UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
☒ ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2018
OR
☐ TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-7626
Sensient Technologies Corporation
WISCONSIN
(State of Incorporation)
39-0561070
(IRS Employer Identification Number)
777 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202-5304
(414) 271-6755
(Address of Principal Executive Offices)
SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS
Common Stock, $0.10 par value
NAME OF EACH EXCHANGE
ON WHICH REGISTERED
New York Stock Exchange, Inc.
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
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 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 is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller report-
ing company. See the definitions of “large accelerated filer,” “accel-
erated filer,” “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act. (Check one):
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 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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of Registrant’s
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. ☒
Indicate by check mark if the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting Common Stock held
by non-affiliates of the Registrant as of June 30, 2018, was
$2,989,108,418. For purposes of this computation only, the
Registrant’s directors and executive officers were considered to
be affiliates of the Registrant. Such characterization shall not
be construed to be an admission or determination for any other
purpose that such persons are affiliates of the Registrant.
There were 42,293,718 shares of Common Stock outstanding
as of February 15, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s 2019 Annual Meeting Proxy Statement
which will be filed with the Securities and Exchange Commission with-
in 120 days after December 31, 2018 (see Part III of this Form 10-K).
SENSIENT TECHNOLOGIES CORPORATION—
FORM 10-K FOR YEAR ENDED DECEMBER 31, 2018 INDEX
PART I
Item 1. Business
General
Description of Business
Flavors & Fragrances Group
Color Group
Asia Pacific Group
Corporate
Research and Development/Quality Assurance
Products and Application Activities
Raw Materials
Competition
Foreign Operations
Patents, Formulae and Trademarks
Employees
Regulation
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosure
Executive Officers of the Registrant
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers of the Registrant, and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Financial Statements
Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts
Item 16. Form 10-K Summary
EXHIBIT INDEX
SIGNATURES
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2
2
2
3
3
4
4
4
4
4
5
5
5
5
5
5
10
10
10
11
11
12
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27
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E-1
S-1
FORWARD-LOOKI NG S TATE ME N T S
This document 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 December 31, 2018,
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 those 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 the pace and
nature of new product introductions by the Company and the
Company’s customers; our ability to anticipate and respond
to changing consumer preferences and changing
technologies; the Company’s ability to successfully
NO N-GAAP FI NANCIAL MEA S U R E S
Within this document, the Company reports certain non-
GAAP financial measures, including: (1) adjusted operating
income, adjusted net earnings, and adjusted diluted EPS
from continuing operations (which exclude restructuring
and other costs and the impacts of the Tax Cuts and Jobs
Act (“2017 Tax Legislation”)) and (2) percentage changes
in revenue, operating income, diluted EPS, adjusted
operating income, and adjusted diluted EPS on a local
currency basis (which eliminate the effects that result from
translating its international operations into U.S. 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
implement its growth strategies; the outcome of the
Company’s various productivity-improvement and cost-
reduction efforts and acquisition and divestiture activities;
the effectiveness of the Company’s past restructuring
activities; changes in costs of raw materials, including
energy; industry, regulatory, legal, and economic factors
related to the Company’s domestic and international
business; 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 below under the
heading “Risk Factors” and under Part II, including the
critical accounting policies set forth under the heading
“CRITICAL ACCOUNTING POLICIES” within
“Management’s Discussion and Analysis of Financial
Condition and Results of Operation.” 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.
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.
The Company believes this information can be beneficial
to investors for these same purposes. These non-GAAP
measures may not be comparable to similarly titled measures
used by other companies.
Additional information related to the Company’s use of non-
GAAP financial measures and the restructuring and other
costs as well as the impacts from the 2017 Tax Legislation
that have been excluded from the non-GAAP financial
measures in 2018, 2017, and 2016 and reconciliations of
non-GAAP financial measures to the most comparable
GAAP financial measures are available below in Item
7 under the sections titled “NON-GAAP FINANCIAL
MEASURES.”
1
PA RT I
Item 1. Business
General
Sensient Technologies Corporation (the “Company”) was
incorporated in 1882 in Wisconsin. Its principal executive
offices are located at 777 East Wisconsin Avenue, Suite
1100, Milwaukee, Wisconsin 53202-5304, telephone (414)
271-6755.
The Company is subject to the informational and report-
ing requirements of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). In accordance with
the Exchange Act, the Company files annual, quarterly
and current reports, proxy statements, and other infor-
mation with the Securities and Exchange Commission
(the “Commission”). These reports and other informa-
tion may be accessed from the website maintained by the
Commission at http://www.sec.gov.
The Company’s common stock is listed on the New
York Stock Exchange under the ticker symbol “SXT.”
Information about the Company may be obtained at the
offices of the New York Stock Exchange, 20 Broad Street,
New York, New York 10005.
The Company can also be reached at its website at www.
sensient.com. The Company’s web address is provided as
an inactive textual reference only, and the contents of that
website are not incorporated in or otherwise to be regarded
as part of this report. The Company makes available free of
charge on its website its proxy statement, its annual report
on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to these reports
filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act as soon as reasonably practicable after
such documents are electronically filed with or furnished
to the Commission. Charters for the Audit, Compensation
and Development, Nominating and Corporate Governance,
Finance, and Executive Committees of the Company’s
Board of Directors, as well as the Company’s Code of
Conduct, Corporate Governance Guidelines, Policy on
Recovery of Incentive Compensation From Executives,
and Directors and Officers Stock Ownership Guidelines
are also available on the Company’s website. These docu-
ments are also available in print to any shareholder, free
of charge, upon request. If there are any amendments to
the Code of Conduct, or if waivers from it are granted for
executive officers or directors, those amendments or waiv-
ers also will be posted on the Company’s website.
2
Description of Business
The Company is a leading global manufacturer and mar-
keter of colors, flavors, and fragrances. The Company uses
advanced technologies at facilities around the world to
develop specialty food and beverage systems; cosmetic,
fragrance, pharmaceutical, and nutraceutical ingredients
and systems; specialty inks and colors; and other specialty
and fine chemicals. The Company’s customers include
major international manufacturers representing some of the
world’s best-known brands.
The Company’s principal products include:
• flavors, flavor enhancers, ingredients, extracts, and
bionutrients;
• fragrances, aroma chemicals, and essential oils;
• natural ingredients, including dehydrated vegetables and
other food ingredients;
• natural and synthetic food and beverage colors;
• cosmetic colors and ingredients;
• pharmaceutical and nutraceutical excipients and
ingredients; and
• technical colors, specialty inks and colors, and specialty
dyes and pigments.
The Company’s three reportable segments are the Flavors
& Fragrances Group and the Color Group, which are
managed on a product basis, and the Asia Pacific Group,
which is managed on a geographic basis. The Company’s
corporate expenses and restructuring and certain other
costs are included in the “Corporate & Other” category as
described in this report. Financial information regarding the
Company’s three reportable segments and the operations
included within Corporate & Other is set forth in Note
11, Segment and Geographic Information, in the Notes to
Consolidated Financial Statements included in this report.
In July 2018, the Company completed the acquisition of
Mazza Innovation Limited (now known as Sensient Natural
Extraction Inc.). This acquisition provides the Company
with an umbrella technology, which supports applications
for both the Flavors & Fragrances and Color segments.
The Company is in the process of integrating this business,
and therefore, the Company has included its results in
Corporate & Other.
Flavors & Fragrances Group
The Company is a global developer, manufacturer, and
supplier of flavor and fragrance systems for the food,
beverage, personal care, and household-products industries.
The Company’s flavor formulations are used in many of
the world’s best-known consumer products. Under the
unified brand names of Sensient Flavors, Sensient Natural
Ingredients, and Sensient Fragrances, the Group is a
supplier to multinational and regional companies.
The Flavors & Fragrances Group produces flavor and
fragrance products that impart a desired taste, texture,
aroma, and/or other characteristics to a broad range of
consumer and other products. This Group includes the
Company’s natural ingredients business, which produces
ingredients for food processors. The main products of the
Group are systems products, including flavor-delivery
systems, and compounded and blended products. In
addition, the Group has strong positions in selected
ingredient products such as essential oils, natural and
synthetic flavors, natural extracts, and aroma chemicals.
The Group serves food and non-food industries. In food
industries, markets include savory, beverage, and sweet
flavors, as well as certain bioingredients. In non-food
industries, the Group supplies fragrance products to the
personal, home-care, and bioingredients markets.
Operating through its Sensient Natural Ingredients business,
the Company believes it is the second largest producer
(by sales) of dehydrated onion and garlic products in the
United States. The Company is also one of the largest
producers and distributors of chili powder, paprika, chili
pepper, and dehydrated vegetables such as parsley, celery,
and spinach. The Company sells dehydrated products to
food manufacturers for use as ingredients and also for
repackaging under private labels for sale to the retail market
and to the food service industry. Advanced dehydration
technologies utilized by Sensient Natural Ingredients permit
fast and effective rehydration of ingredients used in many of
today’s popular convenience foods.
As of December 31, 2018, the Group’s principal
manufacturing plants are located in California, Illinois,
Michigan, Wisconsin, Belgium, China, Costa Rica, Mexico,
Spain, and the United Kingdom.
Color Group
The Company is a developer, manufacturer, and supplier of
colors for businesses worldwide. The Company provides
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; specialty inks; and
technical colors for industrial applications.
The Company believes that it is one of the world’s largest
producers (by sales) of synthetic and natural colors, and
that it is the world’s largest manufacturer (by sales) of
certified food colors. The Company sells its synthetic and
natural colors to domestic and international producers of
beverages, bakery products, processed foods, confections,
pet foods, cosmetics, and pharmaceuticals. The Company
also makes industrial colors, specialty inks, and other dyes
and pigments used in a variety of non-food applications.
As of December 31, 2018, the Group’s principal
manufacturing plants are located in Missouri, New Jersey,
Brazil, Canada, China, France, Germany, Italy, Mexico,
Peru, Switzerland, and the United Kingdom.
The Color Group operates under the following trade names:
• Sensient Food Colors (food and beverage colors);
• Sensient Pharmaceutical Coating Systems
(pharmaceutical and nutraceutical colors and coatings);
• Sensient Cosmetic Technologies (cosmetic colors,
ingredients, and systems);
• Sensient Imaging Technologies/Sensient Inks
(specialty inks); and
• Sensient Industrial Colors (paper colors; and industrial
colors for plastics, leather, wood stains, antifreeze,
landscaping, and other uses).
The Company believes that its advanced process technology,
state-of-the-art laboratory facilities and equipment, world
class application chemists, and a complete range of synthetic
and natural color products constitute the basis for its market
leadership position.
3
Asia Pacific Group
The Asia Pacific Group focuses on marketing the
Company’s diverse product lines in the Pacific Rim under
the Sensient name. Through these operations, the Company
offers a full range of products from its Flavors & Fragrances
Group and Color Group, as well as products developed by
regional technical teams to appeal to local preferences.
Sales, marketing, and technical functions are managed
through the Asia Pacific Group’s headquarters, which is
located in Singapore. Manufacturing operations are located
in Australia, China, India, Japan, New Zealand, and the
Philippines. The Asia Pacific Group maintains offices for
local technical support, as well as sales, in China, India,
Indonesia, and Thailand, and for research and development
in Singapore.
Corporate
Corporate provides management, administrative, and
support services to the Company from its headquarters
in Milwaukee, Wisconsin. The Company’s corporate
expenses, restructuring and other costs, and the results of
Mazza Innovation Limited (now known as Sensient Natural
Extraction Inc.) are included in the “Corporate & Other”
category.
Research and Development/Quality Assurance
The development of specialized products and services is
a complex technical process calling upon the combined
knowledge and talents of the Company’s research,
development, and quality assurance personnel. The
Company believes that its competitive advantage lies in its
ability to work with its customers to develop and deliver
high-performance products that address the distinct needs
of those customers.
The Company’s research, development, and quality
assurance personnel support the Company’s efforts to
improve existing products and develop new products
tailored to customer needs, while providing on-going
technical support and know-how to the Company’s
manufacturing activities. The Company employed 769
people in research and development, quality assurance,
quality control, and lab technician positions as of
December 31, 2018.
As part of its commitment to quality as a competitive
advantage, the Company’s production facilities hold
various certifications, such as those under the International
Organization for Standardization (ISO) and those
recognized by the Global Food Safety Initiative (GFSI),
including the Safe Quality Food Program (SQF), British
Retail Consortium (BRC), and Food Safety System
Certification (FSSC 22000), for certifying the safety and
quality of its products and production processes.
4
Products and Application Activities
The Company’s strategic focus is on the manufacture and
marketing of high-performance components that bring life
to products. Accordingly, the Company devotes considerable
attention and resources to the development of product
applications and processing improvements to support its
customers’ numerous new and reformulated products. The
majority of the proprietary processes and formulae developed
by the Company are maintained as trade secrets and protected
through confidentiality agreements with customers.
Within the Flavors & Fragrances Group, development
activity is focused on ingredients, flavors, natural extracts,
and fragrances as well as flavor and fragrance systems
that are responsive to consumer trends and the processing
needs of our food and beverage customers. These activities
include the development of functional ingredient systems for
foods and beverages, savory flavors, and ingredient systems
for prepared foods and flavors and ingredients for dairy,
confectionery, and other applications. The Company believes
that the development of yeast derivatives and other specialty
ingredients also provides growth opportunities in bionutrients
and biotechnology markets, such as probiotics and fermented
ingredients, including enzymes, vitamins, and amino acids.
Within the Color Group, development activity for food and
beverage product lines is focused on value-added products
derived from synthetic dyes and pigments, natural food
and beverage colors, and color systems. The Company
also produces a diverse line of colors and ingredients for
cosmetics, pharmaceutical, and nutraceutical applications,
specialty inks, and technical colors for industrial applications.
Raw Materials
The Company uses a wide range of raw materials in
producing its products. Chemicals used to produce
certified colors are obtained from several domestic and
foreign suppliers. Raw materials for natural colors,
such as carmine, beta-carotene, annatto, and turmeric,
are purchased from overseas and U.S. sources. As of
March 2018, the Company owns a natural food colorings
business in Lima, Peru, and has vertically integrated
production and processing capacity in annatto, carmine,
and other natural color products.
In the production of flavors and fragrances, the principal
raw materials include essential oils, aroma chemicals,
botanicals, fruits, and juices. These raw materials are
obtained from domestic and foreign suppliers. Flavor
enhancers and secondary flavors are produced from
brewers’ yeast and vegetable materials such as corn and
soybeans. Chili peppers, onion, garlic, and other vegetables
are acquired under annual contracts with numerous growers
in the western United States and China.
The Company believes that its ability to reformulate its
products and the general availability of alternate sources
of materials would generally enable it to maintain its
competitive position in the event of an interruption in
the supply of raw materials from a single supplier.
Foreign Operations
Additional information regarding the Company’s foreign
operations is set forth in Note 11, Segment and Geographic
Information in the Notes to Consolidated Financial
Statements included in this report.
Competition
All Company products are sold in highly competitive markets.
While no single factor is determinative, the Company’s
competitive position is based principally on process and
applications expertise, quality, technological advances
resulting from its research and development, and customer
service and support. Because of its highly differentiated
products, the Company competes with only a few companies
across multiple product lines, and generally encounters
different competitors in different product lines.
• Flavors & Fragrances. Competition in the flavors and
fragrances industries continues to have an ever increasing
global nature. Most of the Company’s customers do
not buy their entire flavor and/or fragrance products
from a single supplier and the Company does not
compete with a single supplier in all product categories.
Competition for the supply of flavors and fragrances
is based on the development of customized ingredients
for new and reformulated customer products, as well as
on quality, customer service, and price. Competition to
supply dehydrated vegetable products is present through
several large and small domestic competitors, as well as
competitors from other countries. Competition for the
supply of dehydrated vegetables is based principally on
product quality, customer service, and price.
• Color. Competition in the color market is diverse, with
the majority of the Company’s competitors specializing
in either synthetic dyes and pigments or natural colors or
coloring foodstuffs (in Europe). The Company believes
that it gains a competitive advantage as the only major
basic manufacturer of a full range of color products,
including synthetic dyes and pigments as well as natural
colors. Competition in the supply of cosmetic colors
and ingredients, specialty inks, and pharmaceutical and
nutraceutical ingredients and excipients is based on the
development of customized products and solutions as well
as quality, customer service, and price. The Company
believes that its reputation and capacity as a color producer
as well as its product development and applications
expertise give it a competitive advantage in these markets.
• Asia Pacific. The Company offers a broad array of
products to customers through the Asia Pacific Group.
Competition is based upon reliability in product quality,
service, and price as well as technical support available
to customers.
Patents, Formulae and Trademarks
The Company owns or controls many patents, formulae,
and trademarks related to its businesses. The businesses
are not materially dependent upon any particular patent or
trademark; however, trademarks, patents, and formulae are
important to the business of the Company.
Employees
As of December 31, 2018, the Company employed 4,113
persons worldwide.
Regulation
Compliance with government rules regulating discharges
into the environment, or otherwise relating to the protection
of the environment, did not have a material adverse effect on
the Company’s operations for the year covered by this report.
Current compliance is not expected to have a material adverse
effect in the next two years. The production, packaging,
labeling, and distribution of certain of the products of the
Company in the U.S. are subject to the regulations of various
federal, state, and local governmental agencies, in particular
the U.S. Food and Drug Administration. The Company is
subject to similar regulations in many international markets,
particularly Europe.
Item 1A. Risk Factors.
As with any business, the Company’s business and
operations involve risks and uncertainties. In addition to
the other discussions in this report, particularly those under
the headings “Management’s Discussion and Analysis
of Financial Condition and Results of Operation” below
and “Forward-Looking Statements” above, the following
factors should be considered:
• Our recent restructurings may not be as effective as we
anticipated and we may fail to realize the expected cost
savings.
From 2014-2017, the Company executed a restructuring
plan aimed at eliminating underperforming operations,
consolidating manufacturing facilities, and improving
efficiencies within the Company. These activities required
the devotion of significant resources and management
attention and may pose significant risks. Our ability to
realize anticipated cost savings may be affected by a
5
number of factors, including our ability to effectively
reduce overhead, rationalize manufacturing capacity, and
effectively produce products at the consolidated facilities.
Furthermore, our restructurings may not be as effective as
we anticipated, and we may fail to realize the cost savings
we expected from these restructurings.
• The impact of currency exchange rate fluctuation may
negatively affect our results.
We report the results of our foreign operations in the
applicable local currency and then translate those results
into U.S. dollars at applicable exchange rates. The
applicable exchange rates between and among foreign
currencies and the U.S. dollar have fluctuated and will
continue to do so in the future. These fluctuations have
impacted our results of operations in recent periods
as discussed below in more detail under the headings
“Management’s Discussion and Analysis of Financial
Condition and Results of Operation.” Such currency
exchange rate volatility may also adversely impact
our financial condition or liquidity. While we may
use forward exchange contracts and foreign currency
denominated debt to manage our exposure to foreign
exchange risk, such risk management strategies may
not be effective and our results of operations could be
adversely affected.
• Changes to LIBOR may negatively impact us.
LIBOR, the London interbank offered rate, is the basic rate
of interest used in lending between banks on the London
interbank market and is widely used as a reference for
setting the interest rate on loans globally. We have used
LIBOR as a reference rate in our revolving loans, term
loans, asset securitization program, and uncommitted credit
facilities such that the interest due to our creditors pursuant
to these loans is calculated using LIBOR.
LIBOR, in its current form, is currently scheduled to
disappear in 2021. Before LIBOR ceases to exist, we
may need to renegotiate our credit agreements that utilize
LIBOR as a factor in determining the interest rate to
replace LIBOR with a new standard, which has yet to
be established. The consequences of these developments
cannot be entirely predicted, but could result in an
increase in the cost of our variable rate debt which is
approximately 40-45% of our total debt. While our policy
is to manage our interest rate risk by entering into both
fixed and variable rate debt arrangements, we cannot
provide assurance that future interest rate changes will not
have a material negative impact on our business, financial
position, or operating results.
6
• In some product lines, most of our sales are made to
a relatively small number of customers; if we lose any
of those customers, sales and operating results could
decline.
In some of our product lines, our sales are concentrated to
a small number of customers. While we do not currently
have any single customer that we consider to be significant
to us as a whole, the loss of a significant customer for a
particular product line could substantially affect the sales
and profitability of that line or the business unit that sells
that product line, which may cause us to re-evaluate that
line. Those developments could affect our results. In
addition, the financial condition of our customers may
adversely affect their ability to buy from us, or to pay for
products that they have already purchased.
• Many of our products are used in items for human
consumption and contact. We may be subject to product
liability claims and product recalls, which could
negatively impact our profitability and corporate image.
We sell flavors, fragrances, and colors that are used
in foods, beverages, pharmaceuticals, cosmetics,
nutraceuticals, and other items for human consumption
or contact. These products involve risks such as product
contamination or spoilage, product tampering, product
defects, and other adulteration. We may be subject to
liability if the consumption or use of our products cause
product damage, injury, illness, or death. In addition, we
or our customers may need to recall products in the event
of contamination or product defects.
A significant product defect, product recall, or product
liability judgment may negatively impact our profitability
for a period of time depending on publicity, product
availability, scope, competitive reaction, and consumer
attitudes. Even if a product liability claim is unsuccessful
or is not fully pursued, the negative publicity surrounding
any assertion that our products caused illness, injury, or
death could adversely affect our reputation with existing
and potential customers and our corporate image.
• Consolidation has resulted in customers with increased
buying power, which can affect our profitability.
Many of our customers have consolidated in recent years
and we expect the combination trend to continue in many
business lines. These consolidations have often produced
large, sophisticated customers with increased buying power
who are more capable of resisting price increases. If the
larger size or greater buying power of those customers
results in additional negotiating strength, the prices we
are able to charge could be negatively affected and our
profitability could decline.
• Intense competition may result in reduced sales and
profitability.
The industries and markets in which we operate are highly
competitive. That competition can reduce both our sales
and the prices at which we are able to sell our products,
which can negatively affect our profitability.
• Our sales and profitability are affected by changing
consumer preferences, changing technologies, and our
customers’ ability to make and sell to consumers in highly
competitive markets.
Although we do not generally make or sell proprietary
consumer products, many of our products are sold to
companies that develop and market consumer products.
Sales of flavors, fragrances, colors, inks, cosmetic
ingredients, pharmaceutical and nutraceutical excipients
and ingredients, and many of our other products depend in
part upon our customers’ ability to create and sell products
to consumers in highly competitive markets, all of which
are beyond our control. Our sales could also be affected
by changing technologies that could impact consumer
demand for products that contain our products. Therefore,
we depend upon our customers’ ability to create markets
for the consumer products that incorporate the products
that we manufacture. In addition, if we cannot adequately
anticipate and respond to the needs of our customers as
they evolve in response to changing consumer preferences
and new technologies, our results of operations could be
adversely affected.
• If we do not maintain an efficient cost structure, our
profitability could decrease.
Our success depends in part on our ability to maintain
an efficient cost structure. We regularly initiate cost-
reduction measures that could impact our manufacturing,
sales, operations, and information systems functions. If we
do not continue to manage costs and achieve additional
efficiencies, or we do not successfully implement related
strategies, our competitiveness and our profits could
decrease.
• Commodity, energy, and transportation price volatility
and increases or material shortages may reduce our
profits.
We use many different commodities as raw ingredients.
We also use raw materials whose production is energy
intensive. In addition, various energy sources are used in
our production and distribution processes. Commodity and
energy prices are subject to significant volatility caused
by market fluctuations, supply and demand, currency
fluctuation, production and transportation disruption,
world events, and changes in governmental regulations.
Commodity and energy price increases will raise both our
raw material costs and operating costs. We may not be
able to increase our product prices enough to offset these
increased costs. Increasing our prices also may reduce sales
volume and related profitability.
In addition, we obtain some raw materials from a single
supplier or a limited number of suppliers. Problems
with those suppliers could affect the availability of
those materials. Even if there are multiple suppliers of a
particular raw material, there are occasionally shortages.
An unavailability or shortage of a raw material could
negatively affect our operations using that raw material and
thus adversely affect our results.
• There are an enormous number of laws and regulations
applicable to us, our suppliers, and our customers across
all of our business lines. Compliance with these legal
requirements is costly to us and can affect our operations
as well as those of our suppliers and customers. Failure
to comply could also be costly and disruptive.
Our facilities and products are subject to many laws
and regulations relating to the environment, health,
safety, and the content, processing, packaging, storage,
distribution, quality, and safety of food, drugs, cosmetics,
other consumer products, specialty inks, and industrial
colors. These laws and regulations are administered in the
United States by the Department of Agriculture, the Food
and Drug Administration, the Environmental Protection
Agency, the Department of Labor, and other federal and
state governmental agencies. We, our suppliers, and our
customers are subject to similar governmental regulation
and oversight abroad. Compliance with these laws and
regulations can be complex and costly and affect our, our
suppliers’ and our customers’ operations. Also, if we, our
suppliers, or our customers, fail to comply with applicable
laws and regulations, we could be subject to administrative
penalties and injunctive relief, civil and criminal remedies,
fines, and recalls of products. Regulatory action against a
supplier or customer can create risk for us and negatively
affect our operations.
• Environmental compliance may be costly to us.
Our operations are subject to extensive and stringent
laws and regulations which pertain to the discharge of
materials into the environment, handling of materials,
and disposition of wastes and air emissions. These rules
operate or will operate at both the federal and state levels
in the United States, and there are analogous laws at most
of our overseas locations. Environmental regulations, and
the potential failure to comply with them, can have serious
consequences, including the costs of compliance and
defense; interference with our operations or the ability to
obtain required permits; civil, criminal, and administrative
penalties; and negative publicity.
7
• Operating in foreign countries and emerging markets
exposes us to increased risks, including economic,
political, and international operation risks.
We operate, manufacture, and sell our products and obtain
raw materials in many foreign countries and emerging
markets. This subjects us to risks that could materially impact
our operating results, including: difficulties in staffing and
managing foreign personnel in diverse cultures; transportation
delays or interruptions; sometimes unpredictable
regulatory changes; and the effects of international political
developments and political and economic instability. In
addition, changes in policies by the United States or foreign
governments could negatively affect our operating results
due to changes in duties, tariffs, trade regulations, taxes,
or limitations on currency or fund transfers. For example,
changes in the trade relationship between the U.S. and
China as well as potential regulatory actions by the Chinese
government may affect the cost of our raw materials and
products originating in China, the demand for as well as the
supply of our products manufactured in China or containing
raw materials from China, and the demand from Chinese
customers for our products.
• Brexit may adversely impact the Company’s revenue
and profits in the short term and long term.
In 2016, the United Kingdom (U.K.) held a referendum in
which voters approved an exit from the European Union,
commonly referred to as “Brexit.” The British government
and the European Union are negotiating the terms of
the U.K.’s future relationship with the European Union.
The final terms of the relationship and its impacts on the
Company remain unclear. The U.K.’s pending exit from the
European Union, currently scheduled for March 29, 2019,
has resulted in currency exchange rate fluctuations and
volatility. Because the Company has production facilities,
customers, and suppliers in the U.K., the final terms of the
agreement on the U.K.’s break with the European Union, or
the absence of such an agreement, could have a significant
impact on the Company.
The Company has revenue related to sales of products
between the U.K. and the European Union or its trade
agreement partners, and costs related to raw materials
purchases between the U.K. and the European Union or its
trade agreement partners.
Any agreement, or the absence of an agreement related
to Brexit, could result in an increase in tariffs on all raw
materials and finished goods moving between the U.K.
and the European Union. Similarly, any agreement, or the
absence of an agreement, could result in the U.K. losing
the benefit of existing trade agreements between the
European Union and other non-European Union countries,
thereby increasing tariffs on all raw materials and finished
goods moving between the U.K. and those non-European
8
Union countries. An increase in tariffs could increase the
cost to produce and sell the Company’s products, reduce
the supply of and demand for the Company’s products, and
reduce the Company’s revenue and profit. In both the short
and long term, increased costs could make the Company
less competitive with companies not impacted by post-
Brexit tariffs and, given the nature of our industry, could
result in the short term and long term loss of customers that
choose to introduce new products or reformulate existing
products with our lower-cost competitors.
A new border between the U.K. and the European Union
could also impose increased cost, complexity, and delays
(perhaps lengthy, particularly in the second and third quarters
of 2019) related to the shipping and transportation of raw
materials and finished products into and out of the U.K.
These delays will complicate the Company’s production
and distribution planning and, like increased tariffs, could
adversely affect the Company’s revenue and profit, supply
and demand for the Company’s products, and customer
retention and acquisition in both the long term and short term.
Additionally, post-Brexit, new chemical regulations could
be imposed within the U.K. to replace existing European
Union regulations such as REACH. Similarly, because
the U.K. will no longer be part of the European Union,
the Company may be subject to new REACH registration
requirements for products produced in the U.K. The costs
related to compliance with these regulatory changes could
affect the Company’s costs, revenue, profit, supply of and
demand for the Company’s products, and the acquisition
and retention of customers.
Next, there could be new restrictions on travel and immigration
that result from Brexit that could impose additional costs on
the Company. In each of the Company’s three U.K. production
facilities, a significant portion of the work forces are not
U.K. nationals. Complying with new immigration regimes
could result in increased costs to the Company.
Finally, while the Company will take steps to mitigate the
effects of Brexit, these efforts may not be as successful as
intended and the Company may not be able to avoid the
costs and complications described above.
• We depend on certain key personnel, and the loss of
these persons may harm our business.
Our success depends in large part on the continued service
and availability of our key management and technical
personnel, and on our ability to attract and retain qualified
new personnel. The competition for these individuals can
be significant, and the loss of key employees could harm
our business. In addition, we need to provide for smooth
transitions when replacing key management and technical
personnel positions. Our operations and results may be
negatively affected if we are not able to do so.
• We may not successfully complete and integrate past
and future acquisitions, which could adversely affect
our operating results.
We have acquired many companies and operations in the past
and may continue growth by acquisition in the future. Our
future growth through acquisitions could involve significant
risks that may have a material adverse effect on us. We may
also be at risk for factors associated with acquisitions that the
Company has made in the past. Acquired companies may also
have significant latent liabilities that may not be discovered
before an acquisition or fully reflected in the price we pay.
We may also need to finance future acquisitions, and the
terms of any financing, and the need to ultimately repay
or refinance any indebtedness, may have negative effects
on us. Acquisitions also could have a dilutive effect on our
financial results. Acquisitions also generally result in good-
will, which would need to be written off against earnings in
the future if it becomes impaired.
• Our ability to successfully maintain and upgrade our
information technology systems, and to effectively respond
to failures, disruptions, compromises, or breaches of
our information technology systems, may affect our
competitiveness and our profits could decrease.
Our success depends in part on our ability to maintain a
current information technology platform for our businesses
to operate effectively, reliably, and securely. We routinely
review and upgrade our information technology and
cybersecurity systems in order to better manage, report,
and protect the information related to our formulas,
research and development, manufacturing processes,
trade secrets, sales, products, customers, personnel, and
other operations. If we do not continue to maintain our
information technology and cybersecurity platforms and
successfully implement upgrades to systems to protect our
vital information, our competitiveness and profits could
decrease. Because of the nature of our business, and the
importance of our proprietary information, we face threats
not only from hackers’ intent on theft and disruption, but
also from malicious insiders that may attempt to steal
Company information. Furthermore, our information
technology systems may be susceptible to failures,
disruptions, breaches, theft, and other similar cybersecurity
events. The impact of any such event and the effectiveness
of our response thereto may adversely affect our operations
and subject us to increased operating costs, regulatory
consequences, and reputational harm. While we take
substantial steps to protect our information and systems
through cyber security systems, monitoring, auditing, and
training, these efforts may not always be successful.
• World events and natural disasters are beyond our
control and could affect our results.
World events can adversely affect national, international,
and local economies. Economies can also be affected by
conflicts, natural disasters, epidemics, or other catastrophic
events. Such events and conditions, as well as uncertainty in
or impairment of financial markets, have adversely affected
and could continue to affect our revenues and profitability,
particularly if they occur in locations in which we or our
customers have significant operations. In addition, while we
have manufacturing facilities throughout the world, certain of
our facilities are the sole manufacturer of a specific product
and a disruption in manufacturing could lead to increased
costs of relocating or replacing the production of a product,
or reformulating a product, which could have an adverse
effect on our results.
• Our ability to efficiently manage inventory may not be as
effective as we anticipate and may adversely impact our
performance.
Efficient inventory management is essential to our
performance. We must maintain appropriate inventory levels
and product mix to meet customer demand, without incurring
costs related to storing and holding excess inventory. If
our inventory management decisions do not accurately
predict demand or otherwise result in excess inventory, our
financial results may be adversely impacted by markdowns,
impairment charges, or other costs related to disposal of
excess or obsolete inventory.
• We could be adversely affected by violations of anti-
bribery and anti-corruption laws and regulations.
Our business is subject to the U.S. Foreign Corrupt Practices
Act, the United Kingdom Bribery Act, and similar anti-
bribery and anti-corruption laws and regulations in other
countries where we operate. While the Company maintains
robust policies to prevent violations of these laws and to
monitor third party risks, investigating and resolving actual
or alleged violations of anti-bribery and anti-corruption
laws is expensive and could negatively impact our results
of operations or financial condition. Under these laws
companies may be held liable for the corrupt actions taken
by their directors, officers, employees, agents, or other
representatives. We could be subject to substantial civil
and/or criminal fines and penalties if we or any of our
representatives fail to comply with these laws, which could
have a material adverse effect on our business and reputation.
9
• Our ability to protect our intellectual property rights is
Asia Pacific:
key to our performance.
U.S. – None.
We protect our intellectual property rights as trade secrets,
through patents, under confidentiality agreements, and
through internal and external cyber security systems. We
could incur significant costs in asserting our intellectual
property rights or defending ourselves from third party
intellectual property claims. The laws of some of the
countries in which we operate do not protect intellectual
property rights to the same extent as the laws of the United
States. If other parties were to infringe on our intellectual
property rights, or if a third party successfully asserted that
we had infringed on their intellectual property rights, it
could have an adverse impact on our business.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We lease our corporate headquarters offices, which are
located at 777 East Wisconsin Avenue, Milwaukee,
Wisconsin. We own our Color Group headquarters offices
located in St. Louis, Missouri. We lease our Asia Pacific
Group headquarters offices located in Singapore. We own
a part, and lease a part, of our Flavors & Fragrances Group
headquarters offices located in Hoffman Estates, Illinois.
As of December 31, 2018, the locations of our production
properties by reportable segment are as follows:
Color Group:
U.S. – St. Louis, Missouri; and South Plainfield,
New Jersey*.
International – Jundiai, Brazil*; Kingston, Ontario,
Canada; Saint Ouen L’Aumone, France; Geesthacht,
Germany; Reggio Emilia, Italy; Lerma, Mexico;
Lima, Peru*; Johannesburg, South Africa; Morges,
Switzerland; and Kings Lynn, United Kingdom.
International – Keysborough, Australia; Guangzhou,
China*; Mumbai, India*; Hitachi, Japan; Auckland,
New Zealand; Manila, Philippines*; and Bangkok,
Thailand*.
* Indicates a leased property at the location.
All properties are owned except as otherwise indicated
above. All facilities are considered to be in good condition
(ordinary wear and tear excepted) and suitable and
adequate for the Company’s requirements.
Item 3. Legal Proceedings.
People of the State of Illinois v. Sensient Flavors LLC
On June 7, 2018, the Attorney General of the State of Illinois
Office, on her own motion and at the request of the Illinois
Environmental Protection Agency, filed a Complaint in the
Lee County Circuit Court against Sensient Flavors LLC
(“Sensient Flavors”). The Complaint alleges that Sensient
Flavors’ Amboy, Illinois facility improperly discharged
wastewater to the City of Amboy’s wastewater treatment
plant in late 2015 and early 2016, causing the City to violate
its discharge permit. The Complaint alleged two counts
against Sensient Flavors for violations of Illinois state law.
The Company believes the facility’s discharges in question
were done with the consent of the City of Amboy and in
compliance with Illinois state law, and that Sensient Flavors
complied with its wastewater permit, City of Amboy
ordinances, and applicable Illinois state laws. The Company
notes that at all times relevant to the matters at issue in the
Complaint, the City of Amboy accepted Sensient Flavors’
wastewater and, in fact, charged Sensient Flavors for
treating Sensient Flavors’ wastewater. The parties reached
a settlement agreement in which Sensient Flavors agreed
to pay a $100,000 fine and enter into a consent decree with
the State of Illinois. On February 20, 2019, the Lee County
Circuit Court approved the parties’ settlement agreement.
Flavors & Fragrances Group:
Other Claims and Litigation
U.S. – Livingston and Turlock, California; Amboy,
Illinois; Harbor Beach, Michigan; and Juneau,
Wisconsin.
International – Heverlee, Belgium; Qingdao,
China*; San Jose, Costa Rica*; Celaya and
Tlalnepantla, Mexico; Granada, Spain; and Wales
and Milton Keynes, United Kingdom.
10
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.
Item 4. Mine Safety Disclosure.
Not applicable.
Executive Officers of the Registrant
The executive officers of the Company and their ages as of February 18, 2019, are as follows:
Name
Paul Manning
Amy M. Agallar
Michael C. Geraghty
Amy Schmidt Jones
John J. Manning
E. Craig Mitchell
Stephen J. Rolfs
Tobin Tornehl
Age
Position
44
41
57
49
50
54
54
45
Chairman, President and Chief Executive Officer
Vice President and Treasurer
President, Color Group
Vice President, Human Resources and Senior Counsel
Vice President, General Counsel and Secretary
President, Flavors and Fragrances Group
Senior Vice President and Chief Financial Officer
Vice President, Controller and Chief Accounting Officer
The Company has employed all of the individuals named
above, in substantively their current positions, for at least
the past five years except as follows:
• Mr. Paul Manning has held his present office since April
21, 2016, and previously served as President and Chief
Executive Officer (2014 – April 2016).
• Ms. Agallar has held her present office since January
9, 2019. Prior to joining the Company, Ms. Agallar
was Director – Business Development CIS of Modine
Manufacturing (June 2018 – December 2018), and
Director – Global Treasury Operations of Modine
Manufacturing (2011– June 2018).
• Mr. Mitchell has held his present office since September
17, 2018. Prior to joining the Company, Mr. Mitchell
served as President and Chief Operating Officer of
Sekisui Specialty Chemical America, LLC (April 2016 –
September 2018), and Vice President of Sales, Americas
of Celanese Corporation (2013 – April 2016).
• Mr. Rolfs has held his present position since February
7, 2015, and previously served as Senior Vice President,
Administration (July 2013 – February 2015).
• Mr. Tornehl has held his present office since November
10, 2018, and previously served as Director, Finance
(2008 – November 2018).
• Ms. Jones has held her present office since April 2, 2018.
Prior to joining the Company, Ms. Jones was a partner of
Michael Best & Friedrich LLP (1998 – March 2018).
Mr. Paul Manning (Chairman, President and Chief
Executive Officer) and Mr. John J. Manning (Vice
President, General Counsel and Secretary) are brothers.
• Mr. John J. Manning has held his present office since
April 21, 2016, and previously served as Vice President
and Assistant General Counsel (2013 – April 2016).
11
PA RT I I
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases
of Equity Securities.
The Company’s common stock is listed on the New York
Stock Exchange under the ticker symbol “SXT.” The only
market in which the common stock of the Company is listed
is the New York Stock Exchange.
This graph compares the cumulative total shareholder return
for the Company’s common stock over the last five years to
the total returns on the Standard & Poor’s Midcap Specialty
Chemicals Index (the “S&P Midcap Specialty Chemicals
Index”), the Standard & Poor’s Midcap Food Products Index
(the “S&P Midcap Food Products Index”), and the Standard
& Poor’s 500 Stock Index (the “S&P 500 Index”). The graph
assumes a $100 investment made on December 31, 2013,
and reinvestment of dividends. The stock performance shown
on the graph is not necessarily indicative of future price
performance.
$250
$200
$150
$100
$50
Sensient
Technologies
Corporation
S&P Midcap
Specialty Chemicals
Index
S&P Midcap Food
Products Index
S&P 500 Index
2013
2014
2015
2016
2017
2018
Sensient Technologies Corporation
S&P Midcap Specialty Chemicals Index
S&P Midcap Food Products Index
S&P 500 Index
2013
$ 100
100
100
100
2014
$ 127
115
146
114
2015
$ 134
111
153
115
2016
$ 170
139
186
129
2017
$ 161
149
195
157
2018
$ 126
141
182
150
Standard & Poor’s and S&P are registered trademarks of Standard & Poor’s Financial Services, LLC.
On August 21, 2014, the Board of Directors authorized the
repurchase of up to five million shares (2014 Authorization).
On October 19, 2017, the Board of Directors authorized the
repurchase of up to three million shares (2017 Authorization).
As of February 18, 2019, all five million shares had been
repurchased under the 2014 Authorization and 774,974
shares had been repurchased under the 2017 Authorization.
There were no repurchases of shares by the Company during
the fourth quarter of 2018 and a total of 1,060,000 shares
repurchased during 2018, which were purchased under the
2017 and 2014 Authorizations. There is no expiration date
for the 2017 Authorization. The 2017 Authorization may
12
be modified, suspended, or discontinued by the Board of
Directors at any time. As of December 31, 2018, the maxi-
mum number of shares that may be purchased under publicly
announced plans is 2,225,026.
The number of shareholders of record on February 15, 2019,
was 2,282.
Information regarding the Company’s equity compensation
plans is incorporated by reference into Item 11 of Part III
of this report.
Item 6. Selected Financial Data.
The following selected financial data is derived from our consolidated financial statements. This data should be read in
conjunction with the consolidated financial statements and notes thereto, and with Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
Quarterly Data
(in thousands except per share amounts)
(unaudited)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Full
Year
2018
Revenue
Gross profit
Net earnings
Earnings per basic share
Earnings per diluted share
2017
Revenue
Gross profit
Net earnings
Earnings per basic share
Earnings per diluted share
$356,477
123,071
38,194
0.89
0.89
$341,397
120,945
13,192
0.30
0.30
$363,041
121,470
39,123
0.93
0.92
$338,475
119,225
30,774
0.70
0.69
$342,734
115,573
47,193
1.12
1.12
$353,519
122,735
32,213
0.74
0.73
$324,563
106,015
32,850
0.78
0.78
$328,874
112,585
13,421
0.31
0.31
$1,386,815
466,129
157,360
3.71
3.70
$1,362,265
475,490
89,600
2.05
2.03
13
Five Year Review
(in thousands except percentages, employee and per share data)
Years ended December 31,
Summary of Operations
Revenue
Cost of products sold
Selling and administrative expenses
Operating income
Interest expense
Earnings before income taxes
Income taxes
Earnings from continuing operations
Gain (loss) from discontinued operations, net of tax
Net earnings
Earnings per basic share:
Continuing operations
Discontinued operations
Earnings per basic share
Earnings per diluted share:
Continuing operations
Discontinued operations
Earnings per diluted share
Other Related Data
Dividends per share, declared and paid
Average common shares outstanding:
Basic
Diluted
Book value per common share
Price range per common share
Share price at December 31
Capital expenditures
Depreciation
Amortization
Total assets
Long-term debt
Total debt
Shareholders’ equity
Return on average shareholders’ equity
Total debt to total capital
Employees
2018
$1,386,815
920,686
262,751
203,378
21,853
181,525
24,165
157,360
–
$ 157,360
$ 3.71
–
$ 3.71
$ 3.70
–
$ 3.70
$ 1.35
42,404
42,499
$ 20.34
51.93 - 78.40
55.85
50,740
50,950
2,294
1,824,940
689,553
709,599
859,947
18.8%
45.2%
4,113
100.0%
66.4
18.9
14.7%
2017
$1,362,265
886,775
307,684
167,806
19,383
148,423
58,823
89,600
–
$ 89,600
$ 2.05
–
$ 2.05
$ 2.03
–
$ 2.03
$ 1.23
43,780
44,031
$ 19.70
71.21 - 84.98
73.15
56,344
46,956
1,562
1,724,340
604,159
624,289
852,301
10.3%
42.3%
4,023
100.0%
65.1
22.6
12.3%
100.0%
65.6
21.0
13.4%
100.0%
67.0
20.9
12.1%
100.0%
66.3
24.7
9.0%
2016
$1,383,210
907,783
289,818
185,609
18,324
167,285
44,372
122,913
3,343
$ 126,256
$ 2.76
0.08
$ 2.84
$ 2.74
0.07
$ 2.82
$ 1.11
44,523
44,843
$ 18.83
52.69 - 83.38
78.58
81,216
45,714
1,305
1,667,860
582,780
603,358
835,741
14.7%
41.9%
4,083
2015
$1,375,964
921,531
288,092
166,341
16,945
149,396
42,149
107,247
(462)
$ 106,785
$ 2.34
(0.01)
$ 2.33
$ 2.32
(0.01)
$ 2.31
$ 1.04
45,910
46,204
$ 18.78
56.71 - 70.53
62.82
79,941
46,694
1,245
1,703,732
613,502
634,157
845,127
11.6%
42.9%
4,032
2014
$1,447,821
959,311
357,845
130,665
16,067
114,598
32,827
81,771
(8,125)
$ 73,646
$ 1.69
(0.17)
$ 1.52
$ 1.67
(0.17)
$ 1.51
$ 0.98
48,525
48,819
$ 21.94
46.08 - 63.35
60.34
79,398
50,225
1,231
1,772,039
450,548
466,436
1,046,935
6.4%
30.8%
4,053
The 2018 results include $6.6 million ($0.16 per share) of tax benefit related to the finalization of provisional estimates made
during 2017 as a result of the 2017 enactment of the Tax Cuts and Jobs Act (2017 Tax Legislation).
The 2017 results include charges of $48.1 million ($42.5 million after tax, or $0.96 per share) related to the restructuring and other
divestiture costs, as well as $18.4 million of tax expense ($0.42 per share) related to the enactment of the 2017 Tax Legislation
in the fourth quarter of 2017. The restructuring costs pertain to the Company’s now completed 2014 Restructuring Plan related
to the sale and/or elimination of underperforming operations, consolidation of manufacturing facilities, and efforts to improve
efficiencies within the Company. The other costs pertain to the sale of a facility and certain related business lines within the
Flavors & Fragrances segment in Strasbourg, France, which was completed in January 2017.
The 2016 results include charges of $26.1 million ($21.1 million after tax, or $0.47 per share) related to the restructuring and other
divestiture costs. The restructuring costs pertain to the 2014 Restructuring Plan related to eliminating underperforming operations,
14
100.0%
66.4
18.9
14.7%
100.0%
65.1
22.6
12.3%
Five Year Review
(in thousands except percentages, employee and per share data)
Gain (loss) from discontinued operations, net of tax
Years ended December 31,
Summary of Operations
Revenue
Cost of products sold
Selling and administrative expenses
Operating income
Interest expense
Earnings before income taxes
Income taxes
Earnings from continuing operations
Net earnings
Earnings per basic share:
Continuing operations
Discontinued operations
Earnings per basic share
Earnings per diluted share:
Continuing operations
Discontinued operations
Earnings per diluted share
Other Related Data
Dividends per share, declared and paid
Average common shares outstanding:
Basic
Diluted
Book value per common share
Price range per common share
Share price at December 31
Capital expenditures
Depreciation
Amortization
Total assets
Long-term debt
Total debt
Shareholders’ equity
Return on average shareholders’ equity
Total debt to total capital
Employees
2018
$1,386,815
920,686
262,751
203,378
21,853
181,525
24,165
157,360
–
$ 157,360
$ 3.71
–
$ 3.71
$ 3.70
–
$ 3.70
$ 1.35
42,404
42,499
$ 20.34
51.93 - 78.40
55.85
50,740
50,950
2,294
1,824,940
689,553
709,599
859,947
18.8%
45.2%
4,113
2017
$1,362,265
886,775
307,684
167,806
19,383
148,423
58,823
89,600
–
$ 89,600
$ 2.05
–
$ 2.05
$ 2.03
–
$ 2.03
$ 1.23
43,780
44,031
$ 19.70
71.21 - 84.98
73.15
56,344
46,956
1,562
1,724,340
604,159
624,289
852,301
10.3%
42.3%
4,023
100.0%
67.0
20.9
12.1%
100.0%
65.6
21.0
13.4%
2016
$1,383,210
907,783
289,818
185,609
18,324
167,285
44,372
122,913
3,343
$ 126,256
$ 2.76
0.08
$ 2.84
$ 2.74
0.07
$ 2.82
$ 1.11
44,523
44,843
$ 18.83
52.69 - 83.38
78.58
81,216
45,714
1,305
1,667,860
582,780
603,358
835,741
14.7%
41.9%
4,083
2015
$1,375,964
921,531
288,092
166,341
16,945
149,396
42,149
107,247
(462)
$ 106,785
$ 2.34
(0.01)
$ 2.33
$ 2.32
(0.01)
$ 2.31
$ 1.04
45,910
46,204
$ 18.78
56.71 - 70.53
62.82
79,941
46,694
1,245
1,703,732
613,502
634,157
845,127
11.6%
42.9%
4,032
100.0%
66.3
24.7
9.0%
2014
$1,447,821
959,311
357,845
130,665
16,067
114,598
32,827
81,771
(8,125)
$ 73,646
$ 1.69
(0.17)
$ 1.52
$ 1.67
(0.17)
$ 1.51
$ 0.98
48,525
48,819
$ 21.94
46.08 - 63.35
60.34
79,398
50,225
1,231
1,772,039
450,548
466,436
1,046,935
6.4%
30.8%
4,053
consolidating manufacturing facilities, and improving efficiencies within the Company, and the other costs pertain to the
Company’s divestiture in Strasbourg, France.
The 2015 results include charges of $43.6 million ($33.6 million after tax, or $0.73 per share) related to the restructuring and other
acquisition related costs. The restructuring costs pertain to the 2014 Restructuring Plan related to eliminating underperforming
operations, consolidating manufacturing facilities, and improving efficiencies within the Company, and the other costs
pertain to acquisition related costs.
The 2014 results include charges of $90.6 million ($65.5 million after tax, or $1.34 per share) related to the restructuring
and other proxy contest costs. The restructuring costs pertain to the 2014 Restructuring Plan related to eliminating
underperforming operations, consolidating manufacturing facilities, and improving efficiencies within the Company,
and the other costs pertain to proxy contest costs.
15
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
RESULTS OF CONTINUING OPERATIONS
2018 vs. 2017
OVERVIEW
Sensient Technologies Corporation (the Company or
Sensient) is a global developer, manufacturer, and supplier
of flavor and fragrance systems for the food, beverage,
personal care, and household-products industries. The
Company is also a leading developer, manufacturer, and
supplier of colors for businesses worldwide. The Company
provides natural and synthetic color systems for use in
foods, beverages, pharmaceuticals and nutraceuticals;
colors, inks, and other ingredients for cosmetics,
pharmaceuticals, nutraceuticals and digital printing; and
technical colors for industrial applications. The Company’s
three reportable segments are the Flavors & Fragrances
Group and the Color Group, which are managed on
a product basis, and the Asia Pacific Group, which is
managed on a geographic basis. The Company’s corporate
expenses and restructuring and other costs are included in
the “Corporate & Other” category.
In July 2018, the Company completed the acquisition of
Mazza Innovation Limited (now known as Sensient Natural
Extraction Inc.). This acquisition provides the Company
with an umbrella technology, which supports applications
for both the Flavors & Fragrances and Color segments.
The Company is in the process of integrating this business,
and therefore, the Company has included its results in
Corporate & Other.
The Company’s diluted earnings per share from continuing
operations were $3.70 in 2018 and $2.03 in 2017. Included
in the 2017 results were $48.1 million, or $0.96 per share
net of tax, of restructuring and other costs. There were no
restructuring or other costs in 2018. Included in the 2018
and 2017 results, were $6.6 million of a benefit and $18.4
million of expense, respectively, related to the enactment of
the Tax Cuts and Jobs Act (Act or 2017 Tax Legislation),
equating to an impact of a 16 cents per share benefit and 42
cents per share of expense, respectively. Adjusted diluted
earnings per share, which exclude these restructuring and
other costs as well as the impact of the 2017 Tax Legislation,
were $3.55 in 2018 and $3.42 in 2017 (see discussion below
regarding non-GAAP financial measures and the Company’s
restructuring activities, divestiture and income taxes).
Since 1962, the Company has paid, without interruption,
a quarterly cash dividend. In the fourth quarter of 2018,
the Company increased the quarterly dividend by 3 cents
per share from 33 cents to 36 cents per share, or $1.44 per
share on an annualized basis. In addition, the Company
repurchased $76.7 million of Company stock in 2018, which
is in addition to the $87.2 million repurchased in 2017.
Additional information on the results is included below.
16
Revenue
Sensient’s revenue was approximately $1.4 billion in 2018
and 2017.
Gross Profit
The Company’s gross margin was 33.6% in 2018 and
34.9% in 2017. Included in the cost of products sold are
$2.9 million of restructuring costs for 2017. The decrease
in gross margin is primarily a result of higher raw material
costs and the unfavorable impact of product mix, partially
offset by higher selling prices. Restructuring costs reduced
gross margin by 20 basis points in 2017.
Selling and Administrative Expenses
Selling and administrative expense as a percent of revenue
was 18.9% in 2018 and 22.6% in 2017, respectively.
Restructuring and other costs of $45.2 million in 2017 were
included in selling and administrative expense. Selling and
administrative expense as a percent of revenue was lower
in 2018 than in 2017 primarily as a result of the 2017
restructuring and other costs and lower performance based
executive compensation in 2018. Restructuring and other
costs increased selling and administrative expense as a
percent of revenue by 330 basis points in 2017.
Operating Income
Operating income was $203.4 million in 2018 and $167.8
million in 2017. Operating margins were 14.7% in 2018
and 12.3% in 2017. Restructuring and other costs reduced
operating margins by 350 basis points in 2017.
Additional information on segment results can be found in
the Segment Information section.
Interest Expense
Interest expense was $21.9 million in 2018 and $19.4 million
in 2017. The increase in expense was primarily due to the
increase in average debt outstanding.
Income Taxes
The effective income tax rate was 13.3% in 2018 and 39.6%
in 2017. The effective tax rates in both 2018 and 2017
were impacted by changes in estimates associated with the
finalization of prior year foreign and domestic tax items,
audit settlements, adjustments to valuation allowances and
mix of foreign earnings. The effective tax rate in 2018 was
also favorably impacted by U.S. tax accounting method
changes that were filed with the IRS in the second quarter
of 2018 and generation of foreign tax credits during 2018.
The 2017 effective tax rate was impacted by the limited tax
deductibility of losses, the result of the cumulative foreign
currency effect related to certain repatriation transactions,
and restructuring and other activities.
On December 22, 2017, the U.S. enacted the 2017 Tax
Legislation. The Act significantly changed U.S. corporate
income tax laws by reducing the U.S. corporate income
tax rate to 21% beginning in 2018 and creating a territorial
tax system with a one-time mandatory tax on previously
deferred foreign earnings of U.S. subsidiaries. As a result,
the Company recorded a provisional net tax expense of
$18.4 million during the fourth quarter of 2017. This amount
consists of reevaluating the U.S. deferred tax assets
and liabilities based on the lower corporate income tax
rate, adjustments to the Company’s foreign tax credit
carryover, and the one-time mandatory tax on previously
deferred foreign earnings of U.S. subsidiaries. In 2018,
the Company finalized its provisional estimates related to
the Act resulting in an income tax benefit of $6.6 million.
Sensient considers $11.8 million to be the final net tax
expense related to the Act.
Rate before 2017 Tax Legislation,
restructuring and discrete items
2017 Tax Legislation
Restructuring impact
Discrete items
Reported effective tax rate
2018
20.7%
(3.7%)
–
(3.7%)
13.3%
2017
24.5%
12.4%
3.9%
(1.2%)
39.6%
The 2019 effective income tax rate is estimated to be
between 22.0% and 23.0%, before any discrete items.
Acquisitions
On July 10, 2018, the Company completed the acquisition of
Mazza Innovation Limited, a botanical extraction business
with patented solvent-free extraction processes, located in
Vancouver, Canada. The Company paid $19.8 million of
cash for this acquisition. The assets acquired and liabilities
assumed were recorded at their estimated fair values as of
the acquisition date. The Company acquired net assets of
$4.0 million and identified intangible assets, principally
technological know-how, of $6.9 million. The remaining
$8.9 million was allocated to goodwill. This acquisition
provides the Company with an umbrella technology, which
supports applications for both the Flavors & Fragrances
and Color segments. The Company is still in the process of
integrating this business, and therefore, the Company has
included its results in Corporate & Other.
On March 9, 2018, the Company completed the acquisition
of certain net assets and the natural color business of Glo-
beNatural, a natural color company based in Lima, Peru. The
Company paid $10.8 million of cash for this acquisition. The
Company acquired net assets of $1.4 million and identified
intangible assets, principally customer relationships of $2.0
million, and allocated the remaining $7.4 million to good-
will. These operations are included in the Color segment.
Restructuring
Between March 2014 and 2017, the Company executed a
restructuring plan (2014 Restructuring Plan) to eliminate
underperforming operations, consolidate manufacturing
facilities, and improve efficiencies within the Company. In
accordance with GAAP, the Company recorded total restruc-
turing costs of $36.5 million for the year ended December
31, 2017. No restructuring costs were recorded for the year
ended December 31, 2018.
Divestiture
In 2016, the Company’s Board of Directors authorized
management to explore strategic alternatives for a facility
and certain related business lines within the Flavors &
Fragrances segment in Strasbourg, France. In 2016, the
Company recorded a non-cash impairment charge of $10.8
million, in selling and administrative expense, and incurred
$0.7 million of outside professional fees and other related
costs in 2016, as a result of the then anticipated divestiture.
In January 2017, the Company completed this divestiture
for approximately $12.5 million. The Company recognized
an additional non-cash loss of $11.6 million in 2017.
NON-GAAP FINANCIAL MEASURES
Within the following tables, the Company reports certain non-
GAAP financial measures, including: (1) adjusted operating
income, adjusted net earnings, and adjusted diluted EPS from
continuing operations (which exclude restructuring and other
costs as well as the impact of the 2017 Tax Legislation) and
(2) percentage changes in revenue, operating income, diluted
EPS, adjusted operating income, and adjusted diluted EPS
on a local currency basis (which eliminate the effects that
result from translating its international operations into U.S.
dollars). The other costs in 2017 are divestiture related costs,
discussed under “Divestiture” above.
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. The Company
believes that this 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.
17
(in thousands except per share amounts)
Operating Income from continuing operations (GAAP)
Restructuring – Cost of products sold
Restructuring – Selling and administrative
Other – Selling and administrative (1)
Adjusted operating income
Net Earnings from continuing operations (GAAP)
Restructuring & other, before tax
Tax impact of restructuring & other
2017 Tax Legislation
Adjusted net earnings
Diluted EPS from continuing operations (GAAP)
Restructuring & other, net of tax
2017 Tax Legislation
Adjusted diluted EPS
(1) The other costs are for the divestiture related costs discussed under “Divestiture” above.
Note: Earnings per share calculations may not foot due to rounding differences.
Twelve Months Ended December 31,
2018
$ 203,378
–
–
–
$ 203,378
$ 157,360
–
–
(6,634)
$ 150,726
$ 3.70
–
(0.16)
$ 3.55
2017
% Change
$ 167,806
2,889
33,627
11,555
$ 215,877
$ 89,600
48,071
(5,602)
18,446
$ 150,515
$ 2.03
0.96
0.42
$ 3.42
21.2%
(5.8%)
75.6%
0.1%
82.3%
3.8%
The following table summarizes the percentage change in the 2018 results compared to the 2017 results in the respective
financial measures.
Twelve Months Ended December 31, 2018
Revenue
Flavors & Fragrances
Color
Asia Pacific
Total Revenue
Operating Income From Continuing Operations
Flavors & Fragrances
Color
Asia Pacific
Corporate & Other
Operating Income from continuing operations
Diluted EPS from continuing operations
Adjusted operating income(1)
Adjusted diluted EPS(1)
(1) Refer to table above for a reconciliation of these non-GAAP measures.
18
Total
0.0%
5.2%
0.0%
1.8%
(15.7%)
1.4%
0.4%
(64.3%)
21.2%
82.3%
(5.8%)
3.8%
Foreign
Exchange Rates
Local Currency
1.1%
0.4%
(0.1%)
0.7%
0.0%
1.1%
1.3%
1.4%
0.2%
0.0%
0.7%
0.6%
(1.1%)
4.8%
0.1%
1.1%
(15.7%)
0.3%
(0.9%)
(65.7%)
21.0%
82.3%
(6.5%)
3.2%
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 restructuring and other costs (which are reported
in Corporate & Other), interest expense, and income taxes.
In July 2018, the Company completed the acquisition
of Mazza Innovation Limited (See Acquisitions above
for further information). This acquisition provides the
Company with an umbrella technology, which supports
applications for both the Flavors & Fragrances and Color
segments. The Company is in the process of integrating
this business, and therefore, the Company has included its
results in Corporate & Other.
The Company’s discussion below regarding its operating
segments has been updated to reflect the Company’s
disaggregation of revenue, which was adopted in the first
quarter of 2018, as summarized in Part IV, Item I, Note 11,
Segment and Geographic Information, of this report.
The Company’s reportable segments consist of the Flavors
& Fragrances, Color, and Asia Pacific segments.
Flavors & Fragrances
Flavors & Fragrances segment revenue was $746.9 million
in both 2018 and 2017. Foreign exchange rates increased
segment revenue by approximately 1% in 2018. Segment
revenue was consistent with the prior year due to higher
revenue in Fragrances and Natural Ingredients, mostly
offset by lower revenue in Flavors. The higher revenue in
Fragrances is primarily a result of higher selling prices,
favorable volumes, and favorable exchange rates. The
higher revenue in Natural Ingredients is primarily a result
of favorable volumes, partially offset by lower selling
prices and the impact of the 2017 sale of the European
Natural Ingredients business as part of the Company’s prior
restructuring activities. The lower revenue in Flavors was
primarily a result of lower volumes, partially offset by the
favorable impact of exchange rates and higher selling prices.
Flavors & Fragrances segment operating income was $96.4
million in 2018 and $114.3 million in 2017, a decrease
of approximately 16%. Foreign exchange rates had a
minimal impact on segment operating income. The lower
segment operating income was primarily a result of lower
operating income in Flavors and Natural Ingredients. The
lower operating income in Flavors was primarily a result of
lower volumes (primarily at the production site affected by
last year’s plant consolidation) and product mix, partially
offset by higher selling prices, lower manufacturing and
other costs, and lower raw material costs. The lower
operating income in Natural Ingredients was primarily due
to higher raw material costs, primarily onion, and lower
selling prices, partially offset by higher volumes and lower
manufacturing and other costs. Segment operating income
as a percent of revenue was 12.9% and 15.3% for 2018 and
2017, respectively.
Color
Segment revenue for the Color segment was $553.5
million in 2018 and $526.4 million in 2017, an increase
of approximately 5%. Foreign exchange rates had a
minimal impact on segment revenue. The higher segment
revenue was primarily a result of higher revenue in Food
& Beverage Colors and Cosmetics. The higher revenue in
Food & Beverage Colors was primarily a result of higher
volumes, the impact of the GlobeNatural acquisition
(approximately 1%), favorable exchange rates, and higher
selling prices. The higher revenue in Cosmetics was
primarily a result of higher volumes.
Segment operating income for the Color segment was
$114.9 million in 2018 and $113.4 million in 2017,
an increase of approximately 1%. The higher segment
operating income was primarily a result of higher operating
income in Cosmetics, partially offset by unfavorable
product mix and higher raw material costs in Food
& Beverage Colors. The higher operating income in
Cosmetics was primarily a result of higher volumes and
selling prices, favorable product mix, lower raw material
costs, and the favorable impact of exchange rates, partially
offset by higher manufacturing and other costs. Foreign
exchange rates increased segment operating income by
approximately 1%. Segment operating income as a percent
of revenue was 20.8% in 2018 compared to 21.5% in 2017.
Asia Pacific
Segment revenue for the Asia Pacific segment was $123.2
million for both 2018 and 2017. Foreign exchange rates
had a minimal impact on segment revenues. Segment
revenue was consistent with the prior year as higher selling
prices were mostly offset by lower volumes.
Segment operating income for the Asia Pacific segment
was $20.9 million in 2018 and $20.8 million in 2017, a
slight increase over the prior year. The slight increase in
segment operating income was a result of higher selling
prices, favorable product mix, and favorable exchange
rates, mostly offset by higher manufacturing and other
costs. Foreign exchange rates increased segment operating
income by approximately 1%. Segment operating income
as a percent of revenue was 16.9% in both 2018 and 2017.
Corporate & Other
The Corporate & Other operating loss was $28.8 million
in 2018 and $80.7 million in 2017. The lower operating
loss was primarily a result of the absence in 2018 of the
restructuring and other costs that were incurred in 2017 and
lower performance based executive compensation incurred
19
in 2018. Restructuring and other costs were $48.1 million
in 2017. There were no restructuring and other costs
incurred in 2018.
RESULTS OF CONTINUING OPERATIONS
2017 vs. 2016
Revenue
Sensient’s revenue was approximately $1.4 billion in both
2017 and 2016.
Gross Profit
The Company’s gross margin was 34.9% in 2017 and
34.4% in 2016. Included in the cost of products sold are
$2.9 million and $2.1 million of restructuring costs for
2017 and 2016, respectively. The increase in the gross
margin was primarily a result of higher selling prices
and the favorable impact of a divestiture (See Note 13,
Restructuring Charges, and Note 15, Divestiture), partially
offset by higher raw material and manufacturing costs.
Restructuring costs reduced gross margin by 20 basis
points and 10 basis points in 2017 and 2016, respectively.
Selling and Administrative Expense
Selling and administrative expense as a percent of revenue
was 22.6% in 2017 and 21.0% in 2016. Restructuring and
other costs of $45.2 million and $24.0 million for 2017 and
2016, respectively, were included in selling and administrative
expense. Selling and administrative expense as a percent
of revenue was higher in 2017 than in 2016 primarily as a
result of higher restructuring and other costs, partially offset
by lower performance based executive compensation and
professional fees. Restructuring and other costs increased
selling and administrative expense as a percent of revenue
by 330 basis points and 180 basis points in 2017 and 2016,
respectively.
Operating Income
Operating income was $167.8 million in 2017 and $185.6
million in 2016. Operating margins were 12.3% in 2017
and 13.4% in 2016. Restructuring and other costs reduced
operating margins by 350 basis points and 190 basis points in
2017 and 2016, respectively.
Additional information on segment results can be found in
the Segment Information section.
Interest Expense
Interest expense was $19.4 million in 2017 and $18.3
million in 2016. The increase in expense was primarily
due to the increase in average debt outstanding.
Income Taxes
The effective income tax rate was 39.6% in 2017 and
26.5% in 2016. The effective tax rates in both 2017 and
2016 were impacted by restructuring and other activities,
changes in estimates associated with the finalization
20
of prior year foreign and domestic tax items, audit
settlements, adjustments to valuation allowances, and
mix of foreign earnings. The effective tax rate in 2017
was also impacted by the limited tax deductibility of
losses and the result of the cumulative foreign currency
effect related to certain repatriation transactions.
On December 22, 2017, the U.S. enacted the 2017 Tax
Legislation. The Act significantly changed U.S. corporate
income tax laws by reducing the U.S. corporate income
tax rate to 21% beginning in 2018 and creating a territorial
tax system with a one-time mandatory tax on previously
deferred foreign earnings of U.S. subsidiaries. As a result, the
Company recorded a net charge of $18.4 million during the
fourth quarter of 2017. This amount consisted of reassessing
the U.S. deferred tax assets and liabilities based on the lower
corporate income tax rate, adjustments to the Company’s
foreign tax credit carryover, and the one-time mandatory tax
on previously deferred foreign earnings of U.S. subsidiaries.
Although the Company believed that $18.4 million was
a reasonable estimate of the 2017 Tax Legislation, it was
considered a provisional estimate. The Company received
additional guidance on the 2017 Tax Legislation in 2018, and
adjusted this provisional estimate during the third and fourth
quarters of 2018 (See Note 10, Income Taxes).
Rate before restructuring
and discrete items
2017 Tax Legislation
Restructuring impact
Discrete items
Reported effective tax rate
2017
24.5%
12.4%
3.9%
(1.2%)
39.6%
2016
27.7%
–
1.0%
(2.2%)
26.5%
Restructuring
Between March 2014 and 2017, the Company executed a
restructuring plan to eliminate underperforming operations,
consolidate manufacturing facilities, and improve
efficiencies within the Company. In accordance with
GAAP, the Company recorded total restructuring costs
of $36.5 million and $11.1 million for the years ended
December 31, 2017 and 2016, respectively.
Divestiture
In 2016, the Company’s Board of Directors authorized
management to explore strategic alternatives for a facility
and certain related business lines within the Flavors &
Fragrances segment in Strasbourg, France. In 2016, the
Company recorded a non-cash impairment charge of $10.8
million, in selling and administrative expense, and incurred
$0.7 million of outside professional fees and other related
costs in 2016, as a result of the then anticipated divestiture.
In January 2017, the Company completed this divestiture
for approximately $12.5 million. The Company recognized
an additional non-cash loss of $11.6 million in 2017.
NON-GAAP FINANCIAL MEASURES
Within the following tables, the Company reports certain
non-GAAP financial measures, including: (1) adjusted
operating income, adjusted net earnings, and adjusted
diluted EPS from continuing operations (which exclude
restructuring and other costs as well as the impact of
the 2017 Tax Legislation) and (2) percentage changes in
revenue, operating income, diluted EPS, adjusted operating
income, and adjusted diluted EPS on a local currency basis
(which eliminate the effects that result from translating its
international operations into U.S. dollars). The other costs
in 2017 and 2016 are divestiture related costs, discussed
under “Divestiture” above.
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. The Company believes
that this information can be beneficial to investors for
the same purposes. These non-GAAP measures may not
be comparable to similarly titled measures used by other
companies.
(in thousands except per share amounts)
2017
2016
Operating Income from continuing operations (GAAP)
$167,806
$185,609
% Change
(9.6%)
Twelve Months Ended December 31,
Restructuring - Cost of products sold
Restructuring - Selling and administrative
Other - Selling and administrative (1)
Adjusted operating income
Net Earnings from continuing operations (GAAP)
Restructuring & other, before tax
Tax impact of restructuring & other
Impact of the 2017 Tax Legislature
Adjusted net earnings
Diluted EPS from continuing operations (GAAP)
Restructuring & other, net of tax
2017 Tax Legislation
Adjusted diluted EPS
2,889
33,627
11,555
2,065
12,486
11,535
$215,877
$211,695
2.0%
$ 89,600
48,071
(5,602)
18,446
$122,913
26,086
(4,999)
–
(27.1%)
$150,515
$144,000
4.5%
$ 2.03
0.96
0.42
$ 2.74
0.47
–
(25.9%)
$ 3.42
$ 3.21
6.5%
(1) The other costs in 2017 and 2016 are for the divestiture related costs discussed under “Divestiture” above.
Note: Earnings per share calculations may not foot due to rounding differences
21
The following table summarizes the percentage change in the 2017 results compared to the 2016 results in the respective
financial measures.
Revenue
Flavors & Fragrances
Color
Asia Pacific
Total Revenue
Operating Income From Continuing Operations
Flavors & Fragrances
Color
Asia Pacific
Corporate & Other
Operating Income from continuing operations
Diluted EPS from continuing operations
Adjusted operating income (1)
Adjusted diluted EPS (1)
(1) Refer to table above for a reconciliation of these non-GAAP measures.
SEGMENT INFORMATION
The Company determines its operating segments based
on information utilized by its chief operating decision
maker to allocate resources and assess performance.
Segment performance is evaluated on operating income
before restructuring and other costs (which are reported in
Corporate & Other), interest expense, and income taxes.
The Company’s reportable segments consist of the
Flavors & Fragrances, Color, and Asia Pacific segments.
Beginning in the first quarter of 2017, the results of
operations for certain of the Company’s cosmetic and
fragrance businesses in the Asia Pacific segment are now
reported in the Color segment and Flavors & Fragrances
segment, respectively. In addition, the Color segment
reassigned customer accounts and revised cost allocations
amongst the businesses within their segment resulting
in changes in the underlying components of segment
revenue and segment operating income. The results for
2016 have been restated to reflect these changes.
The Company’s discussion below regarding its operating
segments has been updated to reflect the Company’s
disaggregation of revenue, which was adopted in the first
quarter of 2018, as summarized in Part IV, Item I, Note
11, Segment and Geographic Information, of this report.
22
Twelve Months Ended December 31, 2017
Total
Foreign
Exchange Rates
Local
Currency
(6.1%)
4.4%
1.6%
(1.5%)
(7.8%)
7.2%
(12.0%)
18.9%
(9.6%)
(25.9%)
2.0%
6.5%
0.0%
0.9%
0.8%
0.5%
(0.4%)
0.6%
1.1%
0.1%
0.2%
0.0%
0.2%
0.3%
(6.1%)
3.5%
0.9%
(2.0%)
(7.4%)
6.5%
(13.1%)
18.7%
(9.8%)
(25.9%)
1.8%
6.2%
Flavors & Fragrances
Segment revenue for the Flavors & Fragrances segment
was $746.9 million in 2017 and $795.8 million in 2016,
a decrease of approximately 6%. Foreign exchange did
not have a material impact on revenue. The decrease in
revenue was primarily due to lower revenue in Flavors
and Natural Ingredients. The lower segment revenue in
Flavors was primarily due to the divestiture and lower
volumes, partially offset by higher selling prices. The
lower segment revenue in Natural Ingredients was
primarily due to lower volumes and the divestiture,
partially offset by higher selling prices.
Segment operating income for the Flavors & Fragrances
segment was $114.3 million in 2017, and $124.1 million
in 2016. The lower segment operating income was
primarily a result of lower segment operating income
in Flavor and Fragrances. The lower operating income
in Flavor was primarily due to unfavorable volume
and product mix, and higher manufacturing and other
costs, partially offset by higher selling prices. The lower
operating income in Fragrances was primarily due to
higher manufacturing and other costs. Segment operating
margin was 15.3% in 2017 and 15.6% in 2016.
Color
Segment revenue for the Color segment was $526.4
million in 2017, and $504.1 million in 2016, an increase
of approximately 4%. The increase in revenue was
primarily due to higher revenue in non-food colors. The
higher revenue in non-food colors was primarily due to
higher volumes, primarily in cosmetic colors, and higher
selling prices.
Segment operating income for the Color segment was
$113.4 million in 2017, and $105.8 million in 2016,
an increase of approximately 7%. The higher segment
operating income was due to higher segment operating
income in non-food colors, partially offset by lower
segment operating income in food and beverage colors.
The higher operating income for non-food colors was
primarily due to favorable volume and product mix. The
lower profit for food and beverage colors was primarily
due to unfavorable volume and product mix and higher
manufacturing and other costs, partially offset by higher
selling prices. Segment operating margin was 21.5% in
2017 and 21.0% in 2016.
Asia Pacific
Segment revenue for the Asia Pacific segment was
$123.2 million in 2017, and $121.2 million in 2016,
an increase of approximately 2%. The higher segment
revenue was due to higher selling prices, partially offset
by lower volumes.
Segment operating income for the Asia Pacific segment
was $20.8 million in 2017, and $23.6 million in 2016, a
decrease of 12%. The lower segment operating income
was a result of higher manufacturing and other costs and
unfavorable volume and product mix, partially offset
by higher selling prices. Segment operating margin was
16.9% in 2017 and 19.5% in 2016.
Corporate & Other
The Corporate & Other expenses were $80.7 million
in 2017 and $67.9 million in 2016, an increase of
approximately 19%, primarily due to higher restructuring
and other costs partially offset by lower performance
based executive compensation and professional services.
The Company evaluates segment performance before
restructuring and other costs, and reports all of the
restructuring and other costs in Corporate & Other.
Restructuring and other costs were $48.1 million and
$26.1 million in 2017 and 2016, respectively.
LIQUIDITY AND FINANCIAL POSITION
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 December
31, 2018. In the fourth quarter of 2018, the Company
amended its accounts receivable securitization program,
and increased the commitment size from $60 million to $70
million. See Note 8, Accounts Receivable Securitization, for
additional information.
The Company expects its cash flow from operations and
its existing debt capacity can be used to meet anticipated
future cash requirements for operations, capital expenditures,
dividend payments, acquisitions, and stock repurchases. The
impact of inflation on both the Company’s financial position
and its results of operations has been minimal and is not
expected to significantly affect 2019 results.
Cash Flows from Operating Activities
Net cash provided by operating activities was $83.5 million
in 2018; $36.3 million in 2017; and $183.6 million in
2016. Operating cash flow provided the primary source of
funds for operating needs, capital expenditures, shareholder
dividends, acquisitions, and share repurchases. The increase
in net cash provided by operating activities in 2018 is
primarily due to the adoption of ASU 2016-15 Statement of
Cash Flows: Classification of Certain Cash Receipts and
Cash Payments, which required certain cash receipts related
to the Company’s accounts receivable securitization (i.e.
the deferred purchase price) to be classified as investing
activities. As a result, the Company included $91.1 million,
$141.5 million, and $35.4 million of cash received as
deferred purchase price as investing activities, which were
previously recorded as operating activities, in 2018, 2017,
and 2016, respectively. The decrease in net cash provided
by operating activities in 2017 is primarily due to the impact
of the adoption of ASU 2016-15, higher working capital
balances, and the timing of tax payments.
Cash Flows from Investing Activities
Net cash provided by (used in) investing activities was
$14.8 million in 2018; $110.4 million in 2017; and $(36.4)
million in 2016. Capital expenditures were $50.7 million in
2018; $56.3 million in 2017; and $81.2 million in 2016. As
required under ASU 2016-15, the Company included $91.1
million, $141.5 million and $35.4 million of cash received
as deferred purchase price under its accounts receivable
securitization as cash provided by investing activities in
2018, 2017, and 2016, respectively. In 2018, the Company
purchased Mazza Innovation Limited, for approximately
$19.8 million, GlobeNatural for approximately $10.8
million, and the assets of one other business for an
immaterial amount. In 2017, the Company sold a facility
and certain related business lines in Strasbourg, France,
for approximately $12.5 million, its European Natural
Ingredients business for a nominal amount, and two other
production facilities for $10.1 million.
Cash Flows from Financing Activities
Net cash used in financing activities was $98.7 million in
2018; $153.4 million in 2017; and $128.0 million in 2016.
The Company had a net increase in debt of $38.2 million
in 2018; a net decrease in debt of $8.8 million in 2017; and
a net decrease in debt of $24.5 million in 2016. Sensient
purchased $76.7 million, $87.2 million, and $50.1 million
of Company stock, which settled in 2018, 2017, and 2016,
respectively.
23
The Company has paid uninterrupted quarterly cash
dividends since commencing public trading in its stock in
1962. In the fourth quarter of 2018, the Company increased
its quarterly dividend from 33 cents per share to 36 cents per
share. Dividends paid per share were $1.35 in 2018, $1.23
cents in 2017, and $1.11 cents in 2016. Total dividends paid
were $57.4 million, $54.0 million, and $49.6 million in
2018, 2017, and 2016, respectively.
ISSUER PURCHASES OF EQUITY SECURITIES
Sensient purchased 1.1 million shares of Company stock
in 2018 for a total cost of $76.7 million; 1.1 million shares
of Company stock in 2017 for a total cost of $87.2 million;
and 0.7 million shares of Company stock in 2016 for a
total cost of $47.5 million. In 2014, the Board approved a
share repurchase program under which the Company was
authorized to repurchase five million shares of Company
stock. In October 2017, the Board of Directors authorized
the repurchase of up to three million additional shares. As of
December 31, 2018, 2.2 million shares were available to be
repurchased under existing authorizations. The Company’s
share repurchase program has no expiration date. These
authorizations may be modified, suspended, or discontinued
by the Board of Directors at any time.
CRITICAL ACCOUNTING POLICIES
In preparing the financial statements in accordance with
accounting principles generally accepted in the U.S.,
management is required to make estimates and assumptions
that have an impact on the asset, liability, revenue, and
expense amounts reported. These estimates can also affect
supplemental information disclosures of the Company,
including information about contingencies, risk, and
financial condition. The Company believes, given current
facts and circumstances, that its estimates and assumptions
are reasonable, adhere to accounting principles generally
accepted in the U.S., and are consistently applied. Inherent
in the nature of an estimate or assumption is the fact that
actual results may differ from estimates and estimates may
vary as new facts and circumstances arise. The Company
makes routine estimates and judgments in determining the
net realizable value of accounts receivable, inventories,
and property, plant, and equipment. Management believes
the Company’s most critical accounting estimates and
assumptions are in the following areas:
Revenue Recognition
The Company recognizes revenue as the transfer of control
of its products to the Company’s customers in an amount
reflecting the consideration to which the Company expects
to be entitled. Revenue is recognized when control of the
product is transferred to the customer, the customer is
obligated to pay the Company and the Company has no
remaining obligations, which is typically at shipment. See
24
Note 1, Summary of Significant Accounting Policies, in the
Notes to Consolidated Financial Statements included in this
report for additional details.
Goodwill Valuation
The Company reviews the carrying value of goodwill
annually utilizing several valuation methodologies,
including a discounted cash flow model. The Company
completed its annual goodwill impairment test under
Accounting Standards Codification (ASC) 350,
Intangibles – Goodwill and Other, in the third quarter
of 2018. In conducting its annual test for impairment,
the Company performed a qualitative assessment of its
previously calculated fair values for each of its reporting
units, as the Company believes it is not more likely than
not that goodwill is impaired. Fair value is estimated using
both a discounted cash flow analysis and an analysis of
comparable company market values. If the fair value of a
reporting unit exceeds its net book value, no impairment
exists. The Company’s three reporting units each had
goodwill recorded and were tested for impairment.
All three reporting units had fair values that were over
100% above their respective net book values. Changes
in estimates of future cash flows caused by items such as
unforeseen events or changes in market conditions could
negatively affect the reporting units’ fair value and result
in an impairment charge.
Income Taxes
The Company estimates its income tax expense in each of
the taxing jurisdictions in which it operates. The Company
is subject to a tax audit in each of these jurisdictions, which
could result in changes to the estimated tax expense. The
amount of these changes would vary by jurisdiction and
would be recorded when probable and estimable. These
changes could impact the Company’s financial statements.
Management has recorded valuation allowances to reduce
the Company’s deferred tax assets to the amount that is
more likely than not to be realized. Examples of deferred
tax assets include deductions, net operating losses, and tax
credits that the Company believes will reduce its future
tax payments. In assessing the future realization of these
assets, management has considered future taxable income
and ongoing tax planning strategies. An adjustment to the
recorded valuation allowance as a result of changes in facts
or circumstances could result in a significant change in the
Company’s tax expense. The Company does not provide for
deferred taxes on unremitted earnings of foreign subsidiaries,
which are considered to be invested indefinitely.
Inventories
Inventories are stated at the lower of cost or net realizable
value. Cost is determined using the first-in, first-out (FIFO)
method with the exception of certain locations of the Flavors
& Fragrances segment where cost is determined using a
weighted average method. Net realizable value is determined
on the basis of estimated realizable values. Cost includes
direct materials, direct labor, and manufacturing overhead.
The Company estimates any required write-downs for
inventory obsolescence by examining inventories on a
quarterly basis to determine if there are any damaged items
or slow moving products in which the carrying values could
exceed net realizable value. Inventory write-downs are
recorded as the difference between the cost of inventory and
its estimated market value. While significant judgment is
involved in determining the net realizable value of inventory,
the Company believes that inventory is appropriately stated
at the lower of cost or net realizable value.
Commitments and Contingencies
The Company is subject to litigation and other legal
proceedings arising in the ordinary course of its businesses
or arising under applicable laws and regulations. Estimating
liabilities and costs associated with these matters requires the
judgment of management, who rely in part on information
from Company legal counsel. When it is probable that the
Company has incurred a liability associated with claims or
pending or threatened litigation matters and the Company’s
exposure is reasonably estimable, the Company records a
charge against earnings. The Company recognizes related
insurance reimbursement when receipt is deemed probable.
The Company’s estimate of liabilities and related insurance
recoveries may change as further facts and circumstances
become known.
CONTRACTUAL OBLIGATIONS
The Company is subject to certain contractual obligations,
including long-term debt, operating leases, manufacturing
purchases, and pension benefit obligations. The Company
had unrecognized tax benefits of $4.8 million as of December
31, 2018. However, the Company cannot make a reasonably
reliable estimate of the period of potential cash settlement of
the liabilities and, therefore, has not included unrecognized
tax benefits in the following table of significant contractual
obligations as of December 31, 2018.
PAYMENTS DUE BY PERIOD
(in thousands)
Long-term debt
Interest payments on long-term debt
Operating lease obligations
Manufacturing purchase commitments
Pension funding obligations
Total contractual obligations
Total
1 year
2-3 years
4-5 years
> 5 years
$ 689,553
$ 10,963
$ 27,393
$464,008
$187,189
85,401
30,535
107,962
23,732
19,069
9,749
72,375
1,532
36,642
10,604
35,587
3,099
21,736
5,921
–
5,534
7,954
4,261
–
13,567
$937,183
$113,688
$113,325
$497,199
$212,971
NEW PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
In February 2018, the Financial Accounting Standards
Board (FASB) issued ASU 2018-02, Reclassifications of
Certain Tax Effects from Accumulated Other Comprehensive
Income. This ASU allows entities the option to reclassify to
retained earnings tax effects related to the change in federal
tax rate for all items accounted for in Accumulated Other
Comprehensive Income (AOCI). The Company adopted this
standard in the fourth quarter of 2018, and as a result, has
elected to reclassify $1.4 million from AOCI to Earnings
Reinvested in the Business on the Consolidated Statements
of Shareholders’ Equity as of January 1, 2018.
In March 2017, the FASB issued ASU 2017-07, Improving
the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost. This ASU requires
employers to present the service cost component of the
net periodic benefit cost in the same income statement line
item as the other employee compensation costs arising from
services rendered during the period. The other components
of net periodic benefit cost are to be presented outside of
any subtotal of operating income. This ASU is effective for
fiscal years and interim periods beginning after December
15, 2017. The Company adopted this standard in the first
quarter of 2018, and as a result, the Company’s non-service
cost portion of its pension expense is now recorded in
Interest Expense on the Company’s Consolidated Statement
of Earnings. The Company’s service cost portion of
pension expense is recorded in Selling and Administrative
Expenses on the Company’s Consolidated Statements of
Earnings. This change did not have a material impact on the
Company’s consolidated financial statements.
In December 2016, the FASB issued ASU 2016-16,
Accounting for Income Taxes: Intra-Entity Asset Transfers
of Assets Other than Inventory. Prior to the adoption of
ASU 2016-16, the tax effects of intra-entity asset transfers
were deferred until the transferred asset was sold to a third
party or otherwise recovered through use. ASU 2016-
16 eliminates the exception for all intra-entity sales of
assets other than inventory. The guidance is effective for
fiscal years beginning after December 15, 2017, including
interim periods within those years. The Company adopted
25
this standard in the first quarter of 2018 resulting in a
cumulative effect of $0.4 million increase to Earnings
reinvested in the business; an increase of $3.0 million to
Deferred Tax Assets; a decrease of $3.7 million to Prepaid
Expenses and Other Current Assets; and a decrease of
$1.1 million to Deferred Tax Liabilities on the Company’s
Consolidated Balance Sheet.
In August 2016, the FASB issued ASU 2016-15, Statement
of Cash Flows: Classification of Certain Cash Receipts
and Cash Payments. This ASU clarifies how certain cash
receipts and cash payments are presented and classified
in the statement of cash flows. Among these changes is
a requirement that a transferor’s receipt of a beneficial
interest in securitized trade receivables be disclosed as
an investing transaction. There is also a requirement to
classify cash receipts received that are related to beneficial
interests in previously transferred receivables (i.e., deferred
purchase price) as inflows from investing activities. The
guidance is effective for fiscal years beginning after
December 15, 2017, including interim periods within those
years. The Company adopted this standard in the first
quarter of 2018 and has included $91.1 million, $141.5
million, and $35.4 million as cash flows from investing
activities for the years ended December 31, 2018, 2017,
and 2016, respectively, related to collections on beneficial
interests in previously transferred receivables.
In May 2014, the FASB issued ASU 2014-09, Revenue from
Contracts with Customers. Under this new standard, revenue
is recognized when a customer obtains control of promised
goods or services in an amount that reflects the consideration
the entity expects to receive in exchange for those goods
or services. The requirements of the new standard are
effective for interim and annual periods beginning after
December 15, 2017. The Company adopted this standard
in the first quarter of 2018 using the modified retrospective
method. The adoption of this new standard did not have an
impact on the revenue recognized by the Company. The
Company has updated its revenue recognition accounting
policy, as outlined above, and has included a disclosure
on its disaggregated revenue in Note 11, Segment and
Geographic Information.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02,
Leases, which requires lessees to recognize the lease assets
and liabilities that arise from leases on the balance sheet and
to disclose qualitative and quantitative information about
lease transactions. This guidance is effective for fiscal years
beginning after December 15, 2018, including interim peri-
ods within those fiscal years. In 2017, the Company created
a project team within its Corporate Finance Department to
review the impact that this ASU will have on the Company.
During 2018, the project team has gathered and reviewed
existing leases and other relevant documents across all of
26
the Company’s segments and installed a software solution
to facilitate the implementation of this new standard. The
Company believes it has a complete population of leasing
agreements and has analyzed the agreements. The Company
has also implemented additional internal controls over the
evaluation of new leases and the implementation of this ASU
around leases. The Company has updated its Audit Com-
mittee on the status of the implementation of this ASU. The
Company’s current estimate of the impact of this ASU on the
Company’s Consolidated Financial Statements is the recogni-
tion of lease assets and liabilities in the range of $19 million
to $22 million based on current interest rates and population
of leases. The Company will continue to evaluate this range
and the impact on the Company’s Consolidated Financial
Statements. The Company expects to finalize its implementa-
tion calculations in the first quarter of 2019.
In August 2017, the FASB issued ASU 2017-12, Targeted
Improvements to Accounting for Hedging Activities, which
expands an entity’s ability to hedge non-financial and finan-
cial risk components and reduce complexity in fair value
hedges of interest rate risk. This guidance eliminates the
requirement to separately measure and report hedge ineffec-
tiveness and generally requires the entire change in the fair
value of a hedging instrument to be presented in the same
income statement line item as the hedged item. This ASU is
effective for fiscal years and interim periods beginning after
December 15, 2018. The Company is currently evaluating the
expected impact of this standard.
In June 2016, the FASB issued ASU 2016-13, Financial
Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses of Financial Instruments, which replaces the
current incurred loss impairment model with a methodol-
ogy that reflects expected credit losses. Under the new
methodology, entities will be 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. Adoption of this
guidance is required for interim and annual periods begin-
ning after December 15, 2019, with early adoption permitted
for interim and annual periods beginning after December
15, 2018. The Company is currently evaluating the expected
impact of this standard.
In January 2017, the FASB issued ASU 2017-04, Intangibles-
Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment, which eliminates step two of the good-
will impairment test and specifies that goodwill impairment
should be measured by comparing the fair value of a reporting
unit with its carrying amount. This standard will be applied
prospectively and is effective for annual or interim goodwill
impairment tests performed in fiscal years beginning after De-
cember 15, 2019. Early adoption is permitted. The Company
is currently evaluating the expected impact of this standard.
In August 2018, the FASB issued Accounting Standards Up-
date 2018-13, Fair Value Measurement (Topic 820): Disclo-
sure Framework—Changes to the Disclosure Requirements
for Fair Value Measurement, which changes the requirements
on fair value measurements by removing, modifying, or add-
ing certain disclosures. Adoption of this guidance is required
for interim and annual periods beginning after December 15,
2019 with early adoption permitted. The Company is cur-
rently evaluating the expected impact of this standard.
Other recently issued accounting pronouncements are not
expected to have a material impact on the Company’s con-
solidated financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
The Company had no off-balance sheet arrangements as of
December 31, 2018.
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk.
The Company is exposed to market risks, including changes
in interest rates, currency exchange rates, and commodity
prices. Where possible, the Company nets certain of these
exposures to take advantage of natural offsets. For certain
remaining exposures, the Company may enter into various
derivative transactions pursuant to the Company’s hedging
policies. The financial impacts of these hedging instruments
are offset by corresponding changes in the underlying
exposures being hedged.
The Company does not hold or issue derivative financial
instruments for trading purposes. Note 1 and Note 5 to the
Consolidated Financial Statements include discussions of the
Company’s accounting policies for financial instruments.
Because the Company manufactures and sells its products
throughout the world, it is exposed to movements in foreign
currency exchange rates. The major foreign currency
exposures include the markets in Western Europe, Latin
America, Canada, and Asia. The primary purpose of the
Company’s foreign currency hedging activities is to protect
against the volatility associated with foreign currency sales,
purchases of materials, and other assets and liabilities
created during the normal course of business. The Company
generally utilizes foreign exchange contracts with durations
of less than 18 months that may or may not be designated as
cash flow hedges under ASC 815, Derivatives and Hedging.
The net fair value of these instruments, based on dealer
quotes, was an asset of $0.1 million and a liability of $0.6
million as of December 31, 2018 and 2017, respectively.
At December 31, 2018, the potential gain or loss in the
fair value of the Company’s outstanding foreign exchange
contracts, assuming a hypothetical 10% fluctuation in the
currencies of such contracts, would be approximately $2.1
million. However, any change in the value of the contracts,
real or hypothetical, would be significantly offset by a
corresponding change in the value of the underlying hedged
items. In addition, this hypothetical calculation assumes
that each exchange rate would change in the same direction
relative to the U.S. dollar.
The Company has certain debt denominated in Euros,
Swiss Francs, and British Pounds. These non-derivative
debt instruments act as partial hedges of the Company’s
Euro, Swiss Franc, and British Pound net asset positions.
The potential increase or decrease in the annual U.S. dollar
interest expense of the Company’s outstanding foreign
currency-denominated debt, assuming a hypothetical
10% fluctuation in the currencies of such debt, would
be approximately $0.7 million at December 31, 2018.
However, any change in interest expense from fluctuations
in currency, real or hypothetical, would be significantly
offset by a corresponding change in the value of the foreign
income before interest. In addition, this hypothetical
calculation assumes that each exchange rate would change
in the same direction relative to the U.S. dollar.
The Company manages its debt structure and interest rate
risk through the use of fixed rate and floating rate debt. The
Company’s primary exposure is to interest rates in the U.S.
and Western Europe. At December 31, 2018, the potential
increase or decrease in annual interest expense, assuming a
hypothetical 10% fluctuation in interest rates of floating rate
debt, would be approximately $0.8 million.
The Company is the purchaser of certain commodities,
such as vanilla, corn, sugar, soybean meal, and fruits. The
Company generally purchases these commodities based
upon market prices that are established with the vendor
as part of the purchase process. In general, the Company
does not use commodity financial instruments to hedge
commodity prices due to a high correlation between the
commodity cost and the ultimate selling price of the
Company’s products. On occasion, the Company may enter
into non-cancelable forward purchase contracts, as deemed
appropriate, to reduce the effect of price fluctuations on
future manufacturing requirements.
Item 8. Financial Statements and Supplementary Data.
The financial statements required by this item are set forth
below and the supplementary data required by this item are
set forth in Item 5 above.
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.
None.
Item 9A. 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
27
Officer and its Senior Vice President and Chief Financial
Officer, of the effectiveness, as of December 31, 2018,
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 December 31, 2018.
Management’s Report on Internal Control over
Financial Reporting. The management of the Company
is responsible for establishing and maintaining
adequate internal control over financial reporting,
as defined in Rule 13a-15(f) under the Exchange
Act. It is management’s policy to maintain a control-
conscious environment through an effective system
of internal accounting controls. These controls are
supported by the careful selection of competent and
knowledgeable personnel and by the communication
of standard accounting and reporting policies and
procedures throughout the Company. The Company’s
internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial
statements for external purposes in accordance with
generally accepted accounting principles. Management
has assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2018.
In making its assessment of internal control over financial
reporting, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control — Integrated Framework
(2013 Framework). As allowed by Securities and Exchange
Commission guidance, management excluded from its
assessment GlobeNatural and Mazza Innovation Limited,
which were acquired in 2018 and constituted 2.3%
and 3.4% of total assets and net assets, respectively, as
of December 31, 2018, and 0.3% of revenues for the
year then ended. Based on that assessment, management
has concluded that the Company’s internal control over
financial reporting was effective as of December 31, 2018.
The Company’s internal control over financial reporting
as of December 31, 2018, has been audited by Ernst &
Young LLP, an independent registered public accounting
firm. Their opinion on the Company’s internal control
over financial reporting is included in this report.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting.
There have been no changes in the Company’s internal
control over financial reporting during the quarter ended
28
December 31, 2018, that have materially affected, or are
reasonable likely to materially affect, the Company’s
internal control over financial reporting.
Item 9B. Other Information.
None.
PART I II
Item 10. Directors, Executive Officers of the Registrant,
and Corporate Governance.
Information required by this item regarding directors
and officers, corporate governance, and other matters
appearing under “Election of Directors” and “Section 16(a)
Beneficial Ownership Reporting Compliance” in the Proxy
Statement for the Annual Meeting of Shareholders of the
Company to be filed with the Commission within 120 days
after December 31, 2018 (“2019 Proxy Statement”), is
incorporated by reference. Additional information required
by this item regarding executive officers appears at the end of
Part I above, and information required by this item regarding
codes of conduct appear at the beginning of Part I above.
Item 11. Executive Compensation.
Information required by this item relating to compensation
of directors and officers is incorporated by reference from
the “Election of Directors,” “Executive Compensation,”
and “Equity Compensation Plan Information” portions
of the 2019 Proxy Statement. Information required by
this item relating to the Compensation and Development
Committee of the Company’s Board of Directors is
incorporated by reference from the headings “Compensation
and Development Committee Report” and “Election of
Directors” in the 2019 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder
Matters.
The information required by this item regarding security
ownership of certain beneficial owners and management
and related stockholder matters appearing under “Principal
Shareholders” in the 2019 Proxy Statement is incorporated
by reference. The information required by this item
appearing under “Equity Compensation Plan Information”
in the 2019 Proxy Statement is incorporated by reference.
Item 13. Certain Relationships and Related
Transactions and Director Independence.
The information required by this item regarding certain
relationships and related party transactions and director
independence appearing at the end of “Election of Directors”
and under “Transactions With Related Persons” in the 2019
Proxy Statement is incorporated by reference.
Item 14. Principal Accountant Fees and Services.
The disclosure regarding principal accountant fees and services appearing under “Audit Committee Report” in
the 2019 Proxy Statement is incorporated by reference.
PA RT I V
Item 15. Exhibits and Financial Statement Schedules.
Documents filed:
1 and 2:
Financial Statements and Financial Statement Schedule. See below for “List of Financial Statements
and Financial Statement Schedule.”
3:
See Exhibit Index following this report.
List of Financial Statements and Financial Statement Schedule
1. Financial Statements
The following consolidated financial statements of Sensient Technologies Corporation and subsidiaries are included in this
annual report on Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets – December 31, 2018 and 2017
Consolidated Statements of Earnings – Years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income – Years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Shareholders’ Equity – Years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows – Years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts
57
32
30
31
34
33
35-56
59
All other schedules are omitted because they are inapplicable, not required by the instructions, or the information is included
in the consolidated financial statements or notes thereto.
Item 16. Form 10-K Summary.
None.
29
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands except per share amounts)
Revenue
Cost of products sold
Selling and administrative expenses
Operating income
Interest expense
Earnings before income taxes
Income taxes
Earnings from continuing operations
Gain from discontinued operations, net of tax
Years Ended December 31,
2018
2017
2016
$1,386,815
$1,362,265
$1,383,210
920,686
262,751
203,378
21,853
181,525
24,165
157,360
–
886,775
307,684
167,806
19,383
148,423
58,823
89,600
–
907,783
289,818
185,609
18,324
167,285
44,372
122,913
3,343
Net earnings
$ 157,360
$ 89,600
$ 126,256
Earnings per common share:
Basic:
Continuing operations
Discontinued operations
Earnings per common share
Diluted:
Continuing operations
Discontinued operations
Earnings per common share
Weighted average number of common shares outstanding
Basic
Diluted
See notes to consolidated financial statements.
$ 3.71
$ 2.05
$ 2.76
–
–
0.08
$ 3.71
$ 2.05
$ 2.84
$ 3.70
$ 2.03
$ 2.74
–
–
0.07
$ 3.70
$ 2.03
$ 2.82
42,404
42,499
43,780
44,031
44,523
44,843
30
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net earnings
Cash flow hedges adjustment, net of tax of $32, $10 and $89, respectively
Pension adjustment, net of tax of $347, $778 and $785, respectively
Foreign currency translation on net investment hedges
Tax effect of current year activity on net investment hedges
Foreign currency translation on long-term intercompany loans
Tax effect of current year activity on intercompany long-term loans
Reclassification of cumulative translation to net earnings
Other foreign currency translation
Total comprehensive income
See notes to consolidated financial statements.
Years Ended December 31,
2018
2017
2016
$157,360
$ 89,600
$126,256
816
1,027
13,661
(3,393)
3,276
(2,498)
–
(27,721)
(584)
2,228
(28,871)
10,812
7,013
–
6,782
66,751
(249)
1,856
6,989
(2,733)
(494)
–
(3,257)
(45,515)
$142,528
$153,731
$ 82,853
31
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share amounts)
Assets
Current Assets:
Cash and cash equivalents
Trade accounts receivable, less allowance for losses of $5,976 and $6,000, respectively
Inventories
Prepaid expenses and other current assets
Assets held for sale
Total current assets
Other assets
Deferred tax assets
Intangible assets – at cost, less accumulated amortization of $20,325 and $17,432, respectively
Goodwill
Property, Plant and Equipment:
Land
Buildings
Machinery and equipment
Construction in progress
Less accumulated depreciation
Total assets
Liabilities and Shareholders’ Equity
Current Liabilities:
Trade accounts payable
Accrued salaries, wages and withholdings from employees
Other accrued expenses
Income taxes
Short-term borrowings
Total current liabilities
Deferred tax liabilities
Other liabilities
Accrued employee and retiree benefits
Long-term debt
Shareholders’ Equity:
Common stock, par value $0.10 a share, authorized 100,000,000 shares; issued
53,954,874 shares
Additional paid-in capital
Earnings reinvested in the business
Treasury stock, 11,731,223 and 10,759,291 shares, respectively, at cost
Accumulated other comprehensive loss
Total liabilities and shareholders’ equity
See notes to consolidated financial statements.
32
December 31,
2018
2017
$ 31,901
255,350
490,757
44,857
–
822,865
66,788
9,189
18,867
416,175
36,787
318,463
688,003
34,772
1,078,025
(586,969)
491,056
$1,824,940
$ 131,812
23,410
31,198
8,234
20,046
214,700
28,976
8,554
23,210
689,553
$ 29,344
195,439
463,517
43,206
1,969
733,475
68,251
7,885
7,211
408,995
35,198
317,464
687,896
40,833
1,081,391
(582,868)
498,523
$1,724,340
$ 109,780
23,613
51,764
11,036
20,130
216,323
18,724
13,539
19,294
604,159
5,396
5,396
101,663
1,516,243
(597,800)
(165,555)
859,947
107,176
1,414,485
(525,422)
(149,334)
852,301
$1,824,940
$1,724,340
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows from Operating Activities
Net earnings
Adjustments to arrive at net cash provided by operating activities:
Depreciation and amortization
Share-based compensation
Net loss on assets
Loss on divestiture of business
Liquidation of foreign entity
Deferred income taxes
Changes in operating assets and liabilities:
Trade accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable and other accrued expenses
Accrued salaries, wages and withholdings from employees
Income taxes
Other liabilities
Net cash provided by operating activities
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment
Cash receipts on sold receivables
Proceeds from sale of assets
Proceeds from divesture of business
Acquisition of new business
Other investing activities
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities
Proceeds from additional borrowings
Debt payments
Purchase of treasury stock
Dividends paid
Other financing activities
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Cash paid during the year for:
Interest
Income taxes
Capitalized interest
See notes to consolidated financial statements.
Years Ended December 31,
2018
2017
2016
$157,360
$89,600
$126,256
53,244
503
63
–
–
9,844
(96,638)
(34,114)
(12,544)
7,457
599
(7,335)
5,081
83,520
(50,740)
91,142
2,615
–
(31,100)
2,916
14,833
322,529
(284,332)
(76,734)
(57,410)
(2,777)
(98,724)
2,928
2,557
29,344
48,518
5,855
2,552
33,160
–
17,414
(130,835)
(47,345)
14,072
4,804
(4,361)
2,846
27
36,307
(56,344)
141,465
10,485
12,457
–
2,319
110,382
231,174
(239,950)
(87,217)
(54,038)
(3,383)
47,019
7,709
9,755
–
(3,257)
10,428
(4,270)
(20,064)
(4,096)
2,332
3,347
5,959
2,521
183,639
(81,216)
35,414
6,254
–
–
3,184
(36,364)
222,562
(247,092)
(50,100)
(49,635)
(3,706)
(153,414)
(127,971)
10,204
3,479
25,865
(5,436)
13,868
11,997
$ 31,901
$ 29,344
$ 25,865
$ 21,567
$ 19,523
$ 18,474
24,089
604
29,261
486
29,217
1,061
33
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands except share
and per share amounts)
Common
Stock
Additional
Paid-in
Capital
Earnings
Reinvested in
the Business
Treasury Stock
Shares
Amount
Accumulated
Other
Comprehensive
(Loss) Income
Balances at December 31, 2015
$5,396
$109,974
$1,302,302
9,174,843
$(402,483)
$(170,062)
Net earnings
Other comprehensive income (loss)
Cash dividends paid – $1.11 per share
Share-based compensation
Stock options exercised
Non-vested stock issued upon vesting
Benefit plans
Purchase of treasury stock
Other
126,256
(49,635)
(43,403)
7,709
(650)
(7,769)
229
(1,807)
(30,500)
(172,147)
(15,839)
702,698
57,449
1,354
7,769
698
(47,534)
(2,603)
Balances at December 31, 2016
5,396
107,686
1,378,923
9,716,504
(442,799)
(213,465)
Net earnings
Other comprehensive income
Cash dividends paid – $1.23 per share
Share-based compensation
Stock options exercised
Non-vested stock issued upon vesting
Benefit plans
Purchase of treasury stock
Other
89,600
(54,038)
64,131
5,855
(202)
(5,478)
445
(1,130)
(10,667)
(114,393)
(12,999)
1,139,734
41,112
499
5,478
596
(87,217)
(1,979)
Balances at December 31, 2017
5,396
107,176
1,414,485
10,759,291
(525,422)
(149,334)
Net earnings
Other comprehensive income (loss)
Cash dividends paid – $1.35 per share
Share-based compensation
Stock options exercised
Non-vested stock issued upon vesting
Benefit plans
Purchase of treasury stock
Other
157,360
(57,410)
503
(80)
(5,454)
350
(4,000)
(111,185)
(15,126)
1,060,000
(832)
1,808
42,243
(14,832)
(1,389)
200
5,454
769
(76,734)
(2,067)
Balances at December 31, 2018
$5,396
$101,663
$1,516,243
11,731,223
$(597,800)
$ (165,555)
See notes to consolidated financial statements.
34
NO TE S TO CONSOLIDAT ED FI N A N C IAL STATEM ENTS
Years ended December 31, 2018, 2017, and 2016
1. Summary of Significant Accounting Policies
• Identification of the contract, or contracts, with a customer
Nature of Operations
Sensient Technologies Corporation, together with its
subsidiaries (the Company or Sensient), is a leading
global manufacturer and marketer of colors, flavors, and
fragrances. The Company uses advanced technologies at
facilities around the world to develop specialty food and
beverage systems; cosmetic, fragrances, pharmaceutical,
and nutraceutical systems; specialty inks and colors; and
other specialty and fine chemicals. The Company’s three
reportable segments are the Flavors & Fragrances Group
and the Color Group, which are managed on a product line
basis, and the Asia Pacific Group, which is managed on
a geographic basis. The Company’s corporate expenses,
restructuring and other costs, and the results of Mazza
Innovation Limited (see Note 2, Acquisitions, for further
information) are included in the “Corporate & Other”
category.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts
of the Company and have been prepared in accordance
with accounting principles generally accepted in the United
States of America (GAAP). All significant intercompany
accounts and transactions have been eliminated in
consolidation.
The results of operations for one of the Company’s
business units within the Color Group have been reported
as a discontinued operation for the period ended December
31, 2016. See Note 14, Discontinued Operations, for
further information regarding discontinued operations.
Use of Estimates
The preparation of the consolidated financial statements
requires the use of management’s estimates and assumptions
that affect reported amounts of assets, liabilities, revenue,
and expenses during the reporting period and the disclosure
of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue as the transfer of
control of its products to the Company’s customers in
an amount reflecting the consideration to which the
Company expects to be entitled. In order to achieve this
core principle, the Company applies the following five-
step approach:
• Identification of the performance obligations in the contract
• Determination of the transaction price
• Allocation of the transaction price to the performance
obligations in the contract
• Recognition of revenue when, or as, the Company satisfies
the performance obligations
The Company considers customer purchase orders, which
in some cases are governed by master sales agreements, to
be the contracts with the customer. For each contract, the
Company considers the identified performance obligation
to be the promise to transfer products. In determining the
transaction price, the Company evaluates whether the price
is subject to refund or adjustment and then determines the
net consideration to which the Company expects to be
entitled. In addition, the Company assesses the customer’s
ability to pay as part of its evaluation of the contract.
As the Company’s standard payment terms are less than
one year, the Company elected the practical expedient
under Accounting Standards Codification (ASC) 606-10-
32-18, and determined that its contracts do not have a
significant financing component. The Company allocates
the transaction price to each distinct product based on the
relative standalone selling price. Revenue is recognized
when control of the product is transferred to the customer,
the customer is obligated to pay the Company, and the
Company has no remaining obligations, which is typically
at shipment. In certain locations, primarily outside the
United States, product shipping terms may vary. Thus, in
such locations, the point at which control of the product
transfers to the customer and revenue recognition occurs
will vary accordingly.
Customer returns of non-conforming products are
estimated at the time revenue is recognized. In certain
customer relationships, volume rebates exist, which are
recognized according to the terms and conditions of the
contractual relationship. Customer returns, rebates, and
discounts are not material to the Company’s consolidated
financial statements. The Company has elected to recognize
the revenue and cost for freight and shipping when control
over the products has transferred to the customer. The
Company has elected to immediately expense contract
costs related to obtaining a contract as the amortization
period of the asset the Company otherwise would have
recognized would have been less than a year.
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 (See
Note 11, Segment and Geographic Information, for further
information).
35
Cost of Products Sold
Cost of products sold includes materials, labor, and overhead
expenses incurred in the manufacture of our products. Cost
of products sold also includes charges for obsolete and slow
moving inventories, as well as costs for quality control,
purchasing and receiving costs, inspection costs, warehousing
costs, internal transfer costs, other costs of our internal
distribution network, and costs incurred for shipping and
handling. The Company records fees billed to customers for
shipping and handling as revenue.
Selling and Administrative Expenses
Selling and administrative expenses primarily include
the salaries and related costs for executive, finance,
accounting, human resources, information technology,
research and development, and legal personnel as
well as salaries and related costs of salespersons and
commissions paid to external sales agents.
Cash Equivalents
The Company considers all highly liquid investments with
maturities of three months or less at the date of acquisition
as cash equivalents.
Accounts Receivable
Receivables are recorded at their face amount, less an
allowance for doubtful accounts. The allowance for doubtful
accounts is based on customer-specific analysis and general
matters such as current assessments of past due balances
and economic conditions. Specific accounts are written
off against the allowance for doubtful accounts when it is
deemed that the receivable is no longer collectible.
Inventories
Inventories are stated at the lower of cost or net
realizable value. Net realizable value is determined
on the basis of estimated realizable values. Cost is
determined using the first-in, first-out (FIFO) method
with the exception of certain locations of the Flavors
& Fragrances Group where cost is determined using a
weighted average method. Inventories include finished
and in-process products totaling $320.4 million and
$310.4 million at December 31, 2018 and 2017,
respectively, and raw materials and supplies of $170.4
million and $153.1 million at December 31, 2018 and
2017, respectively.
Property, Plant and Equipment
Property, plant, and equipment are recorded at cost reduced
by accumulated depreciation. Depreciation is provided
over the estimated useful life of the related asset using the
straight-line method for financial reporting. The estimated
useful lives for buildings and leasehold improvements
range from 5 to 40 years. Machinery and equipment have
estimated useful lives ranging from 3 to 20 years. Interest
costs on significant projects constructed or developed for
the Company’s own use are capitalized as part of the asset.
36
Goodwill and Other Intangible Assets
The carrying value of goodwill is evaluated for impairment
on an annual basis or more frequently when an indicator of
impairment occurs. The impairment assessment includes
comparing the carrying amount of net assets, including
goodwill, of each reporting unit to its respective fair value
as of the date of the assessment. Fair value was estimated
based upon an evaluation of the reporting unit’s estimated
future discounted cash flows as well as the public trading
and private transaction valuation multiples for comparable
companies. The Company performed such a quantitative
analysis in 2016, which indicated a substantial premium
compared to the carrying value of net assets, including
goodwill. In 2018 and 2017, the Company completed a
qualitative assessment in comparison to the quantitative
assessment performed in 2016, noting no indicators
of impairment. The Company did not record impairment
charges for any of its reporting units in 2018, 2017, or 2016.
The cost of intangible assets with determinable useful lives
is amortized on a straight-line basis to reflect the pattern of
economic benefits consumed, ranging from 5 to 20 years.
These assets include technological know-how, customer
relationships, patents, trademarks, and non-compete
agreements, among others.
Impairment of Long-lived Assets
The Company reviews long-lived assets for impairment
whenever events or changes in business circumstances
indicate that the carrying amount of the assets may not be
fully recoverable. The Company performs undiscounted cash
flow analyses to determine if potential impairment exists. If
impairment is determined to exist, any related impairment
loss is calculated based on the difference between fair value
and carrying value. Impairment losses were recorded as a
result of the Company’s 2014 Restructuring Plan as well as
the Company’s divestiture of a facility and certain related
business lines within the Flavors & Fragrances segment in
Strasbourg, France. See Note 13, Restructuring Charges, and
Note 15, Divestiture, for additional information.
Derivative Financial Instruments
The Company selectively uses derivative financial
instruments to reduce market risk associated with
changes in foreign currency and interest rate exposures
which exist as part of ongoing business operations.
All derivative transactions are authorized and executed
pursuant to the Company’s risk management policies and
procedures, which strictly prohibit the use of financial
instruments for speculative trading purposes.
The primary objectives of the foreign exchange risk
management activities are to understand and mitigate
the impact of potential foreign exchange fluctuations on
the Company’s financial results and its economic well-
being. Changes in the fair value of derivatives that are
designated as fair value hedges, along with the gain or
loss on the hedged item, are recorded in current period
Translation of Foreign Currencies
For all significant foreign operations, the functional
currency is the local currency. Assets and liabilities of
foreign operations are translated into U.S. dollars at
current exchange rates. Revenue and expense accounts
are translated into U.S. dollars at average exchange
rates prevailing during the year. Adjustments resulting
from the translation of foreign accounts into U.S. dollars
are recorded in foreign currency translation in OCI.
Transaction gains and losses that occur as a result of
transactions denominated in non-functional currencies are
included in earnings and were not significant during the
years ended December 31, 2018, 2017, and 2016.
Share-Based Compensation
Share-based compensation expense is recognized over the
vesting period of each award based on the fair value of the
instrument at the time of grant as summarized in Note 6,
Share-Based Compensation.
Income Taxes
The Company recognizes a current tax liability or asset for
the estimated taxes payable or refundable on tax returns
for the current year and a deferred tax liability or asset for
the estimated future tax effects attributable to temporary
differences and carryforwards. The measurement of current
and deferred tax liabilities and assets is based on provisions
of enacted tax law. Deferred tax assets are reduced, if
necessary, by the amount of any tax benefits for which the
utilization of the asset is not considered likely.
Earnings Per Share
The difference between basic and diluted earnings per
share (EPS) is the dilutive effect of stock options and
non-vested stock. Diluted EPS assumes that non-vested
stock has vested and all dilutive stock options, for which
the average market price exceeds the exercise price
(in-the-money), are exercised. Stock options for which
the exercise price exceeds the average market price (out-
of-the-money) have an anti-dilutive effect on EPS, and
accordingly, are excluded from the calculation.
earnings. Generally, these risk management transactions
involve the use of foreign currency derivatives to protect
against exposure resulting from recorded accounts
receivable and payable. The Company may utilize
forward exchange contracts, generally with maturities of
less than 18 months, which qualify as cash flow hedges.
Generally, these foreign exchange contracts are intended
to offset the effect of exchange rate fluctuations on non-
functional currency denominated sales and purchases. For
derivative instruments that are designated as cash flow
hedges, gains and losses are deferred in accumulated
other comprehensive income (OCI) until the underlying
transaction is recognized in earnings.
Hedge effectiveness is determined by how closely the
changes in the fair value of the hedging instrument offset
the changes in the fair value or cash flows of the hedged
item. Hedge accounting is permitted only if the hedging
relationship is expected to be highly effective at the
inception of the transaction and on an ongoing basis.
Interest Rate Hedging
The Company is exposed to interest rate risk through
its corporate borrowing activities. The objective of the
Company’s interest rate risk management activities
is to manage the levels of the Company’s fixed and
floating interest rate exposure to be consistent with
the Company’s preferred mix. The interest rate risk
management program may include entering into interest
rate swaps, which qualify as fair value hedges, when
there is a desire to modify the Company’s exposure to
interest rates. Gains or losses on fair value hedges are
recognized in earnings, net of gains and losses on the fair
value of the hedged instruments.
Net Investments Hedging
The Company may enter into foreign-denominated debt
to be used as a non-derivative instrument to hedge the
Company’s net investment in foreign subsidiaries. The
change in the carrying amount of the foreign-denominated
debt on the Company’s books, attributable to changes
in the spot foreign exchange rate, is a hedge of the net
investment in its foreign subsidiaries. Changes in the fair
value of debt designated as a net investment hedge are
recorded in foreign currency translation in OCI.
Commodity Purchases
The Company purchases certain commodities in the normal
course of business that result in physical delivery of the
goods and, hence, are excluded from ASC 815, Derivatives
and Hedging.
37
The following table sets forth the computation of basic and diluted EPS from continuing operations for the years ended
December 31:
(in thousands except per share amounts)
Numerator:
Years Ended December 31,
2018
2017
2016
Net earnings from continuing operations
$157,360
$89,600
$122,913
Denominator:
Denominator for basic EPS - weighted average
common shares
Effect of dilutive securities
Denominator for diluted EPS - diluted weighted average
shares outstanding
EPS from continuing operations
Basic
Diluted
The Company has a share-based compensation plan under
which employees may be granted share-based awards in
which non-forfeitable dividends are paid on non-vested
shares for certain awards. As such, these shares are
considered participating securities under the two-class
method of calculating EPS as described in ASC 260,
Earnings per Share. The two-class method of calculating
EPS did not have a material impact on the Company’s EPS
calculations as of December 31, 2018, 2017, and 2016.
In 2018, 2017, and 2016, there were no anti-dilutive stock
options. All EPS amounts are presented on a diluted basis
unless otherwise noted.
Accumulated Other Comprehensive Income (Loss)
Accumulated OCI is composed primarily of foreign
currency translation, pension liability, and unrealized
gains or losses on cash flow hedges. See Note 9,
Accumulated Other Comprehensive Income, for
additional information.
Research and Development
Research and development costs are recorded in selling
and administrative expenses in the year they are incurred.
Research and development costs related to continuing
operations were $43.0 million during the year ended
December 31, 2018, and $40.9 million in both years ended
December 31, 2017 and 2016.
38
42,404
43,780
44,523
95
42,499
251
44,031
320
44,843
$ 3.71
$ 3.70
$ 2.05
$ 2.03
$ 2.76
$ 2.74
Advertising
Advertising costs are recorded in selling and administrative
expenses as they are incurred. Advertising costs related to
continuing operations were $2.5 million, $2.2 million, and
$2.3 million during the years ended December 31, 2018,
2017, and 2016, respectively.
Environmental Liabilities
The Company records liabilities related to environmental
remediation obligations when estimated future expenditures
are probable and reasonably estimable. Such accruals
are adjusted as further information becomes available or
as circumstances change. Estimated future expenditures
are discounted to their present value when the timing
and amount of future cash flows are fixed and readily
determinable. Recoveries of remediation costs from other
parties, if any, are recognized as assets when their receipt
is realizable.
Subsequent Events
The Company performed an evaluation of subsequent events
through the date these financial statements were issued and
no such events were identified.
Recently Adopted Accounting Pronouncements
In February 2018, the Financial Accounting Standards
Board (FASB) issued ASU 2018-02, Reclassifications of
Certain Tax Effects from Accumulated Other Comprehensive
Income. This ASU allows entities the option to reclassify to
retained earnings tax effects related to the change in federal
tax rate for all items accounted for in Accumulated Other
Comprehensive Income (AOCI). The Company adopted this
standard in the fourth quarter of 2018, and as a result, has
elected to reclassify $1.4 million from AOCI to Earnings
Reinvested in the Business on the Consolidated Statements
of Shareholders’ Equity as of January 1, 2018.
In March 2017, the FASB issued ASU 2017-07, Improving
the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost. This ASU requires
employers to present the service cost component of the
net periodic benefit cost in the same income statement line
item as the other employee compensation costs arising from
services rendered during the period. The other components
of net periodic benefit cost are to be presented outside of
any subtotal of operating income. This ASU is effective for
fiscal years and interim periods beginning after December
15, 2017. The Company adopted this standard in the first
quarter of 2018, and as a result, the Company’s non-service
cost portion of its pension expense is now recorded in
Interest Expense on the Company’s Consolidated Statement
of Earnings. The Company’s service cost portion of
pension expense is recorded in Selling and Administrative
Expenses on the Company’s Consolidated Statements of
Earnings. This change did not have a material impact on the
Company’s consolidated financial statements.
In December 2016, the FASB issued ASU 2016-16,
Accounting for Income Taxes: Intra-Entity Asset Transfers
of Assets Other than Inventory. Prior to the adoption of ASU
2016-16, the tax effects of intra-entity asset transfers were
deferred until the transferred asset was sold to a third party
or otherwise recovered through use. ASU 2016-16 eliminates
the exception for all intra-entity sales of assets other than
inventory. The guidance is effective for fiscal years beginning
after December 15, 2017, including interim periods within
those years. The Company adopted this standard in the first
quarter of 2018 resulting in a cumulative effect of $0.4
million increase to Earnings reinvested in the business; an
increase of $3.0 million to Deferred Tax Assets; a decrease of
$3.7 million to Prepaid Expenses and Other Current Assets;
and a decrease of $1.1 million to Deferred Tax Liabilities on
the Company’s Consolidated Balance Sheet.
In August 2016, the FASB issued ASU 2016-15, Statement
of Cash Flows: Classification of Certain Cash Receipts
and Cash Payments. This ASU clarifies how certain cash
receipts and cash payments are presented and classified
in the statement of cash flows. Among these changes is a
requirement that a transferor’s receipt of a beneficial interest
in securitized trade receivables be disclosed as an investing
transaction. There is also a requirement to classify cash
receipts received that are related to beneficial interests in
previously transferred receivables (i.e., deferred purchase
price) as inflows from investing activities. The guidance is
effective for fiscal years beginning after December 15, 2017,
including interim periods within those years. The Company
adopted this standard in the first quarter of 2018 and has
included $91.1 million, $141.5 million, and $35.4 million
as cash flows from investing activities for the years ended
December 31, 2018, 2017, and 2016, respectively, related to
collections on beneficial interests in previously transferred
receivables.
In May 2014, the FASB issued ASU 2014-09, Revenue from
Contracts with Customers. Under this new standard, revenue
is recognized when a customer obtains control of promised
goods or services in an amount that reflects the consideration
the entity expects to receive in exchange for those goods or
services. The requirements of the new standard are effective
for interim and annual periods beginning after December
15, 2017. The Company adopted this standard in the first
quarter of 2018 using the modified retrospective method.
The adoption of this new standard did not have an impact
on the revenue recognized by the Company. The Company
has updated its revenue recognition accounting policy,
as outlined above, and has included a disclosure on its
disaggregated revenue in Note 11, Segment and Geographic
Information.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-
02, Leases, which requires lessees to recognize the
lease assets and liabilities that arise from leases on the
balance sheet and to disclose qualitative and quantitative
information about lease transactions. This guidance is
effective for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years.
In 2017, the Company created a project team within its
Corporate Finance Department to review the impact that
this ASU will have on the Company. During 2018, the
project team has gathered and reviewed existing leases
and other relevant documents across all of the Company’s
segments and installed a software solution to facilitate
the implementation of this new standard. The Company
believes it has a complete population of leasing agreements
and has analyzed the agreements. The Company has also
implemented additional internal controls over the evaluation
of new leases and the implementation of this ASU around
leases. The Company has updated its Audit Committee
on the status of the implementation of this ASU. The
Company’s current estimate of the impact of this ASU on
the Company’s Consolidated Financial Statements is the
recognition of lease assets and liabilities in the range of $19
million to $22 million based on current interest rates and
population of leases. The Company will continue to evaluate
this range and the impact on the Company’s Consolidated
Financial Statements. The Company expects to finalize its
implementation calculations in the first quarter of 2019.
39
In August 2017, the FASB issued ASU 2017-12, Targeted
Improvements to Accounting for Hedging Activities, which
expands an entity’s ability to hedge non-financial and
financial risk components and reduce complexity in fair
value hedges of interest rate risk. This guidance eliminates
the requirement to separately measure and report hedge
ineffectiveness and generally requires the entire change in
the fair value of a hedging instrument to be presented in
the same income statement line item as the hedged item.
This ASU is effective for fiscal years and interim periods
beginning after December 15, 2018. The Company is
currently evaluating the expected impact of this standard.
In June 2016, the FASB issued ASU 2016-13, Financial
Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses of Financial Instruments, which replaces the
current incurred loss impairment model with a methodology
that reflects expected credit losses. Under the new
methodology, entities will be 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. Adoption of
this guidance is required for interim and annual periods
beginning after December 15, 2019, with early adoption
permitted for interim and annual periods beginning after
December 15, 2018. The Company is currently evaluating
the expected impact of this standard.
In January 2017, the FASB issued ASU 2017-04,
Intangibles-Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment, which eliminates step two
of the goodwill impairment test and specifies that goodwill
impairment should be measured by comparing the fair value
of a reporting unit with its carrying amount. This standard
will be applied prospectively and is effective for annual
or interim goodwill impairment tests performed in fiscal
years beginning after December 15, 2019. Early adoption is
permitted. The Company is currently evaluating the expected
impact of this standard.
In August 2018, the FASB issued Accounting Standards
Update 2018-13, Fair Value Measurement (Topic 820):
Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement, which changes
the requirements on fair value measurements by removing,
modifying, or adding certain disclosures. Adoption of
this guidance is required for interim and annual periods
beginning after December 15, 2019 with early adoption
permitted. The Company is currently evaluating the expected
impact of this standard.
2. Acquisitions
On July 10, 2018, the Company completed the acquisition
of Mazza Innovation Limited, a botanical extraction business
with patented solvent-free extraction processes, located in
Vancouver, Canada. The Company paid $19.8 million of
cash for this acquisition. The assets acquired and liabilities
assumed were recorded at their estimated fair values as of
the acquisition date. The Company acquired net assets of
$4.0 million and identified intangible assets, principally
technological know-how, of $6.9 million. The remaining
$8.9 million was allocated to goodwill. This acquisition
provides the Company with an umbrella technology, which
will support applications for both the Flavors & Fragrances
and Color segments. The Company is still in the process of
integrating this business, and, therefore, the Company has
included its results in Corporate & Other.
On March 9, 2018, the Company completed the acquisition
of certain net assets and the natural color business of
GlobeNatural, a natural color company based in Lima,
Peru. The Company paid $10.8 million of cash for this
acquisition. The Company acquired net assets of $1.4
million and identified intangible assets, principally customer
relationships, of $2.0 million, and allocated the remaining
$7.4 million to goodwill. These operations are included in
the Color segment.
40
3. Goodwill and Intangible Assets
At December 31, 2018 and 2017, goodwill is the only intangible asset that is not subject to amortization. The following table
summarizes intangible assets with determinable useful lives by major category as of December 31, 2018 and 2017:
(In thousands except weighted
average amortization years)
Technological know-how
Customer relationships
Patents, trademarks,
non-compete agreements,
and other
Total finite-lived intangibles
Weighted
Average
Amortization
Years
18.9
17.4
15.4
17.2
2018
2017
Cost
$ 14,570
8,761
Accumulated
Amortization
$ (6,768)
(5,673)
Cost
$ 7,510
6,869
Accumulated
Amortization
$ (6,505)
(5,244)
15,861
$39,192
(7,884)
$(20,325)
10,264
$24,643
(5,683)
$(17,432)
Amortization of intangible assets was $2.3 million in 2018; $1.6 million in 2017; and $1.3 million in 2016. Estimated
amortization expense, for the five years subsequent to December 31, 2018, is $2.3 million in 2019 and 2020; $2.1 million in
2021; $2.0 million in 2022; and $1.7 million in 2023.
The changes in goodwill for the years ended December 31, 2018 and 2017, by reportable business segment, were as follows:
(in thousands)
Balance as of December 31, 2016
Currency translation impact
Balance as of December 31, 2017
Currency translation impact
Acquisitions
Balance as of December 31, 2018
Flavors &
Fragrances
$109,369
5,624
114,993
(891)
–
$114,102
Color
Asia Pacific
$272,006
18,883
290,889
(8,269)
7,434
$290,054
$2,193
920
3,113
52
–
$3,165
Corporate
& Other
$ –
–
–
–
8,854
$8,854
Consolidated
$383,568
25,427
408,995
(9,108)
16,288
$416,175
41
4. Debt
Long-term Debt
Long-term debt consisted of the following unsecured obligations at December 31:
(in thousands)
3.66% senior notes due November 2023
3.65% senior notes due May 2024
4.19% senior notes due November 2025
1.27% Euro-denominated senior notes due May 2024
1.71% Euro-denominated senior notes due May 2027
3.06% Euro-denominated senior notes due November 2023
1.85% Euro-denominated senior notes due November 2022
4.47% senior notes due November 2018
2.53% British Pound-denominated notes due November 2023
2.76% British Pound-denominated notes due November 2025
Term loan
Long-term revolving credit facility
Various other notes
Less debt fees
Total long-term debt
2018
$ 75,000
27,000
25,000
57,333
45,866
43,856
76,662
–
31,884
31,884
132,313
142,061
923
689,782
(229)
$689,553
2017
$ 75,000
27,000
–
60,024
48,019
45,914
80,260
25,000
–
–
141,375
100,712
1,068
604,372
(213)
$604,159
In June 2018, the Company amended its accounts receivable
securitization program with Wells Fargo & Company (Wells
Fargo). The program was further amended on October
1, 2018, to increase the amount from $60 million to $70
million. In connection with the amendments, the Company
entered into conforming amendments to its revolving credit
facility and outstanding note purchase agreements. Under
the amended program, Wells Fargo has extended a secured
loan (Secured Loan) of up to $70 million to the Company
secured by Wells Fargo’s undivided interests in certain of
the Company’s trade accounts receivables. The interest rate
on the Secured Loan is LIBOR plus 0.75%. The Company
has the intent and ability either to repay the Secured Loan
with available funds from the Company’s existing long-term
revolving credit facility, or to extend its accounts receivable
program with Wells Fargo when it matures. Accordingly, the
Secured Loan has been classified as long-term debt on the
Company’s Consolidated Balance Sheet. As of December
31, 2018, the amount was fully drawn.
In July 2018, the Company borrowed 50 million British
Pounds and 45 million Euros under its revolving credit
facility to act as a partial hedge of the Company’s net
asset positions in British Pounds and Euros. See Note
5, Derivatives and Hedging Activity, for additional
information. The proceeds of these borrowings were used
to repay the U.S. dollar denominated borrowings under the
Company’s revolving credit facility.
In November 2018, the Company replaced the 50 million
British Pounds revolver borrowing with 50 million British
Pounds of private placement notes. The two notes were
issued for 25 million British Pounds each, maturing in
November 2023 and November 2025, and bearing interest
rates of 2.53% and 2.76%, respectively. At the same time,
the Company issued $25 million of private placement notes,
maturing in November 2025, and bearing an interest rate of
4.19%, the proceeds of which were used to repay maturing
private placement debt.
The borrowings under the Term Loan had an average
interest rate of 3.48% and 2.58% for the years ended
December 31, 2018 and 2017, respectively.
The borrowings under the long-term revolving credit facility
had an average interest rate of 2.08% and 1.77% for the
years ended December 31, 2018 and 2017, respectively.
The aggregate amounts of contractual maturities on long-
term debt for the five years subsequent to December 31,
2018, are as follows: 2019, $11.0 million; 2020, $12.8
million; 2021, $14.6 million; 2022, $313.1 million; and
2023, $150.9 million.
42
The Company has approximately $11.0 million of long-
term debt that matures in 2019. The Company is able and
intends to refinance these maturities under the long-term
revolving credit facility. Accordingly, that maturing debt
has been classified as long-term debt in the Consolidated
Balance Sheet.
The Company had $264.5 million available under the
revolving credit facility and $121.8 million available
under other lines of credit from several banks at
December 31, 2018.
Substantially all of the senior loan agreements contain
restrictions concerning interest coverage, borrowings, and
investments. The Company is in compliance with all of
these restrictions at December 31, 2018. The following table
summarizes the Company’s most restrictive loan covenants
calculated in accordance with the applicable agreements as
of December 31, 2018:
Actual
Required
Debt to EBITDA(1) (Maximum)
Interest Coverage (Minimum)
2.79
6.15
<3.50
>2.00
(1) Debt to EBITDA is defined in the Company’s debt covenants
as total funded debt divided by the Company’s consolidated
operating income excluding non-operating gains and losses and
depreciation and amortization.
The Company had stand-by and trade letters of credit
outstanding of $6.4 million and $5.9 million as of
December 31, 2018 and 2017, respectively.
Short-term Borrowings
The Company’s short-term borrowings consisted of the
following items at December 31:
(in thousands)
Uncommitted loans
Loans of foreign subsidiaries
Total
2018
$19,768
278
$20,046
2017
$19,192
938
$20,130
The weighted average interest rates on short-term
borrowings were 3.24% and 2.46% at December 31,
2018 and 2017, respectively.
5. Derivative Instruments and Hedging Activity
The Company may use derivative instruments for the
purpose of hedging currency, commodity, and interest
rate exposures, which exist as part of ongoing business
operations. As a policy, the Company does not engage
in speculative or leveraged transactions, nor does the
Company hold or issue financial instruments for trading
purposes. Hedge effectiveness is determined by how
closely the changes in the fair value of the hedging
instrument offset the changes in the fair value or cash
flows of the hedged transaction. Hedge accounting, which
generally results in the deferral of derivative gains and
losses until such time as the underlying transaction is
recognized in net earnings, is permitted only if the hedging
relationship is expected to be highly effective at the
inception of the transaction and on an ongoing basis.
The Company manages its exposure to foreign exchange
risk by the use of forward exchange contracts to reduce
the effect of fluctuating foreign currencies on non-
functional currency sales, purchases, and other known
foreign currency exposures. These forward exchange
contracts generally have maturities of less than 18 months.
The Company also uses certain debt denominated in
foreign currencies to manage the net asset positions of the
Company’s foreign subsidiaries. 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 $76.0 million and
$44.9 million of forward exchange contracts, designated
as cash flow hedges, outstanding as of December 31,
2018 and 2017, respectively. As of December 31,
2018, the amount deferred in OCI was $0.8 million.
For the years ended December 31, 2018 and 2017, the
amounts reclassified into net earnings in the Company’s
Consolidated Statement of Earnings that offset the earnings
impact of the related non-functional asset or liability
hedged in the same period were not material. In addition,
the Company utilizes forward exchange contracts that are
not designated as cash flow hedges and the results of these
transactions are 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 December 31,
2018 and 2017, the total value of the Company’s Euro,
Swiss Franc and British Pound debt designated as net
investment hedges was $366.5 million and $261.9 million,
respectively. The impact of foreign exchange rates on
these debt instruments has decreased debt by $13.7 million
and increased debt by $28.9 million for the years ended
December 31, 2018 and 2017, respectively. These amounts
have been recorded as foreign currency translation in OCI.
Concentrations of Credit Risk
Counterparties to forward exchange contracts consist
of large international financial institutions. While these
counterparties may expose the Company to potential losses
due to the credit risk of non-performance, losses are not
anticipated. Concentrations of credit risk with respect to
43
trade accounts receivable are limited by the large number
of customers, generally short payment terms and their
dispersion across geographic areas.
6. Share-Based Compensation
The Company has various stock plans under which
employees and directors may be granted non-vested stock
which vests over a specific time period. The 2007 Stock
Plan, which expired April 26, 2017, allowed for the granting
of non-vested stock in the form of restricted stock, restricted
stock units, non-qualified stock options or incentive stock
options, and stock appreciation rights. In April 2017,
the Company’s 2017 Stock Plan was approved, which
authorized 1.8 million shares to be granted as non-vested
stock in the form of restricted stock, restricted stock units,
non-qualified stock options or incentive stock options, and
stock appreciation rights. As of December 31, 2018, there
were 1.6 million shares available to be granted as non-vested
stock under the Company’s existing stock plans.
Expense for shares of non-vested stock is recognized over
the vesting period with a pro-rata vesting upon retirement.
The vesting period is three years beginning with awards
granted in December 2013. During the period of restriction,
the holder of non-vested stock has voting rights and is
entitled to receive all dividends and other distributions paid
with respect to the stock.
The grants issued after December 2013, to elected officers,
consist of 100% performance stock unit awards which are
based on a three-year performance and vesting period and
a pro-rata vesting upon retirement. Three-year performance
that exceeds the stated performance metrics would result
in an award up to 150% of the original grant. The holders
of the performance stock units are not entitled to vote or
receive dividends and other distributions paid with respect
to the stock, until the units have vested and the shares of
stock are issued.
The Company expenses awards for non-vested stock,
including time-vesting stock and performance stock units,
based on the fair value of the Company’s common stock
at the date of the grant.
The following table summarizes the non-vested stock and performance stock unit activity:
Shares
542
119
(172)
(54)
435
115
(114)
(24)
412
142
(111)
(63)
380
Grant Date Weighted
Average Fair Value
Aggregate Intrinsic
Value
$48.94
69.92
43.42
52.41
56.44
74.26
39.75
63.62
65.64
59.45
56.91
64.71
$66.02
$34,063
34,184
30,113
$21,239
(In thousands except fair value)
Outstanding at December 31, 2015
Granted
Vested
Cancelled
Outstanding at December 31, 2016
Granted
Vested
Cancelled
Outstanding at December 31, 2017
Granted
Vested
Cancelled
Outstanding at December 31, 2018
44
The total intrinsic values of shares vested during 2018, 2017,
and 2016, was $7.7 million, $8.8 million, and $12.8 million,
respectively.
As of December 31, 2018, total remaining unearned
compensation, net of expected forfeitures, related to
non-vested stock and performance stock units was $12.5
million, which will be amortized over the weighted
average remaining service period of 1.48 years.
Total pre-tax share-based compensation recognized in the
Consolidated Statements of Earnings was $0.5 million,
$5.9 million, and $7.7 million in 2018, 2017, and 2016,
respectively. Fluctuations in share-based compensation
was primarily due to performance based executive stock
compensation. Tax related (costs) benefits of ($0.3) million,
$0.5 million, and $2.8 million were also recognized in
2018, 2017, and 2016, respectively. Cash received from the
exercise of stock options was $0.1 million, $0.3 million,
and $0.7 million for 2018, 2017, and 2016, respectively, and
is reflected in cash flows from financing activities in the
Consolidated Statements of Cash Flows.
7. Retirement Plans
The Company provides benefits under defined
contribution plans including a savings plan and an
employee stock ownership plan (ESOP). The savings
plan covers substantially all domestic salaried and certain
non-union hourly employees and provides for matching
contributions up to 4% of each employee’s salary. The
ESOP covers substantially all domestic employees and
provides for contributions based on a percentage of
each employee’s compensation as determined by the
Company’s Board of Directors. Total expense for the
Company’s defined contribution plans was $6.0 million
in 2018 and 2017, and $6.7 million in 2016.
Although the Company intends for these defined
contribution plans to be the primary retirement benefit for
most employees, the Company also has several defined
benefit plans. The funded status of the defined benefit
plans was as follows at December 31:
(in thousands)
Benefit obligation at beginning of year
Service cost
Interest cost
Foreign currency exchange rate changes
Benefits paid
Amendments
Actuarial (gain) loss
Benefit obligation at end of year
Plan assets at beginning of year
Company contributions
Foreign currency exchange rate changes
Benefits paid
Actual (loss) gain on plan assets
Plan assets at end of year
Funded status
Accumulated benefit obligation
Amounts recognized in the Consolidated Balance Sheets at December 31:
(in thousands)
Accrued employee and retiree benefits
Other accrued expenses
Other assets
Net liability
2018
$37,757
1,465
1,137
(761)
(2,480)
145
(3,111)
34,152
31,768
886
(1,315)
(2,480)
(560)
28,299
$ (5,853)
$33,562
2018
$(15,245)
(779)
10,171
$ (5,853)
2017
$41,691
1,939
1,222
1,607
(9,633)
–
931
37,757
36,141
1,195
2,318
(9,633)
1,747
31,768
$(5,989)
$36,951
2017
$(13,304)
(2,731)
10,046
$ (5,989)
45
Components of annual benefit cost:
(In thousands)
Service cost
Interest cost
Expected return on plan assets
Recognized actuarial (gain) loss
Settlement (income) expense
Defined benefit expense
Weighted average liability assumptions as of December 31:
Discount rate
Expected return on plan assets
Rate of compensation increase
2018
3.80%
3.21%
0.31%
2017
3.16%
3.03%
0.33%
Weighted average cost assumptions for the year ended
December 31:
Discount rate
Expected return on plan assets
Rate of compensation increase
2018
3.16%
3.03%
0.33%
2017
3.48%
2.85%
0.43%
In 2017, one of the Company’s defined benefit plans
was terminated. The plan was associated with two
facilities which were closed under the Company’s 2014
Restructuring Plan. As a result, the pension benefit
obligation was settled by making lump-sum cash
payments to certain participants and also purchasing
nonparticipating annuity contracts to cover the remaining
vested benefits. As a result of the plan’s termination,
2018
$ 1,465
1,137
(896)
(141)
(179)
$ 1,386
2017
$ 1,939
1,222
(892)
(187)
3,796
$ 5,878
2016
$ 2,091
1,669
(1,141)
193
543
$ 3,355
the Company recognized $3.8 million of settlement
expense in 2017, which has been recorded in the
Company’s restructuring and other costs.
The aggregate amounts of benefits expected to be paid
from defined benefit plans in each of the next five
years subsequent to December 31, 2018, which include
employees’ expected future service, are as follows: 2019,
$1.5 million; 2020, $ 1.5 million; 2021, $1.6 million;
2022, $3.9 million; 2023, $1.6 million; and $13.6 million
in total for the years 2024 through 2028.
The Company expects to contribute $1.1 million to
defined benefit plans in 2019.
Amounts in accumulated other comprehensive income at
December 31 were as follows:
(In thousands)
Unrecognized net actuarial
(gain) loss
Prior service cost
Total before tax effects
2018
$(901)
145
$(756)
2017
$1,112
–
$1,112
The pension adjustments, net of tax, recognized in OCI, were as follows:
(In thousands)
Net actuarial gain arising during the period
Prior service cost
Amortization of actuarial (gain) loss, included in
defined benefit expense
Pension adjustment, net of tax
2018
$1,257
(127)
(103)
$1,027
2017
$ 921
–
1,307
$2,228
2016
$1,312
–
544
$1,856
The estimated actuarial gain for the defined benefit
plans that will be amortized from accumulated other
comprehensive loss into periodic benefit cost during
2019 is $0.1 million.
The investment objectives and target allocations for the
Company’s pension plans related to the assets of the
plans are reviewed on a regular basis. The investment
objectives for the pension assets are to maximize the
return on assets while maintaining an overall level of
risk appropriate for a retirement fund and ensuring
the availability of funds for the payment of retirement
benefits. The levels of risk assumed by the pension plans
are determined by market conditions, the rate of return
expectations, and the liquidity requirements of each
pension plan. The actual asset allocations of each pension
plan are reviewed on a regular basis to ensure that they
are in line with the target allocations.
46
The following table presents the Company’s pension plan assets by asset category as of December 31, 2018 and 2017:
(in thousands)
Equity Funds
Domestic
International
International Fixed
Income Funds
Other investments
Total assets at fair value
Fair Value
as of
December 31,
2018
Fair Value Measurements at
December 31, 2018
Using Fair Value Hierarchy
Level 1
Level 2
Level 3
Fair Value
as of
December 31,
2017
Fair Value Measurements at
December 31, 2017
Using Fair Value Hierarchy
Level 1
Level 2
Level 3
$ 5,385
83
$5,385
–
$ –
83
22,703
128
$28,299
1,111
47
$6,543
21,592
81
$21,756
$ –
–
–
–
$ –
$ 6,226
101
$6,226
–
$ –
101
25,340
101
$31,768
934
44
$7,204
24,406
57
$24,564
$ –
–
–
–
$ –
The Company is required to categorize pension plan assets based on the following fair value hierarchy:
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration
with observable market data.
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
8. Accounts Receivable Securitization
In October 2016, the Company entered into an accounts
receivable securitization program with Wells Fargo,
whereby transactions under the program were accounted
for as sales of trade receivables in accordance with ASC
Topic 860, Transfers and Servicing, between October
2016 and June 2018. Sales of trade receivables under
the program were recorded as a reduction of accounts
receivable in the Consolidated Balance Sheet. The fair
value of the receivables sold equaled the carrying cost at
the time of sale and no gain or loss had been recorded as a
result of the sales. The sales also resulted in the recording
of a deferred purchase price amount, which represents
the retained interest in the sold receivables. This amount
was adjusted daily based on collections and other activity.
The Company estimated the fair value of the deferred
purchase price receivable based on historical performance
of similar receivables, including an allowance for doubtful
accounts, as well as estimated cash discounts to be taken
by customers and potential credits issued to customers.
The Company deemed the interest rate risk related to
the deferred purchase price receivable to be de minimis
primarily due to the short average collection cycle of the
related receivables. As of December 31, 2017, the net trade
receivables sold to Wells Fargo totaled $96.4 million, and
the fair value of the deferred purchase price was $36.4
million, which was recorded in Trade Accounts Receivable
in the Company’s Consolidated Balance Sheets.
In June 2018, the Company amended its securitization
program with Wells Fargo (the “Amendment”). Following
the Amendment, the Company no longer accounts for the
sales of the trade receivables in accordance with ASC
Topic 860 and instead now maintains the trade receivables
and related debt on its Consolidated Balance Sheet. In
connection with the Amendment, Wells Fargo’s existing
ownership interest in the trade receivables was converted
into undivided interests in the trade receivables to secure a
loan of up to $60 million to the Company and the deferred
purchase price was eliminated.
As a result of the Amendment, the Company’s trade
account receivables increased by $60 million and the
Company’s long-term debt increased by $60 million.
This non-cash transaction did not impact the Company’s
Consolidated Statement of Cash Flows during the year
ended December 31, 2018.
In October 2018, the Company further amended the
accounts receivable securitization program to increase
the commitment size from $60 million to $70 million and
extended the expiration date of the program until October
2019. As of December 31, 2018, $70 million was borrowed
under this agreement. See Note 4, Debt, for further
information.
47
9. Accumulated Other Comprehensive Income
The following table summarizes the changes in OCI for 2018, 2017, and 2016:
(In thousands)
Balance as of December 31, 2015
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from OCI
Balance as of December 31, 2016
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from OCI
Balance as of December 31, 2017
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from OCI
Adoption of ASU 2018-02
Cash Flow
Hedges (a)
$ 164
(1,094)
845
$ (85)
(768)
184
$ (669)
667
149
–
Pension
Items (a)
$(4,393)
1,312
544
$(2,537)
921
1,307
Foreign
Currency Items
Total
$(165,833)
$(170,062)
(41,753)
(3,257)
$(210,843)
55,705
6,782
(41,535)
(1,868)
$(213,465)
55,858
8,273
$ (309)
$(148,356)
$(149,334)
1,130
(103)
(169)
(16,675)
–
(1,220)
(14,878)
46
(1,389)
Balance as of December 31, 2018
$ 147
$ 549
$(166,251)
$(165,555)
(a) Cash Flow Hedges and Pension Items are net of tax.
In 2018, the Company adopted ASU 2018-02, Reclassifications of Certain Tax Effects from Accumulated Other Comprehensive
Income, (See Note 1, Summary of Significant Accounting Policies, for additional information), resulting in the reclassification
of OCI into Earnings reinvested in the business.
10. Income Taxes
The provision for income taxes for continuing operations was as follows:
(In thousands)
Currently (receivable) payable:
Federal (1)
State
Foreign
Deferred expense (benefit):
Federal
State
Foreign
Income taxes
2018
2017
2016
$(9,071)
$15,513
205
23,187
14,321
3,977
3,164
2,703
9,844
$24,165
642
25,254
41,409
18,458
215
(1,259)
17,414
$58,823
$12,145
2,631
19,168
33,944
7,630
1,656
1,142
10,428
$44,372
(1) In 2018 and 2017, this amount includes $(3.9) million and $7.4 million, respectively, of income tax (benefit) expense related to the one-time
transition tax on earnings of foreign subsidiaries enacted by the 2017 Tax Legislation (See discussion below). There was no liability for this
amount recorded as of December 31, 2018. As of December 31, 2017, $5.1 million of this amount was reported in Other liabilities on the
Consolidated Balance Sheet.
48
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities consisted of
the following:
(in thousands)
Deferred tax assets:
Benefit plans
Liabilities and reserves
Operating loss and credit carryovers
Other
Gross deferred tax assets
Valuation allowance
Deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Goodwill
Other
Deferred tax liabilities
Net deferred tax liabilities
2018
2017
$ 6,788
12,563
65,392
1,404
86,147
(50,702)
35,445
(29,372)
(21,372)
(4,488)
(55,232)
$(19,787)
$ 8,440
11,141
40,164
1,007
60,752
(38,366)
22,386
(12,458)
(20,345)
(422)
(33,225)
$(10,839)
The Company is subject to current tax on Global Intangible Low-Taxed Income (GILTI) earned by foreign subsidiaries. The
FASB Staff Q&A Topic No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting
policy election either to recognize deferred taxes for temporary differences that are expected to reverse as GILTI in future years
or provide for the tax expense related to GILTI resulting from those items in the year the tax is incurred. Sensient is electing to
recognize GILTI as a period expense in the period the tax is incurred.
At December 31, 2018, foreign operating loss carryovers were $122.9 million. Included in the foreign operating loss carryovers
are losses of $25.2 million that expire through 2033, and $97.7 million that expire after 2033 or do not have an expiration date.
At December 31, 2018, state operating loss carryovers were $138.4 million, of which $137.3 million expires through 2033.
The effective tax rate for continuing operations differed from the statutory federal income tax rate as described below:
Taxes at statutory rate
State income taxes, net of federal income tax benefit
Tax credits
Taxes on foreign earnings
Global Intangible Low-Taxed Income
Resolution of prior years’ tax matters
U.S. manufacturing deduction
Valuation allowance adjustments
2017 Tax Legislation
Loss on foreign branch remittances
U.S. tax accounting method changes
Other, net
2018
21.0%
1.1
(1.5)
(0.4)
0.6
(0.3)
–
0.4
(3.7)
–
(2.9)
(1.0)
2017
35.0%
0.3
(1.1)
0.2
–
0.1
(1.4)
–
12.4
(5.2)
–
(0.7)
2016
35.0%
1.4
(1.8)
(4.4)
–
–
(2.0)
(0.3)
–
–
–
(1.4)
Effective tax rate
13.3%
39.6%
26.5%
49
On December 22, 2017, the U.S. enacted the Tax Cuts and
Jobs Act (Act or 2017 Tax Legislation). The Act significantly
changed the U.S. corporate income tax laws by reducing
the U.S. corporate income tax rate to 21% beginning in
2018 and imposing a one-time mandatory tax on previously
deferred foreign earnings of U.S. subsidiaries in 2017. Staff
Accounting Bulletin No. 118 (SAB 118) was issued to address
the application of U.S. GAAP in situations when a registrant
does not have the necessary information available, prepared,
or analyzed (including computations) in reasonable detail to
complete the accounting for certain income tax effects of the
Act. In accordance with SAB 118, the Company recorded
a net charge of $18.4 million during the fourth quarter of
2017. The amount consists of reassessing the U.S. deferred
tax assets and liabilities, adjustments to the Company’s
foreign tax credit carryover, and the one-time mandatory tax
on previously deferred foreign earnings of U.S. subsidiaries.
Based on additional guidance, changes in interpretation,
additional analysis, and assumptions, the Company reduced
this net charge by $6.6 million in 2018. Sensient considers
$11.8 million to be the final net charge related to the Act.
During the third and fourth quarters of 2018, the US Treasury
released numerous proposed regulations related to the 2017
Tax Legislation. The Company has reviewed and evaluated
these proposed regulations. These regulations, when finalized,
could result in adjustments to the Company’s provision for
income taxes and its realizability of certain deferred tax assets.
The effective tax rate in 2018 was also favorably impacted by
U.S. tax accounting method changes that were filed with the
IRS in the second quarter of 2018 and generation of foreign
tax credits during 2018.
The 2017 loss on remittances is the result of the cumulative
foreign currency effect related to certain repatriation
transactions.
Taxes on foreign earnings include the difference between
the tax rates applied to foreign earnings relative to the
U.S. statutory tax rate, accruals for foreign unrecognized
tax benefits, and the impact of the U.S. foreign tax credit,
not including the impact from GILTI. The impact on the
Company’s effective tax rate varies from year to year based
on the mix of earnings, increases in foreign unrecognized
tax benefits, and the expected realization of U.S. foreign tax
credits generated each year. The increase of the 2017 effective
tax rate from taxes on foreign earnings compared to 2016 is
primarily the result of the non-deductible losses from the sale
of the European Natural Ingredients business (See Note 13,
Restructuring Charges), and the sale of the business lines in
Strasbourg, France (See Note 15, Divestiture).
Earnings from continuing operations before income taxes were as follows:
(in thousands)
United States
Foreign
Total
2018
$ 80,641
100,884
$181,525
2017
$ 88,479
59,944
$148,423
2016
$ 96,963
70,322
$167,285
Federal and state income taxes are provided on international subsidiary income distributed to or taxable in the U.S. during
the year. At December 31, 2018, no additional income or withholding taxes have been provided for the $553 million of
undistributed earnings or any additional outside basis differences inherent in these entities, as these amounts are considered
to be invested indefinitely. If the undistributed earnings were repatriated, Sensient estimates it would have a withholding tax
liability of $24.9 million. The determination of the tax liability for any outside basis differences is not practicable.
A reconciliation of the change in the liability for unrecognized tax benefits for 2018 and 2017 is as follows:
(in thousands)
Balance at beginning of year
Increases for tax positions taken in the current year
Increases for tax positions taken in prior years
Decreases related to settlements with tax authorities
Decreases as a result of lapse of the applicable statutes of limitations
Foreign currency exchange rate changes
Balance at the end of year
2018
$6,276
834
271
(177)
(920)
(258)
$6,026
2017
$4,947
871
553
(76)
(607)
588
$6,276
50
The amount of the unrecognized tax benefits that
would affect the effective tax rate, if recognized, was
approximately $4.8 million. The Company recognizes
interest and penalties related to the unrecognized tax
benefits in income tax expense. As of December 31, 2018
and 2017, $0.5 million and $0.5 million, respectively, of
accrued interest and penalties were reported as an income
tax liability in each period. The liability for unrecognized
tax benefits relates to multiple jurisdictions and is reported
in Other liabilities on the Company’s Consolidated Balance
Sheet at December 31, 2018.
The Company believes that it is reasonably possible that the
total amount of liability for unrecognized tax benefits as of
December 31, 2018, will decrease by approximately $0.9
million during 2019, of which $0.9 million is estimated to
impact the effective tax rate. The potential decrease relates
to various tax matters for which the statute of limitations
may expire or will be otherwise settled in 2019. The amount
that is ultimately recognized in the financial statements
will be dependent upon various factors including potential
increases or decreases in unrecognized tax benefits as a result
of examinations, settlements, and other unanticipated items
that may occur during the year. With limited exceptions, the
Company is no longer subject to federal, state, and local, or
non-U.S. income tax examinations by tax authorities for years
before 2014.
11. Segment and Geographic Information
The accounting policies of the segments are the same as
those described in the summary of significant accounting
policies. The Company evaluates performance based on
operating income before 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
Statements of Earnings, and intersegment sales, which are
accounted for at prices that approximate market prices and
are eliminated in consolidation.
Assets by business segment and geographic region are
those assets used in the Company’s operations in each
segment and geographic region. Segment assets reflect the
allocation of goodwill to each segment. Corporate & Other
assets consist primarily of fixed assets and investments.
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 of the
respective business units before restructuring and other
charges, which are reported in Corporate & Other.
The Company’s three reportable segments are Flavors
& Fragrances 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 & Fragrances segment produces
flavor and fragrance products that impart a desired taste,
texture, aroma, or other characteristic to a broad range of
consumers and other products. The Color segment produces
natural and synthetic color systems for foods, beverages,
pharmaceuticals and nutraceuticals; colors, ingredients
and systems for cosmetics; specialty inks and technical
colors for industrial applications. The Asia Pacific segment
is managed on a geographic basis and produces and
distributes color, flavor, and fragrance products for the Asia
Pacific countries. The Company’s corporate expenses and
restructuring and other costs are included in the “Corporate
& Other” category.
In July 2018, the Company completed the acquisition
of Mazza Innovation Limited (See Note 2, Acquisitions,
for further information). This acquisition provides the
Company with an umbrella technology, which supports
applications for both the Flavors & Fragrances and Color
segments. The Company is in the process of integrating
this business, and, therefore, the Company has included its
results in Corporate & Other.
Restructuring and other costs related to continuing
operations for the years ended December 31, 2017 and
2016, are further described in Note 13, Restructuring
Charges, and Note 15, Divestiture, and are included in
the operating income (loss) results in Corporate & Other
below. There have been no restructuring and other costs
in 2018. Consistent with presentation in the Company’s
Consolidated Balance Sheets and Statements of Cash
Flows, the below amounts for assets, capital expenditures,
and depreciation and amortization include discontinued
operations for the years ended December 31, 2017 and
2016 and are included in Corporate & Other. In addition,
the Company’s corporate expenses are included in
Corporate & Other.
51
(In thousands)
2018:
Revenue from external customers
Intersegment revenue
Total revenue
Operating income (loss)
Interest expense
Earnings (loss) before income
taxes from continuing operations
Assets
Capital expenditures
Depreciation and amortization
2017:
Revenue from external customers
Intersegment revenue
Total revenue
Operating income (loss)
Interest expense
Earnings (loss) before income
taxes from continuing operations
Assets
Capital expenditures
Depreciation and amortization
2016:
Revenue from external customers
Intersegment revenue
Total revenue
Operating income (loss)
Interest expense
Earnings (loss) before income
taxes from continuing operations
Flavors &
Fragrances
$723,189
23,743
746,932
96,433
–
$539,974
13,505
553,479
114,924
–
Color
Asia Pacific
Corporate
& Other
$ 525
–
525
Consolidated
$1,386,815
37,285
1,424,100
$123,127
37
123,164
20,856
–
(28,835)
21,853
203,378
21,853
96,433
114,924
20,856
(50,688)
181,525
784,161
23,679
25,922
$727,026
19,917
746,943
114,343
–
730,644
21,269
21,644
$512,811
13,552
526,363
113,381
–
101,792
2,858
2,451
208,343
2,934
3,227
1,824,940
50,740
53,244
$122,428
765
123,193
$ –
–
–
$1,362,265
34,234
1,396,499
20,772
–
(80,690)
19,383
167,806
19,383
114,343
113,381
20,772
(100,073)
148,423
773,173
31,989
23,611
$771,434
24,377
795,811
124,059
–
720,328
18,797
19,902
$490,862
13,269
504,131
105,814
–
99,770
3,557
2,303
131,069
2,001
2,702
1,724,340
56,344
48,518
$120,914
282
121,196
$ –
–
–
$1,383,210
37,928
1,421,138
23,603
–
(67,867)
18,324
185,609
18,324
124,059
105,814
23,603
(86,191)
167,285
Assets
Capital expenditures
Depreciation and amortization
785,449
57,622
22,897
673,754
15,422
19,421
92,203
5,199
2,042
116,454
2,973
2,659
1,667,860
81,216
47,019
Geographic Information
The Company has manufacturing facilities or sales offices in North America, Europe, Asia, Australia, South America, and Africa.
52
Consistent with presentation in the Company’s Consolidated Balance Sheets and Statements of Cash Flows, the below amounts
for long-lived assets include discontinued operations for the year ended December 31, 2016. The long-lived asset impairment is
included in Corporate & Other and is further described in Note 15, Divestiture.
The Company’s annual revenue from continuing operations summarized by geographic location is as follows:
(In thousands)
2018:
Revenue from external customers:
North America
Europe
Asia Pacific
Other
Flavors &
Fragrances
Color
Asia Pacific
Corporate
& Other
Consolidated
$477,083
173,562
31,506
41,038
$245,278
$ –
$ 371
$ 722,732
168,187
59,548
66,961
155
121,975
997
153
–
1
342,057
213,029
108,997
Total revenue from external customers
$723,189
$539,974
$123,127
$525
$1,386,815
Long-lived assets:
North America
Europe
Asia Pacific
Other
$260,932
$209,821
$ –
$97,362
$ 568,115
121,372
1,061
277
265,688
3,319
16,387
–
25,856
–
–
–
–
387,060
30,236
16,664
Total long-lived assets
$383,642
$495,215
$ 25,856
$97,362
$1,002,075
2017:
Revenue from external customers:
North America
Europe
Asia Pacific
Other
$487,034
164,641
32,717
42,634
$231,674
159,646
55,108
66,383
$ –
$ –
$ 718,708
310
121,110
1,008
–
–
–
324,597
208,935
110,025
Total revenue from external customers
$727,026
$512,811
$122,428
$ –
$1,362,265
Long-lived assets:
North America
Europe
Asia Pacific
Other
$260,802
127,111
1,395
380
$207,746
278,127
3,075
7,196
$ –
$78,113
$ 546,661
–
26,920
–
–
–
–
405,238
31,390
7,576
Total long-lived assets
$389,688
$496,144
$ 26,920
$78,113
$ 990,865
2016:
Revenue from external customers:
North America
Europe
Asia Pacific
Other
$515,716
192,185
27,459
36,074
$229,944
150,553
49,580
60,785
$
–
$ –
$ 745,660
80
119,845
989
–
–
–
342,818
196,884
97,848
Total revenue from external customers
$771,434
$490,862
$120,914
$ –
$1,383,210
Long-lived assets:
North America
Europe
Asia Pacific
Other
$257,661
126,447
1,482
519
$206,078
245,526
3,244
10,571
$ –
–
25,280
–
$84,935
(10,944)
–
–
$ 548,674
361,029
30,006
11,090
Total long-lived assets
$386,109
$465,419
$ 25,280
$73,991
$ 950,799
53
Sales in the United States, based on the final country of destination of the Company’s products, were $586.2 million,
$574.5 million, and $595.0 million in 2018, 2017, and 2016, respectively. No other country of destination exceeded 10%
of consolidated sales. Total long-lived assets in the United States amounted to $491.4 million, $491.8 million, and $495.3
million at December 31, 2018, 2017, and 2016, respectively.
Product Information
The Company’s revenue from continuing operations summarized by product portfolio is as follows:
(In thousands)
2018:
Flavors
Natural Ingredients
Fragrances
Food & Beverage Colors
Cosmetics
Other Colors
Asia Pacific
Corporate & Other
Intersegment Revenue
Total revenue from external customers
2017:
Flavors
Natural Ingredients
Fragrances
Food & Beverage Colors
Cosmetics
Other Colors
Asia Pacific
Flavors &
Fragrances
$414,728
224,280
107,924
–
–
–
–
–
(23,743)
$723,189
$439,811
219,837
87,295
–
–
–
–
2016:
Flavors
Natural Ingredients
Fragrances
Food & Beverage Colors
Cosmetics
Other Colors
Asia Pacific
$474,904
237,664
83,243
–
–
–
–
Color
Asia Pacific
Corporate
& Other
Consolidated
$ –
$ –
$ –
$ 414,728
–
–
303,386
153,347
96,746
–
–
(13,505)
–
–
–
–
–
123,164
–
(37)
$539,974
$123,127
–
–
–
–
–
–
525
–
$525
224,280
107,924
303,386
153,347
96,746
123,164
525
(37,285)
$1,386,815
$ –
$ –
$ –
$ 439,811
–
–
279,870
147,637
98,856
–
–
–
–
–
–
123,193
–
–
279,516
123,937
100,678
–
–
–
–
–
–
121,196
–
–
–
–
–
–
–
219,837
87,295
279,870
147,637
98,856
123,193
(34,234)
–
–
–
–
–
–
–
237,664
83,243
279,516
123,937
100,678
121,196
(37,928)
Intersegment Revenue
(19,917)
(13,552)
(765)
Total revenue from external customers
$727,026
$512,811
$122,428
$ –
$1,362,265
$ –
$ –
$ –
$ 474,904
Intersegment Revenue
(24,377)
(13,269)
(282)
Total revenue from external customers
$771,434
$490,862
$120,914
$ –
$1,383,210
54
12. Fair Value Measurements
14. Discontinued Operations
ASC 820, Fair Value Measurements and Disclosures, 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 December
31, 2018 and 2017, the Company’s only assets and liabilities
subject to this standard are forward contracts, investments
in a money market fund and municipal bonds, and defined
benefit plan assets (See Note 7, Retirement Plans, for
additional information on the defined benefit plan assets).
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 $0.2 million and a liability of
$0.6 million as of December 31, 2018 and 2017, respectively.
The fair value of the investments based on December 31,
2018 and 2017, market quotes (Level 1 inputs) was an asset
of $0.1 million in both periods and is reported in Other Assets
in the Company’s Consolidated Balance Sheets.
The carrying values of the Company’s cash and cash
equivalents, trade accounts receivable, accounts payable,
accrued expenses, and short-term borrowings approximated
fair values as of December 31, 2018 and 2017.
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
December 31, 2018 and 2017, was $689.6 million and $604.2
million, respectively. The fair value of the long-term debt
at December 31, 2018 and 2017, was approximately $695.0
million and $620.2 million, respectively.
13. Restructuring Charges
Between March 2014 and 2017, the Company executed a
restructuring plan (2014 Restructuring Plan) to eliminate
underperforming operations, consolidate manufacturing
facilities, and improve efficiencies within the Company.
In accordance with GAAP, no restructuring costs
were recorded for the year ended December 31, 2018,
however, the Company recorded total restructuring
costs of $36.5 million and $11.1 million for the years
ended December 31, 2017 and 2016, respectively. The
restructuring costs incurred in 2017 were primarily due
to the loss on asset sales of $21.6 million and other costs.
The restructuring costs incurred in 2016 were primarily
due to decommissioning costs, professional services,
moving costs, and other related costs.
In connection with the 2014 Restructuring Plan, the
Company approved a plan to dispose of a business unit
within the Color segment, located near Leipzig, Germany.
Since 2014, the business met the criteria to be presented as
a discontinued operation as established in ASC Subtopic
205-20, Discontinued Operations. The results of this
business have been reported as a discontinued operation
in the Company’s Consolidated Statements of Earnings
for the year ended December 31, 2016. During 2016, the
facility and remaining assets were sold for a gain of $0.2
million. In addition, the entity was liquidated resulting in a
reclassification of the cumulative translation adjustment of
$3.3 million into net earnings.
The following table summarizes the discontinued
operation’s results, which are included in the gain from
discontinued operations in the Company’s Consolidated
Statements of Earnings, for the years ended December
31, 2018, 2017, and 2016.
(In thousands)
Net sales
2018
$ –
2017
$ –
2016
$ –
Gain from discontinued
operations before
income taxes
Income tax expense
Gain from discontinued
operations, net of tax
–
–
–
3,410
– (67)
$ –
$ –
$3,343
15. Divestiture
In 2016, the Company’s Board of Directors authorized
management to explore strategic alternatives for a facility
and certain related business lines within the Flavors
& Fragrances segment in Strasbourg, France. In 2016,
the Company recorded a non-cash impairment charge
of $10.8 million, in selling and administrative expense,
and incurred $0.7 million of outside professional fees
and other related costs in 2016, as a result of the then
anticipated divestiture.
In January 2017, the Company completed this divestiture
for approximately $12.5 million. The Company recognized
an additional non-cash loss of $11.6 million in 2017.
55
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.
16. Commitments and Contingencies
Leases
The Company leases certain facilities and equipment
under operating lease arrangements. Aggregate minimum
rental commitments at December 31, 2018, for all non-
cancelable operating leases with an initial lease term
greater than one year for the years ending December 31
are as follows: 2019, $9.7 million; 2020, $6.7 million;
2021, $3.9 million; 2022, $3.2 million; 2023, $2.7
million; and $4.3 million thereafter.
Rent expense from continuing operations totaled $13.5
million, $12.1 million, and $12.4 million during the years
ended December 31, 2018, 2017, and 2016, respectively.
People of the State of Illinois v. Sensient Flavors LLC
On June 7, 2018, the Attorney General of the State of
Illinois Office, on her own motion and at the request
of the Illinois Environmental Protection Agency, filed
a Complaint in the Lee County Circuit Court against
Sensient Flavors LLC (“Sensient Flavors”). The
Complaint alleges that Sensient Flavors’ Amboy, Illinois
facility improperly discharged wastewater to the City
of Amboy’s wastewater treatment plant in late 2015
and early 2016, causing the City to violate its discharge
permit. The Complaint alleged two counts against
Sensient Flavors for violations of Illinois state law.
The Company believes the facility’s discharges in
question were done with the consent of the City of
Amboy and in compliance with Illinois state law, and that
Sensient Flavors complied with its wastewater permit,
City of Amboy ordinances, and applicable Illinois state
laws. The Company notes that at all times relevant to
the matters at issue in the Complaint, the City of Amboy
accepted Sensient Flavors’ wastewater and, in fact,
charged Sensient Flavors for treating Sensient Flavors’
wastewater. The parties reached a settlement agreement
in which Sensient Flavors agreed to pay a $100,000 fine
and enter into a consent decree with the State of Illinois.
On February 20, 2019, the Lee County Circuit Court
approved the parties’ settlement agreement.
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Sensient Technologies Corporation
Milwaukee, Wisconsin
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Sensient Technologies Corporation
and subsidiaries (the Company) as of December 31,
2018 and 2017, the related consolidated statements of
earnings, comprehensive income, shareholders’ equity,
and cash flows for each of the three years in the period
ended December 31, 2018, and the related notes and the
financial statement schedule listed in the Index at Item
15 (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the
financial position of the Company at December 31, 2018
and 2017, and the consolidated results of its operations
and its cash flows for each of the three years in the
period ended December 31, 2018, in conformity with
U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over
financial reporting as of December 31, 2018, based on
the criteria established in the Internal Control-Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013
framework) and our report dated February 22, 2019
expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the
Company’s management. Our responsibility is to express
an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent
with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are
free of material misstatement, whether due to error
or fraud. Our audits included performing procedures
to assess the risks of material misstatement of the
financial statements, whether due to error or fraud,
and performing procedures that respond to those risks.
Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating
the accounting principles used and significant estimates
made by management, as well as evaluating the overall
presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2006.
Milwaukee, Wisconsin
February 22, 2019
57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Sensient Technologies Corporation
Milwaukee, Wisconsin
Opinion on Internal Control over Financial Reporting
We have audited Sensient Technologies Corporation and
subsidiaries’ internal control over financial reporting as
of December 31, 2018, based on criteria established in
Internal Control–Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria).
In our opinion, Sensient Technologies Corporation and
subsidiaries (the Company) maintained, in all material
respects, effective internal control over financial reporting
as of December 31, 2018, based on the COSO criteria.
As indicated in the accompanying Report on Internal
Control Over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of
internal control over financial reporting did not include the
internal controls of GlobeNatural and Mazza Innovation
Limited, which are included in the 2018 consolidated
financial statements of the Company and constituted
2.3% and 3.4% of total and net assets, respectively, as of
December 31, 2018, and 0.3% of revenues for the year then
ended. Our audit of internal control over financial reporting
of the Company also did not include an evaluation of the
internal control over financial reporting of GlobeNatural
and Mazza Innovation Limited.
We also have audited, in accordance with the standards
of the Public Company Accounting Oversight Board
(United States) (PCAOB), the accompanying consolidated
balance sheets of Sensient Technologies Corporation and
subsidiaries as of December 31, 2018 and 2017, and the
related consolidated statements of earnings, comprehensive
income, shareholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2018, and the
related notes and the financial statement schedule listed in
the Index at Item 15 of the Company and our report dated
February 22, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining
effective internal control over financial reporting and
for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be
58
independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards
of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting
was maintained in all material respects.
Our audit included obtaining an understanding of internal
controls over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over
Financial Reporting
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations
of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of
the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
February 22, 2019
SCHEDULE II
Valuation and Qualifying Accounts (in thousands); Years Ended December 31, 2018, 2017, and 2016
Valuation Accounts Deducted in the
Balance Sheet From the Assets to
Which They Apply
Balance
at Beginning
of Period
Additions
Charged to
Costs and
Expenses
Additions
Recorded
During
Acquisitions
Deductions
(A)
Balance
at End
of Period
2016
Allowance for losses:
Trade accounts receivable
$3,871
$1,747
$ 0
$ 782
$4,836
2017
Allowance for losses:
Trade accounts receivable
$4,836
$1,276
$ 0
$ 112
$6,000
2018
Allowance for losses:
Trade accounts receivable
$6,000
$1,004
$ 0
$1,028
$5,976
(A) Accounts written off, net of recoveries.
59
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
2018 ANNUAL REPORT ON FORM 10-K
Exhibit
Number
3.1
Description
Sensient Technologies Corporation
Amended and Restated Articles of
Incorporation
Incorporated by Reference from
Exhibit 3.1 to Current Report on Form 8-K dated
July 24, 2017 (Commission File No. 1-7626)
Filed
Herewith
3.2
Sensient Technologies Corporation
Amended and Restated By-Laws
Exhibit 3.2 to Current Report on Form 8-K
dated February 8, 2018 (Commission File No.
1-7626)
4.1(a)
Note Purchase Agreement dated as of
March 22, 2011
Exhibit 10.1 to Current Report on Form 8-K dated
March 22, 2011 (Commission File No. 1-7626)
4.1(b)
First Amendment dated as of
November 6, 2015 to Note Purchase
Agreement dated as of March 22, 2011
Exhibit 10.4 to Current Report on Form 8-K dated
November 6, 2015 (Commission File No. 1-7626)
4.1(c)
4.1(d)
Second Amendment dated as of May
3, 2017 to Note Purchase Agreement
dated as of March 22, 2011
Exhibit 10.5 to Current Report on Form 8-K dated
May 5, 2017 (Commission File No. 1-7626)
Third Amendment dated as of June
22, 2018 to Note Purchase Agreement
dated as of March 22, 2011
Exhibit 4.1(d) to Quarterly Report on Form 10-Q
for the quarter ended June 30, 2018 (Commission
File No. 1-7626)
4.2(a)
Note Purchase Agreement dated as of
Exhibit 10.1 to Current Report on Form 8-K dated
April 5, 2013
April 5, 2013 (Commission File No. 1-7626)
4.2(b)
First Amendment dated as of
November 6, 2015 to Note Purchase
Agreement dated as of April 5, 2013
Exhibit 10.3 to Current Report on Form 8-K dated
November 6, 2015 (Commission File No. 1-7626)
4.2(c)
Second Amendment dated as of May
3, 2017 to Note Purchase Agreement
dated as of April 5, 2013
Exhibit 10.4 to Current Report on Form 8-K dated
May 5, 2017 (Commission File No. 1-7626)
4.2(d)
Third Amendment dated as of June 22,
2018 to Note Purchase Agreement dated
as of April 5, 2013
Exhibit 4.2(d) to Quarterly Report on Form 10-Q
for the quarter ended June 30, 2018 (Commission
File No. 1-7626)
4.3(a)
Note Purchase Agreement dated as of
November 6, 2015
Exhibit 10.2 to Current Report on Form 8-K dated
November 6, 2015 (Commission File No. 1-7626)
First Amendment dated as of May 3,
2017 to Note Purchase Agreement dated
as of November 6, 2015
Exhibit 10.3 to Current Report on Form 8-K dated
May 5, 2017 (Commission File No. 1-7626)
Second Amendment dated as of June
22, 2018 to Note Purchase Agreement
dated as of November 6, 2015
Exhibit 4.3(c) to Quarterly Report on Form 10-Q
for the quarter ended June 30, 2018 (Commission
File No. 1-7626)
4.3(b)
4.3(c)
E-1
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
2018 ANNUAL REPORT ON FORM 10-K
Exhibit
Number
4.4(a)
Description
Incorporated by Reference from
Note Purchase Agreement dated as of
Exhibit 10.2 to Current Report on Form 8-K dated
May 3, 2017
May 5, 2017 (Commission File No. 1-7626)
Filed
Herewith
4.4(b)
First Amendment dated as of June 22,
2018 to Note Purchase Agreement dated
as of May 3, 2017
Exhibit 4.4(b) to Quarterly Report on Form 10-Q
for the quarter ended June 30, 2018 (Commission
File No. 1-7626)
4.5
Note Purchase Agreement dated as of
November 1, 2018
Exhibit 10.1 to Current Report on Form 8-K dated
November 1, 2018 (Commission File No. 1-7626)
10
Material Contracts
10.1
Management Contracts or Compensatory
Plans
10.1(a)
Executive Employment Contract
dated as of February 9, 2017, between
Sensient Technologies Corporation and
Paul Manning
Exhibit 10.1 to Current Report on Form 8-K dated
February 9, 2017 (Commission File No. 1-7626)
10.1(b)
Form of Change of Control Employment
and Severance Agreement
Exhibit 10.1(b)(3) to Annual Report on Form
10-K for the fiscal year ended December 31, 2011
(Commission File No. 1-7626)
10.1(c)(1)
Sensient Technologies Corporation
Appendix C to Definitive Proxy Statement filed
2002 Non-Employee Directors Stock
Plan (superseded)
on Schedule 14A on March 15, 2004 (Commission
File No. 1-7626)
10.1(c)(2) Sensient Technologies Corporation
Exhibit 10.1(c)(2) to Annual Report on Form
2012 Non-Employee Directors
Stock Plan
10-K for the fiscal year ended December 31, 2014
(Commission File No. 1-7626)
10.1(d)
Universal Foods Corporation 1994
Employee Stock Plan
Exhibit 10.2(f) to Annual Report on Form 10-K
for the fiscal year ended September 30, 1998
(Commission File No. 1-7626)
10.1(d)(1) Amendment of Universal Foods
Exhibit 10.1(e)(1) to Annual Report on Form
Corporation 1994 Employee Stock Plan
10-K for the fiscal year ended December 31, 2000
(Commission File No. 1-7626)
10.1(e)
Universal Foods Corporation 1998
Stock Option Plan
Exhibit 10.2(h) to Annual Report on Form 10-K
for the fiscal year ended September 30, 1998
(Commission File No. 1-7626)
10.1(e)(1) Amendment of Universal Foods
Exhibit 10.1(f)(1) to Annual Report on Form
Corporation 1998 Stock Option Plan
10-K for the fiscal year ended December 31, 2000
(Commission File No. 1-7626)
E-2
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
2018 ANNUAL REPORT ON FORM 10-K
Exhibit
Number
10.1(f)
Description
Incorporated by Reference from
Universal Foods Corporation 1999
Non-Employee Director Stock
Option Plan
Appendix A to Definitive Proxy Statement
filed on Schedule 14A on December 17, 1999
(Commission File No. 1-7626)
Filed
Herewith
10.1(f)(1)
Amendment of Universal Foods
Exhibit 10.1(g)(1) to Annual Report on Form
Corporation 1999 Non-Employee
Director Stock Option Plan
10-K for the fiscal year ended December 31, 2000
(Commission File No. 1-7626)
10.1(g)
Sensient Technologies Corporation 2002
Appendix B to Definitive Proxy Statement filed
Stock Option Plan
on Schedule 14A on March 22, 2002 (Commission
File No. 1-7626)
10.1(g)(1)
Amendment No. 1 to the Sensient
Technologies Corporation 2002 Stock
Option Plan
Exhibit 10.11 to Quarterly Report on Form
10-Q for the quarter ended September 30, 2008
(Commission File No. 1-7626)
10.1(g)(2) Form of Sensient Technologies
Corporation 2002 Stock Option Plan
Restricted Stock Agreement
Exhibit 10.1 to Current Report on Form 8-K dated
December 1, 2005 (Commission File No. 1-7626)
10.1(h)
Sensient Technologies Corporation
Appendix B to Definitive Proxy Statement filed on
2007 Stock Plan
Schedule 14A on March 15, 2013 (Commission File
No. 1-7626)
10.1(i)
Sensient Technologies Corporation
Directors’ Deferred Compensation Plan
Exhibit 10.1 to Current Report on Form 8-K dated
May 28, 2014 (Commission File No. 1-7626)
10.1(i)(1)
Sensient Technologies Corporation
Exhibit 10.2 to Current Report on Form 8-K dated
Non-Employee Directors’
Retirement Plan
July 25, 2013 (Commission File No. 1-7626)
10.1(j)(1)
Sensient Technologies Corporation
Frozen Management Income
Deferral Plan
Exhibit 10.5(a) to Quarterly Report on Form
10-Q for the quarter ended September 30, 2008
(Commission File No. 1-7626)
10.1(j)(2)
Sensient Technologies Corporation
Management Income Deferral Plan
Exhibit 10.5(b) to Quarterly Report on Form
10-Q for the quarter ended September 30, 2008
(Commission File No. 1-7626)
10.1(k)(1)
Sensient Technologies Corporation
Exhibit 10.4(a) to Quarterly Report on Form
Frozen Executive Income Deferral Plan
10-Q for the quarter ended September 30, 2008
(Commission File No. 1-7626)
E-3
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
2018 ANNUAL REPORT ON FORM 10-K
Exhibit
Number
10.1(k)(2)
Description
Incorporated by Reference from
Sensient Technologies Corporation
Executive Income Deferral Plan
Exhibit 10.4(b) to Quarterly Report on Form
10-Q for the quarter ended September 30, 2008
(Commission File No. 1-7626)
Filed
Herewith
10.1(l)
Amended and Restated Sensient
Technologies Corporation Rabbi Trust
“A” Agreement dated November 30,
2009, between Sensient Technologies
Corporation and Wells Fargo Bank, N.A.
10.1(m)(1) Amended and Restated Sensient
Technologies Corporation Rabbi Trust
“B” Agreement dated November 30,
2009, between Sensient Technologies
Corporation and Wells Fargo Bank, N.A.
Exhibit 10.1(l) to Annual Report on Form 10-K
for the fiscal year ended December 31, 2009
(Commission File No. 1-7626)
Exhibit 10.1(m) to Annual Report on Form 10-K
for the fiscal year ended December 31, 2009
(Commission File No. 1-7626)
10.1(m)(2)
Amendment No. 1 to the Amended
and Restated Sensient Technologies
Corporation Rabbi Trust “B”
Agreement
Exhibit 10.1(m)(2) to Quarterly Report on
Form 10-Q for the quarter ended June 30, 2017
(Commission File No. 1-7626)
10.1(n)
Amended and Restated Sensient
Technologies Corporation Rabbi Trust
“C” Agreement dated November 30,
2009, between Sensient Technologies
Corporation and Wells Fargo Bank, N.A.
Exhibit 10.1(n) to Annual Report on Form 10-K
for the fiscal year ended December 31, 2009
(Commission File No. 1-7626)
10.1(o)
Sensient Technologies Corporation
Incentive Compensation Plan for
Elected Corporate Officers
Appendix B to Definitive Proxy Statement filed on
Schedule 14A on March 17, 2014 (Commission File
No. 1-7626)
10.1(p)
Sensient Technologies Corporation
Management Incentive Plan for Group
Presidents
Exhibit 10.9 to Quarterly Report on Form 10-Q for
the quarter ended September 30, 2008 (Commission
File No. 1-7626)
10.1(q)
Sensient Technologies Corporation
Management Incentive Plan for
Corporate Management
Exhibit 10.7 to Quarterly Report on Form
10-Q for the quarter ended September 30, 2008
(Commission File No. 1-7626)
10.1(r)
Sensient Technologies Corporation
Exhibit 10.8 to Quarterly Report on Form
Management Incentive Plan for Group/
Division Management
10-Q for the quarter ended September 30, 2008
(Commission File No. 1-7626)
10.1(s)(1)
Sensient Technologies Corporation Form
of Supplemental Executive Retirement
Plan A Agreement
Exhibit 10.1(s) to Annual Report on Form 10-K
for the fiscal year ended December 31, 2008
(Commission File No. 1-7626)
E-4
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
2018 ANNUAL REPORT ON FORM 10-K
Exhibit
Number
10.1(s)(2)
Description
Incorporated by Reference from
Form of Amendment No. 1 to the
Exhibit 10.1(s)(2) to Annual Report on Form
Sensient Technologies Corporation
Amended and Restated Supplemental
Executive Retirement Plan A
10-K for the fiscal year ended December 31, 2010
(Commission file No. 1-7626)
Filed
Herewith
10.1(s)(3)
Form of Amendment No. 2 to the
Sensient Technologies Corporation
Amended and Restated Supplemental
Executive Retirement Plan A
Exhibit 10.1 to Current Report on Form 8-K dated
April 22, 2010 (Commission File No. 1-7626)
10.1(t)(1)
Sensient Technologies Corporation
Form of Supplemental Executive
Retirement Plan B Agreement
Exhibit 10.1(t) to Annual Report on Form 10-K
for the fiscal year ended December 31, 2008
(Commission File No. 1-7626)
10.1(t)(2)
Form of Amendment No. 1 to the
Exhibit 10.1(t)(2) to Annual Report on Form
Sensient Technologies Corporation
Amended and Restated Supplemental
Executive Retirement Plan B
10-K for the fiscal year ended December 31, 2010
(Commission File No. 1-7626)
10.1(t)(3)
Form of Amendment No. 2 to the
Sensient Technologies Corporation
Amended and Restated Supplemental
Executive Retirement Plan B
Exhibit 10.2 to Current Report on Form 8-K dated
April 22, 2010 (Commission File No. 1-7626)
10.1(u)(1) Sensient Technologies Frozen
Exhibit 10.6(a) to Quarterly Report on Form
Supplemental Benefit Plan
10-Q for the quarter ended September 30, 2008
(Commission File No. 1-7626)
10.1(u)(2) Sensient Technologies Supplemental
Exhibit 10.6(b) to Quarterly Report on Form
Benefit Plan
10-Q for the quarter ended September 30, 2008
(Commission File No. 1-7626)
10.1(v)
Sensient Technologies Corporation Policy
on Recovery of Incentive Compensation
from Executives
Exhibit 10.1 to Current Report on Form 8-K dated
December 8, 2011 (Commission File No. 1-7626)
10.1(w)
Form of Performance Stock Unit
Exhibit 10.3 to Current Report on Form 8-K dated
Agreement
May 28, 2014 (Commission File No. 1-7626
10.1(x)
Sensient Technologies Corporation 2017
Appendix B to Definitive Proxy Statement filed
Stock Plan
on Schedule 14A on March 10, 2017 (Commission
File No. 1-7626)
10.2(a)
Amended and Restated Credit
Agreement dated as of October 24, 2014
Exhibit 10.1 to Current Report on Form 8-K dated
October 24, 2014 (Commission File No. 1-7626)
E-5
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
2018 ANNUAL REPORT ON FORM 10-K
Exhibit
Number
10.2(b)
Description
First Amendment dated as of
November 6, 2015 to Amended and
Restated Credit Agreement dated as of
October 24, 2014
Incorporated by Reference from
Exhibit 10.1 to Current Report on Form 8-K dated
November 6, 2015 (Commission File No. 1-7626)
Filed
Herewith
10.2(c)
Second Amended and Restated Credit
Agreement dated as of May 3, 2017
Exhibit 10.1 to Current Report on Form 8-K dated
May 5, 2017 (Commission File No. 1-7626)
10.2(d)
First Amendment to Second Amended
and Restated Credit Agreement dated as
of June 22, 2018
Exhibit 10.2(d) to Quarterly Report on Form 10-Q
for the quarter ended June 30, 2018 (Commission
File No. 1-7626)
10.3
Credit Agreement dated as of October
7, 2008
Exhibit 10.1 to Current Report on Form 8-K dated
October 7, 2008 (Commission File No. 1-7626)
10.4(a)
Receivables Sale Agreement dated as
of October 3, 2016
Exhibit 10.1 to Current Report on Form 8-K dated
October 3, 2016 (Commission File No. 1-7626)
10.4(b)
Amendment No. 1 to the Receivables
Sale Agreement, dated as of
October 2, 2017
Exhibit 10.1 to Current Report on Form 8-K dated
October 2, 2017 (Commission File No. 1-7626)
10.5(a)
Receivables Purchase Agreement dated
as of October 3, 2016
Exhibit 10.2 to Current Report on Form 8-K dated
October 3, 2016 (Commission File No. 1-7626)
10.5(b)
10.5(c)
10.5(d)
Amendment No. 1 to the Receivables
Purchase Agreement and Performance
Undertaking, dated as of October 2, 2017
Exhibit 10.2 to Current Report on Form 8-K dated
October 2, 2017 (Commission File No. 1-7626)
Amendment No. 2 to Receivables
Purchase Agreement, dated as of
June 26, 2018
Exhibit 10.5(c) to Quarterly Report on Form 10-Q
for the quarter ended June 30, 2018 (Commission
File No. 1-7626)
Amendment No. 3 to Receivables
Purchase Agreement, dated as of
October 1, 2018
Exhibit 10.1 to Current Report on Form 8-K dated
October 1, 2018 (Commission File No. 1-7626)
10.6
Performance Undertaking made as of
October 3, 2016
Exhibit 10.3 to Current Report on Form 8-K dated
October 3, 2016 (Commission File No. 1-7626)
21
Subsidiaries of the Registrant
23.1
Consent of Ernst & Young LLP
X
X
E-6
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
2018 ANNUAL REPORT ON FORM 10-K
Exhibit
Number
31
Description
Incorporated by Reference from
Certifications of Sensient’s President
and Chief Executive Officer and Senior
Vice President and Chief Financial
Officer, pursuant to Rule 13a-14(a) of
the Exchange Act
Filed
Herewith
X
32
Certifications of Sensient’s President
and Chief Executive Officer and Senior
Vice President and Chief Financial
Officer, pursuant to 18 United States
Code § 1350
101.INS*
Instance Document
101.SCH*
XBRL Taxonomy Extension Schema
Document
101.CAL*
XBRL Taxonomy Extension
Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition
Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label
Linkbase Document
101.PRE*
XBRL Taxonomy Extension
Presentation Linkbase Document
X
X
X
X
X
X
X
*The following financial information is formatted in XBRL (eXtensible Business Reporting Language) and furnished
electronically herewith: (i) Consolidated Statements of Earnings for the twelve months ended December 31, 2018, 2017, and
2016; (ii) Consolidated Statements of Comprehensive Income for the twelve months ended December 31, 2018, 2017, and
2016; (iii) Consolidated Balance Sheets as of December 31, 2018 and 2017; (iv) Consolidated Statements of Shareholders’
Equity for the twelve months ended December 31, 2018, 2017, and 2016; (v) Consolidated Statements of Cash Flow for the
twelve months ended December 31, 2018, 2017, and 2016; and (vi) Notes to Consolidated Financial Statements.
E-7
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
/s/ John J. Manning
John J. Manning
Vice President, General Counsel and Secretary
Dated: February 22, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of February 22,
2019, by the following persons on behalf of the Registrant and in the capacities indicated.
/s/ Paul Manning
Paul Manning
Chairman of the Board, President and
Chief Executive Officer
/s/ Stephen J. Rolfs
Stephen J. Rolfs
Senior Vice President and
Chief Financial Officer
/s/ Tobin Tornehl
Tobin Tornehl
Vice President, Controller and
Chief Accounting Officer
/s/ Hank Brown
Hank Brown
Director
/s/ Joseph Carleone
Joseph Carleone
Director
/s/ Edward H. Cichurski
Edward H. Cichurski
Director
/s/ Mario Ferruzzi
Mario Ferruzzi
Director
/s/ Donald W. Landry
Donald W. Landry
Director
/s/ Scott C. Morrison
Scott C. Morrison
Director
/s/ Deborah McKeithan-Gebhardt
Deborah McKeithan-Gebhardt
Director
/s/ Elaine R. Wedral
Elaine R. Wedral
Director
/s/ Essie Whitelaw
Essie Whitelaw
Director
S-1