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: March 31, 2020

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: 001-07626

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.10 per share	SXT	New York Stock Exchange LLC

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 April 30, 2020
Common Stock, par value $0.10 per share	42,357,694

SENSIENT TECHNOLOGIES CORPORATION

INDEX

			Page No.
PART I. FINANCIAL INFORMATION:
	Item 1.	Financial Statements:
		Consolidated Condensed Statements of Earnings - Three Months Ended March 31, 2020 and 2019.	1
		Consolidated Condensed Statements of Comprehensive Income - Three Months Ended March 31, 2020 and 2019.	2
		Consolidated Condensed Balance Sheets - March 31, 2020 and December 31, 2019.	3
		Consolidated Statements of Cash Flows - Three Months Ended March 31, 2020 and 2019.	4
		Consolidated Statements of Shareholders’ Equity - Three Months Ended March 31, 2020 and 2019.	5
		Notes to Consolidated Condensed Financial Statements.	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	15
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	21
	Item 4.	Controls and Procedures.	21
PART II. OTHER INFORMATION:
	Item 1.	Legal Proceedings.	21
	Item 1A.	Risk Factors.	22
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	23
	Item 6.	Exhibits.	23
		Exhibit Index.	24
		Signatures.	25

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 March 31,
	2020		2019
Revenue	$	350,677	$	347,513
Cost of products sold		238,784		232,288
Selling and administrative expenses		77,332		65,805
Operating income		34,561		49,420
Interest expense		4,307		5,402
Earnings before income taxes		30,254		44,018
Income taxes		9,481		11,211
Net earnings	$	20,773	$	32,807
Weighted average number of common shares outstanding:
Basic		42,284		42,239
Diluted		42,307		42,275
Earnings per common share:
Basic	$	0.49	$	0.78
Diluted	$	0.49	$	0.78
Dividends declared per common share	$	0.39	$	0.36

See accompanying notes to consolidated condensed financial statements.

1

SENSIENT TECHNOLOGIES CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2020			2019
Comprehensive (loss) income	$	(23,580	)	$	32,091

See accompanying notes to consolidated condensed financial statements.

2

SENSIENT TECHNOLOGIES CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(In thousands)

ASSETS	March 31, 2020 (Unaudited)			December 31, 2019
CURRENT ASSETS:
Cash and cash equivalents	$	23,085		$	21,153
Trade accounts receivable, net		240,123			213,201
Inventories		384,157			422,517
Prepaid expenses and other current assets		38,768			40,049
Assets held for sale		78,612			91,293
TOTAL CURRENT ASSETS		764,745			788,213
OTHER ASSETS		82,367			80,939
DEFERRED TAX ASSETS		10,741			14,976
INTANGIBLE ASSETS, NET		11,463			11,802
GOODWILL		400,515			407,042
PROPERTY, PLANT, AND EQUIPMENT:
Land		30,078			31,431
Buildings		293,331			298,733
Machinery and equipment		645,866			652,063
Construction in progress		25,328			24,613
		994,603			1,006,840
Less accumulated depreciation		(571,608	)		(569,661	)
		422,995			437,179
TOTAL ASSETS	$	1,692,826		$	1,740,151
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable	$	91,437		$	94,653
Accrued salaries, wages, and withholdings from employees		19,724			18,655
Other accrued expenses		41,140			41,429
Income taxes		8,410			6,841
Short-term borrowings		20,105			20,612
Liabilities held for sale		19,821			19,185
TOTAL CURRENT LIABILITIES		200,637			201,375
DEFERRED TAX LIABILITIES		14,511			15,053
OTHER LIABILITIES		20,224			17,813
ACCRUED EMPLOYEE AND RETIREE BENEFITS		25,457			25,822
LONG-TERM DEBT		589,339			598,499
SHAREHOLDERS’ EQUITY:
Common stock		5,396			5,396
Additional paid-in capital		99,080			98,425
Earnings reinvested in the business		1,539,520			1,536,100
Treasury stock, at cost		(593,977	)		(595,324	)
Accumulated other comprehensive loss		(207,361	)		(163,008	)
TOTAL SHAREHOLDERS’ EQUITY		842,658			881,589
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,692,826		$	1,740,151

See accompanying notes to consolidated condensed financial statements.

3

SENSIENT TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities:
Net earnings	$	20,773		$	32,807
Adjustments to arrive at net cash provided by operating activities:
Depreciation and amortization		12,404			13,672
Share-based compensation		1,177			687
Net loss (gain) on assets		14			(41	)
Loss on divestitures		10,558			-
Deferred income taxes		4,077			2,674
Changes in operating assets and liabilities:
Trade accounts receivable		(41,684	)		(19,230	)
Inventories		29,058			22,112
Prepaid expenses and other assets		(6,048	)		(7,573	)
Accounts payable and other accrued expenses		2,773			(21,857	)
Accrued salaries, wages and withholdings from employees		1,611			(3,022	)
Income taxes		1,662			2,213
Other liabilities		553			982
Net cash provided by operating activities		36,928			23,424
Cash flows from investing activities:
Acquisition of property, plant, and equipment		(9,411	)		(8,300	)
Proceeds from sale of assets		6			45
Other investing activities		4,505			(301	)
Net cash used in investing activities		(4,900	)		(8,556	)
Cash flows from financing activities:
Proceeds from additional borrowings		9,669			16,689
Debt payments		(11,104	)		(12,577	)
Dividends paid		(16,500	)		(15,218	)
Other financing activities		(249	)		(803	)
Net cash used in financing activities		(18,184	)		(11,909	)
Effect of exchange rate changes on cash and cash equivalents		(11,912	)		(964	)
Net increase in cash and cash equivalents		1,932			1,995
Cash and cash equivalents at beginning of period		21,153			31,901
Cash and cash equivalents at end of period	$	23,085		$	33,896

See accompanying notes to consolidated condensed financial statements.

4

SENSIENT TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, except share and per share amounts)

(Unaudited)

			Additional			Earnings Reinvested			Treasury Stock						Accumulated Other Comprehensive
Three Months Ended March 31, 2019	Common Stock		Paid-In Capital			in the Business			Shares			Amount			Income (Loss)			Total Equity
Balances at December 31, 2018	$	5,396	$	101,663		$	1,516,243			11,731,223		$	(597,800	)	$	(165,555	)	$	859,947
Net earnings		-		-			32,807			-			-			-			32,807
Other comprehensive loss		-		-			-			-			-			(716	)		(716	)
Cash dividends paid - $0.36 per share		-		-			(15,218	)		-			-			-			(15,218	)
Share-based compensation		-		687			-			-			-			-			687
Non-vested stock issued upon vesting		-		(1,784	)		-			(35,016	)		1,784			-			-
Benefit plans		-		72			-			(18,597	)		948			-			1,020
Other		-		(153	)		-			12,769			(650	)		-			(803	)
Balances at March 31, 2019	$	5,396	$	100,485		$	1,533,832			11,690,379		$	(595,718	)	$	(166,271	)	$	877,724

			Additional			Earnings Reinvested			Treasury Stock						Accumulated Other Comprehensive
Three Months Ended March 31, 2020	Common Stock		Paid-In Capital			in the Business			Shares			Amount			Income (Loss)			Total Equity
Balances at December 31, 2019	$	5,396	$	98,425		$	1,536,100			11,682,636		$	(595,324	)	$	(163,008	)	$	881,589
Net earnings		-		-			20,773			-			-			-			20,773
Other comprehensive loss		-		-			-			-			-			(44,353	)		(44,353	)
Cash dividends paid - $0.39 per share		-		-			(16,500	)		-			-			-			(16,500	)
Share-based compensation		-		1,177			-			-			-			-			1,177
Non-vested stock issued upon vesting		-		(724	)		-			(14,200	)		724			-			-
Benefit plans		-		241			-			(16,344	)		833			-			1,074
Adoption of ASU 2016-13		-		-			(853	)		-			-			-			(853	)
Other		-		(39	)		-			4,114			(210	)		-			(249	)
Balances at March 31, 2020	$	5,396	$	99,080		$	1,539,520			11,656,206		$	(593,977	)	$	(207,361	)	$	842,658

See accompanying notes to consolidated condensed financial statements.

5

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 March 31, 2020, and the results of operations, comprehensive income, cash flows, and shareholders’ equity for the three months ended March 31, 2020 and 2019. 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, 2019, 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 Accounts Receivable accounting policy. This policy was updated in the first quarter of 2020 as a result of the Company’s adoption of Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and is described below.

Accounts Receivable

Receivables are recorded at their face amount, less an allowance for losses on doubtful accounts. The allowance for doubtful accounts is based on customer-specific analysis and expected future credit losses based on historical experience, current conditions, and expected future conditions. Specific accounts are written off against the allowance for doubtful accounts when the receivable is deemed no longer collectible.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment model with a methodology that reflects expected credit losses. Under the new standard, entities are required to measure expected credit losses on financial instruments held at amortized cost, including trade receivables, based on historical experience, current conditions, and reasonable forecasts. The Company adopted this standard in the first quarter of 2020. The adoption of this standard resulted in an increase of $0.9 million to the allowance for losses on Trade Accounts Receivable and a corresponding decrease in Earnings Reinvested in the Business as of January 1, 2020. The adoption of this standard did not have an impact on the Company’s Consolidated Condensed Statements of Earnings, or to cash provided by or used in operating, financing, or investing activities on the Company’s Consolidated Statements of Cash Flows.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates step two of the current goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. The Company adopted this standard in the first quarter of 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which changes the requirements for fair value measurements by removing, modifying, and adding certain disclosures. The Company adopted this standard in the first quarter of 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements or its related disclosures.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans Subtopic 715-20, which amends Accounting Standards Codification (ASC) 715-20, Compensation – Retirement Benefits – Defined Benefit Plans – General. This standard modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing and adding certain disclosures for these plans. The effective date is January 1, 2021, with early adoption permitted. The Company is currently evaluating the potential impact of this standard on its disclosures.

6

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative rates. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements and its related disclosures.

Please refer to the notes in the Company’s annual consolidated financial statements for the year ended December 31, 2019, 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. Divestitures

In October 2019, the Company announced its intent to divest its inks, fragrances (excluding its essential oils product line), and yogurt fruit preparations product lines. In October 2019, the Board of Directors approved the sale of the inks product line, which is within the Color segment. The Company has signed a memorandum of understanding with a potential buyer. In November 2019, the Board of Directors approved the sale of the fragrances product line (excluding its essential oils product line), which is within the Flavors & Fragrances segment. The Company has signed a memorandum of understanding with a potential buyer. As a result, the Company met all of the assets held for sale criteria for the inks and fragrances disposal groups. The divesting and exit of these products lines does not meet the criteria to be presented as a discontinued operation on the Consolidated Condensed Statements of Earnings.

As of March 31, 2020, the yogurt fruit preparations product line, which is included in the Flavors & Fragrances segment, did not meet all of the assets held for sale criteria. Subsequent to March 31, 2020, the Board of Directors approved the sale of the yogurt fruit preparations product line. See Note 12, Subsequent Events, for further information.

The assets and liabilities related to the inks and fragrances product lines are recorded in Assets held for sale and Liabilities held for sale as of March 31, 2020 and December 31, 2019, as follows:

(in thousands)	March 31, 2020		December 31, 2019
Assets held for sale:
Trade accounts receivable, net	$	34,610	$	31,653
Inventories		30,104		34,612
Prepaid expenses and other current assets		6,628		5,528
Property, Plant, and Equipment, net		4,643		14,496
Intangible assets, net		2,627		5,004
Assets held for sale	$	78,612	$	91,293
Liabilities held for sale:
Trade accounts payable	$	13,532	$	12,318
Accrued salaries, wages and withholdings from employees		1,222		1,677
Other accrued expenses		5,067		5,190
Liabilities held for sale	$	19,821	$	19,185

During the year ended December 31, 2019, the Company estimated that the fair value of the inks product line less costs to sell was lower than its carrying value resulting in a non-cash impairment charge of $15.8 million. As of March 31, 2020, the Company revised its estimate of the fair value of the inks product line based on indicative bids resulting in an additional non-cash impairment charge of $9.4 million recorded in Selling and Administrative Expenses during the three months ended March 31, 2020. The charge adjusted the carrying value of certain long-lived assets, primarily property, plant, and equipment, intangible assets and allocated goodwill, to their estimated fair value. This estimate will be finalized and adjusted as necessary upon the closing of the sale or as estimates change. In addition, the Company currently estimates a non-cash gain of $6 million to $8 million upon closing the transaction related to the reclassification of accumulated foreign currency translation and related items from Accumulated Other Comprehensive Loss to Selling and Administrative Expenses in the Consolidated Condensed Statements of Earnings.

7

During the year ended December 31, 2019, the Company estimated that the fair value of the fragrances product line less costs to sell was lower than its carrying value resulting in a non-cash impairment charge of $18.2 million. As of March 31, 2020, the Company revised its estimate of the fair value of the fragrances product line based on indicative bids resulting in an additional non-cash impairment charge of $0.3 million recorded in Selling and Administrative Expenses during the three months ended March 31, 2020. The charge adjusted the carrying value of certain long-lived assets, primarily property, plant and equipment and allocated goodwill, to their estimated fair value. This estimate will be finalized and adjusted as necessary upon the closing of the sale or as estimates change. In addition, the Company currently estimates an additional non-cash charge of $10 million to $12 million upon closing related to the reclassification of accumulated foreign currency translation and related items from Accumulated Other Comprehensive Loss (OCI) to Selling and Administrative Expenses in the Consolidated Condensed Statement of Earnings.

In March 2020, the Company was notified by a potential buyer of the Company’s fragrances product line that environmental sampling conducted at the Company’s Granada, Spain, location had identified the presence of contaminants in soil and groundwater in certain areas of the property. The Company is in the process of conducting its own environmental investigation to confirm the presence and extent of these contaminants and plans to perform a quantitative risk assessment to determine whether or what remedial action is required under Spanish law. At the conclusion of this work, if necessary, the Company intends to report any confirmed contamination, along with a remediation plan to address the contamination, if necessary, to the relevant Spanish authorities. Due to the impacts of COVID-19 in Spain, the Company has not been able to conduct a quantitative assessment of the issues identified in the environmental sampling. Consequently, the Company is unable to quantify any potential remediation costs at this time.

The Company also incurred $1.3 million of other divestiture and exit related costs, primarily severance and legal expenses, and $0.6 million of non-cash expenses charge related to other exit activities in the period ended March 31, 2020, which is recorded in Selling and Administrative Expenses. Also during the period, the Company recorded a non-cash charge of $0.2 million in Costs of Products Sold related to the value of certain inventories.

Excluding any potential remediation costs associated with the Granada, Spain, location of the fragrances product line, which the Company is unable to quantify at this time as discussed above, the Company expects total cash costs in 2019 and 2020 associated with the anticipated divestitures of all three product lines to be between $7 million and $10 million, primarily related to severance and other exit activities.

3. Trade Accounts Receivable

Trade accounts receivables are recorded at their face amount, less an allowance for expected losses on doubtful accounts. The allowance for doubtful accounts is calculated based on customer-specific analysis and an aging methodology using historical loss information. The Company believes historical loss information is a reasonable basis for expected credit losses as the Company’s historical credit loss experience correlates with its customer delinquency status. This information is also adjusted for any known current economic conditions including the current and expected impact of COVID-19. Currently, the COVID-19 pandemic is not anticipated to have a material impact on trade accounts receivable. Forecasted economic conditions do not have a significant impact on the current credit loss estimate due to the short-term nature of the Company’s customer receivables, however, the Company will continue to monitor and evaluate the rapidly changing economic conditions. Additionally, as the Company only has one portfolio segment, there are not different risks between portfolios. Specific accounts are written off against the allowance for doubtful accounts when the receivable is deemed no longer collectible.

8

The following table summarizes the changes in the allowance for doubtful accounts during the three month period ended March 31, 2020:

(In thousands)	Allowance for Doubtful Accounts
Balance at December 31, 2019	$	6,913
Adoption of ASU 2016-13		853
Provision for expected credit losses		240
Accounts written off		(336	)
Translation and other activity		(643	)
Balance at March 31, 2020	$	7,027

4. Inventories

At March 31, 2020, and December 31, 2019, inventories included finished and in-process products totaling $282.9 million and $313.1 million, respectively, and raw materials and supplies of $101.3 million and $109.4 million, respectively.

5. Fair Value

ASC 820, Fair Value Measurement, 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 March 31, 2020 and December 31, 2019, the Company’s assets and liabilities subject to this standard are forward exchange contracts. The net fair value of the forward exchange contracts based on current pricing obtained for comparable derivative products (Level 2 inputs) was a liability of $1.8 million and $0.1 million as of March 31, 2020 and December 31, 2019, respectively. The carrying values of the Company’s cash and cash equivalents, trade accounts receivable, trade accounts payable, accrued expenses, and short-term borrowings were approximately the same as the fair values as of March 31, 2020. 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 March 31, 2020 was $589.3 million. The fair value of the long-term debt at March 31, 2020 was $589.7 million.

During the fourth quarter of 2019, the Company met the assets held for sale criteria for its inks and fragrances product lines. During the first quarter of 2020, the estimated fair value of the disposal groups was updated to $59.0 million, resulting in the recording of an additional impairment of $9.7 million in the three months ended March 31, 2020. The fair value of these product lines were determined based on indicative bids, which are classified as Level 3 inputs in the fair value measurement hierarchy. See Note 2, Divestitures, for further information.

9

6. 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 March 31, 2020:
Revenue from external customers	$	181,187	$	139,193	$	30,297	$	-		$	350,677
Intersegment revenue		5,311		4,302		152		-			9,765
Total revenue	$	186,498	$	143,495	$	30,449	$	-		$	360,442
Operating income (loss)	$	20,871	$	29,664	$	5,059	$	(21,033	)	$	34,561
Interest expense		-		-		-		4,307			4,307
Earnings (loss) before income taxes	$	20,871	$	29,664	$	5,059	$	(25,340	)	$	30,254
Three months ended March 31, 2019:
Revenue from external customers	$	178,744	$	140,250	$	28,519	$	-		$	347,513
Intersegment revenue		4,809		3,629		-		-			8,438
Total revenue	$	183,553	$	143,879	$	28,519	$	-		$	355,951
Operating income (loss)	$	23,125	$	30,199	$	4,218	$	(8,122	)	$	49,420
Interest expense		-		-		-		5,402			5,402
Earnings (loss) before income taxes	$	23,125	$	30,199	$	4,218	$	(13,524	)	$	44,018

The Company evaluates performance based on operating income before divestiture and other related costs, restructuring and other charges, interest expense, and income taxes (segment operating income). Total revenue and segment operating income by business segment and geographic region include both sales to customers, as reported in the Company’s Consolidated Condensed Statements of Earnings, and intersegment sales, which are accounted for at prices that approximate market prices and are eliminated in consolidation. The 2020 divestiture and other related costs, which pertain to the anticipated divestitures of the Company’s inks, fragrances (excluding its essential oils product line), and yogurt fruit preparations product lines, are reported in Corporate & Other. There were no divestiture and other related costs or restructuring and other costs in the first three months of 2019.

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 tables display the Company’s revenue by these major sources.

During the first quarter of 2020, the Company updated its product line disclosures as a result of its previous announcement regarding its intent to divest its inks, fragrances (excluding its essential oils product line), and yogurt fruit preparations product lines.

Flavors, Extracts & Flavor Ingredients now includes essential oils, which was previously reported in Fragrances. Fragrances now only includes the aroma chemicals and fragrance compounds product lines. Yogurt Fruit Preparations is now disclosed separately; previously it was reported in the Flavors product line.

Food & Beverage Colors now includes pharmaceutical colors and natural extraction, which were previously reported in Other Colors. Personal Care includes cosmetic and non-food colors. Inks is now disclosed separately; previously it was reported in Other Colors.

The results for 2019 have been restated to reflect these changes.

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Product Lines

(In thousands)	Flavors & Fragrances			Color			Asia Pacific			Consolidated
Three months ended March 31, 2020:
Flavors, Extracts & Flavor Ingredients	$	101,453		$	-		$	-		$	101,453
Natural Ingredients		57,600			-			-			57,600
Fragrances		22,284			-			-			22,284
Yogurt Fruit Preparations		5,161			-			-			5,161
Food & Beverage Colors		-			90,793			-			90,793
Personal Care		-			43,743			-			43,743
Inks		-			8,959			-			8,959
Asia Pacific		-			-			30,449			30,449
Intersegment Revenue		(5,311	)		(4,302	)		(152	)		(9,765	)
Total revenue from external customers	$	181,187		$	139,193		$	30,297		$	350,677

Three months ended March 31, 2019:
Flavors, Extracts & Flavor Ingredients	$	103,528		$	-		$	-	$	103,528
Natural Ingredients		51,219			-			-		51,219
Fragrances		23,267			-			-		23,267
Yogurt Fruit Preparations		5,539			-			-		5,539
Food & Beverage Colors		-			88,848			-		88,848
Personal Care		-			44,921			-		44,921
Inks		-			10,110			-		10,110
Asia Pacific		-			-			28,519		28,519
Intersegment Revenue		(4,809	)		(3,629	)		-		(8,438	)
Total revenue from external customers	$	178,744		$	140,250		$	28,519	$	347,513

Geographic Markets

(In thousands)	Flavors & Fragrances		Color		Asia Pacific		Consolidated
Three months ended March 31, 2020:
North America	$	116,701	$	66,265	$	-	$	182,966
Europe		43,877		38,738		22		82,637
Asia Pacific		9,355		15,975		29,122		54,452
Other		11,254		18,215		1,153		30,622
Total revenue from external customers	$	181,187	$	139,193	$	30,297	$	350,677
Three months ended March 31, 2019:
North America	$	112,747	$	66,007	$	25	$	178,779
Europe		48,001		42,135		41		90,177
Asia Pacific		7,609		16,425		28,266		52,300
Other		10,387		15,683		187		26,257
Total revenue from external customers	$	178,744	$	140,250	$	28,519	$	347,513

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7. 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 March 31,
(In thousands)	2020			2019
Service cost	$	400		$	359
Interest cost		256			320
Expected return on plan assets		(209	)		(231	)
Recognized actuarial loss (gain)		16			(39	)
Total defined benefit expense	$	463		$	409

The Company’s non-service cost portion of defined benefit expense is recorded in Interest Expense on the Company’s Consolidated Condensed Statements of Earnings.  The Company’s service cost portion of defined benefit expense is recorded in Selling and Administrative Expenses on the Company’s Consolidated Condensed Statements of Earnings.

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.

Forward exchange contracts – Certain forward exchange contracts have been designated as cash flow hedges. The Company had $54.5 million and $59.9 million of forward exchange contracts designated as cash flow hedges outstanding as of March 31, 2020, and December 31, 2019, respectively. For the three months ended March 31, 2020 and 2019, the amounts reclassified into net earnings in the Company’s Consolidated Condensed Statement of Earnings that offset the underlying transactions' impact on earnings in the same period were not material. 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 March 31, 2020, and December 31, 2019, the total value of the Company’s Euro, Swiss Franc, and British Pound debt designated as net investment hedges was $355.0 million and $363.4 million, respectively.  For the three months ended March 31, 2020, the impact of foreign exchange rates on these debt instruments decreased debt by $8.4 million, which has been recorded as foreign currency translation in OCI.

9. Income Taxes

The effective income tax rates for the three months ended March 31, 2020 and 2019, were 31.3% and 25.5%, respectively. The effective tax rates for the three months ended March 31, 2020 and 2019 were both impacted by changes in estimates associated with the finalization of prior year foreign tax items, audit settlements, and the mix of foreign earnings.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The CARES Act allows for the deferral of income and social security tax payments, a five-year carryback for net operating losses, changes to interest expense and business loss limitation rules, certain new tax credits, and certain new loans and grants to businesses. The Company has reviewed its income tax assumptions and projections in light of the CARES Act and does not expect the CARES Act to materially impact the Company’s income tax expense or projections. As of March 31, 2020, the Company was considering the option to defer future tax payments (income taxes and certain payroll taxes) in accordance with the CARES Act. Subsequent to March 31, 2020, the Company has decided to defer certain tax payments in accordance with the CARES Act. The Company will continue to evaluate the CARES Act for opportunities as additional information is released on the CARES Act.

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10. Accumulated Other Comprehensive Income

The following table summarizes the changes in OCI during the three month periods ended March 31, 2020 and 2019:

(In thousands)	Cash Flow Hedges (a)			Pension Items (a)			Foreign Currency Items			Total
Balances at December 31, 2019	$	(199	)	$	(672	)	$	(162,137	)	$	(163,008	)
Other comprehensive loss before reclassifications		(1,865	)		-			(42,925	)		(44,790	)
Amounts reclassified from OCI		429			8			-			437
Balances at March 31, 2020	$	(1,635	)	$	(664	)	$	(205,062	)	$	(207,361	)

(In thousands)	Cash Flow Hedges (a)			Pension Items (a)			Foreign Currency Items			Total
Balances at December 31, 2018	$	147		$	549		$	(166,251	)	$	(165,555	)
Other comprehensive income (loss) before reclassifications		597			-			(1,164	)		(567	)
Amounts reclassified from OCI		(112	)		(37	)		-			(149	)
Balances at March 31, 2019	$	632		$	512		$	(167,415	)	$	(166,271	)

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

11. Commitments and Contingencies

Agar v. Sensient Natural Ingredients LLC

On March 29, 2019, Calvin Agar (Agar), a former employee, filed a Class Action Complaint in Stanislaus County Superior Court against Sensient Natural Ingredients LLC (SNI). On May 22, 2019, Agar filed a First Amended Class Action Complaint against SNI (the Complaint). Agar alleges that SNI improperly reported overtime pay on employees’ wage statements, in violation of the California Labor Code. The Complaint alleges two causes of action, both of which concern the wage statements.

The Complaint does not allege that SNI failed to pay any overtime due to Agar or any of the putative class or group members. The Complaint merely challenges the manner in which SNI has reported overtime pay on its wage statements.

SNI maintains that it has accurately paid Agar and the putative class members for all overtime worked, and that they have not experienced any harm. SNI further maintains that the format of its wage statements does not violate the requirements of state law or any specific guidance from California decisional law, the California Division of Labor Standards Enforcement, or the California Labor Commissioner's Office. Finally, SNI contended that certain of the state law claims are subject to mandatory individual arbitration.

SNI filed its Answer and Affirmative Defenses to the Complaint on July 10, 2019. The parties participated in an early mediation in the case in December 2019, which was not successful. On March 17, 2020, the Court granted Agar leave to file a Second Amended Complaint, which removed the claim that SNI had asserted was subject to mandatory individual arbitration. SNI filed a Demurrer to the Second Amended Complaint, seeking dismissal of the remaining claim, on May 1, 2020. SNI continues to evaluate the developing legal authority on this issue. SNI intends to vigorously defend its interests, absent a reasonable resolution.

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Other Claims

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.

Refer to Note 2, Divestitures, for information about potential environmental remediation costs associated with our Granada, Spain location. The amount of any losses related to such remediation cannot be reasonably estimated at this time.

12. Subsequent Events

On April 9, 2020, the Board of Directors approved the sale of the yogurt fruit preparations product line. The Company has signed a memorandum of understanding with a potential buyer. The Company estimates a non-cash impairment charge of $7 million to $9 million will be recorded related to the sale. The Company anticipates that it will complete the sale and exit activities of this product line within the year.

On April 23, 2020, the Company announced its quarterly dividend of 39 cents per share would be payable on June 1, 2020.

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

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. Forward-looking statements include statements in the future tense, statements referring to any period after March 31, 2020, and statements including the terms “expect,” “believe,” “anticipate,” and other similar terms that express expectations as to future events or conditions. 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 impact and uncertainty created by the ongoing COVID-19 pandemic, including, but not limited to, its effects on our employees, facilities, customers and suppliers, the availability and cost of raw materials and other supplies, logistics and transportation, governmental regulations and restrictions and general economic conditions; the pace and nature of new product introductions by the Company and the Company’s customers; our ability to anticipate and respond to changing consumer preferences and changing technologies; the Company’s ability to successfully implement its growth strategies; the outcome of the Company’s various productivity-improvement and cost-reduction efforts and acquisition and divestiture activities; the success of the Company’s efforts to explore strategic alternatives for certain non-core product lines; the effectiveness of the Company’s past restructuring activities; changes in costs of raw materials, including energy; industry, regulatory, legal, and economic factors related to the Company’s domestic and international business; the effects of tariffs, trade barriers, and disputes; growth in markets for products in which the Company competes; industry and customer acceptance of price increases; actions by competitors; currency exchange rate fluctuations; the matters discussed under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 and below under Item 1A of this Quarterly Report on Form 10-Q; and the matters discussed below under Item 2 including the critical accounting policies referenced therein. Except to the extent required by applicable law, 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.

OVERVIEW

Revenue

Revenue was $350.7 million and $347.5 million for the three months ended March 31, 2020 and 2019, respectively. For the three months ended March 31, 2020, the impact of foreign exchange rates decreased consolidated revenue by approximately 2%.

Gross Margin

The Company’s gross margin was 31.9% and 33.2% for the three months ended March 31, 2020 and 2019, respectively. The decrease in gross margin was primarily a result of higher raw material costs in natural ingredients and unfavorable product mix.

Selling and Administrative Expense

Selling and administrative expense as a percent of revenue was 22.1% and 18.9% for the three months ended March 31, 2020 and 2019, respectively. Divestiture and other related costs of $11.7 million were included in Selling and Administrative Expenses for the three months ended March 31, 2020. The increase in selling and administrative expense as a percent of revenue is primarily due to the divestiture and other related costs incurred in 2020, which increased selling and administrative expense as a percent of revenue by 330 basis points for the three months ended March 31, 2020.

Operating Income

Operating income was $34.6 million and $49.4 million for the three months ended March 31, 2020 and 2019, respectively. Operating margins were 9.9% and 14.2% for the three months ended March 31, 2020 and 2019, respectively. The decrease in operating margins is primarily due to the divestiture and other related costs incurred in 2020, which decreased operating margins by 340 basis points for the three months ended March 31, 2020.

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Interest Expense

Interest expense was $4.3 million and $5.4 million for the three months ended March 31, 2020 and 2019, respectively. The decrease in expense was primarily due to the decrease in the average debt outstanding.

Income Taxes

The effective income tax rates for the three months ended March 31, 2020 and 2019, were 31.3% and 25.5%, respectively. The effective tax rates for the three months ended March 31, 2020 and 2019 were both impacted by changes in estimates associated with the finalization of prior year foreign tax items, audit settlements, and the mix of foreign earnings.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The CARES Act allows for the deferral of income and social security tax payments, a five-year carryback for net operating losses, changes to interest expense and business loss limitation rules, certain new tax credits, and certain new loans and grants to businesses. The Company has reviewed its income tax assumptions and projections in light of the CARES Act and does not expect the CARES Act to materially impact the Company’s income tax expense or projections. As of March 31, 2020, the Company was considering the option to defer future tax payments (income taxes and certain payroll taxes) in accordance with the CARES Act. Subsequent to March 31, 2020, the Company has decided to defer certain tax payments in accordance with the CARES Act. The Company will continue to evaluate the CARES Act for opportunities as additional information is released on the CARES Act.

Divestitures

In October 2019, the Company announced its intent to divest its inks, fragrances (excluding its essential oils product line), and yogurt fruit preparations product lines. The Board of Directors approved the sale of the inks product line, which is within the Color segment, and the sale of the fragrances product line, which is within the Flavors & Fragrances segment.

In the three months ended March 31, 2020, the Company recorded a non-cash impairment charge of $9.7 million, primarily related to property, plant and equipment, intangibles and allocated goodwill, in Selling and Administrative Expenses, related to the disposal group as described in Note 2, Divestitures, to the Consolidated Condensed Financial Statements included in this report. The charge reduced the carrying value of certain long-lived assets to their estimated fair value. An estimate of the fair value of these product lines less cost to sell was determined to be lower than its carrying value. This estimate will be finalized and adjusted as necessary upon the closing of the sales or as assumptions change.

In the three months ended March 31, 2020, the Company also incurred $2.1 million of additional costs, primarily related to severance and legal expenses, related to the anticipated divestitures and other exit activities.

Refer to Note 2, Divestitures, and Note 12, Subsequent Events, to the Consolidated Condensed Financial Statements included in this report for information about anticipated additional charges and expenses associated with these divestitures.

COVID-19

COVID-19 is now affecting most of the world, including through widespread illness, quarantines, factory shutdowns, and travel and transportation restrictions. While the Company’s financial position remains strong, the Company has seen several financial and operational impacts from the pandemic as of this filing.

For the three months ended March 31, 2020, demand for the Company’s products remained strong, especially in product lines that serve the food, beverage, and pharmaceutical markets. There has been softer demand in other product lines the Company serves, particularly in cosmetics and some product lines that supply the quick service restaurant segment due to widespread restaurant shutdowns and quarantine orders. While COVID-19 appears to have contributed to demand for food-related products and dampened demand for personal care related products, it is difficult to quantify the impact of COVID-19 on demand for the Company’s products. The Company continues to believe that it will achieve its projected earnings guidance.

During the three months ended March 31, 2020, the Company had a production facility in China and a production facility in India that were required to temporarily suspend operations. All of the Company’s production facilities are open and operating as of this filing, but the Company continues to monitor developments and regulations in regions where production facilities are located. The Company also continues to monitor supply chains and has increased inventory in certain key raw materials, although the Company did not experience any significant disruptions during the three months ended March 31, 2020.

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As of March 31, 2020, the Company is in compliance with its loan covenants and does not anticipate any non-compliance in the future. COVID-19 has not adversely impacted the Company’s capital or financial resources. Furthermore, the Company expects its forecasted cash flows from operations and its available debt capacity will be able to meet future cash requirements for operations, capital expenditures, contractual maturities on long-term debt, and dividend payments.

The Company reviewed its goodwill, intangible assets, and long-lived assets for potential impairment indicators as of March 31, 2020, and except for the impairments associated with the product lines to be divested noted above, no indicators of impairment were identified. The Company also reviewed its trade accounts receivables for potential collection issues and did not identify any concerns. The Company will continue to monitor cash collections and review trade receivable aging to identify any deterioration in quality.

The Company estimates that the incremental expenses related to its COVID-19 response will be less than $3 million at the currently projected run-rate. All of the Company’s manufacturing plants continue in operation and have generally been designated as part of the critical infrastructure in the countries in which they operate.

In October 2019, the Company announced its intent to divest its inks, fragrances (excluding its essential oils product line), and yogurt fruit preparations product lines. While the sales and exit activities are still anticipated to be completed as of the date of this filing, travel and transportation restrictions have slowed down various activities related to the divestitures.

The Company continues to believe its internal controls over financial reporting and its disclosure controls and procedures are effective to ensure their design and operation continue to be effective as some employees perform tasks from alternative work locations. Internal audit continues to perform their planned audit procedures remotely from alternative work locations. See Item 4, Controls and Procedures, for further information.

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NON-GAAP FINANCIAL MEASURES

Within the following tables, the Company reports certain non-GAAP financial measures, including: (1) adjusted revenue, adjusted operating income, adjusted net earnings, and adjusted diluted EPS, which exclude the results of the product lines to be divested and the divestiture and other related costs, and (2) percentage changes in revenue, operating income, and diluted EPS on an adjusted local currency basis, which eliminate the effects that result from translating its international operations into U.S. dollars, the results of product lines to be divested, and the divestiture and other related costs.

The Company has included each of these non-GAAP measures in order to provide additional information regarding our underlying operating results and comparable year-over-year performance. Such information is supplemental to information presented in accordance with GAAP and is not intended to represent a presentation in accordance with GAAP. 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 March 31,
(In thousands except per share amounts)	2020			2019			% Change
Revenue (GAAP)	$	350,677		$	347,513			0.9	%
Revenue of the product lines to be divested		(36,585	)		(39,021	)
Adjusted revenue	$	314,092		$	308,492			1.8	%
Operating Income (GAAP)	$	34,561		$	49,420			(30.1	%)
Divestiture & other related costs – Cost of products sold		190			-
Divestiture & other related costs – Selling and administrative expenses		11,653			-
Operating income of the product lines to be divested		(1,385	)		(32	)
Adjusted operating income	$	45,019		$	49,388			(8.8	%)
Net Earnings (GAAP)	$	20,773		$	32,807			(36.7	%)
Divestiture & other related costs, before tax		11,843			-
Tax impact of divestiture & other related costs		(934	)		-
Net earnings of the product lines to be divested, before tax		(1,385	)		(32	)
Tax impact of the product lines to be divested		297			11
Adjusted net earnings	$	30,594		$	32,786			(6.7	%)
Diluted EPS (GAAP)	$	0.49		$	0.78			(37.2	%)
Divestiture & other related costs, net of tax		0.26			-
Results of operations of the product lines to be divested, net of tax		(0.03	)		-
Adjusted diluted EPS	$	0.72		$	0.78			(7.7	%)

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The following table summarizes the percentage change for the results of the three months ended March 31, 2020, compared to the results for the three months ended March 31, 2019, in the respective financial measures.

	Three Months Ended March 31, 2020
Revenue	Total			Foreign Exchange Rates				Product Lines to be Divested			Adjusted Local Currency
Flavors & Fragrances		1.6	%		(1.1	%)			(0.9	%)		3.6	%
Color		(0.3	%)		(2.2	%)			(0.9	%)		2.8	%
Asia Pacific		6.8	%		(1.7	%)			0.0	%		8.5	%
Total Revenue		0.9	%		(1.6	%)			(0.6	%)		3.1	%
Operating Income
Flavors & Fragrances		(9.7	%)		(0.9	%)			5.7	%		(14.5	%)
Color		(1.8	%)		(2.3	%)	&