UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10‑Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2018

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 incorporation or organization)	(I.R.S. Employer 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

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 for 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 ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ☒	Accelerated filer ☐	Non-accelerated filer ☐
Smaller reporting company ☐	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes☐         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, 2018
Common Stock, par value $0.10 per share	42,275,048

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, 2018 and 2017.	1
		Consolidated Condensed Statements of Comprehensive Income - Three and Nine Months Ended September 30, 2018 and 2017.	2
		Consolidated Condensed Balance Sheets - September 30, 2018 and December 31, 2017.	3
		Consolidated Condensed Statements of Cash Flows - Nine Months Ended September 30, 2018 and 2017.	4
		Notes to Consolidated Condensed Financial Statements.	5
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	16
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	22
	Item 4.	Controls and Procedures.	22
PART II. OTHER INFORMATION:
	Item 1.	Legal Proceedings.	23
	Item 1A.	Risk Factors.	24
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	24
	Item 6.	Exhibits.	24
		Exhibit Index.	25
		Signatures.	26

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 Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018		2017
Revenue	$	342,734		$	353,519	$	1,062,252	$	1,033,391
Cost of products sold		227,161			230,784		702,138		670,486
Selling and administrative expenses		65,309			70,725		201,988		242,478
Operating income		50,264			52,010		158,126		120,427
Interest expense		5,407			4,946		16,517		14,474
Earnings before income taxes		44,857			47,064		141,609		105,953
Income taxes (benefit)		(2,336	)		14,851		17,099		29,774
Net earnings	$	47,193		$	32,213	$	124,510	$	76,179
Weighted average number of shares outstanding:
Basic		42,240			43,624		42,464		43,947
Diluted		42,313			43,864		42,571		44,209
Earnings per common share:
Basic	$	1.12		$	0.74	$	2.93	$	1.73
Diluted	$	1.12		$	0.73	$	2.92	$	1.72
Dividends declared per common share	$	0.33		$	0.30	$	0.99	$	0.90

See accompanying notes to consolidated condensed financial statements.

1

SENSIENT TECHNOLOGIES CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Comprehensive Income	$	47,961	$	44,599	$	112,496	$	141,053

See accompanying notes to consolidated condensed financial statements.

2

SENSIENT TECHNOLOGIES CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands)

ASSETS	September 30, 2018 (Unaudited)			December 31, 2017
CURRENT ASSETS:
Cash and cash equivalents	$	36,760		$	29,344
Trade accounts receivable, net		271,268			195,439
Inventories		484,811			463,517
Prepaid expenses and other current assets		40,152			43,206
Assets held for sale		1,903			1,969
TOTAL CURRENT ASSETS		834,894			733,475
OTHER ASSETS		67,178			68,251
DEFERRED TAX ASSETS		10,868			7,885
INTANGIBLE ASSETS, NET		12,843			7,211
GOODWILL		422,953			408,995
PROPERTY, PLANT AND EQUIPMENT:
Land		37,043			35,198
Buildings		319,969			317,464
Machinery and equipment		707,662			687,896
Construction in progress		39,140			40,833
		1,103,814			1,081,391
Less accumulated depreciation		(611,643	)		(582,868	)
		492,171			498,523
TOTAL ASSETS	$	1,840,907		$	1,724,340
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable	$	97,027		$	109,780
Accrued salaries, wages and withholdings from employees		22,215			23,613
Other accrued expenses		51,842			51,764
Income taxes		2,994			11,036
Short-term borrowings		20,096			20,130
TOTAL CURRENT LIABILITIES		194,174			216,323
DEFERRED TAX LIABILITIES		24,638			18,724
OTHER LIABILITIES		7,820			13,539
ACCRUED EMPLOYEE AND RETIREE BENEFITS		22,094			19,294
LONG‑TERM DEBT		746,012			604,159
SHAREHOLDERS' EQUITY:
Common stock		5,396			5,396
Additional paid‑in capital		102,703			107,176
Earnings reinvested in the business		1,497,218			1,414,485
Treasury stock, at cost		(597,800	)		(525,422	)
Accumulated other comprehensive loss		(161,348	)		(149,334	)
TOTAL SHAREHOLDERS’ EQUITY		846,169			852,301
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,840,907		$	1,724,340

See accompanying notes to consolidated condensed financial statements.

3

SENSIENT TECHNOLOGIES CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2018			2017
Cash flows from operating activities:
Net earnings	$	124,510		$	76,179
Adjustments to arrive at net cash provided by operating activities:
Depreciation and amortization		39,057			36,626
Share-based compensation		1,541			6,296
Net loss on assets		311			1,371
Loss on divestiture of businesses		-			33,160
Deferred income taxes		3,152			(9,087	)
Changes in operating assets and liabilities		(159,711	)		(122,386	)
Net cash provided by operating activities		8,860			22,159
Cash flows from investing activities:
Acquisition of property, plant and equipment		(34,090	)		(32,825	)
Cash receipts on sold receivables		91,142			86,229
Proceeds from sale of assets		283			5,444
Proceeds from divestiture of businesses		-			12,457
Acquisition of new businesses		(31,100	)		-
Other investing activity		616			2,396
Net cash provided by investing activities		26,851			73,701
Cash flows from financing activities:
Proceeds from additional borrowings		248,426			188,387
Debt payments		(158,214	)		(190,164	)
Purchase of treasury stock		(76,734	)		(64,486	)
Dividends paid		(42,195	)		(39,696	)
Other financing activity		(2,777	)		(988	)
Net cash used in financing activities		(31,494	)		(106,947	)
Effect of exchange rate changes on cash and cash equivalents		3,199			9,876
Net increase (decrease) in cash and cash equivalents		7,416			(1,211	)
Cash and cash equivalents at beginning of period		29,344			25,865
Cash and cash equivalents at end of period	$	36,760		$	24,654

See accompanying notes to consolidated condensed financial statements.

4

SENSIENT TECHNOLOGIES CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Accounting Policies

In the opinion of Sensient Technologies Corporation (the “Company”), the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring adjustments) that are necessary to present fairly the financial position of the Company as of September 30, 2018, and the results of operations and comprehensive income for the three and nine months ended September 30, 2018 and 2017, respectively, and cash flows for the nine months ended September 30, 2018 and 2017, respectively. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Expenses are charged to operations in the period incurred.

Please refer to the notes in the Company’s annual consolidated financial statements for the year ended December 31, 2017, for additional details of the Company’s financial condition and a description of the Company’s accounting policies, which have been continued without change except for the Company’s Revenue Recognition accounting policy, which has been updated as a result of the Company’s adoption in the first quarter of 2018 of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, as noted below.

Revenue Recognition

The Company recognizes revenue as 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. In order to achieve this core principle, the Company applies the following five-step approach:

· Identification of the contract, or contracts, with a customer

· Identification of the performance obligations in the contract

· Determination of the transaction price

· Allocation of the transaction price to the performance obligations in the contract

· Recognition of revenue when, or as, we satisfy the performance obligations

The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with the customer. For each contract, the Company considers the identified performance obligation to be the promise to transfer products. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment and then determines the net consideration to which the Company expects to be entitled. In addition, the Company assesses the customer’s ability to pay as part of its evaluation of the contract. As the Company’s standard payment terms are less than one year, the Company elected the practical expedient under Accounting Standards Codification (ASC) 606-10-32-18, and determined that its contracts do not have a significant financing component. The Company allocates the transaction price to each distinct product based on the relative standalone selling price. 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. In certain locations, primarily outside the United States, product shipping terms may vary. Thus, in such locations, the point at which control of the product transfers to the customer and revenue recognition occurs will vary accordingly.

Customer returns of non-conforming products are estimated at the time revenue is recognized. In certain customer relationships, volume rebates exist, which are recognized according to the terms and conditions of the contractual relationship. Customer returns, rebates, and discounts are not material to the Company’s consolidated financial statements. The Company has elected to recognize the revenue and cost for freight and shipping when control over the products has transferred to the customer. The Company has elected to immediately expense contract costs related to obtaining a contract as the amortization period of the asset the Company otherwise would have recognized would have been less than a year.

5

The Company disaggregates its revenue from customers by certain product lines and geographic locations for the Flavors & Fragrances and Color segments. Revenue for the Asia Pacific segment is managed on a geographic basis. For more information on the Company’s disaggregated revenue, see Note 4, Segment Information.

New Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, Revenue from Contracts with Customers. Under this new standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The requirements of the new standard are effective for interim and annual periods beginning after December 15, 2017. The Company adopted this standard in the first quarter of 2018 using the modified retrospective method. The adoption of this new standard did not have an impact on the revenue recognized by the Company. The Company has updated its revenue recognition accounting policy, as outlined above, and has included a disclosure on its disaggregated revenue in Note 4, Segment Information. Additionally, the Company has included a discussion of its disaggregated revenue under Segment Information, in its Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize the lease assets and liabilities that arise from leases on the balance sheet and to disclose qualitative and quantitative information about lease transactions. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In 2017, the Company created a project team within its Corporate Finance Department to review the impact that this ASU will have on the Company. In the first nine months of 2018, the project team has gathered and reviewed existing leases and other relevant documents across all of the Company’s segments and installed a software solution to facilitate the implementation of this new standard. The Company believes it has a complete population of leasing agreements and has analyzed the agreements. The Company has also implemented additional internal controls over the evaluation of new leases and the implementation of this ASU around leases. The Company has updated its Audit Committee on the status of the implementation of this ASU. The Company’s current estimate of the impact of this ASU on the Company’s Consolidated Financial Statements is the recognition of lease assets and liabilities in the range of $17 million to $22 million based on current interest rates and population of leases. The Company will continue to evaluate this range and the impact on the Company’s Consolidated Financial Statements. The Company expects to complete this evaluation by the end of the year and to finalize its implementation calculations in the first quarter of 2019.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. This ASU clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. Among these changes, is a requirement that a transferor’s receipt of a beneficial interest in securitized trade receivables be disclosed as an investing transaction. There is also a requirement to classify cash receipts received that are related to beneficial interests in previously transferred receivables (i.e., deferred purchase price) as inflows from investing activities. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company adopted this standard in the first quarter of 2018, using monthly cash receipts as its unit of account for cash received related to the beneficial interest in previously transferred receivables.  In the second quarter of 2018, the Company updated its unit of account to daily cash receipts for cash received related to the beneficial interest in the previously transferred receivables.  The Company has included $91 million and $86 million as cash flows from investing activities for the nine month periods ended September 30, 2018 and 2017, respectively, related to collections on beneficial interests in previously transferred receivables.

In December 2016, the FASB issued ASU 2016-16, Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory. Prior to the adoption of ASU 2016-16, the tax effects of intra-entity asset transfers were deferred until the transferred asset was sold to a third party or otherwise recovered through use. ASU 2016-16 eliminates the exception for all intra-entity sales of assets other than inventory. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those years. The Company adopted this standard in the first quarter of 2018 resulting in a cumulative effect of $0.4 million increase to Earnings reinvested in the business; an increase of $3.0 million to Deferred Tax Assets; a decrease of $3.7 million to Prepaid Expense and Other Current Assets; and a decrease of $1.1 million to Deferred Tax Liabilities on the Company’s Consolidated Condensed Balance Sheet.

6

In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU requires employers to present the service cost component of the net periodic benefit cost in the same income statement line item as the other employee compensation costs arising from services rendered during the period. The other components of net periodic benefit cost are to be presented outside of any subtotal of operating income. This ASU is effective for fiscal years and interim periods beginning after December 15, 2017. The Company adopted this standard in the first quarter of 2018, and as a result, the Company’s non-service cost portion of its pension expense is now recorded in Interest Expense on the Company’s Consolidated Condensed Statement of Earnings. The Company’s service cost portion of pension expense is recorded in Selling and Administrative Expenses on the Company’s Consolidated Condensed Statement of Earnings. This change did not have a material impact on the Company’s consolidated financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, which expands an entity’s ability to hedge non-financial and financial risk components and reduce complexity in fair value hedges of interest rate risk. This guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line item as the hedged item. This ASU is effective for fiscal years and interim periods beginning after December 15, 2018. The Company is currently evaluating the expected impact of this standard.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU allows entities the option to reclassify to retained earnings tax effects related to the change in federal tax rate for all items accounted for in Accumulated Other Comprehensive Income (OCI). This ASU is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating whether the Company will make this policy election.

Please refer to the notes in the Company’s annual consolidated financial statements for the year ended December 31, 2017, for additional details of the Company’s financial condition and a description of the Company’s accounting policies, which have been continued without change, except as discussed above.

2. Acquisitions

On July 10, 2018, the Company completed the acquisition of Mazza Innovation Limited, a botanical extraction business with patented solvent-free extraction processes, located in Vancouver, Canada. The Company paid $19.8 million of cash for this acquisition. The assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The purchase price exceeded the carrying value of the net assets by approximately $15 million. The excess was allocated to intangible assets, principally goodwill. The Company is in the process of quantifying the identifiable intangible assets and anticipates completing this analysis in the fourth quarter of 2018. This business is included in Corporate & Other.

On March 9, 2018, the Company completed the acquisition of certain net assets and the natural color business of GlobeNatural, a natural food and ingredient company based in Lima, Peru. The Company paid $10.8 million of cash for this acquisition. The Company acquired net assets of $2.1 million and identified intangible assets, principally customer relationships of $2.0 million, and allocated the remaining $6.7 million to goodwill. These operations are included in the Color segment.

3. Fair Value

Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, defines fair value for financial assets and liabilities, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. As of September 30, 2018, and December 31, 2017, the Company’s assets and liabilities subject to this standard are forward exchange contracts and investments in a money market fund and municipal investments. The fair value of the forward exchange contracts based on current pricing obtained for comparable derivative products (Level 2 inputs) was a liability of $0.1 million and $0.6 million as of September 30, 2018, and December 31, 2017, respectively. The fair value of the investments based on market quotes (Level 1 inputs) as of September 30, 2018, and December 31, 2017, was an asset of $0.1 million in both periods and is reported in Other Assets in the Company's Consolidated Condensed Balance Sheets.

7

The carrying values of the Company’s cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses, and short-term borrowings were approximately the same as the fair values as of September 30, 2018. The fair value of the Company’s long-term debt, including current maturities, is estimated using discounted cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements (Level 2 inputs). The carrying value of the long-term debt at September 30, 2018, was $746.0 million. The fair value of the long-term debt at September 30, 2018, was $754.3 million.

4. Segment Information

Operating results by segment for the periods presented are as follows:

(In thousands)	Flavors & Fragrances			Color		Asia Pacific		Corporate & Other			Consolidated
Three months ended September 30, 2018:
Revenue from external customers	$	179,103		$	132,187	$	31,275	$	169		$	342,734
Intersegment revenue		5,294			2,774		-		-			8,068
Total revenue	$	184,397		$	134,961	$	31,275	$	169		$	350,802
Operating income (loss)	$	24,814		$	27,269	$	5,750	$	(7,569	)	$	50,264
Interest expense		-			-		-		5,407			5,407
Earnings (loss) before income taxes	$	24,814		$	27,269	$	5,750	$	(12,976	)	$	44,857
Three months ended September 30, 2017:
Revenue from external customers	$	191,063		$	129,899	$	32,557	$	-		$	353,519
Intersegment revenue		4,929			3,324		151		-			8,404
Total revenue	$	195,992	1	$	133,223	$	32,708	$	-		$	361,923
Operating income (loss)	$	33,006		$	28,624	$	5,780	$	(15,400	)	$	52,010
Interest expense		-			-		-		4,946			4,946
Earnings (loss) before income taxes	$	33,006		$	28,624	$	5,780	$	(20,346	)	$	47,064

(In thousands)	Flavors & Fragrances		Color		Asia Pacific		Corporate & Other			Consolidated
Nine months ended September 30, 2018:
Revenue from external customers	$	553,403	$	416,617	$	92,063	$	169		$	1,062,252
Intersegment revenue		17,998		9,795		-		-			27,793
Total revenue	$	571,401	$	426,412	$	92,063	$	169		$	1,090,045
Operating income (loss)	$	74,142	$	92,074	$	15,256	$	(23,346	)	$	158,126
Interest expense		-		-		-		16,517			16,517
Earnings (loss) before income taxes	$	74,142	$	92,074	$	15,256	$	(39,863	)	$	141,609
Nine months ended September 30, 2017:
Revenue from external customers	$	552,874	$	389,992	$	90,525	$	-		$	1,033,391
Intersegment revenue		15,549		10,191		764		-			26,504
Total revenue	$	568,423	$	400,183	$	91,289	$	-		$	1,059,895
Operating income (loss)	$	90,278	$	87,913	$	14,750	$	(72,514	)	$	120,427
Interest expense		-		-		-		14,474			14,474
Earnings (loss) before income taxes	$	90,278	$	87,913	$	14,750	$	(86,988	)	$	105,953

8

In July 2018, the Company completed the acquisition of Mazza Innovation Limited (See Note 2, Acquisitions, for further information). This acquisition provides the Company with an umbrella technology, which will support applications for both the Flavors & Fragrances and Color segments. The Company is in the process of integrating this business, and therefore, the Company has included its results in Corporate & Other. The Company evaluates performance based on operating income of the respective segments before restructuring and other costs, interest expense, and income taxes. The 2017 restructuring and other costs are reported in Corporate & Other. The 2017 other costs pertain to the costs associated with the Company’s divestiture of a facility and certain related business lines within the Flavors & Fragrances business in Strasbourg, France. There have been no restructuring and other costs in 2018.

In addition to evaluating the Company’s performance based on the segments above, revenue is also disaggregated and analyzed by product line and geographic market.  The following table displays our revenue by these major sources.

Product Lines

(In thousands)	Flavors & Fragrances			Color			Asia Pacific			Corporate & Other		Consolidated
Three months ended September 30, 2018:
Flavors	$	98,060		$	-		$	-		$	-	$	98,060
Natural Ingredients		58,140			-			-			-		58,140
Fragrances		28,197			-			-			-		28,197
Food & Beverage Colors		-			76,524			-			-		76,524
Cosmetics		-			35,466			-			-		35,466
Other Colors		-			22,971			-			-		22,971
Asia Pacific		-			-			31,275			-		31,275
Corporate & Other		-			-			-			169		169
Intersegment Revenue		(5,294	)		(2,774	)		-			-		(8,068	)
Total revenue from external customers	$	179,103		$	132,187		$	31,275		$	169	$	342,734
Three months ended September 30, 2017:
Flavors	$	113,215		$	-		$	-		$	-	$	113,215
Natural Ingredients		59,851			-			-			-		59,851
Fragrances		22,926			-			-			-		22,926
Food & Beverage Colors		-			70,858			-			-		70,858
Cosmetics		-			38,729			-			-		38,729
Other Colors		-			23,636			-			-		23,636
Asia Pacific		-			-			32,708			-		32,708
Intersegment Revenue		(4,929	)		(3,324	)		(151	)		-		(8,404	)
Total revenue from external customers	$	191,063		$	129,899		$	32,557		$	-	$	353,519

Product Lines

(In thousands)	Flavors & Fragrances			Color			Asia Pacific			Corporate & Other		Consolidated
Nine months ended September 30, 2018:
Flavors	$	322,333		$	-		$	-		$	-	$	322,333
Natural Ingredients		167,538			-			-			-		167,538
Fragrances		81,530			-			-			-		81,530
Food & Beverage Colors		-			230,807			-			-		230,807
Cosmetics		-			121,697			-			-		121,697
Other Colors		-			73,908			-			-		73,908
Asia Pacific		-			-			92,063			-		92,063
Corporate & Other		-			-			-			169		169
Intersegment Revenue		(17,998	)		(9,795	)		-			-		(27,793	)
Total revenue from external customers	$	553,403		$	416,617		$	92,063		$	169	$	1,062,252
Nine months ended September 30, 2017:
Flavors	$	342,367		$	-		$	-		$	-	$	342,367
Natural Ingredients		162,371			-			-			-		162,371
Fragrances		63,685			-			-			-		63,685
Food & Beverage Colors		-			212,741			-			-		212,741
Cosmetics		-			113,077			-			-		113,077
Other Colors		-			74,365			-			-		74,365
Asia Pacific		-			-			91,289			-		91,289
Intersegment Revenue		(15,549	)		(10,191	)		(764	)		-		(26,504	)
Total revenue from external customers	$	552,874		$	389,992		$	90,525		$	-	$	1,033,391

9

Geographic Markets

(In thousands)	Flavors & Fragrances		Color		Asia Pacific		Corporate & Other		Consolidated
Three months ended September 30, 2018:
North America	$	118,690	$	63,850	$	-	$	95	$	182,635
Europe		42,866		34,854		81		74		77,875
Asia Pacific		7,053		15,910		31,032		-		53,995
Other		10,494		17,573		162		-		28,229
Total revenue from external customers	$	179,103	$	132,187	$	31,275	$	169	$	342,734
Three months ended September 30, 2017:
North America	$	131,632	$	59,579	$	-	$	-	$	191,211
Europe		40,891		38,686		178		-		79,755
Asia Pacific		7,042		13,357		31,937		-		52,336
Other		11,498		18,277		442		-		30,217
Total revenue from external customers	$	191,063	$	129,899	$	32,557	$	-	$	353,519

Geographic Markets

(In thousands)	Flavors & Fragrances		Color		Asia Pacific		Corporate & Other		Consolidated
Nine months ended September 30, 2018:
North America	$	364,941	$	191,170	$	-	$	95	$	556,206
Europe		133,257		119,612		111		74		253,054
Asia Pacific		23,144		50,461		91,327		-		164,932
Other		32,061		55,374		625		-		88,060
Total revenue from external customers	$	553,403	$	416,617	$	92,063	$	169	$	1,062,252
Nine months ended September 30, 2017:
North America	$	375,481	$	180,616	$	-	$	-	$	556,097
Europe		125,812		112,796		303		-		238,911
Asia Pacific		20,164		43,158		89,229		-		152,551
Other		31,417		53,422		993		-		85,832
Total revenue from external customers	$	552,874	$	389,992	$	90,525	$	-	$	1,033,391

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5. Inventories

At September 30, 2018, and December 31, 2017, inventories included finished and in-process products totaling $324.7 million and $310.4 million, respectively, and raw materials and supplies of $160.1 million and $153.1 million, respectively.

6. Retirement Plans

The Company’s components of annual benefit cost for the defined benefit plans for the periods presented are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(In thousands)	2018			2017			2018			2017
Service cost	$	366		$	466		$	1,100		$	1,392
Interest cost		282			366			857			1,080
Expected return on plan assets		(236	)		(264	)		(722	)		(778	)
Amortization of actuarial gain		(27	)		(19	)		(81	)		(61	)
Settlement expense		-			-			-			3,797
Total defined benefit expense	$	385		$	549		$	1,154		$	5,430

During the three months ended June 30, 2017, one of the Company’s defined benefit plans was terminated. As a result, the pension benefit obligation was settled by making lump-sum cash payments to certain participants and also purchasing nonparticipating annuity contracts to cover the remaining vested benefits. As a result of this plan’s termination, the Company recognized $3.8 million of settlement expense during the three months ended June 30, 2017, which have been recorded in the Company’s restructuring and other costs. The plan was associated with two facilities that were closed under the Company’s 2014 Restructuring Plan.

As noted in Note 1, Accounting Policies, the Company adopted ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, in the first quarter of 2018. As a result of the adoption of this ASU, the non-service cost portion of the Company’s annual benefit costs summarized above is recorded in Interest Expense in the Company’s Condensed Statement of Earnings. The service cost portion of the Company’s annual benefit costs is recorded in Selling and Administrative Expenses on the Company’s Condensed Statement of Earnings.

7. Shareholders’ Equity

The Company repurchased 60,000 and 1,060,000 shares of its common stock for an aggregate cost of $4.0 million and $76.7 million during the three and nine months ended September 30, 2018, respectively. The Company repurchased 505,085 and 839,734 shares of its common stock for an aggregate cost of $37.7 million and $64.5 million during the three and nine months ended September 30, 2017, respectively. The amounts related to treasury stock purchases reported in the Company’s Consolidated Condensed Statements of Cash Flows represent purchases that settled within each respective nine-month period.

8. Derivative Instruments and Hedging Activity

The Company may use forward exchange contracts and foreign currency denominated debt to manage its exposure to foreign exchange risk in order to reduce the effect of fluctuating foreign currencies on short-term foreign currency denominated intercompany transactions, non-functional currency raw material purchases, non-functional currency sales, and other known foreign currency exposures. These forward exchange contracts generally have maturities of less than 18 months. The Company’s primary hedging activities and their accounting treatment are summarized below.

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Forward exchange contracts – Certain forward exchange contracts have been designated as cash flow hedges. The Company had $79.9 million and $44.9 million of forward exchange contracts designated as hedges outstanding as of September 30, 2018, and December 31, 2017, respectively. For the three months ended September 30, 2018 and 2017, gains reclassified into net earnings in the Company’s Consolidated Condensed Statement of Earnings were immaterial. For the nine months ended September 30, 2018 and 2017, losses of $0.1 million and gains of $0.2 million, respectively, were reclassified into net earnings in the Company’s Consolidated Condensed Statement of Earnings, which offset the earnings impact of the related non-functional asset or liability hedged in the same period. In addition, the Company utilizes forward exchange contracts that are not designated as cash flow hedges; the results of these transactions were not material to the financial statements.

Net investment hedges – The Company has certain debt denominated in Euros, Swiss Francs, and British Pounds. These debt instruments have been designated as partial hedges of the Company’s Euro, Swiss Franc, and British Pound net asset positions. Changes in the fair value of this debt attributable to changes in the spot foreign exchange rate are recorded in foreign currency translation in OCI. As of September 30, 2018, and December 31, 2017, the total value of the Company’s Euro, Swiss Franc, and British Pound debt was $371.3 million and $261.9 million, respectively.  For the three and nine months ended September 30, 2018, the impact of foreign exchange rates on these debt instruments decreased debt by $2.2 million and $8.9 million, respectively, which has been recorded as foreign currency translation in OCI.

9. Income Taxes

The effective income tax rates for the quarters ended September 30, 2018 and 2017, were -5.2% and 31.6%, respectively. For the nine month periods ended September 30, 2018 and 2017, the effective income tax rates were 12.1% and 28.1%, respectively. The effective tax rates in both 2018 and 2017 were impacted by changes in estimates associated with the finalization of prior year foreign and domestic tax items, audit settlements, adjustments to valuation allowances, and the mix of foreign earnings. The 2018 tax rate was also impacted by the 2017 Tax Cuts and Jobs Act, which is commonly referred to as the “2017 Tax Legislation”, including the filing of certain tax elections in the second quarter of 2018, an adjustment made in the current quarter to the provisional amount recorded in 2017 for the impact of the 2017 Tax Legislation, and the tax benefit associated with certain transactions undertaken in the quarter.  These transactions reduced the tax rate by 12.5 and 3.9 percentage points for the three and nine month periods ended September 30, 2018, respectively. The tax rate in 2017 was also impacted by the restructuring activities, the limited tax deductibility of losses related to the Company’s restructuring activities, and the sale of a facility and certain related business lines within the Flavors & Fragrances segment in Strasbourg, France.

Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Legislation. Based on guidance issued by the IRS during the quarter, the Company reduced its 2017 provisional estimate of the impact of the 2017 Tax Legislation by $7.1 million during the current quarter. The reduction is made up of a $4.1 million reduction to the one-time transition tax on earnings of foreign subsidiaries and $3.0 million on the reassessment of the U.S. deferred tax assets and liabilities, including the ability to realize deferred tax assets in the future. The Company is still applying SAB 118, and believes the impact of the 2017 Tax Legislation on the 2018 and 2017 income tax expenses should be considered provisional estimates. The ultimate impact could differ from these provisional amounts, possibly materially, due to additional guidance, changes in interpretation, and additional analysis by the Company.  Any adjustments to the 2018 and 2017 provisional estimates will be reported in income tax expense in the reporting period in which any such adjustments are determined, which will be no later than the fourth quarter of 2018.

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10. Accumulated Other Comprehensive Income

The following table summarizes the changes in OCI during the three and nine month periods ended September 30, 2018:

(In thousands)	Cash Flow Hedges (a)			Pension Items (a)			Foreign Currency Items			Total
Balance as of June 30, 2018	$	(34	)	$	(369	)	$	(161,713	)	$	(162,116	)
Other comprehensive income before reclassifications		(121	)		-			931			810
Amounts reclassified from OCI		(12	)		(30	)		-			(42	)
Balance as of September 30, 2018	$	(167	)	$	(399	)	$	(160,782	)	$	(161,348	)

(In thousands)	Cash Flow Hedges (a)			Pension Items (a)			Foreign Currency Items			Total
Balance as of December 31, 2017	$	(669	)	$	(309	)	$	(148,356	)	$	(149,334	)
Other comprehensive income before reclassifications		404			-			(12,426	)		(12,022	)
Amounts reclassified from OCI		98			(90	)		-			8
Balance as of September 30, 2018	$	(167	)	$	(399	)	$	(160,782	)	$	(161,348	)

(a) Cash Flow Hedges and Pension Items are net of tax.

11. Accounts Receivable Securitization

As previously disclosed, in October 2016, the Company entered into an accounts receivable securitization program with Wells Fargo & Company (Wells Fargo), whereby transactions under the program were accounted for as sales of trade receivables in accordance with ASC Topic 860, Transfers and Servicing, between October 2016 and June 2018. As of September 30, 2018, the commitment size under this program was $60 million. Sales of trade receivables under the program were recorded as a reduction of accounts receivable in the Consolidated Balance Sheet. The fair value of the receivables sold equaled the carrying cost at the time of sale and no gain or loss had been recorded as a result of the sales. The sales also resulted in the recording of a deferred purchase price amount, which represents the retained interest in the sold receivables. This amount was adjusted daily based on collections and other activity. The Company estimated the fair value of the deferred purchase price receivable based on historical performance of similar receivables, including an allowance for doubtful accounts, as well as estimated cash discounts to be taken by customers and potential credits issued to customers. The Company deemed the interest rate risk related to the deferred purchase price receivable to be de minimis primarily due to the short average collection cycle of the related receivables. As of December 31, 2017, the net trade receivables sold to Wells Fargo totaled $96.4 million and the fair value of the deferred purchase price was $36.4 million, which was recorded in Trade Accounts Receivable in the Company’s Consolidated Balance Sheets.

In June 2018, the Company amended its securitization program with Wells Fargo (the “Amendment”). Following the Amendment, the Company no longer accounts for the sales of the trade receivables in accordance with ASC Topic 860 and instead now maintains the trade receivables and related debt on its Consolidated Balance Sheet. In connection with the Amendment, Wells Fargo’s existing ownership interest in the trade receivables was converted into undivided interests in the trade receivables to secure a loan of up to $60 million to the Company and the deferred purchase price was eliminated. As of September 30, 2018, $60 million was borrowed under this agreement. See Note 12, Debt, for further information.

As a result of the Amendment, the Company’s trade account receivables increased by $60 million and the Company’s long-term debt increased by $60 million. This non-cash transaction did not impact the Company’s Consolidated Condensed Statement of Cash Flows during the nine-months ended September 30, 2018.

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In October 2018, the Company amended this program. See Note 16, Subsequent Event, for additional information.

12. Debt

In July 2018, the Company borrowed 50 million British Pounds and 45 million Euros under its revolving credit facility. The interest rate is the one-month LIBOR plus 1.30%. The proceeds were used to repay U.S. dollar denominated borrowings under the Company’s revolving credit facility. This new foreign currency denominated debt serves as a partial hedge of the Company’s net asset positions in British Pounds and Euros. See Note 8, Derivatives and Hedging Activity, for additional information.

In June 2018, the Company amended its accounts receivable securitization program with Wells Fargo. Under the amended program, Wells Fargo has extended a secured loan (the “Secured Loan”) of up to $60 million to the Company secured by Wells Fargo’s undivided interests in certain of the Company’s trade accounts receivables. The interest rate on the Secured Loan is LIBOR plus 0.75%. The Company has the intent and ability either to repay the Secured Loan with available funds from the Company’s existing long-term revolving credit facility, or to extend its accounts receivable program with Wells Fargo when it matures. Accordingly, the Secured Loan has been classified as long-term debt on the Company’s Consolidated Condensed Balance Sheet. As of September 30, 2018, the Company had fully drawn the $60 million available under the securitization program. See Note 16, Subsequent Event, for additional information.

In connection with the amendment to the accounts receivable securitization program, the Company entered into conforming amendments to its revolving credit facility and outstanding note purchase agreements.

13. Restructuring

Between March 2014 and 2017, the Company executed a restructuring plan to eliminate underperforming operations, consolidate manufacturing facilities, and improve efficiencies within the Company. The Company recorded $6.0 million and $33.6 million of restructuring costs in Corporate & Other for the three and nine months ended September 30, 2017, respectively. There were no restructuring costs incurred in the three or nine months ended September 30, 2018.

14. Divestiture

In the first quarter of 2017, the Company completed the sale of a facility and certain business lines in Strasbourg, France, for $12.5 million. The Company recognized a non-cash loss of approximately $11.6 million in Corporate & Other during the nine months ended September 30, 2017.  There were no divestiture costs incurred in the three months ended September 30, 2017.

15. Commitments and Contingencies

People of the State of Illinois v. Sensient Flavors LLC

On June 7, 2018, the Attorney General of the State of Illinois Office, on her own motion and at the request of the Illinois Environmental Protection Agency, filed a Complaint in the Lee County Circuit Court against Sensient Flavors LLC (“Sensient Flavors”). The Complaint alleges that Sensient Flavors’ Amboy, Illinois facility improperly discharged wastewater to the City of Amboy’s wastewater treatment plant in late 2015 and early 2016, causing the City to violate its discharge permit. The Complaint alleges two counts against Sensient Flavors for violations of Illinois state law; the first for causing water pollution alleged to have come from the City of Amboy wastewater treatment plant; and the second for the introduction of contaminants into a sewage works (i.e., the City of Amboy’s wastewater treatment plant). The Complaint seeks to enjoin Sensient Flavors from further violations, to assess civil penalties for each violation, and to order payment of all costs, including attorney, expert witness, and consultant fees.

14

The Company believes the facility’s discharges in question were done with the consent of the City of Amboy and in compliance with Illinois state law, and that Sensient Flavors complied with its wastewater permit, City of Amboy ordinances, and applicable Illinois state laws.  The Company notes that at all times relevant to the Complaint, the City of Amboy accepted Sensient Flavors’ wastewater and, in fact, charged Sensient Flavors for treating Sensient Flavors’ wastewater. While the parties have been engaged in settlement discussion since March 2018, and the Company continues to be hopeful that it will be able to resolve this matter, the Company will also continue to vigorously defend itself.  The Company does not believe that the civil penalties and costs, or the settlement costs in lieu thereof, will be material to the Company’s consolidated financial statements.

Other Claims and Litigation

The Company is subject to various claims and litigation arising in the normal course of business. The Company establishes reserves for claims and proceedings when it is probable that liabilities exist and reasonable estimates of loss can be made. While it is not possible to predict the outcome of these matters, based on our assessment of the facts and circumstances now known, we do not believe that these matters, individually or in the aggregate, will have a material adverse effect on our financial position. However, actual outcomes may be different from those expected and could have a material effect on our results of operations or cash flows in a particular period.

16. Subsequent Events

On October 1, 2018, the Company amended its existing accounts receivable securitization program to increase the commitment size from $60 million to $70 million and extended the expiration date of the program until October 2019.

On November 1, 2018, the Company issued new fixed-rate notes consisting of 7-year, £25 million notes at a fixed rate of 2.76%; 5-year, £25 million notes at a fixed rate of 2.53%; and 7-year, $25 million notes at a fixed rate of 4.19%. Proceeds were used to refinance existing debt.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Revenue

Revenue was $342.7 million and $353.5 million for the three months ended September 30, 2018 and 2017, respectively. Revenue was $1.1 billion and $1.0 billion for the nine months ended September 30, 2018 and 2017, respectively, an increase of 2.8%. The impact of foreign exchange rates decreased consolidated revenue by approximately 2% for the three months ended September 30, 2018, and increased consolidated revenue by 2% for the nine months ended September 30, 2018.

Gross Profit

The Company’s gross margin was 33.7% and 34.7% for the three months ended September 30, 2018 and 2017, respectively. Included in cost of sales is $3.1 million of restructuring costs for the three months ended September 30, 2017. The decrease in gross margin for the three months ended September 30, 2018, is primarily a result of higher raw material costs and lower volumes and product mix, partially offset by higher selling prices and the lack of restructuring costs. Restructuring and other costs reduced gross margin by 90 basis points during the three months ended September 30, 2017.

Gross margin was 33.9% and 35.1% for the nine months ended September 30, 2018 and 2017, respectively. Included in costs of sales is $3.4 million of restructuring costs for the nine months ended September 30, 2017. The decrease in gross margin for the nine months ended September 30, 2018, is primarily a result of higher raw material costs, lower volumes and product mix, and higher manufacturing and other costs, partially offset by the lack of restructuring costs. Restructuring costs reduced gross margin by 30 basis points during the nine months ended September 30, 2017.

Selling and Administrative Expense

Selling and administrative expenses as a percent of revenue were 19.1% and 20.0% for the three months ended September 30, 2018 and 2017, respectively. In 2018, there were no restructuring and other costs. Restructuring and other costs of $2.9 million were included in selling and administrative expenses for the three months ended September 30, 2017. The decrease in selling and administrative expenses as a percent of revenue is primarily due to the restructuring and other costs incurred in 2017 and lower performance based executive compensation recorded in 2018. Restructuring and other costs increased selling and administrative expense as a percent of revenue by 80 basis points for the three months ended September 30, 2017.

Selling and administrative expenses as a percent of revenue were 19.0% and 23.5% for the nine months ended September 30, 2018 and 2017, respectively. In 2018, there were no restructuring and other costs. Restructuring and other costs of $41.8 million were included in selling and administrative expenses for the nine months ended September 30, 2017. The decrease in selling and administrative expenses as a percent of revenue is primarily due to the restructuring and other costs incurred in 2017 and lower performance based executive compensation recorded in 2018. Restructuring and other costs increased selling and administrative expense as a percent of revenue by 410 basis points for the nine months ended September 30, 2017.

Operating Income

Operating income was $50.3 million and $52.0 million for the three months ended September 30, 2018 and 2017, respectively. Operating margins were 14.7% for both the three months ended September 30, 2018 and 2017. Restructuring and other costs reduced operating margins by 170 basis points during the three months ended September 30, 2017.

Operating income was $158.1 million and $120.4 million for the nine months ended September 30, 2018 and 2017, respectively. Operating margins were 14.9% and 11.7% for the nine months ended September 30, 2018 and 2017, respectively. Restructuring and other costs reduced operating margins by 430 basis points during the nine months ended September 30, 2017.

Interest Expense

Interest expense was $5.4 million and $4.9 million for the three months ended September 30, 2018 and 2017, respectively, and $16.5 million and $14.5 million for the nine months ended September 30, 2018 and 2017, respectively. The increase in interest expense is a result of the Company’s higher average debt balance.

16

Income Taxes

The effective income tax rates for the quarters ended September 30, 2018 and 2017, were -5.2% and 31.6%, respectively. For the nine month periods ended September 30, 2018 and 2017, the effective income tax rates were 12.1% and 28.1%, respectively. The effective tax rates in both 2018 and 2017 were impacted by changes in estimates associated with the finalization of prior year foreign and domestic tax items, audit settlements, adjustments to valuation allowances, and the mix of foreign earnings. The 2018 tax rate was also impacted by the 2017 Tax Cuts and Jobs Act, which is commonly referred to as the “2017 Tax Legislation”, including the filing of certain tax elections in the second quarter of 2018, an adjustment made in the current quarter to the provisional amount recorded in 2017 for the impact of the 2017 Tax Legislation, and the tax benefit associated with certain transactions undertaken in the quarter.  These transactions reduced the tax rate by 12.5 and 3.9 percentage points for the three and nine month periods ended September 30, 2018, respectively. The tax rate in 2017 was also impacted by the restructuring activities, the limited tax deductibility of losses related to the Company’s restructuring activities, and the sale of a facility and certain related business lines within the Flavors & Fragrances segment in Strasbourg, France.

Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Legislation. Based on guidance issued by the IRS during the quarter, the Company reduced its 2017 provisional estimate of the impact of the 2017 Tax Legislation by $7.1 million during the current quarter. The reduction is made up of a $4.1 million reduction to the one-time transition tax on earnings of foreign subsidiaries and $3.0 million on the reassessment of the U.S. deferred tax assets and liabilities, including the ability to realize deferred tax assets in the future. The Company is still applying SAB 118, and believes the impact of the 2017 Tax Legislation on the 2018 and 2017 income tax expenses should be considered provisional estimates. The ultimate impact could differ from these provisional amounts, possibly materially, due to additional guidance, changes in interpretation, and additional analysis by the Company.  Any adjustments to the 2018 and 2017 provisional estimates will be reported in income tax expense in the reporting period in which any such adjustments are determined, which will be no later than the fourth quarter of 2018.

Acquisitions

On July 10, 2018, the Company completed the acquisition of Mazza Innovation Limited, a botanical extraction business with patented solvent-free extraction processes, located in Vancouver, Canada. The Company paid $19.8 million of cash for this acquisition. The assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The purchase price exceeded the carrying value of the net assets by approximately $15 million. The excess was allocated to intangible assets, principally goodwill. The Company is in the process of quantifying the identifiable intangible assets and anticipates completing this analysis in the fourth quarter of 2018. This business is included in Corporate & Other.

On March 9, 2018, the Company completed the acquisition of certain net assets and the natural color business of GlobeNatural, a natural food and ingredient company based in Lima, Peru. The Company paid $10.8 million of cash for this acquisition. The Company acquired net assets of $2.1 million and identified intangible assets, principally customer relationships of $2.0 million, and allocated the remaining $6.7 million to goodwill. These operations are included in the Color segment.

Restructuring

Between March 2014 and 2017, the Company executed a restructuring plan to eliminate underperforming operations, consolidate manufacturing facilities, and improve efficiencies within the Company. The Company recorded $6.0 million and $33.6 million of restructuring costs in Corporate & Other for the three and nine months ended September 30, 2017, respectively. There were no restructuring costs incurred in the three or nine months ended September 30, 2018.

Divestiture

In the first quarter of 2017, the Company completed the sale of a facility and certain business lines in Strasbourg, France, for $12.5 million. The Company recognized a non-cash loss of approximately $11.6 million in Corporate & Other during the nine months ended September 30, 2017.  There were no divestiture costs incurred in the three months ended September 30, 2017.

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NON-GAAP FINANCIAL MEASURES

Within the following tables, the Company reports certain non-GAAP financial measures, including: (1) adjusted operating income, adjusted net earnings, and adjusted diluted EPS (which exclude restructuring, other costs and the impact of the 2017 Tax Cuts and Jobs Act (“2017 Tax Legislation”)), and (2) percentage changes in revenue, operating income, diluted EPS, adjusted operating income, and adjusted diluted EPS on a local currency basis (which eliminate the effects that result from translating its international operations into U.S. dollars). The impact of the 2017 Tax Legislation is related to the adjustment in the third quarter of 2018 of the provisional amount recorded in 2017. The other costs in 2017 are for divestiture related costs. There were no restructuring and other costs in the first nine months of 2018.

The Company has included each of these non-GAAP measures in order to provide additional information regarding our underlying operating results and comparable year-over-year performance. Such information is supplemental to information presented in accordance with GAAP and is not intended to represent a presentation in accordance with GAAP. These non-GAAP measures should not be considered in isolation. Rather, they should be considered together with GAAP measures and the rest of the information included in this report. Management internally reviews each of these non-GAAP measures to evaluate performance on a comparative period-to-period basis and to gain additional insight into underlying operating and performance trends, and the Company believes the information can be beneficial to investors for the same purposes. These non-GAAP measures may not be comparable to similarly titled measures used by other companies.

	Three Months Ended September 30,								Nine Months Ended September 30,
	2018			2017		% Change			2018			2017			% Change
Operating income (GAAP)	$	50,264		$	52,010		(3.4	%)	$	158,126		$	120,427			31.3	%
Restructuring - Cost of products sold		-			3,073					-			3,415
Restructuring - Selling and administrative		-			2,927					-			30,212
Other -  Selling and administrative (1)		-			14					-			11,555
Adjusted operating income	$	50,264		$	58,024		(13.4	%)	$	158,126		$	165,609			(4.5	%)
Net earnings (GAAP)	$	47,193		$	32,213		46.5	%	$	124,510		$	76,179			63.4	%
Restructuring and other, before tax		-			6,014					-			45,182
Tax impact of restructuring and other		-			681					-			(7,424	)
Impact of the 2017 Tax Legislation		(7,061	)		-					(7,061	)		-
Adjusted net earnings	$	40,132		$	38,908		3.1	%	$	117,449		$	113,937			3.1	%
Diluted EPS (GAAP)	$	1.12		$	0.73		53.4	%	$	2.92		$	1.72			69.8	%
Restructuring and other, net of tax		-			0.15					-			0.85
Impact of the 2017 Tax Legislation		(0.17	)		-					(0.17	)		-
Adjusted diluted EPS	$	0.95		$	0.89		6.7	%	$	2.76		$	2.58			7.0	%

(1) The other costs in 2017 are for the divestiture related costs discussed under Divestiture above.

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

18

The following table summarizes the percentage change for the results for the three and nine months ended September 30, 2018, compared to the results for the three and nine months ended September 30, 2017, in the respective financial measures.

	Three Months Ended September 30, 2018									Nine Months Ended September 30, 2018
Revenue	Total			Foreign Exchange Rates			Local Currency			Total			Foreign Exchange Rates			Local Currency
Flavors & Fragrances		(5.9	%)		(0.6	%)		(5.3	%)		0.5	%		1.8	%		(1.2	%)
Color		1.3	%		(2.8	%)		4.1	%		6.6	%		1.5	%		5.1	%
Asia Pacific		(4.4	%)		(2.9	%)		(1.5	%)		0.8	%		0.8	%		0.0	%
Total Revenue		(3.1	%)		(1.7	%)		(1.4	%)		2.8	%		1.6	%		1.2	%
Operating Income