Item 7. Management’s Discussion and Analysis
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 should be read in conjunction with our audited consolidated financial statements and the notes to those
statements (Part II, Item 8 of this Form 10-K). This section generally discusses the results of our operations for the year ended December 31, 2022, compared to the year ended December 31, 2021. For a discussion of the year ended December
31, 2021, compared to the year ended December 31, 2020, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2021, filed with the Securities and Exchange Commission on February 18, 2022, which is incorporated herein by reference.
OVERVIEW
Sensient Technologies Corporation (the Company or Sensient) is a leading global manufacturer and marketer of colors, flavors, and other specialty ingredients. The Company uses advanced technologies at facilities
around the world to develop specialty food and beverage systems; personal care, essential oils, pharmaceutical, and nutraceutical systems; specialty colors; and other specialty and fine chemicals. The Company’s three reportable segments are
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. The Company’s corporate expenses, restructuring including operational
improvement plans, divestiture, share-based compensation, 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); in the third quarter of
2020, the Company divested its yogurt fruit preparations product line (Flavors & Extracts Group); and in the second quarter of 2021, the Company divested its fragrances product line (Flavors & Extracts Group).
The Company’s diluted earnings per share were $3.34 in 2022 and $2.81 in 2021. 2022 results were positively impacted by $2.5 million ($1.9 million after tax, $0.04 per share) of divestiture & other related
income. 2021 results were negatively impacted by $12.2 million ($14.8 million after tax, $0.35 per share) of divestiture & other related costs and operational improvement plan costs and income. Adjusted diluted earnings per share, which
exclude the divestiture & other related costs and income, the results of operations of the divested product lines, and the operational improvement plan costs and income, were $3.29 in 2022 and $3.13 in 2021 (see discussion below
regarding non-GAAP financial measures).
Additional information on the results is included below.
RESULTS OF OPERATIONS
2022 vs. 2021
Revenue
Sensient’s revenue was approximately $1.4 billion in both 2022 and 2021.
Gross Profit
The Company’s gross margin was 34.0% in 2022 and 32.9% in 2021. The increase in gross margin was primarily due to higher selling prices and the divestiture of the inks, fragrances, and yogurt fruit preparations
product lines, which decreased gross margin 40 basis points in 2021, partially offset by higher raw material costs in 2022.
Selling and Administrative Expenses
Selling and administrative expense as a percent of revenue was 20.3% in 2022 and 20.6% in 2021. Selling and administrative expenses in 2022 were reduced by divestiture & other related income totaling $2.5
million and in 2021 were increased by divestiture & other related expenses and operational improvement plan costs and income totaling $12.2 million. Selling and administrative expense as a percent of revenue decreased by approximately
20 basis points and increased by approximately 90 basis points in 2022 and 2021, respectively, as a result of these income and expenses. See Divestitures below for further information.
Operating Income
Operating income was $196.8 million in 2022 and $170.0 million in 2021. Operating margins were 13.7% in 2022 and 12.3% in 2021. Divestiture & other related income improved operating margins by approximately 20
basis points in 2022 and divestiture & other related costs and operational improvement plan costs and income reduced operating margins by approximately 90 basis points in 2021.
Additional information on segment results can be found in the Segment Information section.
Interest Expense
Interest expense was $14.5 million in 2022 and $12.5 million in 2021. The increase in expense was primarily due to an increase in the average debt outstanding and the average interest rate.
20
Index
Income Taxes
The effective income tax rate was 22.7% in 2022 and 24.6% in 2021. The effective tax rates in both 2022 and 2021 were impacted by changes in estimates associated with the finalization of prior year foreign
and domestic tax items, audit settlements, mix of foreign earnings, the divestiture & other related costs and income, 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.
2022
2021
Rate before divestiture and discrete items
25.8
%
24.3
%
Divestiture & other related costs and income impact
-
4.2
%
Discrete items
(3.1
%)
(3.9
%)
Reported effective tax rate
22.7
%
24.6
%
The 2023 effective income tax rate is estimated to be between 24% and 26%, before any discrete items, such as finalization of prior year foreign and domestic tax items, audit settlements, and valuation allowance
adjustments.
Acquisitions
On July 15, 2021, the Company acquired substantially all of the assets of Flavor Solutions, Inc ., a flavors business located in New Jersey. The purchase price for this acquisition was $14.9
million in cash. This business is now part of the Flavors & Extracts segment.
On October 3, 2022, the Company acquired Endemix Doğal Maddeler A.Ş. and Teknoloji Yatırımları ve Danışmanlık Sanayi ve Ticaret A.Ş. (collectively,
Endemix), a natural colors business located in Turkey. The Company paid $23.3 million in cash for this acquisition, which is net of $1.3 million in debt assumed, with $1.7 million of such amount being held back by the Company for 12 months
to satisfy any indemnification claims that may arise. This business is now part of the Color segment.
See Note 2, Acquisitions , in the Notes to Consolidated Financial Statements included in this report for additional information.
Divestitures
On June 30, 2020, the Company completed the sale of its inks product line. In 2021 and 2020, the Company received $0.5 million and $11.6 million of net cash, respectively, as part of the sale.
On September 18, 2020, the Company completed the sale of its yogurt fruit preparations product line. The Company received $2.5 million of net cash in 2022 and $1.0 million of net cash in each of 2021 and 2020, as part of the sale.
On April 1, 2021, the Company completed the sale of its fragrances product line (excluding its essential oils product line) for $36.3 million of net cash. As a result of the completion of the sale, the Company recorded a non-cash net
loss of $11.3 million, for the year ended December 31, 2021, primarily 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 Statements of Earnings.
See Note 14, Divestitures , in the Notes to Consolidated Financial Statements included in this report for additional information.
Operational Improvement Plan
During the third quarter of 2020, the Company approved an operational improvement plan (Operational Improvement Plan) to consolidate manufacturing facilities and improve efficiencies within the Company. As part of
the Operational Improvement Plan, the Company combined its New Jersey cosmetics manufacturing facility in the Personal Care product line of the Color segment into its existing Color segment facility in Missouri. In addition, the Company
centralized certain Flavors & Extracts segment support functions in Europe into one location. In the Asia Pacific segment, the Company incurred costs in connection with the elimination of certain selling and administrative positions.
During the second quarter of 2021, the Company received cash proceeds, net of associated expenses, in connection with the termination of a New Jersey office and laboratory space lease. The terminated lease was
originally executed in November 2020 as part of the Operational Improvement Plan; however, the landlord for the property requested to terminate the lease prior to the end of its term and compensated the Company as part of a negotiated
resolution for that termination. The Company reports all costs and income associated with the Operational Improvement Plan in Corporate & Other.
See Note 15, Operational Improvement Plan , in the Notes to Consolidated Financial Statements included in
this report for additional information.
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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 divested product lines, the divestiture & other related costs and income, and the operational improvement plan costs and income, 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 the divested product lines, the divestiture & other related
costs and income, and the operational improvement plan costs and income.
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.
Twelve Months Ended December 31,
(In thousands except per share amounts)
2022
2021
% Change
Revenue (GAAP)
$
1,437,039
$
1,380,264
4.1
%
Revenue of the divested product lines
-
(30,062
)
Adjusted revenue
$
1,437,039
1,350,202
6.4
%
Operating Income (GAAP)
$
196,751
$
170,028
15.7
%
Divestiture & other related costs – Cost of products sold
-
86
Divestiture & other related (income) costs – Selling and administrative expenses
(2,532
)
14,052
Operating income of the divested product lines
-
(1,880
)
Operational improvement plan income – Selling and administrative expenses
-
(1,895
)
Adjusted operating income
$
194,219
$
180,391
7.7
%
Net Earnings (GAAP)
$
140,887
$
118,745
18.6
%
Divestiture & other related (income) costs, before tax
(2,532
)
14,138
Tax impact of divestiture & other related costs and income (1)
636
2,092
Net earnings of the divested product lines, before tax
-
(1,880
)
Tax impact of the divested product lines (1)
-
460
Operational improvement plan income, before tax
-
(1,895
)
Tax impact of operational improvement plan (1)
-
471
Adjusted net earnings
$
138,991
$
132,131
5.2
%
Diluted Earnings Per Share (GAAP)
$
3.34
$
2.81
18.9
%
Divestiture & other related (income) costs, net of tax
(0.04
)
0.38
Results of operations of the divested product lines, net of tax
-
(0.03
)
Operational improvement plan, net of tax
-
(0.03
)
Adjusted diluted earnings per share
$
3.29
$
3.13
5.1
%
(1) Tax impact adjustments were determined based on the nature of the underlying non-GAAP adjustments and their relevant jurisdictional tax rates.
Divestiture & other related costs and income are discussed under “Divestitures” above and Note 14, Divestitures, in the Notes to the
Consolidated Financial Statements included in this report. Operational improvement plan costs and income are 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 .
22
Index
The following table summarizes the percentage change in the 2022 results compared to the 2021 results in the respective financial measures.
Twelve Months Ended December 31, 2022
Total
Foreign Exchange
Rates
Adjustments (1)
Adjusted Local
Currency
Revenue
Flavors & Extracts
(0.2
%)
(2.2
%)
(3.8
%)
5.8
%
Color
10.8
%
(3.8
%)
(0.4
%)
15.0
%
Asia Pacific
6.1
%
(8.0
%)
(0.3
%)
14.4
%
Total Revenue
4.1
%
(3.4
%)
(2.2
%)
9.7
%
Operating Income
Flavors & Extracts
6.9
%
(0.9
%)
(2.5
%)
10.3
%
Color
10.7
%
(5.1
%)
0.7
%
15.1
%
Asia Pacific
12.0
%
(10.1
%)
(0.4
%)
22.5
%
Corporate & Other
(9.8
%)
0.0
%
(29.4
%)
19.6
%
Total Operating Income
15.7
%
(5.2
%)
8.4
%
12.5
%
Diluted Earnings per Share
18.9
%
(5.3
%)
14.3
%
9.9
%
(1)
For Revenue, adjustments consist of revenues of the divested product lines. For Operating Income and Diluted Earnings per Share, adjustments consist of the results of the divested
product lines, divestitures & other related costs and income, and operational improvement plan costs and income.
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 and income, share-based compensation, acquisition, restructuring including the operational improvement plan, 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, as summarized in Part II, Item 8, 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 $738.0 and $739.4 million in 2022 and 2021, respectively. Foreign exchange rates decreased segment revenue by approximately 2%, while the divestitures of Yogurt Fruit
Preparations and Fragrances decreased segment revenue by approximately 4%. The lower segment revenue was primarily due to these reasons as well as lower revenue in Natural Ingredients, partially offset by higher revenue in Flavors, Extracts
& Flavor Ingredients. The lower revenue in Natural Ingredients was primarily due to unfavorable volumes, partially offset by higher selling prices. The higher revenue in Flavors, Extracts & Flavor Ingredients was primarily due to
higher selling prices, favorable volumes, and the acquisition of Flavor Solutions, Inc. on July 15, 2021, partially offset by the unfavorable impact of foreign exchange rates.
Flavors & Extracts segment operating income was $105.4 million in 2022 and $98.7 million in 2021, an increase of approximately 7%. Foreign exchange rates decreased segment operating income by approximately 1%,
while the divestitures of Yogurt Fruit Preparations and Fragrances decreased segment operating income by approximately 3%. The higher segment operating income was primarily a result of higher operating income in Flavors, Extracts &
Flavor Ingredients and Natural Ingredients, partially offset by lower operating income in Fragrances due to the divestiture of the product line in 2021. The higher operating income in Flavors, Extracts & Flavor Ingredients was primarily
due to higher selling prices and favorable volumes, partially offset by higher raw material costs and manufacturing and other costs and the unfavorable impact of foreign exchange rates. The higher operating income in Natural Ingredients was
primarily due to higher selling prices and a favorable product mix, partially offset by higher raw material costs and manufacturing and other costs and unfavorable volumes. Segment operating income as a percent of revenue was 14.3% and
13.3% for 2022 and 2021, respectively.
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Index
Color
Segment revenue for the Color segment was $604.0 million in 2022 and $545.3 million in 2021, an increase of approximately 11%. Foreign exchange rates decreased segment revenue by approximately 4%. The higher
segment revenue was primarily a result of higher revenue in Food & Pharmaceutical Colors and Personal Care. The higher revenue in Food & Pharmaceutical Colors was primarily due to higher selling prices, favorable volumes, and the
acquisition of Endemix Doğal Maddeler A.Ş. , partially offset by the unfavorable impact of foreign exchange rates. The higher revenue in Personal Care was
primarily due to higher selling prices and favorable volumes, partially offset by the unfavorable impact of foreign exchange rates.
Segment operating income for the Color segment was $114.6 million in 2022 and $103.6 million in 2021, an increase of approximately 11%. Foreign exchange rates decreased segment operating income by approximately
5%, while the Inks divestiture increased segment operating income by approximately 1%. The higher segment operating income was primarily a result of higher operating income in Food & Pharmaceutical Colors and Personal Care due to higher
selling prices and favorable volumes, partially offset by higher raw material costs and manufacturing and other costs, unfavorable product mix, and the unfavorable impact of foreign exchange rates. Segment operating income as a percent of
revenue was 19.0% in both 2022 and 2021.
Asia Pacific
Segment revenue for the Asia Pacific segment was $143.6 million and $135.3 million for 2022 and 2021, respectively, an increase of approximately 6%. Foreign exchange rates decreased segment revenue by
approximately 8%. Segment revenue was higher than the prior year primarily due to higher selling prices and favorable volumes, partially offset by the unfavorable impact of foreign exchange rates.
Segment operating income for the Asia Pacific segment was $29.5 million in 2022 and $26.3 million in 2021, an increase of approximately 12%. Foreign exchange rates decreased segment operating income by
approximately 10%. The increase in segment operating income was a result of higher selling prices and favorable volumes, partially offset by higher raw material costs and manufacturing and other costs and the unfavorable impact of foreign
exchange rates. Segment operating income as a percent of revenue was 20.5% in 2022 and 19.5% in 2021.
Corporate & Other
The Corporate & Other operating loss was $52.8 million in 2022 and $58.5 million in 2021. The lower operating loss was primarily a result of 2022 favorably impacted by divestiture & other related income
totaling $2.5 million and 2021 negatively impacted by divestiture and other related costs and operational improvement plan costs and income totaling $12.2 million, partially offset by higher performance-based compensation in 2022. See the Divestitures and Operational Improvement Plan sections above for further information.
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, 2022. 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, and dividend payments, as well as potential acquisitions and stock repurchases. The
Company’s contractual obligations consist primarily of operational commitments, which we expect to continue to be able to satisfy through cash generated from operations, and debt. The Company has various series of notes outstanding that
mature from 2023 through 2027, with approximately $146 million coming due in 2023. The Company believes that it has the ability to refinance or repay these obligations through a combination of cash flow from operations, issuance of
additional notes, and substantial borrowing capacity of approximately $207 million under the Company’s revolving credit facility, which matures in 2026.
As a result of our ability to manage the impact of inflation through pricing and other actions, the impact of inflation was not material to the Company’s financial position and its results of operations in 2022.
The Company has experienced increased costs for certain inputs, such as raw materials, shipping and logistics, and labor-related costs. We continue to expect to manage these impacts in the near term, but persistent, accelerated, or expanded
inflationary conditions could exacerbate these challenges and impact our profitability.
Sensient repurchased 492,045 shares of Company stock in 2021 for a total cost of $42.5 million. There were no shares of Company stock repurchased in 2022 or 2020. In October 2017, the Board of Directors authorized
the repurchase of up to three million shares. As of December 31, 2022, 1,732,981 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.
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Index
Cash Flows from Operating Activities
Net cash provided by operating activities was $12.1 million and $145.2 million in 2022 and 2021, respectively. Operating cash flow provided the primary source of funds for operating needs. The decrease in net cash
provided by operating activities in 2022 was primarily due to an increase in the cash used for inventory as the Company invested in strategic inventory positions in order to manage production and on time delivery despite disruptions in our
supply chain.
Cash Flows from Investing Activities
Net cash used in investing activities was $98.4 million and $35.6 million in 2022 and 2021, respectively. Capital expenditures were $79.3 million in 2022 and $60.8 million in 2021. In 2022, the Company
received $2.5 million of proceeds from the divestiture of the yogurt fruit preparations product line. In 2021, the Company received $37.8 million of proceeds from the divestitures of the inks product line, yogurt fruit preparations
product line, and fragrances product line. In 2022, the Company paid $21.7 million for the acquisition of Endemix Doğal Maddeler A.Ş. and Teknoloji
Yatırımları ve Danışmanlık Sanayi ve Ticaret A.Ş. and $1.0 million related to the holdback associated with the acquisition of Flavor Solutions, Inc. In 2021,
the Company paid $13.9 million for the acquisition of Flavor Solutions, Inc.
Cash Flows from Financing Activities
Net cash provided by financing activities was $86.2 million in 2022, and net cash used in financing activities was $107.8 million in 2021. The Company had a net increase in debt of $157.2 million and $2.0 million
in 2022 and 2021, respectively. The increase in net debt in 2022 was primarily needed to fund capital expenditures and shareholder dividends due to the strategic use of operating cash flow to invest in inventory as described above. For the
purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates. The Company repurchased shares of its common stock for $42.5 million during 2021. There were no repurchases of shares of the Company’s
common stock in 2022. The Company has paid uninterrupted quarterly cash dividends since commencing public trading of its stock in 1962. Dividends paid per share were $1.64 in 2022 and $1.58 in 2021. Total dividends paid were $68.9 million
and $66.7 million in 2022 and 2021, respectively.
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 2022. In conducting its annual test for impairment, the Company performed a quantitative
assessment of the fair values for each of its reporting units and compared each of these values to the net book value of each reporting unit. 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. In 2021, the fair value of the disposal groups again increased, which resulted
in an additional $0.8 million of goodwill allocated to the disposal groups. See Note 14, Divestitures, in the Notes to Consolidated Financial
Statements included in this report for additional details.
25
Index
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, 2022, the Company recorded gross deferred tax assets of $99.6 million with an associated valuation allowance of $28.1
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. Net realizable value is determined on the basis of estimated realizable values.
Cost includes direct materials, direct labor, and manufacturing overhead.
The Company estimates any required write-downs for inventory obsolescence by examining inventories on a quarterly basis to determine if there are any damaged items or slow moving products in which the carrying
values could exceed net realizable value. Inventory write-downs are recorded as the difference between the cost of inventory and its estimated market value. The Company recorded non-cash charges of $0.1 million and $1.8 million in 2021 and
2020, respectively, in Cost of Products Sold primarily related to the yogurt fruit preparations divestiture. There were no non-cash charges recorded in 2022 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.