued upon vesting  0   (563)  0   (11,045)  563   0   0 
Benefit plans
  0   338   0   (14,791)  756   0   1,094 
Purchase of treasury stock
  0   0   0   151,843   (11,665)  0   (11,665)
Other  0   (72)  0   3,020   (154)  0   (226)
Balances at March 31, 2021
 $5,396  $104,725  $1,593,795   11,776,654  $(604,040) $(174,230) $925,646 
 Common  
Additional
Paid-In
  
Earnings Reinvested
in the
  Treasury Stock  
Accumulated
Other
Comprehensive
  Total 
Three Months Ended Sept. 30, 2022
 Stock  Capital  Business  Shares  Amount  Income (Loss)  Equity 
Balances at June 30, 2022
 $5,396  $116,596  $1,672,000   12,058,773  $(631,853) $(203,172) $958,967 
Net earnings  -   -   36,048   -   -   -   36,048 
Other comprehensive loss
  -   -   -   -   -   (27,051)  (27,051)
Cash dividends paid – $0.41 per share
  -   -   (17,235)  -   -   -   (17,235)
Share-based compensation  -   3,785   -   -   -   -   3,785 
Balances at September 30, 2022
 $5,396  $120,381  $1,690,813   12,058,773  $(631,853) $(230,223) $954,514 

Three Months Ended March 31, 2022
                     
Balances at December 31, 2021
 $5,396  $
111,352  $
1,630,713   12,107,549  $
(634,408) $
(174,628) $
938,425 
Net earnings  0   0   37,071   -   0   0   37,071 
Other comprehensive loss  0   0   0   -   0   (237)  (237)
Cash dividends paid – $0.41 per share
  0   0   (17,211)  -   0   0   (17,211)
Share-based compensation  0   4,163   0   -   0   0   4,163 
Non-vested stock issued upon vesting  0   (2,478)  0   (47,298)  2,478   0   0 
Benefit plans  0   560   0   (11,786)  618   0   1,178 
Other  0   (624)  15   20,403   (1,070)  0   (1,679)
Balances at March 31, 2022
 $5,396  $
112,973  $
1,650,588   12,068,868  $
(632,382) $
(174,865) $
961,710 
Three Months EndedSept. 30, 2021
Balances at June 30, 2021
 $5,396  $105,967  $1,603,239   11,892,497  $(614,404) $(155,921) $944,277 
Net earnings  -   -   33,912   -   -   -   33,912 
Other comprehensive loss
  -   -   -   -   -   (15,232)  (15,232)
Cash dividends paid – $0.39 per share
  -   -   (16,441)  -   -   -   (16,441)
Share-based compensation  -   2,243   -   -   -   -   2,243 
Purchase of treasury stock
  -
   -
   -
   105,600
   (9,367)  -
   (9,367)
Balances at September 30, 2021
 $5,396  $108,210  $1,620,710   11,998,097  $(623,771) $(171,153) $939,392 

Nine Months Ended September 30, 2022
Balances at December 31, 2021
 $5,396  $111,352  $1,630,713   12,107,549  $(634,408) $(174,628) $938,425 
Net earnings  -   -   111,766   -   -   -   111,766 
Other comprehensive loss
  -   -   -   -   -   (55,595)  (55,595)
Cash dividends paid – $1.23 per share
  -   -   (51,681)  -   -   -   (51,681)
Share-based compensation  -   12,476   -   -   -   -   12,476 
Non-vested stock issued upon vesting  -   (3,239)  -   (61,821)  3,239   -   - 
Benefit plans  -   560   -   (11,786)  618   -   1,178 
Other  -   (768)  15   24,831   (1,302)  -   (2,055)
Balances at September 30, 2022
 $5,396  $120,381  $1,690,813   12,058,773  $(631,853) $(230,223) $954,514 

Nine Months Ended September 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  -   -   91,516   -   -   -   91,516 
Other comprehensive loss
  -   -   -   -   -   (12,062)  (12,062)
Cash dividends paid – $1.17 per share
  -   -   (49,468)  -   -   -   (49,468)
Share-based compensation  -   6,431   -   -   -   -   6,431 
Non-vested stock issued upon vesting  -   (1,264)  -   (24,711)  1,264   -   - 
Benefit plans  -   338   -   (14,791)  756   -   1,094 
Purchase of treasury stock  -
   -
   -
   382,593
   (31,874)  -
   (31,874)
Other  -   (204)  -   7,379   (377)  -   (581)
Balances at September 30, 2021
 $5,396  $108,210  $1,620,710   11,998,097  $(623,771) $(171,153) $939,392 

See accompanying notes to consolidated condensed financial statements.

5
Index

SENSIENT TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

1.Accounting Policies

In the opinion of Sensient Technologies Corporation (the Company), the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) that are necessary to present fairly the financial position of the Company as of March 31,September 30, 2022, and the results of operations, comprehensive income, cash flows, and shareholders’ equity for the three and nine months ended March 31,September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.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. Certain prior period amounts disclosed have been reclassified to conform to the current period presentation.

Recently Issued Accounting Pronouncements

In March 2020, the FASBFinancial Accounting Standards Board (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, 2021, 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

On June 30, 2020, the Company completed the sale of its inks product line. On September 18, 2020, the Company completed the sale of its yogurt fruit preparations product line. This sale also included an earnout 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) for $36.3$36.3 million of net cash.

The Company reports all costs associated with the divestitures in Corporate & Other. There were 0no costs associated with the divestitures for the three and nine months ended March 31,September 30, 2022.

The following table summarizes the divestiture & other related costs for the three months ended March 31,September 30, 2021:

(In thousands) Yogurt Fruit Preparations  Fragrances  Inks  
Corporate &
Other
  Total  Yogurt Fruit Preparations  Fragrances  Inks  
Corporate &
Other
  Total 
Non-cash charges – Cost of products sold $0  $34  $(9) $0  $25 
Other costs - Selling and administrative expenses(1)
  265   1,014   (107)  375   1,547  $
102  $
149  $
(157) $
147  $
241 
Total $265  $1,048  $(116) $375  $1,572 



(1)		Other costs – Selling and administrative expenses include employee separation costs, professional services, accelerated depreciation, and other related costs and income.
The following table summarizes the divestiture & other related costs for the nine months ended September 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)
  631   1,365   (362)  584   2,218 
Total $631  $12,657  $(371) $584  $13,501 


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

6
Index
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. Based upon an environmental investigation and a quantitative risk assessment performed by a consultant hired by the Company, the Company recorded $0.3 million related to these obligations in Selling and Administrative Expenses during the threenine months ended March 31,September 30, 2021.

6
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 combined 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 centralized 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 and income associated with the Operational Improvement Plan in Corporate & Other. There were 0no costs associated with the Operational Improvement Plan for the three and nine months ended March 31,September 30, 2022.

The following table summarizes the Operational Improvement Plan expenses recorded in Selling and Administrative Expenses by segment for the three months ended March 31,September 30, 2021:

(In thousands) 
Flavors &
Extracts
  Color  
Asia
Pacific
  Consolidated  
Flavors &
Extracts
  Color  Asia Pacific  Consolidated 
Employee separation costs 
$
(19
)
 
$
54
  
$
(44
) 
$
(9
)
 $1  $(120) $(4) $(123)
Other costs(1)
  
0
   
1,009
   
1
   
1,010
   -   605   1   606 
Total
 
$
(19
)
 
$
1,063
  
$
(43
) 
$
1,001
 
Total expense (income) $1  $485  $(3) $483 


(1)Other costs include professional services, accelerated depreciation, and other related costs.

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


(In thousands)		 
Flavors &
Extracts
  Color  Asia Pacific  Consolidated 
Employee separation costs $(15) $(40) $(72) $(127)
Other income(1)
  -
   (3,624)  -   (3,624)
Other costs(2)
  -
   1,739   2   1,741 
Total expense (income) $(15) $(1,925) $(70) $(2,010)


(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 March 31,September 30, 2022 and December 31 2021, accrued liabilities in Other Accrued Expenses totaled $0.5$0.3 million and $0.8 million, respectively, related to the Operational Improvement Plan.Plan.

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4.Acquisition

On July 15, 2021, the Company acquired substantially all of the assets of Flavor Solutions, Inc., a flavors business located in New Jersey. The purchase price for this acquisition was $14.9 million in cash with approximately $1.0 million of such amount being held back by the Company for 12 months in order to satisfy post-closing indemnification claims that may arise.cash. The assets acquired and liabilities assumed were recorded at their estimated fair value as of the acquisition date. The Company acquired net assets of $0.4 million and identified intangible assets, principally customer relationships, of $5.0 million. The remaining $9.5 million was allocated to goodwill. This business is now part of the Flavors & Extracts segment.

5.5.
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 1one 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.
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Index

The following table summarizes the changes in the allowance for doubtful accounts during the three and nine month periods ended March 31,September 30, 2022 and 2021:

(In thousands)
Three Months Ended March 31, 2022
 
Allowance for
Doubtful Accounts
 
Balance at December 31, 2021
 
$
4,877
 
Provision for expected credit losses  
285
 
Accounts written off  
(367
)
Translation and other activity  
117
 
Balance at March 31, 2022
 
$
4,912
 

(In thousands)
Three Months Ended March 31, 2021
 
Allowance for
Doubtful Accounts
 
Balance at December 31, 2020 
$
3,891
 
(In thousands)
Three Months Ended September 30, 2022
 
Allowance for
Doubtful Accounts
 
Balance at June 30, 2022
 $4,494 
Provision for expected credit losses  
156
   51 
Accounts written off  
(353
)
  (33)
Translation and other activity  
(80
)
  (105)
Balance at March 31, 2021
 
$
3,614
 
Balance at September 30, 2022 $4,407 

(In thousands)
Three Months Ended September 30, 2021
 
Allowance for
Doubtful Accounts
 
Balance at June 30, 2021
 $3,749 
Provision for expected credit losses  186 
Accounts written off  (41)
Translation and other activity  (65)
Balance at September 30, 2021
 $3,829 

(In thousands)
Nine Months Ended September 30, 2022
 
Allowance for
Doubtful Accounts
 
Balance at December 31, 2021 $4,877 
Provision for expected credit losses  883 
Accounts written off  (1,129)
Translation and other activity  (224)
Balance at September 30, 2022 $4,407 

(In thousands)
Nine Months Ended September 30, 2021
 
Allowance for
Doubtful Accounts
 
Balance at December 31, 2020 $3,891 
Provision for expected credit losses  480
 
Accounts written off  (414)
Translation and other activity  (128)
Balance at September 30, 2021 $3,829 

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Index
6.Inventories
 
At March 31,September 30, 2022, and December 31, 2021, inventories included finished and in-process products totaling $279.4$332.1 million and $280.2 million, respectively, and raw materials and supplies of $143.4$169.3 million and $131.4 million, respectively.

7.Debt

On August 31,2022, the Company entered into Amendment No. 9 (Amendment) to the Receivables Purchase Agreement, dated as of October 3,2016. The Amendment increased the facility limit from $30 million to $85 million and extended the maturity date from October 1, 2022 to August 31, 2023. The Amendment also changed the interest rate benchmark from the London Interbank Offered Rate to the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York and modified certain other provisions.

8.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 March 31,September 30, 2022 and December 31, 2021. 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 $0.3 million and $0.1 million as of March 31,September 30, 2022 and December 31, 2021, 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 March 31,September 30, 2022 and December 31, 2021 was $530.5$547.7 million and $503.5 million, respectively. The fair value of the long-term debt at March 31,September 30, 2022 and December 31, 2021 was $537.2$539.1 million and $520.0 million, respectively.

8.9.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 planthe 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 3three 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, and/orand 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 cosmetics, 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 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.
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Index

Divestiture & other related costs and restructuring and other costs, including the Operational Improvement Plan costs, for the three and nine months ended March 31,September 30, 2021, 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. There were 0no divestiture & other related costs or Operational Improvement Plan costs for the three and nine months ended March 31,September 30, 2022. In addition, the Company’s corporate expenses and share-based compensation are included in Corporate & Other.

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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  
Flavors &
Extracts
  Color  
Asia
Pacific
  
Corporate
& Other
  Consolidated 
Three months ended March 31, 2022:
               
Three months ended September 30, 2022:
               
Revenue from external customers $175,202  $143,928  $36,391  $0  $355,521  $181,397  $144,570  $35,109  $-  $361,076 
Intersegment revenue  7,525   4,510   74   0   12,109   5,649   6,899   112   -   12,660 
Total revenue $182,727  $148,438  $36,465  $0  $367,630  $187,046  $151,469  $35,221  $-  $373,736 
                                        
Operating income (loss) $27,579  $30,657  $8,204  $(13,651) $52,789  $26,337  $28,200  $6,952  $(13,996) $47,493 
Interest expense  0   0   0   2,993   2,993   -   -   -   3,672   3,672 
Earnings (loss) before income taxes $27,579  $30,657  $8,204  $(16,644) $49,796  $26,337  $28,200  $6,952  $(17,668) $43,821 
                                        
Three months ended March 31, 2021:
                    
Three months ended September 30, 2021:
                    
Revenue from external customers $194,661  $131,201  $33,840  $0  $359,702  $175,690  $135,395  $33,202  $-  $344,287 
Intersegment revenue  6,250   4,519   0   0   10,769   5,977   3,844   240   -   10,061 
Total revenue $200,911  $135,720  $33,840  $0  $370,471  $181,667  $139,239  $33,442  $-  $354,348 
                                        
Operating income (loss) $27,018  $26,594  $6,752  $(13,467) $46,897  $25,164  $27,253  $6,601  $(12,060) $46,958 
Interest expense  0   0   0   3,433   3,433   -   -   -   3,037   3,037 
Earnings (loss) before income taxes $27,018  $26,594  $6,752  $(16,900) $43,464  $25,164  $27,253  $6,601  $(15,097) $43,921 

(In thousands) 
Flavors &
Extracts
  Color  
Asia
Pacific
  
Corporate
& Other
  Consolidated 
Nine months ended September 30, 2022:
               
Revenue from external customers $539,014  $440,568  $108,721  $-  $1,088,303 
Intersegment revenue  20,096   15,607   293   -   35,996 
Total revenue $559,110  $456,175  $109,014  $-  $1,124,299 
                     
Operating income (loss) $83,929  $90,035  $22,877  $(41,315) $155,526 
Interest expense  -   -   -   9,748   9,748 
Earnings (loss) before income taxes $83,929  $90,035  $22,877  $(51,063) $145,778 
                     
Nine months ended September 30, 2021:
                    
Revenue from external customers $545,050  $395,426  $99,340  $-  $1,039,816 
Intersegment revenue  16,929   12,740   259   -   29,928 
Total revenue $561,979  $408,166  $99,599  $-  $1,069,744 
                     
Operating income (loss) $76,718  $79,462  $19,146  $(45,718) $129,608 
Interest expense  -   -   -   9,792   9,792 
Earnings (loss) before income taxes $76,718  $79,462  $19,146  $(55,510) $119,816 

Product Lines

(In thousands) Flavors & Extracts  Color  Asia Pacific  Consolidated  
Flavors &
Extracts
  Color  Asia Pacific  Consolidated 
Three months ended March 31, 2022:
            
Three months ended September 30, 2022:
            
Flavors, Extracts & Flavor Ingredients $126,518  $-  $-  $126,518  $123,945  $-  $-  $123,945 
Natural Ingredients  56,209   -   -   56,209   63,101   -   -   63,101 
Food & Pharmaceutical Colors  -   103,109   -   103,109   -   111,194   -   111,194 
Personal Care  -   44,846   -   44,846   -   39,689   -   39,689 
Inks  -   483   -   483   -   586   -   586 
Asia Pacific  -   -   36,465   36,465   -   -   35,221   35,221 
Intersegment Revenue  (7,525)  (4,510)  (74)  (12,109)  (5,649)  (6,899)  (112)  (12,660)
Total revenue from external customers $175,202  $143,928  $36,391  $355,521  $181,397  $144,570  $35,109  $361,076 
                                
Three months ended March 31, 2021:
                
Three months ended September 30, 2021:
                
Flavors, Extracts & Flavor Ingredients $113,818  $-  $-  $113,818  $116,140  $-  $-  $116,140 
Natural Ingredients  62,204   -   -   62,204   64,215   -   -   64,215 
Fragrances  22,739   -   -   22,739 
Yogurt Fruit Preparations  2,150   -   -   2,150   1,312   -   -   1,312 
Food & Pharmaceutical Colors  -   93,785   -   93,785   -   99,688   -   99,688 
Personal Care  -   41,515   -   41,515   -   39,241   -   39,241 
Inks  -   420   -   420   -   310   -   310 
Asia Pacific  -   -   33,840   33,840   -   -   33,442   33,442 
Intersegment Revenue  (6,250)  (4,519)  0   (10,769)  (5,977)  (3,844)  (240)  (10,061)
Total revenue from external customers $194,661  $131,201  $33,840  $359,702  $175,690  $135,395  $33,202  $344,287 

910
Index
(In thousands) 
Flavors &
Extracts
  Color  Asia Pacific  Consolidated 
Nine months ended September 30, 2022:
            
Flavors, Extracts & Flavor Ingredients $381,041  $-  $-  $381,041 
Natural Ingredients  178,069   -   -   178,069 
Food & Pharmaceutical Colors  -   328,087   -   328,087 
Personal Care  -   126,651   -   126,651 
Inks  -   1,437   -   1,437 
Asia Pacific  -   -   109,014   109,014 
Intersegment Revenue  (20,096)  (15,607)  (293)  (35,996)
Total revenue from external customers $539,014  $440,568  $108,721  $1,088,303 
                 
Nine months ended September 30, 2021:                
Flavors, Extracts & Flavor Ingredients $347,642  $-  $-  $347,642 
Natural Ingredients  186,721   -   -   186,721 
Fragrances  22,739   -   -   22,739 
Yogurt Fruit Preparations  4,877   -   -   4,877 
Food & Pharmaceutical Colors  -   287,565   -   287,565 
Personal Care  -   119,079   -   119,079 
Inks  -   1,522   -   1,522 
Asia Pacific  -   -   99,599   99,599 
Intersegment Revenue  (16,929)  (12,740)  (259)  (29,928)
Total revenue from external customers $545,050  $395,426  $99,340  $1,039,816 

Geographic Markets

(In thousands) Flavors & Extracts  Color  Asia Pacific  Consolidated  
Flavors &
Extracts
  Color  Asia Pacific  Consolidated 
Three months ended March 31, 2022:
            
Three months ended September 30, 2022:
            
North America $126,702  $69,928  $58  $196,688  $142,097  $74,220  $27  $216,344 
Europe  32,605   41,978   81   74,664   26,795   34,591   44   61,430 
Asia Pacific  9,737   16,016   33,982   59,735   7,091   16,770   34,433   58,294 
Other  6,158   16,006   2,270   24,434   5,414   18,989   605   25,008 
Total revenue from external customers $175,202  $143,928  $36,391  $355,521  $181,397  $144,570  $35,109  $361,076 
                                
Three months ended March 31, 2021:
                
Three months ended September 30, 2021:
                
North America $129,643  $63,670  $25  $193,338  $131,855  $67,830  $5  $199,690 
Europe  44,568   37,278   22   81,868   30,241   37,004   30   67,275 
Asia Pacific  9,717   14,838   32,558   57,113   6,410   14,451   32,511   53,372 
Other  10,733   15,415   1,235   27,383   7,184   16,110   656   23,950 
Total revenue from external customers $194,661  $131,201  $33,840  $359,702  $175,690  $135,395  $33,202  $344,287 

(In thousands) 
Flavors &
Extracts
  Color  Asia Pacific  Consolidated 
Nine months ended September 30, 2022:
            
North America $407,684  $223,508  $87  $631,279 
Europe  90,565   116,184   175   206,924 
Asia Pacific  23,628   49,199   105,222   178,049 
Other  17,137   51,677   3,237   72,051 
Total revenue from external customers $539,014  $440,568  $108,721  $1,088,303 
                 
Nine months ended September 30, 2021:
                
North America $390,163  $188,764  $67  $578,994 
Europe  107,463   112,188   106   219,757 
Asia Pacific  24,288   47,832   96,863   168,983 
Other  23,136   46,642   2,304   72,082 
Total revenue from external customers $545,050  $395,426  $99,340  $1,039,816
 

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Index
9.10.Retirement Plans

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


 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
(In thousands) 2022  2021  2022  2021 
Service cost $404  $435  $1,219  $1,308 
Interest cost  235   212   719   638 
Expected return on plan assets  (194)  (184)  (598)  (553)
Recognized actuarial loss  12   69   36   207 
Total defined benefit expense $457  $532  $1,376  $1,600 

 
Three Months Ended
March 31,
 

(In thousands)
 2022  2021 
Service cost $408  $436 
Interest cost  244   212 
Expected return on plan assets  (205)  (184)
Recognized actuarial loss  12   69 
Total defined benefit expense $459  $533 

The Company’s non-service cost portion of defined benefit expense is recorded in Interest Expenseon 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.

10.11.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 $35.9$35.6 million and $48.7$48.6 million of forward exchange contracts designated as cash flow hedges outstanding as of March 31,September 30, 2022 and December 31, 2021, respectively. For the three months ended September March 31,30, 2022 and 2021, the amounts reclassified into net earnings in the Company’s Consolidated Statement of Earnings that offset the underlying transactions’ impact on earnings in the same period were not material. For the nine months ended September 30, 2022 and 2021, gains of $0.6 million and $1.1 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. 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.statements of the Company.

Net investment hedges – The Company has designated certain foreign currency denominated long-term borrowings as partial hedges of the Company’s foreign currency net asset positions. As of March 31,September 30, 2022 and December 31, 2021, the total value of the Company’s net investment hedges was $281.6$247.1 million and $289.5 million, respectively. These net investment hedges included Euro and British Pound denominated long-term debt. Changes in the fair value of this debt attributable to changes in the spot foreign exchange rate are recorded in foreign currency translation in Other Comprehensive Income (OCI). For the three months ended March 31,September 30, 2022 and 2021, the impact of foreign exchange rates on these debt instruments decreased debt by $7.9$18.4 million and $9.67.2 million, respectively, which has been recorded as foreign currency translation in OCI. For the nine months ended September 30, 2022 and 2021, the impact of foreign exchange rates on these debt instruments decreased debt by $42.4 million and $14.1 million, respectively, which has been recorded as foreign currency translation in OCI. For the nine months ended September 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.

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Index
11.12.Income Taxes

The effective income tax rates for the three months ended March 31,September 30, 2022 and 2021, were 25.6%17.7% and 27.1%22.8%, respectively. For the nine months ended September 30, 2022 and 2021, the effective income tax rates were 23.3% and 23.6%, respectively. The effective tax rates for the three and nine months ended March 31,September 30, 2022 and 2021, were both impacted by changes in estimates associated with the finalization of prior year foreign tax items, and the mix of foreign earnings.earnings, and changes in valuation allowances. The three and nine months ended September 30, 2021, were also impacted by audit settlements and changes in deferred tax assets and liabilities due to newly enacted tax rates.

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Index
12.13.Accumulated Other Comprehensive Income

The following table summarizes the changes in OCI during the three and nine month periods ended March 31,September 30, 2022 and 2021:

(In thousands) 
Cash Flow
Hedges (1)
  
Pension Items (1)
  
Foreign
Currency
Items
  Total  
Cash Flow
Hedges (1)
  
Pension
Items (1)
  
Foreign
Currency
Items
  Total 
Balances at December 31, 2021
 $206  $(353) $(174,481) $(174,628) $206  $(353) $(174,481) $(174,628)
Other comprehensive income (loss) before reclassifications  242   0   (145)  97   516   -   (55,514)  (54,998)
Amounts reclassified from OCI  (342)  8   0   (334)  (621)  24   -   (597)
Balances at March 31, 2022
 $106  $(345) $(174,626) $(174,865)
Balances at September 30, 2022
 $101 $(329) $(229,995) $(230,223)

(In thousands) 
Cash Flow
Hedges (1)
  
Pension Items (1)
  
Foreign
Currency
Items
  Total  
Cash Flow
Hedges (1)
  
Pension
Items (1)
  
Foreign
Currency
Items
  Total 
Balances at December 31, 2020
 $749  $(1,965) $(157,875) $(159,091)
Balances at June 30, 2022
 $(152)  $(337) $(202,683) $(203,172)
Other comprehensive income (loss) before reclassifications  720   0   (15,623)  (14,903)  380  -   (27,312)  (26,932)
Amounts reclassified from OCI  (289)  52   1   (236)  (127)  8   -   (119)
Balances at March 31, 2021
 $1,180  $(1,913) $(173,497) $(174,230)
Balances at September 30, 2022
 $101 $(329) $(229,995) $(230,223)

(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  729   -   (22,073)  (21,344)
Amounts reclassified from OCI  (1,068)  156   10,194   9,282 
Balances at September 30, 2021
 $410  $(1,809) $(169,754) $(171,153)

(In thousands) 
Cash Flow
Hedges (1)
  
Pension
Items (1)
  
Foreign
Currency
Items
  Total 
Balances at June 30, 2021
 $817  $(1,861) $(154,877) $(155,921)
Other comprehensive loss before reclassifications  (115)  -   (14,877)  (14,992)
Amounts reclassified from OCI  (292)  52   -   (240)
Balances at September 30, 2021
 $410  $(1,809) $(169,754) $(171,153)


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

13.14.Commitments and Contingencies


AgarKelley 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 againstWalters v. 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.

SNI maintains that it has accurately paid AgarSofia Rodriguez v. Sensient Natural Ingredients LLC 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.
One Source Staffing Solutions, Inc.

1113
Index
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. Oral argument was held on April 5, 2022. On April 18, 2022, the Court of Appeal ruled that a peremptory writ of mandate should be issued directing the trial court to set aside its prior order overruling SNI’s Demurrer to the complaint and to enter an order sustaining SNI’s Demurrer without leave to amend, which has the effect of dismissing Agar’s complaint against SNI. The Court of Appeal’s decision becomes final thirty days after issuance. Agar has ten days from the date that the Court of Appeal’s decision becomes final to file a petition for review with the California Supreme Court.

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.Following motion practice, Ms. Kelley has amended her original pleading, asserting the same causes of action, to whichand SNI has filed a responsive pleading. The parties have begun discovery.
then entered the discovery process.



On June 15, 2020,April 26, 2021, the same law firm representing Ms. Kelley also filed an additional 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. On July 30, 2021, Mr. Walters filed a Complaint in Merced County Superior Court asserting the claims set forth in his PAGA notice. SNI filed its Answer and Affirmative Defenses in response. Ms. Kelley and Mr. Walters have agreed to attempt a joint mediation with Ms. Sofia Rodriguez (see case description below), which is scheduled for August 2022. SNI intends to vigorously defend its interests in both the Kelley and Walters matters, absent a reasonable resolution.

12
Index
Sofia Rodriguez v. Sensient Natural Ingredients LLC and One Source Staffing Solutions, Inc.


On June 10, 2021, Sofia Rodriguez filed notice with the State of California of the intent to pursue a claim on a representative basis pursuant to PAGA. The notice was served on behalf of Ms. Rodriguez, who worked at SNI through One Source Staffing Solutions, Inc. for five months in 2020. The notice states the intent to pursue relief on behalf of Ms. Rodriguez as well as other alleged aggrieved employees, identified as all non-exempt employees who worked for Defendants in the State of California, and who were paid on an hourly basis. The notice alleges that SNI failed to allow Ms. Rodriguez and the other alleged aggrieved employees to take statutorily required meal and rest periods. The notice further alleges that Defendants suffered and permitted Ms. Rodriguez and other alleged aggrieved employees to work off the clock, failed to pay for all hours worked, failed to properly provide or compensate for minimum and overtime wages, failed to issue compliant wage statements, and failed to pay wages owed upon termination of employment, in violation of the California Labor Code. Ms. Rodriguez also asserts that she was taken off the schedule and not returned to work after complaining about the alleged wage and hour violations set forth in the PAGA notice. On August 17, 2021, Ms. Rodriguez filed a Complaint in Stanislaus County Superior Court asserting the claims set forth in her PAGA notice. SNI filed its Answer and Affirmative Defenses in response. Ms. Rodriguez has



Previously, SNI had agreed to attempt a joint mediation with Ms. Moniqueof the Kelley, Walters, and Mr. Patrick Walters (see case descriptions above),Rodriguez matters, which iswas scheduled for August 2022.  Before the mediation occurred, however, on June 15, 2022, the United States Supreme Court issued its decision in Viking River Cruises, Inc. v. Moriana, 596 U.S. ___ (2022), in which the Court ruled that the Federal Arbitration Act requires enforcement of an arbitration agreement that waives an employee’s right to bring individual claims under PAGA, and that an individual with such an agreement to arbitrate does not have standing to pursue the remaining non-individual claims in Court.  As a result of the decision, SNI withdrew its agreement to mediate.



In the Walters case, SNI has demanded that Walters submit his individual PAGA claims to arbitration in accordance with his arbitration agreement.  Pending litigation in the California Supreme Court concerning the standing issue addressed in Viking River Cruises may result in a stay of the Walters case.  In the Kelley and Rodriguez cases, SNI will seek to compel individual arbitration as to any claims made on behalf of individuals with arbitration agreements.  In addition, in the Kelley matter, SNI intends to seek summary judgment based upon a prior adjudication, in which Kelley settled claims that she now asserts against SNI.  In the Rodriguez case, SNI also intends to seek indemnification and contribution from the staffing firm that supplied the temporary workers in question.



SNI intends to vigorously defend its interests in the Kelley, Walters, and Rodriguez matter,matters, absent a reasonable resolution.
  Based upon the legal developments and defenses described above, and the Viking River Cruises decision, we no longer believe these proceedings are material to the business or the financial condition of the Company nor do we expect the liabilities, if any, which may ultimately result from such lawsuits to have a material adverse effect on our consolidated financial statements.


14
Index

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.



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

14.15.Subsequent EventEvents

On October 3, 2022, the Company acquired Endemix Doğal Maddeler A.Ş. and Teknoloji Yatırımları ve Danışmanlık Sanayi ve Ticaret A.Ş. (collectively, Endemix), a natural colors business located in Turkey. The Company paid $23.7 million in cash for this acquisition, which is net of $1.3 million in debt assumed, with $2.0 million of such amount being held back by the Company for 12 months in connection with the post-closing working capital adjustment and to satisfy any indemnification claims that may arise. This business will be part of the Colors segment.

On April 28,October 20, 2022, the Company announced its quarterly dividend of $0.41 per share would be payable on JuneDecember 1, 2022.

1315

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 March 31,September 30, 2022, 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;suppliers, the availability and cost of raw materials, energy, and other supplies;supplies, the availability and cost of labor, logistics, and transportation; governmental regulations and restrictions, and general economic conditions, including inflation; the uncertain impacts of the ongoing conflict between Russia and Ukraine on our supply chain, input costs, including energy and transportation, and generally on general economic conditions; governmental regulations and restrictions; and general economic conditions, including inflation; 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 in Part II of this Quarterly Report on Form 10-Q and Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2021, as updated and supplemented in Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022. Except to the extent required by applicable law, the Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

OVERVIEW

Revenue
Revenue was $355.5$361.1 million and $359.7$344.3 million for the three months ended March 31,September 30, 2022 and 2021, respectively.  Revenue was $1.1 billion and $1.0 billion for the nine months ended September 30, 2022 and 2021, respectively. The decreaseincrease in revenue for the three months ended September 30, 2022, was primarily due to higher selling prices.  The increase in revenue for the nine months ended September 30, 2022, was primarily due to higher selling prices and volumes, partially offset by the sale of the Company’s Fragrances product line on April 1, 2021, partially offset by favorable pricing and volumes.2021.  For the three and nine months ended March 31,September 30, 2022, the impact of foreign exchange rates decreased consolidated revenue by approximately 2%.4% and 3%, respectively.

Gross ProfitMargin
The Company’s gross margin was 35.1%33.7% and 32.1%33.4% for the three months ended March 31,September 30, 2022 and 2021, respectively. The Company’s gross margin was 34.7% and 32.9% for the nine months ended September 30, 2022 and 2021, respectively. The increase in gross margin for both the three and nine months ended September 30, 2022, was primarily due to an increase inincreased pricing and volumes, partially offset by higher input costs.costs and unfavorable product mix.

Selling and Administrative Expenses
Selling and administrative expense as a percent of revenue was 20.3%20.6% and 19.1%19.8% for the three months ended March 31,September 30, 2022 and 2021, respectively. The increase in sellingSelling and administrative expensesexpense as a percent of revenue was primarily due to an increase in expenses in20.4% and 20.5% for the Color segmentnine months ended September 30, 2022 and higher performance-based executive compensation recorded in Corporate & Other, partially offset by divestiture & other related expenses and operational improvement plan costs in the prior period.2021, respectively.

Selling and administrative expenses for the three and nine months ended March 31,September 30, 2021, included divestiture & other related expenses and operational improvement plan costs and income totaling $2.5 million.$0.7 million and $11.5 million, respectively. There were no divestiture & other related costs or operational improvement plan costs for the three or nine months ended March 31,September 30, 2022. These expenses

16
The increase in selling and administrative expense as a percent of revenue for the three months ended September 30, 2022 is primarily due to higher performance-based executive compensation in 2022, partially offset by the lack of divestiture & other related costs and operational improvement plan costs in 2022.  The decrease in selling and administrative expense as a percent of revenue for the nine months ended September 30, 2022, is primarily due to the lack of divestiture & other related costs and operational improvement plan costs in 2022, substantially offset by higher performance-based executive compensation in 2022. The divestiture & other related costs and operational improvement plan costs increased selling and administrative expense as a percent of revenue by 7020 and 110 basis points for the three and nine months ended March 31, 2021.September 30, 2021, respectively.

Operating Income
Operating income was $52.8$47.5 million and $46.9$47.0 million for the three months ended March 31,September 30, 2022 and 2021, respectively. Operating margins were 14.8%13.2% and 13.0%13.6% for the three months ended March 31,September 30, 2022 and 2021, respectively. The decrease in operating margin is primarily due to higher input costs and unfavorable product mix, partially offset by higher pricing and volumes and the lack of divestiture & other related costs and operational improvement plan costs in the current period.

Operating income was $155.5 million and $129.6 million for the nine months ended September 30, 2022 and 2021, respectively. Operating margins were 14.3% and 12.5% for the nine months ended September 30, 2022 and 2021, respectively. The increase in operating margin is primarily due to higher pricing and volumes and the lack of divestiture & other related costs and operational improvement plan costs in the current period, partially offset by higher performance-based executive compensation recorded in Corporate & Otherinput costs and unfavorable product mix.

14
Interest Expense
Interest expense was $3.0$3.7 million and $3.4$3.0 million for the three months ended March 31,September 30, 2022 and 2021, respectively, and $9.7 million and $9.8 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in expense for the three months ended September 30, 2022, was primarily due to a higher average debt balance and higher average interest rate compared to the comparable prior year period.  The decrease in expense for the nine months ended September 30, 2022, was primarily due to the lower average interest rate in the current period compared to the comparable prior year period.

Income Taxes
The effective income tax rates for the three months ended March 31,September 30, 2022 and 2021, were 25.6%17.7% and 27.1%22.8%, respectively. For the nine months ended September 30, 2022 and 2021, the effective income tax rates were 23.3% and 23.6%, respectively. The effective tax rates for the three and nine months ended March 31,September 30, 2022 and 2021, were both impacted by changes in estimates associated with the finalization of prior year foreign tax items, and the mix of foreign earnings.earnings, and changes in valuation allowances. The three and nine months ended September 30, 2021, were also impacted by audit settlements and changes in deferred tax assets and liabilities due to newly enacted tax rates.

Divestitures
On June 30, 2020, the Company completed the sale of its inks product line. On September 18, 2020, the Company completed the sale of its yogurt fruit preparations product line. This sale also included an earnout 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) for $36.3 million of net cash.

InFor the three and nine months ended March 31,September 30, 2021, the Company incurred $1.6costs of $0.2 million and $13.5 million, respectively, related to the divestitures,divestitures.  The costs incurred in the nine month period primarily related to a non-cash net loss for costs associated with employee separationthe reclassification of accumulated foreign currency translation and accelerated depreciationrelated items from Accumulated Other Comprehensive Loss to Selling and Administrative Expenses in the Consolidated Statements of fixed assets.Earnings.  There were no costs related to the divestitures incurred during the three or nine months ended March 31,September 30, 2022.

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 combined 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 centralized 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.

17
In the three and nine months ended March 31,September 30, 2021, the Company incurred $1.0recorded costs of $0.5 million and income of $2.0 million, respectively, related to the Operational Improvement Plan recordedPlan.  The income in Corporate & Other,the nine month period primarily for costsrelated to the gain associated with exiting itsthe terminated New Jersey cosmetics manufacturing facility.lease.  There were no costs or income related to the Operational Improvement Plan incurred during the three or nine months ended March 31,September 30, 2022.

Acquisition
On July 15, 2021, the Company acquired substantially all of the assets of Flavor Solutions, Inc., a flavors business located in New Jersey. The purchase price for this acquisition was $14.9 million in cash with approximately $1.0 million of such amount being held back by the Company for 12 months in order to satisfy post-closing indemnification claims that may arise.cash. The assets acquired and liabilities assumed were recorded at their estimated fair value as of the acquisition date. The Company acquired net assets of $0.4 million and identified intangible assets, principally customer relationships, of $5.0 million. The remaining $9.5 million was allocated to goodwill. This business is now part of the Flavors & Extracts segment.

COVID-19
COVID-19 has adversely affected most of the world through widespread illness, quarantines, factory shutdowns, and travel and transportation disruptions and restrictions. These adverse effects could continue in parts of the world. While the Company’s financial position remains strong, the Company has seen several financial and operational impacts from the pandemic as of this filing. We have experienced various degrees of supply chain challenges and attempted to mitigate those challenges by increasing inventory in certain key raw materials and using secondary suppliers and new methods of procurement where available. In addition, we have experienced inflationary increases in costs associated with certain raw materials, logistics, energy, transportation, and labor. In response, we have taken pricing actions to offset these increases.

15
For the three and nine months ended March 31,September 30, 2022, demand for many of the Company’s products remained strong. 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. Governmental and social responses to the COVID-19 pandemic continue to evolve. There continues to be uncertainty related to 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. 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 the divested product lines, the divestiture & other related costs, and the operational improvement plan costs.costs or income.

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.

1618
 Three Months Ended March 31,  Three Months Ended September 30,  Nine Months Ended September 30, 
(In thousands except per share amounts) 2022  2021  % Change 
(In thousands, except per share amounts) 2022  2021  % Change  2022  2021  % Change 
Revenue (GAAP) $355,521  $359,702  (1.2%) $361,076  $344,287  4.9% $1,088.303  $1,039,816  4.7%
Revenue of the divested product lines  -   (25,570)      -   (1,622)      -   (29,399)    
Adjusted revenue $355,521  $334,132   6.4% $361,076  $342,665   5.4% $1,088,303  $1,010,417   7.7%
                           
Operating Income (GAAP) $52,789  $46,897  12.6% $47,493  $46,958  1.1% $155,526  $129,608  20.0%
Divestiture & other related costs – Cost of products sold -  25     -  -     -  28    
Divestiture & other related costs – Selling and administrative expenses -  1,547     -  241     -  13,473    
Operating income of the divested product lines -  (2,927)   
Operational improvement plan – Selling and administrative expenses  -   1,001     
Operating loss (income) of the divested product lines -  70     -  (2,398)   
Operational improvement plan – Selling and administrative expenses (income)  -   483       -   (2,010)    
Adjusted operating income $52,789  $46,543   13.4% $47,493  $47,752   (0.5%) $155,526  $138,701   12.1%
                           
Net Earnings (GAAP) $37,071  $31,668  17.1% $36,048  $33,912  6.3% $111,766  $91,516  22.1%
Divestiture & other related costs, before tax -  1,572     -  241     -  13,501    
Tax impact of divestiture & other related costs(1) -  793     -  1,179     -  283    
Net earnings of the divested product lines, before tax -  (2,927)   
Net loss (earnings) of the divested product lines, before tax -  70     -  (2,398)   
Tax impact of the divested product lines(1) -  723     -  (18)    -  590    
Operational improvement plan costs, before tax -  1,001    
Operational improvement plan costs (income), before tax -  483     -  (2,010)   
Tax impact of operational improvement plan(1)  -   (296)      -   (115)      -   44     
Adjusted net earnings $37,071  $32,534   13.9% $36,048  $35,752   0.8% $111,766  $101,526   10.1%
                           
Diluted Earnings Per Share (GAAP) $0.88  $0.75  17.3%
Diluted earnings per share (GAAP) $0.85  $0.80  6.3% $2.65  $2.16  22.7%
Divestiture & other related costs, net of tax -  0.06     -  0.03     -  0.33    
Results of operations of the divested product lines, net of tax -  (0.05)    -  -     -  (0.04)   
Operational improvement plan costs, net of tax  -   0.02     
Operational improvement plan costs (income, net of tax  -   0.01       -   (0.05)    
Adjusted diluted earnings per share $0.88  $0.77   14.3% $0.85  $0.85   0.0% $2.65  $2.40   10.4%


(1)Tax impact adjustments were determined based on the nature of the underlying non-GAAP adjustments and their relevant jurisdictional tax rates.

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. The 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.

1719
The following table summarizes the percentage change for the results of the three and nine months ended March 31,September 30, 2022, compared to the results for the three and nine months ended March 31,September 30, 2021, in the respective financial measures.

 Three Months Ended March 31, 2022  Three Months Ended September 30, 2022  Nine Months Ended September 30, 2022 
Revenue Total  Foreign Exchange Rates  
Adjustments (1)
  Adjusted Local Currency  Total  
Foreign
Exchange
Rates
  
Adjustments(1)
  
Adjusted
Local
Currency
  Total  
Foreign
Exchange
Rates
  
Adjustments(1)
  
Adjusted
Local
Currency
 
Flavors & Extracts 
(9.1
%)
 
(1.9
%)
 
(12.3
%)
 
5.1
%
 
3.0
%
 
(2.9
%)
 
(0.8
%)
 
6.7
%
 
(0.5
%)
 
(2.4
%)
 
(5.0
%)
 
6.9
%
Color 
9.4
%
 
(1.9
%)
 
(0.5
%)
 
11.8
%
 
8.8
%
 
(5.5
%)
 
(0.3
%)
 
14.6
%
 
11.8
%
 
(3.8
%)
 
(0.4
%)
 
16.0
%
Asia Pacific 
7.8
%
 
(5.6
%)
 
(1.0
%)
 
14.4
%
 
5.3
%
 
(9.2
%)
 
0.0
%
 
14.5
%
 
9.5
%
 
(7.4
%)
 
(0.3
%)
 
17.2
%
Total Revenue (1.2%) (2.2%) (7.4%) 8.4% 4.9% (4.4%) (0.6%) 9.9% 4.7% (3.3%) (3.0%) 11.0%
                             
Operating Income                             
Flavors & Extracts 
2.1
%
 
(1.2
%)
 
(11.4
%)
 
14.7
%
 
4.7
%
 
(1.1
%)
 
0.2
%
 
5.6
%
 
9.4
%
 
(1.2
%)
 
(4.0
%)
 
14.6
%
Color 
15.3
%
 
(2.4
%)
 
0.2
%
 
17.5
%
 
3.5
%
 
(7.4
%)
 
0.0
%
 
10.9
%
 
13.3
%
 
(4.9
%)
 
0.9
%
 
17.3
%
Asia Pacific 
21.5
%
 
(7.8
%)
 
(1.7
%)
 
31.0
%
 
5.3
%
 
(11.0
%)
 
0.0
%
 
16.3
%
 
19.5
%
 
(9.6
%)
 
(0.5
%)
 
29.6
%
Corporate & Other 
1.4
%
 
0.0
%
 
(24.0
%)
 
25.4
%
 
16.0
%
 
(0.1
%)
 
(7.4
%)
 
23.5
%
 
(9.6
%)
 
0.0
%
 
(30.4
%)
 
20.8
%
Total Operating Income 12.6% (3.2%) (0.4%) 16.2% 1.1% (6.5%) 1.8% 5.8% 20.0% (5.1%) 8.4% 16.7%
Diluted Earnings per Share 17.3% (4.0%) 4.4% 16.9% 6.3% (6.3%) 5.5% 7.1% 22.7% (5.1%) 12.8% 15.0%


(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 operational improvement plan costs.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 $182.7$187.0 million and $200.9$181.7 million for the three months ended March 31,September 30, 2022 and 2021, respectively, an increase of approximately 3%. Foreign exchange rates decreased segment revenue by approximately 3%. The increase was primarily a result of higher revenue in Flavors, Extracts & Flavor Ingredients, offset by lower revenue in Natural Ingredients and lower revenue due to the completion of post-closing activities associated with the divestiture of Yogurt Fruit Preparations. The higher revenue in Flavors, Extracts & Flavor Ingredients was primarily due to higher selling prices and higher volumes, partially offset by the unfavorable impact of foreign exchange rates. The lower revenue in Natural Ingredients was primarily due to lower volumes, partially offset by higher selling prices.

Flavors & Extracts segment revenue was $559.1 million and $562.0 million for the nine months ended September 30, 2022 and 2021, respectively, a decrease of approximately 9%1%. Foreign exchange rates decreased segment revenue by approximately 2%. The decrease was primarily a result of lower revenue indue to the completion of post-closing activities associated with the divestiture of Yogurt Fruit Preparations and the divestiture of Fragrances and lower revenue in Natural Ingredients, partially offset by higher revenue in Flavors, Extracts & Flavor Ingredients. The lower revenues in Fragrances was due to the divestiture of the product line in April 2021. The lower revenue in Natural Ingredients was primarily due to lower volumes, partially offset by higher selling prices. The higher revenue in Flavors, Extracts & Flavor Ingredients was primarily due to higher volumes,selling prices, higher selling prices,volumes, and the acquisition of Flavor Solutions, IncInc.. in July of 2021, partially offset by the unfavorable impact of foreign exchange rates.

Flavors & Extracts segment operating income was $27.6$26.3 million and $27.0$25.2 million for the three months ended March 31,September 30, 2022 and 2021, respectively, an increase of approximately 2%5%. Foreign exchange rates decreased segment operating income by approximately 1%. The higher segment operating income was primarily a result of higher operating income in Flavors, Extracts & Flavor Ingredients primarily due to higher selling prices and higher volumes, partially offset by higher raw material costs and higher manufacturing and other costs. Segment operating income as a percent of revenue was 14.1% in the current quarter compared to 13.9% in the prior year’s comparable quarter.

Flavors & Extracts segment operating income was $83.9 million and $76.7 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of approximately 9%. Foreign exchange rates decreased segment operating income by approximately 1%. The increase was primarily 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 the Fragrances product line in April of 2021. The higher segment operating income in Flavors, Extracts & Flavor Ingredients was primarily due toa result of higher selling prices higherand volumes, and lower manufacturing and other costs, partially offset by higher raw material costs.costs, higher manufacturing and other costs, and the unfavorable impact of foreign exchange rates. The higher segment operating income in Natural Ingredients was primarily due toa result of higher selling prices and a favorable product mix, partially offset by lower volumes, higher raw material costs, and higher manufacturing and other costs. Segment operating income as a percent of revenue was 15.1%15.0% in the current quarternine month period compared to 13.4%13.7% in the prior year’s comparable quarter.nine month period.

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Color
Segment revenue for the Color segment was $148.4$151.5 million and $135.7$139.2 million for the three months ended March 31,September 30, 2022 and 2021, respectively, an increase of approximately 9%. The increase was a result of higher revenue in Food & Pharmaceutical Colors, primarily due to higher volumes and selling prices, partially offset by the unfavorable impact of foreign exchange rates that decreased segment revenue by approximately 6%.

Segment revenue for the Color segment was $456.2 million and $408.2 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of approximately 12%. The increase was a result of higher revenue in Food & Pharmaceutical Colors and Personal Care, primarily due to higher volumes and selling prices, partially offset by the unfavorable impact of foreign exchange rates that decreased segment revenue by approximately 2%4%.

Segment operating income for the Color segment was $30.7$28.2 million and $26.6$27.3 million for the three months ended March 31,September 30, 2022 and 2021, respectively, an increase of approximately 15%4%. Foreign exchange rates decreased segment operating income by approximately 2%7%. The increase in segment operating income was a result of higher segment operating income in Food & Pharmaceutical Colors and Personal Care. The higher operating income in Food & Pharmaceutical Colors wasCare, primarily due to higher volumesselling prices and selling prices,volumes, partially offset by higher raw material costs, and higher manufacturing and other costs. The higher operating income in Personal Care was due to higher volumescosts, unfavorable product mix, and selling prices, partially offset by higher manufacturing and other costs.the unfavorable impact of foreign exchange rates. Segment operating income as a percent of revenue was 20.7%18.6% in the current quarter and 19.6% in the prior year’s comparable quarter.

Segment operating income for the Color segment was $90.0 million and $79.5 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of approximately 13%. Foreign exchange rates decreased segment operating income by approximately 5%. The increase in segment operating income was a result of higher operating income in Food & Pharmaceutical Colors and Personal Care, primarily due to higher selling prices and volumes, partially offset by higher raw material costs, higher manufacturing and other costs, unfavorable product mix, and the unfavorable impact of foreign exchange rates. Segment operating income as a percent of revenue was 19.7% in the current nine month period and 19.5% in the prior year’s comparable period.

Asia Pacific
Segment revenue for the Asia Pacific segment was $36.5$35.2 million and $33.8$33.4 million for the three months ended March 31,September 30, 2022 and 2021, respectively, an increase of approximately 8%5%. 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 6%9%.

Segment operating incomerevenue for the Asia Pacific segment was $8.2$109.0 million and $6.8$99.6 million for the threenine months ended March 31,September 30, 2022 and 2021, respectively, an increase of approximately 22%10%. The increase was primarily a result of higher volumes and selling prices, partially offset by the unfavorable impact of foreign exchange rates, which decreased segment revenue by approximately 7%.

Segment operating income for the Asia Pacific segment was $7.0 million and $6.6 million for the three months ended September 30, 2022 and 2021, respectively, an increase of approximately 5%. The increase was primarily a result of higher volumes and selling prices, partially offset by higher other operating costs and the unfavorable impact of foreign exchange rates that decreased segment operating income by approximately 8%11%. Segment operating income as a percent of revenue was 22.5%19.7% in both the current quarter and 20.0%the prior year’s comparable quarter.

Segment operating income for the Asia Pacific segment was $22.9 million and $19.1 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of approximately 20%. The increase was primarily a result of higher volumes and selling prices, partially offset by higher raw material and other operating costs, unfavorable product mix, and the unfavorable impact of foreign exchange rates that decreased segment operating income by approximately 10%. Segment operating income as a percent of revenue was 21.0% in the current nine month period and 19.2% in the prior year’s comparable quarter.period.

Corporate & Other
The Corporate & Other operating expense was $13.7$14.0 million and $13.5$12.1 million for the three months ended March 31,September 30, 2022 and 2021, respectively. Operating expense for the three months ended March 31, 2022The increase was consistent with the prior period primarily due to an increase inhigher performance-based executive compensation in 2022, partially offset by the prior year including divestiture & other related costs and operational improvement plan costs. There were no divestiture & other related expenses or operational improvement plan income or costs in the current period.

21
The Corporate & Other operating expense was $41.3 million and $45.7 million for the nine months ended September 30, 2022 and 2021, respectively. The decrease was primarily due to the prior period including divestiture & other related expenses of $1.6$13.5 million, partially offset by higher performance-based executive compensation in 2022 and the prior period including operational improvement plan expensesincome of $1.0$2.0 million. There were no divestiture & other related expenses or operational improvement plan expensesincome or costs in the current nine-month 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 March 31,September 30, 2022. 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 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 2022 through 2027. 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 substantial borrowing capacity under the Company’s revolving credit facility, which matures in 2026.

As a result of our ability to manage the impact of inflation through pricing and other actions, the impact of inflation was not material to the Company’s financial position and its results of operations for the three or nine months ended March 31,September 30, 2022. The Company currently anticipates inflation will not significantly impact the remainder of 2022, as a result of the Company’s pricing and other actions; however, the Company, like others in its industry, has faced challenges due to conditions in the global supply chain and global economy. In particular, the Company has experienced increased costs for certain inputs, such as energy, 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.

19
Cash Flows from Operating Activities
Net cash used in operating activities was $0.9 million for the three months ended March 31, 2022, compared to net cash provided by operating activities of $29.0was $14.9 million and $116.1 million for the threenine months ended March 31, 2021.September 30, 2022 and 2021, respectively. The decrease in net cash from operating activities was primarily due to an increase in cash used for inventory in 2022 as the Company invested in its inventory position to support demand and higher incentive payments in 2022.address supply chain challenges.

Cash Flows from Investing Activities
Net cash used in investing activities was $12.2$51.7 million and $9.8$13.1 million during the threenine months ended March 31,September 30, 2022 and 2021, respectively. Capital expenditures were $12.7 million and $14.2 million duringDuring the threenine months ended March 31, 2022 and 2021, respectively. In addition, during the three months ended March 31,September 30, 2021, the Company received cash proceeds of $4.1$36.8 million related to the Company’s divestiture activities. During the nine months ended September 30, 2022 and 2021, the Company paid $1.0 million and $13.9 million related to the acquisition of Flavors Solutions, Inc., respectively.  Capital expenditures were $51.7 million and $37.6 million during the nine months ended September 30, 2022 and 2021, respectively.

Cash Flows from Financing Activities
Net cash provided by financing activities was $14.9$46.3 million for the threenine months ended March 31,September 30, 2022, and net cash used in financing activities was $15.9$93.5 million for the threenine months ended March 31,September 30, 2021. Net debt increased by $33.8$100.1 million and $12.5decreased by $11.9 million for the threenine months ended March 31,September 30, 2022 and 2021, respectively. The cash proceeds from the increase in net debt in the current period were primarily used to support inventory investments during the threenine months ended March 31,September 30, 2022. 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 $11.7$31.5 million during the threenine months ended March 31,September 30, 2021. There were no repurchases of shares of the Company’s common stock in the current period.2022. Dividends of $17.2$51.7 million and $16.5$49.5 million were paid during the threenine months ended March 31,September 30, 2022 and 2021, respectively. Dividends paid were $0.41$1.23 and $0.39$1.17 per share for the threenine months ended March 31,September 30, 2022 and 2021, respectively.

22
CRITICAL ACCOUNTING POLICIES

There have been no material changes in the Company’s critical accounting policies during the quarter ended March 31,September 30, 2022. 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, 2021.

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 March 31,September 30, 2022. 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, 2021.

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: During the quarter ended March 31,September 30, 2022, the Company upgraded an enterprise resource planning software application used in atwo business unitunits within the Flavors & Extracts segment. The upgrade included order taking, manufacturing, general ledger, and financial reporting processes. The Company also implemented a new financial consolidation software application duringFor the quarter ended March 31, 2022. For both system changes,change, the Company followed an implementation process that required significant pre-implementation planning, design, and testing. There have been no other 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 March 31,September 30, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

20
PART II.OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

See Part I, Item 1, Note 13,14, Commitments and Contingencies, of this report for information regarding legal proceedings in which the Company is involved.


ITEM 1A.RISK FACTORS

The Company is supplementingThere 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, 2021, with the following risk factor:

The ongoing military conflict between Russiaas updated and Ukraine, and the global response to it, may adversely affect our operations.

In February 2022, Russia invaded Ukraine. This ongoing military conflict has increased the likelihood of supply chain interruptions and, for certain raw materials, decreased our ability to source materials that we need to make our products. For example, suppliers locatedsupplemented in Ukraine are our main source of sunflower oil, which is primarily used in our savory and beverage businesses. We have encountered difficulties, and may continue to encounter difficulties, in finding favorable pricing and reliable alternative sources or substitutes for certainPart II, Item 1A of the raw materials we need (including sunflower oil) for certain products. If these difficulties persist, accelerate, or expand, our operations could be adversely affected.

In addition, we have experienced increased costs for transportation, energy, and raw materials due in part to the negative impact of the Russia-Ukraine military conflictCompany’s Quarterly Report on the global economy. These increased costs could adversely affect our profitability. The military conflict may also increase the risk of cybersecurity incidents, including the risk of cyberattacks in retaliationForm 10-Q for the United States�� and European Union’s support of Ukraine and sanctions against Russia or otherwise. Such attacks, whether on us or on critical infrastructure and financial institutions globally, could also adversely affect our operations.

It is not possible to predict the broader or long-term consequences of this military conflict, which could include further sanctions, regional instability, a wider military conflict, and adverse effects on international trade policies and economic conditions, cybersecurity, currency exchange rates, and financial markets.quarter ended March 31, 2022.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On October 19, 2017, the Board of Directors authorized the repurchase of up to three million shares (2017 Authorization). As of March 31,September 30, 2022, 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 March 31,September 30, 2022, 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 March 31,September 30, 2022.

ITEM 6.EXHIBITS

The exhibits listed in theSee Exhibit Index following exhibit index are filed as part of this Quarterly Report on Form 10-Q.
report.

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Index
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31,SEPTEMBER 30, 2022

ExhibitDescriptionIncorporated by Reference FromFiled Herewith
3.1
Amended and Restated By-Laws of Sensient Technologies Corporation, dated February 10, 2022
Exhibit 3.1 to Current Report on Form 8-K filed February 15, 2022 (Commission File No. 1-7626)
    
10.1
Amendment No. 89 to Receivables Purchase Agreement, dated as of February 28,August 31, 2022, among Sensient Receivables LLC, Sensient Technologies Corporation, and Wells Fargo Bank, National AssociationAssociation.
Exhibit 10.1 to Current Report on Form 8-K filed March 4,September 6, 2022 (Commission File No. 1-7626)
 
    
31
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
    
32
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.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

2224
Index
SIGNATURESSIGNATURES

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:
May 3,November 1, 2022
By:
/s/  John J. Manning

   
John J. Manning, Senior Vice
President, General Counsel &
Secretary
    
Date:
May 3,November 1, 2022
By:
/s/  Stephen J. Rolfs

   
Stephen J. Rolfs, Senior Vice
President & Chief Financial Officer


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