-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GoEU5RJBaryKcmY3q9eB435wX89eRKUOnDpezkHmbJjWLTVWb5uxjCjqmReQTGXb Lisz004A1F2KBwCxQ/1bnw== 0000950134-02-014080.txt : 20021113 0000950134-02-014080.hdr.sgml : 20021113 20021113135036 ACCESSION NUMBER: 0000950134-02-014080 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SENSIENT TECHNOLOGIES CORP CENTRAL INDEX KEY: 0000310142 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 390561070 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07626 FILM NUMBER: 02819351 BUSINESS ADDRESS: STREET 1: 777 EAST WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4142716755 MAIL ADDRESS: STREET 1: PO BOX 737 CITY: MILWAUKEE STATE: WI ZIP: 53201 FORMER COMPANY: FORMER CONFORMED NAME: UNIVERSAL FOODS CORP DATE OF NAME CHANGE: 19920703 10-Q 1 c72987e10vq.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2002 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 1-7626 ------ SENSIENT TECHNOLOGIES CORPORATION --------------------------------- (Exact name of registrant as specified in its charter) Wisconsin 39-0561070 - ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202-5304 ---------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code: (414) 271-6755 -------------- 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 X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock as of the latest practicable date. Class Outstanding at October 31, 2002 - --------------------------------------- ------------------------------- Common Stock, par value $0.10 per share 47,407,610 shares =============================================================================== SENSIENT TECHNOLOGIES CORPORATION INDEX
Page No. -------- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements: Consolidated Condensed Statements of Earnings - Three and Nine Months Ended September 30, 2002 and 2001. 1 Consolidated Condensed Balance Sheets - September 30, 2002 and December 31, 2001. 2 Consolidated Condensed Statements of Cash Flows - Nine Months Ended September 30, 2002 and 2001. 3 Notes to Consolidated Condensed Financial Statements. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk. 10 Item 4. Controls and Procedures. 10 PART II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K. 11 Signatures. 12 Certifications. 13
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SENSIENT TECHNOLOGIES CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (In thousands except per share amounts) (Unaudited)
Three Months Nine Months Ended September 30, Ended September 30, ------------------------------ ------------------------------ 2002 2001 2002 2001 ------------ ------------- ------------ ------------ Revenue $237,995 $204,083 $690,694 $603,703 Cost of products sold 158,386 138,501 462,155 405,266 Selling and administrative expenses 42,674 34,343 120,351 111,319 ------------ ------------- ------------ ------------ Operating income 36,935 31,239 108,188 87,118 Interest expense 7,249 7,587 22,428 24,039 ------------ ------------- ------------ ------------ Earnings from continuing operations before income taxes 29,686 23,652 85,760 63,079 Income taxes 9,500 7,923 27,444 18,073 ------------ ------------- ------------ ------------ Earnings from continuing operations 20,186 15,729 58,316 45,006 Earnings from discontinued operations - 859 - 8,639 ------------ ------------- ------------ ------------ Net earnings $20,186 $16,588 $58,316 $53,645 ============ ============= ============ ============ Average number of common shares outstanding: Basic 47,335 47,559 47,430 47,812 ============ ============= ============ ============ Diluted 47,660 47,822 47,828 48,103 ============ ============= ============ ============ Basic earnings per share: Continuing operations $.43 $.33 $1.23 $.94 Discontinued operations - .02 - .18 ------------ ------------- ------------ ------------ Net earnings $.43 $.35 $1.23 $1.12 ============ ============= ============ ============ Diluted earnings per share: Continuing operations $.42 $.33 $1.22 $.94 Discontinued operations - .02 - .18 ------------ ------------- ------------ ------------ Net earnings $.42 $.35 $1.22 $1.12 ============ ============= ============ ============ Dividends per common share $.1325 $.1325 $.3975 $.3975 ============ ============= ============ ============
See accompanying notes to consolidated condensed financial statements. -1- SENSIENT TECHNOLOGIES CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands) (Unaudited)
September 30, December 31, 2002 2001 ---------------- --------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 106 $ 2,317 Trade accounts receivable, net 153,801 134,626 Inventories 250,317 240,955 Prepaid expenses and other current assets 35,032 37,324 ----------------- ---------------- TOTAL CURRENT ASSETS 439,256 415,222 ----------------- ---------------- OTHER ASSETS 78,640 72,124 INTANGIBLES, NET 354,145 305,174 PROPERTY, PLANT AND EQUIPMENT: Cost: Land and buildings 179,893 169,491 Machinery and equipment 428,664 410,370 ----------------- ---------------- 608,557 579,861 Accumulated depreciation (290,869) (267,561) ----------------- ---------------- 317,688 312,300 ----------------- ---------------- TOTAL ASSETS $ 1,189,729 $ 1,104,820 ================= ================ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings $ 12,870 $ 26,672 Accounts payable and accrued expenses 105,973 95,897 Salaries, wages and withholdings from employees 11,951 10,164 Income taxes 28,749 17,661 Current maturities of long-term debt 7,427 41,794 ----------------- ---------------- TOTAL CURRENT LIABILITIES 166,970 192,188 DEFERRED INCOME TAXES 18,356 18,071 OTHER DEFERRED LIABILITIES 21,089 21,718 ACCRUED EMPLOYEE AND RETIREE BENEFITS 17,774 18,890 LONG-TERM DEBT 491,952 423,137 SHAREHOLDERS' EQUITY: Common stock 5,396 5,396 Additional paid-in capital 71,642 72,493 Earnings reinvested in the business 605,798 566,374 Treasury stock, at cost (132,543) (132,355) Unearned portion of restricted stock (1,876) (2,623) Accumulated other comprehensive income (loss) (74,829) (78,469) ----------------- ---------------- TOTAL SHAREHOLDERS' EQUITY 473,588 430,816 ----------------- ---------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,189,729 $ 1,104,820 ================= ================
See accompanying notes to consolidated condensed financial statements. -2- SENSIENT TECHNOLOGIES CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Nine Months Ended September 30, ----------------------------------- 2002 2001 ------------ ------------ Net cash provided by operating activities of continuing operations $82,720 $32,568 Net cash provided by discontinued operations - 707 ------------ ------------ Net cash provided by operating activities 82,720 33,275 ------------ ------------ Cash flows from investing activities: Acquisition of property, plant and equipment (22,911) (24,874) Acquisition of new businesses - net of cash acquired (48,450) - Proceeds from sale of assets 5,348 110,663 Increase in other assets (1,052) (537) ------------ ------------ Net cash (used in) provided by investing activities (67,065) 85,252 ------------ ------------ Cash flows from financing activities: Proceeds from additional borrowings 14,049 104,415 Reduction in debt (12,217) (179,061) Purchase of treasury stock (11,950) (34,305) Dividends (18,892) (19,085) Proceeds from options exercised and other 11,095 8,676 ------------ ------------ Net cash used in financing activities (17,915) (119,360) ------------ ------------ Effect of exchange rate changes on cash and cash equivalents 49 (229) ------------ ------------ Net decrease in cash and cash equivalents (2,211) (1,062) Cash and cash equivalents at beginning of period 2,317 3,217 ------------ ------------ Cash and cash equivalents at end of period $106 $2,155 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $18,458 $22,239 Income taxes 16,688 23,972 Liabilities assumed in acquisitions $11,454 -
See accompanying notes to consolidated condensed financial statements. -3- SENSIENT TECHNOLOGIES CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the Company as of September 30, 2002 and December 31, 2001, the results of operations for the three and nine months ended September 30, 2002 and 2001, and cash flows for the nine months ended September 30, 2002 and 2001. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. 2. Refer to the notes in the Company's annual consolidated financial statements for the year ended December 31, 2001, for additional details of the Company's financial condition and a description of the Company's accounting policies. The accounting policies have been continued without change except for the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," discussed in Note 3 below. 3. The Company adopted SFAS No. 142 on January 1, 2002. Under SFAS No. 142, the Company no longer amortizes goodwill and other intangible assets with indefinite useful lives. Instead, the carrying value is evaluated for impairment on an annual basis. Pursuant to SFAS No. 142, the Company has completed impairment testing as of December 31, 2001. Additionally, the annual goodwill impairment test date of July 1st has been adopted, and testing as of July 1, 2002 was completed during the quarter. For both dates, tests were performed in accordance with accepted valuation techniques, yielding no goodwill impairment. The following tables reflect consolidated results as if the adoption of SFAS No. 142 had occurred on January 1, 2001. Discontinued operations did not have amortization for any period in the previous year; therefore, separate disclosure for these operations was not presented.
(In thousands, except per share data) Three Months Nine Months Ended September 30, Ended September 30, ------------------------------ ------------------------------ 2002 2001 2002 2001 ------------ ------------ ------------ ------------ Continuing operations: Reported earnings from continuing operations $ 20,186 $ 15,729 $ 58,316 $ 45,006 Goodwill amortization, net of tax - 1,905 - 6,050 ------------ ------------ ------------ ------------ Proforma earnings from continuing operations $ 20,186 $ 17,634 $ 58,316 $ 51,056 Net earnings: Reported net earnings $ 20,186 $ 16,588 $ 58,316 $ 53,645 Goodwill amortization, net of tax - 1,905 - 6,050 ------------ ------------ ------------ ------------ Proforma net earnings $ 20,186 $ 18,493 $ 58,316 $ 59,695 Basic earnings per share: Continuing operations: As reported $ .43 $ .33 $ 1.23 $ .94 Proforma $ .43 $ .37 $ 1.23 $ 1.07 Net earnings: As reported $ .43 $ .35 $ 1.23 $ 1.12 Proforma $ .43 $ .39 $ 1.23 $ 1.25 Diluted earnings per share: Continuing operations: As reported $ .42 $ .33 $ 1.22 $ .94 Proforma $ .42 $ .37 $ 1.22 $ 1.07 Net earnings: As reported $ .42 $ .35 $ 1.22 $ 1.12 Proforma $ .42 $ .39 $ 1.22 $ 1.25
-4- The following table categorized intangible assets by major asset class as of September 30, 2002:
(In thousands) Carrying Accumulated Amount Amortization Net -------- ------------ ----- Goodwill $ 346,403 -- $ 346,403 Amortized intangible assets 11,561 3,819 7,742 --------- -------- --------- Total $ 407,175 $ 53,030 $ 354,145
Amortized intangible assets consist primarily of customer lists and technology with a weighted average amortization period of approximately 19 years. Amortization of intangible assets was not significant during the periods presented and the estimated aggregate amortization expense for each of the five succeeding years is not anticipated to be significant. The changes in net goodwill for the nine months ended September 30, 2002 were as follows:
(In thousands) Flavors & Corporate Continuing Fragrances Color and Other Operations ---------- ------ --------- ---------- Balance as of December 31, 2001 $ 102,986 $ 193,825 $ 1,921 $ 298,732 Goodwill of acquired businesses 6,069 31,403 -- 37,472 Currency impact 734 9,161 304 10,199 --------- --------- ------- --------- Balance as of September 30, 2002 $ 109,789 $ 234,389 $ 2,225 $ 346,403
4. During the first nine months of 2002, the Company acquired four businesses for cash in an aggregate amount of $48.5 million (net of cash acquired). The businesses acquired were Cardre, Inc., a manufacturer of specialty ingredients used in cosmetics, ECS Specialty Inks and Dyes, a producer and marketer of inks for specialty printing applications, the flavors and essential oil operations of C. Melchers GmbH & Company, and SynTec GmbH, a manufacturer of specialty dyes and chemicals for the imaging industry. The Company may be required to pay up to 4.6 million Euro ($4.5 million) of additional cash consideration for the 2002 acquisitions subject to specific performance targets in the first two years following the acquisitions. The Company has not completed the process of measuring the identifiable intangibles and goodwill related to these acquisitions. 5. Expenses are charged to operations in the year incurred. However, for interim reporting purposes, certain expenses are charged to operations based on an estimate rather than as expenses are actually incurred. 6. At September 30, 2002 and December 31, 2001, inventories included finished and in-process products totaling $188.6 million and $173.2 million, respectively, and raw materials and supplies of $61.7 million and $67.7 million, respectively. 7. Operating results and the related assets by segment for the periods presented are as follows:
(in thousands) Flavors & Corporate Continuing Fragrances Color and Other Operations ---------- ----- --------- ---------- Three months ended September 30, 2002: Revenues from external customers $138,227 $85,048 $14,720 $237,995 Intersegment revenues 6,638 4,188 -- 10,826 -------------- ------------ ------------ ------------- Total revenue $144,865 $89,236 $14,720 $248,821 ============== ============ ============ ============= Operating income (loss) $20,703 $21,251 $(5,019) $36,935 Interest expense -- -- 7,249 7,249 -------------- ------------ ------------ ------------- Earnings (loss) before income taxes $20,703 $21,251 $(12,268) $29,686 ============== ============ ============ ============= Three months ended September 30, 2001: Revenues from external customers $129,971 $59,554 $14,558 $204,083 Intersegment revenues 4,890 5,150 -- 10,040 -------------- ------------ ------------ ------------- Total revenue $134,861 $64,704 $14,558 $214,123 ============== ============ ============ ============= Operating income (loss) $20,660 $15,406 $(4,827) $31,239 Interest expense -- -- 7,587 7,587 -------------- ------------ ------------ ------------- Earnings (loss) before income taxes $20,660 $15,406 $(12,414) $23,652 ============== ============ ============ =============
-5-
Flavors & Corporate Continuing Fragrances Color and Other Operations ---------- ----- --------- ---------- Nine months ended September 30, 2002: Revenues from external customers $409,110 $237,715 $43,869 $690,694 Intersegment revenues 16,987 14,654 -- 31,641 -------------- ------------ ------------ ------------- Total revenue $426,097 $252,369 $43,869 $722,335 ============== ============ ============ ============= Operating income (loss) $63,371 $59,599 $(14,782) $108,188 Interest expense -- -- 22,428 22,428 -------------- ------------ ------------ ------------- Earnings (loss) before income taxes $63,371 $59,599 $(37,210) $85,760 ============== ============ ============ ============= Assets $561,253 $507,249 $121,227 $1,189,729 ============== ============ ============ ============= Nine months ended September 30, 2001: Revenues from external customers $379,052 $182,195 $42,456 $603,703 Intersegment revenues 13,974 17,915 -- 31,889 -------------- ------------ ------------ ------------- Total revenue $393,026 $200,110 $42,456 $635,592 ============== ============ ============ ============= Operating income (loss) $51,399 $50,285 $(14,566) $87,118 Interest expense -- -- 24,039 24,039 -------------- ------------ ------------ ------------- Earnings (loss) before income taxes $51,399 $50,285 $(38,605) $63,079 ============== ============ ============ ============= Assets $445,907 $223,325 $407,997 $1,077,229 ============== ============ ============ =============
8. During the nine months ended September 30, 2002 and 2001, the Company repurchased 0.6 million and 1.6 million shares of common stock for an aggregate price of $11.9 million and $34.3 million, respectively. 9. Comprehensive income is comprised of net earnings, foreign currency translation and unrealized gains and losses on cash flow hedges. Total comprehensive income for the three months ended September 30, 2002 and 2001 was $17.1 million and $23.4 million, respectively. Total comprehensive income for the nine months ended September 30, 2002 and 2001 was $62.0 million and $52.8 million, respectively. 10. Cash flows from operating activities of continuing operations is detailed below:
Nine Months Ended September 30, ------------------------------------- 2002 2001 --------------- -------------- Cash flows from operating activities: Earnings from continuing operations $58,316 $45,006 Adjustments to arrive at net cash Provided by operating activities: Depreciation and amortization 31,010 35,333 Gain on sale of assets (473) (1,022) Changes in operating assets and liabilities (net of effects of acquisitions of businesses) (6,133) (46,749) --------------- -------------- Net cash provided by operating activities of continuing operations $82,720 $32,568 =============== ==============
11. For the nine months ended September 30, 2002, depreciation and amortization expense related to continuing operations were $29.8 million and $1.2 million, respectively. For the nine months ended September 30, 2001, depreciation and amortization expense related to continuing operations were $28.4 million and $6.9 million, respectively. The decrease in amortization expense reflects the adoption of SFAS No. 142 on January 1, 2002, for acquisitions prior to June 30, 2001. -6- 12. In October 2002, the Company closed a private placement of long-term debt worth approximately $59.8 million. The debt offering consisted of $38.0 million of U.S. dollar-denominated notes with a coupon rate of 4.57% and 32.6 million of Swiss Franc-denominated variable rate notes. The notes mature November 2007. The proceeds, which will be drawn in December 2002, will be used to refinance short-term borrowings and current maturities of long-term debt. As a result, $25.5 million of short-term borrowings and $34.3 million of current maturities of long-term debt were classified as long-term debt on the balance sheet as of September 30, 2002. 13. On February 23, 2001, the Company completed the sale of substantially all the assets of its Red Star Yeast business. The operating results of the business through February 23, 2001 and the gain from the sale have been reported net of tax in a separate line item "Earnings from discontinued operations" on the statements of earnings. Refer to Note 12 in the Company's annual consolidated financial statements for the year ended December 31, 2001, for additional information. There were no results of discontinued operations reflected in the Company's financial statements for the nine months ended September 30, 2002. The results from discontinued operations are as follows (in thousands):
Three Months Ended Nine Months Ended September 30, 2001 September 30, 2001 ------------------ ------------------ Revenue - $ 16,810 Income taxes $ 482 $ 6,760 Earnings from discontinued operations $ 859 $ 8,639
-7- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUING OPERATIONS Revenue for the quarter ended September 30, 2002 increased by 16.6% to $238.0 million from $204.1 million for the comparable quarter of 2001. For the nine months ended September 30, 2002, revenue increased by 14.4% to $690.7 million from the comparable period of 2001. Revenue for the Flavors and Fragrances segment increased by 7.4% for the quarter and by 8.4% for the nine months ended September 30, 2002 over the comparable periods last year. The Color segment increased revenue by 37.9% for the quarter and by 26.1% for the nine months ended September 30, 2002 over the comparable periods last year. Additional information on group results can be found in the Segment Information section. Gross profit increased by 21.4% and by 15.2% for the three and nine month periods ended September 30, 2002, respectively, compared to the same periods in the prior year. The increase in gross profit resulted from higher revenue and realized cost savings from the cost improvement programs that began in December 2000, partially offset by increased material costs. Selling and administrative expenses as a percent of revenue increased to 17.9% for the three months ended September 30, 2002 compared to 16.8% in the comparable period of 2001. The increase was primarily attributable to the higher selling and administrative expense of acquired businesses, as well as higher incentive based compensation and increased salary expense from newly created management positions in the Color and Flavors and Fragrances segments. For the nine months ended September 30, 2002, selling and administrative costs as a percent of revenue decreased to 17.4% versus 18.4% in the comparable period of 2001. For the nine month period, the improvement came as a result of revenue growth and realized cost savings. The mandatory adoption of SFAS No. 142 reduced selling and administrative expenses for the three and nine month periods. On a comparable basis, assuming SFAS No. 142 had been adopted in 2001, selling and administrative expense, as a percent of revenue, would have been 15.7% and 17.3% for the three and nine months ended September 30, 2001, respectively. Operating income for the three months ended September 30, 2002 was $36.9 million, an increase of 18.2% from $31.2 million for the third quarter last year. For the nine months ended September 30, 2002, operating income increased 24.2% to $108.2 million from $87.1 million in the same period last year. The increase in operating income for the three and nine month periods was driven by the combination of higher revenue and realized cost savings. The adoption of SFAS No. 142 also increased operating income by $2.2 million and $6.7 million for the three and nine months ended September 30, 2002, respectively. On a comparable basis, assuming SFAS No. 142 had been adopted in 2001, operating income would have increased by 10.3% and 15.3% for the three and nine months ended September 30, 2002, respectively. Favorable foreign exchange rates increased revenue by approximately 2% and 1% for the three and nine months ended September 30, 2002 over the comparable periods last year, respectively. The impact of exchange rates on earnings for both the three and nine month periods ended September 30, 2002 was minimal. Interest expense for the three months ended September 30, 2002, declined to $7.2 million from $7.6 million for the third quarter last year. For the nine months ended September 30, 2002, interest expense was $22.4 million, a decrease of 6.7% versus the comparable period last year. The decrease was a result of lower interest rates more than offsetting higher average debt balances. The effective income tax rate on continuing operations was 32.0% and 33.5% for the three months ended September 30, 2002 and 2001, respectively. The effective tax rate for the quarter ended September 30, 2002 included a benefit from the adoption of SFAS No. 142 and other nominal adjustments. Reflecting the effect of adopting SFAS No. 142 in 2001, the 2001 third quarter effective tax rate would have been 31.9%. For the nine months ended September 30, 2002 and 2001 the tax rate was 32.0% and 28.7%, respectively. The tax rate for the nine months ended September 30, 2001 reflected an adjustment for the expected settlement of certain tax liabilities. Without the adjustment for the expected settlement of certain tax liabilities and reflecting the effect of adopting SFAS No. 142 in 2001, the 2001 effective tax rate for the nine months ending September 30, 2001 would have been 31.2%. -8- DISCONTINUED OPERATIONS On February 23, 2001, the Company completed the sale of substantially all the assets of its Red Star Yeast business. A gain from the sale of the business and its results through February 23, 2001 were included net of tax in a separate line item "Earnings from discontinued operations" on the statements of earnings. There were no results of discontinued operations reflected in the Company's financial statements for the nine months ended September 30, 2002. SEGMENT INFORMATION Flavors & Fragrances - The Flavors & Fragrances segment reported a 7.4% increase in revenue, to $144.9 million for the third quarter of 2002 compared to $134.9 million for the same period last year. Quarterly revenue increased in all major categories with strong growth in fragrances and beverage flavors. The March 2002 acquisition of the flavors and essential oil operations of C. Melchers GmbH & Company also contributed to the increase in revenue for the third quarter. Operating income in the 2002 third quarter of $20.7 million was even with last year's third quarter and operating margins declined 100 basis points, to 14.3%, as a result of increases in raw material costs. For the nine months ended September 30, 2002, revenue increased 8.4% to $426.1 million. Operating income increased 23.3% to $63.4 million from $51.4 million for the same period in 2001 and operating margin increased 180 basis points to 14.9%, due to higher volumes and lower selling and administrative expenses from the cost improvement programs that began in December 2000. Color - Revenue for the Color segment increased by 37.9% to $89.2 million in the third quarter of 2002 versus $64.7 million in the same period last year. The increase was driven by the Company's recently acquired technical color businesses, as well as improved food color sales in North America and Europe, growth in the cosmetic product line and strong demand for ink jet inks. Operating income in the third quarter of 2002 was $21.3 million versus $15.4 million from the 2001 third quarter. Operating income as a percent of revenue was 23.8%, even with the comparable quarter last year. Revenue for the nine months ended September 30, 2002 increased by 26.1%, due to the Company's recently acquired technical color businesses as well as growth in the pharmaceutical, cosmetic and natural color product lines, partially offset by softness in sales to food and beverage customers. Operating income increased by 18.5% to $59.6 million, compared to $50.3 million for the same period in 2001, primarily due to the items previously mentioned. FINANCIAL CONDITION The Company's ratio of debt to total capital was 52.0% as of September 30, 2002, down from 53.3% as of December 31, 2001. The decrease resulted from an increase in shareholders' equity during the nine months that was approximately twice the increase in debt. The current ratio was 2.6x at September 30, 2002, compared with 2.2x at December 31, 2001. The increase resulted from working capital improvements, and the reclassification of $59.8 million of debt to long-term as a result of closing a private placement of long-term debt in October 2002. Net cash provided by operating activities of continuing operations was $82.7 million for the nine months ended September 30, 2002, compared to $32.6 million for the nine months ended September 30, 2001. The $50.1 million increase in cash provided by operating activities was primarily due to increased earnings and improvements in net working capital. Net cash used in investing activities was $67.1 million for the nine months ended September 30, 2002 compared to net cash provided by investing activities of $85.3 million for the nine months ended September 30, 2001. Cash used in investing activities in 2002 included acquisitions of $48.5 million and capital expenditures of $22.9 million. Net cash provided by investing activities in 2001 included cash proceeds from the sale of the Red Star Yeast division of $110.7 million, which was partially offset by capital expenditures of $24.9 million. Net cash used in financing activities was $17.9 million for the nine months ended September 30, 2002, compared with cash used in financing activities of $119.4 million in the comparable period in the prior year. Net borrowings in 2002 of $1.8 million were limited as acquisitions and capital projects were funded primarily with cash flows from operations. During 2001, cash proceeds from the sale of the Red Star Yeast business were used to fund a net reduction of borrowings of $74.6 million and treasury stock purchases of $34.3 million. Dividends of $18.9 million and $19.1 million were paid during the nine months ended September 30, 2002 and 2001, respectively. -9- The Company has increased its annual dividend to 56 cents per share from 53 cents per share as a result of its increased profitability and cash flows. The increase is effective for the quarterly dividend of 14 cents per share payable on December 2, 2002, to shareholders of record on November 8, 2002. The Company's financial position remains strong, its expected cash flows from operations and existing lines of credit can be used to meet future cash requirements for operations, capital expansion programs and dividend payments to shareholders. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the Company's market risk during the quarter ended September 30, 2002. For additional information on market risk, refer to pages 19 and 20 of the Company's 2001 Annual Report, portions of which were filed as Exhibit 13.1 to the Company's Form 10-K for the year ended December 31, 2001. ITEM 4. CONTROLS AND PROCEDURES The Company maintains a system of disclosure controls and procedures that is designed to assure that information, which is required to be disclosed by the Company, is accumulated and communicated to management in a timely manner. Management has reviewed this system of disclosure controls and procedures within 90 days of the date hereof, and has concluded that the current system of controls and procedures is effective. The Company maintains a system of internal controls and procedures for financial reporting. Since the date of management's most recent evaluation, there were no significant changes in internal controls or in other factors that could significantly affect internal controls. FORWARD-LOOKING INFORMATION This document contains forward-looking statements that reflect management's current assumptions and estimates of future economic circumstances, industry conditions, Company performance and financial results. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for such forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that could cause actual events to differ materially from those expressed in those statements. A variety of factors could cause the Company's actual results and experience to differ materially from the anticipated results. These factors and assumptions include the pace and nature of new product introductions by the Company's customers; execution of the Company's acquisition program and results of newly acquired businesses; industry and economic factors related to the Company's domestic and international business; industry acceptance of price increases; currency exchange rate fluctuations; and the outcome of various productivity-improvement and cost-reduction efforts. 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. -10- PART II. OTHER INFORMATION ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. (See Exhibit Index following this report.) (b) Reports on Form 8-K. A report on Form 8-K was filed on August 13, 2002 to disclose the CEO and CFO certifications related to the Form 10-Q filed on August 13, 2002. -11- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SENSIENT TECHNOLOGIES CORPORATION Date: November 13, 2002 By: /s/ John L. Hammond --------------------------------- John L. Hammond, Vice President, Secretary and General Counsel Date: November 13, 2002 By: /s/ Richard F. Hobbs --------------------------------- Richard F. Hobbs, Vice President, Chief Financial Officer and Treasurer -12- CERTIFICATIONS I, Kenneth P. Manning, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Sensient Technologies Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 By: /s/ Kenneth P. Manning - -------------------------- Kenneth P. Manning, Chairman, President and Chief Executive Officer -13- CERTIFICATIONS I, Richard F. Hobbs, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Sensient Technologies Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 13, 2002 By: /s/ Richard F. Hobbs - ------------------------------------- Richard F. Hobbs, Vice President, Chief Financial Officer and Treasurer -14- -----END PRIVACY-ENHANCED MESSAGE-----