SENSIENT TECHNOLOGIES CORP

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, 2025, and the results of operations, comprehensive income, cash flows, and shareholders’ equity for the three months ended March 31, 2025 and 2024. 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.

Recently Adopted Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires the Company to disclose segment expenses that are significantand regularly provided to the Company’s chief operating decision maker (CODM). In addition, this ASU requires the Company to disclose the title and position of its CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company adopted this standard in the fourth quarter of 2024 using a retrospective transition method, and the adoption did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. This ASU will also require the Company to disaggregate its income taxes paid disclosure by federal, state, and foreign taxes, with further disaggregation required for significant individual jurisdictions. This ASU is effective for fiscal years beginning after December 15, 2024. The Company will adopt this ASU in the fourth quarter of 2025 using a prospective transition method. The Company is currently evaluating the potential impact of this standard on its consolidated financial statements and its related disclosures.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40) – Disaggregation of Income Statement Expenses, which will require the Company to disclose disaggregated information about certain income statement expense line items. This ASU is effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. 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, 2024, for additional details of the Company’s financial condition and a description of the Company’s accounting policies, which have been continued without change.

On February 14, 2025, the Company acquired Biolie SAS, a natural color extraction business located in France. The Company paid $4.8 million in cash for this acquisition, which is net of $0.2 million in debt assumed, with $0.5 million of such amount being held back by the Company for 60 days to satisfy any necessary working capital and net debt adjustments. The assets acquired and liabilities assumed were recorded at their estimated fair value as of the acquisition date. The Company acquired net assets of $0.3 million, with the remaining $4.5 million allocated to goodwill. This business is part of the Color segment.

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During the fourth quarter of 2023, the Board of Directors of the Company approved a plan to undertake an effort to optimize certain production facilities and improve efficiencies within the Company (Portfolio Optimization Plan). As part of the Portfolio Optimization Plan, in the Flavors & Extracts segment, the Company evaluated the closure of its manufacturing facility in Felinfach, Wales, United Kingdom, the closure of its sales office in Granada, Spain, and the centralization and elimination of certain selling and administrative positions. In addition, in the Color segment, the Company evaluated the closure of a manufacturing facility in Delta, British Columbia, Canada, the closure of a sales office in Argentina, and centralizing and eliminating certain production positions and selling and administrative positions. The Company reports all costs associated with the Portfolio Optimization Plan in the Corporate & Other segment.

The Company’s Felinfach site will continue to operate until all production activities have successfully transferred to other locations, and then will be closed. The Company has substantially completed all other actions contemplated under the Portfolio Optimization Plan in accordance with local laws.

The Company recorded $2.5 million of accrued liabilities in Other Accrued Expenses on the Company’s Consolidated Balance Sheet related to this plan as of both March 31, 2025 and December 31, 2024. The Company expects this plan will cost approximately $40 million, of which $37.3 million has been incurred through March 31, 2025, primarily related to non-cash impairment charges and proposed employee separation costs, and upon completion would reduce annual operating costs by approximately $8 million to $10 million, with the full benefit expected to be achieved after 2025. The Company anticipates it would reduce headcount by approximately 90 positions, primarily in the Flavors & Extracts and Color segments, related to certain production and selling and administrative positions.

The following table summarizes the Portfolio Optimization Plan expenses by segment for the three months ended March 31, 2025:

The following table summarizes the Portfolio Optimization Plan expenses by segment for the three months ended March 31, 2024:

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. Forecasted economic conditions have not had 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 hasone 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.

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The following table summarizes the changes in the allowance for doubtful accounts during the three-month periods ended March 31, 2025 and 2024:

At March 31, 2025, and December 31, 2024, inventories included finished and in-process products totaling $419.6 million and $426.8 million, respectively, and raw materials and supplies of $178.6 million and $173.5 million, respectively.

Accounting Standards Codification 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. 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, 2025 and December 31, 2024. The net fair value of the forward exchange contracts based on current pricing obtained for comparable derivative products (Level 2 inputs) was an asset of $0.3 million and a liability of $0.8 million as of March 31, 2025 and December 31, 2024, respectively. 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, 2025 and December 31, 2024, was $683.5 million and $613.7 million, respectively. The fair value of the long-term debt at March 31, 2025 and December 31, 2024, was $691.5 million and $622.0 million, respectively.

The Company evaluates performance based on operating income before share-based compensation (except for share-based compensation expense associated with stock grants to certain business unit leaders); restructuring and other charges, including Portfolio Optimization Plan costs; 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 Statements of Earnings, and intersegment sales, which are accounted for at prices that approximate market prices and are eliminated in consolidation.

Assets by business segment and geographic region are those assets used in the Company’s operations in each segment and geographic region. Segment assets reflect the allocation of goodwill to each segment. Corporate & Other assets consist primarily of accounts receivables from the securitization program, investments, deferred tax assets, and fixed assets.

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The Company determines its operating segments based on information utilized by its chief operating decision maker (CODM) to allocate resources and assess performance. The Company’s CODM is the President and Chief Executive Officer. The CODM uses segment operating income or loss to allocate resources, which includes employees, financial, or capital resources, predominantly in the annual budget and forecasting process. The CODM considers budget-to-actual and year-over-year variances on a monthly basis for segment operating income or loss when allocating capital and personnel resources to the segments. Segment performance is evaluated based on operating income of the respective business units before share-based compensation (except for share-based compensation expense associated with stock grants to certain business unit leaders) and restructuring and other charges, including the Portfolio Optimization Plan costs, which are reported in Corporate & Other.

The Company’sthree reportable segments are the Flavors & Extracts and Color segments, which are both managed on a product line basis, and the Asia Pacific segment, which is managed on a geographic basis. The Company’s Flavors & Extracts segment produces flavor, extracts, and essential oils products that impart a desired taste, texture, aroma, or other characteristics to a broad range of consumer and other products. The Color segment produces natural and synthetic color systems for foods, beverages, pharmaceuticals, and nutraceuticals; colors, ingredients, and systems for personal care; and technical colors for industrial applications. The Asia Pacific segment is managed on a geographic basis and produces and distributes color, flavor, and essential oils products for the Asia Pacific countries. The Company’s corporate expenses, share-based compensation (except for share-based compensation expense associated with stock grants to certain business unit leaders), and restructuring and other charges, including Portfolio Optimization Plan costs, are included in the “Corporate & Other” category.

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

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Product Lines

Geographic Markets

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

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

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 $55.3 million and $70.3 millionof forward exchange contracts designated as cash flow hedges outstanding as of March 31, 2025 and December 31, 2024, respectively. For the three months ended March 31, 2025 and 2024, the amounts reclassified into net earnings in the Company’s Consolidated Statements 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 designated certain foreign currency denominated long-term borrowings as partial hedges of the Company’s foreign currency net asset positions. As of March 31, 2025 and December 31, 2024, the total value of the Company’s net investment hedges was $308.1 million and $295.3 million, respectively. These net investment hedges included Euro and British Pound denominated long-term debt. Changes in the fair value of this debt attributable to changes in the spot foreign exchange rate are recorded in foreign currency translation in Accumulated Other Comprehensive Income (OCI). For the three months ended March 31, 2025 and 2024, the impact of foreign exchange rates on these debt instruments increased debt by $12.8 million and decreased debt by $6.6 million, respectively, which has been recorded as foreign currency translation in OCI.

The effective income tax rates for the three months ended March 31, 2025 and 2024, were 25.4% and 27.0%, respectively. The effective tax rates for the three months ended March 31, 2025 and 2024 were both impacted by changes in estimates associated with the finalization of prior year foreign tax items and the mix of foreign earnings. The effective tax rate for the three months ended March 31, 2024 was further impacted by the limited tax deductibility of costs related to the Portfolio Optimization Plan.

The following table summarizes the changes in OCI during the three-month periods ended March 31, 2025 and 2024:

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.

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On April 24, 2025, the Company announced its quarterly dividend of $0.41 per share would be payable on June 2, 2025.

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