SEGMENT INFORMATION | NOTE 10 – SEGMENT INFORMATION During the first quarter of fiscal year 2015, information that our chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance changed, and as a result, the Company changed its communication to external investors. Therefore, beginning in fiscal year 2015, we are reporting our financial performance based on our new segments; Specialty Products, SensoryEffects, Animal Nutrition & Health, and Industrial Products. We have retrospectively revised certain prior period amounts to conform to the way we internally manage and monitor segment performance during the current fiscal year. Our reportable segments are described below. SensoryEffects Our SensoryEffects segment supplies ingredients in the food and beverage industry; providing customized solutions in powder, solid and liquid flavor delivery systems, spray dried emulsified powder systems, and cereal systems. Our products include creamer systems, dairy replacers, powdered fats, nutritional beverage bases, beverages, juice & dairy bases, chocolate systems, ice cream bases & variegates, ready-to-eat cereals, grain based snacks, and cereal based ingredients. Additionally, we provide microencapsulation solutions to a variety of applications in food, pharmaceutical and nutritional ingredients to enhance performance of nutritional fortification, processing, mixing, and packaging applications and shelf-life. Major product applications are baked goods, refrigerated and frozen dough systems, processed meats, seasoning blends, confections, and nutritional supplements. We also produce and market human grade choline nutrient products through this segment for wellness applications. Choline is recognized to play a key role in the development and structural integrity of brain cell membranes in infants, processing dietary fat, reproductive development and neural functions, such as memory and muscle function. Animal Nutrition & Health Our Animal Nutrition & Health (“ANH”) segment provides nutritional products derived from our microencapsulation and chelation technologies in addition to basic choline chloride. For ruminant animals, our microencapsulated products boost health and milk production, delivering nutrient supplements that are biologically available, providing required nutritional levels. Our proprietary chelation technology provides enhanced nutrient absorption for various species of production and companion animals and is marketed for use in animal feed throughout the world. ANH also manufactures and supplies choline chloride, an essential nutrient for monogastric animal health, predominantly to the poultry, pet and swine industries. Choline, which is manufactured and sold in both dry and aqueous forms, plays a vital role in the metabolism of fat. Choline deficiency can result in reduced growth and perosis in poultry; fatty liver, kidney necrosis and general poor health condition in swine. Sales of specialty products for the animal nutrition and health industry are highly dependent on dairy industry economics as well as the ability of the Company to leverage the results of university and field research on the animal health benefits of the Company’s products. Management believes that success in the commodity-oriented basic choline chloride marketplace is highly dependent on the Company’s ability to maintain its strong reputation for excellent product quality and customer service. The Company continues to increase production efficiencies in order to maintain its competitive-cost position to effectively compete in a competitive global marketplace. Specialty Products Our Specialty Products segment operates commercially as ARC Specialty Products. Ethylene oxide, at the 100% level, is sold as a sterilant gas, primarily for use in the health care industry. It is used to sterilize a wide range of medical devices because of its versatility and effectiveness in treating hard or soft surfaces, composites, metals, tubing and different types of plastics without negatively impacting the performance of the device being sterilized. Our 100% ethylene oxide product is distributed in uniquely designed, recyclable, double-walled, stainless steel drums to assure compliance with safety, quality and environmental standards as outlined by the EPA and the DOT. Our inventory of these specially built drums, along with our two filling facilities, represents a significant capital investment. Contract sterilizers and medical device manufacturers are principal customers for this product. We also sell single use canisters with 100% ethylene oxide for use in sterilizing re-usable devices typically processed in autoclave units in hospitals. As a fumigant, ethylene oxide blends are highly effective in killing bacteria, fungi, and insects in spices and other seasoning materials. Propylene oxide is marketed and sold as a fumigant to aid in the control of insects and microbiological spoilage; and to reduce bacterial and mold contamination in certain shell and processed nut meats, processed spices, cacao beans, cocoa powder, raisins, figs and prunes. We distribute our propylene oxide product primarily in recyclable, single-walled, carbon steel cylinders according to standards outlined by the EPA and the DOT. Our inventory of these cylinders also represents a significant capital investment. Propylene oxide is also sold to customers seeking smaller (as opposed to bulk) quantities and whose requirements include utilization in various chemical synthesis applications, such as increasing paint durability and manufacturing specialty starches and textile coatings. Industrial Products Certain derivatives of choline chloride are manufactured and sold into industrial applications predominately as a component for hydraulic fracturing of shale natural gas wells. Our products offer an attractive, effective and more environmentally responsible alternative than other clay stabilizers. Industrial grade Choline Bicarbonate is completely chloride free and our Choline Chloride reduces the amount of chlorides released into the environment up to 75% when compared to potassium chloride. The Industrial Products segment also includes the manufacture and sale of methylamines. Methylamines are a primary building block for the manufacture of choline products and are produced at our Italian operation and sold for a wide range of industrial applications in Europe. Business Segment Assets: September 30, 2015 December 31, 2014 SensoryEffects $ 647,135 $ 656,130 Animal Nutrition & Health 102,672 90,650 Specialty Products 25,616 24,913 Industrial Products 20,239 32,330 Other Unallocated 86,932 57,508 Total $ 882,594 $ 861,531 Depreciation/Amortization: Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 SensoryEffects $ 7,594 $ 7,860 $ 22,766 $ 12,956 Animal Nutrition & Health 1,703 1,230 4,831 4,603 Specialty Products 288 332 929 1,045 Industrial Products 192 713 832 1,292 Total $ 9,777 $ 10,135 $ 29,358 $ 19,896 Capital Expenditures: Nine Months Ended September 30, 2015 2014 SensoryEffects $ 12,663 $ 1,738 Animal Nutrition & Health 13,711 2,519 Specialty Products 750 608 Industrial Products 993 1,069 Total $ 28,117 $ 5,934 Business Segment Net Sales: Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 SensoryEffects $ 72,978 $ 71,821 $ 207,965 $ 133,170 Animal Nutrition & Health 39,947 45,805 124,295 129,879 Specialty Products 13,818 13,652 41,202 40,086 Industrial Products 13,385 29,212 46,301 75,580 Total $ 140,128 $ 160,490 $ 419,763 $ 378,715 Business Segment Earnings Before Income Taxes: Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 SensoryEffects $ 11,604 $ 8,743 $ 28,397 $ 14,218 Animal Nutrition & Health 5,625 6,953 21,603 16,622 Specialty Products 6,031 5,306 17,825 15,576 Industrial Products 1,124 4,776 5,371 12,074 Unallocated equity compensation (1,462 ) - (1,462 ) - Transaction and integration costs - (494 ) - (3,342 ) Interest and other income (expense) (1,733 ) (2,075 ) (5,294 ) (3,276 ) Total $ 21,189 $ 23,209 $ 66,440 $ 51,872 Unallocated equity compensation expense was related to the accelerated vesting of previously-granted unvested options to purchase Company common stock, and removal of the restrictions on previously-granted Restricted Stock. Transaction and integration costs were primarily related to the definitive agreement to acquire Performance Chemicals & Ingredients Company (d/b/a SensoryEffects; see Note 2). The following table summarizes domestic (U.S.) and foreign sales for the three and nine months ended September 30, 2015 and 2014: Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Domestic $ 112,859 $ 124,088 $ 337,638 $ 278,422 Foreign 27,269 36,402 82,125 100,293 Total $ 140,128 $ 160,490 $ 419,763 $ 378,715 |