Company Quick10K Filing
Sensient Technologies
Price68.21 EPS2
Shares42 P/E29
MCap2,885 P/FCF23
Net Debt583 EBIT136
TEV3,468 TEV/EBIT26
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-04
10-K 2019-12-31 Filed 2020-02-21
10-Q 2019-09-30 Filed 2019-11-05
10-Q 2019-06-30 Filed 2019-08-05
10-Q 2019-03-31 Filed 2019-05-06
10-K 2018-12-31 Filed 2019-02-22
10-Q 2018-09-30 Filed 2018-11-06
10-Q 2018-06-30 Filed 2018-08-06
10-Q 2018-03-31 Filed 2018-05-07
10-K 2017-12-31 Filed 2018-02-23
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-08-07
10-Q 2017-03-31 Filed 2017-05-08
10-K 2016-12-31 Filed 2017-02-23
10-Q 2016-09-30 Filed 2016-11-07
10-Q 2016-06-30 Filed 2016-08-08
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-02-25
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-05
10-K 2014-12-31 Filed 2015-02-26
10-Q 2014-09-30 Filed 2014-11-06
10-Q 2014-06-30 Filed 2014-08-06
10-Q 2014-03-31 Filed 2014-05-07
10-K 2013-12-31 Filed 2014-02-28
10-Q 2013-09-30 Filed 2013-11-08
10-Q 2013-06-30 Filed 2013-08-06
10-Q 2013-03-31 Filed 2013-05-07
10-K 2012-12-31 Filed 2013-02-27
10-Q 2012-09-30 Filed 2012-11-07
10-Q 2012-06-30 Filed 2012-08-07
10-Q 2012-03-31 Filed 2012-05-08
10-K 2011-12-31 Filed 2012-02-27
10-Q 2011-09-30 Filed 2011-11-08
10-Q 2011-06-30 Filed 2011-08-08
10-Q 2011-03-31 Filed 2011-05-09
10-K 2010-12-31 Filed 2011-02-25
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-03-01
8-K 2020-04-29
8-K 2020-04-29
8-K 2020-04-23
8-K 2020-03-26
8-K 2020-03-18
8-K 2020-02-14
8-K 2020-02-14
8-K 2020-02-13
8-K 2019-10-18
8-K 2019-10-18
8-K 2019-10-07
8-K 2019-07-19
8-K 2019-07-18
8-K 2019-05-01
8-K 2019-05-01
8-K 2019-04-25
8-K 2019-03-14
8-K 2019-02-15
8-K 2018-11-10
8-K 2018-11-01
8-K 2018-10-19
8-K 2018-10-01
8-K 2018-09-24
8-K 2018-09-17
8-K 2018-07-20
8-K 2018-07-19
8-K 2018-04-26
8-K 2018-04-25
8-K 2018-04-23
8-K 2018-04-06
8-K 2018-02-08
8-K 2018-02-08
8-K 2018-02-08
8-K 2018-01-24

SXT 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31 ex31.htm
EX-32 ex32.htm

Sensient Technologies Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2.01.61.20.80.40.02012201420172020
Assets, Equity
0.40.30.20.10.0-0.12012201420172020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549

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

For the quarterly period ended:
March 31, 2020
 

OR

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

For the transition period from
to
 

Commission file number: 001-07626

SENSIENT TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)

Wisconsin
 
39-0561070
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)

777 EAST WISCONSIN AVENUE, MILWAUKEE, WISCONSIN 53202-5304
(Address of principal executive offices)

Registrant's telephone number, including area code:
(414) 271-6755

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, par value $0.10 per share
SXT
New York Stock Exchange LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days.Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  
Accelerated Filer
Non-Accelerated Filer
     
Smaller Reporting Company
Emerging Growth Company
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

Yes     No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class
 
Outstanding at April 30, 2020
Common Stock, par value $0.10 per share
 
42,357,694





SENSIENT TECHNOLOGIES CORPORATION
INDEX

   
Page No.
       
PART I. FINANCIAL INFORMATION:
 
       
 
Item 1.
Financial Statements:
 
       
   
1
       
   
2
       
   
3
       
   
4
       
   
5
       
   
6
       
 
Item 2.
15
       
 
Item 3.
21
       
 
Item 4.
21
       
PART II. OTHER INFORMATION:
 
       
 
Item 1.
21
       
 
Item 1A.
22
       
 
Item 2.
23
       
 
Item 6.
23
       
   
24
       
   
25





PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS

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

 
Three Months
Ended March 31,
 
   
2020
   
2019
 
             
Revenue
 
$
350,677
   
$
347,513
 
                 
Cost of products sold
   
238,784
     
232,288
 
                 
Selling and administrative expenses
   
77,332
     
65,805
 
                 
Operating income
   
34,561
     
49,420
 
                 
Interest expense
   
4,307
     
5,402
 
                 
Earnings before income taxes
   
30,254
     
44,018
 
                 
Income taxes
   
9,481
     
11,211
 
                 
Net earnings
 
$
20,773
   
$
32,807
 
                 
Weighted average number of common shares outstanding:
               
Basic
   
42,284
     
42,239
 
Diluted
   
42,307
     
42,275
 
                 
Earnings per common share:
               
Basic
 
$
0.49
   
$
0.78
 
Diluted
 
$
0.49
   
$
0.78
 
                 
Dividends declared per common share
 
$
0.39
   
$
0.36
 

See accompanying notes to consolidated condensed financial statements.

1



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

 
Three Months
Ended March 31,
 
   
2020
   
2019
 
             
Comprehensive (loss) income
 
$
(23,580
)
 
$
32,091
 

See accompanying notes to consolidated condensed financial statements.

2


SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)

ASSETS
 
March 31, 2020
(Unaudited)
   
December 31, 2019
 
             
CURRENT ASSETS:
           
Cash and cash equivalents
 
$
23,085
   
$
21,153
 
Trade accounts receivable, net
   
240,123
     
213,201
 
Inventories
   
384,157
     
422,517
 
Prepaid expenses and other current assets
   
38,768
     
40,049
 
Assets held for sale
   
78,612
     
91,293
 
                 
TOTAL CURRENT ASSETS
   
764,745
     
788,213
 
                 
OTHER ASSETS
   
82,367
     
80,939
 
DEFERRED TAX ASSETS
   
10,741
     
14,976
 
INTANGIBLE ASSETS, NET
   
11,463
     
11,802
 
GOODWILL
   
400,515
     
407,042
 
                 
PROPERTY, PLANT, AND EQUIPMENT:
               
Land
   
30,078
     
31,431
 
Buildings
   
293,331
     
298,733
 
Machinery and equipment
   
645,866
     
652,063
 
Construction in progress
   
25,328
     
24,613
 
     
994,603
     
1,006,840
 
Less accumulated depreciation
   
(571,608
)
   
(569,661
)
     
422,995
     
437,179
 
                 
TOTAL ASSETS
 
$
1,692,826
   
$
1,740,151
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES:
               
Trade accounts payable
 
$
91,437
   
$
94,653
 
Accrued salaries, wages, and withholdings from employees
   
19,724
     
18,655
 
Other accrued expenses
   
41,140
     
41,429
 
Income taxes
   
8,410
     
6,841
 
Short-term borrowings
   
20,105
     
20,612
 
Liabilities held for sale
   
19,821
     
19,185
 
                 
TOTAL CURRENT LIABILITIES
   
200,637
     
201,375
 
                 
DEFERRED TAX LIABILITIES
   
14,511
     
15,053
 
OTHER LIABILITIES
   
20,224
     
17,813
 
ACCRUED EMPLOYEE AND RETIREE BENEFITS
   
25,457
     
25,822
 
LONG-TERM DEBT
   
589,339
     
598,499
 
                 
SHAREHOLDERS’ EQUITY:
               
Common stock
   
5,396
     
5,396
 
Additional paid-in capital
   
99,080
     
98,425
 
Earnings reinvested in the business
   
1,539,520
     
1,536,100
 
Treasury stock, at cost
   
(593,977
)
   
(595,324
)
Accumulated other comprehensive loss
   
(207,361
)
   
(163,008
)
                 
TOTAL SHAREHOLDERS’ EQUITY
   
842,658
     
881,589
 
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
1,692,826
   
$
1,740,151
 

See accompanying notes to consolidated condensed financial statements.

3



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

 
Three Months Ended
March 31,
 
   
2020
   
2019
 
             
Cash flows from operating activities:
           
Net earnings
 
$
20,773
   
$
32,807
 
Adjustments to arrive at net cash provided by operating activities:
               
Depreciation and amortization
   
12,404
     
13,672
 
Share-based compensation
   
1,177
     
687
 
Net loss (gain) on assets
   
14
     
(41
)
Loss on divestitures
   
10,558
     
-
 
Deferred income taxes
   
4,077
     
2,674
 
Changes in operating assets and liabilities:
               
Trade accounts receivable
   
(41,684
)
   
(19,230
)
Inventories
   
29,058
     
22,112
 
Prepaid expenses and other assets
   
(6,048
)
   
(7,573
)
Accounts payable and other accrued expenses
   
2,773
     
(21,857
)
Accrued salaries, wages and withholdings from employees
   
1,611
     
(3,022
)
Income taxes
   
1,662
     
2,213
 
Other liabilities
   
553
     
982
 
                 
Net cash provided by operating activities
   
36,928
     
23,424
 
                 
Cash flows from investing activities:
               
Acquisition of property, plant, and equipment
   
(9,411
)
   
(8,300
)
Proceeds from sale of assets
   
6
     
45
 
Other investing activities
   
4,505
     
(301
)
                 
Net cash used in investing activities
   
(4,900
)
   
(8,556
)
                 
Cash flows from financing activities:
               
Proceeds from additional borrowings
   
9,669
     
16,689
 
Debt payments
   
(11,104
)
   
(12,577
)
Dividends paid
   
(16,500
)
   
(15,218
)
Other financing activities
   
(249
)
   
(803
)
                 
Net cash used in financing activities
   
(18,184
)
   
(11,909
)
                 
Effect of exchange rate changes on cash and cash equivalents
   
(11,912
)
   
(964
)
                 
Net increase in cash and cash equivalents
   
1,932
     
1,995
 
Cash and cash equivalents at beginning of period
   
21,153
     
31,901
 
                 
Cash and cash equivalents at end of period
 
$
23,085
   
$
33,896
 

See accompanying notes to consolidated condensed financial statements.

4



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

       
Additional
   
Earnings
Reinvested
   
Treasury Stock
   
Accumulated
Other
Comprehensive
       
Three Months Ended March 31, 2019
 
Common
Stock
   
Paid-In
Capital
   
in the
Business
   
Shares
   
Amount
   
Income
(Loss)
   
Total
Equity
 
Balances at December 31, 2018
 
$
5,396
   
$
101,663
   
$
1,516,243
     
11,731,223
   
$
(597,800
)
 
$
(165,555
)
 
$
859,947
 
Net earnings
   
-
     
-
     
32,807
     
-
     
-
     
-
     
32,807
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
(716
)
   
(716
)
Cash dividends paid - $0.36 per share
   
-
     
-
     
(15,218
)
   
-
     
-
     
-
     
(15,218
)
Share-based compensation
   
-
     
687
     
-
     
-
     
-
     
-
     
687
 
Non-vested stock issued upon vesting
   
-
     
(1,784
)
   
-
     
(35,016
)
   
1,784
     
-
     
-
 
Benefit plans
   
-
     
72
     
-
     
(18,597
)
   
948
     
-
     
1,020
 
Other
   
-
     
(153
)
   
-
     
12,769
     
(650
)
   
-
     
(803
)
Balances at March 31, 2019
 
$
5,396
   
$
100,485
   
$
1,533,832
     
11,690,379
   
$
(595,718
)
 
$
(166,271
)
 
$
877,724
 

       
Additional
   
Earnings
Reinvested
   
Treasury Stock
   
Accumulated
Other
Comprehensive
       
Three Months Ended March 31, 2020
 
Common
Stock
   
Paid-In
Capital
   
in the
Business
   
Shares
   
Amount
   
Income
(Loss)
   
Total
Equity
 
Balances at December 31, 2019
 
$
5,396
   
$
98,425
   
$
1,536,100
     
11,682,636
   
$
(595,324
)
 
$
(163,008
)
 
$
881,589
 
Net earnings
   
-
     
-
     
20,773
     
-
     
-
     
-
     
20,773
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
(44,353
)
   
(44,353
)
Cash dividends paid - $0.39 per share
   
-
     
-
     
(16,500
)
   
-
     
-
     
-
     
(16,500
)
Share-based compensation
   
-
     
1,177
     
-
     
-
     
-
     
-
     
1,177
 
Non-vested stock issued upon vesting
   
-
     
(724
)
   
-
     
(14,200
)
   
724
     
-
     
-
 
Benefit plans
   
-
     
241
     
-
     
(16,344
)
   
833
     
-
     
1,074
 
Adoption of ASU 2016-13
   
-
     
-
     
(853
)
   
-
     
-
     
-
     
(853
)
Other
   
-
     
(39
)
   
-
     
4,114
     
(210
)
   
-
     
(249
)
Balances at March 31, 2020
 
$
5,396
   
$
99,080
   
$
1,539,520
     
11,656,206
   
$
(593,977
)
 
$
(207,361
)
 
$
842,658
 

See accompanying notes to consolidated condensed financial statements.

5


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

1.
Accounting Policies

In the opinion of Sensient Technologies Corporation (the Company), the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) that are necessary to present fairly the financial position of the Company as of March 31, 2020, and the results of operations, comprehensive income, cash flows, and shareholders’ equity for the three months ended March 31, 2020 and 2019. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

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

Please refer to the notes in the Company’s annual consolidated financial statements for the year ended December 31, 2019, for additional details of the Company’s financial condition and a description of the Company’s accounting policies, which have been continued without change, except for the Company’s Accounts Receivable accounting policy. This policy was updated in the first quarter of 2020 as a result of the Company’s adoption of Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and is described below.

Accounts Receivable
Receivables are recorded at their face amount, less an allowance for losses on doubtful accounts. The allowance for doubtful accounts is based on customer-specific analysis and expected future credit losses based on historical experience, current conditions, and expected future conditions. Specific accounts are written off against the allowance for doubtful accounts when the receivable is deemed no longer collectible.

Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment model with a methodology that reflects expected credit losses. Under the new standard, entities are required to measure expected credit losses on financial instruments held at amortized cost, including trade receivables, based on historical experience, current conditions, and reasonable forecasts. The Company adopted this standard in the first quarter of 2020. The adoption of this standard resulted in an increase of $0.9 million to the allowance for losses on Trade Accounts Receivable and a corresponding decrease in Earnings Reinvested in the Business as of January 1, 2020. The adoption of this standard did not have an impact on the Company’s Consolidated Condensed Statements of Earnings, or to cash provided by or used in operating, financing, or investing activities on the Company’s Consolidated Statements of Cash Flows.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates step two of the current goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. The Company adopted this standard in the first quarter of 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which changes the requirements for fair value measurements by removing, modifying, and adding certain disclosures. The Company adopted this standard in the first quarter of 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements or its related disclosures.

Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans Subtopic 715-20, which amends Accounting Standards Codification (ASC) 715-20, Compensation – Retirement Benefits – Defined Benefit Plans – General. This standard modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The effective date is January 1, 2021, with early adoption permitted. The Company is currently evaluating the potential impact of this standard on its disclosures.

6


In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank 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, 2019, for additional details of the Company’s financial condition and a description of the Company’s accounting policies, which have been continued without change, except as discussed above.

2.
Divestitures

In October 2019, the Company announced its intent to divest its inks, fragrances (excluding its essential oils product line), and yogurt fruit preparations product lines. In October 2019, the Board of Directors approved the sale of the inks product line, which is within the Color segment. The Company has signed a memorandum of understanding with a potential buyer. In November 2019, the Board of Directors approved the sale of the fragrances product line (excluding its essential oils product line), which is within the Flavors & Fragrances segment. The Company has signed a memorandum of understanding with a potential buyer. As a result, the Company met all of the assets held for sale criteria for the inks and fragrances disposal groups. The divesting and exit of these products lines does not meet the criteria to be presented as a discontinued operation on the Consolidated Condensed Statements of Earnings.

As of March 31, 2020, the yogurt fruit preparations product line, which is included in the Flavors & Fragrances segment, did not meet all of the assets held for sale criteria. Subsequent to March 31, 2020, the Board of Directors approved the sale of the yogurt fruit preparations product line. See Note 12, Subsequent Events, for further information.

The assets and liabilities related to the inks and fragrances product lines are recorded in Assets held for sale and Liabilities held for sale as of March 31, 2020 and December 31, 2019, as follows:

(in thousands)
 
March 31,
2020
   
December 31,
2019
 
Assets held for sale:
           
Trade accounts receivable, net
 
$
34,610
   
$
31,653
 
Inventories
   
30,104
     
34,612
 
Prepaid expenses and other current assets
   
6,628
     
5,528
 
Property, Plant, and Equipment, net
   
4,643
     
14,496
 
Intangible assets, net
   
2,627
     
5,004
 
Assets held for sale
 
$
78,612
   
$
91,293
 
                 
Liabilities held for sale:
               
Trade accounts payable
 
$
13,532
   
$
12,318
 
Accrued salaries, wages and withholdings from employees
   
1,222
     
1,677
 
Other accrued expenses
   
5,067
     
5,190
 
Liabilities held for sale
 
$
19,821
   
$
19,185
 

During the year ended December 31, 2019, the Company estimated that the fair value of the inks product line less costs to sell was lower than its carrying value resulting in a non-cash impairment charge of $15.8 million. As of March 31, 2020, the Company revised its estimate of the fair value of the inks product line based on indicative bids resulting in an additional non-cash impairment charge of $9.4 million recorded in Selling and Administrative Expenses during the three months ended March 31, 2020. The charge adjusted the carrying value of certain long-lived assets, primarily property, plant, and equipment, intangible assets and allocated goodwill, to their estimated fair value. This estimate will be finalized and adjusted as necessary upon the closing of the sale or as estimates change. In addition, the Company currently estimates a non-cash gain of $6 million to $8 million upon closing the transaction related to the reclassification of accumulated foreign currency translation and related items from Accumulated Other Comprehensive Loss to Selling and Administrative Expenses in the Consolidated Condensed Statements of Earnings.

7


During the year ended December 31, 2019, the Company estimated that the fair value of the fragrances product line less costs to sell was lower than its carrying value resulting in a non-cash impairment charge of $18.2 million. As of March 31, 2020, the Company revised its estimate of the fair value of the fragrances product line based on indicative bids resulting in an additional non-cash impairment charge of $0.3 million recorded in Selling and Administrative Expenses during the three months ended March 31, 2020. The charge adjusted the carrying value of certain long-lived assets, primarily property, plant and equipment and allocated goodwill, to their estimated fair value. This estimate will be finalized and adjusted as necessary upon the closing of the sale or as estimates change. In addition, the Company currently estimates an additional non-cash charge of $10 million to $12 million upon closing related to the reclassification of accumulated foreign currency translation and related items from Accumulated Other Comprehensive Loss (OCI) to Selling and Administrative Expenses in the Consolidated Condensed Statement of Earnings.

In March 2020, the Company was notified by a potential 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 is in the process of conducting its own environmental investigation to confirm the presence and extent of these contaminants and plans to perform a quantitative risk assessment to determine whether or what remedial action is required under Spanish law. At the conclusion of this work, if necessary, the Company intends to report any confirmed contamination, along with a remediation plan to address the contamination, if necessary, to the relevant Spanish authorities. Due to the impacts of COVID-19 in Spain, the Company has not been able to conduct a quantitative assessment of the issues identified in the environmental sampling. Consequently, the Company is unable to quantify any potential remediation costs at this time.

The Company also incurred $1.3 million of other divestiture and exit related costs, primarily severance and legal expenses, and $0.6 million of non-cash expenses charge related to other exit activities in the period ended March 31, 2020, which is recorded in Selling and Administrative Expenses. Also during the period, the Company recorded a non-cash charge of $0.2 million in Costs of Products Sold related to the value of certain inventories.

Excluding any potential remediation costs associated with the Granada, Spain, location of the fragrances product line, which the Company is unable to quantify at this time as discussed above, the Company expects total cash costs in 2019 and 2020 associated with the anticipated divestitures of all three product lines to be between $7 million and $10 million, primarily related to severance and other exit activities.

3.
Trade Accounts Receivable

Trade accounts receivables are recorded at their face amount, less an allowance for expected losses on doubtful accounts. The allowance for doubtful accounts is calculated based on customer-specific analysis and an aging methodology using historical loss information. The Company believes historical loss information is a reasonable basis for expected credit losses as the Company’s historical credit loss experience correlates with its customer delinquency status. This information is also adjusted for any known current economic conditions including the current and expected impact of COVID-19. Currently, the COVID-19 pandemic is not anticipated to have a material impact on trade accounts receivable. Forecasted economic conditions do not have 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.

8


The following table summarizes the changes in the allowance for doubtful accounts during the three month period ended March 31, 2020:

(In thousands)
 
Allowance for
Doubtful Accounts
 
Balance at December 31, 2019
 
$
6,913
 
Adoption of ASU 2016-13
   
853
 
Provision for expected credit losses
   
240
 
Accounts written off
   
(336
)
Translation and other activity
   
(643
)
Balance at March 31, 2020
 
$
7,027
 

4.
Inventories

At March 31, 2020, and December 31, 2019, inventories included finished and in-process products totaling $282.9 million and $313.1 million, respectively, and raw materials and supplies of $101.3 million and $109.4 million, respectively.

5.
Fair Value

ASC 820, Fair Value Measurement, defines fair value for financial assets and liabilities, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. As of March 31, 2020 and December 31, 2019, the Company’s assets and liabilities subject to this standard are forward exchange contracts. The net fair value of the forward exchange contracts based on current pricing obtained for comparable derivative products (Level 2 inputs) was a liability of $1.8 million and $0.1 million as of March 31, 2020 and December 31, 2019, respectively. The carrying values of the Company’s cash and cash equivalents, trade accounts receivable, trade accounts payable, accrued expenses, and short-term borrowings were approximately the same as the fair values as of March 31, 2020. The fair value of the Company’s long-term debt, including current maturities, is estimated using discounted cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 2 inputs). The carrying value of the long-term debt at March 31, 2020 was $589.3 million. The fair value of the long-term debt at March 31, 2020 was $589.7 million.

During the fourth quarter of 2019, the Company met the assets held for sale criteria for its inks and fragrances product lines. During the first quarter of 2020, the estimated fair value of the disposal groups was updated to $59.0 million, resulting in the recording of an additional impairment of $9.7 million in the three months ended March 31, 2020. The fair value of these product lines were determined based on indicative bids, which are classified as Level 3 inputs in the fair value measurement hierarchy. See Note 2, Divestitures, for further information.


9


6.
Segment Information

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

(In thousands)
 
Flavors &
Fragrances
   
Color
   
Asia
Pacific
   
Corporate
& Other
   
Consolidated
 
Three months ended March 31, 2020:
                             
Revenue from external customers
 
$
181,187
   
$
139,193
   
$
30,297
   
$
-
   
$
350,677
 
Intersegment revenue
   
5,311
     
4,302
     
152
     
-
     
9,765
 
Total revenue
 
$
186,498
   
$
143,495
   
$
30,449
   
$
-
   
$
360,442
 
                                         
Operating income (loss)
 
$
20,871
   
$
29,664
   
$
5,059
   
$
(21,033
)
 
$
34,561
 
Interest expense
   
-
     
-
     
-
     
4,307
     
4,307
 
Earnings (loss) before income taxes
 
$
20,871
   
$
29,664
   
$
5,059
   
$
(25,340
)
 
$
30,254
 
                                         
Three months ended March 31, 2019:
                                       
Revenue from external customers
 
$
178,744
   
$
140,250
   
$
28,519
   
$
-
   
$
347,513
 
Intersegment revenue
   
4,809
     
3,629
     
-
     
-
     
8,438
 
Total revenue
 
$
183,553
   
$
143,879
   
$
28,519
   
$
-
   
$
355,951
 
                                         
Operating income (loss)
 
$
23,125
   
$
30,199
   
$
4,218
   
$
(8,122
)
 
$
49,420
 
Interest expense
   
-
     
-
     
-
     
5,402
     
5,402
 
Earnings (loss) before income taxes
 
$
23,125
   
$
30,199
   
$
4,218
   
$
(13,524
)
 
$
44,018
 

The Company evaluates performance based on operating income before divestiture and other related costs, restructuring and other charges, 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 Condensed Statements of Earnings, and intersegment sales, which are accounted for at prices that approximate market prices and are eliminated in consolidation. The 2020 divestiture and other related costs, which pertain to the anticipated divestitures of the Company’s inks, fragrances (excluding its essential oils product line), and yogurt fruit preparations product lines, are reported in Corporate & Other. There were no divestiture and other related costs or restructuring and other costs in the first three months of 2019.

In addition to evaluating the Company’s performance based on the segments above, revenue is also disaggregated and analyzed by product line and geographic market. The following tables display the Company’s revenue by these major sources.

During the first quarter of 2020, the Company updated its product line disclosures as a result of its previous announcement regarding its intent to divest its inks, fragrances (excluding its essential oils product line), and yogurt fruit preparations product lines.

Flavors, Extracts & Flavor Ingredients now includes essential oils, which was previously reported in Fragrances. Fragrances now only includes the aroma chemicals and fragrance compounds product lines. Yogurt Fruit Preparations is now disclosed separately; previously it was reported in the Flavors product line.

Food & Beverage Colors now includes pharmaceutical colors and natural extraction, which were previously reported in Other Colors. Personal Care includes cosmetic and non-food colors. Inks is now disclosed separately; previously it was reported in Other Colors.

The results for 2019 have been restated to reflect these changes.

10


Product Lines

(In thousands)
 
Flavors &
Fragrances
   
Color
   
Asia
Pacific
   
Consolidated
 
Three months ended March 31, 2020:
                       
Flavors, Extracts & Flavor Ingredients
 
$
101,453
   
$
-
   
$
-
   
$
101,453
 
Natural Ingredients
   
57,600
     
-
     
-
     
57,600
 
Fragrances
   
22,284
     
-
     
-
     
22,284
 
Yogurt Fruit Preparations
   
5,161
     
-
     
-
     
5,161
 
Food & Beverage Colors
   
-
     
90,793
     
-
     
90,793
 
Personal Care
   
-
     
43,743
     
-
     
43,743
 
Inks
   
-
     
8,959
     
-
     
8,959
 
Asia Pacific
   
-
     
-
     
30,449
     
30,449
 
Intersegment Revenue
   
(5,311
)
   
(4,302
)
   
(152
)
   
(9,765
)
Total revenue from external customers
 
$
181,187
   
$
139,193
   
$
30,297
   
$
350,677
 

Three months ended March 31, 2019:
                       
Flavors, Extracts & Flavor Ingredients
 
$
103,528
   
$
-
   
$
-
   
$
103,528
 
Natural Ingredients
   
51,219
     
-
     
-
     
51,219
 
Fragrances
   
23,267
     
-
     
-
     
23,267
 
Yogurt Fruit Preparations
   
5,539
     
-
     
-
     
5,539
 
Food & Beverage Colors
   
-
     
88,848
     
-
     
88,848
 
Personal Care
   
-
     
44,921
     
-
     
44,921
 
Inks
   
-
     
10,110
     
-
     
10,110
 
Asia Pacific
   
-
     
-
     
28,519
     
28,519
 
Intersegment Revenue
   
(4,809
)
   
(3,629
)
   
-
     
(8,438
)
Total revenue from external customers
 
$
178,744
   
$
140,250
   
$
28,519
   
$
347,513
 

Geographic Markets

(In thousands)
 
Flavors &
Fragrances
   
Color
   
Asia
Pacific
   
Consolidated
 
Three months ended March 31, 2020:
                       
North America
 
$
116,701
   
$
66,265
   
$
-
   
$
182,966
 
Europe
   
43,877
     
38,738
     
22
     
82,637
 
Asia Pacific
   
9,355
     
15,975
     
29,122
     
54,452
 
Other
   
11,254
     
18,215
     
1,153
     
30,622
 
Total revenue from external customers
 
$
181,187
   
$
139,193
   
$
30,297
   
$
350,677
 
                                 
Three months ended March 31, 2019:
                               
North America
 
$
112,747
   
$
66,007
   
$
25
   
$
178,779
 
Europe
   
48,001
     
42,135
     
41
     
90,177
 
Asia Pacific
   
7,609
     
16,425
     
28,266
     
52,300
 
Other
   
10,387
     
15,683
     
187
     
26,257
 
Total revenue from external customers
 
$
178,744
   
$
140,250
   
$
28,519
   
$
347,513
 

11


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
March 31,
 
(In thousands)
 
2020
   
2019
 
             
Service cost
 
$
400
   
$
359
 
Interest cost
   
256
     
320
 
Expected return on plan assets
   
(209
)
   
(231
)
Recognized actuarial loss (gain)
   
16
     
(39
)
Total defined benefit expense
 
$
463
   
$
409
 

The Company’s non-service cost portion of defined benefit expense is recorded in Interest Expense on the Company’s Consolidated Condensed 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 Condensed Statements of Earnings.

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 $54.5 million and $59.9 million of forward exchange contracts designated as cash flow hedges outstanding as of March 31, 2020, and December 31, 2019, respectively. For the three months ended March 31, 2020 and 2019, the amounts reclassified into net earnings in the Company’s Consolidated Condensed Statement of Earnings that offset the underlying transactions' impact on earnings in the same period were not material. In addition, the Company utilizes forward exchange contracts that are not designated as cash flow hedges. The results of these transactions were not material to the financial statements.

Net investment hedges – The Company has certain debt denominated in Euros, Swiss Francs, and British Pounds. These debt instruments have been designated as partial hedges of the Company’s Euro, Swiss Franc, and British Pound net asset positions. Changes in the fair value of this debt attributable to changes in the spot foreign exchange rate are recorded in foreign currency translation in OCI. As of March 31, 2020, and December 31, 2019, the total value of the Company’s Euro, Swiss Franc, and British Pound debt designated as net investment hedges was $355.0 million and $363.4 million, respectively.  For the three months ended March 31, 2020, the impact of foreign exchange rates on these debt instruments decreased debt by $8.4 million, which has been recorded as foreign currency translation in OCI.

9.
Income Taxes

The effective income tax rates for the three months ended March 31, 2020 and 2019, were 31.3% and 25.5%, respectively. The effective tax rates for the three months ended March 31, 2020 and 2019 were both impacted by changes in estimates associated with the finalization of prior year foreign tax items, audit settlements, and the mix of foreign earnings.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The CARES Act allows for the deferral of income and social security tax payments, a five-year carryback for net operating losses, changes to interest expense and business loss limitation rules, certain new tax credits, and certain new loans and grants to businesses. The Company has reviewed its income tax assumptions and projections in light of the CARES Act and does not expect the CARES Act to materially impact the Company’s income tax expense or projections. As of March 31, 2020, the Company was considering the option to defer future tax payments (income taxes and certain payroll taxes) in accordance with the CARES Act. Subsequent to March 31, 2020, the Company has decided to defer certain tax payments in accordance with the CARES Act. The Company will continue to evaluate the CARES Act for opportunities as additional information is released on the CARES Act.

12


10.
Accumulated Other Comprehensive Income

The following table summarizes the changes in OCI during the three month periods ended March 31, 2020 and 2019:

(In thousands)
 
Cash Flow
Hedges (a)
   
Pension
Items (a)
   
Foreign
Currency
Items
   
Total
 
Balances at December 31, 2019
 
$
(199
)
 
$
(672
)
 
$
(162,137
)
 
$
(163,008
)
Other comprehensive loss before reclassifications
   
(1,865
)
   
-
     
(42,925
)
   
(44,790
)
Amounts reclassified from OCI
   
429
     
8
     
-
     
437
 
Balances at March 31, 2020
 
$
(1,635
)
 
$
(664
)
 
$
(205,062
)
 
$
(207,361
)

(In thousands)
 
Cash Flow
Hedges (a)
   
Pension
Items (a)
   
Foreign
Currency
Items