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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: June 30, 2003
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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
SENSIENT TECHNOLOGIES CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-0561070
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202-5304
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(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
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X No
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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 July 31, 2003
- --------------------------------------- ----------------------------
Common Stock, par value $0.10 per share 46,904,379 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 Six Months Ended June 30, 2003 and 2002. 1
Consolidated Condensed Balance Sheets
- June 30, 2003 and December 31, 2002. 2
Consolidated Condensed Statements of Cash Flows
- Six Months Ended June 30, 2003 and 2002. 3
Notes to Consolidated Condensed Financial Statements. 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 9
Item 4. Controls and Procedures. 9
PART II. OTHER INFORMATION:
Item 2. Changes in Securities and Use of Proceeds 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K. 11
Signatures. 12
Exhibit Index. 13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In thousands except per share amounts)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------ ------------------------------
2003 2002 2003 2002
------------ ------------- ------------ ------------
Revenue $261,928 $239,576 $497,025 $452,699
Cost of products sold 177,033 161,243 334,626 303,769
Selling and administrative expenses 46,202 39,615 88,772 77,677
------------ ------------- ------------ ------------
Operating income 38,693 38,718 73,627 71,253
Interest expense 7,572 7,563 14,817 15,179
------------ ------------- ------------ ------------
Earnings before income taxes 31,121 31,155 58,810 56,074
Income taxes 9,452 9,970 16,679 17,944
------------ ------------- ------------ ------------
Net earnings $21,669 $21,185 $42,131 $38,130
============ ============= ============ ============
Average number of common shares outstanding:
Basic 46,824 47,609 46,939 47,478
============ ============= ============ ============
Diluted 47,163 48,152 47,278 47,912
============ ============= ============ ============
Earnings per common share:
Basic $.46 $.44 $.90 $.80
============ ============= ============ ============
Diluted $.46 $.44 $.89 $.80
============ ============= ============ ============
Dividends per common share $.1500 $.1325 $.2900 $.2650
============ ============= ============ ============
See accompanying notes to consolidated condensed financial statements.
-1-
SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
June 30, December 31,
2003 2002
----------- -----------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 7,618 $ 2,103
Trade accounts receivable, net 183,043 160,155
Inventories 287,563 269,701
Prepaid expenses and other current assets 46,453 43,619
----------- -----------
TOTAL CURRENT ASSETS 524,677 475,578
----------- -----------
OTHER ASSETS 92,513 85,679
GOODWILL 402,500 384,241
INTANGIBLE ASSETS, NET 13,387 13,235
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 202,563 182,464
Machinery and equipment 506,811 462,925
----------- -----------
709,374 645,389
Less accumulated depreciation (345,709) (314,151)
----------- -----------
363,665 331,238
----------- -----------
TOTAL ASSETS $ 1,396,742 $ 1,289,971
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Trade accounts payable $ 67,740 $ 55,546
Accrued salaries, wages and withholdings from employees 11,274 14,197
Other accrued expenses 64,466 65,069
Income taxes 26,713 27,526
Short-term borrowings 75,569 34,618
Current maturities of long-term debt 12,300 12,374
----------- -----------
TOTAL CURRENT LIABILITIES 258,062 209,330
DEFERRED INCOME TAXES 13,724 10,942
OTHER LIABILITIES 16,023 21,962
ACCRUED EMPLOYEE AND RETIREE BENEFITS 37,684 36,672
LONG-TERM DEBT 530,583 511,707
SHAREHOLDERS' EQUITY:
Common stock 5,396 5,396
Additional paid-in capital 72,156 72,390
Earnings reinvested in the business 649,808 621,525
Treasury stock, at cost (142,344) (137,074)
Unearned portion of restricted stock (2,467) (2,951)
Accumulated other comprehensive income (loss) (41,883) (59,928)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 540,666 499,358
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,396,742 $ 1,289,971
=========== ===========
See accompanying notes to consolidated condensed financial statements.
-2-
SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months
Ended June 30,
--------------------
2003 2002
-------- --------
Net cash provided by operating activities $ 17,843 $ 50,830
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and equipment (37,281) (13,269)
Acquisition of new businesses (net of cash acquired) (4,107) (43,374)
Proceeds from sale of assets 2,498 4,901
Decrease (increase) in other assets 21 (1,325)
-------- --------
Net cash used in investing activities (38,869) (53,067)
-------- --------
Cash flows from financing activities:
Proceeds from additional borrowings 46,104 7,084
Reduction in debt (533) (4,393)
Purchase of treasury stock (9,668) -
Dividends paid (13,847) (12,611)
Proceeds from options exercised and other 4,055 9,643
-------- --------
Net cash provided by (used in) financing activities 26,111 (277)
-------- --------
Effect of exchange rate changes on cash and cash equivalents 430 233
-------- --------
Net increase (decrease) in cash and cash equivalents 5,515 (2,281)
Cash and cash equivalents at beginning of period 2,103 2,317
-------- --------
Cash and cash equivalents at end of period $ 7,618 $ 36
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 14,655 $ 15,687
Income taxes 12,849 12,714
Liabilities assumed in acquisitions $ -- $ 10,539
See accompanying notes to consolidated condensed financial statements.
-3-
SENSIENT TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Accounting Policies
In the opinion of 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 June 30, 2003 and December 31, 2002, and the
results of operations and cash flows for the six months ended June 30, 2003
and 2002. The results of operations for any interim period are not
necessarily indicative of the results to be expected for the full year.
Expenses are charged to operations in the year incurred. However, for
interim reporting purposes, certain expenses are charged to operations
based on an estimate rather than as expenses are actually incurred.
Certain amounts as previously presented have been reclassified to conform
to the current period presentation.
Refer to the notes in the Company's annual consolidated financial
statements for the year ended December 31, 2002, for additional details of
the Company's financial condition and a description of the Company's
accounting policies, which have been continued without change.
2. Inventories
At June 30, 2003 and December 31, 2002, inventories included finished and
in-process products totaling $210.8 million and $195.9 million,
respectively, and raw materials and supplies of $76.8 million and $73.8
million, respectively.
3. Segment Information
Operating results and the related assets by segment for the periods
presented are as follows:
(In thousands) Flavors & Corporate &
Fragrances Color Other Consolidated
---------- -------- ----------- ------------
Three months ended June 30, 2003:
- ---------------------------------
Revenues from external customers $148,096 $ 97,826 $ 16,006 $261,928
Intersegment revenues 6,095 3,668 -- 9,763
-------- -------- -------- --------
Total revenue $154,191 $101,494 $ 16,006 $271,691
======== ======== ======== ========
Operating income (loss) $ 22,256 $ 21,631 $ (5,194) $ 38,693
Interest expense -- -- 7,572 7,572
-------- -------- -------- --------
Earnings (loss) before income taxes $ 22,256 $ 21,631 $(12,766) $ 31,121
======== ======== ======== ========
Three months ended June 30, 2002:
- ---------------------------------
Revenues from external customers $142,006 $ 82,170 $ 15,400 $239,576
Intersegment revenues 5,344 5,075 -- 10,419
-------- -------- -------- --------
Total revenue $147,350 $ 87,245 $ 15,400 $249,995
======== ======== ======== ========
Operating income (loss) $ 23,731 $ 20,559 $ (5,572) $ 38,718
Interest expense -- -- 7,563 7,563
-------- -------- -------- --------
Earnings (loss) before income taxes $ 23,731 $ 20,559 $(13,135) $ 31,155
======== ======== ======== ========
-4-
(In thousands) Flavors & Corporate &
Fragrances Color Other Consolidated
---------- ---------- ----------- ------------
Six months ended June 30, 2003:
- -------------------------------
Revenues from external customers $ 282,062 $ 183,979 $ 30,984 $ 497,025
Intersegment revenues 11,657 7,083 -- 18,740
---------- ---------- ---------- ----------
Total revenue $ 293,719 $ 191,062 $ 30,984 $ 515,765
========== ========== ========== ==========
Operating income (loss) $ 42,284 $ 41,827 $ (10,484) $ 73,627
Interest expense -- -- 14,817 14,817
---------- ---------- ---------- ----------
Earnings (loss) before income taxes $ 42,284 $ 41,827 $ (25,301) $ 58,810
========== ========== ========== ==========
Assets $ 655,620 $ 588,960 $ 152,162 $1,396,742
========== ========== ========== ==========
Six months ended June 30, 2002:
- -------------------------------
Revenues from external customers $ 270,883 $ 152,667 $ 29,149 $ 452,699
Intersegment revenues 10,349 10,466 -- 20,815
---------- ---------- ---------- ----------
Total revenue $ 281,232 $ 163,133 $ 29,149 $ 473,514
========== ========== ========== ==========
Operating income (loss) $ 42,668 $ 38,348 $ (9,763) $ 71,253
Interest expense -- -- 15,179 15,179
---------- ---------- ---------- ----------
Earnings (loss) before income taxes $ 42,668 $ 38,348 $ (24,942) $ 56,074
========== ========== ========== ==========
Assets $ 562,224 $ 499,711 $ 119,207 $1,181,142
========== ========== ========== ==========
4. Acquisitions
During the first six months of 2003, the Company acquired certain assets of
Kyowa Koryo Kagaku Kabushiki Kaisha, a former Japanese flavor producer, for
$4.1 million (net of cash acquired). The Company has not completed the
purchase price allocation related to the acquisition.
During the first six months of 2002, the Company acquired three businesses
for cash in an aggregate amount of $43.4 million (net of cash acquired).
The businesses acquired were 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 (approximately $5.3
million) of additional cash consideration for the 2002 acquisitions subject
to specific performance targets in the first two years following the
acquisitions.
5. Shareholders' Equity Disclosures
During the six months ended June 30, 2003, the Company repurchased 0.5
million shares of its common stock for an aggregate price of $9.7 million.
The Company did not repurchase any shares of its common stock during the
six months ended June 30, 2002.
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 June 30, 2003 and 2002 was
$39.6 million and $27.7 million, respectively. Total comprehensive income
for the six months ended June 30, 2003 and 2002 was $60.2 million and $44.9
million, respectively.
6. Stock Plans
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." Stock options are granted at prices equal to the
fair value of the Company's common stock on the dates of grant.
Accordingly, no significant compensation cost has been recognized for the
grant of stock options under the Company's stock option plans. If the
Company had elected to recognize compensation cost based on the fair value
of the options granted at grant
-5-
date as prescribed by SFAS No. 123, net earnings and earnings per common
share would have been reduced to the pro forma amounts indicated below:
Three Months Six Months
Ended June 30, Ended June 30,
------------------------ ------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net earnings:
As reported $ 21,669 $ 21,185 $ 42,131 $ 38,130
Add: reported stock compensation
expense - net of tax 126 147 258 253
Less: fair value stock compensation
expense - net of tax (643) (394) (1,262) (1,094)
---------- ---------- ---------- ----------
Pro forma net earnings $ 21,152 $ 20,938 $ 41,127 $ 37,289
========== ========== ========== ==========
Earnings per common share:
Basic as reported $ .46 $ .44 $ .90 $ .80
Less: net impact of fair value stock
expense - net of tax (.01) -- (.02) (.01)
---------- ---------- ---------- ----------
Basic pro forma $ .45 $ .44 $ .88 $ .79
Diluted as reported $ .46 $ .44 $ .89 $ .80
Less: net impact of fair value stock
expense - net of tax (.01) (.01) (.02) (.02)
---------- ---------- ---------- ----------
Diluted pro forma $ .45 $ .43 $ .87 $ .78
7. Cash Flows from Operating Activities
Cash flows from operating activities are detailed below:
Six Months Ended June 30,
-------------------------
2003 2002
-------- --------
Cash flows from operating activities:
Net earnings $ 42,131 $ 38,130
Adjustments to arrive at net cash provided
by operating activities:
Depreciation and amortization 22,203 19,709
Gain on sale of assets (1,551) (315)
Changes in operating assets and liabilities (net of
effects of acquisitions of businesses) (44,940) (6,694)
-------- --------
Net cash provided by operating activities $ 17,843 $ 50,830
======== ========
8. Guarantees
In connection with the sale of substantially all of the Company's Yeast
business on February 23, 2001, the Company has provided the buyer of these
operations with indemnification against certain potential liabilities as is
customary in transactions of this nature. The period provided for
indemnification against most types of claims has now expired, but for
specific types of claims including, but not limited to tax and
environmental liabilities, the amount of time provided for indemnification
is either five years or the applicable statute of limitations. The maximum
amount of the Company's liability related to these provisions is capped at
approximately 35% of the consideration received in the transaction. In
cases where the Company believes it is probable that payments will be
required under these provisions, a liability was recognized at the time of
the asset sale. The Company believes that the probability of incurring
payments under these provisions in excess of the amount of the liability
recorded is remote.
-6-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Revenue for the quarter ended June 30, 2003 increased by 9.3% to
$261.9 million from $239.6 million for the comparable quarter of
2002. For the six months ended June 30, 2003, revenue increased by
9.8% to $497.0 million. Revenue for the Flavors & Fragrances segment
increased by 4.6% for the quarter and by 4.4% for the six months
ended June 30, 2003 over the comparable periods last year. The Color
segment increased revenue by 16.3% for the quarter and by 17.1% for
the six months ended June 30, 2003 over the comparable periods last
year. Additional information on group results can be found in the
Segment Information section.
The gross profit margin was 32.4% and 32.7% for the three months
ended June 30, 2003 and 2002, respectively. For the six months ended
June 30, 2003 and 2002, the gross profit margin was 32.7% and 32.9%,
respectively.
Selling and administrative expenses as a percent of revenue were
17.6% and 16.5% for the three months ended June 30, 2003 and 2002,
respectively. Selling and administrative expenses as a percent of
revenue were 17.9% and 17.2% for the six months ended June 30, 2003
and 2002, respectively. The increase was primarily attributable to
expenses related to personnel changes and additions to manage the
expanded size and scope of the Company's businesses after the recent
acquisitions.
Operating income for the three months ended June 30, 2003 was $38.7
million, which was consistent with the prior year. Operating income
for the six months ended June 30, 2003 was $73.6 million, an increase
of 3.3% from $71.3 million for the comparable period last year.
Favorable foreign exchange rates increased both revenue and operating
income by approximately 6%, for the three month and six month periods
ended June 30, 2003 over the comparable period last year.
Interest expense for the three months ended June 30, 2003 was
consistent with the prior year at $7.6 million. For the six months
ended June 30, 2003, interest expense was $14.8 million, a decrease
of 2.4% 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 was 30.4% and 32.0% for the three
months ended June 30, 2003 and 2002, respectively. The effective
income tax rate was 28.4% and 32.0% for the six months ended June 30,
2003 and 2002, respectively. The effective tax rate for the three and
six months ended June 30, 2003 was reduced by the favorable
settlement of certain prior year tax matters and other nominal
adjustments. Management expects the effective tax rate for the
remainder of 2003 to be between 31% and 32%.
SEGMENT INFORMATION
Flavors & Fragrances -
For the three months ended June 30, 2003, the Flavors & Fragrances
segment reported a 4.6% increase in revenue, to $154.2 million
compared to $147.4 million for the same period last year. Favorable
foreign exchange rates resulted in a 6.3% increase in revenue.
Excluding exchange rates, revenue decreased 1.7%, or $2.5 million,
primarily the result of declines in the flavors business in Mexico
($0.5 million) and the fragrance business in Spain ($1.5 million).
Operating income in the quarter ended June 30, 2003 was $22.3 million
compared to $23.7 million last year. Excluding the favorable effect
of exchange rates ($1.2 million), the decrease was attributable
equally to the businesses in Mexico and Spain previously mentioned.
Operating income as a percent of revenue was 14.4%, a decrease of 170
basis points from the comparable quarter last year, primarily due to
the reasons stated above.
For the six months ended June 30, 2003, the Flavors & Fragrances
segment reported a 4.4% increase in revenue, to $293.7 million
compared to $281.2 million for the same period last year. Favorable
foreign exchange rates and acquisitions resulted in a 5.8% and 1.3%
increase in revenue, respectively. Excluding exchange rates and
acquisitions, revenue decreased 2.7%, or $7.5 million, primarily as a
result of soft U.S. demand for flavors ($6.9 million) and lower sales
of fragrance products in Spain ($1.9 million) partially offset
-7-
by revenue growth in Canada ($1.3 million). Operating income for the
six months ended June 30, 2003 was $42.3 million compared to $42.7
million last year. Favorable foreign exchange rates and acquisitions
resulted in a 4.4% and 1.6% increase in operating income,
respectively. Excluding the effect of exchange rates ($1.8 million)
and acquisitions ($0.7 million), the $2.9 million decrease was
attributable to declines in Spain ($1.9 million) and Mexico ($1.2
million). Operating income as a percent of revenue was 14.4%, a
decrease of 80 basis points from the comparable period last year, for
the same reasons mentioned above.
Color -
For the three months ended June 30, 2003, revenue for the Color
segment increased by $14.2 million, or 16.3% to $101.5 million.
Favorable foreign exchange rates and acquisitions resulted in a 6.0%
and 2.0% increase in revenue, respectively. Excluding exchange rates
and acquisitions, revenue increased 8.3% or $7.3 million, primarily
the result of increased Technical Colors sales ($3.1 million) and
higher sales in Latin America ($2.0 million). Operating income for
the three months ended June 30, 2003 was $21.6 million versus $20.6
million from the comparable period last year. Excluding the favorable
effect of exchange rates ($1.1 million) and acquisitions ($0.3
million), the resulting decrease in operating income was attributable
to transitional expenses required to grow the business and to pursue
new product opportunities in the North American Food and Technical
Colors businesses. Operating income as a percent of revenue was
21.3%, a decrease of 230 basis points from the comparable quarter
last year, primarily due to the reasons provided above.
For the six months ended June 30, 2003, revenue for the Color segment
increased by $27.9 million, or 17.1% to $191.1 million. Favorable
foreign exchange rates and acquisitions resulted in a 5.6% and 3.7%
increase in revenue, respectively. Excluding exchange rates and
acquisitions, revenue increased 7.8% or $12.7 million, primarily the
result of increased Technical Colors and North American Food Colors
sales ($5.3 million and $1.9 million, respectively) and increased
sales in Latin America ($3.5 million). Excluding exchange rates and
acquisitions, each Color business segment grew revenue during the
three and six months ended June 30, 2003. Operating income for the
six months ended June 30, 2003 was $41.8 million versus $38.3 million
from the comparable period last year. Excluding the favorable effect
of exchange rates ($2.1 million) and acquisitions ($1.4 million),
operating income was unchanged compared to last year. Operating
income as a percent of revenue was 21.9%, a decrease of 160 basis
points from the comparable period last year, primarily attributable
to transitional expenses required to grow the business and to pursue
new product opportunities in the North American Food and Technical
Colors businesses.
FINANCIAL CONDITION
The Company's ratio of debt to total capital was 53.4% as of June 30,
2003, up from 52.8% as of December 31, 2002. The increase resulted
from an increase in debt needed to fund capital expenditures and
treasury stock purchases.
Net cash provided by operating activities was $17.8 million for the
six months ended June 30, 2003, compared to $50.8 million for the six
months ended June 30, 2002. The decrease in cash provided by
operating activities was primarily due to increased levels of
inventories and receivables. Net cash decreased $9 million from the
increase in receivables from the growth in revenue. Net cash
decreased $19 million from the increase in inventories, with $9.8
million related to dehydrated product inventories and the remainder
primarily a result of inventories increased from manufacturing
consolidation plans for three different locations, which are all
expected to be substantially completed by the end of 2003.
Net cash used in investing activities was $38.9 million for the six
months ended June 30, 2003 compared to $53.1 million in the
comparable period last year. Net cash used in investing activities in
2003 included capital expenditures of $37.3 million and acquisitions
of $4.1 million. Cash used in investing activities in 2002 included
acquisitions of $43.4 million and capital expenditures of $13.3
million. The increase in capital expenditures is related primarily to
European projects. Management expects capital expenditures for 2003
to be between $60 million and $70 million based on current exchange
rates.
Net cash provided by financing activities was $26.1 million for the
six months ended June 30, 2003, compared to $0.3 million of net cash
used in the comparable period in the prior year. Net borrowings were
$45.6 million in 2003 compared to net borrowings of $2.7 million in
2002. During 2003, the borrowings were used to fund capital
expenditures, treasury stock purchases and acquisitions. During 2002,
net borrowings
-8-
were used to fund acquisitions. Dividends of $13.8 million and $12.6
million were paid during the six months ended June 30, 2003 and 2002,
respectively.
The Company increased its quarterly cash dividend per share from
$.1325 to $.14 per share effective in December 2002. In addition, the
Company raised its quarterly dividend to 15 cents per share effective
in April 2003. As a result of these increases, the annual dividend
has grown from $.53 to $.60 per share since the third quarter of
2002.
The Company's financial position remains strong. Its expected cash
flows from operations and existing lines of credit can be used to
meet future cash requirements for operations, capital expansion
programs and dividend payments to shareholders.
CRITICAL ACCOUNTING POLICIES
In preparing the financial statements in accordance with accounting
principles generally accepted in the U.S., management is required to
make estimates and assumptions that have an impact on the assets,
liabilities, revenue, and expense amounts reported. These estimates
can also affect supplemental information disclosures of the Company,
including information about contingencies, risk, and financial
condition. The Company believes, given current facts and
circumstances, its estimates and assumptions are reasonable, adhere
to accounting principles generally accepted in the U.S., and are
consistently applied. Inherent in the nature of an estimate or
assumption is the fact that actual results may differ from estimates
and estimates may vary as new facts and circumstances arise. The
Company makes routine estimates and judgments in determining the net
realizable value of accounts receivable, inventories, property, plant
and equipment, and prepaid expenses. In addition to these estimates
and judgments, management believes the Company's most critical
accounting estimates and assumptions are in the following areas:
Goodwill Valuation
The Company reviews the carrying value of goodwill annually utilizing
several valuation methodologies, including a discounted cash flow
model. Changes in estimates of future cash flows caused by items such
as unforeseen events or changes in market conditions, could
negatively affect the reporting segment's fair value and result in an
impairment charge. However, the current fair values of the reporting
segments are significantly in excess of carrying values, and
accordingly management believes that only significant changes in the
cash flow assumptions would result in impairment.
Income Taxes
The Company files income tax returns and estimates its income tax
expense in each of the taxing jurisdictions in which it operates. The
Company is subject to a tax audit in each of these jurisdictions,
which could result in changes to the estimated tax expense. The
amount of these changes would vary by jurisdiction and would be
recorded when known. These changes could be significant to the
Company's financial statements. Management has recorded valuation
allowances to reduce its deferred tax assets to the amount that is
more likely than not to be realized. In doing so, management has
considered future taxable income and ongoing tax planning strategies
in assessing the need for the valuation allowance. An adjustment to
the recorded valuation allowance as a result of changes in facts or
circumstances could result in a significant change in the Company's
tax expense.
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 June 30, 2003. For additional information on
market risk, refer to pages 25 and 26 of the Company's 2002 Annual
Report, portions of which were filed as Exhibit 13.1 to the Company's
Form 10-K for the year ended December 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains a system of disclosure controls and procedures
that is designed to 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
-9-
procedures as of the end of the period covered by this report, 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 STATEMENTS
This document contains forward-looking statements that reflect
management's current assumptions and estimates of future economic
circumstances, industry conditions, Company performance and financial
results. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for such forward-looking statements. Such
forward-looking statements are not guarantees of future performance
and involve known and unknown risks, uncertainties and other factors
that could cause actual events to differ materially from those
expressed in those statements. A variety of factors could cause the
Company's actual results and experience to differ materially from the
anticipated results. These factors and assumptions include the pace
and nature of new product introductions by the Company's customers;
execution of the Company's acquisition program and results of newly
acquired businesses; the Company's ability to successfully implement
its growth strategies; industry and economic factors related to the
Company's domestic and international business; growth in markets for
products in which the Company competes; industry acceptance of price
increases; currency exchange rate fluctuations; and the matters
discussed above under Item 2 including the critical accounting
policies described therein. The Company does not undertake to
publicly update or revise its forward-looking statements even if
experience or future changes make it clear that any projected results
expressed or implied therein will not be realized.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
At a meeting held on July 17, 2003, the Board of Directors
authorized the redemption of the rights issued pursuant to the
Company's Shareholder Rights Plan. Under the rights plan, one
right is attached to each outstanding share of common stock. The
rights will be redeemed at a price of $.01 per right, payable in
cash. The redemption payment will be payable on September 3, 2003
to shareholders of record on August 25, 2003, along with the $.15
per share quarterly dividend payment.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 2003 Annual Meeting of Shareholders, held on
April 24, 2003, the following actions were taken:
- The following Directors were elected for terms of office
expiring April 2006:
Votes For Votes Withheld
--------- --------------
John F. Bergstrom 41,050,488 962,671
William V. Hickey 39,868,159 2,144,999
Kenneth P. Manning 39,971,309 2,041,849
Pursuant to the terms of the Company's Proxy Statement,
proxies received were voted, unless authority was withheld,
in favor of the nominees.
The terms of office of the following Directors continued
after the meeting: Richard A. Abdoo, Michael E. Batten, Dr.
Fergus M. Clydesdale, James A. D. Croft, Alberto Fernandez,
Robert J. O'Toole and Essie Whitelaw.
- A proposal by the Board of Directors to ratify the
appointment of Deloitte & Touche LLP as the Company's
independent auditors to conduct the annual audit of the
consolidated financial statements of the Company and its
subsidiaries for the year ending December 31, 2003 was
approved by the shareholders. The shareholders cast
39,657,203 votes in favor of this proposal, 2,163,501 votes
against, and there were 192,455 votes to abstain.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. (See Exhibit Index following this report.)
(b) Reports on Form 8-K. A report on Form 8-K was filed on April
17, 2003 to disclose earnings for the quarter ended March 31,
2003; a report on Form 8-K was filed on July 16, 2003 to
disclose earnings for the quarter ended June 30, 2003; and a
report on Form 8-K was filed on July 17, 2003 to announce the
redemption of the Company's shareholder rights plan.
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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: August 13, 2003 By: /s/ John L. Hammond
----------------------------------------
John L. Hammond, Vice President,
Secretary & General Counsel
Date: August 13, 2003 By: /s/ Richard F. Hobbs
----------------------------------------
Richard F. Hobbs, Vice President, Chief
Financial Officer & Treasurer
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SENSIENT TECHNOLOGIES CORPORATION
EXHIBIT INDEX
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2003
Exhibit Description Incorporated by Reference From Filed Herewith
- ------- ----------- ------------------------------ --------------
10.1 Amendment No. 2 to the Sensient Technologies X
Corporation Directors' Deferred Compensation Plan.
31 Certification of Sensient's Chairman, President & X
Chief Executive Officer and Vice President, Chief
Financial Officer & Treasurer pursuant to Rule
13a-14(a) of the Exchange Act.
32 Certification of Sensient's Chairman, President & X
Chief Executive Officer and Vice President, Chief
Financial Officer & Treasurer pursuant to 18
United States Codess.1350
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