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GevoUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-07626
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
TRADING SYMBOL(S)
SXT
NAME OF EACH EXCHANGE
ON WHICH REGISTERED
New York Stock Exchange LLC
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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 has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes ☒☒ No ☐☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ☒
Smaller Reporting Company ☐
Accelerated Filer ☐
Emerging Growth Company ☐
Non-Accelerated Filer ☐
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 filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒☒
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, 2020, was $2,179,326,679. 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 42,418,425 shares of Common Stock outstanding as of February 12, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this report incorporates information by reference to the registrant’s definitive proxy statement for its 2021 annual meeting of
shareholders, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 2020.
SENSIENT TECHNOLOGIES CORPORATION—FORM 10-K FOR YEAR ENDED DECEMBER 31, 2020 INDEX
PART I
Item 1. Business
General
Description of Business
Divestitures
Flavors & Extracts 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
Human Capital
Regulation
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosure
Information About Our Executive Officers
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 Operations
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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8
8
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FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that reflect management’s current assumptions and estimates of future economic circumstances, industry
conditions, Company performance, and financial results. Forward-looking statements include statements in the future tense, statements referring to any period after
December 31, 2020, and statements including the terms “expect,” “believe,” “anticipate,” and other similar terms that express expectations as to future events or
conditions. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. Such forward-looking statements are
not guarantees of future performance and involve known and unknown risks, uncertainties, and other factors that could cause actual events to differ materially from
those expressed in the forward-looking statements. A variety of factors could cause the Company’s actual results and experience to differ materially from the
anticipated results. These factors and assumptions include, among others, the impact and uncertainty created by the ongoing COVID-19 pandemic, including, but
not limited to, its effects on our employees, facilities, customers, and suppliers, the availability and cost of raw materials and other supplies, the availability of
logistics and transportation, governmental regulations and restrictions, and general economic conditions; the pace and nature of new product introductions by the
Company and the Company’s customers; the Company’s ability to anticipate and respond to changing consumer preferences and changing technologies; the
Company’s ability to successfully implement its growth strategies; the outcome of the Company’s various productivity-improvement and cost-reduction efforts,
acquisition and divestiture activities, and operational improvement plan; the effectiveness of the Company’s past restructuring activities; changes in costs of raw
materials, including energy; industry, regulatory, legal, and economic factors related to the Company’s domestic and international business; the effects of tariffs,
trade barriers, and disputes; growth in markets for products in which the Company competes; industry and customer acceptance of price increases; actions by
competitors; currency exchange rate fluctuations; and the matters discussed 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 Operations.” 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.
NON-GAAP FINANCIAL MEASURES
Within this document, the Company reports certain non-GAAP financial measures, including: (1) adjusted revenue, adjusted operating income, adjusted net
earnings, and adjusted diluted earnings per share (which exclude divestiture & other related costs, the results of the product lines divested or to be divested, the
impacts of the Tax Cuts and Jobs Act (2017 Tax Legislation), restructuring and other costs, which include operational improvement plan costs, and the COVID-19
employee payment) and (2) percentage changes in revenue, operating income, and diluted earnings per share on an adjusted local currency basis (which eliminate
the effects that result from translating its international operations into U.S. dollars, divestiture & other related costs, the results of the product lines divested or to be
divested, restructuring and other costs, which include operational improvement plan costs, COVID-19 employee payment, and the impact of the 2017 Tax
Legislation). 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 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 divestiture & other related costs, the results of the product lines
divested or to be divested, the impacts from the 2017 Tax Legislation, restructuring and other costs, which include operational improvement plan costs, and the
COVID-19 employee payment that have been excluded from the non-GAAP financial measures in 2020, 2019, and 2018, 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.”
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PART I
Item 1.
Business
General
Sensient Technologies Corporation (the Company) was incorporated under the laws of the State of Wisconsin in 1882. 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 reporting 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 information with the Securities and Exchange
Commission (the Commission). These reports and other information may be accessed from the website maintained by the Commission at http://www.sec.gov.
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 Executive Officers Stock Ownership Guidelines are also available on the Company’s website. These documents 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 waivers also will be posted on the Company’s website.
Description of Business
The Company is a leading global manufacturer and marketer of colors, flavors, and other specialty ingredients. The Company uses advanced technologies and
robust global supply chain capabilities to develop specialized solutions for food and beverages, as well as products that serve the pharmaceutical, nutraceutical,
cosmetic, and personal care industries. The Company’s customers range in size from small entrepreneurial businesses to major international manufacturers
representing some of the world’s best-known brands.
The Company’s principal products (excluding the anticipated divestiture of its fragrances product line) include:
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flavors, flavor enhancers, ingredients, extracts, and bionutrients;
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 colors, and specialty dyes and pigments.
For 2020, the Company’s three reportable segments were the Flavors & Extracts Group and the Color Group, which are managed on a product basis, and the Asia
Pacific Group, which is managed on a geographic basis. During 2020, the Company changed the name of its Flavors & Fragrances Group to the Flavors & Extracts
Group in order to more accurately reflect the group’s product portfolio. The Company’s corporate expenses, divestiture & other related costs and income, share-
based compensation, and restructuring and other charges including operational improvement plan costs, 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 12, Segment and Geographic Information, in the Notes to Consolidated Financial Statements included in this report.
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Divestitures
On June 30, 2020, the Company completed the sale of its inks product line, which was included in the Color Group. In 2020, the Company received $11.6 million
of net cash for the sale of the product line and expects to receive additional cash when it completes certain post-closing asset sales.
On September 18, 2020, the Company completed the sale of its yogurt fruit preparations product line, which was included in the Flavors & Extracts Group, for
$1.0 million. The sale included an earn-out agreement based on future performance, which could result in additional cash consideration for the Company.
On November 23, 2020, the Company announced it had entered into a definitive agreement to sell its fragrances product line (excluding its essential oils product
line). The Company expects the transaction to be finalized in the first half of 2021.
Flavors & Extracts 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. As noted above, the Company has
announced it has entered into a definitive agreement to divest Sensient Fragrances while retaining its essential oils product line. During the third quarter of 2020,
the Company divested its yogurt fruit preparations product line.
Through 2020, the Flavors & Extracts Group produced 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, and natural extracts. The Group serves food and non-food industries.
In food industries, markets include savory, beverage, and sweet flavors, as well as certain bioingredients. Through 2020, in non-food industries, the Group supplied
fragrances and essential oil products to the personal, home-care, and bioingredients markets. After the anticipated divestiture of the fragrances product line, the
Group would still produce and supply essential oils to the personal care market.
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. The 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, 2020, 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; 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. Through 2020, the Company also made industrial colors, and other dyes and pigments used in a
variety of non-food applications. After the divestiture of the inks product line in the second quarter of 2020, the Company no longer sells specialty inks.
As of December 31, 2020, the Group’s principal manufacturing plants are located in Missouri, New Jersey, Brazil, Canada, China, France, Germany, Italy,
Mexico, Peru, and the United Kingdom.
The Color Group operates under the following trade names:
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Sensient Food Colors (food and beverage colors);
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Sensient Pharmaceutical Coating Systems (pharmaceutical and nutraceutical colors and coatings);
Sensient Cosmetic Technologies (cosmetic colors, ingredients, and systems); 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.
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 & Extracts 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, Thailand, New Zealand, and the Philippines, with sales offices also located in the India and Thailand facilities. The Asia
Pacific Group maintains additional offices for local technical support as well as sales in China and Indonesia, 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, divestiture & other related costs, share-based compensation, restructuring and other charges including operational improvement plan costs, and other
costs, 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 738
people in research and development, quality assurance, quality control, and lab technician positions as of December 31, 2020.
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.
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
internal physical and information technology controls and confidentiality agreements with customers.
Within the Flavors & Extracts Group, development activity is focused on ingredients, flavors, natural extracts, and essential oils as well as flavor 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.
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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, 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.
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.
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Flavors & Extracts. Competition in the flavors, extracts, 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, extracts, and essential oils 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,
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.
Foreign Operations
Additional information regarding the Company’s foreign operations is set forth in Note 12, Segment and Geographic Information in the Notes to Consolidated
Financial Statements included in this report.
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, trademark, or formula; however, trademarks, patents, and formulae are important to the business of the Company.
Human Capital
As of December 31, 2020, the Company employed 3,948 persons worldwide. Approximately 41% of our employees were employed in the United States and
approximately 59% were employed outside of the United States. Of our 3,948 employees worldwide, we had 513 general administration employees (e.g.,
accounting, administrative, regulatory compliance, IT, human resources, etc.), 2,463 production employees, 440 research and development employees, and 532
sales and marketing employees.
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We believe that our future success is dependent upon our continued ability to attract, retain, and motivate successful employees. Our Board of Directors oversees
our human capital management program, in consultation with our CEO and Vice President, Human Resources. The Board also has routine contact with all
Company officers and periodically receives presentations from the Group Presidents and Vice Presidents as well as select General Managers.
Talent Acquisition and Talent Development
We are committed to the recruitment, retention, and continued development of people who thrive and succeed in our culture. In furtherance of this goal, our
primary areas of focus remain: (i) talent acquisition, (ii) on-boarding, (iii) development and retention, and (iv) integrity and professionalism. As part of the
Company’s effort to attract and motivate employees, we offer compensation and comprehensive benefits that we believe are competitive in the markets in which
our employees work and in our industry. We also have a dedicated internal talent acquisition team, with deep knowledge of our Company and our core values, in
order to help us find the best prospective employees for open positions worldwide. We hold ourselves accountable to filling open roles expeditiously by closely
monitoring and limiting days to fill open roles. We also challenge ourselves to take a broad view of talent acquisition, regularly seeking talent from non-traditional
backgrounds and from outside our industry. With our sales roles, we have implemented a gamified AI-based platform to identify sales candidates, without bias,
who share the behavioral and cognitive attributes of our most successful sales people from around the world.
After hiring a candidate, we believe that an effective on-boarding is a critical factor in whether a new employee succeeds or fails. We continue to develop, and
improve upon, an effective on-boarding process to differentiate ourselves from our competitors and help enable our employees to succeed. We generally track our
progress through weekly pre-hire team on-boarding calls, new hire surveys (for which we had over a 95% completion rate in 2020), new hire interviews, business
unit scorecards on fundamental on-boarding activities, and a monthly report of our results to senior leadership. We also have regular 1:1 meetings between non-
production employees and their supervisors.
In order to continue to develop and retain our key talent, we offer training programs based upon the employee’s role in the Company. We also maintain
personalized career planning, ongoing coaching and development by Corporate and local leadership, and a “High Potential Program,” which ensures our key talent
learns from and gains exposure to senior leadership. Performance reviews and succession planning occur company-wide on an annual basis. Individual goals are
set annually for each employee, which flow from the Company strategy, and attainment of those goals is an element of the employee’s performance assessment.
We invest in our development programs for high-impact roles, such as our General Manager in Training, Sales Representative Trainee, and Flavorist Trainee
programs. We continue to “promote-from-within” and provide opportunities for our internal employees to grow their careers, with over half of our senior
leadership and over half of our business unit leaders previously having been promoted to their current role from within the Company. We closely monitor turnover
overall and in critical roles to vet our retention efforts and identify areas of need for future investment.
Our Corporate Creed, set forth at the beginning of our Code of Conduct, sets forth three non-negotiable rules: (1) Always tell the truth; (2) Always produce safe,
high-quality products in safe and secure facilities; and (3) Always be professional. Employees throughout the organization know these expectations as the “Three
Rules.” Under the Three Rules, all of our employees are expected to exhibit and promote integrity and professionalism in the workplace. All of our employees
must adhere to these non-negotiable expectations for appropriate behavior. We perform annual, company-wide training on our Code of Conduct, as well as for all
new hires. The CEO personally provides instruction on the Three Rules during leadership training conducted each year throughout the organization. To further
reinforce our expectations, the CEO internally publishes anonymized quarterly reports of Code of Conduct violations and their consequences. In addition, we
strictly apply principles of non-discrimination, which are foundational to our non-negotiable expectations of integrity and professionalism, in all employment-
related decisions.
Health and Safety
We take pride in our strong and continually improving health and safety programs, which we view as important aspects of our economic health and core values.
We expect each employee to actively participate in and contribute to this philosophy. Examples of actions taken to demonstrate our commitment and progress
toward achieving our goal of providing a safe workplace include: (i) Corporate Environmental, Health and Safety (EHS) Department oversight of safety and
compliance matters at all Company facilities; (ii) periodic EHS audits conducted at Company facilities by third parties at the direction of the Corporate Legal
Department to determine the state of facility compliance with applicable safety laws and regulations; (iii) implementation of “best-practice” programs and
management systems across all business units worldwide; (iv) ongoing capital investments aimed at continually improving standards for environment, health, and
safety in each of our plants around the world; (v) meaningful use of metrics to apply leading and lagging indicators toward incremental improvement and
sustainable results; (vi) regular communication and engagement with employees on safety topics through safety committee meetings, plant-wide communication
meetings, and “tool box” meetings; and (vii) root cause analysis of all injuries and near misses to ensure that lessons learned can be applied across the entire
organization.
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We manufacture products deemed essential to the critical infrastructure, and as a result, all of our production sites (other than brief government mandated
shutdowns in China and India) continued operating during the COVID-19 pandemic. We have invested in creating physically safe work environments for our
employees as they continued to work throughout the COVID-19 pandemic. Examples of such actions taken, which were overseen by the Board of Directors,
include:
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Implemented and regularly updated a company-wide COVID-19 policy, which includes (i) information regarding COVID-19, its symptoms, how to
prevent its transmission, and what to do if you may or do have COVID-19; (ii) requirements around hygiene, sanitation, and social distancing; (iii) travel
restrictions; and (iv) expectations of employees working remotely;
CEO video messages regularly shown to entire workforce discussing expectations around illness prevention, hygiene, sanitation, social distancing, and
elevating issues to the CEO;
Implemented and continually updated an “Are You Sick” Flow Chart (under the guidance of Director Dr. Donald Landry) setting forth a simple summary
of required actions when an employee feels ill or may have had possible exposure to COVID-19;
Purchase, distribution, and use of Corporate-sponsored COVID-19 test kits (PCR-based) with next day results in most locations to ensure business
continuity and employee peace of mind;
Initiated a plan to proactively test employees to reduce the possibility of outbreaks and to instill a confidence in our employees;
Employee and visitor prescreening temperature check and symptom questionnaire;
Checklist for contact tracing, proactive cleaning, and work-relatedness assessment;
Decontamination and sanitation protocols, including enhanced, regular cleaning of work areas;
Protective on-site measures to prevent transmission, such as very early adoption of face coverings; employee and visitor health screenings; manufacture
and provision of hand sanitizer; reconfiguration of work areas to maximize distance between employees; installation of plexiglass barriers; mandatory
spacing in break rooms, conference rooms, and common areas; controlled traffic patterns to maximize distance; alternative work and break schedules; use
of video conferencing; reduction of “high touch” areas; and signage in offices and facilities concerning hygiene;
Rapid conversion to remote work during lockdowns and case surges for employees capable of performing work from home;
“Return to Office” checklist to ensure safe transition of employees back to office setting;
Use of Quality team to audit effectiveness of sanitation efforts in production and non-production areas, including office spaces, breakrooms, and
laboratories;
In-house production of sanitizer;
Developed a COVID-19 Response and Preparedness Plan template for local implementation;
Notification to employees when positive cases in the local workforce occur;
Designated key contacts leading COVID-19 response at local and Corporate level;
Prohibited non-essential travel;
Adjusted attendance rules for COVID-related absences to ensure employees stay home if sick;
Reasonable accommodation of employees at high risk for developing a severe case of COVID-19;
Disciplinary action for employees violating social distancing and mask rules;
COVID-19 in-house testing tracker to monitor COVID-19 testing and test kit inventory; and
Global COVID-19 tracker to monitor positive cases, quarantined employees, and other COVID-related absenteeism.
Regulation
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. 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.
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 Operations” below and “Forward-Looking Statements” above,
the following factors should be considered:
Business Risks
•
The Coronavirus/COVID-19 could adversely affect our results and financial condition.
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The Coronavirus, also known as COVID-19, has, and is expected to continue to, adversely affect most of the world, including through widespread illness,
quarantines, factory shutdowns, and travel and transportation restrictions. These disruptions present numerous risks to our operations, including through the
uncertainty regarding the severity and duration of COVID-19 or spikes in the number of COVID-19 cases in areas in which we operate.
We may be unable to produce goods due to constraints in production caused by our factories being ordered to close; our inability to obtain raw materials due to
shortages, transportation disruptions, or supplier shutdowns; or due to illnesses and quarantines affecting our workforce. Any of these events could adversely affect
our ability to produce and sell our products, resulting in reduced revenue.
In late December 2020, the government in Guangzhou, China, ordered our facility to be shut down for five days after an inspector allegedly detected the
coronavirus in a raw material obtained from a supplier in India. During the Chinese New Year in 2020, the Chinese government ordered us (along with other
companies) to shut down our manufacturing facilities for approximately ten days, where we make food colors, cosmetic ingredients, flavors, and dehydrated garlic
and onion for the Chinese and other Asian markets. Additionally, in 2020, our facility in India, where we make food and personal care products, was shut down for
several days after the Indian government ordered a nationwide lockdown (that facility subsequently began operating again several days later after it was designated
as part of the critical infrastructure for India). These shutdowns did not have a material impact on our results for Asia Pacific, but additional shutdowns or other
government actions could adversely affect our results.
While all of our manufacturing facilities currently remain open because they have been designated as part of the critical infrastructure of the countries in which
they operate (food and/or chemical production), these designations could be changed or modified in the future, resulting in a partial or total shutdown of one or
more of our facilities. Such shutdowns could adversely affect our results. Even if our facilities are allowed to remain open, an outbreak of illness among employees
at any of our facilities could result in a temporary or prolonged manufacturing disruption or facility closure. Additionally, changes in governmental policies could
also affect our ability to operate our facilities.
Even if we can produce our products, we may not be able to ship them on time due to transportation disruptions. In addition, due to travel restrictions and customer
shutdowns, we may not be able to continue sales efforts with some new and existing customers. Even where we can produce our products, offer our products for
sale, and deliver them, our customers may not be able to fully operate their production facilities due to shutdowns or their inability to obtain other raw materials
necessary to produce their products, which may result in less demand for our products. Customers may also face transportation disruptions for their products,
which could reduce customers’ sales and, therefore, customers’ demand for our products. Additionally, many customers have and may continue to cancel or delay
new product introductions due to the uncertainties created by COVID-19. Such events could adversely affect our results.
Social disruptions such as widespread illness, quarantines, unemployment, and general anxiety could also reduce consumer demand for the products our customers
make. This would result in less demand for our products and could adversely affect our results. In 2020, we saw a reduction in demand for cosmetics products,
certain products used by Quick Service Restaurants customers, and certain confectionary and other food products, all of which we believe was substantially caused
by COVID-19 quarantines and travel restrictions. While most of our workforce continues to work on site, we may face heightened cybersecurity risks as a result of
increased cybercriminal activity during a social disruption and if a larger portion of our workforce is required to work remotely again in the event of new
quarantines. While we take substantial steps (including in our remote work environment) to protect the information related to our formulas, research and
development, manufacturing processes, trade secrets, sales, products, customers, personnel, and other operations through cybersecurity systems, monitoring,
auditing, and training, these efforts may not always be successful.
Overall, governmental and social responses to the COVID-19 pandemic continue to evolve. In particular, there continues to be uncertainty related to the timing and
extent of vaccination programs, as well as the impacts of new COVID-19 variants, and we expect that the situation will remain dynamic and difficult to predict for
the foreseeable future. There can be no assurance that our experience to date with respect to facility operations, customer demand, the availability of supplies and
transportation, and other factors impacting our results and financial condition will be predictive of the ongoing impacts in the short or long term. Even as stay-
home orders and quarantines are eventually lifted, it is difficult to predict how economic conditions and changes in customer and consumer behavior may impact
our results over the longer term. As a result of any of the foregoing, our results or financial condition could be adversely impacted and the impacts could be
material.
•
Intense competition with our competitors may result in reduced sales and profitability.
We develop, manufacture, and sell flavors, flavor enhancers, ingredients, extracts, and bionutrients; 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 colors, and specialty dyes and pigments. We sell these products to customers in industries and markets that are
highly competitive. We face intense competition from multiple competitors in each of our business lines. These competitors range from large multinational flavor
companies with broad and sophisticated product portfolios and outstanding technological capabilities to smaller more specialized regional companies that focus on
a single product line or offering. Our success against these competitors depends upon our ability to continually develop and manufacture safe, high quality,
innovative, and legally compliant products across each of our product lines in varying batch sizes, at varying frequencies, and at acceptable prices. We also must
provide outstanding product development support, on time delivery, regulatory assistance, and after-sale product support to all of our customers, wherever they are
located. If we are unable to do these tasks, or if competitors do any of these tasks better than we do, we may lose part or all of our business with some customers.
We do lose business to competitors from time to time. Competition can reduce both our sales and the prices at which we are able to sell our products, which can
negatively affect our results.
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•
Intense competition among our customers and their competitors may result in reduced sales and profitability for our customers and us.
Generally, we do not sell products directly to consumers. The customers to whom we sell our products incorporate our products into their own products. Our
customers face intense competition. This competitive pressure has caused some of the Company’s customers to change or reduce ordering patterns, to resist price
increases, to discontinue or reduce existing product offerings, and to introduce fewer new products and reduce or eliminate traditional limited time offerings.
Additionally, the commercial outlets for many of our customers are also under intense competitive pressure, which has caused many such commercial outlets to be
resistant to price increases from their suppliers. Ultimately, our ability to sell our products to customers depends upon our customers’ ability to succeed against
their competitors and to respond effectively to the demands of their own customers. When our customers do not successfully compete, as happens from time to
time, it can impact our sales and the prices at which we sell our products, which can negatively affect our results.
•
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 with 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 negatively affect our results.
•
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.
•
Our sales and profitability are affected by changing consumer preferences, changing regulations and technologies, and our ability 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, either directly or through other commercial and retail outlets. Sales of flavors, colors, 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 regulations or 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, new technologies, and price demands, our results could be adversely affected. The ongoing COVID-19 pandemic has impacted consumer behavior in
numerous ways and it is difficult to predict whether these changes will persist over the long term and how they will impact our customers. Additionally, the market
pressures on our customers may adversely affect the willingness of these customers to launch new products, to introduce limited time offerings, and to grow or
continue to produce existing product lines. In the past year, we have seen a reduction in new product launches, smaller new product launches, and fewer limited
time offerings from some of our customers. Any of these actions by our customers can adversely affect our results.
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•
The financial condition of our customers may adversely affect their ability to buy products from us at current levels, to accept price increases, or to pay for
products that they have already purchased.
As mentioned above, our customers are under intense pressure in their markets from competitors and as a result of changing consumer preferences. These
combined pressures have resulted in some of the Company’s customers entering bankruptcy or receivership during the past 24 months. There is risk that other
customers of the Company could enter bankruptcy or receivership in the next 12 months. Once in bankruptcy or receivership, these customers are restricted from
paying certain outstanding invoices to the Company until later in the bankruptcy process and even when able to pay, may not be able to pay the full amounts owed.
Additionally, financially distressed customers may change or reduce ordering patterns, reduce willingness to accept price increases, discontinue or reduce existing
product offerings, and introduce fewer new products. Those developments could adversely affect our results.
•
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. As discussed above, the price pressures in our markets make such
cost reduction efforts particularly important.
•
A disruption in our supply chain could adversely affect our profitability.
We generally rely on third party suppliers for various raw materials that we use to make our products. We use many different chemical, natural products, and other
commodities as raw material ingredients. We also use raw materials whose production is energy intensive and dependent on successful farming techniques and
favorable climatic and environmental conditions. As the demand for natural products continues to grow, these risks associated with agriculture are becoming
increasingly important. In addition, we obtain some raw materials from a single supplier or a limited number of suppliers. Disruptions or other issues 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.
Constrictions in supply of raw materials can lead to increased costs. We may not be able to pass these costs to customers for a variety of reasons, including the fact
that some of our competitors may not be subject to the increased costs. Additionally, government regulatory action against any of our suppliers could also cause a
supply disruption. For example, within the last 36 months, Chinese regulators shut down suppliers that provided the Company with raw materials used in synthetic
colors. This adversely impacted the supply of raw materials for these products and, therefore, impacted our ability to produce products containing these raw
materials, which adversely impacted our ability to provide these products at traditional quantities and competitive prices. Any future unavailability or shortage of a
raw material, however caused, could negatively affect our operations using that raw material and thus adversely affect our results.
•
A disruption in our manufacturing operations could adversely affect our profitability.
We develop, manufacture, and distribute our products around the world. Generally, our labs and plants are dedicated to particular product lines. For example, many
(but by no means all) of our food colors products are developed and manufactured in our St. Louis facility. While we have redundant capabilities across labs and
plants for many product lines, in some cases we only manufacture particular products at one facility. To establish a new manufacturing capability at a plant would
require substantial time, money, and numerous governmental and customer approvals. Additionally, because of the complexity and highly specialized nature of
many of the products we produce, it would require a tremendous amount of technical, engineering, and management time and effort to establish the new capability.
Manufacturing involves inherent risks such as industrial accidents, environmental events, labor disputes, product quality control issues, safety issues, licensing and
regulatory compliance requirements, as well as natural disasters, conflicts, terrorist acts, cyber-attacks, and other events that we cannot control. If one of our
development or manufacturing facilities is disrupted or impaired, we could cause a supply disruption to our customers, which could cause short and long-term
damage to our customer relationships. Such disruption would have an adverse effect on our financial performance and future growth.
•
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, as has happened in the past, our financial results may be adversely impacted by markdowns, impairment charges, or other costs related
to disposal of excess or obsolete inventory.
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•
Commodity, energy, and transportation price volatility may reduce our profitability.
We use various energy sources 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, disruptive 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. Additionally, as many areas move away from using
carbon-based sources of energy, we would initially anticipate increases in the cost of energy generated from renewable energy sources. While the long-term
environment impact of these moves is favorable, the shorter-term impact in increased energy prices could adversely affect our profitability.
•
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 Operations.” 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.
•
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 availability and 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.
The United Kingdom (U.K.) left the European Union (E.U.) on January 31, 2020, which is commonly referred to as “Brexit.” On December 24, 2020, the U.K. and
E.U. announced that they had entered into a trade and cooperation agreement (the Post-Brexit Trade Deal) on certain aspects of trade and other political issues. On
December 31, 2020, the U.K. passed legislation giving effect to the Post-Brexit Trade Deal, with the E.U. expected to formally adopt the agreement in early 2021.
The Company has production facilities, customers, and suppliers in the U.K. Changes resulting from Brexit and the Post-Brexit Trade Deal could subject us to
increased risk, including supply disruption, changes in regulatory oversight, and increases in prices, fees, taxes, duties, or tariffs on goods that are sold between the
U.K. and the E.U. or those non-E.U. countries that have a trade agreement with the E.U. In addition, uncertainty exists regarding the implementation of the Post-
Brexit Trade Deal and whether the U.K. and E.U. will succeed in negotiating terms not addressed or covered by the Post-Brexit Trade Deal.
Changes resulting from Brexit and the Post-Brexit Trade Deal have disrupted our supply chains as our supply chain partners and the trading infrastructure are
adapting to requirements resulting from a new border between the U.K. and the E.U. We have also experienced increased delivery times and costs related to the
shipping and transportation of raw materials and finished products into and out of the U.K. as a result of Brexit and the Post-Brexit Trade Deal, which we may
continue to experience going forward.
In each of the Company’s three U.K. production facilities, a significant portion of the work forces are not U.K. nationals. Following the Post-Brexit Trade Deal,
there remains uncertainty regarding the freedom of movement for employees. Complying with new immigration regimes could result in increased costs to the
Company.
We are currently in the process of evaluating our own risks and uncertainty related to what financial, trade, regulatory, and legal implications the Post-Brexit Trade
Deal could have on our U.K. and European business operations. While we have taken steps to mitigate the effects following the Post-Brexit Trade Deal, these
efforts may not be as successful as intended, and we may not be able to avoid the costs and complications described above. Brexit has thus had and may continue
to have adverse impacts on our results.
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•
The impact of tariffs and other trade barriers may negatively affect our results.
The Company has manufacturing facilities located around the world. The Company sells to customers located both inside and outside the countries in which
products are manufactured. The Company also depends upon suppliers both inside and outside the countries in which products are manufactured. Tariffs and other
trade barriers imposed by the U.S. or other countries have affected and could continue to adversely affect our manufacturing costs, our ability to source and import
raw materials, our ability to export our products to other markets, and our ability to compete successfully against other companies that are not impacted by tariffs
to the same extent as the Company. Additionally, the uncertainties created by tariffs and other trade barriers have also affected and could continue to affect our
customers’ demand for our products because, for example, the customers decide to delay product launches or destock inventory due to these uncertainties. It is
difficult to predict the effects of current or future tariffs and other trade barriers and disputes, and the Company’s efforts to reduce the effects of tariffs through
pricing and other measures may not be effective.
•
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, will cease to exist in the future. LIBOR cessation is expected to occur in 2023; however, there will be early opt in triggers that could
trigger a transition to the replacement rate before 2023. We will likely adopt the Alternative Reference Rates Committee’s “hardwired approach,” which clearly
specifies the SOFR-based successor rate and spread adjustment to be used when LIBOR ceases to exist, for any agreements that are refinanced or amended prior to
the end of 2021. Any agreements that are refinanced or renewed after 2021 will transition to the new reference rate. The consequences of these developments still
cannot be entirely predicted, but could result in an increase in the cost of our variable rate debt, which references LIBOR, as a result of applicable margin or
reference rate increases. As of December 31, 2020, approximately 20% of our total debt referenced LIBOR. 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.
The Company hedges certain foreign currencies using forward contracts which are typically less than fifteen months in length. Certain forward contracts utilize
LIBOR as a basis for forward point calculations and may be subject to adjustments when LIBOR ceases to exist. We do not anticipate material impacts as a result
of the LIBOR transition on our contracts due to the tenor; however, cannot provide assurance that a transitional rate will be established for the settlement of
outstanding contracts when LIBOR ceases to exist.
• 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, changes in climate,
epidemics, pandemics (including the coronavirus, as discussed in more detail above), 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.
Litigation and Regulatory Risks
• 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. If the consumption or
use of our products causes product damage, injury, illness, or death, we may be subject to liability, including class action lawsuits and other civil and governmental
litigation. We are also subject to product liability claims involving products containing diacetyl and related chemicals. From time to time, we or our customers
have withdrawn or recalled products in the event of contamination, product defects, or perceived quality problems. If our customers withdraw or recall products
related to ingredients that we provide to them, as has occurred in the past, they may make claims against us.
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Although we vigorously defend against claims when they are made, there can be no assurance that any claims or recalls will not be material. While we maintain
liability insurance against these risks, coverage may be unavailable or incomplete. A significant product defect, product recall, or product liability judgment can
negatively impact our profitability for a period of time depending on the insurance coverage, costs, adverse publicity, product availability, scope, competitive
reaction, and consumer attitudes. Even if a product liability claim is unsuccessful or is not fully pursued, the cost of defense and the negative publicity surrounding
any assertion that our products caused illness, injury, or death or any recall involving our products could adversely affect our reputation with existing and potential
customers and our corporate image and thereby adversely impact our profitability.
•
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, 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, recalls of products, and private civil lawsuits. Regulatory action against a supplier or customer can create risk for us and negatively affect our operations. As
discussed above, actions by regulatory agencies against us and our suppliers can also adversely impact the availability of raw materials. Anytime raw materials
become more costly or unavailable due to legal, regulatory, or other governmental actions our profitability could be adversely impacted.
•
Environmental compliance may be costly to us.
Our operations are subject to extensive and stringent laws and regulations that 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. Additionally, the ability of our suppliers to comply with environmental regulations may cause adverse effects on us by reducing or eliminating the
availability of necessary raw materials or increasing the cost of raw materials. These factors might adversely impact our ability to make certain products as well as
our profitability on the products that can be made.
• 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.
•
Changes in tax rates or tax laws could expose us to additional tax liabilities that may negatively affect our results.
We are subject to taxes in the U.S. and numerous foreign jurisdictions. Our future effective tax rates could be affected by changes in the mix of earnings in
countries with differing statutory tax rates; changes in the valuation of deferred tax assets and liabilities; changes in liabilities for uncertain tax positions; the costs
of repatriations; or changes in tax laws or their interpretation. Any of these changes could negatively impact our results.
We are also subject to the routine examination of our income tax returns by tax authorities in those countries in which we operate, and we may be subject to
assessments or audits in the future in any of these countries. The results of such assessments or audits, if adverse to the Company, could negatively impact our
results.
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We have transfer pricing policies that are a significant component of the management and compliance of our operations across international boundaries and overall
financial results. Many countries routinely examine transfer pricing policies of taxpayers subject to their jurisdiction, challenge transfer pricing policies
aggressively where there is potential non-compliance, and impose significant interest charges and penalties where non-compliance is determined. However,
governmental authorities could challenge these policies more aggressively in the future and, if challenged, we may not prevail. We could suffer significant costs
related to one or more challenges to our transfer pricing policies.
Structural and Organizational Risks
• We depend on certain key personnel, and the loss of these persons may harm our business, including the loss of trade secrets.
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. Additionally, many of our key personnel must have access to the Company’s trade secrets to effectively perform their job responsibilities.
Although we seek to impose confidentiality, non-solicitation, loyalty, and non-competition obligations on many employees through agreements and our Code of
Conduct, these efforts may not be successful. Furthermore, litigation to enforce departing employees’ legal obligations may not be, and has not always been,
successful as the legal systems in many jurisdictions disfavor restrictions on an employee’s right to change jobs as well as on preemptive measures to prevent the
disclosure of a company’s trade secrets and intellectual property before it occurs. As a result, there is a possibility that certain competitors could attempt to exploit
the Company’s trade secrets and confidential information to the Company’s competitive detriment, which could adversely impact our profitability.
• We are exposed to risks associated with our divestitures, which may impact our ability to fully realize the anticipated benefits of those transactions and could
result in expenses and charges that are greater than we currently anticipate.
We have previously announced our intent to divest certain product lines. We have now completed the divestiture of our inks and yogurt fruit preparations product
lines, and we have entered into an agreement with a buyer to sell our fragrances (excluding the essential oils product line) product line. If the sale of the fragrances
product line is not completed in a timely manner, whether delayed by COVID-19 or otherwise, our profitability could be adversely impacted and management
could be distracted from the core remaining businesses of the Company. Divestitures also contain inherent risks that may impact our ability to fully realize the
benefits of such divestiture, including possible delays in closing, expenses and additional charges that are greater than we currently anticipate, and potential post-
closing claims for indemnification. If any of these risks materialize, the benefits of such divestitures may not be fully realized, if at all, and our business, financial
condition, and results of operations could be negatively impacted.
Additionally, in connection with the divestiture of our fragrances product line, the buyer notified us that environmental sampling conducted at our Granada, Spain,
location identified the presence of contaminants in soil and groundwater in certain areas of the property. Environmental regulations, and the potential failure to
comply with them, can have serious consequences, including the costs of compliance, defense, and remediation; interference with our operations or the ability to
obtain required permits; civil, criminal, and administrative penalties; and negative publicity. The amount of potential environmental remediation costs and
complying with environmental laws associated with our Granada, Spain, location is currently estimated to be $0.8 million; however, the actual final costs may be
greater than our estimates and could be material.
• 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 liabilities associated with acquisitions that the Company has
made in the past. Acquired companies may 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 goodwill, which would need to be written
off against earnings in the future if it becomes impaired.
•
Our recent restructurings and the operational improvement plan 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. Additionally, in the third quarter of 2020, the Company also began the execution of an operational improvement plan
to further consolidate manufacturing facilities and improve efficiencies within the Personal Care business line of the Company. These activities required, and
continue to require, 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 number of factors, including our ability to effectively reduce overhead, rationalize manufacturing capacity, and effectively produce products
at the consolidated facilities. Furthermore, our restructurings and the operational improvement plan may not be as effective as we anticipated, and we may fail to
realize the cost savings we expected from these restructurings and the operational improvement plan.
15
Index
Technology and Cybersecurity Risks
•
Our ability to protect our intellectual property rights is key to our performance.
We protect our intellectual property rights as trade secrets, through patents, under confidentiality agreements, and through internal and external physical and 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.
•
Our ability to successfully maintain and upgrade our information technology systems, and to respond effectively to failures, disruptions, compromises, or
breaches of our information technology systems, may adversely affect our competitiveness and profitability.
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 as well as our
facilities and IT systems, our competitiveness and profits could decrease. Because of the nature of our business, and the importance of our proprietary information
and manufacturing facilities, 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, ransomware, theft, employee
carelessness in the face of social engineering threats, 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 lost business opportunities, 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. And, while we maintain liability insurance against these risks, coverage may be unavailable or incomplete.
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 &
Extracts Group headquarters offices located in Hoffman Estates, Illinois. As of December 31, 2020, 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; and Kings Lynn, United Kingdom.
Flavors & Extracts Group:
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.
16
Index
Asia Pacific Group:
U.S. – None.
International – Keysborough, Australia; Guangzhou, China*; Mumbai, India*; Hitachi, Japan; Auckland, New Zealand; Manila, Philippines*;
and Bangkok, Thailand*.
* Indicates a leased property at the location. The Company ended its Qingdao lease in 2020.
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.
See Part IV, Item 15, Note 16, Commitments and Contingencies, of this report for information regarding legal proceedings in which we are involved.
Item 4.
Mine Safety Disclosure.
Not applicable.
Information About Our Executive Officers
The executive officers of the Company and their ages as of February 20, 2021, are as follows:
Name
Paul Manning
Amy M. Agallar
Michael C. Geraghty
Thierry Hoang
Amy Schmidt Jones
John J. Manning
E. Craig Mitchell
Stephen J. Rolfs
Tobin Tornehl
Age
46
43
59
38
51
52
56
56
47
Position
Chairman, President, and Chief Executive Officer
Vice President and Treasurer
President, Color Group
Vice President, Asia Pacific Group
Vice President, Human Resources and Senior Counsel
Senior Vice President, General Counsel, and Secretary
President, Flavors and Extracts 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 – January 2019), and Director – Global Treasury Operations of Modine Manufacturing (2011– June 2018).
• Mr. Hoang has held his present office since June 1, 2018, and previously served as a General Manager, Business Unit Manager, and Sales Account
Manager for Sensient Cosmetics in France and Asia Pacific (2009 – May 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. 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).
• 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. Tornehl has held his present office since November 10, 2018, and previously served as Director, Finance (2008 – November 2018).
Mr. Paul Manning (Chairman, President, and Chief Executive Officer) and Mr. John J. Manning (Senior Vice President, General Counsel, and Secretary) are
brothers.
17
Index
PART II
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 number of shareholders of record of the Company’s
common stock on February 12, 2021 was 2,149.
Since 1962, the Company has paid, without interruption, a quarterly cash dividend. During fiscal 2020, the Company paid aggregate cash dividends of $1.56 per
share to our shareholders, and the Company most recently declared a dividend of $0.39 per share payable on March 1, 2021 to shareholders of record on February
2, 2021. The timing, declaration, and payment of future dividends to holders of the Company’s common stock will depend upon many factors, including the
Company’s financial condition and results of operations, the capital requirements of the Company’s businesses, industry practice, and any other relevant factors.
On October 19, 2017, the Board of Directors authorized the repurchase of up to three million shares (2017 Authorization). As of December 31, 2020, 774,974
shares had been repurchased under the 2017 Authorization. There were no repurchases of shares by the Company during 2020. There is no expiration date for the
2017 Authorization. The 2017 Authorization may be modified, suspended, or discontinued by the Board of Directors at any time. As of December 31, 2020, the
maximum number of shares that may be purchased under publicly announced plans is 2,225,026.
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 (S&P Midcap Specialty Chemicals Index), the Standard & Poor’s Midcap Food Products Index (S&P Midcap Food Products
Index), and the Standard & Poor’s 500 Stock Index (S&P 500 Index). The graph assumes a $100 investment made on December 31, 2015, and reinvestment of
dividends. The stock performance shown on the graph is not necessarily indicative of future price performance.
Sensient Technologies Corporation
S&P Midcap Specialty Chemicals Index
S&P Midcap Food Products Index
S&P 500 Index
Standard & Poor’s and S&P are registered trademarks of Standard & Poor’s Financial Services, LLC.
$
2015
100 $
100
100
100
2016
127 $
125
122
112
2017
120 $
134
128
136
2018
94 $
127
119
130
2019
113 $
151
139
171
2020
130
162
153
203
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Index
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)
2020
Revenue
Gross profit
Net earnings
Earnings per basic share
Earnings per diluted share
2019
Revenue
Gross profit
Net earnings (loss)
Earnings (loss) per basic share
Earnings (loss) per diluted share
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Full
Year
$
$
350,677 $
111,893
20,773
0.49
0.49
347,513 $
115,225
32,807
0.78
0.78
323,090 $
102,214
30,620
0.72
0.72
339,186 $
111,768
34,331
0.81
0.81
323,566 $
105,646
32,910
0.78
0.78
317,650 $
102,400
31,871
0.75
0.75
334,668 $
103,994
25,169
0.59
0.59
318,585 $
85,480
(16,962)
(0.40)
(0.40)
1,332,001
423,747
109,472
2.59
2.59
1,322,934
414,873
82,047
1.94
1.94
19
Index
Five Year Review
(In thousands except percentages, employee and per share data)
20.4
11.5%
271,091
152,656
14,811
137,845
28,373
109,472
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 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
$
-
$ 109,472
2.59
-
2.59
2.59
-
2.59
2020
2019
2018
2017
2016
$ 1,332,001
908,254
100.0% $ 1,322,934
908,061
68.2
100.0% $ 1,386,815
920,686
68.6
100.0% $ 1,362,265
886,775
66.4
100.0% $ 1,383,210
907,783
65.1
100.0%
65.6
21.0
13.4%
293,763
121,110
20,107
101,003
18,956
82,047
-
82,047
1.94
-
1.94
1.94
-
1.94
22.2
9.2%
262,751
203,378
21,853
181,525
24,165
157,360
-
$ 157,360
$
$
$
$
3.71
-
3.71
3.70
-
3.70
18.9
14.7%
$
$
$
$
$
307,684
167,806
19,383
148,423
58,823
89,600
-
89,600
2.05
-
2.05
2.03
-
2.03
22.6
12.3%
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
$
$
$
$
$
1.56
$
1.47
$
1.35
$
1.23
$
1.11
Average common shares
outstanding:
Basic
Diluted
Book value per common
share
$
Price range per common
share
Share price at December
42,301
42,346
22.04
38.24-
75.30
31
Capital expenditures
Depreciation
Amortization
Total assets
Long-term debt
Total debt
Shareholders’ equity
Return on average
73.77
52,162
48,153
1,488
1,740,860
518,004
527,251
934,336
42,263
42,294
20.83
54.77-
75.21
$
66.09
39,100
52,159
2,856
1,740,151
598,499
619,111
881,589
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
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
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
shareholders’ equity
Total debt to total capital
Employees
12.3%
36.1%
3,948
9.2%
41.3%
4,058
18.8%
45.2%
4,113
10.3%
42.3%
4,023
14.7%
41.9%
4,083
The 2020 results include charges of $18.5 million ($14.4 million after tax, $0.34 per share) related to divestiture & other related costs, operational improvement
plan costs, and costs associated with a one-time COVID-19 employee payment.
The 2019 results include charges of $45.9 million ($43.2 million after tax, $1.02 per share) related to divestiture & other related costs. The divestiture & other
related costs pertain to the Company’s October 2019 announcement to divest its inks, fragrances (excluding its essential oils product line), and fruit preparations
product lines.
20
Index
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 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 &
Extracts 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 restructuring and other divestiture costs. The restructuring
costs pertain to the Company’s 2014 restructuring plan related to eliminating underperforming operations, consolidating manufacturing facilities, and improving
efficiencies within the Company, and the other costs pertain to the Company’s divestiture in Strasbourg, France.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the Company’s financial condition and results of operations for the fiscal years ended December 31, 2020 and 2019
should be read in conjunction with our audited consolidated financial statements and the notes to those statements. Discussion and analysis of our cash flows for
the fiscal year ended December 31, 2018 is included under the heading Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Financial Position in our Annual Report on Form 10-K filed for the fiscal year ended December 31, 2019 with the Securities and
Exchange Commission on February 21, 2020.
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 previously announced it has entered into a definitive agreement to sell its fragrances
product line (excluding its essential oils product line). 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 and other ingredients for
cosmetics, pharmaceuticals, and nutraceuticals; and technical colors for industrial applications. The Company’s three reportable segments are the Flavors &
Extracts Group (formerly known as the Flavors & Fragrances segment; see Note 12, Segment and Geographic Information) 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, restructuring including
operational improvement plans, divestiture, share-based compensation, COVID-19 employee payment, and other costs are included in the “Corporate & Other”
category. In the second quarter of 2020, the Company divested its inks product line (Color Group), and in the third quarter of 2020, the Company divested its
yogurt fruit preparations product line (Flavors & Extracts Group).
In 2020, Sensient’s management team and employees worked diligently throughout the pandemic to ensure that employees remained safe, facilities remained open,
and the supply chain continued to function. As a result of these efforts, Sensient was able to serve as a consistent and reliable supplier to its customers throughout
the pandemic for their food, pharmaceutical, and personal care ingredient needs. The impact of COVID-19 on Sensient’s business was mixed in 2020. The
Company believes the net impact of the pandemic was negative to Sensient’s results, as the increase in certain product lines was more than offset by the significant
drop in demand for cosmetic makeup ingredients and certain food products.
The Company also made significant progress on the product line divestitures that were announced in 2019. The sales of the inks product line and yogurt fruit
preparations product line were completed in 2020. Additionally, a definitive agreement to sell the fragrances product line (excluding the essential oils product line)
was signed in November 2020, with an anticipated close date in the first half of 2021.
The Company’s diluted earnings per share were $2.59 in 2020 and $1.94 in 2019. Included in the 2020 results were $18.5 million ($14.4 million after tax, $0.34
per share) of divestiture & other related costs, operational improvement plan costs, and a one-time COVID-19 employee payment. Included in the 2019 results
were $45.9 million ($43.2 million after tax, $1.02 per share) of divestiture & other related costs. Adjusted diluted earnings per share, which exclude the divestiture
& other related costs, the results of operations of the product lines divested or to be divested, the operational improvement plan costs, and the impact of the one-
time COVID-19 employee payment, were $2.79 in 2020 and $2.92 in 2019 (see discussion below regarding non-GAAP financial measures).
Additional information on the results is included below.
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Index
RESULTS OF OPERATIONS
2020 vs. 2019
Revenue
Sensient’s revenue was approximately $1.3 billion in both 2020 and 2019.
Gross Profit
The Company’s gross margin was 31.8% in 2020 and 31.4% in 2019. The increase in gross margin is primarily a result of lower divestiture & other related costs in
2020.
Selling and Administrative Expenses
Selling and administrative expense as a percent of revenue was 20.4% in 2020 and 22.2% in 2019. Selling and administrative expenses in 2020 included divestiture
& other related expenses, operational improvement plan costs, and the one-time COVID-19 employee payment totaling $15.7 million and in 2019 included
divestiture & other related costs totaling $35.3 million. These expenses increased selling and administrative expense as a percent of revenue by approximately 120
and 270 basis points in 2020 and 2019, respectively. See Divestitures below for further information.
Operating Income
Operating income was $152.7 million in 2020 and $121.1 million in 2019. Operating margins were 11.5% in 2020 and 9.2% in 2019. Divestiture & other related
costs, operational improvement plan costs, and the one-time COVID-19 employee payment reduced operating margins by approximately 140 basis points in 2020
and divestiture & other related expenses reduced operating margins by approximately 350 basis points in 2019.
Additional information on segment results can be found in the Segment Information section.
Interest Expense
Interest expense was $14.8 million in 2020 and $20.1 million in 2019. The decrease in expense was primarily due to a decrease in the average interest rate and the
average debt outstanding.
Income Taxes
The effective income tax rate was 20.6% in 2020 and 18.8% in 2019. The effective tax rates in both 2020 and 2019 were impacted by changes in estimates
associated with the finalization of prior year foreign and domestic tax items, audit settlements, mix of foreign earnings, costs related to the divestiture & other
related costs and the release of valuation allowances related to the foreign tax credit carryover and foreign net operating losses. See Note 11, Income Taxes, in the
Notes to Consolidated Financial Statements included in this report for additional information.
Rate before divestiture and discrete items
Divestiture & other related costs impact
Discrete items
Reported effective tax rate
2020
2019
24.8%
0.3%
(4.5%)
20.6%
25.7%
4.1%
(11.0%)
18.8%
The 2021 effective income tax rate is estimated to be between 24% and 25%, before any divestiture & other related costs and discrete items, such as finalization of
prior year foreign and domestic tax items, audit settlements, and valuation allowance adjustments.
Divestitures
In October 2019, the Company announced its intent to divest its inks, fragrances (excluding its essential oils product line), and yogurt fruit preparations product
lines. In the fourth quarter of 2019, the Board of Directors approved the sale of the inks product line, which was within the Color segment, and the fragrances
product line (excluding its essential oils product line), which is within the Flavors & Extracts segment. In the second quarter of 2020, the Board of Directors
approved the sale of the yogurt fruit preparations product line, which was within the Flavors & Extracts segment.
On June 30, 2020, the Company completed the sale of its inks product line. In 2020, the Company received $11.6 million of net cash for the sale of the product line
and expects to receive additional cash when it completes certain post-closing asset sales. On September 18, 2020, the Company completed the sale of its yogurt
fruit preparations product line for $1.0 million. The sale included an earn-out agreement based on future performance, which could result in additional cash
consideration for the Company. On November 23, 2020, the Company announced it had entered into a definitive agreement to sell its fragrances product line
(excluding its essential oils product line). The Company expects the transaction to close in the first half of 2021.
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Index
Divestiture & other related costs were $12.2 million and $45.9 million in 2020 and 2019, respectively. See Note 14, Divestitures, in the Notes to Consolidated
Financial Statements included in this report for additional information.
As of December 31, 2020, the Company currently estimates 2021 divestiture charges will be $10 million to $14 million. The Company is expecting a non-cash
charge of $8 million to $10 million upon closing the sale of the fragrances product line (excluding its essential oils product line) related to the reclassification of
accumulated foreign currency translation and related items from Accumulated Other Comprehensive Loss to Selling and Administrative Expenses in the
Consolidated Statement of Earnings. In addition, the Company expects other costs, primarily accelerated depreciation and other exiting activities expenses, to be
between $2 million and $4 million. The Company anticipates that it will complete the sales and exit activities of these product lines in 2021.
Operational Improvement Plan
In the third quarter of 2020, the Company approved an operational improvement plan to consolidate manufacturing facilities and improve efficiencies within the
Company. As part of the operational improvement plan, the Company is combining its New Jersey cosmetics manufacturing facility in the Personal Care product
line of the Color segment into its existing Color segment facility in Missouri. In addition, the Company is centralizing certain Flavors & Extracts segment support
functions in Europe into one location. In the Asia Pacific segment, the Company incurred costs in connection with the elimination of certain selling and
administrative positions.
COVID-19 Employee Payment
In the fourth quarter of 2020, the Company approved a one-time COVID-19 employee payment to reward the outstanding dedication and efforts of the Company’s
employees during these challenging and unprecedented times. This adjustment totaled approximately $3.0 million.
NON-GAAP FINANCIAL MEASURES
Within the following tables, the Company reports certain non-GAAP financial measures, including: (1) adjusted revenue, adjusted operating income, adjusted net
earnings, and adjusted diluted earnings per share, which exclude the results of the product lines divested or to be divested, the divestiture & other related costs, the
operational improvement plan costs, and a one-time COVID-19 employee payment and (2) percentage changes in revenue, operating income, and diluted earnings
per share on an adjusted local currency basis, which eliminate the effects that result from translating its international operations into U.S. dollars, the results of
product lines divested or to be divested, the divestiture & other related costs or income, the operational improvement plan costs, and the one-time COVID-19
employee payment.
The Company has included each of these non-GAAP measures in order to provide additional information regarding our underlying operating results and
comparable year-over-year performance. Such information is supplemental to information presented in accordance with GAAP and is not intended to represent a
presentation in accordance with GAAP. These non-GAAP measures should not be considered in isolation. Rather, they should be considered together with GAAP
measures and the rest of the information included in this report. Management internally reviews each of these non-GAAP measures to evaluate performance on a
comparative period-to-period basis and to gain additional insight into underlying operating and performance trends, and the Company believes the information can
be beneficial to investors for the same purposes. These non-GAAP measures may not be comparable to similarly titled measures used by other companies.
23
Index
(In thousands except per share amounts)
Revenue (GAAP)
Revenue of the product lines divested or to be divested
Adjusted revenue
Operating Income (GAAP)
Divestiture & other related costs – Cost of products sold
Divestiture & other related costs – Selling and administrative expenses
Operating income of the product lines divested or to be divested
Operational improvement plan – Cost of products sold
Operational improvement plan – Selling and administrative expenses
COVID-19 employee payment– Cost of products sold
COVID-19 employee payment – Selling and administrative expenses
Adjusted operating income
Net Earnings (GAAP)
Divestiture & other related costs, before tax
Tax impact of divestiture & other related costs
Net earnings of the product lines divested or to be divested, before tax
Tax impact of the product lines divested or to be divested
Operational improvement plan costs, before tax
Tax impact of operational improvement plan
COVID-19 employee payment, before tax
Tax impact of COVID-19 employee payment
Adjusted net earnings
Diluted Earnings Per Share (GAAP)
Divestiture & other related costs, net of tax
Results of operations of the product lines divested or to be divested, net of tax
Operational improvement plan, net of tax
COVID-19 employee payment, net of tax
Adjusted diluted earnings per share
$
$
$
$
$
$
$
$
Twelve Months Ended December 31,
2019
1,322,934
(143,172)
1,179,762
2020
1,332,001 $
(113,553)
1,218,448 $
% Change
152,656 $
1,795
10,360
(7,580)
35
3,304
1,036
1,986
163,592 $
109,472 $
12,155
(2,605)
(7,580)
1,945
3,339
(826)
3,022
(675)
118,247 $
2.59 $
0.23
(0.13)
0.06
0.06
2.79 $
121,110
10,567
35,313
(1,978)
-
-
-
-
165,012
82,047
45,880
(2,671)
(1,978)
399
-
-
-
-
123,677
1.94
1.02
(0.04)
-
-
2.92
0.7%
3.3%
26.0%
(0.9%)
33.4%
(4.4%)
33.5%
(4.5%)
Divestiture & other related costs are discussed under “Divestitures” above and Note 14, Divestitures, in the Notes to the Consolidated Financial
Statements included in this report. Operational improvement plan is discussed under “Operational Improvement Plan” above and Note 15, Operational
Improvement Plan, in the Notes to the Consolidated Financial Statements included in this report.
Note: Earnings per share calculations may not foot due to rounding differences.
24
Index
The following table summarizes the percentage change in the 2020 results compared to the 2019 results in the respective financial measures.
Revenue
Flavors & Extracts
Color
Asia Pacific
Total Revenue
Operating Income
Flavors & Extracts
Color
Asia Pacific
Corporate & Other
Operating Income
Diluted Earnings per Share
Twelve Months Ended December 31, 2020
Foreign
Exchange
Rates
Total
Adjustments(1)
Adjusted
Local
Currency
6.0%
(6.4%)
2.5%
0.7%
21.4%
(5.1%)
13.9%
(24.2%)
26.0%
33.5%
(0.3%)
(1.8%)
(0.3%)
(0.9%)
(0.7%)
(1.6%)
(0.2%)
0.0%
(1.9%)
(2.1%)
(2.5%)
(3.9%)
(0.2%)
(2.7%)
9.0%
(1.1%)
(0.2%)
(57.0%)
27.5%
39.0%
8.8%
(0.7%)
3.0%
4.3%
13.1%
(2.4%)
14.3%
32.8%
0.4%
(3.4%)
(1) For Revenue, adjustments consist of revenues of the product lines divested or to be divested. For Operating Income and Diluted Earnings per Share,
adjustments consist of the results of the product lines divested or to be divested, divestitures & other related costs, operational improvement plan costs,
and the one-time COVID-19 employee payment.
Note: Refer to table above for a reconciliation of these non-GAAP measures.
SEGMENT INFORMATION
The Company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance.
Segment performance is evaluated on operating income before any applicable divestiture & other related costs, share-based compensation, acquisition,
restructuring including the operational improvement plan, one-time COVID-19 employee payment, and other costs (which are reported in Corporate & Other),
interest expense, and income taxes.
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 12, Segment and Geographic Information, of this report.
The Company’s reportable segments consist of the Flavors & Extracts, Color, and Asia Pacific segments.
Flavors & Extracts
Flavors & Extracts segment revenue was $742.0 and $700.4 million in 2020 and 2019, respectively, an increase of approximately 6%. Foreign exchange rates did
not have a significant impact on segment revenue in 2020. Segment revenue was higher than the prior year due to higher revenue in Flavors, Extracts & Flavor
Ingredients and Natural Ingredients, partially offset by lower revenue in Yogurt Fruit Preparations and Fragrances. The higher revenue in Flavors, Extracts &
Flavor Ingredients and Natural Ingredients was primarily due to favorable volumes and selling prices, partially offset by the unfavorable impact of foreign
exchange rates at Flavors, Extracts & Flavor Ingredients. The lower revenue in Yogurt Fruit Preparations was primarily due to lower volumes and the divestiture of
the product line in the third quarter of 2020. The lower revenue in Fragrances was due to lower selling prices partially offset by higher volumes.
Flavors & Extracts segment operating income was $91.0 million in 2020 and $75.0 million in 2019, an increase of approximately 21%. Foreign exchange rates
decreased segment operating income by approximately 1%. The higher segment operating income was primarily a result of higher operating income in Flavors,
Extracts & Flavor Ingredients and Fragrances, partially offset by lower operating income in Natural Ingredients. The higher operating income in Flavors, Extracts
& Flavor Ingredients was primarily due to favorable selling prices, favorable manufacturing and other costs, and lower raw material costs. The higher operating
income at Fragrances was primarily due to lower raw material costs, favorable manufacturing and other costs, and favorable volumes and product mix, partially
offset by lower selling prices. The lower operating income in Natural Ingredients was primarily due to higher raw material and manufacturing and other costs,
partially offset by higher selling prices and favorable volumes and product mix. Segment operating income as a percent of revenue was 12.3% and 10.7% for 2020
and 2019, respectively.
25
Index
Color
Segment revenue for the Color segment was $501.0 million in 2020 and $535.2 million in 2019, a decrease of approximately 6%. Foreign exchange rates decreased
segment revenue by approximately 2%. The lower segment revenue was primarily a result of lower revenue in Personal Care and Inks, partially offset by higher
revenue in Food & Pharmaceutical Colors. The lower revenue in Personal Care was primarily a result of lower volumes due to lower demand for makeup products
due to COVID-19 and unfavorable foreign exchange rates, partially offset by higher selling prices. The lower revenue in Inks was primarily a result of divesting
the product line in the second quarter of 2020 and lower volumes. The higher revenue in Food & Pharmaceutical Colors was primarily due to favorable volumes
and higher selling prices, partially offset by the unfavorable impact of foreign exchange rates.
Segment operating income for the Color segment was $96.0 million in 2020 and $101.2 million in 2019, a decrease of approximately 5%. Foreign exchange rates
decreased segment operating income by approximately 2%. The lower segment operating income was primarily a result of lower operating income in Personal
Care, partially offset by higher operating income in Food & Pharmaceutical Colors. The lower operating income in Personal Care was primarily a result of lower
volumes due to lower demand for makeup products due to COVID-19, higher raw material and manufacturing and other costs, and the unfavorable impact of
foreign exchange rates, partially offset by higher selling prices. The higher operating income in Food & Pharmaceutical Colors was primarily due to lower raw
material costs, volumes, and selling prices, partially offset by unfavorable manufacturing and other costs. Segment operating income as a percent of revenue was
19.2% in 2020 compared to 18.9% in 2019.
Asia Pacific
Segment revenue for the Asia Pacific segment was $121.2 million and $118.2 million for 2020 and 2019, respectively, an increase of approximately 3%. Foreign
exchange rates had a minimal impact on segment revenues. Segment revenue was higher than the prior year due to higher volumes.
Segment operating income for the Asia Pacific segment was $22.1 million in 2020 and $19.4 million in 2019, an increase of approximately 14% compared to the
prior year. Foreign exchange rates did not have a significant impact on segment operating income. The increase in segment operating income was a result of higher
volumes and lower raw material costs. Segment operating income as a percent of revenue was 18.2% in 2020 and 16.4% in 2019, respectively.
Corporate & Other
The Corporate & Other operating loss was $56.4 million in 2020 and $74.4 million in 2019. The lower operating loss was primarily a result of lower divestiture &
other related costs in 2020 of $12.2 million compared to $45.9 million in 2019. These lower divestiture & other related costs in 2020 were partially offset by higher
stock based compensation of $6.3 million, operational improvement plan costs of $3.3 million, and the one-time COVID-19 employee payment of $3.0 million.
There were no operational improvement plan costs or COVID-19 employee payment in 2019. See the Divestitures, Operational Improvement Plan, and COVID-19
Employee Payment sections above for further information.
RESULTS OF OPERATIONS
2019 vs. 2018
Revenue
Sensient’s revenue was approximately $1.3 billion and $1.4 billion in 2019 and 2018, respectively.
Gross Profit
The Company’s gross margin was 31.4% in 2019 and 33.6% in 2018. The decrease in gross margin was primarily a result of unfavorable volume and the impact of
a $10.6 million inventory adjustment related to the divesting of the yogurt fruit preparations product line, partially offset by higher selling prices. See Divestitures
below for further information on the inventory adjustment.
Selling and Administrative Expenses
Selling and administrative expense as a percent of revenue was 22.2% in 2019 and 18.9% in 2018, respectively. Divestiture & other related costs of $35.3 million
in 2019 were included in Selling and Administrative Expense and increased selling and administrative expense as a percent of revenue by approximately 270 basis
points in 2019. See Divestitures below for further information.
Operating Income
Operating income was $121.1 million in 2019 and $203.4 million in 2018. Operating margins were 9.2% in 2019 and 14.7% in 2018. Divestiture & other related
costs reduced operating margins by approximately 350 basis points in 2019.
Additional information on segment results can be found in the Segment Information section.
26
Index
Interest Expense
Interest expense was $20.1 million in 2019 and $21.9 million in 2018. The decrease in expense was primarily due to the decrease in average debt outstanding.
Income Taxes
The effective income tax rate was 18.8% in 2019 and 13.3% in 2018. The effective tax rates in both 2019 and 2018 were impacted by changes in estimates
associated with the finalization of prior year foreign and domestic tax items, audit settlements, and mix of foreign earnings. The effective tax rate in 2019 was
impacted by tax costs related to the divestiture & other related costs and the release of valuation allowances related to the foreign tax credit carryover and foreign
net operating losses. 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. See Note 11, Income Taxes, in the Notes to Consolidated Financial Statements included in this
report for additional information.
On December 22, 2017, the U.S. enacted the 2017 Tax Legislation (2017 Tax Legislation). The 2017 Tax Legislation 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 2017 Tax Legislation 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 2017 Tax Legislation.
Rate before 2017 Tax Legislation, divestiture and discrete items
2017 Tax Legislation
Divestiture & other related costs impact
Discrete items
Reported effective tax rate
2019
2018
25.7%
-
4.1%
(11.0%)
18.8%
20.7%
(3.7%)
-
(3.7%)
13.3%
Acquisitions
On March 9, 2018, the Company completed the acquisition of certain net assets and the natural color business of GlobeNatural, a company based in Lima, Peru.
The Company paid $10.8 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 $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.
On July 10, 2018, the Company completed the acquisition of Sensient Natural Extraction Inc., 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. These operations are included in the Color segment.
Divestitures
In October 2019, the Company announced its intent to divest its inks, fragrances (excluding its essential oils product line), and yogurt fruit preparations product
lines. At such time, the Board of Directors approved the sale of the inks product line, which is within the Color segment, and the sale of the fragrances product line,
which is within the Flavors & Extracts segment.
In the fourth quarter of 2019, the Company recorded a non-cash impairment charge of $34.6 million, primarily related to property, plant and equipment and
allocated goodwill, in Selling and Administrative Expenses, related to the disposal groups as described in Note 14, Divestitures, to the Consolidated Financial
Statements included in this report. The charge reduced the carrying value of certain long-lived assets to their fair value. An estimate of the fair value of these
product lines less costs to sell was determined to be lower than their carrying value. This estimate for the fragrances product line will be finalized and adjusted as
necessary upon the closing of the sale or as assumptions change. Also in the fourth quarter of 2019, the Company recorded a non-cash charge of $9.8 million and
disposal costs of $0.8 million, in Cost of Products Sold, related to the yogurt fruit preparations divestiture. The charge reduced the carrying value of certain
inventories, as they were determined to be excess as of December 31, 2019. The Company also incurred $0.7 million of additional costs, primarily related to
severance, in the fourth quarter of 2019, in Selling and Administrative Expenses, related to the divestitures sold and to be sold, and other exit activities.
27
Index
NON-GAAP FINANCIAL MEASURES
Within the following tables, the Company reports certain non-GAAP financial measures, including: (1) adjusted revenue, adjusted operating income, adjusted net
earnings, and adjusted diluted earnings per share (which exclude the results of the product lines divested or to be divested, the divestiture & other related costs, and
the impact of the 2017 Tax Legislation) and (2) percentage changes in revenue, operating income and diluted earnings per share on an adjusted local currency basis
(which eliminate the effects that result from translating its international operations into U.S. dollars, the results of product lines divested or to be divested, the
divestiture & other related costs, and the impact of the 2017 Tax Legislation).
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.
Twelve Months Ended December 31,
2018
1,386,815
(160,870)
1,225,945
2019
1,322,934 $
(143,172)
1,179,762 $
% Change
(In thousands except per share amounts)
Revenue (GAAP)
Revenue of the product lines divested or to be divested
Adjusted revenue
Operating Income (GAAP)
Divestiture & other related costs – Cost of products sold
Divestiture & other related costs – Selling and administrative expenses
Operating income of the product lines divested or to be divested
Adjusted operating income
Net Earnings (GAAP)
Divestiture & other related costs, before tax
Tax impact of divestiture & other related costs
Net earnings of the product lines divested or to be divested, before tax
Tax impact of the product lines divested or to be divested
2017 Tax Legislation
Adjusted net earnings
Diluted Earnings per Share (GAAP)
Divestiture & other related costs, net of tax
Results of operations of the product lines divested or to be divested, net of tax
2017 Tax Legislation
Adjusted diluted earnings per share
$
$
$
$
$
$
$
$
121,110 $
10,567
35,313
(1,978)
165,012 $
82,047 $
45,880
(2,671)
(1,978)
399
-
123,677 $
1.94 $
1.02
(0.04)
-
2.92 $
203,378
-
-
(3,123)
200,255
157,360
-
-
(3,123)
103
(6,634)
147,706
3.70
-
(0.07)
(0.16)
3.48
Divestiture & other related costs are discussed under “Divestitures” above and Note 14, Divestitures, in the Notes to the Consolidated Financial
Statements included in this report.
Note: Earnings per share calculations may not foot due to rounding differences.
(4.6%)
(3.8%)
(40.5%)
(17.6%)
(47.9%)
(16.3%)
(47.6%)
(16.1%)
28
Index
The following table summarizes the percentage change in the 2019 results compared to the 2018 results in the respective financial measures.
Revenue
Flavors & Extracts
Color
Asia Pacific
Total Revenue
Operating Income
Flavors & Extracts
Color
Asia Pacific
Corporate & Other
Operating Income
Diluted Earnings per Share
Twelve Months Ended December 31, 2019
Foreign
Exchange
Rates
Total
Adjustments(1)
Adjusted
Local
Currency
(6.2%)
(3.4%)
(4.0%)
(4.6%)
(22.3%)
(10.7%)
(7.1%)
173.4%
(40.5%)
(47.6%)
(1.4%)
(2.7%)
(0.4%)
(1.8%)
(0.5%)
(2.9%)
2.9%
(0.1%)
(1.6%)
(1.4%)
(0.3%)
(1.0%)
0.0%
(0.7%)
(0.8%)
0.1%
0.0%
168.6%
(22.9%)
(31.8%)
(4.5%)
0.3%
(3.6%)
(2.1%)
(21.0%)
(7.9%)
(10.0%)
4.9%
(16.0%)
(14.4%)
(1) For Revenue, adjustments consist of revenues of the product lines divested or to be divested. For Operating Income and Diluted Earnings per Share,
adjustments consist of the results of the product lines divested or to be divested, divestitures & other related costs, and the impact of the 2017 Tax
Legislation.
Note: Refer to table above for a reconciliation of these non-GAAP measures.
SEGMENT INFORMATION
The Company determines its operating segments based on information utilized by its chief operating decision maker to allocate resources and assess performance.
Segment performance is evaluated on operating income before any applicable divestiture & other related costs, share-based compensation, acquisition,
restructuring and other costs (which are reported in Corporate & Other), interest expense, and income taxes.
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 12, Segment and Geographic Information, of this report.
The Company’s reportable segments consist of the Flavors & Extracts, Color, and Asia Pacific segments.
Flavors & Extracts
Flavors & Extracts segment revenue was $700.4 and $746.9 million in 2019 and 2018, respectively. Foreign exchange rates decreased segment revenue by
approximately 1% in 2019. Segment revenue was lower than the prior year due to lower revenue in Flavors, Extracts & Flavor Ingredients, Fragrances, Natural
Ingredients, and Yogurt Fruit Preparations. The lower revenues in Flavors, Extracts & Flavor Ingredients and Fragrances was primarily a result of unfavorable
volumes and exchange rates, partially offset by higher selling prices. The lower revenue in Natural Ingredients was primarily a result of unfavorable volumes and
lower selling prices. The lower revenue in Yogurt Fruit Preparations was primarily a result of unfavorable volumes.
Flavors & Extracts segment operating income was $75.0 million in 2019 and $96.4 million in 2018, a decrease of approximately 22%. Foreign exchange rates
decreased segment operating income by approximately 1%. The lower segment operating income was primarily a result of lower operating income in Flavors,
Extracts & Flavor Ingredients and Fragrances. The lower operating income in Flavors, Extracts & Flavor Ingredients and Fragrances was primarily a result of
lower volumes, higher manufacturing and other costs, and higher raw materials costs, partially offset by higher selling prices and a favorable product mix. Segment
operating income as a percent of revenue was 10.7% and 12.9% for 2019 and 2018, respectively.
29
Index
Color
Segment revenue for the Color segment was $535.2 million in 2019 and $554.0 million in 2018, a decrease of approximately 3%. Foreign exchange rates decreased
segment revenue by approximately 3%. The lower segment revenue was primarily a result of lower revenue in Personal Care and Inks, partially offset by higher
revenue in Food & Pharmaceutical Colors. The lower revenue in Personal Care was primarily a result of lower volumes and unfavorable exchange rates. The lower
revenue in Inks was primarily a result of lower volumes, lower prices, and unfavorable foreign exchange rates. The higher revenue in Food & Pharmaceutical
Colors was primarily a result of higher volumes, the additional revenue from the Sensient Natural Extraction Inc. and GlobeNatural acquisitions, and higher
selling prices, partially offset by unfavorable exchange rates. The additional revenue from the Sensient Natural Extraction Inc. and GlobeNatural acquisitions
represent less than 1% of total segment revenue.
Segment operating income for the Color segment was $101.2 million in 2019 and $113.3 million in 2018, a decrease of approximately 11%. Foreign exchange
rates decreased segment operating income by approximately 3%. The lower segment operating income was primarily a result of lower operating income in Food &
Pharmaceutical Colors and Personal Care. The lower segment operating income in Food & Pharmaceutical Colors was primarily due to higher raw material costs,
higher manufacturing and other costs, higher operating costs related to the Sensient Natural Extraction Inc. acquisition, and unfavorable exchange rates, partially
offset by favorable volumes and product mix and higher selling prices. The lower segment operating income in Personal Care was primarily a result of lower
volumes and the unfavorable impact of exchange rates, partially offset by higher selling prices. Segment operating income as a percent of revenue was 18.9% in
2019 compared to 20.5% in 2018.
Asia Pacific
Segment revenue for the Asia Pacific segment was $118.2 million and $123.2 million for 2019 and 2018, respectively. Foreign exchange rates had a minimal
impact on segment revenues. Segment revenue was slightly lower than prior year as lower volumes were partially offset by higher selling prices.
Segment operating income for the Asia Pacific segment was $19.4 million in 2019 and $20.9 million in 2018, a decrease of approximately 7% compared to the
prior year. Foreign exchange rates increased segment operating income by approximately 3%. The decrease in segment operating income was a result of lower
volumes and higher manufacturing and other costs, partially offset by higher selling prices and favorable exchange rates. Segment operating income as a percent of
revenue was 16.4% in 2019 and 16.9% in 2018, respectively.
Corporate & Other
The Corporate & Other operating loss was $74.4 million in 2019 and $27.2 million in 2018. The higher operating loss was primarily a result of the divestiture &
other related costs in 2019 of $45.9 million. See Divestitures above for further information. There were no divestiture & other related costs incurred in 2018.
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, 2020. 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 2021 results.
Cash Flows from Operating Activities
Net cash provided by operating activities was $218.8 million and $177.2 million in 2020 and 2019, respectively. Operating cash flow provided the primary source
of funds for operating needs, capital expenditures, and shareholder dividends. The increase in net cash provided by operating activities in 2020 is primarily due to
favorable working capital changes.
Cash Flows from Investing Activities
Net cash used in investing activities was $33.4 million and $37.4 million in 2020 and 2019, respectively. Capital expenditures were $52.2 million in 2020 and
$39.1 million in 2019. In 2020, the Company received $12.6 million of proceeds from the divestitures of the inks product line and the yogurt fruit preparations
product line.
Cash Flows from Financing Activities
Net cash used in financing activities was $184.2 million in 2020 and $150.6 million in 2019. The Company had a net decrease in debt of $117.7 million and $87.4
million in 2020 and 2019, respectively. The Company has paid uninterrupted quarterly cash dividends since commencing public trading in its stock in 1962.
Dividends paid per share were $1.56 in 2020 and $1.47 in 2019. Total dividends paid were $66.1 million and $62.2 million in 2020 and 2019, respectively.
30
Index
ISSUER PURCHASES OF EQUITY SECURITIES
Sensient purchased 1.1 million shares of Company stock in 2018 for a total cost of $76.7 million. There were no shares of Company stock purchased in 2020 or
2019. In October 2017, the Board of Directors authorized the repurchase of up to three million shares. As of December 31, 2020, 2.2 million shares were available
to be repurchased under the existing authorization. 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 at 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 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
2020. 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. 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 above their respective net book values by at least 90%. 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.
In the fourth quarter of 2019, as a result of the Company meeting the assets held for sale criteria for its divestitures of its inks and fragrances (excluding its
essential oils product line) product lines, the Company allocated $8.4 million of goodwill to that disposal group. The $8.4 million of goodwill related to the
disposal groups was determined to be fully impaired. In 2020, the fair value of the disposal groups decreased, which resulted in the previously allocated goodwill
of $2.2 million to be reallocated to its respective financial reporting units. See Note 14, Divestitures, in the Notes to Consolidated Financial Statements included in
this report for additional details.
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. As of December 31, 2020, the Company recorded gross deferred tax assets
of $118 million with an associated valuation allowance of $48 million. 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 & Extracts 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.
31
Index
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. The Company recorded non-cash charges of $1.8 million and $9.8 million, in 2020 and 2019, respectively, in Cost
of Products Sold primarily related to the yogurt fruit preparations divestiture. The charges reduced the carrying value of certain inventories, as they were
determined to be excess. 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.
NEW PRONOUNCEMENTS
Refer to the "Recently Adopted Accounting Pronouncements” and “Recently Issued Accounting Pronouncements” sections within Note 1, "Summary of Significant
Accounting Policies," in the Notes to Consolidated Financial Statements included in this report for additional details.
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 7 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 $0.5 million and was a
liability of $0.2 million as of December 31, 2020 and 2019, respectively. At December 31, 2020, 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 and British Pounds. The Swiss Franc debt was extinguished in connection with the sale of the inks product
line on June 30, 2020. These non-derivative debt instruments act as partial hedges of the Company’s Euro and British Pound net asset positions. The potential
increase or decrease in the annual U.S. dollar equivalent 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, 2020. 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, 2020, the potential increase or decrease in annual interest expense of floating rate debt, assuming a
hypothetical 10% fluctuation in interest rates, would be immaterial.
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.
32
Index
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 6 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 Officer and its Senior Vice President and Chief Financial Officer, of the effectiveness, as of
December 31, 2020, 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, 2020.
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, 2020. 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). Based on that assessment,
management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2020.
The Company’s internal control over financial reporting as of December 31, 2020, 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 December 31, 2020, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B.
Other Information.
None.
33
Index
Item 10.
Directors, Executive Officers of the Registrant, and Corporate Governance.
PART III
Information required by this item regarding directors and officers, corporate governance, and other matters appearing under “Election of Directors” 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, 2020 (2021 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,” “Chief Executive Officer Pay Ratio,” and “Equity Compensation Plan Information” portions of the 2021 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 2021 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 shareholder matters appearing under
“Principal Shareholders” in the 2021 Proxy Statement is incorporated by reference. The information required by this item appearing under “Equity Compensation
Plan Information” in the 2021 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 2021 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 2021 Proxy Statement is incorporated by
reference.
34
Index
PART IV
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:
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets – December 31, 2020 and 2019
Consolidated Statements of Earnings – Years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Income – Years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Shareholders’ Equity – Years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows – Years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
2. Financial Statement Schedule
Schedule II – Valuation and Qualifying Accounts
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.
65-67
38
36
37
40
39
41-64
68
35
Index
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
Net earnings
Earnings per common share:
Basic
Diluted
Weighted average number of common shares outstanding:
Basic
Diluted
See notes to consolidated financial statements.
$
$
$
$
Years Ended December 31,
2019
1,322,934 $
908,061
293,763
121,110
20,107
101,003
18,956
82,047 $
2020
1,332,001 $
908,254
271,091
152,656
14,811
137,845
28,373
109,472 $
2018
1,386,815
920,686
262,751
203,378
21,853
181,525
24,165
157,360
2.59 $
2.59 $
1.94 $
1.94 $
3.71
3.70
42,301
42,346
42,263
42,294
42,404
42,499
36
Index
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net earnings
Cash flow hedges adjustment, net of tax of $524, $193 and $32, respectively
Pension adjustment, net of tax of $475, $409 and $347, 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,
2019
2020
2018
$
$
109,472 $
948
(1,293)
(24,044)
5,973
(7,731)
3,757
(8,625)
34,932
113,389 $
82,047 $
(346)
(1,221)
3,091
(768)
(752)
(768)
-
3,311
84,594 $
157,360
816
1,027
13,661
(3,393)
3,276
(2,498)
-
(27,721)
142,528
37
Index
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts)
Assets
Current Assets:
Cash and cash equivalents
Trade accounts receivable
Inventories
Prepaid expenses and other current assets
Assets held for sale
Total current assets
Other assets
Deferred tax assets
Intangible assets, net
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
Liabilities held for sale
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, 11,647,627 and 11,682,636 shares, respectively, at cost
Accumulated other comprehensive loss
Total liabilities and shareholders’ equity
See notes to consolidated financial statements.
$
$
$
$
December 31,
2020
2019
24,770 $
234,132
381,346
48,578
52,760
741,586
89,883
29,678
10,930
423,290
31,422
316,533
703,485
21,759
1,073,199
(627,706)
445,493
1,740,860 $
107,324 $
34,462
42,985
4,598
9,247
17,339
215,955
13,411
30,213
28,941
518,004
21,153
213,201
422,517
40,049
91,293
788,213
80,939
14,976
11,802
407,042
31,431
298,733
652,063
24,613
1,006,840
(569,661)
437,179
1,740,151
94,653
18,655
41,429
6,841
20,612
19,185
201,375
15,053
17,813
25,822
598,499
5,396
102,909
1,578,662
(593,540)
(159,091)
934,336
1,740,860 $
5,396
98,425
1,536,100
(595,324)
(163,008)
881,589
1,740,151
38
Index
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 expense (income)
Net (gain) loss on assets
Loss on divestitures and other charges
Deferred income taxes
Changes in operating assets and liabilities:
Trade accounts receivable
Inventories
Prepaid expenses and other assets
Trade 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 divestiture of businesses
Acquisition of new business
Other investing activities
Net cash (used in) provided by 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
Years ended December 31,
2019
2020
2018
$
109,472 $
82,047 $
157,360
49,641
5,608
(252)
6,904
(8,705)
(11,357)
46,828
(12,868)
15,524
15,140
22
2,823
218,780
(52,162)
-
1,075
12,595
-
5,071
(33,421)
55,015
(739)
(1,122)
44,375
(19,340)
10,930
25,238
3,257
(18,251)
(3,039)
(1,836)
647
177,182
(39,100)
-
2,242
-
-
(553)
(37,411)
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
36,667
(154,348)
-
(66,057)
(415)
(184,153)
47,083
(134,449)
-
(62,190)
(1,027)
(150,583)
322,529
(284,332)
(76,734)
(57,410)
(2,777)
(98,724)
Effect of exchange rate changes on cash and cash equivalents
2,411
64
2,928
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
3,617
21,153
(10,748)
31,901
2,557
29,344
Cash and cash equivalents at end of year
$
24,770 $
21,153 $
31,901
Cash paid during the year for:
Interest
Income taxes
Capitalized interest
See notes to consolidated financial statements.
$
14,751 $
44,755
514
20,130 $
40,139
540
21,567
24,089
604
39
Index
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands except share and per share
amounts)
Additional
Balances at December 31, 2017
Net earnings
Other comprehensive 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
Balances at December 31, 2018
Net earnings
Other comprehensive income
Cash dividends paid – $1.47 per share
Share-based compensation
Non-vested stock issued upon vesting
Benefit plans
Other
Balances at December 31, 2019
Net earnings
Other comprehensive income
Cash dividends paid – $1.56 per share
Share-based compensation
Non-vested stock issued upon vesting
Benefit plans
Other
Balances at December 31, 2020
Common
Stock
5,396 $
Paid-in
Capital
107,176 $
$
503
(80)
(5,454)
350
(832)
101,663
(739)
(2,343)
72
(228)
98,425
5,608
(1,352)
241
(13)
102,909 $
5,396
5,396
$
5,396 $
See notes to consolidated financial statements.
Earnings
Reinvested
in the
Business
1,414,485
157,360
(57,410)
1,808
1,516,243
82,047
(62,190)
1,536,100
109,472
(66,057)
(853)
1,578,662
Treasury Stock
Shares
10,759,291 $
Accumulated
Other
Comprehensive
(Loss) Income
(149,334)
Amount
(525,422) $
(4,000)
(111,185)
(15,126)
1,060,000
42,243
11,731,223
200
5,454
769
(76,734)
(2,067)
(597,800)
(45,981)
(18,597)
15,991
11,682,636
2,343
948
(815)
(595,324)
(26,515)
(16,344)
7,850
11,647,627 $
1,352
833
(401)
(593,540) $
(14,832)
(1,389)
(165,555)
2,547
(163,008)
3,917
(159,091)
40
Index
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2020, 2019, and 2018
1. Summary of Significant Accounting Policies
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 colors; and other specialty and fine chemicals. The Company’s three reportable segments are the Flavors &
Extracts Group (formerly known as the Flavors & Fragrances segment; see Note 12, Segment and Geographic Information) 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, restructuring including
operational improvement plans, divestiture, share-based compensation, COVID-19 employee payment, and other costs are included in the “Corporate & Other”
category. In the second quarter of 2020, the Company divested its inks product line, and in the third quarter of 2020, the Company divested its yogurt fruit
preparations product line.
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.
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 at 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 contract, or contracts, with a customer
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 12, Segment and Geographic Information, for further information).
41
Index
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 original 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 losses on 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 & Extracts Group where cost is determined using a weighted
average method. Inventories include finished and in-process products totaling $268.1 million and $313.1 million at December 31, 2020 and 2019, respectively, and
raw materials and supplies of $113.2 million and $109.4 million at December 31, 2020 and 2019, respectively.
The Company recorded a non-cash charge of $1.8 million and $9.8 million, in Cost of products sold related to the divested product lines in 2020 and 2019,
respectively. The non-cash charge reduced the carrying value of certain inventories, as they were determined to be excess. See Note 14, Divestitures, for additional
information.
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.
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 2019, which indicated a substantial
premium compared to the carrying value of net assets, including goodwill, at the reporting unit level. In 2020 and 2018, the Company completed a qualitative
assessment noting no indicators of impairment. The Company did not record impairment charges for any of its reporting units in 2020, 2019 or 2018.
The Company met the assets held for sale criteria in the fourth quarter of 2019 for its inks and fragrances product lines (excluding the essential oils product line),
resulting in $8.4 million of goodwill being allocated to those disposal groups in 2019. In 2020, the fair value of the disposal groups decreased, which resulted in the
previously allocated goodwill of $2.2 million to be reallocated to its respective financial reporting units. See Note 4, Goodwill and Intangible Assets, and Note 14,
Divestitures, for additional information.
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.
42
Index
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 divestiture of its inks product line and its anticipated divestiture of its fragrances product line (excluding its essential oils product line). See Note 14,
Divestitures, 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 earnings. These risk management transactions may 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.
For hedges designated as cash flow hedges, the Company elects critical terms that match at the onset of the hedge transaction. Hedge accounting is permitted only
if the hedge meets the critical terms match requirements. The Company reviews the critical terms at each effectiveness testing date to ensure the respective terms
match; therefore, achieving a highly effective hedge.
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 is exposed to risk related to its net investments in foreign subsidiaries. As part of its risk management activities, 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 fair value of
debt designated as a net investment hedge is 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.
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, 2020, 2019, and
2018.
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 8, 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.
43
Index
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.
The following table sets forth the computation of basic and diluted EPS for the years ended December 31:
(In thousands except per share amounts)
Numerator:
Net earnings
Denominator:
Denominator for basic EPS - weighted average common shares
Effect of dilutive securities
Denominator for diluted EPS - diluted weighted average shares outstanding
Earnings per Common Share
Basic
Diluted
Years Ended December 31,
2019
2020
2018
$
109,472 $
82,047 $
157,360
42,301
45
42,346
42,263
31
42,294
42,404
95
42,499
$
$
2.59 $
2.59 $
1.94 $
1.94 $
3.71
3.70
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,
2020, 2019, and 2018.
In 2020, 2019, and 2018, 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 10,
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 were $38.5
million, $40.1 million, and $43.0 million, during the years ended December 31, 2020, 2019, and 2018, respectively.
Advertising
Advertising costs are recorded in Selling and Administrative Expenses as they are incurred. Advertising costs were $2.0 million, $2.2 million, and $2.5 million,
during the years ended December 31, 2020, 2019, and 2018, 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. See Note 17, Subsequent Event, for additional
information.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments, which replaces the incurred loss impairment model with a methodology that reflects expected credit losses. Under the new
standard, entities are required to measure expected credit losses on financial instruments held at amortized cost, including trade receivables, based on historical
experience, current conditions, and reasonable forecasts. The Company adopted this standard in the first quarter of 2020. The adoption of this standard resulted in
an increase of $0.9 million to the allowance for losses on Trade Accounts Receivable and a corresponding decrease in Earnings Reinvested in the Business as of
January 1, 2020. The adoption of this standard did not have an impact on the Company’s Consolidated Statements of Earnings or to cash provided by or used in
operating, financing, or investing activities on the Company’s Consolidated Statements of Cash Flows.
44
Index
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which
eliminates step two of the current goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting
unit with its carrying amount. The Company adopted this standard in the first quarter of 2020, and the adoption did not have a material impact on the Company’s
consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for
Fair Value Measurement, which changes the requirements for fair value measurements by removing, modifying, and adding certain disclosures. The Company
adopted this standard in the first quarter of 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements or its related
disclosures.
In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans Subtopic 715-
20, which amends ASC 715-20, Compensation – Retirement Benefits – Defined Benefit Plans – General. This standard modifies the disclosure requirements for
employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The Company adopted
this standard in the fourth quarter of 2020, and the adoption did not have a material impact on the Company’s related disclosures.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting, which provides temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the
financial reporting burdens of the expected market transition from LIBOR and other inter-bank offered rates to alternative rates. The guidance is effective upon
issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the potential impact of this standard on its consolidated
financial statements and its related disclosures.
Other recently issued accounting pronouncements are not expected to have a material impact on the Company's consolidated financial statements.
2. Acquisitions
On March 9, 2018, the Company completed the acquisition of certain net assets and the natural color business of GlobeNatural, a company based in Lima, Peru.
The Company paid $10.8 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 $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.
On July 10, 2018, the Company completed the acquisition of Mazza Innovation Limited (now known as Sensient Natural Extraction Inc.), 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. These operations are
included in the Color segment.
3. Trade Accounts Receivable
Trade accounts receivables are recorded at their face amount, less an allowance for expected losses on doubtful accounts. The allowance for doubtful accounts is
calculated based on customer-specific analysis and an aging methodology using historical loss information. The Company believes historical loss information is a
reasonable basis for expected credit losses as the Company’s historical credit loss experience correlates with its customer delinquency status. This information is
also adjusted for any known current economic conditions, including the current and expected impact of COVID-19. Currently, the COVID-19 pandemic has not
had and is not anticipated to have a material impact on trade accounts receivable. Forecasted economic conditions have not had a significant impact on the current
credit loss estimate due to the short-term nature of the Company’s customer receivables, however, the Company will continue to monitor and evaluate the rapidly
changing economic conditions. Additionally, as the Company only has one portfolio segment, there are not different risks between portfolios. Specific accounts are
written off against the allowance for doubtful accounts when the receivable is deemed no longer collectible.
45
Index
The following table summarizes the changes in the allowance for doubtful accounts during the year ended December 31, 2020:
(In thousands)
Balance at December 31, 2019
Adoption of ASU 2016-13
Provision for expected credit losses
Accounts written off
Divestitures
Translation and other activity
Balance at December 31, 2020
Allowance for
Doubtful Accounts
6,913
$
853
565
(1,590)
(2,174)
(676)
3,891
$
See Note 14, Divestitures, for further information regarding the divestitures included in the above table.
4. Goodwill and Intangible Assets
At December 31, 2020 and 2019, 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, 2020 and 2019:
(In thousands except weighted average amortization years)
Technological know-how
Customer relationships
Patents, trademarks, non-compete agreements, and other
Total finite-lived intangibles
2020
2019
Weighted
Average
Amortization
Years
Cost
Accumulated
Amortization
Cost
Accumulated
Amortization
17.8 $
13.4
15.2
15.8 $
7,570 $
3,401
10,925
21,896 $
(1,787) $
(1,898)
(7,281)
(10,966) $
7,570 $
3,474
10,496
21,540 $
(1,391)
(1,653)
(6,694)
(9,738)
In 2020, $1.7 million of intangible assets ($2.1 million of cost and $0.4 million of accumulated amortization) was recorded in Assets held for sale on the
Consolidated Balance Sheet related to the fragrances product line (excluding its essential oils product line). See Note 14, Divestitures, for additional information.
In 2019, $5.0 million of intangible assets ($18.8 million of cost and $13.8 million of accumulated amortization) was recorded in Assets held for sale on the
Consolidated Balance Sheet related to the fragrances product line (excluding its essential oils product line) and the inks product line. See Note 14, Divestitures, for
additional information.
Amortization of intangible assets was $1.5 million in 2020, $2.9 million in 2019, and $2.3 million in 2018. Estimated amortization expense, for the five years
subsequent to December 31, 2020, is $1.5 million in 2021 and 2022; $1.3 million in 2023; and $1.1 million in 2024 and 2025.
46
Index
The changes in goodwill for the years ended December 31, 2020 and 2019, by reportable business segment, were as follows:
(In thousands)
Balance as of December 31, 2018
Currency translation impact
Goodwill related to divestitures(1)
Balance as of December 31, 2019
Currency translation impact
Goodwill related to divestitures(2)
Balance as of December 31, 2020
Flavors &
Extracts
Color
Asia Pacific
$
$
$
112,086 $
(184)
(3,754)
108,148 $
3,565
657
112,370 $
298,908 $
(641)
(4,631)
293,636 $
10,086
1,541
305,263 $
Consolidated
416,175
(748)
(8,385)
407,042
14,050
2,198
423,290
5,181 $
77
-
5,258 $
399
-
5,657 $
(1)
(2)
In the fourth quarter of 2019, the Company met all of the assets held for sale criteria related to the divestitures of its inks product line and fragrances
product line (excluding its essential oils product line). Goodwill of $8.4 million was allocated to those disposal groups and was determined to be fully
impaired based on the estimated fair value of each of the disposal groups. See Note 14, Divestitures, for additional information.
In 2020, the fair value of the disposal groups decreased, which resulted in the previously allocated goodwill of $2.2 million to be reallocated to its
respective financial reporting units. See Note 14, Divestitures, for additional information.
5. Leases
The Company leases certain office space, warehouses, land, and equipment under operating lease arrangements. Some of the Company’s leases include options to
extend the leases for up to an additional five years. Some of the Company’s lease agreements also include rental payments that are adjusted periodically for
inflation (i.e., CPI index).
The Company recorded operating lease expense, which includes short-term lease expense and variable lease costs, of $10.6 million and $11.2 million during the
years ended December 31, 2020 and 2019, respectively. Rent expense totaled $13.5 million during the year ended December 31, 2018.
For the years ended December 31, 2020 and 2019, the Company paid $9.2 million and $9.9 million, respectively, in cash for operating leases, not including short-
term lease expense or variable lease costs. The Company entered into operating leases that resulted in $13.0 million and $7.1 million of right-of-use assets in
exchange for operating lease obligations for the years ended December 31, 2020 and 2019, respectively.
The Company included $23.3 million and $16.8 million of right-of-use assets in Other assets, $6.0 million and $7.2 million of operating lease liabilities in Other
accrued expenses, $17.5 million and $9.9 million of operating lease liabilities in Other liabilities, on the Company’s Consolidated Balance Sheets as of December
31, 2020 and 2019, respectively. The Company included $1.8 million in Assets held for sale and $1.8 million in Liabilities held for sale as of December 31, 2019.
The Company’s weighted average remaining operating lease term was 6.3 years as of December 31, 2020. The Company’s weighted average discount rate for
operating leases was 4.5% as of December 31, 2020.
As of December 31, 2020, maturities of operating lease liabilities for future annual periods are as follows:
(In thousands)
Year ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less imputed interest
Present value of lease liabilities
$
$
6,861
4,762
3,436
2,500
1,945
7,850
27,354
(3,806)
23,548
47
Index
6. 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
1.85% Euro-denominated senior notes due November 2022
3.06% Euro-denominated senior notes due November 2023
1.27% Euro-denominated senior notes due May 2024
1.71% Euro-denominated senior notes due May 2027
2.53% British Pound-denominated notes due November 2023
2.76% British Pound-denominated notes due November 2025
Term loan
Revolving Credit Facilities
Various other notes
Total debt
Less debt fees
Less current portion
Total long-term debt
2020
2019
75,000 $
27,000
25,000
81,672
46,722
61,080
48,864
34,176
34,176
8,375
83,324
1,647
527,036
(143)
(8,889)
518,004 $
75,000
27,000
25,000
74,968
42,887
56,066
44,853
33,143
33,143
51,438
134,393
783
598,674
(175)
-
598,499
$
$
In October 2019, the Company amended its accounts receivable securitization program with Wells Fargo Bank N.A. (Wells Fargo) to reduce the program amount
from $70 million to $65 million. Under the amended program, Wells Fargo has extended a secured loan (Secured Loan) of up to $65 million to the Company
secured by Wells Fargo’s undivided interests in certain of the Company’s trade accounts receivables. The $65 million facility was renewed in October 2020. The
interest rate on the Secured Loan is LIBOR plus 1.00%. 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 and is included with the Revolving Credit Facilities above. As of
December 31, 2020, the amount was fully drawn.
In May 2017, the Company executed an amended and restated credit agreement with a syndicate of banks to, among other things, (a) increase Sensient’s term loan
facility by $30 million (from $115 million to $145 million), (b) extend the maturity of Sensient’s $350 million multi-currency revolving credit facility from
November 2020 to May 2022, and (c) modify certain other provisions of the credit agreement as set forth therein. At December 31, 2020, the Company’s term loan
borrowings total $8.4 million, with repayments completing in 2021. Borrowings under both the revolving credit and term loan facilities bear interest at a variable
rate, based upon the applicable reference rate and including a margin percentage dependent upon the Company’s leverage ratio, as described below.
The borrowings under the term loan had an average interest rate of 2.20% and 3.83% for the years ended December 31, 2020 and 2019, respectively.
The borrowings under the revolving credit facility, excluding borrowings on the accounts receivable securitization program, had an average interest rate of 1.35%
and 1.44% for the years ended December 31, 2020 and 2019, respectively.
The aggregate amounts of contractual maturities on long-term debt subsequent to December 31, 2020, are as follows:
(In thousands)
Year ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total long-term debt maturities
$
$
73,892
100,481
156,414
88,210
59,176
48,863
527,036
48
Index
The Company had $329.0 million available under the revolving credit facility and $45.8 million available under other lines of credit from several banks at
December 31, 2020.
Substantially all of the senior financing obligations contain restrictions concerning interest coverage, borrowings, and investments. The Company is in compliance
with all of these restrictions at December 31, 2020. The following table summarizes the Company’s most restrictive loan covenants calculated in accordance with
the applicable agreements as of December 31, 2020:
Debt to EBITDA(1) (Maximum)
Interest Coverage (Minimum)
Actual
Required
2.40
6.61
<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 $2.7 million and $2.6 million as of December 31, 2020 and 2019, respectively.
Short-term Borrowings
The Company’s short-term borrowings consisted of the following items at December 31:
(In thousands)
U.S. credit facilities
Current maturities of long-term debt
Loans of foreign subsidiaries
Total
2020
2019
$
$
138 $
8,889
220
9,247 $
20,280
-
332
20,612
The weighted average interest rates on short-term borrowings were 1.36% and 2.53% at December 31, 2020 and 2019, respectively.
7. 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 $54.1 million and $59.9 million of forward exchange contracts,
designated as cash flow hedges, outstanding as of December 31, 2020 and 2019, respectively. For the year ended December 31, 2020, losses of $1.3 million were
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. For the years ended December 31, 2019 and 2018, 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.
49
Index
Net Investment Hedges
The Company has designated certain foreign currency denominated long-term borrowings as partial hedges of the Company’s foreign currency net asset positions.
As of December 31, 2020, the total value of the Company’s net investment hedges was $325.0 million. These net investment hedges included Euro and British
Pound denominated long-term debt. As of December 31, 2019, the total value of the Company’s net investment hedges was $363.4 million. These net investment
hedges then included Euro, Swiss Franc, and British Pound denominated long-term debt. Changes in the fair value of this debt attributable to changes in the spot
foreign exchange rate are recorded in foreign currency translation in OCI. The impact of foreign exchange rates on these debt instruments has increased debt by
$24.0 million and decreased debt by $3.1 million for the years ended December 31, 2020 and 2019, respectively, which has been recorded as foreign currency
translation in OCI. For the year ended December 31, 2020, losses of $10.8 million were reclassified into net earnings in the Company’s Consolidated Statement of
Earnings that offset the underlying transactions’ impact on earnings in the same period. These losses were primarily associated with the termination of the net
investment hedge related to the Swiss Franc debt that was terminated in connection with the sale of the inks product line, including the Swiss legal entity, on June
30, 2020. See Note 14, Divestitures, for additional information. There were no amounts reclassified into net earnings for the years ended December 31, 2019 and
2018.
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 trade accounts receivable are limited by the
large number of customers, generally short payment terms, and their dispersion across geographic areas.
8. 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. In April
2017, the Company approved the 2017 Stock Plan authorizing 1.8 million shares for issuance as non-vested stock in the form of restricted stock, restricted stock
units, performance stock units, non-qualified stock options, incentive stock options and stock appreciation rights. As of December 31, 2020, there were 1.2 million
shares available to issue as non-vested stock under the Company’s existing stock plans.
The Company recognizes expense for shares of non-vested stock over the vesting period with a pro-rata vesting upon retirement. Beginning with awards granted in
December 2013, the vesting period is three years. 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 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 shares of stock issued.
Grants issued after December 2013 and before December 2020, to elected officers, consist of 100% performance stock unit awards. These awards are based on a
three-year performance period and a three-year vesting period with 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, except for the grant issued in December 2019, which would result in an award up to 200% of the
original grant for three-year performance that exceeds the stated performance metrics. The December 2020 grant consists of 60% performance stock unit awards
and 40% non-vested restricted stock awards. The December 2020 performance stock unit awards are based on a three-year performance period and a three-year
vesting period with a pro-rata vesting upon retirement. Three-year performance that exceeds the stated performance metrics would result in an award up to 200%
of the original grant. The December 2020 non-vested restricted stock awards granted are based on a three-year vesting period with a pro-rata vesting upon
retirement.
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.
50
Index
The following table summarizes the non-vested stock and performance stock unit activity:
(In thousands except fair value)
Outstanding at December 31, 2017
Granted
Vested
Cancelled
Outstanding at December 31, 2018
Granted
Vested
Cancelled
Outstanding at December 31, 2019
Granted
Vested
Cancelled
Outstanding at December 31, 2020
Grant Date
Weighted Average
Fair Value
Aggregate Intrinsic
Value
Shares
412 $
142
(111)
(63)
380
134
(46)
(64)
404
142
(27)
(68)
451 $
65.64 $
59.45
56.91
64.71
66.02
60.04
63.61
62.39
64.89
65.61
74.21
73.39
63.28 $
30,113
21,239
26,710
33,283
The total intrinsic values of shares vested during 2020, 2019, and 2018, was $1.4 million, $3.0 million, and $7.7 million, respectively.
As of December 31, 2020, total remaining unearned compensation, net of expected forfeitures, related to non-vested stock and performance stock units was $16.6
million, which will be amortized over the weighted average remaining service period of 2.34 years.
Total pre-tax share-based compensation expense (income) recognized in the Consolidated Statements of Earnings was $5.6 million, ($0.7) million, and $0.5
million in 2020, 2019, and 2018, respectively. The Company also recognized tax related benefits (expense) of $0.8 million, ($0.2) million and ($0.3) million, in
2020, 2019, and 2018, respectively. During the year ended December 31, 2019, the Company determined that it was not probable that it would meet the stated
performance metrics related to certain performance-based awards resulting in an adjustment of share-based compensation of $3.6 million.
9. 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 $6.1 million in 2020 and $6.0 million in 2019 and 2018.
51
Index
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 loss
Benefit obligation at end of year
Plan assets at beginning of year
Company contributions
Foreign currency exchange rate changes
Benefits paid
Actual 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
Components of annual benefit cost:
(In thousands)
Service cost
Interest cost
Expected return on plan assets
Recognized actuarial loss (gain)
Settlement income
Defined benefit expense
Weighted average liability assumptions as of December 31:
Discount rate
Expected return on plan assets
Rate of compensation increase
Weighted average cost assumptions for the year ended December 31:
Discount rate
Expected return on plan assets
Rate of compensation increase
2020
2019
39,421 $
1,601
1,022
690
(1,948)
42
4,803
45,631
31,776
1,117
882
(1,948)
3,849
35,676
(9,955) $
44,559 $
34,152
1,432
1,273
558
(1,899)
-
3,905
39,421
28,299
1,086
968
(1,899)
3,322
31,776
(7,645)
38,596
2020
2019
(19,349) $
(722)
10,116
(9,955) $
(17,143)
(710)
10,208
(7,645)
$
$
$
$
$
2020
2019
2018
1,601 $
1,022
(813)
41
-
1,851 $
1,432 $
1,273
(896)
(176)
-
1,633 $
1,465
1,137
(896)
(141)
(179)
1,386
$
$
2020
2019
1.87%
2.17%
0.34%
2.69%
2.68%
0.34%
2020
2019
2018
2.69%
2.68%
0.34%
3.80%
3.21%
0.31%
3.16%
3.03%
0.33%
52
Index
The aggregate amounts of benefits expected to be paid from defined benefit plans in each of the next five years subsequent to December 31, 2020, which include
employees’ expected future service, are as follows: 2021, $1.6 million; 2022, $3.9 million; 2023, $1.6 million; 2024, $4.0 million; 2025, $1.7 million; and $11.7
million in total for the years 2026 through 2030.
The Company expects to contribute $1.2 million to defined benefit plans in 2021.
Amounts in accumulated other comprehensive loss at December 31 were as follows:
(In thousands)
Unrecognized net actuarial loss
Prior service cost
Total before tax effects
The pension adjustments, net of tax, recognized in OCI, were as follows:
2020
2019
$
$
2,402 $
187
2,589 $
683
146
829
(In thousands)
Net actuarial (loss) gain arising during the period
Prior service cost
Amortization of actuarial loss (gain), included in defined benefit expense
Pension adjustment, net of tax
2020
2019
2018
$
$
(1,293) $
(32)
32
(1,293) $
(1,091) $
-
(130)
(1,221) $
1,257
(127)
(103)
1,027
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.
The following table presents the Company’s pension plan assets by asset category as of December 31, 2020 and 2019:
(In thousands)
Equity Funds
Domestic
International
International Fixed Income
Funds
Other investments
Total assets at fair value
Fair Value
as of
December 31,
2020
Fair Value Measurements at
December 31, 2020
Using Fair Value Hierarchy
Level 2
Level 3
Level 1
Fair Value
as of
December 31,
2019
Fair Value Measurements at
December 31, 2019
Using Fair Value Hierarchy
Level 1
Level 2
Level 3
$
$
6,565 $
97
6,565 $
-
- $
97
28,911
103
35,676 $
1,190
76
7,831 $
27,721
27
27,845 $
- $
-
-
-
- $
6,003 $
104
6,003 $
-
- $
104
25,556
113
31,776 $
1,269
79
7,351 $
24,287
34
24,425 $
-
-
-
-
-
The Company is required to categorize pension plan assets based on the following fair value hierarchy:
Level 1:
Level 2:
Level 3:
Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with observable market
data.
Unobservable inputs that reflect the reporting entity’s own assumptions.
53
Index
10. Accumulated Other Comprehensive Income
The following table summarizes the changes in OCI for 2020, 2019, and 2018:
(In thousands)
Balance as of December 31, 2017
Other comprehensive income (loss) before reclassifications
Amounts reclassified from OCI
Adoption of ASU 2018-02
Balance as of December 31, 2018
Other comprehensive income (loss) before reclassifications
Amounts reclassified from OCI
Balance as of December 31, 2019
Other comprehensive income (loss) before reclassifications
Amounts reclassified from OCI
Balance as of December 31, 2020
(1)
Cash Flow Hedges and Pension Items are net of tax.
Cash Flow
Hedges (1)
Pension
Items (1)
Foreign Currency
Items
$
$
$
$
(669) $
667
149
-
147 $
(111)
(235)
(199) $
(374)
1,322
749 $
(309) $
1,130
(103)
(169)
549 $
(1,091)
(130)
(672) $
(1,325)
32
(1,965) $
(148,356) $
(16,675)
-
(1,220)
(166,251) $
4,114
-
(162,137) $
12,887
(8,625)
(157,875) $
Total
(149,334)
(14,878)
46
(1,389)
(165,555)
2,912
(365)
(163,008)
11,188
(7,271)
(159,091)
In 2018, the Company adopted ASU 2018-02, Reclassifications of Certain Tax Effects from Accumulated Other Comprehensive Income, resulting in the
reclassification of OCI into Earnings Reinvested in the Business.
11. Income Taxes
Earnings before income taxes were as follows:
(In thousands)
United States
Foreign
Total
The provision for income taxes was as follows:
(In thousands)
Current income tax expense (benefit):
Federal (1)
State
Foreign
Deferred expense (benefit):
Federal
State
Foreign
Income taxes
2020
2019
2018
72,593 $
65,252
137,845 $
38,356 $
62,647
101,003 $
80,641
100,884
181,525
2020
2019
2018
9,660 $
3,000
24,418
37,078
(6,918)
(565)
(1,222)
(8,705)
28,373 $
12,994 $
2,622
22,680
38,296
(17,246)
18
(2,112)
(19,340)
18,956 $
(9,071)
205
23,187
14,321
3,977
3,164
2,703
9,844
24,165
$
$
$
$
(1)
In 2018, this amount includes $3.9 million of income tax benefit related to a reduction in the 2017 estimate of the one-time transition tax on earnings of
foreign subsidiaries enacted by the 2017 Tax Legislation (see discussion below).
54
Index
The reconciliation between the U.S. Federal tax rate and the actual effective tax rate was as follows:
Taxes at statutory rate
State income taxes, net of federal income tax benefit
Tax credits
Taxes on foreign earnings
Global Intangible Low-Taxed Income
Foreign Derived Tangible Income
Loss on balance sheet hedge
Resolution of prior years’ tax matters
Valuation allowance adjustments
2017 Tax Legislation
U.S. tax accounting method changes
Other, net
Effective tax rate
2020
2019
2018
21.0%
2.2
(1.5)
2.8
0.1
(1.1)
2.0
(0.1)
(3.7)
-
-
(1.1)
20.6%
21.0%
2.2
(2.6)
5.1
0.9
(1.0)
-
(0.4)
(8.8)
-
-
2.4
18.8%
21.0%
1.1
(1.5)
(0.4)
0.6
(0.6)
-
(0.3)
0.4
(3.7)
(2.9)
(0.4)
13.3%
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 Global Intangible Low-Taxed Income (GILTI). The impact
on the Company’s effective tax rate varies from year to year based on the finalization of prior year foreign and domestic tax items, audit settlements, and mix of
foreign earnings. The effective tax rates in 2020 and 2019 were both impacted by tax costs related to the divestitures and the release of valuation allowances related
to the foreign tax credit carryover. The 2019 effective tax rate was also impacted by valuation allowance adjustments related to foreign net operating losses. 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 Company’s valuation allowance at December 31, 2020 and 2019 was $47.8 million and $54.3 million, respectively. The valuation allowance was increased by
$16.2 million in the first quarter of 2019 related to the increase in the foreign tax credit deferred tax asset. During 2019 and 2020, the Company completed tax
planning strategies and Federal tax regulations were finalized that resulted in the partial release of this valuation allowance. The valuation allowance was also
increased in 2019 by $6.8 million for the deferred tax assets related to net operating losses that the Company does not believe are more likely than not to be
realized.
The decrease of the 2020 effective tax rate from GILTI compared to 2019 is primarily the result of the US Treasury releasing final regulations in 2020 that changed
the high tax election for GILTI and Sensient applying the high tax election for 2020.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (2017 Tax Legislation). The 2017 Tax Legislation 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 2017 Tax Legislation. 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 2017 Tax
Legislation.
55
Index
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(1)
Other
Gross deferred tax assets
Valuation allowance(1)
Deferred tax assets
Deferred tax liabilities:
Property, plant, and equipment
Goodwill
Other
Deferred tax liabilities
Net deferred tax assets (liabilities)
2020
2019
7,665 $
19,291
77,756
13,228
117,940
(47,813)
70,127
(31,709)
(22,012)
-
(53,721)
16,406 $
6,293
21,085
82,000
1,126
110,504
(54,326)
56,178
(29,869)
(21,744)
(5,192)
(56,805)
(627)
$
$
(1)
In the first quarter of 2019, the Company recognized an increase in its foreign tax credit carryover and corresponding valuation allowance of $16.2
million, related to the finalization of certain tax regulations.
At December 31, 2020, foreign tax credit carryovers were $39.3 million, all of which expires before 2035. At December 31, 2020, foreign operating loss
carryovers were $110 million. Included in the foreign operating loss carryovers are losses of $11.8 million that expire through 2035, and $98.2 million that expire
after 2035 or do not have an expiration date. At December 31, 2020, state operating loss carryovers were $132.6 million, which expire prior to 2035.
At December 31, 2020 and 2019, $0.1 million of deferred tax assets and $0.6 million of deferred tax liabilities, respectively, are classified as Liabilities held for
sale on the Consolidated Balance Sheet.
The Company is electing to recognize GILTI as a period expense in the period the tax is incurred.
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, 2020, no
additional income or withholding taxes have been provided for the $625 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, the Company estimates it would have a
withholding tax liability of $28.3 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 2020 and 2019 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
2020
2019
6,032 $
805
1,267
(386)
(625)
352
7,445 $
6,026
750
199
(341)
(591)
(11)
6,032
$
$
The amount of the unrecognized tax benefits that would affect the effective tax rate, if recognized, was approximately $6.6 million. The Company recognizes
interest and penalties related to the unrecognized tax benefits in income tax expense. As of December 31, 2020 and 2019, $0.7 million and $0.6 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, 2020.
56
Index
The Company believes that it is reasonably possible that the total amount of liability for unrecognized tax benefits as of December 31, 2020, will decrease by
approximately $2.5 million during 2021, of which $0.3 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 2021. 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 2015.
12. 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 divestiture & other related costs, share-based compensation, restructuring and other charges including operational improvement
plan costs, one-time COVID-19 employee payment, 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 investments, deferred tax assets, and fixed assets.
In 2020, the Company changed the name of its Flavors & Fragrances segment to the Flavors & Extracts segment in order to more accurately reflect the group’s
product portfolio. In addition, the Company changed the name of its Food & Beverage Colors product line to Food & Pharmaceutical Colors.
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 divestiture & other related costs, share-based compensation, and
restructuring and other charges including operational improvement plan costs, which are reported in Corporate & Other.
The Company’s three reportable segments are Flavors & Extracts and Color segments, which are both managed on a product line basis, and the Asia Pacific
segment, which is managed on a geographic basis. The Company’s Flavors & Extracts segment produces flavor 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, divestiture & other related costs, share-based compensation, operational improvement plan expenses, COVID-19 employee
payment, and other costs are included in the “Corporate & Other” category.
Divestiture & other related costs and restructuring and other costs, including the operational improvement plan costs, for the years ended December 31, 2020 and
2019, are further described in Note 14, Divestitures, and Note 15, Operational Improvement Plan, and are included in the operating income (loss) results in
Corporate & Other below. There were no divestiture & other related costs, restructuring and other costs, or operational improvement plan costs in 2018. In
addition, the Company’s corporate expenses and share-based compensation are included in Corporate & Other.
57
Index
(In thousands)
2020:
Revenue from external customers
Intersegment revenue
Total revenue
Operating income (loss)
Interest expense
Earnings (loss) before income taxes
Assets
Capital expenditures
Depreciation and amortization
2019:
Revenue from external customers
Intersegment revenue
Total revenue
Operating income (loss)
Interest expense
Earnings (loss) before income taxes
Assets
Capital expenditures
Depreciation and amortization
2018:
Revenue from external customers
Intersegment revenue
Total revenue
Operating income (loss)
Interest expense
Earnings (loss) before income taxes
Assets
Capital expenditures
Depreciation and amortization
Flavors &
Extracts
Color
Asia Pacific
Corporate
& Other
Consolidated
$
724,483 $
17,552
742,035
486,536 $
14,482
501,018
90,974
-
90,974
686,348
24,541
24,801
96,034
-
96,034
718,665
19,840
19,368
120,982 $
245
121,227
22,075
-
22,075
100,258
2,687
2,578
- $
-
-
1,332,001
32,279
1,364,280
(56,427)
14,811
(71,238)
152,656
14,811
137,845
235,589
5,094
2,894
1,740,860
52,162
49,641
$
682,705 $
17,651
700,356
522,051 $
13,108
535,159
118,178 $
70
118,248
- $
-
-
1,322,934
30,829
1,353,763
74,961
-
74,961
714,779
16,968
27,179
101,190
-
101,190
734,343
16,521
22,088
$
723,189 $
23,743
746,932
540,499 $
13,505
554,004
96,433
-
96,433
782,145
23,679
25,922
113,306
-
113,306
752,305
21,744
21,931
19,382
-
19,382
99,183
2,545
2,581
123,127 $
37
123,164
20,856
-
20,856
103,808
2,858
2,451
(74,423)
20,107
(94,530)
121,110
20,107
101,003
191,846
3,066
3,167
1,740,151
39,100
55,015
- $
-
-
1,386,815
37,285
1,424,100
(27,217)
21,853
(49,070)
203,378
21,853
181,525
186,682
2,459
2,940
1,824,940
50,740
53,244
Geographic Information
The Company has manufacturing facilities or sales offices in North America, Europe, Asia, Australia, South America, and Africa.
58
Index
The Company’s annual revenue summarized by geographic location is as follows:
(In thousands)
2020:
Revenue from external customers:
North America
Europe
Asia Pacific
Other
Total revenue from external customers
Long-lived assets:
North America
Europe
Asia Pacific
Other
Total long-lived assets
2019:
Revenue from external customers:
North America
Europe
Asia Pacific
Other
Total revenue from external customers
Long-lived assets:
North America
Europe
Asia Pacific
Other
Total long-lived assets
2018:
Revenue from external customers:
North America
Europe
Asia Pacific
Other
Total revenue from external customers
Long-lived assets:
North America
Europe
Asia Pacific
Other
Total long-lived assets
Flavors &
Extracts
Color
Asia Pacific
Corporate
& Other
Consolidated
$
$
$
$
$
$
$
$
$
$
$
$
491,641 $
160,083
30,080
42,679
724,483 $
244,921 $
112,424
204
782
358,331 $
448,393 $
158,902
32,203
43,207
682,705 $
251,822 $
102,631
1,017
504
355,974 $
477,083 $
173,562
31,506
41,038
723,189 $
255,131 $
125,157
1,061
277
381,626 $
241,608 $
129,704
52,414
62,810
486,536 $
252,906 $
226,840
4,670
22,116
506,532 $
251,593 $
148,393
57,268
64,797
522,051 $
220,723 $
242,311
3,758
18,037
484,829 $
245,649 $
168,340
59,548
66,962
540,499 $
230,187 $
265,688
3,319
16,387
515,581 $
81 $
193
117,427
3,281
120,982 $
- $
-
31,834
-
31,834 $
112 $
336
116,508
1,222
118,178 $
- $
-
31,007
-
31,007 $
- $
155
121,975
997
123,127 $
- $
-
27,872
-
27,872 $
- $
-
-
-
- $
102,577 $
-
-
-
102,577 $
- $
-
-
-
- $
80,128 $
-
-
-
80,128 $
- $
-
-
-
- $
76,996 $
-
-
-
76,996 $
733,330
289,980
199,921
108,770
1,332,001
600,404
339,264
36,708
22,898
999,274
700,098
307,631
205,979
109,226
1,322,934
552,673
344,942
35,782
18,541
951,938
722,732
342,057
213,029
108,997
1,386,815
562,314
390,845
32,252
16,664
1,002,075
Sales in the United States, based on the final country of destination of the Company’s products, were $614.3 million, $575.2 million, and $586.2 million, in
2020, 2019, and 2018, respectively. No other country of destination exceeded 10% of consolidated sales. Total long-lived assets in the United States amounted to
$518.2 million, $471.8 million, and $484.9 million, at December 31, 2020, 2019, and 2018, respectively.
59
Index
Product Information
During the first quarter of 2020, the Company updated its product line disclosures as a result of its intent to divest its inks, fragrances (excluding its essential oils
product line), and yogurt fruit preparations product lines. Flavors, Extracts & Flavor Ingredients now includes essential oils, which was previously reported in
Fragrances. Fragrances now only includes the aroma chemicals and fragrance compounds product lines. Yogurt Fruit Preparations is now disclosed separately;
previously, it was reported in the Flavors product line. Food & Pharmaceutical Colors (formerly Food & Beverage Colors) now includes pharmaceutical colors and
natural extraction, which were previously reported in Other Colors. Personal Care includes cosmetic and non-food colors. Inks is now disclosed separately;
previously, it was reported in Other Colors. The results for 2019 and 2018 have been restated to reflect these changes.
The Company’s revenue summarized by product portfolio is as follows:
(In thousands)
2020:
Flavors, Extracts & Flavor Ingredients
Natural Ingredients
Fragrances
Yogurt Fruit Preparations
Food & Pharmaceutical Colors
Personal Care
Inks
Asia Pacific
Intersegment Revenue
Total revenue from external customers
2019:
Flavors, Extracts & Flavor Ingredients
Natural Ingredients
Fragrances
Yogurt Fruit Preparations
Food & Pharmaceutical Colors
Personal Care
Inks
Asia Pacific
Intersegment Revenue
Total revenue from external customers
2018:
Flavors, Extracts & Flavor Ingredients
Natural Ingredients
Fragrances
Yogurt Fruit Preparations
Food & Pharmaceutical Colors
Personal Care
Inks
Asia Pacific
Intersegment Revenue
Total revenue from external customers
13. Fair Value Measurements
Flavors &
Extracts
Color
Asia Pacific Consolidated
$
$
$
$
$
$
399,331 $
243,161
85,354
14,189
-
-
-
-
(17,552)
724,483 $
378,967 $
214,027
86,399
20,963
-
-
-
-
(17,651)
682,705 $
403,762 $
224,280
91,786
27,104
-
-
-
-
(23,743)
723,189 $
- $
-
-
-
346,269
141,331
13,418
-
(14,482)
486,536 $
- $
-
-
-
340,327
159,640
35,192
-
(13,108)
522,051 $
- $
-
-
-
332,878
179,485
41,641
-
(13,505)
540,499 $
- $
-
-
-
-
-
-
121,227
(245)
120,982 $
- $
-
-
-
-
-
-
118,248
(70)
118,178 $
- $
-
-
-
-
-
-
123,164
(37)
123,127 $
399,331
243,161
85,354
14,189
346,269
141,331
13,418
121,227
(32,279)
1,332,001
378,967
214,027
86,399
20,963
340,327
159,640
35,192
118,248
(30,829)
1,322,934
403,762
224,280
91,786
27,104
332,878
179,485
41,641
123,164
(37,285)
1,386,815
ASC 820, Fair Value Measurement, defines fair value for financial assets and liabilities, establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurements. As of December 31, 2020 and 2019, the Company’s assets and liabilities subject to this standard are forward exchange
contracts. The net fair value of the forward exchange contracts based on current pricing obtained for comparable derivative products (Level 2 inputs) was an asset
of $0.5 million and a liability of $0.2 million as of December 31, 2020 and 2019, respectively. The carrying values of the Company’s cash and cash equivalents,
trade accounts receivable, trade accounts payable, accrued expenses, and short-term borrowings were approximately the same as the fair values as of December 31,
2020. The fair value of the Company’s long-term debt, including current maturities, is estimated using discounted cash flows based on the Company’s current
incremental borrowing rates for similar types of borrowing arrangements (Level 2 inputs). The carrying value of the long-term debt at December 31, 2020 and
2019, was $526.9 million and $598.5 million. The fair value of the long-term debt at December 31, 2020 and 2019, was $556.1 million and $620.0 million,
respectively.
60
Index
14. Divestitures
In October 2019, the Company announced its intent to divest its inks, fragrances (excluding its essential oils product line), and yogurt fruit preparations product
lines. In the fourth quarter of 2019, the Board of Directors approved the sale of the inks product line, which is within the Color segment, and the fragrances product
line (excluding its essential oils product line), which is within the Flavors & Extracts segment (formerly known as the Flavors & Fragrances segment; see Note 12,
Segment and Geographic Information). In the second quarter of 2020, the Board of Directors approved the sale of the yogurt fruit preparations product line, which
is within the Flavors & Extracts segment. The divesting and exit of these three product lines does not meet the criteria to be presented as a discontinued operation
on the Consolidated Statements of Earnings.
On June 30, 2020, the Company completed the sale of its inks product line. In 2020, the Company received $11.6 million of net cash and expects to receive
additional cash when it completes certain post-closing asset sales. For the years ended December 31, 2020 and 2019, the non-cash loss on disposal of the inks
product line was $0.1 million and $15.8 million, respectively.
On September 18, 2020, the Company completed the sale of its yogurt fruit preparations product line for $1.0 million. The sale included an earn-out based on
future performance, which could result in additional cash consideration for the Company.
On November 23, 2020, the Company announced it had entered into a definitive agreement to sell its fragrances product line (excluding its essential oils product
line). The Company expects the transaction to be finalized in the first half of 2021.
The assets and liabilities related to the inks and fragrances (excluding its essential oils product line) product lines are recorded in Assets held for sale and Liabilities
held for sale as of December 31, 2020 and 2019, as follows:
(In thousands)
Assets held for sale:
Trade accounts receivable, less allowance for losses of $456 and $2,350, respectively
Inventories
Prepaid expenses and other current assets
Property, Plant, and Equipment, net
Intangible assets
Assets held for sale
Liabilities held for sale:
Trade accounts payable
Accrued salaries, wages, and withholdings from employees
Other accrued expenses
Liabilities held for sale
2020
2019
20,722 $
25,045
1,843
3,434
1,716
52,760 $
13,967 $
1,739
1,633
17,339 $
31,653
34,612
5,528
14,496
5,004
91,293
12,318
1,677
5,190
19,185
$
$
$
$
The Company reports all costs associated with the divestitures in Corporate & Other. The following table summarizes the divestiture & other related costs for the
year ended December 31, 2020:
(In thousands)
Non-cash impairment charges – Selling and administrative
expenses
Non-cash charges – Cost of products sold
Reclassification of foreign currency translation and related items
– Selling and administrative expenses
Other costs - Selling and administrative expenses(1)
Total
$
$
Yogurt Fruit
Preparations
Fragrances
Inks
Corporate/
Other
Consolidated
2,597 $
1,679
-
337
4,613 $
2,055 $
77
-
3,029
5,161 $
8,928 $
(203)
(8,625)
892
992 $
(861) $
242
-
2,008
1,389 $
12,719
1,795
(8,625)
6,266
12,155
(1) Other costs – Selling and administrative expenses include employee separation costs, professional services, accelerated depreciation, and other related
costs.
The Company reports all costs associated with the divestitures in Corporate & Other. The following table summarizes the divestiture & other related costs for the
year ended December 31, 2019:
61
Index
(In thousands)
Non-cash impairment charges – Selling and administrative
expenses
Non-cash charges – Cost of products sold
Other costs - Selling and administrative expenses(1)
Other costs – Cost of products sold(2)
Total
Yogurt Fruit
Preparations
Fragrances
Inks
Corporate/
Other
Consolidated
$
$
- $
9,767
-
800
10,567 $
18,204 $
-
305
-
18,509 $
15,849 $
-
26
-
15,875 $
555 $
-
374
-
929 $
34,608
9,767
705
800
45,880
(1) Other costs – Selling and administrative expenses include employee separation costs, professional services, and other related costs.
(2) Other costs – Cost of product sold include inventory disposal costs and other related costs.
The Company recorded non-cash impairment charges in Selling and Administrative Expenses, primarily related to property, plant, and equipment and allocated
goodwill, during the years ended December 31, 2020 and 2019, when the estimated fair value less costs to sell the product line was lower than its carrying value.
The Company recorded non-cash charges in Cost of Products Sold during the years ended December 31, 2020 and 2019, to reduce the carrying value of certain
inventories, when they were determined to be excess. The Company recorded a non-cash gain during the year ended December 31, 2020, related to the
reclassification of foreign currency translation and related items from Accumulated Other Comprehensive Loss to Selling and Administrative Expenses in the
Consolidated Statement of Earnings. The estimated fair value of the fragrances product line (excluding its essential oils product line) was determined based on
indicative bids, which are classified as Level 3 inputs in the fair value measurement hierarchy.
In March 2020, the Company was notified by the potential buyer of the Company’s fragrances product line that environmental sampling conducted at the
Company’s Granada, Spain location had identified the presence of contaminants in soil and groundwater in certain areas of the property. The Company records
liabilities related to environmental remediation obligations when estimated future expenditures are probable and the amount of the liability is reasonably estimable.
Based upon an environmental investigation and a quantitative risk assessment performed by a consultant hired by the Company, the Company has recorded $0.8
million related to these obligations in Selling and Administrative Expenses during the year ended December 31, 2020.
As of December 31, 2020, the Company estimates 2021 divestiture & other related costs will be $10 million to $14 million. The Company is expecting a non-cash
charge of $8 million to $10 million upon closing the sale of the fragrances product line (excluding its essential oils product line) related to the reclassification of
accumulated foreign currency translation and related items from Accumulated Other Comprehensive Loss to Selling and Administrative Expenses in the
Consolidated Statement of Earnings. In addition, the Company expects other costs, primarily accelerated depreciation and other exiting activities expenses, to be
between $2 million and $4 million. The Company anticipates that it will complete the sale and exit activities of these product lines in 2021.
15. Operational Improvement Plan
During the third quarter of 2020, the Company approved an operational improvement plan (Operational Improvement Plan) to consolidate manufacturing facilities
and improve efficiencies within the Company. As part of the Operational Improvement Plan, the Company is combining its New Jersey cosmetics manufacturing
facility in the Personal Care product line of the Color segment into its existing Color segment facility in Missouri. In addition, the Company is centralizing certain
Flavors & Extracts segment support functions in Europe into one location. In the Asia Pacific segment, the Company incurred costs in connection with the
elimination of certain selling and administrative positions. The Company reports all costs associated with the Operational Improvement Plan in Corporate & Other.
The following table summarizes the Operational Improvement Plan expenses by segment for the year ended December 31, 2020:
(In thousands)
Employee separation
Other costs(1)
Total
Flavors &
Extracts
Color
Asia
Pacific
$
$
352 $
-
352 $
1,749 $
640
2,389 $
Consolidated
2,690
649
3,339
589 $
9
598 $
(1) Other costs include professional services, accelerated depreciation, and other related costs.
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Index
The Company recorded the Operational Improvement Plan expenses for the year ended December 31, 2020, as follows:
(In thousands)
Employee separation
Other costs(1)
Total
Selling and
Administrative
Expenses
Cost of
$
$
Products Sold Consolidated
2,690
- $
649
35
3,339
35 $
2,690 $
614
3,304 $
(1) Other costs include professional services, accelerated depreciation, and other related costs.
As of December 31, 2020, the Company recorded $2.2 million of accrued liabilities in Other accrued expenses on the Company’s Consolidated Balance Sheet
related to this plan. The Company expects the total costs in 2020 and 2021 associated with the Operational Improvement Plan to be between $5 million and $7
million, primarily related to severance and accelerated depreciation.
16. Commitments and Contingencies
Agar v. Sensient Natural Ingredients LLC
On March 29, 2019, Calvin Agar (Agar), a former employee, filed a Class Action Complaint in Stanislaus County Superior Court against Sensient Natural
Ingredients LLC (SNI). On May 22, 2019, Agar filed a First Amended Class Action Complaint against SNI (the Complaint). Agar alleges that SNI improperly
reported overtime pay on employees’ wage statements, in violation of the California Labor Code. The Complaint alleges two causes of action, both of which
concern the wage statements.
The Complaint does not allege that SNI failed to pay any overtime due to Agar or any of the putative class or group members. The Complaint merely challenges
the manner in which SNI has reported overtime pay on its wage statements.
SNI maintains that it has accurately paid Agar and the putative class members for all overtime worked, and that they have not experienced any harm. SNI further
maintains that the format of its wage statements does not violate the requirements of state law or any specific guidance from California decisional law, the
California Division of Labor Standards Enforcement, or the California Labor Commissioner's Office. Finally, SNI contended that certain of the state law claims are
subject to mandatory individual arbitration.
SNI filed its Answer and Affirmative Defenses to the Complaint on July 10, 2019. The parties participated in an early mediation in the case in December 2019,
which was not successful. On March 17, 2020, the Court granted Agar leave to file a Second Amended Complaint, which removed the claim that SNI had asserted
was subject to mandatory individual arbitration. SNI filed a Demurrer to the Second Amended Complaint, seeking dismissal of the remaining claim, on May 1,
2020. The Court overruled the Demurrer on September 1, 2020. SNI has requested discretionary appellate review of this decision. Discovery is currently stayed in
the matter pending the outcome of SNI’s application for appellate review. SNI continues to evaluate the developing legal authority on this issue. SNI intends to
continue to vigorously defend its interests, absent a reasonable resolution.
Kelley v. Sensient Natural Ingredients LLC; Bryan v. Sensient Natural Ingredients LLC
On March 4, 2020, Monique Kelley filed a Class Action Complaint against SNI in Merced County Superior Court in California. Ms. Kelley worked at SNI for less
than a week in 2017 through a temporary staffing company. Ms. Kelley has brought suit for purported violations of the California Labor Code and the California
Business and Professions Code on her own behalf, and on behalf of all current and former California-based hourly-paid or non-exempt employees of SNI. Ms.
Kelley specifically asserts claims for unpaid overtime wages, unpaid minimum wages, unpaid meal and rest break premiums, failure to timely pay final wages
upon termination, non-compliant wage statements, and unreimbursed business expenses. SNI filed a Demurrer on May 21, 2020, seeking dismissal of the
Complaint in its entirety on the grounds that it contains only boilerplate allegations that fail to state facts sufficient to constitute a cause of action, and it is
otherwise uncertain, ambiguous, and unintelligible. SNI further sought dismissal of one cause of action based upon the statute of limitations. SNI simultaneously
filed a Motion to Strike certain allegations in the Complaint as improperly pled. The Court sustained the Demurrer with leave to amend on August 25, 2020. The
Court also granted the Motion to Strike. Ms. Kelley has amended her original pleading, asserting the same causes of action, to which SNI has filed a responsive
pleading. The parties have begun discovery.
63
Index
On June 15, 2020, the same law firm representing Ms. Kelley also filed notice with the State of California of the intent to pursue a claim on a representative basis
pursuant to the California Private Attorneys General Act of 2004 (PAGA). This notice was served on behalf of Julie Bryan, who worked at SNI through a
temporary staffing agency in early 2020. The notice states the intent to pursue relief on behalf of Ms. Bryan as well as other alleged aggrieved employees,
identified as all current and former hourly or non-exempt employees of SNI, whether hired directly or through staffing agencies or labor contractors. The notice
alleges that SNI failed to properly pay Ms. Bryan and the other alleged aggrieved employees for all hours worked, failed to properly provide or compensate
minimum and overtime wages and for meal and rest breaks, failed to issue compliant wage statements, and failed to reimburse for all necessary business-related
expenses, in violation of the California Labor Code and California Industrial Welfare Commission Orders. On August 19, 2020, Ms. Bryan filed a Complaint in
Merced County Superior Court asserting the claims set forth in her PAGA notice. SNI has filed its Answer and Affirmative Defenses, and the parties have entered
the discovery phase of the case. SNI intends to vigorously defend its interests in both of these matters, absent a reasonable resolution.
Other Claims
The Company is subject to various claims and litigation arising in the normal course of business. The Company establishes reserves for claims and proceedings
when it is probable that liabilities exist and reasonable estimates of loss can be made. While it is not possible to predict the outcome of these matters, based on our
assessment of the facts and circumstances now known, we do not believe that these matters, individually or in the aggregate, will have a material adverse effect on
our financial position. However, actual outcomes may be different from those expected and could have a material effect on our results of operations or cash flows
in a particular period.
See Note 14, Divestitures, for information about estimated environmental remediation costs associated with our Granada, Spain, location.
17. Subsequent Event
On January 22, 2021, the Company announced its quarterly dividend of 39 cents per share would be payable on March 1, 2021.
64
Index
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, 2020
and 2019, 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, 2020, 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, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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, 2021 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be
communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the
account or disclosure to which it relates.
Description of the
Matter
Income Taxes--Valuation Allowances for Deferred Tax Assets
As described in Note 11 to the consolidated financial statements, at December 31, 2020, the Company had gross
deferred tax assets of $117.9 million, $77.8 million of which relate to net operating losses (NOLs), foreign tax credits
and other tax credits reduced by a $47.8 million valuation allowance. Deferred tax assets are reduced by a valuation
allowance if, based upon the weight of all available evidence, it is more likely than not that some portion, or all, of the
deferred tax assets will not be realized.
Management’s analysis of the realizability of its deferred tax assets related to NOLs, foreign tax credit and other tax
credits was significant to our audit because the amounts are material to the financial statements and the assessment
process related to the realizability of these deferred tax assets is complex, involves significant judgments that includes
projections of income, sources of income and tax planning strategies.
65
Index
How We
Addressed the
Matter in Our
Audit
We tested controls relating to the realizability of deferred tax assets, including controls over management’s
projections of future taxable income, the future reversal of existing taxable temporary differences and management’s
identification and use of available tax planning strategies.
To test the management’s assessment of the realizability of its deferred tax assets related to NOLs, foreign and other
tax credits, our audit procedures included, among others, evaluation of the assumptions used by the Company to
develop tax planning strategies and projections of future taxable income by jurisdiction and testing the completeness
and accuracy of the underlying data used in its projections. We involved our tax professionals to evaluate the
application of tax law in the Company’s available tax planning strategies and projections of future taxable income.
We assessed the historical accuracy of management’s projections and reconciled the projections of future taxable
income with other forecasted financial information prepared by the Company. We also tested the Company’s
scheduling of the reversal of existing temporary taxable differences.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2006.
Milwaukee, Wisconsin
February 22, 2021
66
Index
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, 2020, 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, 2020, based on the COSO criteria.
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, 2020 and 2019, 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, 2020, 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, 2021 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 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 control 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, 2021
67
Index
Schedule II
Valuation and Qualifying Accounts (in thousands); Years Ended December 31, 2020, 2019 and 2018
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
2018
Allowance for losses:
Trade accounts receivable
2019
Allowance for losses:
Trade accounts receivable
2020
Allowance for losses:
Trade accounts receivable
$
6,000
$
1,004
$
0
$
1,028
$
5,976
$
5,976
$
2,469
$
0
$
3,882
$
4,563
$
4,563
$
565
$
0
$
1,693
$
3,435
(A) Accounts written off, net of recoveries. In 2019, $2,350 thousand was moved to Assets held for sale on the Consolidated Balance Sheet related to the
fragrances and inks divestitures.
68
Index
Exhibit
Number
3.1
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
2020 ANNUAL REPORT ON FORM 10-K
Description
Incorporated by
Reference from
Filed
Herewith
Sensient Technologies Corporation Amended and
Exhibit 3.1 to Current Report on Form 8-K dated July 24,
Restated Articles of Incorporation
2017 (Commission File No. 1-7626)
3.2
Sensient Technologies Corporation Amended and
Exhibit 3.2 to Current Report on Form 8-K dated March
Restated By-Laws
26, 2020 (Commission File No. 1-7626)
4.1(a)
Note Purchase Agreement dated as of April 5, 2013
Exhibit 10.1 to Current Report on Form 8-K dated April 5,
2013 (Commission File No. 1-7626)
4.1(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)
4.1(c)
Second Amendment dated as of May 3, 2017 to Note
Exhibit 10.4 to Current Report on Form 8-K dated May 5,
Purchase Agreement dated as of April 5, 2013
2017 (Commission File No. 1-7626)
4.1(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)
4.2(a)
4.2(b)
4.2(c)
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(a)
Note Purchase Agreement dated as of May 3, 2017
Exhibit 10.2 to Current Report on Form 8-K dated May 5,
4.3(b)
First Amendment dated as of June 22, 2018 to Note
Purchase Agreement dated as of May 3, 2017
2017 (Commission File No. 1-7626)
Exhibit 4.4(b) to Quarterly Report on Form 10-Q for the
quarter ended June 30, 2018 (Commission File No. 1-
7626)
4.4
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)
Description of Sensient Technologies Corporation’s
securities registered pursuant to Section 12 of the
Securities Exchange Act
Exhibit 4.5 to Annual Report on Form 10-K for the fiscal
year ended December 31, 2019 (Commission File No. 1-
7626)
E-1
Index
10
10.1
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
2020 ANNUAL REPORT ON FORM 10-K
Material Contracts
Management Contracts or Compensatory Plans
10.1(a)
Executive Employment Contract dated as of February 13,
Exhibit 10.1 to Current Report on Form 8-K dated February
2020, between Sensient Technologies Corporation and Paul
Manning
13, 2020 (Commission File No. 1-7626)
10.1(b)
Form of Change of Control Employment and Severance
Exhibit 10.1(b)(3) to Annual Report on Form 10-K for the
Agreement
fiscal year ended December 31, 2011 (Commission File No.
1-7626)
10.1(c)
Sensient Technologies Corporation 2012 Non-Employee
Exhibit 10.1(c)(2) to Annual Report on Form 10-K for the
Directors Stock Plan
10.1(d)
Sensient Technologies Corporation 2007 Stock Plan
fiscal year ended December 31, 2014 (Commission File No.
1-7626)
Appendix B to Definitive Proxy Statement filed on Schedule
14A on March 15, 2013 (Commission File No. 1-7626)
10.1(e)
Sensient Technologies Corporation Directors’ Deferred
Exhibit 10.1 to Current Report on Form 8-K dated May 28,
Compensation Plan
2014 (Commission File No. 1-7626)
10.1(f)
Sensient Technologies Corporation Non-Employee
Exhibit 10.2 to Current Report on Form 8-K dated July 25,
Directors’ Retirement Plan
2013 (Commission File No. 1-7626)
10.1(g)(1)
Sensient Technologies Corporation Frozen Management
Exhibit 10.5(a) to Quarterly Report on Form 10-Q for the
Income Deferral Plan
quarter ended September 30, 2008 (Commission File No. 1-
7626)
E-2
Index
Exhibit
Number
10.1(g)(2)
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
2020 ANNUAL REPORT ON FORM 10-K
Description
Incorporated by
Reference from
Filed
Herewith
Sensient Technologies Corporation Management Income
Exhibit 10.5(b) to Quarterly Report on Form 10-Q for the
Deferral Plan
quarter ended September 30, 2008 (Commission File No. 1-
7626)
10.1(h)(1)
Sensient Technologies Corporation Frozen Executive
Exhibit 10.4(a) to Quarterly Report on Form 10-Q for the
Income Deferral Plan
quarter ended September 30, 2008 (Commission File No. 1-
7626)
10.1(h)(2)
Sensient Technologies Corporation Executive Income
Exhibit 10.4(b) to Quarterly Report on Form 10-Q for the
Deferral Plan
quarter ended September 30, 2008 (Commission File No. 1-
7626)
10.1(i)
10.1(j)(1)
Amended and Restated Sensient Technologies Corporation
Rabbi Trust “A” 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)
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(m) to Annual Report on Form 10-K for the
fiscal year ended December 31, 2009 (Commission File No.
1-7626)
10.1(j)(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(k)
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(l)
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(m)
Sensient Technologies Corporation Management Incentive
Exhibit 10.9 to Quarterly Report on Form 10-Q for the
Plan for Group Presidents
quarter ended September 30, 2008 (Commission File No. 1-
7626)
10.1(n)
Sensient Technologies Corporation Management Incentive
Exhibit 10.7 to Quarterly Report on Form 10-Q for the
Plan for Corporate Management
quarter ended September 30, 2008 (Commission File No. 1-
7626)
10.1(o)
Sensient Technologies Corporation Management Incentive
Exhibit 10.8 to Quarterly Report on Form 10-Q for the
Plan for Group/Division Management
quarter ended September 30, 2008 (Commission File No. 1-
7626)
10.1(p)(1)
Sensient Technologies Corporation Form of Supplemental
Exhibit 10.1(s) to Annual Report on Form 10-K for the
Executive Retirement Plan A Agreement
fiscal year ended December 31, 2008 (Commission File No.
1-7626)
E-3
Index
Exhibit
Number
10.1(p)(2)
10.1(p)(3)
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
2020 ANNUAL REPORT ON FORM 10-K
Description
Form of Amendment No. 1 to the Sensient Technologies
Corporation Amended and Restated Supplemental
Executive Retirement Plan A
Form of Amendment No. 2 to the Sensient Technologies
Corporation Amended and Restated Supplemental
Executive Retirement Plan A
Incorporated by
Reference From
Filed
Herewith
Exhibit 10.1(s)(2) to Annual Report on Form 10-K for the
fiscal year ended December 31, 2010 (Commission file No.
1-7626)
Exhibit 10.1 to Current Report on Form 8-K dated April
22, 2010 (Commission File No. 1-7626)
10.1(q)(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(q)(2)
10.1(q)(3)
10.1(r)(1)
Form of Amendment No. 1 to the Sensient Technologies
Corporation Amended and Restated Supplemental
Executive Retirement Plan B
Exhibit 10.1(t)(2) to Annual Report on Form 10-K for the
fiscal year ended December 31, 2010 (Commission File
No. 1-7626)
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)
Sensient Technologies Frozen Supplemental Benefit Plan Exhibit 10.6(a) to Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008 (Commission File No.
1-7626)
10.1(r)(2)
Sensient Technologies Supplemental Benefit Plan
Exhibit 10.6(b) to Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008 (Commission File No.
1-7626)
10.1(s)
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(t)(1)
Form of Performance Stock Unit Agreement
Exhibit 10.3 to Current Report on Form 8-K dated May 28,
10.1(t)(2)
Form of Restricted Stock Agreement
10.1(t)(3)
Form of Restricted Stock Unit Agreement
2014 (Commission File No. 1-7626)
Exhibit 10.1 to Current Report on Form 8-K dated
December 10, 2020 (Commission File No. 1-7626)
Exhibit 10.2 to Current Report on Form 8-K dated
December 10, 2020 (Commission File No. 1-7626)
E-4
Index
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
2020 ANNUAL REPORT ON FORM 10-K
10.1(u)
Sensient Technologies Corporation 2017 Stock Plan
Appendix B to Definitive Proxy Statement filed on
Schedule 14A on March 10, 2017 (Commission File No. 1-
7626)
10.1(v)
10.2(a)
10.2(b)
Sensient Technologies Management Incentive
Compensation Plan
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)
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)
10.2(c)
Limited Waiver and Second Amendment to Second
Exhibit 10.1 to Quarterly Report on Form 10-Q for the
Amended and Restated Credit Agreement
quarter ended June 30, 2020 (Commission File No. 1-7626)
X
E-5
Index
Exhibit
Number
10.3(a)
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
2020 ANNUAL REPORT ON FORM 10-K
Description
Incorporated by
Reference From
Filed
Herewith
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)
10.3(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)
10.4(a)
Receivables Purchase Agreement dated as of October 3,
2016
10.4(b)
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 3, 2016 (Commission File No. 1-7626)
Exhibit 10.2 to Current Report on Form 8-K dated
October 2, 2017 (Commission File No. 1-7626)
10.4(c)
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)
10.4(d)
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)
10.4(e)
Amendment No. 4 to Receivables Purchase Agreement,
dated as of October 1, 2019
Exhibit 10.1 to Current Report on Form 8-K dated
October 7, 2019 (Commission File No. 1-7626)
10.4(f)
Amendment No. 5 to Receivables Purchase Agreement,
dated as of October 1, 2020
Exhibit 10.1 to Current Report on Form 8-K dated
October 1, 2020 (Commission File No. 1-7626)
10.4(g)
Amendment No. 6 to Receivables Purchase Agreement,
dated as of November 12, 2020
10.5
21
23.1
31
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)
Subsidiaries of the Registrant
Consent of Ernst & Young LLP
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
X
X
X
X
E-6
Index
SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
2020 ANNUAL REPORT ON FORM 10-K
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*
Inline Instance Document
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
101.DEF*
101.LAB*
101.PRE*
Inline XBRL Taxonomy Extension Calculation Linkbase
Document
Inline XBRL Taxonomy Extension Definition Linkbase
Document
Inline XBRL Taxonomy Extension Label Linkbase
Document
Inline XBRL Taxonomy Extension Presentation
Linkbase Document
104
Cover Page Interactive Data File (formatted as inline
XBRL and contained in Exhibit 101)
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, 2020, 2019, and 2018; (ii) Consolidated Statements of Comprehensive Income for the twelve
months ended December 31, 2020, 2019, and 2018; (iii) Consolidated Balance Sheets as of December 31, 2020 and 2019; (iv) Consolidated Statements of
Shareholders’ Equity for the twelve months ended December 31, 2020, 2019, and 2018; (v) Consolidated Statements of Cash Flows for the twelve months ended
December 31, 2020, 2019, and 2018; and (vi) Notes to Consolidated Financial Statements.
E-7
Index
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.
SIGNATURES
SENSIENT TECHNOLOGIES CORPORATION
/s/ John J. Manning
John J. Manning
Senior Vice President, General Counsel and Secretary
Dated: February 22, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of February 22, 2021, 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/ Joseph Carleone
Joseph Carleone
Director
/s/ Edward H. Cichurski
Edward H. Cichurski
Director
/s/ Mario Ferruzzi
Mario Ferruzzi
Director
/s/ Carol R. Jackson
Carol R. Jackson
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
SENSIENT TECHNOLOGIES CORPORATION
MANAGEMENT INCENTIVE COMPENSATION PLAN
Adopted by the Board of Directors on February 11, 2021
Exhibit 10.1(v)
I. THE PLAN
The name of this Plan is the Sensient Technologies Corporation Management Incentive Compensation Plan, as amended, restated, and renamed, effective January
1, 2021. The purpose of this Plan is to promote the interests of the shareholders and to provide incentives to eligible officers of the Company, and eligible
employees of Corporate Management and Group Management, for contributions to the profitability of the Company. It is separate and distinct from the other
Company incentive plans currently in effect.
The Plan is an amendment and restatement of the Sensient Technologies Corporation Incentive Compensation Plan for Elected Officers, adopted by the Board of
Directors on October 7, 2013. The Plan also sets forth the entire Management Incentive Compensation Plan for Corporate Management and Group Management
and supersedes and replaces all prior plans, policies, and programs related to the subject matter hereof, including the Sensient Technologies Corporation
Management Incentive Compensation Plan for Corporate Management, the Sensient Technologies Corporation Management Incentive Compensation Plan for
Group Presidents, and the Sensient Technologies Corporation Management Incentive Compensation Plan for Group/Division Management.
The Plan is an annual plan that is offered to eligible individuals on a Fiscal Year by Fiscal Year basis. The Committee retains the discretion to not offer the Plan for
a future Fiscal Year or, if it is offered, to establish different features, terms and conditions.
II. DEFINITIONS
In this Plan, the following terms used will have the following definitions:
A. “Board of Directors” means the Board of Directors of Sensient Technologies Corporation.
B. “Bonus Award” means an award paid pursuant to Section VII of this Plan.
C. “Cause” shall have the meaning given such term in any employment or change of control agreement between the individual and the Company. In the
absence of such an agreement, "Cause" shall mean: (a) the willful and continued failure of the individual to perform substantially the individual’s duties with the
Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for performance is
delivered to the individual by the individual’s direct supervisor which specifically identifies the manner in which the individual’s direct supervisor believes that the
individual has not substantially performed the individual’s duties, (b) a violation of the Sensient Technologies Corporation Code of Conduct, or (c) the willful
engaging by the individual in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company.
D. “CEO” means the Chief Executive Officer of the Company.
E. “Code” means the Internal Revenue Code of 1986, as amended and in effect from time to time.
F. “Committee” means the committee provided for in Section III.
G. “Company” means Sensient Technologies Corporation.
H. “Corporate Management” means the management team that performs corporate functions for the Company.
I. "Disability" means the Employee has met the requirements for long-term disability under the Company sponsored plan in which the Employee participates,
or an equivalent benefit in the country in which the Employee resides.
J. “Employee” means an employee regularly employed by the Company, and paid on a salary basis.
K. “Fiscal Year” means the calendar year.
L. “Fiscal Year Salary” of any Participant means the base pay earned by such Participant during the relevant Fiscal Year of the Company, exclusive of any
incentive compensation or supplemental allowances or other payments by the Company.
M. “Group Management” means the management team for the respective Colors Group, Flavors and Extracts Group, and Asia Pacific Group (individually,
“Group”).
N. "Normal Retirement" means "normal retirement" under the terms of the Company’s Employee Stock Ownership Plan ("ESOP") in effect on the date of the
Participant’s termination of employment (or on the date the ESOP is terminated if not then in effect) with the Company.
O. “Officer” means Employees elected or appointed to serve as officers of the Company by the Company’s Board of Directors.
P. “Participant” means any (1) Officer of the Company and (2) Corporate Management and Group Management Employee selected for participation in the
Plan for a given Fiscal Year as further described in Section IV.
Q. “Performance Goals” means business criteria with respect to the Company, a Group, and/or any one or more business units or product lines of the
Company, which may be on an absolute or relative basis.
R. “Plan” means this Sensient Technologies Corporation Management Incentive Compensation Plan.
S. "Proration Factor" means the number of full months as a Participant for the Fiscal Year divided by 12.
III. COMMITTEE AND PLAN AUTHORITY
A. The Board of Directors has appointed and shall continue to appoint and keep in existence a Compensation and Development Committee composed of at
least three members of the Company’s Board of Directors, each of whom meets the independence requirements of the New York Stock Exchange (“NYSE”) on
which the Company’s stock is listed. Except as otherwise provided, this Committee shall have full power and authority to interpret and administer the Plan in
accordance with its terms (provided that, except as provided in Section VII.B. hereof, the Committee shall have no authority or discretion to adjust the amount of
any Bonus Award in any amount other than the “Planned Amount” (as hereinafter defined)). Determinations, interpretations or other actions made or taken by the
Committee pursuant to the provisions hereof shall be final, binding, and conclusive for all purposes and upon all persons. The Committee’s decisions need not be
uniform and may be made selectively among Participants, whether or not they are similarly situated.
B. The Board of Directors may, from time to time, remove members from the Committee or add members thereto, and vacancies on the Committee, however
caused, shall be filled by action of the Board of Directors; provided, that no person shall be appointed to the Committee who does not meet the independence
requirements of the NYSE.
C. The Committee hereby delegates certain authority as described herein to the CEO, including, but not limited to, Corporate Management and Group
Management eligibility determinations and establishing the eligible Bonus Award opportunities, and discretionary authority to adjust payouts as described herein.
Any such authority delegated or allocated by the Committee shall be exercised in accordance with the terms and conditions of the Plan and any rules, regulations,
or administrative guidelines that may from time to time be established by the Committee, and any such allocation or delegation may be revoked by the Committee
at any time. Determinations, interpretations, or other actions made or taken by the CEO pursuant to its delegated authority shall be final, binding, and conclusive
for all purposes and upon all persons. The CEO’s decisions need not be uniform and may be made selectively among Participants, whether or not they are similarly
situated.
IV. ELIGIBILITY AND PLAN PARTICIPATION
Except as provided under Section VI hereof, eligibility to participate in the Plan is determined as follows:
A. All Officers of the Company shall be eligible to participate in the Plan and earn a Bonus Award.
B. The CEO shall determine the Employees from among Corporate Management who are eligible to participate in the Plan and earn a Bonus Award. The
CEO, in consultation with the Group Presidents and Group Vice President, as applicable, shall determine the Employees from among Group Management who are
eligible to participate in the Plan and earn a Bonus Award. Such determinations shall be made at the beginning of the Fiscal Year. Participants will be notified of
their selection and be provided with the Plan and specific provisions related to their level of participation. Notwithstanding the foregoing, not all Corporate and
Group Management Employees need be selected as Participants, and selection as a Participant in one Fiscal Year does not ensure selection in future Fiscal Years, if
such Plan should be implemented. In addition, the CEO may render a Participant ineligible from continuing to earn a Bonus Award during a Fiscal Year, in
consideration of individual performance or disciplinary status.
C. Eligibility for or receipt of a Bonus Award should not be considered as automatic, retroactive, or precedent-based.
V. ESTABLISHMENT OF PERFORMANCE GOALS AND AWARD OPPORTUNITIES
A. Not later than the 90th day of each Fiscal Year of the Company, the Committee shall establish and adopt Performance Goals for Officers, Corporate
Management, and Group Management for such Fiscal Year. Unless the Committee determines otherwise, for the Group Presidents and Group Vice President, as
applicable, the Committee shall also determine the allocation or weighting of the Performance Goals between those established for Officers and Corporate
Management and those established for Group Management. Following the 90th day of each Fiscal Year of the Company, the Performance Goals that have been
established for the applicable Fiscal Year in accordance with the foregoing paragraph shall not be subject to modification or adjustment for any reason, except
certain events, as described in Paragraph VII.A. The Performance Goals for Officers, Corporate Management, and Group Management may include, but not be
limited to: Earnings per share, EBITDA, cash flow, operating profit (EBIT), and revenue. In any given Fiscal Year, the Committee may utilize any or all of the
listed Performance Goals, or substitute or supplement those listed with additional Performance Goals. The Committee further may define the Performance Goals
as it deems appropriate and from Fiscal Year to Fiscal Year.
B. For Officers, the Committee shall also establish the Bonus Award opportunities based on a percent of Fiscal Year Salary that may be paid to a Participant
as a Bonus Award under this Plan depending on the relative or comparative achievement of the established Performance Goals, which may include threshold,
target, and maximum Bonus Award amounts. For Corporate Management and Group Management, the CEO shall establish the Bonus Award opportunities for the
Participants selected to participate in the Plan for a Fiscal Year.
VI. IMPACT OF EMPLOYMENT EVENTS
A. If an Employee is hired or promoted into an eligible position during the Fiscal Year, such Employee may be selected as a Participant after the beginning of
a Fiscal Year and shall be eligible to receive a Bonus Award multiplied by a Proration Factor to reflect the duration of Plan participation, paid at the same time as
all other Bonus Awards under the Plan.
B. If a Participant experiences job changes during the Fiscal Year (e.g., salary changes or a new role), the Participant shall be eligible to receive a Bonus
Award multiplied by a Proration Factor based on any changes in Bonus Award opportunity, salary, Performance Goals, and/or Plan eligibility for each respective
time period during the Fiscal Year.
C. If a Participant is on a paid, unpaid, or military leave during the Fiscal Year, the Participant shall be eligible to receive a Bonus Award that shall be
prorated to reflect the number of full months during the Fiscal Year that the Participant was not on leave.
D. If a Participant terminated employment with the Company during the Fiscal Year because of Normal Retirement, death, or Disability, the amount payable
to the Participant shall be equal to the Bonus Award multiplied by the Proration Factor. The Committee or the CEO, as applicable, with respect to a Participant
shall have the discretion to increase the Bonus Award up to, but not in excess of, the amount that would have been earned for a full Fiscal Year of participation.
E. If a Participant voluntarily terminates employment with the Company (other than for Normal Retirement) or is terminated by the Company, with or without
Cause and regardless of whether the Participant is eligible for Normal Retirement, the Participant will not earn a Bonus Award and no Bonus Award shall be paid
to the Participant. The Committee or the CEO, as applicable, will have the discretion to grant an exception to this limitation and approve a Bonus Award to a
Participant who leaves the Company in good standing after the start of the Fourth Quarter of the Fiscal Year, but before the Bonus Award is paid for that Fiscal
Year.
VII. DETERMINATION AND PAYMENT OF BONUS AWARDS
A. Subject to the following sentence of this Paragraph A and to Paragraphs B, C, and E of this Section VII, the Committee shall determine the amount of the
Bonus Award payable to a Participant who is an Officer for any Fiscal Year under this Plan and remains employed with the Company on the date the Bonus Award
is paid out. The CEO shall make such determinations with respect to Corporate Management, and in consultation with the Group Presidents and Group Vice
President, as applicable, with respect to Group Management, provided such Participants are employed with the Company on the date the Bonus Award is paid out.
A Bonus Award shall not vest and become earned until payout. The Bonus Award payable to any Participant shall be an amount that corresponds to the relative or
comparative achievement of the Performance Goals for such Fiscal Year. In comparing actual performance against the Performance Goals, the Committee may
exclude from such comparison any excluded gains, losses, charges, or credits which appear on the Company's books and records as the Committee deems
appropriate. An excluded item is an item that was not considered for the establishment of the Performance Goals and is related to an activity or event that is outside
of the Company's ordinary course of business or that impacts comparability between periods. Examples may include, but shall not be limited to, an item in the
Company's financial statements reflecting a significant change in an accounting rule or tax law, restructuring costs, merger and acquisition activities, foreign
currency translation effects, or the impact of significant litigation. The dollar amount of any Bonus Award determined under this Paragraph A is referred to herein
as the “Planned Amount.”
B. The Committee or CEO, as applicable, may in its discretion reduce the Bonus Award for any Participant or Participants for any Fiscal Year to an amount
less than the Planned Amount if the Committee or CEO, in its discretion, determines such reduction to be appropriate, taking into consideration such factors as the
Committee or CEO, as applicable, deems appropriate. In no event, however, shall any Bonus Award be reduced under this Paragraph B of this Section VII to less
than eighty percent (80%) of the Planned Amount. Discretionary reductions in Bonus Awards under this Paragraph B may be made in different amounts or
percentages for different Participants, and may be based on considerations unique to a particular Participant and/or considerations affecting the Company or all
Participants generally. Notwithstanding anything in the Plan to the contrary, under no circumstances shall the Committee have any discretion to increase any Bonus
Award to an Officer in an amount greater than the Planned Amount.
C. All Bonus Awards shall be paid in a lump sum no later than March 15 of the Fiscal Year following the last day of the Fiscal Year for which the Bonus
Award has been determined.
D. No Bonus Award payable for a Fiscal Year shall be paid to a Participant prior to the time that the Committee or CEO, as applicable, has made its
determination under this Section VII.
VIII. SUCCESSORS AND ASSIGNS
A. If the Company sells, assigns, or transfers all or substantially all of its business and assets to any person, excluding affiliates of the Company, or if the
Company merges into or consolidates or otherwise combines with any person which is a continuing or successor entity, then the Company shall assign all of its
right, title, and interest in this Plan as of the date of such event to the person which is the acquiring or successor corporation, and such person(s) shall assume and
perform from and after the date of such assignment all of the terms, conditions, and provisions imposed by this Plan upon the Company.
B. In the case of such an assignment and assumption, all further rights, as well as all other obligations of the Company under this Agreement, thenceforth shall
cease and terminate and thereafter the expression “the Company” wherever used herein shall be deemed to mean such successor person(s).
IX. COORDINATION WITH CHANGE OF CONTROL EMPLOYMENT AND SEVERANCE AGREEMENTS
If any Participant is a party to a Change of Control Employment and Severance Agreement with the Company (“Change of Control Agreement”), it is the intent of
the Company that, if such Change of Control Agreement becomes effective as a result of a Change of Control (as defined therein) of the Company, while the
Participant continues to be employed by the Company under Section 4 of the Change of Control Agreement such Participant shall not be entitled to receive, for the
same fiscal year, a Bonus Award under this Plan as well as a bonus under Section 4(b)(ii) of his or her Change of Control Agreement. Accordingly, for example,
any Bonus Award payable to any such Participant under this Plan with respect to the fiscal year in which a Change of Control occurs shall be reduced by the
amount of any bonus to which such Participant is entitled, for or in respect of the same fiscal year, under Section 4(b)(ii) of his or her Change of Control
Agreement.
X. PLAN AMENDMENTS, DISCONTINUANCE
The Board of Directors may amend, suspend, or discontinue this Plan at any time, provided that the Performance Goals and the method by which the amount of
Bonus Award is determined may not be altered for any Fiscal Year after the Performance Goals for such year have been established except in accordance with
Section IV.B. of the Plan; and provided further, that the Plan may not be suspended or discontinued for any Fiscal Year after the Performance Goals have been
established for such year. The CEO shall have the foregoing authority with respect to Corporate Management and Group Management.
X. GOVERNING LAW AND JURISDICTION
The Plan shall be interpreted and governed in accordance with the laws of the State of Wisconsin. Any action regarding the Plan shall be brought before binding
arbitration in accordance with JAMS Alternative Dispute Resolution.
XII. MISCELLANEOUS
Bonus Awards are in the complete discretion of the Committee or the CEO, as applicable. The Plan is unfunded and Participants do not have any right to or
entitlement to Company assets, but rather are unsecured general creditors of the Company. Any payment of a Bonus Award made hereunder is subject to the
Company’s recoupment policy, which is hereby incorporated by reference, as may be amended from time to time.
No Employee or Participant shall have any claim or right to receive a Bonus Award under this Plan. Neither this Plan nor any action taken hereunder shall be
construed as giving an Employee any right to be retained by the Company or any of its subsidiaries or to limit in any way the right of the Company or any of its
subsidiaries to change such Employee’s compensation or other benefits or to terminate the employment or service of such person with or without Cause. For
purposes of this Plan, the transfer of employment by an employee between subsidiaries shall not be deemed a termination of the employee’s employment.
Exhibit 10.4(g)
Execution Version
AMENDMENT NO. 6 TO RECEIVABLES PURCHASE AGREEMENT
THIS AMENDMENT NO. 6 TO RECEIVABLES PURCHASE AGREEMENT, dated as of November 12, 2020 (this "Amendment"), is by
and among Sensient Receivables LLC, a Delaware limited liability company ("Seller"), Sensient Technologies Corporation, a Wisconsin corporation ("STC"), as
initial Servicer and as the Performance Guarantor, and (c) Wells Fargo Bank, National Association, a national banking association (together with its successors
and assigns, the "Purchaser").
RECITALS
WHEREAS, the Seller, the Servicer and the Purchaser are parties to that certain Receivables Purchase Agreement, dated as of October 3, 2016
(as amended prior to the date hereof, the "Existing Purchase Agreement" and, as amended hereby and from time to time hereafter amended, restated or
otherwise modified, the "Purchase Agreement"); and
WHEREAS, the parties wish to amend the Existing Purchase Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein are used with the meanings attributed thereto in the Purchase
Agreement.
2. Amendment. Clause (c) of the definition of “Eligible Receivable” in the Existing Purchase Agreement is hereby amended to delete
“15%” where it appears and to substitute in lieu thereof “30%.”
3. Effect of Amendment. Except as specifically amended hereby, the Existing Purchase Agreement and all exhibits and schedules attached
thereto remains unaltered and in full force and effect, and this Amendment shall not constitute a novation of the Purchase Agreement but shall constitute an
amendment thereof. The Performance Undertaking remains unaltered and in full force and effect and is hereby ratified and confirmed.
conditions precedent:
4. Conditions Precedent. Effectiveness of this Amendment is subject to the prior or contemporaneous satisfaction of each of the following
(a) Wells shall have received counterparts hereof, duly executed by each of the parties hereto.
(b)
Each of the representations and warranties contained in Section 5 of this Amendment shall be true and correct.
5. Representations and Warranties. After giving effect to this Amendment, each of the Performance Guarantor, the Seller and the Servicer
hereby represents and warrants to the Purchaser that each of the representations and warranties made by it or on its behalf in the Purchase Agreement or the
Performance Undertaking, as applicable, are true and correct, in all material respects, on and as of the date of this Amendment with the same full force and effect
as if each of such representations and warranties had been made by it on the date hereof and in this Amendment, and the Performance Undertaking is hereby
ratified and confirmed. The representations and warranties set forth above shall survive the execution of this Amendment.
6. CHOICE OF LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF OTHER THAN SECTION 5-
1401 OF THE GENERAL OBLIGATIONS LAW.
7. CONSENT TO JURISDICTION. EACH PARTY TO THIS AMENDMENT HEREBY IRREVOCABLY SUBMITS TO THE NON-
EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK, IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT OR THE AGREEMENTS, AND EACH SUCH PARTY HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY
SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM.
8. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING
OUT OF, RELATED TO, OR CONNECTED WITH THIS AMENDMENT, THE PURCHASE AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER OR THEREUNDER.
9. Binding Effect. Upon execution and delivery of a counterpart hereof by each of the parties hereto, and the satisfaction of the conditions
precedent set forth in Section 5 hereof, this Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and
permitted assigns (including any trustee in bankruptcy).
10. Legal Fees. In addition to its obligations under the Purchase Agreement, the Seller agrees to pay all reasonable out-of-pocket costs and
expenses incurred by the Purchaser, in connection with the negotiation, preparation, execution and delivery of this Amendment within 30 days after receipt of a
reasonably detailed invoice therefor.
11. Counterparts; Severability; Section References. This Amendment may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one
and the same Amendment. Delivery of an executed counterpart of a signature page to this Amendment by facsimile shall be effective as delivery of a manually
executed counterpart of a signature page to this Amendment. Any provisions of this Amendment which are prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
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