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