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Section 1: 10-Q (10-Q)



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, 2019
 

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 October 31, 2019
Common Stock, par value $0.10 per share
 
42,318,528







SENSIENT TECHNOLOGIES CORPORATION
INDEX

   
Page No.
       
PART I. FINANCIAL INFORMATION:
 
       
 
Item 1.
Financial Statements:
 
       
   
1
       
   
2
       
   
3
       
   
4
       
   
5
       
   
6
       
 
Item 2.
17
       
 
Item 3.
22
       
 
Item 4.
22
       
PART II. OTHER INFORMATION:
 
       
 
Item 1.
23
       
 
Item 1A.
24
       
 
Item 2.
24
       
 
Item 6.
24
       
   
25
       
   
26



Index
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,
 
   
2019
   
2018
   
2019
   
2018
 
                         
Revenue
 
$
317,650
   
$
342,734
   
$
1,004,349
   
$
1,062,252
 
                                 
Cost of products sold
   
215,250
     
227,161
     
674,956
     
702,138
 
                                 
Selling and administrative expenses
   
63,612
     
65,309
     
193,817
     
201,988
 
                                 
Operating income
   
38,788
     
50,264
     
135,576
     
158,126
 
                                 
Interest expense
   
4,936
     
5,407
     
15,538
     
16,517
 
                                 
Earnings before income taxes
   
33,852
     
44,857
     
120,038
     
141,609
 
                                 
Income taxes (benefit)
   
1,981
     
(2,336
)
   
21,029
     
17,099
 
                                 
Net earnings
 
$
31,871
   
$
47,193
   
$
99,009
   
$
124,510
 
                                 
Weighted average number of shares outstanding:
                               
Basic
   
42,272
     
42,240
     
42,261
     
42,464
 
Diluted
   
42,299
     
42,313
     
42,291
     
42,571
 
                                 
Earnings per common share:
                               
Basic
 
$
0.75
   
$
1.12
   
$
2.34
   
$
2.93
 
Diluted
 
$
0.75
   
$
1.12
   
$
2.34
   
$
2.92
 
                                 
Dividends declared per common share
 
$
0.36
   
$
0.33
   
$
1.08
   
$
0.99
 

See accompanying notes to consolidated condensed financial statements.


1

Index

SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2019
   
2018
   
2019
   
2018
 
                         
Comprehensive Income
 
$
14,104
   
$
47,961
   
$
83,254
   
$
112,496
 

See accompanying notes to consolidated condensed financial statements.

2

Index


SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)

ASSETS
 
September 30, 2019
(Unaudited)
   
December 31, 2018
 
             
CURRENT ASSETS:
           
Cash and cash equivalents
 
$
34,422
   
$
31,901
 
Trade accounts receivable, net
   
244,610
     
255,350
 
Inventories
   
470,136
     
490,757
 
Prepaid expenses and other current assets
   
43,193
     
44,857
 
                 
TOTAL CURRENT ASSETS
   
792,361
     
822,865
 
                 
OTHER ASSETS
   
82,560
     
66,788
 
DEFERRED TAX ASSETS
   
10,942
     
9,189
 
INTANGIBLE ASSETS, NET
   
16,883
     
18,867
 
GOODWILL
   
406,053
     
416,175
 
                 
PROPERTY, PLANT, AND EQUIPMENT:
               
Land
   
35,894
     
36,787
 
Buildings
   
319,472
     
318,463
 
Machinery and equipment
   
700,030
     
688,003
 
Construction in progress
   
28,656
     
34,772
 
     
1,084,052
     
1,078,025
 
Less accumulated depreciation
   
(614,294
)
   
(586,969
)
     
469,758
     
491,056
 
                 
TOTAL ASSETS
 
$
1,778,557
   
$
1,824,940
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES:
               
Trade accounts payable
 
$
103,557
   
$
131,812
 
Accrued salaries, wages, and withholdings from employees
   
21,208
     
23,410
 
Other accrued expenses
   
44,391
     
31,198
 
Income taxes
   
2,828
     
8,234
 
Short-term borrowings
   
20,207
     
20,046
 
                 
TOTAL CURRENT LIABILITIES
   
192,191
     
214,700
 
                 
DEFERRED TAX LIABILITIES
   
28,159
     
28,976
 
OTHER LIABILITIES
   
20,568
     
8,554
 
ACCRUED EMPLOYEE AND RETIREE BENEFITS
   
23,999
     
23,210
 
LONG-TERM DEBT
   
616,967
     
689,553
 
                 
SHAREHOLDERS’ EQUITY:
               
Common stock
   
5,396
     
5,396
 
Additional paid-in capital
   
98,347
     
101,663
 
Earnings reinvested in the business
   
1,569,564
     
1,516,243
 
Treasury stock, at cost
   
(595,324
)
   
(597,800
)
Accumulated other comprehensive loss
   
(181,310
)
   
(165,555
)
                 
TOTAL SHAREHOLDERS’ EQUITY
   
896,673
     
859,947
 
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
 
$
1,778,557
   
$
1,824,940
 

See accompanying notes to consolidated condensed financial statements.

3

Index


SENSIENT TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Nine Months Ended
September 30,
 
   
2019
   
2018
 
             
Cash flows from operating activities:
           
Net earnings
 
$
99,009
   
$
124,510
 
Adjustments to arrive at net cash provided by operating activities:
               
Depreciation and amortization
   
41,706
     
39,057
 
Share-based compensation
   
(816
)
   
1,541
 
Net (gain) loss on assets
   
(1,224
)
   
311
 
Deferred income taxes
   
(2,303
)
   
3,152
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
6,355
     
(111,283
)
Inventories
   
14,493
     
(25,044
)
Prepaid expenses and other assets
   
(5,053
)
   
(3,118
)
Accounts payable and accrued expenses
   
(19,565
)
   
(9,266
)
Salaries, wages and withholdings from employees
   
(1,647
)
   
(782
)
Income taxes
   
(5,294
)
   
(12,647
)
Other deferred liabilities
   
1,920
     
2,429
 
                 
Net cash provided by operating activities
   
127,581
     
8,860
 
                 
Cash flows from investing activities:
               
Acquisition of property, plant, and equipment
   
(26,073
)
   
(34,090
)
Cash receipts on sold receivables
   
-
     
91,142
 
Proceeds from sale of assets
   
2,033
     
283
 
Acquisition of new businesses
   
-
     
(31,100
)
Other investing activity
   
4,280
     
616
 
                 
Net cash (used in) provided by investing activities
   
(19,760
)
   
26,851
 
                 
Cash flows from financing activities:
               
Proceeds from additional borrowings
   
35,126
     
248,426
 
Debt payments
   
(90,966
)
   
(158,214
)
Purchase of treasury stock
   
-
     
(76,734
)
Dividends paid
   
(45,688
)
   
(42,195
)
Other financing activity
   
(1,027
)
   
(2,777
)
                 
Net cash used in financing activities
   
(102,555
)
   
(31,494
)
                 
Effect of exchange rate changes on cash and cash equivalents
   
(2,745
)
   
3,199
 
                 
Net increase in cash and cash equivalents
   
2,521
     
7,416
 
Cash and cash equivalents at beginning of period
   
31,901
     
29,344
 
                 
Cash and cash equivalents at end of period
 
$
34,422
   
$
36,760
 

See accompanying notes to consolidated condensed financial statements.

4

Index


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
       
Nine Months Ended September 30, 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
   
-
     
-
     
99,009
     
-
     
-
     
-
     
99,009
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
(15,755
)
   
(15,755
)
Cash dividends paid - $1.08 per share
   
-
     
-
     
(45,688
)
   
-
     
-
     
-
     
(45,688
)
Share-based compensation
   
-
     
(816
)
   
-
     
-
     
-
     
-
     
(816
)
Non-vested stock issued upon vesting
   
-
     
(2,343
)
   
-
     
(45,981
)
   
2,343
     
-
     
-
 
Benefit plans
   
-
     
72
     
-
     
(18,597
)
   
948
     
-
     
1,020
 
Other
   
-
     
(229
)
   
-
     
15,991
     
(815
)
   
-
     
(1,044
)
Balances at September 30, 2019
 
$
5,396
   
$
98,347
   
$
1,569,564
     
11,682,636
   
$
(595,324
)
 
$
(181,310
)
 
$
896,673
 
                                                         
Three Months Ended September 30, 2019
                                                       
Balances at June 30, 2019
 
$
5,396
   
$
98,037
   
$
1,552,928
     
11,682,876
   
$
(595,336
)
 
$
(163,543
)
 
$
897,482
 
Net earnings
   
-
     
-
     
31,871
     
-
     
-
     
-
     
31,871
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
(17,767
)
   
(17,767
)
Cash dividends paid - $0.36 per share
   
-
     
-
     
(15,235
)
   
-
     
-
     
-
     
(15,235
)
Share-based compensation
   
-
     
339
     
-
     
-
     
-
     
-
     
339
 
Non-vested stock issued upon vesting
   
-
     
(12
)
   
-
     
(240
)
   
12
     
-
     
-
 
Other
   
-
     
(17
)
   
-
     
-
     
-
     
-
     
(17
)
Balances at September 30, 2019
 
$
5,396
   
$
98,347
   
$
1,569,564
     
11,682,636
   
$
(595,324
)
 
$
(181,310
)
 
$
896,673
 
                                                         
Nine Months Ended September 30, 2018
                                                       
Balances at December 31, 2017
 
$
5,396
   
$
107,176
   
$
1,414,485
     
10,759,291
   
$
(525,422
)
 
$
(149,334
)
 
$
852,301
 
Net earnings
   
-
     
-
     
124,510
     
-
     
-
     
-
     
124,510
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
(12,014
)
   
(12,014
)
Cash dividends paid - $0.99 per share
   
-
     
-
     
(42,195
)
   
-
     
-
     
-
     
(42,195
)
Share-based compensation
   
-
     
1,541
     
-
     
-
     
-
     
-
     
1,541
 
Stock options exercised
   
-
     
(80
)
   
-
     
(4,000
)
   
200
     
-
     
120
 
Non-vested stock issued upon vesting
   
-
     
(5,454
)
   
-
     
(111,185
)
   
5,454
     
-
     
-
 
Benefit plans
   
-
     
350
     
-
     
(15,126
)
   
769
     
-
     
1,119
 
Purchase of treasury stock
   
-
     
-
     
-
     
1,060,000
     
(76,734
)
   
-
     
(76,734
)
Other
   
-
     
(830
)
   
418
     
42,243
     
(2,067
)
   
-
     
(2,479
)
Balances at September 30, 2018
 
$
5,396
   
$
102,703
   
$
1,497,218
     
11,731,223
   
$
(597,800
)
 
$
(161,348
)
 
$
846,169
 
                                                         
Three Months Ended September 30, 2018
                                                       
Balances at June 30, 2018
 
$
5,396
   
$
102,943
   
$
1,463,976
     
11,671,223
   
$
(593,770
)
 
$
(162,116
)
 
$
816,429
 
Net earnings
   
-
     
-
     
47,193
     
-
     
-
     
-
     
47,193
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
-
     
768
     
768
 
Cash dividends paid - $0.33 per share
   
-
     
-
     
(13,951
)
   
-
     
-
     
-
     
(13,951
)
Share-based compensation
   
-
     
(242
)
   
-
     
-
     
-
     
-
     
(242
)
Purchase of treasury stock
   
-
     
-
     
-
     
60,000
     
(4,030
)
   
-
     
(4,030
)
Other
   
-
     
2
     
-
     
-
     
-
     
-
     
2
 
Balances at September 30, 2018
 
$
5,396
   
$
102,703
   
$
1,497,218
     
11,731,223
   
$
(597,800
)
 
$
(161,348
)
 
$
846,169
 

See accompanying notes to consolidated condensed financial statements.

5

Index


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, 2019, and the results of operations, comprehensive income, and shareholders’ equity for the three and nine months ended September 30, 2019 and 2018, and cash flows for the nine months ended September 30, 2019 and 2018. 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, 2018, 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 Lease and Derivative Financial Instruments accounting policies. These policies were updated as a result of the Company’s adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, in the first quarter of 2019 and are described below.

Leases
The Company enters into lease agreements for certain office space, warehouses, land, and equipment in the ordinary course of business. The Company determines if an arrangement is a lease at inception and evaluates the lease classification (i.e., operating lease or financing lease) at that time. Lease arrangements with an initial term of 12 months or less are considered short-term leases and are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the term of the lease.

Operating leases are included in Other Assets, Other Accrued Expenses, and Other Liabilities on the Company’s Consolidated Condensed Balance Sheet. Operating lease right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

The Company uses its incremental borrowing rate on the commencement date for determining the present value of lease payments. The Company considers the likelihood of exercising options to extend or terminate the lease when determining the lease term.

The Company has lease agreements with lease and non-lease components. The Company has elected the practical expedient of accounting for the lease and non-lease components of each lease as a single lease component.

Derivative Financial Instruments
The Company selectively uses derivative financial instruments to reduce market risk associated with changes in foreign currency and interest rate exposures that exist as part of ongoing business operations. All derivative transactions are authorized and executed pursuant to the Company’s risk management policies and procedures, which strictly prohibit the use of financial instruments for speculative trading purposes.

The primary objectives of the foreign exchange risk management activities are to understand and mitigate the impact of potential foreign exchange fluctuations on the Company’s financial results and its economic well-being. Changes in the fair value of derivatives that are designated as fair value hedges, along with the gain or loss on the hedged item, are recorded in current period earnings. Generally, these risk management transactions may involve the use of foreign currency derivatives to protect against exposure resulting from recorded accounts receivable and payable. The Company may utilize forward exchange contracts, generally with maturities of less than 18 months, that qualify as cash flow hedges. Generally, these foreign exchange contracts are intended to offset the effect of exchange rate fluctuations on non-functional currency denominated sales and purchases. For derivative instruments that are designated as cash flow hedges, gains and losses, including any hedge ineffectiveness, are deferred in accumulated other comprehensive income (OCI) until the underlying transaction is recognized in earnings.

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Hedge effectiveness is determined by how closely the changes in the fair value of the hedging instrument offset the changes in the fair value or cash flows of the hedged item. Hedge accounting is permitted only if the hedging relationship is expected to be highly effective at the inception of the transaction and on an ongoing basis.

Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, Leases (Topic 842), 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. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides an additional transition method allowing entities to apply the new lease standard at the adoption date. The Company adopted each of these standards in the first quarter of 2019 using the optional transition method allowed under ASU No. 2018-11. The Company elected the following practical expedients permitted within the standard:

1.
The Company will not re-assess an expired or existing contract to determine if it is a lease or contains a lease.
2.
The Company will not re-assess the lease classification for an existing lease based on the new standard’s lease classification criteria.
3.
The Company will not re-assess the accounting treatment for initial direct costs on existing leases based on the new standard’s guidance.
4.
The Company will account for the lease and non-lease components as a single lease component for all leases.

The adoption of this standard resulted in the recognition of $20.7 million in right-of-use assets and lease liabilities for operating leases as of January 1, 2019. The adoption of this standard did not have an impact on the Company’s Consolidated 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 August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): 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 adopted this standard in the first quarter of 2019, and the adoption did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the current incurred loss impairment model with a methodology that reflects expected credit losses. Under the new methodology, entities will be 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. Adoption of this guidance is required for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual periods beginning after December 15, 2018. For most instruments, entities must apply the standard using a cumulative effect adjustment to beginning retained earnings as of the beginning of the fiscal year of adoption. The Company has established a project plan and an implementation team to adopt and apply the new standard. The Company is in the process of implementing necessary changes to accounting policies, processes, controls, and systems to enable compliance with this new standard. The Company continues to evaluate the impact the adoption of this standard will have on its Consolidated Financial Statements and related disclosures.

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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. This standard will be applied prospectively and is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the expected impact of this standard.

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. Adoption of this guidance is required for interim and annual periods beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the expected impact of this standard.

Please refer to the notes in the Company’s annual consolidated financial statements for the year ended December 31, 2018, 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 March 9, 2018, the Company completed the acquisition of certain net assets and the natural color business of GlobeNatural, a company based in Lima, Peru. The Company paid $10.8 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 Company acquired net assets of $1.4 million and identified intangible assets, principally customer relationships of $2.0 million, and allocated the remaining $7.4 million to goodwill. These operations are included in the Color segment.

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 Company acquired net assets of $4.0 million and identified intangible assets, principally technological know-how, of $6.9 million. The remaining $8.9 million was allocated to goodwill. This business was included in Corporate & Other in 2018. Beginning in the first quarter of 2019, the results of operations of this business are now reported in the Color segment. The results for 2018 have been restated to reflect this change.

3.
Fair Value

Accounting Standards Codification (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. 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, 2019. 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, 2019, was $617.0 million. The fair value of the long-term debt at September 30, 2019, was $636.3 million.


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Index


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, 2019:
                             
Revenue from external customers
 
$
163,870
   
$
123,710
   
$
30,070
   
$
-
   
$
317,650
 
Intersegment revenue
   
3,707
     
3,295
     
55
     
-
     
7,057
 
Total revenue
 
$
167,577
   
$
127,005
   
$
30,125
   
$
-
   
$
324,707
 
                                         
Operating income (loss)
 
$
17,600
   
$
23,436
   
$
5,406
   
$
(7,654
)
 
$
38,788
 
Interest expense
   
-
     
-
     
-
     
4,936
     
4,936
 
Earnings (loss) before income taxes
 
$
17,600
   
$
23,436
   
$
5,406
   
$
(12,590
)
 
$
33,852
 
                                         
Three months ended September 30, 2018:
                                       
Revenue from external customers
 
$
179,103
   
$
132,356
   
$
31,275
   
$
-
   
$
342,734
 
Intersegment revenue
   
5,294
     
2,774
     
-
     
-
     
8,068
 
Total revenue
 
$
184,397
   
$
135,130
   
$
31,275
   
$
-
   
$
350,802
 
                                         
Operating income (loss)
 
$
24,814
   
$
26,565
   
$
5,750
   
$
(6,865
)
 
$
50,264
 
Interest expense
   
-
     
-
     
-
     
5,407
     
5,407
 
Earnings (loss) before income taxes
 
$
24,814
   
$
26,565
   
$
5,750
   
$
(12,272
)
 
$
44,857
 


(In thousands)
 
Flavors &
Fragrances
   
Color
   
Asia
Pacific
   
Corporate
& Other
   
Consolidated
 
Nine months ended September 30, 2019:
                             
Revenue from external customers
 
$
517,148
   
$
399,610
   
$
87,591
   
$
-
   
$
1,004,349
 
Intersegment revenue
   
14,116
     
10,186
     
55
     
-
     
24,357
 
Total revenue
 
$
531,264
   
$
409,796
   
$
87,646
   
$
-
   
$
1,028,706
 
                                         
Operating income (loss)
 
$
60,775
   
$
81,512
   
$
13,825
   
$
(20,536
)
 
$
135,576
 
Interest expense
   
-
     
-
     
-
     
15,538
     
15,538
 
Earnings (loss) before income taxes
 
$
60,775
   
$
81,512
   
$
13,825
   
$
(36,074
)
 
$
120,038
 
                                       
Nine months ended September 30, 2018:
                                       
Revenue from external customers
 
$
553,403
   
$
416,786
   
$
92,063
   
$
-
   
$
1,062,252
 
Intersegment revenue
   
17,998
     
9,795
     
-
     
-
     
27,793
 
Total revenue
 
$
571,401
   
$
426,581
   
$
92,063
   
$
-
   
$
1,090,045
 
                                         
Operating income (loss)
 
$
74,142
   
$
91,370
   
$
15,256
   
$
(22,642
)
 
$
158,126
 
Interest expense
   
-
     
-
     
-
     
16,517
     
16,517
 
Earnings (loss) before income taxes
 
$
74,142
   
$
91,370
   
$
15,256
   
$
(39,159
)
 
$
141,609
 

The Company evaluates performance based on operating income of the respective segments before restructuring and other costs, interest expense, and income taxes. There were no restructuring and other costs incurred in either the first nine months of 2019 or 2018.

In July 2018, the Company completed the acquisition of Mazza Innovation Limited (See Note 2, Acquisitions, for further information). This business was included in Corporate & Other in 2018. Beginning in the first quarter of 2019, the results of operations of this business are now reported in the Color segment. The results for 2018 have been restated to reflect this change.


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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.

Product Lines


(In thousands)
 
Flavors &
Fragrances
   
Color
   
Asia
Pacific
   
Consolidated
 
Three months ended September 30, 2019:
                       
Flavors
 
$
89,604
   
$
-
   
$
-
   
$
89,604
 
Natural Ingredients
   
53,220
     
-
     
-
     
53,220
 
Fragrances
   
24,753
     
-
     
-
     
24,753
 
Food & Beverage Colors
   
-
     
73,383
     
-
     
73,383
 
Cosmetics
   
-
     
32,080
     
-
     
32,080
 
Other Colors
   
-
     
21,542
     
-
     
21,542
 
Asia Pacific
   
-
     
-
     
30,125
     
30,125
 
Intersegment Revenue
   
(3,707
)
   
(3,295
)
   
(55
)
   
(7,057
)
Total revenue from external customers
 
$
163,870
   
$
123,710
   
$
30,070
   
$
317,650
 
                                 
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
   
-
     
23,140
     
-
     
23,140
 
Asia Pacific
   
-
     
-
     
31,275
     
31,275
 
Intersegment Revenue
   
(5,294
)
   
(