UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549

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

For the quarterly period ended:September 30, 2022March 31, 2023 

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 OctoberApril 26, 20222023
Common Stock, par value $0.10 per share 42,037,68542,244,371

SENSIENT TECHNOLOGIES CORPORATION
INDEX




Page No.




PART I. FINANCIAL INFORMATION:





Item 1.
Financial Statements:







Consolidated Statements of Earnings ‑ Three and Nine Months Ended September 30, 2022March 31, 2023 and 2021.2022.
1






Consolidated Condensed Statements of Comprehensive Income ‑ Three and Nine Months Ended September 30, 2022March 31, 2023 and 2021.2022.
2






Consolidated Balance Sheets - September 30, 2022March 31, 2023 and December 31, 2021.2022.
3






Consolidated Statements of Cash Flows ‑ NineThree Months Ended September 30, 2022March 31, 2023 and 2021.2022.
4






Consolidated Statements of Shareholders’ Equity ‑ Three and Nine Months Ended September 30, 2022March 31, 2023 and 2021.2022.
5






Notes to Consolidated Condensed Financial Statements.
6





Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
1611





Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
2314





Item 4.
Controls and Procedures.
2314




PART II. OTHER INFORMATION:





Item 1.
Legal Proceedings.
2315





Item 1A.
Risk Factors.
2315





Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
2315





Item 6.
Exhibits.
2315






Exhibit Index.
2416






Signatures.
2517

Index
PART I.FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS

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

 
Three Months
Ended March 31,
 
 
Three Months
Ended September 30,
  
Nine Months
Ended September 30,
       
 2022  2021  2022  2021  2023  2022
 
                  
Revenue $361,076  $344,287  $1,088,303  $1,039,816  $369,006  $355,521 
Cost of products sold  239,318   229,216   710,696   697,538   244,343   230,675 
Selling and administrative expenses  74,265   68,113   222,081   212,670   73,825   72,057 
Operating income  47,493   46,958   155,526   129,608   50,838   52,789 
Interest expense  3,672   3,037   9,748   9,792   6,002   2,993 
Earnings before income taxes  43,821   43,921   145,778   119,816   44,836   49,796 
Income taxes  7,773   10,009   34,012   28,300   11,185   12,725 
Net earnings $36,048  $33,912  $111,766  $91,516  $33,651  $37,071 
                        
Weighted average number of common shares outstanding:                        
Basic  41,896   42,024   41,885   42,140   41,970   41,865 
Diluted  42,242   42,206   42,199   42,287   42,255   42,148 
                        
Earnings per common share:                        
Basic $0.86  $0.81  $2.67  $2.17  $0.80  $0.89 
Diluted $0.85  $0.80  $2.65  $2.16  $0.80  $0.88 
                        
Dividends declared per common share $0.41  $0.39  $1.23  $1.17  $0.41  $0.41 

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 September 30,
  
Nine Months
Ended September 30,
 
  2022  2021  2022  2021 
             
Comprehensive income $8,997  $18,680  $56,171  $79,454 
 
Three Months
Ended March 31,
 
  2023  2022
 
       
Comprehensive income
 $49,952  $36,834 

See accompanying notes to consolidated condensed financial statements.

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


 
September 30,
2022
(Unaudited)
  
December 31,
2021
  
March 31,
2023
(Unaudited)
  
December 31,
2022
 
Assets
            
Current Assets:            
Cash and cash equivalents $46,579  $25,740  $24,017  $20,921 
Trade accounts receivable  287,197   261,121   312,530   302,109 
Inventories  501,382   411,635   573,706   564,110 
Prepaid expenses and other current assets  45,582   42,657   49,639   47,640 
                
Total current assets  880,740   741,153   959,892   934,780 
                
Other assets  100,277   92,952   96,077   96,609 
Deferred tax assets  12,912   29,901   35,108   32,717 
Intangible assets, net  14,042   14,975   18,569   18,600 
Goodwill  390,798   420,034   419,302   415,715 
Property, Plant, and Equipment:                
Land  28,641   31,028   31,734   31,444 
Buildings  304,928   315,207   325,796   322,268 
Machinery and equipment  705,029   715,344   738,524   722,294 
Construction in progress  55,896   32,801   73,502   65,809 
  1,094,494   1,094,380   1,169,556   1,141,815 
Less accumulated depreciation  (654,055)  (647,902)  (675,777)  (658,622)
  440,439   446,478   493,779   483,193 
                
Total assets $1,839,208  $1,745,493  $2,022,727  $1,981,614 
                
Liabilities and Shareholders’ Equity
                
                
Current Liabilities:                
Trade accounts payable $132,904  $125,519  $121,290  $142,365 
Accrued salaries, wages, and withholdings from employees  40,918   40,939   22,788   43,738 
Other accrued expenses  54,283   46,292   48,789   51,231 
Income taxes  5,373   11,016   16,935   14,446 
Short-term borrowings  21,947   8,539   24,849   20,373 
                
Total current liabilities  255,425   232,305   234,651   272,153 
                
Deferred tax liabilities  16,489   14,349   16,200   15,977 
Other liabilities  37,736   28,829   36,652   37,191 
Accrued employee and retiree benefits  27,854   28,579   27,224   26,364 
Long-term debt  547,190   503,006   679,779   630,331 
Shareholders’ Equity:                
Common stock  5,396   5,396   5,396   5,396 
Additional paid-in capital  120,381   111,352   112,589   124,043 
Earnings reinvested in the business  1,690,813   1,630,713   1,719,096   1,702,700 
Treasury stock, at cost  (631,853)  (634,408)  (624,473)  (631,853)
Accumulated other comprehensive loss  (230,223)  (174,628)  (184,387)  (200,688)
                
Total shareholders’ equity  954,514   938,425   1,028,221   999,598 
                
Total liabilities and shareholders’ equity $1,839,208  $1,745,493  $2,022,727  $1,981,614 

See accompanying notes to consolidated condensed financial statements.

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

 
Nine Months
Ended September 30,
  
Three Months
Ended March 31,
 
 2022  2021  2023  2022
 
            
Cash flows from operating activities:            
Net earnings $111,766  $91,516  $33,651  $37,071 
Adjustments to arrive at net cash provided by operating activities:                
Depreciation and amortization  39,262   38,828   14,150   13,056 
Share-based compensation expense  12,476   6,431   2,267   4,163 
Net loss on assets  283   203 
Loss on divestitures and other charges  -   13,774 
Net loss (gain) on assets
  8   (48)
Deferred income taxes  20,465   3,793   (2,351)  4,211 
Changes in operating assets and liabilities:                
Trade accounts receivable  (39,520)  (35,290)  (7,142)  (20,841)
Inventories  (112,021)  (15,898)  (4,374)  (11,901)
Prepaid expenses and other assets  (39,598)  (15,016)  (2,062)  (11,111)
Accounts payable and other accrued expenses  24,110   24,007   (19,251)  (10,267)
Accrued salaries, wages, and withholdings from employees  1,819   1,763   (21,187)  (12,425)
Income taxes  (4,342)  (1,155)  2,548   7,063 
Other liabilities  198   3,192   698   137 
                
Net cash provided by operating activities  14,898   116,148 
Net cash used in operating activities
  (3,045)  (892)
                
Cash flows from investing activities:                
Acquisition of property, plant, and equipment  (51,703)  (37,608)  (22,278)  (12,736)
Proceeds from sale of assets  94   201   1   89 
Proceeds from divestiture of businesses  -   36,790 
Acquisition of new business  (1,048)  (13,875)
Other investing activities  947   1,348   (602)  434 
                
Net cash used in investing activities  (51,710)  (13,144)  (22,879)  (12,213)
                
Cash flows from financing activities:                
Proceeds from additional borrowings  187,715   55,589   50,827   40,099 
Debt payments  (87,657)  (67,534)  (1,351)  (6,275)
Purchase of treasury stock  -   (31,467)
Dividends paid  (51,681)  (49,468)  (17,255)  (17,211)
Other financing activities  (2,056)  (582)  (7,669)  (1,679)
                
Net cash provided by (used in) financing activities  46,321   (93,462)
Net cash provided by financing activities
  24,552   14,934 
                
Effect of exchange rate changes on cash and cash equivalents  11,330   (1,373)  4,468   4,606 
                
Net increase in cash and cash equivalents  20,839   8,169   3,096   6,435 
Cash and cash equivalents at beginning of period  25,740   24,770   20,921   25,740 
        
Cash and cash equivalents at end of period $46,579  $32,939  $24,017  $32,175 

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 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 
 Common  
Additional
Paid-In
  
Earnings
Reinvested
in the
  Treasury Stock  
Accumulated
Other
Comprehensive
  Total 
Three Months Ended March 31, 2023
 Stock  Capital  Business  Shares  Amount  Income (Loss)  Equity 
Balances at December 31, 2022
 $5,396  $124,043  $1,702,700   12,058,773  $(631,853) $(200,688) $999,598 
Net earnings  -   -   33,651   -   -   -   33,651 
Other comprehensive income
  -   -   -   -   -   16,301  16,301
Cash dividends paid – $0.41 per share
  -   -   (17,255)  -   -   -   (17,255)
Share-based compensation  -   2,267   -   -   -   -   2,267 
Non-vested stock issued upon vesting  -   (11,956)  -   (228,181)  11,956   -   - 
Benefit plans  -   375   -   (18,172)  952   -   1,327 
Other  -   (2,140)  -   105,524   (5,528)  -   (7,668)
Balances at March 31, 2023
 $5,396  $112,589  $1,719,096   11,917,944  $(624,473) $(184,387) $1,028,221 

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  -   -   37,071   -   -   -   37,071 
Other comprehensive loss  -   -   -   -   -   (237)  (237)
Cash dividends paid – $0.41 per share
  -   -   (17,211)  -   -   -   (17,211)
Share-based compensation  -   4,163   -   -   -   -   4,163 
Non-vested stock issued upon vesting  -   (2,478)  -   (47,298)  2,478   -   - 
Benefit plans  -   560   -   (11,786)  618   -   1,178 
Other  -
   (624)  15   20,403   (1,070)  -   (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.

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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 September 30, 2022,March 31, 2023, and the results of operations, comprehensive income, cash flows, and shareholders’ equity for the three and nine months ended September 30, 2022March 31, 2023 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021.2022. 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.

Recently Issued Accounting Pronouncements

In March 2020, the Financial 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, 2021,2022, for additional details of the Company’s financial condition and a description of the Company’s accounting policies, which have been continued without change.

2.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.

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

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

(In thousands) Yogurt Fruit Preparations  Fragrances  Inks  
Corporate &
Other
  Total 
Other costs - Selling and administrative expenses(1)
 $
102  $
149  $
(157) $
147  $
241 


(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 nine months ended September 30, 2021.

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 no costs associated with the Operational Improvement Plan for the three and nine months ended 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 September 30, 2021:

(In thousands) 
Flavors &
Extracts
  Color  Asia Pacific  Consolidated 
Employee separation costs $1  $(120) $(4) $(123)
Other costs(1)
  -   605   1   606 
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 September 30, 2022 and December 31 2021, accrued liabilities in Other Accrued Expenses totaled $0.3 million and $0.8 million, respectively, related to the Operational Improvement Plan.

7
4.Acquisition

On July 15, 2021,October 3, 2022, the Company acquired substantially all of the assets of Flavor Solutions, Inc.Endemix Doğal Maddeler A.Ş. and Teknoloji Yatırımları ve Danışmanlık Sanayi ve Ticaret A.Ş. (collectively, Endemix), a flavorsnatural colors business located in New Jersey.Turkey. The purchase priceCompany paid $23.3 million in cash for this acquisition, was $14.9which is net of $1.3 million in cash.debt assumed, with $1.7 million of such amount being held back by the Company for 12 months to satisfy any indemnification claims that may arise. The assets acquired and liabilities assumed were recorded at their estimated fair value as of the acquisition date. The Company acquired net assets of $0.4$8.9 million and identified intangible assets, principally technological know-how and customer relationships, of $5.0$4.9 million. The remaining $9.5 million was allocated to goodwill. The Company is still in the process of finalizing the estimated values for identifiable intangible assets and fixed assets. The Company will complete this analysis in 2023. This business is now part of the Flavors & ExtractsColor segment.

53..
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.conditions. Forecasted economic conditions have not had a significant impact on the current credit loss estimate due to the short-term nature of the Company’s customer receivables; however, the Company will continue to monitor and evaluate the rapidly changing economic conditions. Additionally, as the Company only has one portfolio segment, there are not different risks between portfolios. Specific accounts are written off against the allowance for doubtful accounts when the receivable is deemed no longer collectible.
6
Index

The following table summarizes the changes in the allowance for doubtful accounts during the three and nine month periods ended September 30, 2022March 31, 2023 and 2021:
2022:

(In thousands)
Three Months Ended September 30, 2022
 
Allowance for
Doubtful Accounts
 
Balance at June 30, 2022
 $4,494 
(In thousands)
Three Months Ended March 31, 2023
 
Allowance for
Doubtful Accounts
 
Balance at December 31, 2022 
$
4,436
 
Provision for expected credit losses  51   
120
 
Accounts written off  (33)  
(614
)
Translation and other activity  (105)  
103
 
Balance at September 30, 2022 $4,407 
Balance at March 31, 2023
 
$
4,045
 

(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 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
6.4.Inventories
 
At September 30, 2022,March 31, 2023, and December 31, 2021,2022, inventories included finished and in-process products totaling $332.1$372.6 million and $280.2$385.2 million, respectively, and raw materials and supplies of $169.3$201.1 million and $131.4$178.9 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.

8.5.Fair Value

Accounting Standards Codification 820, Fair Value Measurement, defines fair value for financial assets and liabilities, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. The carrying values of the Company’s cash and cash equivalents, trade accounts receivable, trade accounts payable, accrued expenses, and short-term borrowings were approximately the same as the fair values as of September 30, 2022March 31, 2023 and December 31, 2021.2022. The net fair value of the forward exchange contracts based on current pricing obtained for comparable derivative products (Level 2 inputs) was an asset of $0.3$1.2 million and $0.1a liability of $0.2 million as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. The fair value of the Company’s long-term debt, including current maturities, is estimated using discounted cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 2 inputs). The carrying value of the long-term debt at September 30, 2022March 31, 2023 and December 31, 20212022, was $547.7$680.2 million and $503.5$630.8 million, respectively. The fair value of the long-term debt at September 30, 2022March 31, 2023 and December 31, 20212022, was $539.1$672.5 million and $520.0$622.2 million, respectively.


9.6.Segment Information

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

The Company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance. The Company’s three reportable segments are the Flavors & Extracts and Color segments, which are both managed on a product line basis, and the Asia Pacific segment, which is managed on a geographic basis. The Company’s Flavors & Extracts segment produces flavor, extracts, and essential oils products that impart a desired taste, texture, aroma, andor 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,personal care, such as active ingredients, solubilizers, and surface treated pigments; pharmaceutical and nutraceutical excipients, such as colors, flavors, coatings, and nutraceutical ingredients; and technical colors for industrial applications. The Asia Pacific segment is managed on a geographic basis and produces and distributes color, flavor, and flavoressential oils products forin the Asia Pacific countries. The Company’s corporate expenses, divestiture & other related costs, share-based compensation, operational improvement plan expenses, and other costs are included in the “Corporate & Other” category.

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

9
Index
Operating results by segment for the periods presented are as follows:

(In thousands) 
Flavors &
Extracts
  Color  
Asia
Pacific
  
Corporate
& Other
  Consolidated 
Three months ended September 30, 2022:
               
Revenue from external customers $181,397  $144,570  $35,109  $-  $361,076 
Intersegment revenue  5,649   6,899   112   -   12,660 
Total revenue $187,046  $151,469  $35,221  $-  $373,736 
                     
Operating income (loss) $26,337  $28,200  $6,952  $(13,996) $47,493 
Interest expense  -   -   -   3,672   3,672 
Earnings (loss) before income taxes $26,337  $28,200  $6,952  $(17,668) $43,821 
                     
Three months ended September 30, 2021:
                    
Revenue from external customers $175,690  $135,395  $33,202  $-  $344,287 
Intersegment revenue  5,977   3,844   240   -   10,061 
Total revenue $181,667  $139,239  $33,442  $-  $354,348 
                     
Operating income (loss) $25,164  $27,253  $6,601  $(12,060) $46,958 
Interest expense  -   -   -   3,037   3,037 
Earnings (loss) before income taxes $25,164  $27,253  $6,601  $(15,097) $43,921 

(In thousands) 
Flavors &
Extracts
  Color  
Asia
Pacific
  
Corporate
& Other
  Consolidated  
Flavors &
Extracts
  Color  
Asia
Pacific
  
Corporate &
Other
  Consolidated 
Nine months ended September 30, 2022:
               
Three months ended March 31, 2023:
               
Revenue from external customers $539,014  $440,568  $108,721  $-  $1,088,303  $171,972  $156,949  $40,085  $-  $369,006 
Intersegment revenue  20,096   15,607   293   -   35,996   6,880   4,212   -   -   11,092 
Total revenue $559,110  $456,175  $109,014  $-  $1,124,299  $178,852  $161,161  $40,085  $-  $380,098 
                                        
Operating income (loss) $83,929  $90,035  $22,877  $(41,315) $155,526  $22,180  $31,885  $9,241  $(12,468) $50,838 
Interest expense  -   -   -   9,748   9,748   -   -   -   6,002   6,002 
Earnings (loss) before income taxes $83,929  $90,035  $22,877  $(51,063) $145,778  $22,180  $31,885  $9,241  $(18,470) $44,836 
                                        
Nine months ended September 30, 2021:
                    
Three months ended March 31, 2022:
                    
Revenue from external customers $545,050  $395,426  $99,340  $-  $1,039,816  $175,202  $143,928  $36,391  $-  $355,521 
Intersegment revenue  16,929   12,740   259   -   29,928   7,525   4,510   74   -   12,109 
Total revenue $561,979  $408,166  $99,599  $-  $1,069,744  $182,727  $148,438  $36,465  $-  $367,630 
                                        
Operating income (loss) $76,718  $79,462  $19,146  $(45,718) $129,608  $27,579  $30,657  $8,204  $(13,651) $52,789 
Interest expense  -   -   -   9,792   9,792   -   -   -   2,993   2,993 
Earnings (loss) before income taxes $76,718  $79,462  $19,146  $(55,510) $119,816  $27,579  $30,657  $8,204  $(16,644) $49,796 

Product Lines

(In thousands) 
Flavors &
Extracts
  Color  Asia Pacific  Consolidated  
Flavors &
Extracts
  Color  Asia Pacific  Consolidated 
Three months ended September 30, 2022:
            
Three months ended March 31, 2023:
            
Flavors, Extracts & Flavor Ingredients $124,825  $-  $-  $124,825 
Natural Ingredients  54,027   -   -   54,027 
Food & Pharmaceutical Colors  -   118,747   -   118,747 
Personal Care  -   42,414   -   42,414 
Asia Pacific  -   -   40,085   40,085 
Intersegment Revenue  (6,880)  (4,212)  -  (11,092)
Total revenue from external customers $171,972  $156,949  $40,085  $369,006 
                
Three months ended March 31, 2022:
                
Flavors, Extracts & Flavor Ingredients $123,945  $-  $-  $123,945  $126,518  $-  $-  $126,518 
Natural Ingredients  63,101   -   -   63,101   56,209   -   -   56,209 
Food & Pharmaceutical Colors  -   111,194   -   111,194   -   103,109   -   103,109 
Personal Care  -   39,689   -   39,689   -   44,846   -   44,846 
Inks  -   586   -   586   -   483   -   483 
Asia Pacific  -   -   35,221   35,221   -   -   36,465   36,465 
Intersegment Revenue  (5,649)  (6,899)  (112)  (12,660)  (7,525)  (4,510)  (74)  (12,109)
Total revenue from external customers $181,397  $144,570  $35,109  $361,076  $175,202  $143,928  $36,391  $355,521 
                
Three months ended September 30, 2021:
                
Flavors, Extracts & Flavor Ingredients $116,140  $-  $-  $116,140 
Natural Ingredients  64,215   -   -   64,215 
Yogurt Fruit Preparations  1,312   -   -   1,312 
Food & Pharmaceutical Colors  -   99,688   -   99,688 
Personal Care  -   39,241   -   39,241 
Inks  -   310   -   310 
Asia Pacific  -   -   33,442   33,442 
Intersegment Revenue  (5,977)  (3,844)  (240)  (10,061)
Total revenue from external customers $175,690  $135,395  $33,202  $344,287 

108
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 September 30, 2022:
            
Three months ended March 31, 2023:
            
North America $142,097  $74,220  $27  $216,344  $131,968  $78,377  $62  $210,407 
Europe  26,795   34,591   44   61,430   28,927   43,252   103   72,282 
Asia Pacific  7,091   16,770   34,433   58,294   5,201   18,149   39,195   62,545 
Other  5,414   18,989   605   25,008   5,876   17,171   725   23,772 
Total revenue from external customers $181,397  $144,570  $35,109  $361,076  $171,972  $156,949  $40,085  $369,006 
                                
Three months ended September 30, 2021:
                
Three months ended March 31, 2022:
                
North America $131,855  $67,830  $5  $199,690  $126,702  $69,928  $58  $196,688 
Europe  30,241   37,004   30   67,275   32,605   41,978   81   74,664 
Asia Pacific  6,410   14,451   32,511   53,372   9,737   16,016   33,982   59,735 
Other  7,184   16,110   656   23,950   6,158   16,006   2,270   24,434 
Total revenue from external customers $175,690  $135,395  $33,202  $344,287  $175,202  $143,928  $36,391  $355,521 

(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
 

11
Index
10.7.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) 2023  2022 
Service cost $368  $408 
Interest cost  409   244 
Expected return on plan assets  (239)  (205)
Recognized actuarial (gain) loss  (139)  12 
Total defined benefit expense $399  $459 

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.

11.8.Derivative Instruments and Hedging Activity

The Company may use forward exchange contracts and foreign currency denominated debt to manage its exposure to foreign exchange risk 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 $35.6$55.5 million and $48.6$70.1 million of forward exchange contracts designated as cash flow hedges outstanding as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. For the three months ended SeptemberMarch 30,31, 2023 and 2022 and 2021, the amounts reclassified into net earnings in the Company’s Consolidated StatementStatements 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 of the Company.statements.

Net investment hedges – The Company has designated certain foreign currency denominated long-term borrowings as partial hedges of the Company’s foreign currency net asset positions. As of September 30, 2022March 31, 2023 and December 31, 20212022, the total value of the Company’s net investment hedges was $247.1$319.9 million and $289.5$315.5 million, respectively. These net investment hedges included Euro and British Pound denominated long-term debt. Changes in the fair value of this debt attributable to changes in the spot foreign exchange rate are recorded in foreign currency translation in Other Comprehensive Income (OCI). For the three months ended September 30,March 31, 2023 and 2022, and 2021, the impact of foreign exchange rates on these debt instruments increased debt by $4.4 million anddecreased debt by $18.4 million and$7.27.9 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
12.9.Income Taxes

The effective income tax rates for the three months ended September 30,March 31, 2023 and 2022, were 24.9% and 2021, were 17.7% and 22.8%, respectively. For the nine months ended September 30, 2022 and 2021, the effective income tax rates were 23.3% and 23.6%25.6%, respectively. The effective tax rates for the three and nine months ended September 30,March 31, 2023 and 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, 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.earnings.

13.10.Accumulated Other Comprehensive Income

The following table summarizes the changes in OCI during the three and nine month periods ended September 30, 2022March 31, 2023 and 2021:2022:

(In thousands) 
Cash Flow
Hedges (1)
  
Pension
Items (1)
  
Foreign
Currency
Items
  Total 
Balances at December 31, 2021
 $206  $(353) $(174,481) $(174,628)
Other comprehensive income (loss) before reclassifications  516   -   (55,514)  (54,998)
Amounts reclassified from OCI  (621)  24   -   (597)
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, 2022
 $(599) $(1,792) $(198,297) $(200,688)
Other comprehensive income before reclassifications  1,700   -   14,841   16,541 
Amounts reclassified from OCI  (118)  (122)  -   (240)
Balances at March 31, 2023
 $983  $(1,914) $(183,456) $(184,387)

(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 June 30, 2022
 $(152)  $(337) $(202,683) $(203,172)
Balances at December 31, 2021
 $206  $(353) $(174,481) $(174,628)
Other comprehensive income (loss) before reclassifications  380  -   (27,312)  (26,932)  242   -   (145)  97
Amounts reclassified from OCI  (127)  8   -   (119)  (342)  8   -   (334)
Balances at September 30, 2022
 $101 $(329) $(229,995) $(230,223)
Balances at March 31, 2022
 $106  $(345) $(174,626) $(174,865)

(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.


14.11.Commitments and Contingencies


Kelley v. Sensient Natural Ingredients LLC

Walters v. Sensient Natural Ingredients LLC

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

13
Index

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



On April 26, 2021, the same law firm representing Ms. Kelley 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 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.



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.



Previously, SNI had agreed to attempt a joint mediation of the Kelley, Walters, and Rodriguez matters, which was 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 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.

15.12.Subsequent EventsEvent

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 October 20, 2022,April 27, 2023, the Company announced its quarterly dividend of $0.41 per share would be payable on DecemberJune 1, 2022.2023.

1510
Index
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that reflect management’s current assumptions and estimates of future economic circumstances, industry conditions, Company performance, and financial results. Forward-looking statements include statements in the future tense, statements referring to any period after September 30, 2022,March 31, 2023, and statements including the terms “expect,” “believe,” “anticipate,” and other similar terms that express expectations as to future events or conditions. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors that could cause actual events to differ materially from those expressed in the forward-looking statements. A variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results. These factors and assumptions include, among others, the Company’s ability to manage economic and capital market conditions and the impact of recessions and economic downturns; the impact of macroeconomic and geopolitical volatility, including inflation and shortages impacting the availability and cost of raw materials, energy, and other supplies; the availability and cost of labor, logistics, and transportation; the impact and uncertainty created by the COVID-19 pandemic and efforts to manage it on the global economy, including, but not limited to, its effects on our employees, facilities, customers, and suppliers, the availability and cost of raw materials, energy, and other supplies, the availability and cost of labor, logistics, and transportation; governmental regulations and restrictions, and general economic conditions, including inflation;conditions; the uncertain impacts of the ongoing conflict between Russia and Ukraine on our supply chain, input costs, including energy and transportation, and on general economic conditions; the pace and nature of new product introductions by the Company and the Company’s customers; the Company’s ability to anticipate and respond to changing consumer preferences and changing technologies; the Company’s ability to successfully implement its growth strategies; the outcome of the Company’s various productivity-improvement and cost-reduction efforts, acquisition and divestiture activities, and operational improvement plan; changes in costs of raw materials, including energy; industry, regulatory, legal, and economic factors related to the Company’s domestic and international business; the effects of tariffs, trade barriers, and disputes; growth in markets for products in which the Company competes; industry and customer acceptance of price increases; actions by competitors; currency exchange rate fluctuations; and the matters discussed under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 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 $361.1$369.0 million and $344.3$355.5 million for the three months ended September 30,March 31, 2023 and 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 increase in revenue forwas primarily due to favorable pricing, partially offset by lower volumes. 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.  For the three and nine months ended September 30, 2022,March 31, 2023, the impact of foreign exchange rates decreased consolidated revenue by approximately 4% and 3%, respectively.1%.

Gross Margin
The Company’s gross margin was 33.7%33.8% and 33.4%35.1% for the three months ended September 30,March 31, 2023 and 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 increasedecrease in gross margin for both the three and nine months ended September 30, 2022, was primarily due to increased pricinghigher input costs and lower volumes, partially offset by higher input costs and unfavorable product mix.an increase in pricing.

Selling and Administrative Expenses
Selling and administrative expense as a percent of revenue was 20.6%20.0% and 19.8%20.3% for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. SellingThe decrease in selling and administrative expenseexpenses as a percent of revenue was 20.4% and 20.5% for the nine months ended September 30, 2022 and 2021, respectively.

Selling and administrative expenses for the three and nine months ended September 30, 2021, included divestiture & other related expenses and operational improvement plan costs and income totaling $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 September 30, 2022.

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 higherlower performance-based executive compensation recorded in 2022, partially offset by the lack of divestitureCorporate & 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 20 and 110 basis points for the three and nine months ended September 30, 2021, respectively.Other.

Operating Income
Operating income was $47.5$50.8 million and $47.0$52.8 million for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. Operating margins were 13.2%13.8% and 13.6%14.8% for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. The decrease in operating margin is primarily due to higher input costs and unfavorable product mix,lower volumes, 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. Thean 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 input costs and unfavorable product mix.

Interest Expense
Interest expense was $3.7$6.0 million and $3.0 million for the three months ended September 30,March 31, 2023 and 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 higheran increase in the average interest rate compared toand 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.debt outstanding.

11
Income Taxes
The effective income tax rates for the three months ended September 30,March 31, 2023 and 2022 were 24.9% and 2021, were 17.7% and 22.8%, respectively. For the nine months ended September 30, 2022 and 2021, the effective income tax rates were 23.3% and 23.6%25.6%, respectively. The effective tax rates for the three and nine months ended September 30,March 31, 2023 and 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, 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.

For the three and nine months ended September 30, 2021, the Company incurred costs of $0.2 million and $13.5 million, respectively, related to the divestitures.  The costs incurred in the nine month period primarily related to a non-cash net loss for the reclassification of accumulated foreign currency translation and related items from Accumulated Other Comprehensive Loss to Selling and Administrative Expenses in the Consolidated Statements of Earnings.  There were no costs related to the divestitures incurred during the three or nine months ended 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 September 30, 2021, the Company recorded costs of $0.5 million and income of $2.0 million, respectively, related to the Operational Improvement Plan.  The income in the nine month period primarily related to the gain associated with the terminated New Jersey lease.  There were no costs or income related to the Operational Improvement Plan incurred during the three or nine months ended September 30, 2022.earnings.

Acquisition
On July 15, 2021,October 3, 2022, the Company acquired substantially all of the assets of Flavor Solutions, Inc.Endemix Doğal Maddeler A.Ş. and Teknoloji Yatırımları ve Danışmanlık Sanayi ve Ticaret A.Ş. (collectively, Endemix), a flavorsnatural colors business located in New Jersey.Turkey. The purchase priceCompany paid $23.3 million in cash for this acquisition, was $14.9which is net of $1.3 million in cash. The assets acquired and liabilitiesdebt assumed, were recorded at their estimated fair value aswith $1.7 million of such amount being held back by 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 allocatedfor 12 months to goodwill.satisfy any indemnification claims that may arise. This business is now part of the Flavors & ExtractsColor 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.

For the three and nine months ended 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,table, 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 adjusteda 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 or income.dollars.

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

18
  Three Months Ended September 30,  Nine Months Ended September 30, 
(In thousands, except per share amounts) 2022  2021  % Change  2022  2021  % Change 
Revenue (GAAP) $361,076  $344,287   4.9% $1,088.303  $1,039,816   4.7%
Revenue of the divested product lines  -   (1,622)      -   (29,399)    
Adjusted revenue $361,076  $342,665   5.4% $1,088,303  $1,010,417   7.7%
                         
Operating Income (GAAP) $47,493  $46,958   1.1% $155,526  $129,608   20.0%
Divestiture & other related costs – Cost of products sold  -   -       -   28     
Divestiture & other related costs – Selling and administrative expenses  -   241       -   13,473     
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 $47,493  $47,752   (0.5%) $155,526  $138,701   12.1%
                         
Net Earnings (GAAP) $36,048  $33,912   6.3% $111,766  $91,516   22.1%
Divestiture & other related costs, before tax  -   241       -   13,501     
Tax impact of divestiture & other related costs(1)
  -   1,179       -   283     
Net loss (earnings) of the divested product lines, before tax  -   70       -   (2,398)    
Tax impact of the divested product lines(1)
  -   (18)      -   590     
Operational improvement plan costs (income), before tax  -   483       -   (2,010)    
Tax impact of operational improvement plan(1)
  -   (115)      -   44     
Adjusted net earnings $36,048  $35,752   0.8% $111,766  $101,526   10.1%
                         
Diluted earnings per share (GAAP) $0.85  $0.80   6.3% $2.65  $2.16   22.7%
Divestiture & other related costs, net of tax  -   0.03       -   0.33     
Results of operations of the divested product lines, net of tax  -   -       -   (0.04)    
Operational improvement plan costs (income, net of tax  -   0.01       -   (0.05)    
Adjusted diluted earnings per share $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.

19
The following table summarizes the percentage change for the results of the three and nine months ended September 30, 2022,March 31, 2023, compared to the results for the three and nine months ended September 30, 2021,March 31, 2022, in the respective financial measures.

  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
 
Flavors & Extracts  
3.0
%
  
(2.9
%)
  
(0.8
%)
  
6.7
%
  
(0.5
%)
  
(2.4
%)
  
(5.0
%)
  
6.9
%
Color  
8.8
%
  
(5.5
%)
  
(0.3
%)
  
14.6
%
  
11.8
%
  
(3.8
%)
  
(0.4
%)
  
16.0
%
Asia Pacific  
5.3
%
  
(9.2
%)
  
0.0
%
  
14.5
%
  
9.5
%
  
(7.4
%)
  
(0.3
%)
  
17.2
%
Total Revenue  4.9%  (4.4%)  (0.6%)  9.9%  4.7%  (3.3%)  (3.0%)  11.0%
                                 
Operating Income                                
Flavors & Extracts  
4.7
%
  
(1.1
%)
  
0.2
%
  
5.6
%
  
9.4
%
  
(1.2
%)
  
(4.0
%)
  
14.6
%
Color  
3.5
%
  
(7.4
%)
  
0.0
%
  
10.9
%
  
13.3
%
  
(4.9
%)
  
0.9
%
  
17.3
%
Asia Pacific  
5.3
%
  
(11.0
%)
  
0.0
%
  
16.3
%
  
19.5
%
  
(9.6
%)
  
(0.5
%)
  
29.6
%
Corporate & Other  
16.0
%
  
(0.1
%)
  
(7.4
%)
  
23.5
%
  
(9.6
%)
  
0.0
%
  
(30.4
%)
  
20.8
%
Total Operating Income  1.1%  (6.5%)  1.8%  5.8%  20.0%  (5.1%)  8.4%  16.7%
Diluted Earnings per Share  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 and income.

Note: Refer to table above for a reconciliation of these non-GAAP measures.
 Three Months Ended March 31, 2023
RevenueTotal
Foreign
Exchange
Rates
Local Currency
Flavors & Extracts(2.1%)(0.8%) (1.3%)
Color8.6%(1.4%)10.0%
Asia Pacific9.9%(4.7%)14.6%
Total Revenue3.8%(1.4%)  5.2%
    
Operating Income   
Flavors & Extracts(19.6%)(0.1%)(19.5%)
Color  4.0%(2.3%)  6.3%
Asia Pacific12.6%(5.4%)18.0%
Corporate & Other(8.7%)(0.1%)  (8.6%)
Total Operating Income(3.7%)(2.2%) (1.5%)
Diluted Earnings per Share(9.1%)(2.3%)(6.8%)

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.

12
Flavors & Extracts
Flavors & Extracts segment revenue was $187.0$178.9 million and $181.7$182.7 million for the three months ended September 30,March 31, 2023 and 2022, respectively, a decrease of approximately 2%. The decrease was a result of lower revenue in Flavors, Extracts & Flavor Ingredients and 2021,Natural Ingredients, primarily due to lower volumes, partially offset by higher selling prices. Flavors, Extracts & Flavor Ingredients was also unfavorably impacted by foreign exchange rates, which decreased segment revenue by approximately 1%.

Flavors & Extracts segment operating income was $22.2 million and $27.6 million for the three months ended March 31, 2023 and 2022, respectively, a decrease of approximately 20%. The lower segment operating income was a result of lower operating income in Flavors, Extracts & Flavor Ingredients and Natural Ingredients. The lower operating income in Flavors, Extracts & Flavor Ingredients was primarily due to higher raw material costs, lower volumes, and higher manufacturing and other costs, partially offset by higher selling prices and a favorable product mix. The lower operating income in Natural Ingredients was primarily due to higher raw material costs, lower volumes, and an unfavorable product mix, partially offset by higher selling prices and lower manufacturing and other costs. Foreign exchange rates had an immaterial impact on segment operating income. Segment operating income as a percent of revenue was 12.4% in the current quarter compared to 15.1% in the prior year’s comparable quarter.

Color
Segment revenue for the Color segment was $161.2 million and $148.4 million for the three months ended March 31, 2023 and 2022, respectively, an increase of approximately 3%. Foreign exchange rates decreased segment revenue by approximately 3%9%. The increase was primarily a result of higher revenue in Flavors, ExtractsFood & Flavor Ingredients,Pharmaceutical Colors, partially 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.Personal Care.  The higher revenueincrease in Flavors, ExtractsFood & Flavor IngredientsPharmaceutical Colors was primarily due to higher selling prices and higher volumes and the acquisition of Endemixin October 2022, partially offset by the unfavorable impact of foreign exchange rates.  The lower revenuedecrease in Natural IngredientsPersonal Care was primarily due to lower volumes and the unfavorable impact of foreign exchange rates, 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 1%. Foreign exchange rates decreased segment revenue by approximately 2%. The decrease was primarily a result of lower revenue due 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 revenue in Natural Ingredients was primarily due to lower volumes, partially offset by higher selling prices. The higher revenue in Flavors, Extracts & Flavor Ingredients was primarily due to higher selling prices, higher volumes, and the acquisition of Flavor Solutions, Inc. in July of 2021, partially offset by the unfavorable impact of foreign exchange rates.

Flavors & Extracts segment operating income was $26.3 million and $25.2 million for the three months ended September 30, 2022 and 2021, respectively, an increase of approximately 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 Fragrances in April of 2021. The higher segment operating income in Flavors, Extracts & Flavor Ingredients was primarily a result of higher selling prices and volumes, partially offset by higher raw material costs, higher manufacturing and other costs, and the unfavorable impact of foreign exchange rates. The higher segment operating income in Natural Ingredients was primarily a result of higher selling prices and 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 15.0% in the current nine month period compared to 13.7% in the prior year’s comparable nine month period.

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Color
Segment revenue for the Color segment was $151.5 million and $139.2 million for the three months ended 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 4%.

Segment operating income for the Color segment was $28.2$31.9 million and $27.3$30.7 million for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, an increase of approximately 4%. Foreign exchange rates decreased segment operating income by approximately 7%. The increase in segment operating income was primarily a result of higher segment operating income in Food & Pharmaceutical Colors, partially offset by lower segment operating income in Personal Care. The higher operating income in Food & Pharmaceutical Colors and Personal Care, primarilywas due to higher selling prices and volumes, partially offset by higher raw material costs, an unfavorable product mix, and higher manufacturing and other costs. The lower operating income in Personal Care was due to higher raw material costs, higher manufacturing and other costs, unfavorable product mix, and the unfavorable impact of foreignlower volumes, partially offset by higher selling prices. Foreign exchange rates.rates decreased segment operating income by approximately 2%. Segment operating income as a percent of revenue was 18.6%19.8% in the current quarter and 19.6%20.7% 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 $35.2$40.1 million and $33.4$36.5 million for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, an increase of approximately 5%10%. 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 9%.

Segment revenue for the Asia Pacific segment was $109.0 million and $99.6 million for the nine months ended September 30, 2022 and 2021, respectively, an increase of approximately 10%. The increase was 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%5%.

Segment operating income for the Asia Pacific segment was $7.0$9.2 million and $6.6$8.2 million for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, an increase of approximately 5%13%. The increase was primarily a result of higher volumesselling prices and selling prices,volumes, partially offset by higher other operatingraw material costs and the unfavorable impact of foreignmanufacturing and other costs. Foreign exchange rates that decreased segment operating income by approximately 11%5%. Segment operating income as a percent of revenue was 19.7%23.1% in both the current quarter and 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%22.5% in the prior year’s comparable period.quarter.

Corporate & Other
The Corporate & Other operating expense was $14.0$12.5 million and $12.1$13.7 million for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. The increase was primarily due to higher 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 expensesa result of $13.5 million, partially offset by highera decrease in performance-based executive compensation in 2022 and the prior period including operational improvement plan income of $2.0 million. There were no divestiture & other related expenses or operational improvement plan income or costs in the current nine-month period.compensation.

LIQUIDITY AND FINANCIAL CONDITION

Financial Condition
The Company’s financial position remains strong. The Company is in compliance with its loan covenants calculated in accordance with applicable agreements as of September 30, 2022.March 31, 2023. The Company expects its cash flow from operations and its existing debt capacity can be used to meet anticipated future cash requirements for operations, capital expenditures, and dividend payments as well as potential acquisitions and stock repurchases. The Company’s contractual obligations consist primarily of operational commitments, which we expect to continue to be able to satisfy through cash generated from operations and debt. The Company has various series of notes outstanding that mature from 20222023 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 substantialsufficient borrowing capacity under the Company’s revolving credit facility, which matures in 2026.

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As a result of our ability to manage the impact of inflation through pricing and other actions, the impact of inflation was not material to the Company’s financial position and its results of operations for the three or nine months ended September 30, 2022.March 31, 2023. 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.

Cash Flows from Operating Activities
Net cash provided byused in operating activities was $14.9$3.0 million and $116.1$0.9 million for the ninethree months ended September 30,March 31, 2023 and 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 address supply chain challenges.

Cash Flows from Investing Activities
Net cash used in investing activities was $51.7$22.9 million and $13.1$12.2 million during the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively. During the nine months ended September 30, 2021, the Company received cash proceeds of $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$22.3 million and $37.6$12.7 million during the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively.

Cash Flows from Financing Activities
Net cash provided by financing activities was $46.3$24.6 million and $14.9 million for the ninethree months ended September 30,March 31, 2023 and 2022, and net cash used in financing activities was $93.5 million for the nine months ended September 30, 2021.respectively. Net debt increased by $100.1$49.5 million and decreased by $11.9$33.8 million for the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively. The cash proceeds from the increase in net debt in the current period were primarily used to support inventorycapital expenditure investments during the ninethree months ended September 30, 2022.March 31, 2023. 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 $31.5 million during the nine months ended September 30, 2021. There were no repurchases of shares of the Company’s common stock in 2022. Dividends of $51.7$17.3 million and $49.5$17.2 million were paid during the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively. Dividends paid were $1.23 and $1.17 per share were $0.41 for both the ninethree months ended September 30, 2022March 31, 2023 and 2021, respectively.2022.

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CRITICAL ACCOUNTING POLICIES

There have been no material changes in the Company’s critical accounting policies during the quarter ended September 30, 2022.March 31, 2023. For additional information about the Company’s critical accounting policies, refer to “Critical Accounting Policies” under Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2022.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the Company’s exposure to market risk during the quarter ended September 30, 2022.March 31, 2023. For additional information about market risk, refer to Part II, Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2022.

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures: The Company carried out an evaluation, under the supervision and with the participation of management, including the Company’s Chairman, President, and Chief Executive Officer and its Senior Vice President and Chief Financial Officer, of the effectiveness, as of the end of the period covered by this report, of the design and operation of the disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act. Based upon that evaluation, the Company’s Chairman, President, and Chief Executive Officer and its Senior Vice President and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting: During the quarter ended September 30, 2022, the Company upgraded an enterprise resource planning software application used in two business units within the Flavors & Extracts segment. The upgrade included order taking, manufacturing, general ledger, and financial reporting processes. For the system 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 September 30, 2022,March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.
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PART II.   OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

See Part I, Item 1, Note 14,11, Commitments and Contingencies, of this report for information regarding legal proceedings in which the Company is involved.

ITEM 1A.RISK FACTORS

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

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

On October 19, 2017, the Board of Directors authorized the repurchase of up to three million shares (2017 Authorization). As of September 30, 2022,March 31, 2023, 1,267,019 shares had been repurchased under the 2017 Authorization. There is no expiration date for the 2017 Authorization. The 2017 Authorization may be modified, suspended, or discontinued by the Board of Directors at any time. As of September 30, 2022,March 31, 2023, the maximum number of shares that may be purchased under publicly announced plans is 1,732,981. No shares were purchased by the Company during the three or nine months ended September 30, 2022.March 31, 2023.

ITEM 6.EXHIBITS

SeeThe exhibits listed in the following Exhibit Index followingare filed as part of this report.Quarterly Report on Form 10-Q.

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SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2022MARCH 31, 2023

ExhibitDescriptionIncorporated by Reference FromFiled Herewith
    
10.13.1
Amendment No. 9 to Receivables Purchase Agreement, dated asAmended and Restated By-Laws of August 31, 2022, among Sensient Receivables LLC, Sensient Technologies Corporation, and Wells Fargo Bank, National Association.dated February 9, 2023
Exhibit 10.13.1 to Current Report on
Form 8-K filed September 6, 2022 (CommissionFebruary 14, 2023
(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.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
 X
    
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
 X

101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
 X
    
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
 X
    
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
 X

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  SENSIENT TECHNOLOGIES CORPORATION
    
Date:November 1, 2022May 2, 2023By:/s/  John J. Manning
   
John J. Manning, Senior Vice
President, General Counsel &
Secretary
 
    

Date:November 1, 2022May 2, 2023By:/s/  Stephen J. Rolfs
   
Stephen J. Rolfs, Senior Vice
President & Chief Financial Officer
 


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