-----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, AimXVgZqefN/+mr5f3AIHEWw+kcUp7gx7i+1hdamEN8vQuTTMs8T8u1hHhjIOVOJ y6Seib2EN05IeKNF39ONmQ== 0000950134-03-015219.txt : 20031113 0000950134-03-015219.hdr.sgml : 20031113 20031113162435 ACCESSION NUMBER: 0000950134-03-015219 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031113 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: 03998445 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 c80863e10vq.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, 2003 ------------------ 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 Identification incorporation or organization) 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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, 2003 - --------------------------------------- ----------------------------- Common Stock, par value $0.10 per share 46,677,311 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, 2003 and 2002. 1 Consolidated Condensed Balance Sheets - September 30, 2003 and December 31, 2002. 2 Consolidated Condensed Statements of Cash Flows - Nine Months Ended September 30, 2003 and 2002. 3 Notes to Consolidated Condensed Financial Statements. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk. 10 Item 4. Controls and Procedures. 10 PART II. OTHER INFORMATION: Item 2. Changes in Securities and Use of Proceeds 11 Item 6. Exhibits and Reports on Form 8-K. 11 Signatures. 12 Exhibit Index. 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, ---------------------- ---------------------- 2003 2002 2003 2002 -------- -------- -------- -------- Revenue $247,288 $237,995 $744,313 $690,694 Cost of products sold 168,505 159,439 503,131 463,208 Selling and administrative expenses 44,661 41,621 133,433 119,298 -------- -------- -------- -------- Operating income 34,122 36,935 107,749 108,188 Interest expense 7,642 7,249 22,459 22,428 -------- -------- -------- -------- Earnings before income taxes 26,480 29,686 85,290 85,760 Income taxes 5,813 9,500 22,492 27,444 -------- -------- -------- -------- Net earnings $ 20,667 $ 20,186 $ 62,798 $ 58,316 ======== ======== ======== ======== Average number of common shares outstanding: Basic 46,583 47,335 46,819 47,430 ======== ======== ======== ======== Diluted 46,881 47,660 47,145 47,828 ======== ======== ======== ======== Earnings per common share: Basic $ .44 $ .43 $ 1.34 $ 1.23 ======== ======== ======== ======== Diluted $ .44 $ .42 $ 1.33 $ 1.22 ======== ======== ======== ======== Dividends per common share $ .1500 $ .1325 $ .4400 $ .3975 ======== ======== ======== ========
See accompanying notes to consolidated condensed financial statements. -1- SENSIENT TECHNOLOGIES CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands) (Unaudited)
September 30, December 31, 2003 2002 ------------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 8,881 $ 2,103 Trade accounts receivable, net 176,205 160,155 Inventories 304,945 269,701 Prepaid expenses and other current assets 51,063 43,619 ----------- ----------- TOTAL CURRENT ASSETS 541,094 475,578 ----------- ----------- OTHER ASSETS 88,064 85,679 GOODWILL 413,987 384,241 INTANGIBLE ASSETS, NET 13,597 13,235 PROPERTY, PLANT AND EQUIPMENT: Land and buildings 200,138 182,464 Machinery and equipment 524,754 462,925 ----------- ----------- 724,892 645,389 Less accumulated depreciation (353,103) (314,151) ----------- ----------- 371,789 331,238 ----------- ----------- TOTAL ASSETS $ 1,428,531 $ 1,289,971 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Trade accounts payable $ 68,685 $ 55,546 Accrued salaries, wages and withholdings from employees 12,728 14,197 Other accrued expenses 71,744 65,069 Income taxes 30,121 27,526 Short-term borrowings 104,382 34,618 Current maturities of long-term debt 12,181 12,374 ----------- ----------- TOTAL CURRENT LIABILITIES 299,841 209,330 DEFERRED INCOME TAXES 11,077 10,942 OTHER LIABILITIES 11,734 16,141 ACCRUED EMPLOYEE AND RETIREE BENEFITS 42,669 42,493 LONG-TERM DEBT 519,674 511,707 SHAREHOLDERS' EQUITY: Common stock 5,396 5,396 Additional paid-in capital 71,943 72,390 Earnings reinvested in the business 662,950 621,525 Treasury stock, at cost (148,682) (137,074) Unearned portion of restricted stock (2,154) (2,951) Accumulated other comprehensive income (loss) (45,917) (59,928) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 543,536 499,358 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,428,531 $ 1,289,971 =========== ===========
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, ----------------------- 2003 2002 -------- -------- Net cash provided by operating activities $ 41,358 $ 82,720 -------- -------- Cash flows from investing activities: Acquisition of property, plant and equipment (56,023) (22,911) Acquisition of new businesses (net of cash acquired) (17,107) (48,450) Proceeds from sale of assets 4,172 5,348 Decrease (increase) in other assets 463 (1,052) -------- -------- Net cash used in investing activities (68,495) (67,065) -------- -------- Cash flows from financing activities: Proceeds from additional borrowings 93,033 14,049 Reduction in debt (26,478) (12,217) Purchase of treasury stock (17,932) (11,950) Dividends paid (21,372) (18,892) Proceeds from options exercised and other 5,675 11,095 -------- -------- Net cash provided by (used in) financing activities 32,926 (17,915) -------- -------- Effect of exchange rate changes on cash and cash equivalents 989 49 -------- -------- Net increase (decrease) in cash and cash equivalents 6,778 (2,211) Cash and cash equivalents at beginning of period 2,103 2,317 -------- -------- Cash and cash equivalents at end of period $ 8,881 $ 106 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 17,702 $ 18,458 Income taxes 18,156 16,688 Liabilities assumed in acquisitions $ 992 $ 11,454
See accompanying notes to consolidated condensed financial statements. -3- SENSIENT TECHNOLOGIES CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. Accounting Policies In the opinion of Sensient Technologies Corporation (the "Company"), the accompanying unaudited consolidated condensed financial statements contain all adjustments, consisting of only normal recurring accruals, necessary to present fairly the financial position of the Company as of September 30, 2003 and December 31, 2002, the results of operations for the three months and nine months ended September 30, 2003 and 2002, and cash flows for the nine months ended September 30, 2003 and 2002. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. 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. Certain amounts as previously presented have been reclassified to conform to the current period presentation. The Company has completed its annual assessment of the carrying value of goodwill versus fair value as of July 1, 2003. The assessment yielded no impairment. Refer to the notes in the Company's annual consolidated financial statements for the year ended December 31, 2002, for additional details of the Company's financial condition and a description of the Company's accounting policies, which have been continued without change. 2. Inventories At September 30, 2003 and December 31, 2002, inventories included finished and in-process products totaling $224.4 million and $195.9 million, respectively, and raw materials and supplies of $80.5 million and $73.8 million, respectively. 3. Segment Information Operating results and the related assets by segment for the periods presented are as follows:
(In thousands) Flavors & Corporate & Fragrances Color Other Consolidated ---------- -------- ----------- ------------ Three months ended September 30, 2003: Revenues from external customers $143,538 $ 85,940 $ 17,810 $247,288 Intersegment revenues 5,943 1,549 -- 7,492 -------- -------- -------- -------- Total revenue $149,481 $ 87,489 $ 17,810 $254,780 ======== ======== ======== ======== Operating income (loss) $ 21,594 $ 17,608 $ (5,080) $ 34,122 Interest expense -- -- 7,642 7,642 -------- -------- -------- -------- Earnings (loss) before income taxes $ 21,594 $ 17,608 $(12,722) $ 26,480 ======== ======== ======== ======== 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 ======== ======== ======== ========
-4-
(In thousands) Flavors & Corporate & Fragrances Color Other Consolidated ---------- ---------- ----------- ------------ Nine months ended September 30, 2003: Revenues from external customers $ 425,600 $ 269,919 $ 48,794 $ 744,313 Intersegment revenues 17,600 8,632 -- 26,232 ---------- ---------- ---------- ---------- Total revenue $ 443,200 $ 278,551 $ 48,794 $ 770,545 ========== ========== ========== ========== Operating income (loss) $ 63,878 $ 59,435 $ (15,564) $ 107,749 Interest expense -- -- 22,459 22,459 ---------- ---------- ---------- ---------- Earnings (loss) before income taxes $ 63,878 $ 59,435 $ (38,023) $ 85,290 ========== ========== ========== ========== Assets $ 673,775 $ 603,167 $ 151,589 $1,428,531 ========== ========== ========== ========== 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 $ 138,539 $1,207,041 ========== ========== ========== ==========
4. Acquisitions In August of 2003, the Company acquired Formulabs Iberica S.A., a manufacturer and marketer of specialty inks, primarily for inkjet applications, for $13.0 million in cash. In March of 2003, the Company acquired certain assets of Kyowa Koryo Kagaku Kabushiki Kaisha, a former Japanese flavor producer, for $4.1 million, net of cash acquired. The Company has not completed the purchase price allocations related to these acquisitions. 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. In October of 2003, the Company paid $2.2 million and may be required to pay up to 1.8 million Euro (approximately $2.1 million) of additional cash consideration for the 2002 acquisitions subject to specific performance targets in the second year following the acquisitions. The operating results of the acquired businesses in 2003 and 2002 are included in the financial results of the Company from the date of acquisition. 5. Shareholders' Equity During the nine months ended September 30, 2003 and 2002, the Company repurchased 0.9 million and 0.6 million shares of its common stock for an aggregate price of $17.9 million and $11.9 million, respectively. 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, 2003 and 2002 was $16.6 million and $17.1 million, respectively. Total comprehensive income for the nine months ended September 30, 2003 and 2002 was $76.8 million and $62.0 million, respectively. 6. Stock Plans The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." Stock options are granted at prices equal to -5- the fair value of the Company's common stock on the dates of grant. Accordingly, no significant compensation cost has been recognized for the grant of stock options under the Company's stock option plans. If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by SFAS No. 123, net earnings and earnings per common share would have been reduced to the pro forma amounts indicated below:
Three Months Nine Months Ended September 30, Ended September 30, --------------------------- --------------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Net earnings: As reported $ 20,667 $ 20,186 $ 62,798 $ 58,316 Add: reported stock compensation Expense - net of tax 120 102 379 355 Less: fair value stock compensation Expense - net of tax (562) (453) (1,824) (1,547) ---------- ---------- ---------- ---------- Pro forma net earnings $ 20,225 $ 19,835 $ 61,353 $ 57,124 ========== ========== ========== ========== Earnings per common share: Basic as reported $ .44 $ .43 $ 1.34 $ 1.23 Less: net impact of fair value stock Expense - net of tax (.01) (.01) (.03) (.03) ---------- ---------- ---------- ---------- Basic pro forma $ .43 $ .42 $ 1.31 $ 1.20 Diluted as reported $ .44 $ .42 $ 1.33 $ 1.22 Less: net impact of fair value stock Expense - net of tax (.01) -- (.03) (.03) ---------- ---------- ---------- ---------- Diluted pro forma $ .43 $ .42 $ 1.30 $ 1.19
7. Cash Flows from Operating Activities Cash flows from operating activities are detailed below:
Nine Months Ended September 30, ------------------------------- 2003 2002 ------------ ------------ Cash flows from operating activities: Net earnings $ 62,798 $ 58,316 Adjustments to arrive at net cash provided by operating activities: Depreciation and amortization 32,330 31,010 Gain on sale of assets (2,663) (473) Changes in operating assets and liabilities (net of effects of acquisitions of businesses) (51,107) (6,133) -------- -------- Net cash provided by operating activities $ 41,358 $ 82,720 ======== ========
8. Guarantees In connection with the sale of substantially all of the Company's Yeast business on February 23, 2001, the Company has provided the buyer of these operations with indemnification against certain potential liabilities as is customary in transactions of this nature. The period provided for indemnification against most types of claims has now expired, but for specific types of claims including, but not limited to tax and environmental liabilities, the amount of time provided for indemnification is either five years or the applicable statute of limitations. The maximum amount of the Company's liability related to these provisions is capped at approximately 35% of the consideration received in the transaction. In cases where the Company believes it is probable that payments will be required under these provisions, a liability was recognized at the time of the asset sale. The Company believes that the probability of incurring payments under these provisions in excess of the amount of the liability recorded is remote. -6- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Revenue for the quarter ended September 30, 2003 increased by 3.9% to $247.3 million from $238.0 million for the comparable quarter of 2002. For the nine months ended September 30, 2003, revenue increased by 7.8% to $744.3 million. Revenue for the Flavors & Fragrances segment increased by 3.2% for the quarter and by 4.0% for the nine months ended September 30, 2003 over the comparable periods last year. Revenue for the Color segment decreased by 2.0% for the quarter and increased by 10.4% for the nine months ended September 30, 2003 over the comparable periods last year. Additional information on group results can be found in the Segment Information section. The gross profit margin was 31.9% and 33.0% for the three months ended September 30, 2003 and 2002, respectively. The decrease in margin resulted from lower sales of North American food and beverage colors and lower pricing in technical colors and dehydrated flavors. For the nine months ended September 30, 2003 and 2002, the gross profit margin was 32.4% and 32.9%, respectively, the decrease was for the same reasons as provided for the quarter. Selling and administrative expenses as a percent of revenue were 18.1% and 17.5% for the three months ended September 30, 2003 and 2002, respectively. Selling and administrative expenses as a percent of revenue were 17.9% and 17.3% for the nine months ended September 30, 2003 and 2002, respectively. The increase was primarily attributable to expenses related to personnel changes and additions to manage the expanded size and scope of the Company's businesses after the recent acquisitions. Operating income for the three months ended September 30, 2003 was $34.1 million, compared to $36.9 million for the comparable quarter in 2002. Operating income for the nine months ended September 30, 2003 was $107.7 million versus $108.2 million for the comparable period last year. Favorable foreign exchange rates increased both revenue and operating income by approximately 4% and 5% for the three month and nine month periods ended September 30, 2003, respectively, over the comparable period last year. Interest expense for the three months ended September 30, 2003 was $7.6 million, an increase of 5.4% over the prior year. The increase was a result of higher average debt balances partially offset by lower interest rates. For the nine months ended September 30, 2003, interest expense was consistent with the prior year at $22.5 million. The effective income tax rate was 22.0% and 32.0% for the three months ended September 30, 2003 and 2002, respectively. The effective income tax rate was 26.4% and 32.0% for the nine months ended September 30, 2003 and 2002, respectively. The effective tax rate for the three months ended September 30, 2003 was reduced by the utilization of foreign tax losses resulting from a recently identified tax planning strategy. The effective tax rate for the nine months ended September 30, 2003 was also reduced by the favorable settlement of certain prior year tax matters, the utilization of foreign tax losses and other nominal adjustments. Management expects the effective tax rate for the remainder of 2003 to be between 31% and 32%. SEGMENT INFORMATION Flavors & Fragrances - For the three months ended September 30, 2003, the Flavors & Fragrances segment reported a 3.2% increase in revenue, to $149.5 million compared to $144.9 million for the same period last year. Favorable foreign exchange rates resulted in a 4.4% increase in revenue. Excluding exchange rates, revenue decreased 1.2%, or $1.8 million, primarily as a result of declines in the U.S. flavors business ($3.7 million), partially offset by improved results in Latin America ($2.2 million). Operating income in the quarter ended September 30, 2003 was $21.6 million compared to $20.7 million last year. Excluding the favorable effect of exchange rates ($0.8 million), the increase was primarily attributable to improvements in the aroma chemicals business in Spain ($0.9 million), reduced by lower sales of flavors in the U.S. ($0.6 million). Operating income as a percent of revenue was 14.4%, an increase of 10 basis points from the comparable quarter last year. -7- For the nine months ended September 30, 2003, the Flavors & Fragrances segment reported a 4.0% increase in revenue, to $443.2 million compared to $426.1 million for the same period last year. Favorable foreign exchange rates and acquisitions resulted in a 5.3% and 0.9% increase in revenue, respectively. Excluding exchange rates and acquisitions, revenue decreased 2.2%, or $9.3 million, primarily as a result of soft U.S. demand for flavors ($10.6 million) partially offset by revenue growth in Latin America ($2.0 million). Operating income for the nine months ended September 30, 2003 was $63.9 million compared to $63.4 million last year. Favorable foreign exchange rates and acquisitions resulted in a 4.2% and 1.0% increase in operating income, respectively. Excluding the effect of exchange rates ($2.7 million) and acquisitions ($0.7 million), the $2.8 million decrease was attributable to lower sales of flavors in the U.S. ($3.1 million) partially offset by gains in other markets. Operating income as a percent of revenue was 14.4%, a decrease of 50 basis points from the comparable period last year. Color - For the three months ended September 30, 2003, revenue for the Color segment declined by $1.7 million, or 2.0% to $87.5 million. Favorable foreign exchange rates and acquisitions resulted in a 3.2% and 2.5% increase in revenue, respectively. Excluding exchange rates and acquisitions, revenue decreased 7.7% or $6.8 million, primarily the result of declines in the North American food and beverage colors business ($6.3 million) and in the technical colors business ($1.2 million). Operating income for the three months ended September 30, 2003 was $17.6 million versus $21.3 million from the comparable period last year. Excluding the favorable effect of exchange rates ($0.7 million) and acquisitions ($0.3 million), the resulting decrease in operating income was primarily attributable to declines in the North American food and beverage colors business. Operating income as a percent of revenue was 20.1%, a decrease of 370 basis points from the comparable quarter last year, primarily due to the reasons provided above. For the nine months ended September 30, 2003, revenue for the Color segment increased by $26.2 million, or 10.4% to $278.6 million. Favorable foreign exchange rates and acquisitions resulted in a 4.7% and 3.3% increase in revenue, respectively. Excluding exchange rates and acquisitions, revenue increased 2.3% or $5.8 million, primarily the result of increased technical color and cosmetic color sales ($4.1 million and $2.6 million, respectively) and increased sales in Latin America ($4.0 million), partially offset by declines in sales of food and beverage colors in North America ($4.4 million). Operating income for the nine months ended September 30, 2003 was $59.4 million versus $59.6 million from the comparable period last year. Excluding the favorable effect of exchange rates ($2.7 million) and acquisitions ($1.8 million), the $4.7 million decrease in operating income was primarily the result lower sales of food and beverage colors in North America. Operating income as a percent of revenue was 21.3%, a decrease of 230 basis points from the comparable period last year, primarily due to the reasons provided above. FINANCIAL CONDITION The Company's ratio of debt to total capital was 53.9% as of September 30, 2003, up from 52.8% as of December 31, 2002. The increase resulted from an increase in debt needed to fund acquisitions and capital expenditures. Net cash provided by operating activities was $41.4 million for the nine months ended September 30, 2003, compared to $82.7 million for the nine months ended September 30, 2002. The decrease in cash provided by operating activities was primarily due to increased levels of inventories and other working capital. Net cash decreased $30 million from the net increase in inventories, which resulted from soft U.S. demand and increased inventories from manufacturing consolidations. Net cash used in investing activities was $68.5 million for the nine months ended September 30, 2003 compared to $67.1 million in the comparable period last year. Net cash used in investing activities in 2003 included capital expenditures of $56.0 million and acquisitions of $17.1 million. Net cash used in investing activities in 2002 included acquisitions of $48.5 million and capital expenditures of $22.9 million. The increase in capital expenditures is related primarily to the consolidation of recent acquisitions in the U.S. and Europe. -8- Net cash provided by financing activities was $32.9 million for the nine months ended September 30, 2003, compared to $17.9 million of net cash used in the comparable period in the prior year. Net borrowings were $66.5 million in 2003 compared to net borrowings of $1.8 million in 2002. During 2003, the borrowings were used to fund acquisitions and capital expenditures. During 2002, net borrowings were used to fund acquisitions. Dividends of $20.9 million and $18.9 million were paid during the nine months ended September 30, 2003 and 2002, respectively. In addition, $0.5 million was paid to shareholders in the third quarter of 2003 related to the redemption of rights issued pursuant to the Company's Shareholders Rights Plan. The Company increased its quarterly cash dividend per share from $.1325 to $.14 per share effective in December 2002. In addition, the Company raised its quarterly dividend to $.15 per share effective in April 2003. As a result of these increases, the annual dividend has grown from $.53 to $.60 per share since the third quarter of 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. 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 assets, liabilities, 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, 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, property, plant and equipment, and prepaid expenses. Management believes the Company's most critical accounting estimates and assumptions are in the following areas: Goodwill Valuation The Company reviews the carrying value of goodwill annually utilizing several valuation methodologies, including a discounted cash flow model. Changes in estimates of future cash flows caused by items such as unforeseen events or changes in market conditions, could negatively affect the reporting segment's fair value and result in an impairment charge. However, the current fair values of the reporting segments are significantly in excess of carrying values, and accordingly management believes that only significant changes in the cash flow assumptions would result in impairment. Income Taxes The Company files income tax returns and 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 known. These changes could impact the Company's financial statements. Management has recorded valuation allowances to reduce its deferred tax assets to the amount that is more likely than not to be realized. In doing so, management has considered future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance. 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. -9- 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, 2003. For additional information on market risk, refer to pages 25 and 26 of the Company's 2002 Annual Report, portions of which were filed as Exhibit 13.1 to the Company's Form 10-K for the year ended December 31, 2002. ITEM 4. CONTROLS AND PROCEDURES The Company maintains a system of disclosure controls and procedures that is designed to ensure that information, which is required to be disclosed by the Company, is accumulated and communicated to management in a timely manner. An evaluation of the effectiveness of this system of disclosure controls and procedures was performed under the supervision and with the participation of the Company's management, including the Company's Chairman, President & CEO and its Vice President, CFO & Treasurer, as of the end of the period covered by this report. Based upon this evaluation, the Company's management, including the Company's Chairman, President & CEO and its Vice President, CFO & Treasurer, concluded that the current system of controls and procedures is effective. The Company maintains a system of internal control over financial reporting. There has been no change in the Company's internal control over financial reporting that occurred during the quarter ended September 30, 2003 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. FORWARD-LOOKING STATEMENTS 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; the Company's ability to successfully implement its growth strategies; industry and economic factors related to the Company's domestic and international business; growth in markets for products in which the Company competes; industry acceptance of price increases; currency exchange rate fluctuations; and the matters discussed above under Item 2 including the critical accounting policies described therein. 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS At a meeting held on July 17, 2003, the Board of Directors authorized the redemption of the rights issued pursuant to the Company's Shareholder Rights Plan. Under the rights plan, one right is attached to each outstanding share of common stock. The rights were redeemed at a price of $.01 per right on September 3, 2003 to shareholders along with the $.15 per share quarterly dividend payment. The total amount paid to shareholders related to the rights redemption was $0.5 million and is reported on the Dividends Paid line of the Statement of Cash Flows. ITEM 6. 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 October 23, 2003 to disclose earnings for the quarter ended September 30, 2003; a report on Form 8-K was filed on July 17, 2003 to announce the redemption of the Company's shareholder rights plan and a report on Form 8-K was filed on July 16, 2003 to disclose earnings for the quarter ended June 30, 2003. -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, 2003 By: /s/ John L. Hammond ----------------------------------------- John L. Hammond, Vice President, Secretary & General Counsel Date: November 13, 2003 By: /s/ Richard F. Hobbs ----------------------------------------- Richard F. Hobbs, Vice President, Chief Financial Officer & Treasurer -12- SENSIENT TECHNOLOGIES CORPORATION EXHIBIT INDEX QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2003
Exhibit Description Incorporated by Reference From Filed Herewith - ------- ----------- ------------------------------ -------------- 31 Certification of the Company's Chairman, President & Chief Executive Officer and Vice President, Chief Financial Officer & Treasurer pursuant to Rule 13a-14(a) of the Exchange Act. X 32 Certification of the Company's Chairman, President & Chief Executive Officer and Vice President, Chief Financial Officer & Treasurer pursuant to 18 United States Code Section 1350 X
-13- EX-31 3 c80863exv31.txt CERTIFICATION OF CEO & CFO - RULE 13A-14(A) EXHIBIT 31 CERTIFICATION PURSUANT TO RULE 13a - 14(a) OF THE EXCHANGE ACT 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 report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 13, 2003 By: /s/ Kenneth P. Manning - -------------------------- Kenneth P. Manning, Chairman, President & Chief Executive Officer -14- EXHIBIT 31 CERTIFICATION PURSUANT TO RULE 13a - 14(a) OF THE EXCHANGE ACT 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 report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 13, 2003 By: /s/ Richard F. Hobbs - ------------------------ Richard F. Hobbs, Vice President, Chief Financial Officer & Treasurer -15- EX-32 4 c80863exv32.txt CERTIFICATION OF CEO & CFO - 18 U.S.C. SEC. 1350 EXHIBIT 32 CERTIFICATION PURSUANT TO 18 UNITED STATES CODE SECTION 1350 The undersigned hereby certifies that the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2003 of Sensient Technologies Corporation (the "Company") filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Kenneth P. Manning ----------------------------------- Name: Kenneth P. Manning Title: Chairman, President & Chief Executive Officer Date: November 13, 2003 -16- EXHIBIT 32 CERTIFICATION PURSUANT TO 18 UNITED STATES CODE SECTION 1350 The undersigned hereby certifies that the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2003 of Sensient Technologies Corporation (the "Company") filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Richard F. Hobbs ------------------------------------ Name: Richard F. Hobbs Title: Vice President, Chief Financial Officer & Treasurer Date: November 13, 2003 -17- -----END PRIVACY-ENHANCED MESSAGE-----