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Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-17 · 189 added, 243 removed, 99 unchanged (81% of the section changed)

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).

II, Item 8 of this Form 10-K).

This section generally discusses the results of our operations for the year ended December 31, 2023, compared to the year ended December 31, 2022.

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.

For a discussion of the year ended December 31, 2022, compared to the

year ended December 31, 2021, 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, 2022, filed with the

Securities and Exchange Commission on February 17, 2023, which is incorporated herein by reference.

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;

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;

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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 three reportable segments are the Flavors

& Extracts Group and the Color Group, which are both managed on a product line basis, and the Asia Pacific Group, which is managed on a geographic basis.

The Company’s corporate expenses, divestiture & other related costs and income,

share-based compensation, restructuring and other charges, including operational improvement plan costs and portfolio optimization plan costs, and other costs are included in the “Corporate & Other” category.

The Company’s diluted earnings per share were $2.21 in 2023 and $3.34 in 2022.

2022 results were positively impacted by $2.5 million ($1.9 million after tax, $0.04 per share) of divestiture & other related

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).

2023 results were negatively impacted by $27.8 million ($27.4 million after tax, $0.65 per share) of portfolio optimization plan costs.

results were positively impacted by $2.5 million ($1.9 million after tax, $0.04 per share) of divestiture & other related income.

Adjusted diluted earnings per share, which exclude the divestiture & other related income and the portfolio

optimization plan costs, were $2.86 in 2023 and $3.29 in 2022 (see discussion below regarding non-GAAP financial measures).

Additional information on the results is included below.

RESULTS OF OPERATIONS

Sensient’s revenue was approximately $1.4 billion in both 2022 and 2021.

Sensient’s revenue was approximately $1.46 billion and $1.44 billion in 2023 and 2022, respectively.

The Company’s gross margin was 31.6% in 2023 and 34.0% in 2022.

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.

The decrease in gross margin was primarily due to higher raw material costs, lower volumes, and portfolio optimization plan costs, which decreased gross

margin 20 basis points in 2023, partially offset by higher selling prices in 2023.

Selling and Administrative Expenses

Selling and administrative expense as a percent of revenue was 21.0% in 2023 and 20.3% in 2022.

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.

Selling and administrative expenses in 2023 were increased by portfolio optimization plan costs totaling $24.7 million and in

2022 were reduced by divestiture & other related income totaling $2.5 million.

Selling and administrative expense as a percent of revenue increased by approximately 170 basis points and decreased by approximately 20 basis points in 2023 and

2022, respectively, as a result of these expenses and income.

See Divestitures and Portfolio Optimization Plan below for further information.

Selling and administrative expenses as a percent of revenue was further impacted by lower performance-based compensation in 2023.

Operating Income

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Operating margins were 10.6% in 2023 and 13.7% in 2022.

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.

Portfolio optimization plan costs decreased operating margins by approximately 200 basis

points in 2023 and divestiture & other related income improved operating margins by approximately 20 basis points in 2022.

Additional information on segment results can be found in the Segment Information section.

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Interest expense was $25.2 million in 2023 and $14.5 million in 2022.

The increase in expense was primarily due to an increase in the average debt outstanding and the average interest rate.

The increase in expense was primarily due to an increase in the average interest rate and average debt outstanding.

The effective income tax rate was 28.1% in 2023 and 22.7% in 2022.

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

See Note 11, Income Taxes , in the Notes to Consolidated Financial Statements included in this report for additional information.

Rate before divestiture and discrete items

Divestiture & other related costs and income impact

The effective tax rates in both 2023 and 2022 were impacted by the release of valuation allowances related to the foreign tax credit carryover and

net operating losses, changes in estimates associated with the finalization of prior year foreign and domestic tax items, audit settlements, and mix of foreign earnings.

The effective tax rate in 2023 was also impacted by the limited tax

deductibility of costs related to the portfolio optimization plan.

See Note 11, Income Taxes , in the Notes to Consolidated Financial Statements

included in this report for additional information.

Rate before portfolio optimization plan and discrete items

Portfolio optimization plan impact

Discrete items

Reported effective tax rate

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

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.

The 2024 effective income tax rate is estimated to be between 24% and 25%.

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.

(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.

This business is part of the Color segment.

See Note 2, Acquisitions , in the Notes to Consolidated Financial Statements included in this report for additional information.

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.

In 2022, the Company received $2.5 million of net cash related to the previously completed sale of its yogurt fruit preparations product line.

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.

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.

Portfolio Optimization Plan

During the fourth quarter of 2023, the board of directors of the Company approved a portfolio optimization plan (Portfolio Optimization Plan) to undertake an effort to optimize certain production facilities and improve

efficiencies within the Company.

As part of the Portfolio Optimization Plan, in the Flavors & Extracts segment, the Company is evaluating the potential closure of its manufacturing facility in Felinfach, Wales, United Kingdom, the potential

closure of its sales office in Granada, Spain, and the potential centralization and elimination of certain selling and administrative positions, with such proposals remaining subject to information and consultation processes in certain countries.

In addition, in the Color segment, the Company’s proposals include closing a manufacturing facility in Delta, British Columbia, Canada, closing a sales office in Argentina, and centralizing and eliminating certain production positions as well as

potentially eliminating some selling and administrative positions, with such proposals remaining subject to information and consultation processes in certain countries.

The Company reports all costs associated with the Portfolio Optimization Plan

in the Corporate & Other segment.

See Note 16, Portfolio Optimization Plan , in the Notes to Consolidated Financial Statements included in this

report for additional information.

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.

(1) adjusted operating income, adjusted net earnings, and adjusted diluted earnings per share, which exclude the divestiture

& other related income and restructuring and other costs, including the portfolio optimization plan costs 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 divestiture & other related income, and restructuring and other costs, including the portfolio optimization plan costs.

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.

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.

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.

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(In thousands except per share amounts)

Revenue (GAAP)

Revenue of the divested product lines

Adjusted revenue

Operating Income (GAAP)

Divestiture & other related costs – Cost of products sold

Divestiture & other related (income) costs – Selling and administrative expenses

Operating income of the divested product lines

Operational improvement plan income – Selling and administrative expenses

Portfolio optimization plan costs – Cost of products sold

Divestiture & other related income – Selling and administrative expenses

Portfolio optimization plan costs – Selling and administrative expenses

Adjusted operating income

Net Earnings (GAAP)

Divestiture & other related (income) costs, before tax

Tax impact of divestiture & other related costs and income (1)

Net earnings of the divested product lines, before tax

Tax impact of the divested product lines (1)

Operational improvement plan income, before tax

Tax impact of operational improvement plan (1)

Divestiture & other related income, before tax

Tax impact of divestiture & other related income (1)

Portfolio optimization plan costs, before tax

Tax impact of portfolio optimization plan costs (1)

Adjusted net earnings

Diluted Earnings Per Share (GAAP)

Divestiture & other related (income) costs, net of tax

Results of operations of the divested product lines, net of tax

Operational improvement plan, net of tax

Divestiture & other related income, net of tax

Portfolio optimization plan costs, net of tax

Adjusted diluted earnings per share

(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.

Divestiture & other related income is discussed under “Divestitures” above and Note 14, Divestitures, in the Notes to the Consolidated Financial

Statements included in this report.

Portfolio optimization plan costs are discussed under “Portfolio Optimization Plan” above and Note 16, Portfolio Optimization Plan, in the Notes to the Consolidated Financial Statements included in this report.

Earnings per share calculations may not foot due to rounding differences .

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Twelve Months Ended December 31, 2023

Foreign Exchange

Adjustments (1)

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Diluted Earnings per Share

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.

For Operating Income and Diluted Earnings per Share, adjustments consist of divestiture & other related income in 2022 and portfolio optimization plan costs in 2023.

Refer to table above for a reconciliation of these non-GAAP measures.

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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

Segment performance is evaluated on operating income before

any applicable divestiture & other related income, share-based compensation, acquisition, restructuring and other costs, including the portfolio optimization plan costs, and other costs (which are reported in Corporate & Other), interest

expense, and income taxes.

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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.

Flavors & Extracts segment revenue was $741.1 million in 2023 and $738.0 million in 2022.

The higher segment revenue was due to higher revenue in Natural Ingredients, partially offset by lower revenue in Flavors,

Extracts & Flavor Ingredients.

The higher revenue in Natural Ingredients was primarily due to higher selling prices, partially offset by lower volumes.

The lower revenue in Flavors, Extracts & Flavor Ingredients was primarily due to lower

volumes, partially offset by higher selling prices and the favorable impact of foreign exchange rates, which increased segment revenue by approximately 1%.

Flavors & Extracts segment operating income was $87.8 million in 2023 and $105.4 million in 2022, a decrease of approximately 17%.

Foreign exchange rates increased segment operating income by approximately 1%.

lower segment operating income was a result of lower operating income in Natural Ingredients and Flavors, Extracts & Flavor Ingredients.

The lower operating income in Natural Ingredients was primarily due to higher raw material costs, lower

volumes, and an unfavorable product mix, partially offset by higher selling prices and lower manufacturing and other costs.

The lower operating income in Flavors, Extracts & Flavor Ingredients was primarily due to higher raw material and

manufacturing and other costs and lower volumes, partially offset by higher selling prices.

Segment operating income as a percent of revenue was 11.8% and 14.3% for 2023 and 2022, respectively.

Segment revenue for the Color segment was $608.0 million in 2023 and $604.0 million in 2022, an increase of approximately 1%.

Foreign exchange rates decreased segment revenue by approximately 4%.

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.

Foreign exchange rates increased segment revenue by approximately 2%.

The higher segment

revenue was a result of higher revenue in Food & Pharmaceutical Colors, partially offset by lower revenue in Personal Care.

The higher revenue in Food & Pharmaceutical Colors was primarily due to higher selling prices, the acquisition of

Endemix Doğal Maddeler A.Ş.

, and the favorable impact of foreign exchange rates, partially offset by lower volumes.

The lower revenue in Personal Care was primarily due

to lower volumes, partially offset by higher selling prices and the favorable impact of foreign exchange rates.

Segment operating income for the Color segment was $105.4 million in 2023 and $114.6 million in 2022, a decrease of approximately 8%.

The lower segment operating income was a result of lower operating income in Personal

Care, partially offset by higher operating income in Food & Pharmaceutical Colors.

The lower operating income in Personal Care was primarily due to higher raw material and manufacturing and other costs and lower volumes, partially offset by

higher selling prices.

The higher operating income in Food & Pharmaceutical Colors was primarily due to higher selling prices and the favorable impact of foreign exchange rates, which increased segment operating income by approximately 2%,

partially offset by higher raw material and manufacturing and other costs, lower volumes, and an unfavorable product mix.

Segment operating income as a percent of revenue was 17.3% and 19.0% for 2023 and 2022, respectively.

Segment revenue for the Asia Pacific segment was $146.1 million and $143.6 million for 2023 and 2022, respectively, an increase of approximately 2%.

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 revenue was higher than the prior year primarily due to higher

selling prices, partially offset by lower volumes and the unfavorable impact of foreign exchange rates, which decreased segment revenue by approximately 2%.

Segment operating income for the Asia Pacific segment was $30.8 million in 2023 and $29.5 million in 2022, an increase of approximately 4%.

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.

Foreign exchange rates decreased segment operating income by approximately 2%.

The increase in segment operating income was a result of higher selling prices, partially offset by higher raw material costs and lower volumes.

Segment operating income as a percent of revenue was 21.1% in 2023 and 20.5% in 2022.

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The Corporate & Other operating loss was $68.9 million in 2023 and $52.8 million in 2022.

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.

The higher operating loss was primarily a result of portfolio optimization plan costs totaling $27.8 million negatively

impacting 2023 and divestiture & other related income totaling $2.5 million favorably impacting 2022, partially offset by lower performance-based compensation in 2023.

See the Divestitures and Portfolio Optimization Plan sections above for further information.

LIQUIDITY AND FINANCIAL POSITION

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The Company is in compliance with its loan covenants calculated in accordance with applicable agreements as of December 31, 2023.

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.

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.

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 2024

through 2029, with approximately $82 million coming due in 2024.

The Company believes that it has the ability to refinance or repay all of its obligations through a combination of cash flow from operations, issuance of additional notes, and

substantial borrowing capacity of approximately $318 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 2023.

The Company has experienced increased costs for certain inputs, such as raw materials, shipping and logistics, and labor-related costs.

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.

In October 2017, the Board of Directors authorized the repurchase of up to three million shares.

As of December 31, 2023, 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.

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.

There were no shares of Company stock repurchased in 2023 or 2022.

Cash Flows from Operating Activities

Net cash provided by operating activities was $169.7 million and $12.1 million in 2023 and 2022, 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.

Operating cash flow provided the primary source of funds for operating needs, capital expenditures, and

shareholder dividends.

The increase in net cash provided by operating activities in 2023 was primarily due to a decrease in the cash used for inventory investments during 2023 compared to 2022 and an increase in cash provided by accounts

Cash Flows from Investing Activities

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Capital expenditures were $87.9 million in 2023 and $79.3 million in 2022.

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.

the Company paid $13.9 million for the acquisition of Flavor Solutions, Inc.

In 2022, the Company received $2.5

million of proceeds from the divestiture of the yogurt fruit preparations product line.

The Company paid $1.7 million and $21.7 million in 2023 and 2022, respectively, for the acquisition of Endemix Doğal

Maddeler A.Ş.

and Teknoloji Yatırımları ve Danışmanlık Sanayi ve Ticaret A.Ş.

and $1.0 million in 2022 related to a purchase price holdback associated with 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.

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.

Net cash used in financing activities was $82.0 million in 2023, and net cash provided by financing activities was $86.2 million in 2022.

The Company had a net decrease in debt of $3.5 million in 2023 compared to a net

increase in debt of $157.2 million in 2022.

For the purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates.

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 2023 and 2022.

Total dividends paid were $69.2 million and $68.9 million in 2023 and 2022, 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.

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.

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:

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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.

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 completed its annual goodwill impairment test under Accounting

Standards Codification (ASC) 350, Intangibles – Goodwill and Other , in the third quarter of 2023.

In conducting its annual test for impairment, the Company performed a qualitative assessment of its

previously calculated fair values for each of its reporting units.

Fair value is estimated using both a discounted cash flow analysis and an analysis of comparable company market values.

If the fair value of a reporting unit exceeds its net book

value, no impairment exists.

The Company’s three reporting units each had goodwill recorded and were tested for impairment.

All three reporting units had fair

values that were above their respective net book values by at least 90%.

Changes in estimates of future cash flows caused by items such as unforeseen events or changes in market conditions could negatively affect the reporting units’ fair

value and result in an impairment charge.

In the fourth quarter of 2019, as a result of the Company meeting the assets held for sale criteria for its divestitures of its inks and fragrances (excluding its essential oils product line) product lines,

the Company allocated $8.4 million of goodwill to that disposal group.

The $8.4 million of goodwill related to the disposal groups was determined to be fully impaired.

In 2020, the fair value of the

disposal groups decreased, which resulted in the previously allocated goodwill of $2.2 million to be reallocated to its respective financial reporting units.

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.

All three reporting units had fair values that were above their respective net book values by at least 75%.

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.

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 Company is subject to a tax audit in each of these jurisdictions, which could result in changes to the estimated

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

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.

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, 2023, the Company recorded gross deferred tax assets of $117.4 million with an associated valuation allowance of $34.1 million.

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.

does not provide for deferred taxes on unremitted earnings of foreign subsidiaries, which are considered to be invested indefinitely.

The Company does not provide for deferred taxes

on unremitted earnings of foreign subsidiaries, which are considered to be invested indefinitely.

Inventories are stated at the lower of cost or net realizable value.

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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.

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

The Company recorded non-cash charges of $3.1 million in 2023 in Cost of Products Sold related to the portfolio optimization plan.

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.

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.

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.

The Company’s estimate of liabilities and related insurance

recoveries may change as further facts and circumstances become known.

NEW PRONOUNCEMENTS

Refer to the “ Recently Issued Accounting Pronouncements ” section within Note 1, “ Summary of Significant Accounting Policies ,” in the Notes

to Consolidated Financial Statements included in this report for additional details.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis