ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Revenue for the first quarter of 2009 was $282.8 million, a decrease of 8.0% from $307.4 million recorded in the prior year first quarter. The impact of foreign exchange rates reduced consolidated revenue by 9.4% in the current quarter. Revenue for the Flavors & Fragrances segment decreased 4.5% for the quarter ended March 31, 2009, from the comparable quarter last year. First quarter revenue for the Color segment decreased 15.3% from the first quarter of 2008. Corporate and Other revenue decreased 10.9% for the quarter ended March 31, 2009, from the comparable quarter last year. The impact of foreign exchange rates decreased revenue for the Flavors & Fragrances Group by 8.7%, the Color Group by 10.7% and Corporate and Other by 10.5%. Additional information on group results can be found in the Segment Information section.
The gross profit margin decreased 50 basis points to 30.6% for the quarter ended March 31, 2009, from 31.1% for the same period in 2008. The Color Group experienced increased raw material costs in the quarter that were not fully offset by increases in selling prices. The Group expects to realize increases in selling prices and improvements in raw material costs beginning in the second quarter.
Selling and administrative expenses as a percent of revenue were 17.0% in the first quarter of 2009 compared to 18.2% in the comparable 2008 quarter. The decrease is due to the Company's continued focus on controlling selling and administrative expenses combined with lower expense for performance based compensation.
Operating income for the quarter ended March 31, 2009, was $38.4 million, a decrease of 3.2% from $39.6 million for the first quarter of 2008. The impact of foreign exchange rates reduced operating income by 11.6% in the quarter. The change in operating income was due to the revenue, margin and expense changes discussed above. Additional information can be found in the Segment Information section.
Interest expense for the first quarter of 2009 was $7.2 million, a decrease of 15.5% from the prior year's quarter. The decrease in the quarter was the result of lower average debt balances and lower interest rates.
The effective income tax rates were 30.6% and 33.4% for the quarters ended March 31, 2009 and 2008, respectively. The effective tax rate for the first quarter of 2009 was reduced by changes in estimates associated with the finalization of prior year foreign income tax returns. The effective tax rate for the first quarter of 2008 was increased by changes in estimates associated with the finalization of prior year income tax returns. Management expects the effective tax rate for the remainder of 2009 to be 32.5%, excluding the income tax expense or benefit related to discrete items, which will be reported separately in the quarter in which they occur.
SEGMENT INFORMATION
Beginning in the first quarter of 2009, the Company's operations in Japan, previously reported in Flavors & Fragrances Group, are reported with the Asia Pacific Group. The Asia Pacific Group is included in the Corporate and Other segment. Results for 2008 have been restated to reflect this change. Flavors & Fragrances -
Revenue for the Flavors & Fragrances segment in the first quarter of 2009 decreased 4.5% to $184.5 million from $193.2 million for the same period last year. The unfavorable impact of foreign exchange rates reduced Group revenue by $16.8 million, or 8.7%, in the quarter. Excluding the impact of foreign exchange rates, increased revenue was reported in North America ($4.6 million), Europe ($2.0 million) and Latin America ($1.5 million) primarily as a result of higher selling prices and volumes in certain markets including Canada and Europe. For the quarter ended March 31, 2009, operating income increased 4.0% to $30.0 million from $28.8 million last year. The increase was primarily attributable to higher profit in North America ($1.6 million), Europe ($0.7 million) and Latin America ($0.7 million). The unfavorable impact of exchange rates decreased operating income by approximately $2.3 million, or 8.1%. The increased profit in the above markets was primarily due to improved pricing partially offset by higher raw material and energy costs. Operating income as a percent of revenue was 16.2%, an increase of 130 basis points from the comparable quarter last year, primarily due to the reasons provided above.

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Color -
Revenue for the Color segment for the first quarter of 2009 was $87.1 million compared to $102.8 million reported in the prior year's first quarter. The decrease in revenue was primarily due to the unfavorable effect of foreign exchange rates ($11.0 million), lower sales of technical colors ($3.2 million) and lower sales of cosmetic colors ($1.7 million). Sales of food and beverage colors were up slightly in the quarter. The lower sales of technical and cosmetic colors were primarily due to lower volumes as a result of the current economic conditions.
Operating income for the quarter ended March 31, 2009, was $13.7 million versus $18.5 million in the comparable period last year. The decrease was primarily due to the unfavorable impact of foreign exchange rates ($2.1 million), lower profit from the sale of food and beverage colors ($1.8 million) and lower profit in cosmetic colors ($0.6 million). The lower profit in food and beverage colors was primarily driven by increased raw material costs. The Group expects margins will improve over the remainder of 2009 as a result of increased selling prices and reduced raw material costs. Operating income as a percent of revenue was 15.8% compared to 18.0% in the prior year's quarter.
LIQUIDITY AND FINANCIAL CONDITION
The Company's ratio of debt to total capital improved to 36.7% as of March 31, 2009, from 37.0% as of December 31, 2008. The improvement was due to lower outstanding debt balances partially offset by lower equity.
Net cash provided by operating activities was $17.5 million for the quarter ended March 31, 2009, compared to $9.7 million for the comparable period last year. The increase in cash provided by operating activities was primarily due to less cash required to fund working capital increases in the first quarter of 2009 compared to the same period in 2008.
Net cash used in investing activities was $8.9 million and $10.6 million for the three months ended March 31, 2009 and 2008, respectively. Capital expenditures were $8.8 million and $12.1 million for the quarters ended March 31, 2009 and 2008, respectively.
Net cash used in financing activities was $9.0 million in the first quarter of 2009 compared to net cash provided by financing activities of $2.9 million for the quarter ended March 31, 2008. In the first quarter of 2009, net repayments on debt were $2.0 million compared to net proceeds from additional borrowings of debt $6.0 million for the first three months of 2008. For purposes of the cash flow statement, net changes in debt exclude the impact of foreign exchange rates. Dividends of $9.2 million and $8.6 million were paid during the three months ended March 31, 2009 and 2008, respectively, reflecting the Company's higher dividend of $0.19 per share in the first quarter of 2009 compared to $0.18 per share in the same period in 2008. In the first quarter of 2009, the Company's cash provided from operations was able to fund capital expenditures and pay dividends.
The Company's financial position remains strong. In the first quarter of 2009, the Company borrowed under its term loan that was completed in October 2008. The proceeds from this term loan were used to retire maturing debt. The Company expects that its 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.
CONTRACTUAL OBLIGATIONS
There have been no material changes in the Company's contractual obligations during the quarter ended March 31, 2009. For additional information about contractual obligations, refer to page 23 of the Company's 2008 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, 2008.
OFF-BALANCE SHEET ARRANGEMENTS
The Company had no off-balance sheet arrangements as of March 31, 2009.
CRITICAL ACCOUNTING POLICIES
There have been no material changes in the Company's critical accounting policies during the quarter ended March 31, 2009. For additional information about critical accounting policies, refer to pages 21 and 22 of the Company's 2008 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, 2008.

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