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| SXT > SEC Filings for SXT > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
OVERVIEW
Revenue for the third quarter of 2008 was $318.6 million, an increase of 8.3%
from $294.3 million recorded in the prior year third quarter. For the nine
months ended September 30, 2008, revenue was $958.8 million, an increase of 8.5%
from the comparable period in 2007. Revenue for the Flavors & Fragrances segment
increased by 7.0% and 7.6% for the quarter and nine months ended September 30,
2008, respectively, over the comparable periods last year. Revenue for the Color
segment increased by 12.7% and 10.5% for the quarter and nine months ended
September 30, 2008, respectively, over the comparable periods last year.
Corporate and Other revenue increased by 12.6% and 14.7% for the quarter and
nine months ended September 30, 2008, respectively, over the comparable periods
last year. Additional information on group results can be found in the Segment
Information section.
For the three months ended September 30, 2008 and 2007, the gross profit margin
was 30.1% and 30.2%, respectively. For the nine months ended September 30, 2008
and 2007, the gross profit margin was 30.6% and 30.5%, respectively. In both the
quarter and nine months, increased selling prices offset the impact of higher
energy and raw material costs.
Selling and administrative expenses as a percent of revenue were 17.3% in both
the quarters ended September 30, 2008 and 2007. For the nine months ended
September 30, 2008, selling and administrative expenses as a percent of revenue
improved 30 basis points to 17.5% as revenue increased at a rate greater than
the increase in selling and administrative expenses.
Operating income for the quarter ended September 30, 2008, was $40.9 million, an
increase of 7.1% from $38.1 million for the third quarter of 2007. Operating
income for the nine months ended September 30, 2008, was $125.3 million compared
to $112.3 million for the comparable period in 2007. The change in operating
income for each period was due to the revenue, margin and expense changes
discussed above.
Favorable foreign exchange rates increased revenue and operating profit by 2.4%
and 1.6%, respectively, for the three months ended September 30, 2008, over the
same quarter of 2007. For the nine months ended September 30, 2008, foreign
exchange rates increased revenue by 4.7% and operating income by 5.4% over the
comparable period last year.
Interest expense for the quarter ended September 30, 2008, was $8.0 million, a
decrease of 7.7% from the prior year's quarter. Interest expense for the nine
months ended September 30, 2008, was $25.0 million compared to $27.4 million in
the prior year period. The decreases in the quarter and year-to-date period were
the result of lower interest rates combined with lower average debt balances.
The effective income tax rates were 26.7% and 29.5% for the quarters ended
September 30, 2008 and 2007, respectively. The effective income tax rates were
30.0% and 30.1% for the nine months ended September 30, 2008 and 2007,
respectively. The effective tax rates for the three and nine month periods in
both years were reduced by changes in estimates associated with the finalization
of prior year income tax returns and the resolution of prior years' tax matters.
These reductions were partially offset by a tax rate change for a foreign
operation for the three and nine months ended September 30, 2007. Management
expects the effective tax rate for the remainder of 2008 to be 32.5%, excluding
the income tax expense or benefit related to discrete items, which will be
reported in the quarter in which they occur.
SEGMENT INFORMATION
Beginning in the first quarter of 2008, the Company's operations in China,
previously reported in the Flavors & Fragrances Group, are reported in the
Corporate and Other segment. Results for 2007 have been restated to reflect this
change.
Flavors & Fragrances -
Revenue for the Flavors & Fragrances segment in the third quarter of 2008
increased $13.5 million, or 7.0%, to $206.5 million from $193.0 million for the
same period last year. The increase in revenue was primarily due to higher
revenue in North America ($7.9 million) and improved pricing on sales of
fragrances ($1.1 million).
Favorable foreign currency translation also increased revenue ($4.3 million).
The increase in North America was primarily related to higher prices and
increased volumes.
For the quarter ended September 30, 2008, operating income increased
$2.3 million, or 8.0%, to $31.6 million from $29.2 million last year. The
increase was primarily attributable to higher profit in North America as a
result of the higher revenue. Operating income as a percent of revenue was
15.3%, an increase of 20 basis points from the comparable quarter last year,
primarily due to the reasons provided above.
For the nine months ended September 30, 2008, revenue for the Flavors &
Fragrances segment was $616.1 million, an increase of $43.7 million, or 7.6%,
from $572.3 million reported in the same period last year. The increase in
revenue was primarily due to higher volumes and prices in North America
($16.9 million) and Europe ($2.2 million). Favorable foreign currency
translation also increased revenue ($25.7 million). These increases were
partially offset by lower volume in Latin America ($1.5 million).
Operating income for the nine months ended September 30, 2008, increased
$9.3 million, or 10.9%, to $94.3 million from $85.0 million last year. The
increase in operating income was primarily due to improvements in North America
($7.0 million) and Europe ($1.1 million). Favorable foreign currency translation
also increased operating profit ($2.2 million). These improvements were
partially offset by the impact of lower volumes in Latin America ($1.5 million).
The increases in North America and Europe were primarily due to improved pricing
and higher volumes in dehydrated flavors and other flavors partially offset by
higher energy and raw material costs. Operating income as a percent of revenue
was 15.3%, an increase of 40 basis points from the comparable period last year,
primarily due to the reasons provided above.
Color -
Revenue for the Color segment for the third quarter of 2008 was $102.7 million,
an increase of $11.6 million, or 12.7%, from $91.1 million reported in the prior
year's comparable period. The increase in revenue was primarily due to both
higher volumes and prices of food and beverage colors ($3.6 million), cosmetic
colors ($2.4 million), technical colors ($1.9 million) and pharmaceutical colors
($0.8 million). Favorable foreign currency translation also increased revenue
($2.9 million).
Operating income for the quarter ended September 30, 2008, was $17.7 million, an
increase of $2.0 million, or 12.6%, from $15.8 million reported in the
comparable period last year. The increase was primarily due to higher profit in
technical colors ($1.5 million) partially offset by lower profit from sales of
food and beverage colors due to unfavorable product mix ($0.5 million).
Favorable foreign currency translation also increased operating profit ($0.6
million). The higher profit in technical colors was due to the impact of
increased sales combined with lower costs and the favorable product mix.
Operating income as a percent of revenue of 17.3% was equal to last year's third
quarter.
For the nine months ended September 30, 2008, revenue for the Color segment
increased $29.7 million, or 10.5%, to $312.8 million compared to $283.1 million
in 2007. The increase in revenue was primarily due to increased sales of food
and beverage colors ($5.8 million), cosmetic colors ($5.2 million),
pharmaceutical colors ($1.9 million) and technical colors ($2.1 million).
Favorable foreign currency translation also increased revenue ($14.7 million).
The revenue increases described above were due to both higher prices and volume
increases.
Operating income for the nine months ended September 30, 2008, increased
$5.5 million, or 11.0%, to $55.5 million from $50.0 million in the comparable
period last year. The increase was primarily due to the impact of increased
prices, higher volumes and favorable product mix in technical colors
($3.0 million), and increased prices and higher volumes of pharmaceutical colors
($0.6 million). Favorable foreign currency translation also increased operating
profit ($3.5 million). These items were partially reduced by the lower profit in
food in beverage colors ($1.4 million) primarily due to unfavorable product mix.
Operating income as a percent of revenue was 17.8%, an increase of 10 basis
points from the comparable period last year, primarily due to the reasons
provided above.
LIQUIDITY AND FINANCIAL CONDITION
The Company's ratio of debt to total capital improved to 35.9% as of
September 30, 2008, from 38.4% as of December 31, 2007. The improvement resulted
from an increase in equity, primarily from current year earnings, and a decrease
in total debt funded by cash provided by operating activities. The Company's
debt to EBITDA ratio has improved to 2.3 as of September 30, 2008 from 2.6 as of
December 31, 2007.
Net cash provided by operating activities was $66.3 million for the nine months
ended September 30, 2008, compared to $80.7 million for the comparable period
last year. The decrease in cash provided by operating activities was primarily
due to a larger increase in net working capital this year compared to 2007
partially offset by higher earnings. The increase in working capital was
primarily due to strategic purchases of key raw materials and higher accounts
receivable as a result of strong sales.
Net cash used in investing activities was $31.1 million and $23.6 million for
the nine months ended September 30, 2008 and 2007, respectively. Capital
expenditures were $34.4 million and $25.5 million for the nine months ended
September 30, 2008 and 2007, respectively.
Net cash used in financing activities was $35.5 million and $55.6 million for
the nine months ended September 30, 2008 and 2007, respectively. Net repayments
of debt were $25.1 million and $44.1 million for the first nine months of 2008
and 2007, respectively. For purposes of the cash flow statement, net changes in
debt exclude the impact of foreign exchange rates. Dividends of $26.4 million
and $23.5 million were paid during the nine months ended September 30, 2008 and
2007, respectively, reflecting the Company's increase in the dividend to $0.55
per share in the first nine months of 2008 compared to $0.50 in the same period
of 2007. The Company increased its quarterly dividend to $0.19 per share
effective for the quarterly dividend paid on September 2, 2008, from the
previous rate of $0.18 per share which had been in effect since the third
quarter of 2007. For the first nine months of 2008 and 2007, the net cash
provided by operating activities was sufficient to fund capital expenditures,
pay dividends and reduce borrowings.
The Company's financial position remains strong. Its expected cash flows from
operations and existing lines of credit can be used to meet future cash
requirements for operations, capital expenditures and dividend payments to
shareholders.
In October 2008, the Company completed a new $105 million term loan agreement
with five banks. The term loan allows the Company to make one or more borrowings
on or before April 1, 2009. The proceeds from the term loan will be used to
retire debt that matures in April 2009. The term loan matures on June 15, 2012.
For additional information on the term loan, refer to Note 9 on page 7.
CONTRACTUAL OBLIGATIONS
There have been no material changes in the Company's contractual obligations
during the quarter ended September 30, 2008. For additional information about
contractual obligations, refer to page 23 of the Company's 2007 Annual Report,
portions of which were filed as Exhibit 13.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2007.
OFF-BALANCE SHEET ARRANGEMENTS
The Company had no off-balance sheet arrangements as of September 30, 2008.
CRITICAL ACCOUNTING POLICIES
There have been no material changes in the Company's critical accounting
policies during the quarter ended September 30, 2008. For additional information
about critical accounting policies, refer to pages 21 and 22 of the Company's
2007 Annual Report, portions of which were filed as Exhibit 13.1 to the
Company's Annual Report on Form 10-K for the year ended December 31, 2007.
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