10-Q 1 brhc10036722_10q.htm 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549

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

For the quarterly period ended:
March 31, 2022
 

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 27, 2022
Common Stock, par value $0.10 per share
 
42,032,761



SENSIENT TECHNOLOGIES CORPORATION
INDEX

 
 
Page No.
 
 
 
PART I. FINANCIAL INFORMATION:
 
 
 
 
Item 1.
Financial Statements:
 
     
 
 1
 
 
 
 
 2
 
 
 
 
 3
 
 
 
 
 4
 
 
 
 
 5
 
 
 
 
6
 
 
 
Item 2.
 14
 
 
 
Item 3.
20
 
 
 
Item 4.
20
 
 
 
PART II. OTHER INFORMATION:
 
 
 
 
Item 1.
21
 
 
 
   Item 1A.
21
 
 
 
Item 2.
21
 
 
 
Item 6.
21
 
 
 
 
22
 
 
 
 
23

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,
 
             
   
2022
   
2021
 
             
Revenue
 
$
355,521
   
$
359,702
 
Cost of products sold
   
230,675
     
244,089
 
Selling and administrative expenses
   
72,057
     
68,716
 
Operating income
   
52,789
     
46,897
 
Interest expense
   
2,993
     
3,433
 
Earnings before income taxes
   
49,796
     
43,464
 
Income taxes
   
12,725
     
11,796
 
Net earnings
 
$
37,071
   
$
31,668
 
                 
Weighted average number of common shares outstanding:
               
Basic
   
41,865
     
42,263
 
Diluted
   
42,148
     
42,389
 
                 
Earnings per common share:
               
Basic
 
$
0.89
   
$
0.75
 
Diluted
 
$
0.88
   
$
0.75
 
                 
Dividends declared per common share
 
$
0.41
   
$
0.39
 
                 

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,
 
   
2022
   
2021
 
             
Comprehensive income
 
$
36,834
   
$
16,529
 

See accompanying notes to consolidated condensed financial statements.

2


SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)

Assets
 
March 31,
2022
(Unaudited)
   
December 31,
2021
 
             
Current Assets:
           
Cash and cash equivalents
 
$
32,175
   
$
25,740
 
Trade accounts receivable
   
282,265
     
261,121
 
Inventories
   
422,837
     
411,635
 
Prepaid expenses and other current assets
   
46,081
     
42,657
 
                 
Total current assets
   
783,358
     
741,153
 
                 
Other assets
   
104,439
     
92,952
 
Deferred tax assets
   
25,757
     
29,901
 
Intangible assets, net
   
14,486
     
14,975
 
Goodwill
   
415,328
     
420,034
 
Property, Plant, and Equipment:
               
Land
   
30,723
     
31,028
 
Buildings
   
314,237
     
315,207
 
Machinery and equipment
   
720,107
     
715,344
 
Construction in progress
   
37,721
     
32,801
 
     
1,102,788
     
1,094,380
 
Less accumulated depreciation
   
(657,537
)
   
(647,902
)
     
445,251
     
446,478
 
                 
Total assets
 
$
1,788,619
   
$
1,745,493
 
                 
Liabilities and ShareholdersEquity
               
                 
Current Liabilities:
               
Trade accounts payable
 
$
114,858
   
$
125,519
 
Accrued salaries, wages, and withholdings from employees
   
28,388
     
40,939
 
Other accrued expenses
   
45,903
     
46,292
 
Income taxes
   
17,759
     
11,016
 
Short-term borrowings
   
7,475
     
8,539
 
                 
Total current liabilities
   
214,383
     
232,305
 
                 
Deferred tax liabilities
   
14,178
     
14,349
 
Other liabilities
   
39,902
     
28,829
 
Accrued employee and retiree benefits
   
28,441
     
28,579
 
Long-term debt
   
530,005
     
503,006
 
Shareholders’ Equity:
               
Common stock
   
5,396
     
5,396
 
Additional paid-in capital
   
112,973
     
111,352
 
Earnings reinvested in the business
   
1,650,588
     
1,630,713
 
Treasury stock, at cost
   
(632,382
)
   
(634,408
)
Accumulated other comprehensive loss
   
(174,865
)
   
(174,628
)
                 
Total shareholders’ equity
   
961,710
     
938,425
 
                 
Total liabilities and shareholders’ equity
 
$
1,788,619
   
$
1,745,493
 

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,
 
   
2022
   
2021
 
             
Cash flows from operating activities:
           
Net earnings
 
$
37,071
   
$
31,668
 
Adjustments to arrive at net cash provided by operating activities:
               
Depreciation and amortization
   
13,056
     
12,799
 
Share-based compensation expense
   
4,163
     
2,113
 
Net (gain) loss on assets
   
(48
)
   
161
 
Loss on divestitures and other charges
   
-
     
1,238
 
Deferred income taxes
   
4,211
     
4,257
 
Changes in operating assets and liabilities:
               
Trade accounts receivable
   
(20,841
)
   
(27,237
)
Inventories
   
(11,901
)
   
27,621
 
Prepaid expenses and other assets
   
(11,111
)
   
(13,239
)
Accounts payable and other accrued expenses
   
(10,267
)
   
(6,242
)
Accrued salaries, wages, and withholdings from employees
   
(12,425
)
   
(10,872
)
Income taxes
   
7,063
     
5,742
 
Other liabilities
   
137
     
955
 
                 
Net cash (used in) provided by operating activities
   
(892
)
   
28,964
 
                 
Cash flows from investing activities:
               
Acquisition of property, plant, and equipment
   
(12,736
)
   
(14,244
)
Proceeds from sale of assets
   
89
     
69
 
Proceeds from divesture of businesses
   
-
     
4,059
 
Other investing activities
   
434
     
286
 
                 
Net cash used in investing activities
   
(12,213
)
   
(9,830
)
                 
Cash flows from financing activities:
               
Proceeds from additional borrowings
   
40,099
     
21,530
 
Debt payments
   
(6,275
)
   
(8,999
)
Purchase of treasury stock
   
-
     
(11,665
)
Dividends paid
   
(17,211
)
   
(16,535
)
Other financing activities
   
(1,679
)
   
(228
)
                 
Net cash provided by (used in) financing activities
   
14,934
     
(15,897
)
                 
Effect of exchange rate changes on cash and cash equivalents
   
4,606
     
(7
)
                 
Net increase in cash and cash equivalents
   
6,435
     
3,230
 
Cash and cash equivalents at beginning of period
   
25,740
     
24,770
 
                 
Cash and cash equivalents at end of period
 
$
32,175
   
$
28,000
 

See accompanying notes to consolidated condensed financial statements.

4


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

 
Common
   
Additional
Paid-In
   
Earnings
Reinvested
in the
   
Treasury Stock
   
Accumulated
Other
Comprehensive
   
Total
 
Three Months Ended March 31, 2021
 
Stock
   
Capital
   
Business
   
Shares
   
Amount
   
Income (Loss)
   
Equity
 
Balances at December 31, 2020
 
$
5,396
   
$
102,909
   
$
1,578,662
     
11,647,627
   
$
(593,540
)
 
$
(159,091
)
 
$
934,336
 
Net earnings
   
-
     
-
     
31,668
     
-
     
-
     
-
     
31,668
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
(15,139
)
   
(15,139
)
Cash dividends paid $0.39 per share
   
-
     
-
     
(16,535
)
   
-
     
-
     
-
     
(16,535
)
Share-based compensation
   
-
     
2,113
     
-
     
-
     
-
     
-
     
2,113
 
Non-vested stock issued upon vesting
   
-
     
(563
)
   
-
     
(11,045
)
   
563
     
-
     
-
 
Benefit plans
    -       338       -       (14,791 )     756       -       1,094  
Purchase of treasury stock
    -       -       -       151,843       (11,665 )     -       (11,665 )
Other
   
-
     
(72
)
   
-
     
3,020
     
(154
)
   
-
     
(226
)
Balances at March 31, 2021
 
$
5,396
   
$
104,725
   
$
1,593,795
     
11,776,654
   
$
(604,040
)
 
$
(174,230
)
 
$
925,646
 

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  

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, 2022, and the results of operations, comprehensive income, cash flows, and shareholders’ equity for the three months ended March 31, 2022 and 2021. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

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

Recently Issued Accounting Pronouncements

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

Please refer to the notes in the Company’s annual consolidated financial statements for the year ended December 31, 2021, for additional details of the Company’s financial condition and a description of the Company’s accounting policies, which have been continued without change.

2.
Divestitures

On June 30, 2020, the Company completed the sale of its inks product line. On September 18, 2020, the Company completed the sale of its yogurt fruit preparations product line. This sale also included an earnout based on future performance, which could result in additional cash consideration for the Company. On April 1, 2021, the Company completed the sale of its fragrances product line (excluding its essential oils product line) for $36.3 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 months ended March 31, 2022. The following table summarizes the divestiture & other related costs for the three months ended March 31, 2021:

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


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

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 three months ended March 31, 2021.

6

3.
Operational Improvement Plan

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

The Company reports all costs and income associated with the Operational Improvement Plan in Corporate & Other. There were no costs associated with the Operational Improvement Plan for the three months ended March 31, 2022. The following table summarizes the Operational Improvement Plan expenses recorded in Selling and Administrative Expenses by segment for the three months ended March 31, 2021:

(In thousands)
 
Flavors &
Extracts
   
Color
   
Asia
Pacific
   
Consolidated
 
Employee separation costs
 
$
(19
)
 
$
54
   
$
(44
)
 
$
(9
)
Other costs(1)
   
-
     
1,009
     
1
     
1,010
 
Total
 
$
(19
)
 
$
1,063
   
$
(43
)
 
$
1,001
 


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

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

4.
Acquisition

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

5.
Trade Accounts Receivable

Trade accounts receivables are recorded at their face amount, less an allowance for expected losses on doubtful accounts. The allowance for doubtful accounts is calculated based on customer-specific analysis and an aging methodology using historical loss information. The Company believes historical loss information is a reasonable basis for expected credit losses as the Company’s historical credit loss experience correlates with its customer delinquency status. This information is also adjusted for any known current economic conditions, including the current and expected impact of COVID-19. Currently, the COVID-19 pandemic has not had and is not anticipated to have a material impact on trade accounts receivable. Forecasted economic conditions have not had a significant impact on the current credit loss estimate due to the short-term nature of the Company’s customer receivables; however, the Company will continue to monitor and evaluate the rapidly changing economic conditions. Additionally, as the Company only has one portfolio segment, there are not different risks between portfolios. Specific accounts are written off against the allowance for doubtful accounts when the receivable is deemed no longer collectible.
7


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

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

(In thousands)
Three Months Ended March 31, 2021
 
Allowance for
Doubtful Accounts
 
Balance at December 31, 2020
 
$
3,891
 
Provision for expected credit losses
   
156
 
Accounts written off
   
(353
)
Translation and other activity
   
(80
)
Balance at March 31, 2021
 
$
3,614
 



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

7.
Fair Value

Accounting Standards Codification 820, Fair Value Measurement, defines fair value for financial assets and liabilities, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. 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, 2022 and December 31, 2021. The net fair value of the forward exchange contracts based on current pricing obtained for comparable derivative products (Level 2 inputs) was an asset of $0.3 million and $0.1 million as of March 31, 2022 and December 31, 2021, respectively. The fair value of the Company’s long-term debt, including current maturities, is estimated using discounted cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 2 inputs). The carrying value of the long-term debt at March 31, 2022 and December 31, 2021, was $530.5 million and $503.5 million, respectively. The fair value of the long-term debt at March 31, 2022 and December 31, 2021, was $537.2 million and $520.0 million, respectively.

8.
Segment Information

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

The Company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance. The Company’s three reportable segments are the Flavors & Extracts and Color segments, which are both managed on a product line basis, and the Asia Pacific segment, which is managed on a geographic basis. The Company’s Flavors & Extracts segment produces flavor, extracts and essential oils products that impart a desired taste, texture, aroma, and/or other characteristics to a broad range of consumer and other products. The Color segment produces natural and synthetic color systems for use in foods, beverages, pharmaceuticals, and nutraceuticals; colors and other ingredients for cosmetics, such as active ingredients, solubilizers, and surface treated pigments; pharmaceutical and nutraceutical excipients, such as colors, flavors, coatings, and nutraceutical ingredients; and technical colors for industrial applications. The Asia Pacific segment is managed on a geographic basis and produces and distributes color and flavor products for the Asia Pacific countries. The Company’s corporate expenses, divestiture & other related costs, share-based compensation, operational improvement plan expenses, and other costs are included in the “Corporate & Other” category.
8


Divestiture & other related costs and restructuring and other costs, including the Operational Improvement Plan costs, for the three months ended March 31, 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 months ended March 31, 2022. In addition, the Company’s corporate expenses and share-based compensation are included in Corporate & Other.

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

(In thousands)
 
Flavors & Extracts
   
Color
   
Asia
Pacific
   
Corporate
& Other
   
Consolidated
 
Three months ended March 31, 2022:
                             
Revenue from external customers
 
$
175,202
   
$
143,928
   
$
36,391
   
$
-
   
$
355,521
 
Intersegment revenue
   
7,525
     
4,510
     
74
     
-
     
12,109
 
Total revenue
 
$
182,727
   
$
148,438
   
$
36,465
   
$
-
   
$
367,630
 
                                         
Operating income (loss)
 
$
27,579
   
$
30,657
   
$
8,204
   
$
(13,651
)
 
$
52,789
 
Interest expense
   
-
     
-
     
-
     
2,993
     
2,993
 
Earnings (loss) before income taxes
 
$
27,579
   
$
30,657
   
$
8,204
   
$
(16,644
)
 
$
49,796
 
                                         
Three months ended March 31, 2021:
                                       
Revenue from external customers
 
$
194,661
   
$
131,201
   
$
33,840
   
$
-
   
$
359,702
 
Intersegment revenue
   
6,250
     
4,519
     
-
     
-
     
10,769
 
Total revenue
 
$
200,911
   
$
135,720
   
$
33,840
   
$
-
   
$
370,471
 
                                         
Operating income (loss)
 
$
27,018
   
$
26,594
   
$
6,752
   
$
(13,467
)
 
$
46,897
 
Interest expense
   
-
     
-
     
-
     
3,433
     
3,433
 
Earnings (loss) before income taxes
 
$
27,018
   
$
26,594
   
$
6,752
   
$
(16,900
)
 
$
43,464
 

Product Lines

(In thousands)
 
Flavors & Extracts
   
Color
   
Asia Pacific
   
Consolidated
 
Three months ended March 31, 2022:
                       
Flavors, Extracts & Flavor Ingredients
 
$
126,518
   
$
-
   
$
-
   
$
126,518
 
Natural Ingredients
   
56,209
     
-
     
-
     
56,209
 
Food & Pharmaceutical Colors
   
-
     
103,109
     
-
     
103,109
 
Personal Care
   
-
     
44,846
     
-
     
44,846
 
Inks
   
-
     
483
     
-
     
483
 
Asia Pacific
   
-
     
-
     
36,465
     
36,465
 
Intersegment Revenue
   
(7,525
)
   
(4,510
)
   
(74
)
   
(12,109
)
Total revenue from external customers
 
$
175,202
   
$
143,928
   
$
36,391
   
$
355,521
 
                                 
Three months ended March 31, 2021:
                               
Flavors, Extracts & Flavor Ingredients
 
$
113,818
   
$
-
   
$
-
   
$
113,818
 
Natural Ingredients
   
62,204
     
-
     
-
     
62,204
 
Fragrances
   
22,739
     
-
     
-
     
22,739
 
Yogurt Fruit Preparations
   
2,150
     
-
     
-
     
2,150
 
Food & Pharmaceutical Colors
   
-
     
93,785
     
-
     
93,785
 
Personal Care
   
-
     
41,515
     
-
     
41,515
 
Inks
   
-
     
420
     
-
     
420
 
Asia Pacific
   
-
     
-
     
33,840
     
33,840
 
Intersegment Revenue
   
(6,250
)
   
(4,519
)
   
-
     
(10,769
)
Total revenue from external customers
 
$
194,661
   
$
131,201
   
$
33,840
   
$
359,702
 
9


Geographic Markets

(In thousands)
 
Flavors & Extracts
   
Color
   
Asia Pacific
   
Consolidated
 
Three months ended March 31, 2022:
                       
North America
 
$
126,702
   
$
69,928
   
$
58
   
$
196,688
 
Europe
   
32,605
     
41,978
     
81
     
74,664
 
Asia Pacific
   
9,737
     
16,016
     
33,982
     
59,735
 
Other
   
6,158
     
16,006
     
2,270
     
24,434
 
Total revenue from external customers
 
$
175,202
   
$
143,928
   
$
36,391
   
$
355,521
 
                                 
Three months ended March 31, 2021:
                               
North America
 
$
129,643
   
$
63,670
   
$
25
   
$
193,338
 
Europe
   
44,568
     
37,278
     
22
     
81,868
 
Asia Pacific
   
9,717
     
14,838
     
32,558
     
57,113
 
Other
   
10,733
     
15,415
     
1,235
     
27,383
 
Total revenue from external customers
 
$
194,661
   
$
131,201
   
$
33,840
   
$
359,702
 

9.
Retirement Plans

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


 
Three Months Ended
March 31,
 

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

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

10.
Derivative Instruments and Hedging Activity

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

Forward exchange contracts – Certain forward exchange contracts have been designated as cash flow hedges. The Company had $35.9 million and $48.7 million of forward exchange contracts designated as cash flow hedges outstanding as of March 31, 2022 and December 31, 2021, respectively. For the three months ended March 31, 2022 and 2021, the amounts reclassified into net earnings in the Company’s Consolidated Statement of Earnings that offset the underlying transactions’ impact on earnings in the same period were not material. In addition, the Company utilizes forward exchange contracts that are not designated as cash flow hedges. The results of these transactions were not material to the financial statements.

Net investment hedges – The Company has designated certain foreign currency denominated long-term borrowings as partial hedges of the Company’s foreign currency net asset positions. As of March 31, 2022 and December 31, 2021, the total value of the Company’s net investment hedges was $281.6 million and $289.5 million, respectively. These net investment hedges included Euro and British Pound denominated long-term debt. Changes in the fair value of this debt attributable to changes in the spot foreign exchange rate are recorded in foreign currency translation in Other Comprehensive Income (OCI). For the three months ended March 31, 2022 and 2021, the impact of foreign exchange rates on these debt instruments decreased debt by $7.9 million and $9.6 million, respectively, which has been recorded as foreign currency translation in OCI.

11.
Income Taxes

The effective income tax rates for the three months ended March 31, 2022 and 2021, were 25.6% and 27.1%, respectively. The effective tax rates for the three months ended March 31, 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.

10

12.
Accumulated Other Comprehensive Income

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

(In thousands)
 
Cash Flow
Hedges (1)
   
Pension Items (1)
   
Foreign
Currency
Items
   
Total
 
Balances at December 31, 2021
 
$
206
   
$
(353
)