SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
AMENDMENT NO.1 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
January 17, 2001 (Date of report)
---------------------------------
November 3, 2000 (Date of earliest event reported)
--------------------------------------------------
INTERNATIONAL FLAVORS & FRAGRANCES INC.
---------------------------------------
(Exact name of registrant as specified in its charter)
New York
--------
(State or other jurisdiction of incorporation)
1-4858 13-1432060
(Commission File Number) (IRS Employer Identification No.)
521 West 57th Street, New York, New York 10019
---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(212) 765-5500
--------------
(Registrant's telephone number, including area code)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On Friday, November 3, 2000, at 12:00 midnight, the cash tender offer
(the "Offer") by B Acquisition Corp. ("Merger Subsidiary"), a Virginia
corporation and a wholly owned subsidiary of International Flavors &
Fragrances Inc. ("IFF"), for all of the outstanding shares of common stock,
par value $1.00 per share ("BBA Common Stock"), of Bush Boake Allen Inc., a
Virginia corporation ("BBA") expired. On November 6, 2000, Merger
Subsidiary accepted for payment 18,833,316 shares, or approximately 97% of
the outstanding shares, of BBA Common Stock at $48.50 per share. The Offer
was effected pursuant to an Agreement and Plan of Merger, dated as of
September 25, 2000 (the "Merger Agreement"), among BBA, IFF and Merger
Subsidiary.
Following the Offer, on November 9, 2000, Merger Subsidiary merged
with and into BBA pursuant to Section 13.1-719 of the Virginia Stock
Corporation Act, and BBA became a wholly owned subsidiary of IFF, with each
remaining outstanding share of BBA Common Stock converted into the right to
receive $48.50 per share pursuant to the Merger Agreement.
IFF acquired all of the outstanding shares of BBA Common Stock for an
aggregate consideration of approximately $970 million in cash. The purchase
price of $48.50 for each share of BBA Common Stock was established by
negotiation at the time of the Merger Agreement.
The acquisition consideration was paid by IFF from funds borrowed
under a credit facility provided by Citibank and Salomon Smith Barney and
from proceeds from the issuance of commercial paper.
BBA, which conducts operations on six continents, has 60 locations in
38 countries worldwide. BBA supplies flavors and fragrances to the world's
leading consumer products companies for use in foods, beverages, soaps and
detergents, cosmetics, toiletries, personal care items and related
products. Its aroma chemicals, natural extracts and essential oils serve as
raw materials for a wide range of compounded flavors and fragrances. BBA
had 1999 worldwide sales of $499 million. IFF currently expects to continue
such uses for BBA's assets; provided that IFF may determine to redeploy or
dispose of certain assets if it believes it is advantageous to do so.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired.
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
(Restated)
Year Ended December 25, 1999 1998 1997
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales ................................. $499,037 $485,374 $490,585
Costs and other charges:
Cost of goods sold ...................... 334,491 311,266 313,527
Selling and administrative expenses ..... 97,999 92,235 98,076
Research and development expenses ....... 25,398 25,228 23,640
-------------------------------------------------------------------------------------
Income from operations .................... 41,149 56,645 55,342
Interest expense .......................... 2,322 3,326 3,075
Other (income) expense, net ............... 4,348 2,852 3,362
-------------------------------------------------------------------------------------
Income before income taxes ................ 34,479 50,467 48,905
Income taxes .............................. 13,199 16,894 16,361
-------------------------------------------------------------------------------------
Net income ................................ $ 21,280 $ 33,573 $ 32,544
-------------------------------------------------------------------------------------
Net income per share - basic .............. $1.10 $1.74 $1.69
- diluted ............ $1.10 $1.73 $1.68
-------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ IN THOUSANDS)
(Restated)
Year Ended December 25, 1999 1998 1997
----------------------------------------------------------------------------------------
Net income ....................................... $21,280 $33,573 $32,544
Other comprehensive (income) expense, net of tax:
Foreign currency translation adjustments ....... 8,015 1,992 6,403
----------------------------------------------------------------------------------------
Total other comprehensive (income) expense ....... 8,015 1,992 6,403
----------------------------------------------------------------------------------------
Comprehensive income ............................. $13,265 $31,581 $26,141
----------------------------------------------------------------------------------------
See the accompanying notes to the Consolidated Financial Statements.
</TABLE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
(Restated)
As of December 25, 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ................................ $ 9,338 $ 11,072
Receivables, net ......................................... 93,370 93,109
Inventories .............................................. 100,374 109,970
Other .................................................... 11,255 10,225
---------------------------------------------------------------------------------------
Total current assets .................................. 214,337 224,376
Property, plant and equipment, net ....................... 194,999 190,929
Other assets ............................................. 54,684 50,754
---------------------------------------------------------------------------------------
Total Assets .......................................... $464,020 $466,059
---------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current maturities ..................... $ 9,551 $ 17,307
Accounts payable ......................................... 37,689 42,617
Accrued liabilities ...................................... 31,248 27,756
Income and other taxes ................................... 3,954 4,421
---------------------------------------------------------------------------------------
Total current liabilities ............................. 82,442 92,101
Long-term debt ........................................... 8,003 10,354
Deferred income taxes .................................... 24,794 28,481
Other long-term liabilities .............................. 10,212 10,067
Stockholders' equity (Shares outstanding 1999: 19,299,534;
1998: 19,284,817) ...................................... 338,569 325,056
---------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity............. $464,020 $466,059
---------------------------------------------------------------------------------------
See the accompanying notes to the Consolidated Financial Statements.
</TABLE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
(Restated)
-----------------------------------------------------------------------------------------------------------------------------
Year Ended December 25, 1999 1998 1997
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used for) operations:
Net income ........................................................ $21,280 $ 33,573 $ 32,544
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization ..................... 20,595 17,800 16,930
Deferred income taxes ............................. (1,630) 2,995 2,616
Loss/(gain) on sale of assets ..................... 636 (2,833) 22
Other ............................................. 312 1,707 2,018
Changes in operational assets and liabilities, net of acquisitions:
Receivables, net .................................. (3,600) (5,647) (5,986)
Inventories ....................................... 6,781 (1,359) (9,395)
Other assets ...................................... (6,519) (10,272) (6,800)
Accounts payable, taxes and
other liabilities ............................... (1,834) 11,146 3,661
-----------------------------------------------------------------------------------------------------------------------------
Cash provided by operations ....................... 36,021 47,110 35,610
-----------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) investment activities:
Capital expenditures .............................................. (28,046) (35,961) (33,481)
Proceeds on sale of assets ........................................ 419 7,307 436
Payments for acquisitions ......................................... -- (1,264) (4,154)
-----------------------------------------------------------------------------------------------------------------------------
Cash used for investment activities ............... (27,627) (29,918) (37,199)
-----------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities:
Proceeds from issuance of common stock, net ....................... 248 429 681
Change in notes payable, net ...................................... (8,487) (19,624) (1,655)
Proceeds from issuance of long-term debt .......................... -- 7,775 1,852
Repayments of long-term debt ...................................... (1,630) (2) (3)
-----------------------------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities .. (9,869) (11,422) 875
-----------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash ................................... (259) 944 742
-----------------------------------------------------------------------------------------------------------------------------
Increases (decreases) in cash and cash equivalents ........................ (1,734) 6,714 28
Balance at beginning of period ............................................ 11,072 4,358 4,330
-----------------------------------------------------------------------------------------------------------------------------
Balance at end of period .................................................. $ 9,338 $ 11,072 $ 4,358
=============================================================================================================================
See the accompanying notes to the Consolidated Financial Statements
</TABLE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
AND PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements present the operating results and the
financial position of BBA and all of its subsidiaries. All significant
intercompany transactions are eliminated.
In accordance with generally accepted accounting principles, the
preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of some assets and
liabilities and, in some instances, the reported amounts of revenues and
expenses during the reporting period.
RESTATEMENT FOR CHANGE IN ACCOUNTING
Effective December 26, 1999, BBA changed its method of determining the cost
of its United States aroma chemicals inventory from a last-in, first-out
(LIFO) method to a first-in, first-out (FIFO) method. The change was made
because BBA has begun to realize and expects to continue to experience
operating efficiencies as a result of process improvements from several
capital investment initiatives at its United States aroma chemicals
facility. BBA believes that the FIFO method is preferable to the LIFO
method as the change conforms the inventories of all operations to the same
methodology, inventories are reflected in BBA's balance sheet at their most
recent value, the FIFO or average cost methods are the predominant method
used in BBA's industry and the FIFO method also results in a better
matching of revenues and expenses.
This change in accounting method has been applied retroactively and
financial information for all periods presented has been restated to apply
the FIFO cost method. As a result of the change, net income was decreased
by $2.7 million (approximately $.14 per share diluted) in fiscal 1999 and
$119,000 (approximately $.01 per share diluted) in fiscal 1998 and net
income was increased by $1.6 million (approximately $.08 per share diluted)
in fiscal 1997. As a result of the retroactive application of the new
method, retained earnings were increased by $3.1 million as of December 25,
1996.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investment instruments
with an original maturity of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market and include the cost
of materials, labor and manufacturing overhead. Finished goods, work in
process, raw materials and supplies are valued at first in, first out
(FIFO) or average costs.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION
Property, plant and equipment is recorded at cost, less accumulated
depreciation. BBA reviews long-lived assets for impairment whenever events
or circumstances indicate that the carrying value of an asset may not be
recoverable. Upon sale or retirement, the asset value and related
depreciation are removed from the balance sheet and the resulting gain or
loss is included in income. The straight-line method is used with factory
equipment depreciated over 10 to 15 years and buildings over 33 to 40
years.
GOODWILL
The excess of the cost over the fair value of net assets of acquired
businesses is recorded as goodwill and is generally amortized on a
straight-line basis over appropriate periods not to exceed 40 years. BBA
reviews the goodwill recoverability period on a regular basis.
RESEARCH AND DEVELOPMENT COSTS
Research and development expenditures are expensed as incurred.
CAPITALIZED INTEREST
Interest is capitalized on major capital expenditures during the period of
construction.
ENVIRONMENTAL LIABILITIES
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Liabilities are recorded when remedial
efforts are probable and the costs can be reasonably estimated. The timing
of these accruals generally coincides with the completion of a feasibility
study or BBA's commitment to a formal plan of action.
INCOME TAXES
Deferred taxes represent liabilities to be paid or assets to be received in
the future and tax rate changes would immediately affect those liabilities
or assets. Deferred income taxes are recorded using enacted tax rates in
effect for the year temporary differences are expected to reverse. Federal
and state income taxes are not accrued on the cumulative undistributed
earnings of foreign subsidiaries because the earnings have been reinvested
in the businesses of those companies.
FOREIGN CURRENCY
The assets and liabilities of BBA's foreign subsidiaries and affiliates are
translated into U.S. dollars at year-end exchange rates, while income and
expense accounts are translated at average annual rates. Gains and losses
resulting from foreign currency translation are reflected in a separate
component of Stockholders' Equity entitled Accumulated Other Comprehensive
Income (Loss). The primary factor used to determine the functional currency
of BBA's foreign subsidiaries is the local currency cash flows resulting
from manufacturing, sales and financing activities. The U.S. dollar is the
functional currency for subsidiaries with material activities in
hyperinflationary economies.
BBA hedges foreign currency transactions by entering into forward foreign
exchange contracts. Gains and losses associated with currency rate changes
on forward contracts hedging foreign currency transactions are recorded to
other income/expense as incurred. These gains and losses are matched with
the offsetting exchange gains and losses recorded for exchange rate
fluctuations on the underlying assets and liabilities.
REVENUE RECOGNITION
Revenues are recognized upon the passage of title, which is generally at
the time of shipment.
EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of shares
outstanding during the period. Diluted earnings per share is based on the
weighted average number of shares outstanding adjusted for any common stock
equivalents.
STOCK-BASED COMPENSATION
BBA accounts for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion (APB) No. 25, "Accounting
for Stock Issued to Employees," and related Interpretations. Under APB No.
25, compensation cost is measured as the excess, if any, of the quoted
market price of BBA's stock at the date of grant over the exercise price of
the option granted. Compensation cost for stock options, if any, is
recognized ratably over the vesting period. BBA's policy is to grant
options with an exercise price equal to the quoted market price of BBA's
stock on the grant date. Accordingly, no compensation cost has been
recognized for its stock option plan.
OTHER COMPREHENSIVE INCOME
The components of Other Comprehensive Income consist entirely of the
Foreign Currency Translation Adjustments as reported in the Consolidated
Statements of Comprehensive Income for the years ended December 25, 1999,
1998 and 1997 and as disclosed in Note 6 to the Consolidated Financial
Statements.
2. RELATED PARTY TRANSACTIONS
On April 30, 1999, our former parent company, Union Camp Corporation merged
with and into International Paper Company ("International Paper").
International Paper became the majority stockholder of BBA and owns
13,150,000 shares of BBA common stock.
BBA enters into various operating transactions with International Paper and
its subsidiaries. These transactions include trade purchases of raw
materials to be used in certain of BBA's manufacturing processes. The net
trade purchases from International Paper for 1999, 1998 and 1997 were $1.8
million, $1.7 million and $1.8 million, respectively. BBA and International
Paper have a Supply Agreement relating to the terms and conditions pursuant
to which BBA purchases, at approximate fair market value, turpentine from
International Paper as well as turpentine procured by International Paper
from other sources for sale to BBA.
BBA has a Service Agreement with International Paper under which
International Paper provides BBA with certain administrative services,
including environmental, tax, risk management, legal, accounting, certain
treasury activities, employee benefit administration, human resource
administration, safety and health administration, transportation logistics,
corporate communications and research and development activities.
International Paper or BBA may terminate any or all of the services covered
by the Services Agreement upon ninety days prior written notice. Research
and development services were cancelled in 1998 by mutual agreement.
The rates charged by International Paper to BBA are intended to approximate
the fair value of the services provided to BBA. The total charges
approximated $400,000, $2.9 million and $4.0 million in 1999, 1998 and
1997, respectively. At December 25, 1999 and 1998, the net payable to
International Paper was approximately $300,000 and $700,000, respectively,
which is payable on demand.
3. SUPPLEMENTAL INFORMATION
STATEMENTS OF INCOME
Total interest costs incurred and amounts capitalized for each of the years
ended December 25 were:
1999 1998 1997
--------------------------------------
($ in thousands)
Total interest .................... $ 2,702 $ 3,878 $ 3,599
Interest capitalized .............. (380) (552) (524)
--------------------------------------
Net interest expense .............. $ 2,322 $ 3,326 $ 3,075
======================================
Total other (income) expense, net includes loss from foreign exchange of
$900,000 in 1999, $3.5 million in 1998 and $2.0 million in 1997.
BALANCE SHEETS
As of December 25,
-----------------------
1999 1998
-----------------------
($ in thousands)
Receivables, net
Trade ........................................ $86,533 $84,550
Other ........................................ 9,166 10,304
-----------------------
95,699 94,854
Less allowance for doubtful accounts ......... 2,329 1,745
-----------------------
Total ...................................... $93,370 $93,109
=======================
There were no significant uncollectible accounts written off during 1999,
1998 or 1997 that were not previously reserved.
(Restated)
As of December 25,
-----------------------------
1999 1998
-----------------------------
($ in thousands)
Inventories
Finished goods ..................... $ 36,484 $ 42,198
Raw materials ...................... 49,498 45,486
Work in process .................... 11,530 18,983
Supplies ........................... 2,862 3,303
-----------------------------
Total ........................... $ 100,374 $109,970
=============================
As of December 25,
---------------------------
1999 1998
---------------------------
($ in thousands)
Other current assets
Prepayments .......................... $ 3,861 $ 3,332
Other ................................ 7,394 6,893
---------------------------
Total ............................. $11,255 $10,225
===========================
As of December 25,
---------------------------
1999 1998
---------------------------
($ in thousands)
Property, plant and equipment
Land .................................... $ 4,495 $ 3,758
Buildings and improvements .............. 68,016 61,916
Machinery and equipment ................. 260,971 234,599
Construction in progress ................ 12,853 28,169
---------------------------
346,335 328,442
Less accumulated depreciation ........... 151,336 137,513
---------------------------
Property, plant and equipment, net ......... $194,999 $190,929
===========================
As of December 25,
--------------------------
1999 1998
--------------------------
($ in thousands)
Other non-current assets
Pension asset .......................... $34,354 $36,230
Intangible assets ...................... 9,132 10,361
Other .................................. 11,198 4,163
--------------------------
Total ............................... $54,684 $50,754
==========================
Included within intangible assets as of December 25, 1999 and 1998 was
goodwill of $9.1 million and $10.1 million, respectively.
As of December 25,
-----------------------
1999 1998
-----------------------
($ in thousands)
Accrued liabilities
Payroll ...................................... $ 5,979 $ 6,887
Payable to International Paper ............... 275 664
Other ........................................ 24,994 20,205
-----------------------
Total .................................... $31,248 $27,756
=======================
Other long-term liabilities
Minority interest ........................... $ 5,402 $ 4,706
Postretirement benefits ..................... 3,915 3,604
Deferred revenue ............................ 42 1,152
Other ....................................... 853 605
-----------------------
Total .................................... $10,212 $10,067
=======================
STATEMENTS OF CASH FLOWS
Cash paid for income taxes was $24.0 million in 1999, $14.2 million in 1998
and $13.1 million in 1997. Cash paid for interest, net of amounts
capitalized, was $2.3 million in 1999 and $3.3 million in 1998 and 1997.
FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
The carrying amounts of certain financial instruments (cash, short-term
investments, trade receivables and payables, long-term debt and forward
foreign exchange contracts) approximate their fair values. The carrying
values of cash, short-term investments and trade receivables and payables
approximate fair value because of the short maturity of these instruments.
The fair values of long-term debt and forward foreign exchange contracts
vary with market conditions and are estimated based on current rates for
similar financial instruments offered to BBA.
DERIVATIVE FINANCIAL INSTRUMENTS
BBA's use of derivatives is restricted to those instruments which hedge the
risk associated with underlying business transactions such as existing
foreign currency commitments. Derivatives are not used for trading or
speculative purposes.
At December 25, 1999, BBA had outstanding foreign exchange contracts valued
at $59.5 million, primarily denominated in European currencies. These
contracts mature in the first half of 2000. The purpose of these contracts
is to neutralize foreign currency transaction risk generated by BBA's firm
foreign currency business commitments. The change in value of the contracts
resulting from changes in the respective foreign currency rates versus the
U.S. dollar is accrued monthly and credited or charged to foreign exchange
gain or loss. Foreign currency commitment exposures are evaluated on an
ongoing basis and foreign contracts are adjusted as required to match cover
with existing commitments. Currently, contracts are limited to currencies
with established forward markets and counter-parties, which meet Moody's
credit rating of A1 or better.
4. DEBT
BBA had outstanding debt comprised as follows:
As of December 25,
------------------
1999 1998
------------------
($ in thousands)
Notes payable................................ $7,585 $16,382
Current installments of long-term debt....... 1,966 925
Long-term debt............................... 8,003 10,354
BBA has revolving local bank credit facilities in numerous countries
outside the United States which provide for aggregate borrowing
availability, expressed in U.S. dollars, of approximately $72.0 million. In
addition, BBA has available an $18.0 million, three year committed
multi-option borrowing facility from a leading European bank.
As of December 25, 1999, $7.6 million was outstanding and included in notes
payable, compared with $16.4 million as of December 25, 1998. Commitment or
facility fees are either nominal or zero. Borrowing covenants, to the
extent they exist, are presently being met.
Borrowings under bank agreements bear interest at local market rates, which
ranged from 1.2% to 25.0% in local currencies during 1999.
BBA has revolving bank credit facilities under which BBA may obtain
unsecured borrowings up to $25.0 million in the United States. Any
borrowings under these facilities would incur interest at the prevailing
prime rate or other market rates. As of December 25, 1999 and 1998, nothing
was outstanding. There are no commitment fees or borrowing covenants.
BBA's $8.0 million in long-term debt, payable in 2001, has been issued in
Turkey to satisfy BBA's financing needs, at an annual interest rate of
6.3%.
5. INCOME TAXES
The components of income before income taxes were:
(Restated)
Year Ended December 25,
----------------------------
1999 1998 1997
----------------------------
($ in thousands)
Domestic................. $14,545 $15,411 $11,176
Foreign.................. 19,934 35,056 37,729
----------------------------
Income before
income taxes....... $34,479 $50,467 $48,905
============================
The provision for income taxes is comprised of the following:
(Restated)
Year Ended December 25,
----------------------------
1999 1998 1997
----------------------------
($ in thousands)
Current
Federal............... $ 5,553 $ 5,444 $ 1,843
State and local....... 1,027 366 332
Foreign............... 8,249 8,089 11,570
----------------------------
$14,829 $13,899 $13,745
----------------------------
Deferred
Federal............... $(1,411) $ 174 $ 2,005
State and local....... (60) (26) 5
Foreign............... (159) 2,847 606
----------------------------
(1,630) 2,995 2,616
----------------------------
Total.............. $ 13,199 $16,894 $16,361
============================
The significant components of the cumulative deferred tax liability are
as follows:
(Restated)
As of December 25,
---------------------
1999 1998
---------------------
($ in thousands)
Deferred federal taxes
Depreciation....... $ 7,146 $ 6,634
Other.............. (2,947) (820)
Deferred foreign taxes
Pensions........... 10,235 10,391
Other.............. 10,360 12,276
---------------------
Total...... $24,794 $28,481
=====================
A detailed analysis of the effective tax rate is as follows:
Year Ended December 25,
----------------------------
1999 1998 1997
----------------------------
Statutory federal tax rate... 35.0% 35.0% 35.0%
State taxes (net of federal
tax impact)............... 1.6 0.4 0.5
Foreign income taxes......... 2.2 (2.3) (2.8)
Other........................ (0.5) 0.4 0.8
----------------------------
Effective rate............... 38.3% 33.5% 33.5%
============================
Federal and state income taxes are not accrued on the cumulative
undistributed earnings of foreign subsidiaries because the earnings have
been reinvested in the business of those companies. As of December 25,
1999, the total of all such undistributed earnings amounts to $125.8
million.
6. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Additional Accumulated Other Total
(Restated) Common Stock Paid-In Retained Comprehensive Stockholders'
Shares Amounts Capital Earnings Income (Loss) Equity
-------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 25, 1996 ............. 19,222 $ 19,222 $ 167,400 $ 82,192 $ (2,590) $ 266,224
-------------------------------------------------------------------------------
Net income ........................... -- -- -- 32,544 -- 32,544
Issuance of stock for options ........ 37 37 644 -- -- 681
Foreign currency translation ......... -- -- -- -- (6,403) (6,403)
-------------------------------------------------------------------------------
Balance, December 25, 1997 ............. 19,259 19,259 168,044 114,736 (8,993) 293,046
-------------------------------------------------------------------------------
Net income ........................... -- -- -- 33,573 -- 33,573
Issuance of stock for options ........ 26 26 403 -- -- 429
Foreign currency translation ......... -- -- -- -- (1,992) (1,992)
-------------------------------------------------------------------------------
Balance, December 25, 1998 ............. 19,285 19,285 168,447 148,309 (10,985) 325,056
Net income ........................... -- -- -- 21,280 -- 21,280
Issuance of stock for options ........ 15 15 233 -- -- 248
Foreign currency translation ......... -- -- -- -- (8,015) (8,015)
-------------------------------------------------------------------------------
Balance, December 25, 1999 ............. 19,300 $ 19,300 $ 168,680 $ 169,589 $ (19,000) $ 338,569
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
The authorized capital stock of BBA at December 1999, 1998 and 1997
consisted of 50,000,000 shares of common stock, $1.00 par value, and
5,000,000 shares of authorized but unissued preferred stock, $1.00 par
value.
7. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
BBA and certain foreign subsidiaries have noncontributory defined benefit
pension plans covering substantially all of their employees. Benefits are
based on years of service and, for salaried employees, final average
earnings. BBA funds its plans annually based upon a consistently applied
formula which amortizes the unfunded liability adjusted for actuarial gains
or losses. Assets of the plans are primarily fixed income instruments and
publicly traded stocks.
BBA also has a contributory postretirement health care plan covering
primarily its U.S. salaried employees. Employees become eligible for these
benefits when they meet minimum age and service requirements. BBA funds its
plan on a "pay-as-you-go" basis, in an amount equal to the retirees'
medical claims paid.
The following tables set forth pension and postretirement obligations and
plan assets as of December 25:
<TABLE>
<CAPTION>
($ in thousands) Pension Benefits
Domestic Foreign Domestic Foreign Postretirement Benefits
-------------------------------------- -----------------------
1999 1998 1999 1998
-------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year.............. $29,967 $176,276 $25,570 $150,985 $ 3,427 $ 3,580
Service cost......................................... 1,860 4,663 1,584 4,053 271 297
Interest cost........................................ 2,468 10,915 1,773 10,469 205 209
Participant contributions............................ -- -- -- 47 7 7
Exchange rate changes................................ -- (7,748) -- 1,466 -- --
Plan amendments...................................... 1,912 -- -- -- (1,681) --
Benefits paid........................................ (621) (6,829) (611) (5,923) (103) (103)
Actuarial (gain) loss................................ 1,958 2,463 1,651 15,179 39 (563)
------------------------------------- -----------------------
Benefit obligation at end of year.................... $37,544 $179,740 $29,967 $176,276 $ 2,165 $ 3,427
===================================== =======================
Change in plan assets:
Fair value of plan assets at beginning of year....... $24,667 $161,600 $22,539 $167,018 -- --
Actual return on plan assets......................... 4,856 29,288 2,760 (3,462) -- --
Employer contributions............................... 32 3,114 34 2,486 $ 100 $ 100
Participant contributions............................ -- -- -- 47 7 7
Benefits paid........................................ (621) (6,829) (611) ( 5,923) (103) (103)
Administrative expenses.............................. -- -- (55) -- (4) (4)
Exchange rate changes................................ -- (6,826) -- 1,434 -- --
------------------------------------- -----------------------
Fair value of plan assets at end of year............. $28,934 $180,347 $24,667 $161,600 -- --
===================================== =======================
Reconciliation of funded status:
Funded status as of December 25...................... $(8,610) $ 607 $(5,301) $(14,676) $(2,165) $(3,427)
Unrecognized actuarial (gain) loss................... 515 35,098 1,624 52,874 (227) (277)
Unrecognized prior service cost...................... 2,039 (1,205) 92 (1,317) (1,623) --
Unrecognized transition (asset) obligation........... (93) (146) (192) (651) -- --
------------------------------------- -----------------------
Net (liability) asset recognized on Balance Sheet.... $(6,149) $ 34,354 $(3,777) $ 36,230 $(4,015) $(3,704)
===================================== =======================
Amounts recognized in the statement of financial position
consist of:
Prepaid benefit cost................................. -- $ 35,212 -- $ 36,839 -- --
Accrued benefit (liability).......................... $(6,149) (858) $(3,777) (609) $(4,015) $(3,704)
------------------------------------- -----------------------
Net amount recognized at end of year................. $(6,149) $ 34,354 $(3,777) $ 36,230 $(4,015) $(3,704)
===================================== =======================
Additional year-end information for pension plans with
accumulated benefit
obligations in excess of plan assets:
Projected benefit obligation......................... $6,925 $3,097 $29,967 $176,276 -- --
Accumulated benefit obligation....................... 4,686 2,189 22,810 164,133 -- --
Fair value of plan assets............................ 1,300 1,345 24,667 161,600 -- --
Weighted-average assumptions as of December 25:
Discount rate........................................ 7.75% 6.5% 6.75% 6.5% 7.75% 6.75%
Expected return on plan assets....................... 10.0% 9.5% 9.5% 10.0% N/A N/A
Rate of compensation increase........................ 5.0% 4.0% 4.75% 6.0% N/A N/A
Components of net periodic benefit cost:
($ in thousands) Pension Benefits Postretirement Benefits
--------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
--------------------------- --------------------------------
Service cost......................................... $ 6,523 $ 5,637 $ 4,982 $271 $297 $298
Interest cost........................................ 13,383 12,241 11,802 205 209 210
Expected return on plan assets....................... (16,744) (18,623) (16,821) -- -- --
Amortization of prior service cost................... 171 (105) (116) (59) -- --
Amortization of transitional (asset) obligation...... (602) (812) (816) -- -- --
Recognized actuarial (gain) loss..................... 3,318 283 276 (3) -- --
--------------------------- --------------------------------
Net periodic (benefit) cost.......................... $ 6,049 $(1,379) $ (693) $414 $506 $508
=========================== ================================
</TABLE>
For measurement purposes, a 7% annual rate of increase in the per capita
cost of covered health care benefits for the first half of 1998 and a 5%
rate for the second half were assumed. After 1998, the rate remains level
at 5% thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one percentage point change in
assumed health care cost trend rates would have the following effects:
One Percentage One Percentage
Point Increase Point Decrease
------------------------------------
Effect on total of service and
interest cost components........ $ 8,000 $ (8,000)
Effect on postretirement
benefit obligation.............. $ 75,000 $ (67,000)
8. Employee Stock Option Plan
In February 1994, BBA adopted the BBA Stock Option and Stock Award Plan
(the "Plan"). The Plan provides for the grant of options or awards to
officers and key employees of BBA and its subsidiaries at prices not less
than 100% of the fair market value at the date of grant. Such options and
awards generally become exercisable two or three years after the date of
grant and expire ten years from that date. The Plan initially made
available up to 750,000 shares of Common Stock, increased on May 1 of each
year from May 1, 1995 to May 1, 2003, inclusive, by one percent of the
number of shares of Common Stock outstanding on the immediately preceding
April 30 (the "Annual Increment"). Under the Plan, 150,000 shares plus 20%
of the Annual Increment may be awarded as restricted stock and no more than
1,000,000 shares in the aggregate may be awarded as incentive stock
options. Recipients of restricted stock are entitled to receive cash
dividends, if any, and to vote their respective shares. Certain
restrictions will limit the sale or transfer of these shares during the
specified restriction period. Concurrent with the IPO, BBA granted options
to purchase approximately 500,000 shares of Common Stock to officers and
key employees of BBA which became exercisable at a rate of 20% per year.
At the end of 1999, 470,539 shares were available for future grants under
the 1994 plan. The options outstanding at December 25, 1999 do not have
stock appreciation rights attached.
In February 1998, BBA adopted the BBA Directors' Stock Option Plan (the
"Directors' Plan"). The Directors' Plan provides for the grant of
immediately vested options to Directors who are not employees of BBA or
International Paper at prices not less than 100% of the fair market value
at the date of grant. The Directors' Plan makes available up to 100,000
shares of common stock. Initial grants under the Directors' Plan in 1998
totaled 3,510 options, and 2,010 options were granted in 1999 leaving
94,480 shares available for future grants.
BBA has adopted the disclosure provisions of SFAS No. 123. Accordingly, no
compensation cost has been recognized for the stock option plan. Had
compensation cost for BBA's stock option plan been determined based on the
fair value at the grant date for awards in 1999, 1998 and 1997 consistent
with the provisions of SFAS No. 123, total compensation cost recognized in
income for stock-based compensation would have been $616,000 in 1999,
$520,000 in 1998 and $497,000 in 1997 on a pro forma basis. Also, if SFAS
No. 123 had been adopted, pro forma net income and earnings per share would
have been $21.6 million or $1.12 per share basic and diluted in 1999, $32.8
million or $1.70 per share basic and $1.69 per share diluted in 1998 and
$30.4 million or $1.58 per share basic and $1.57 per share diluted in 1997.
On April 30, 1999, all then outstanding options became vested and
exercisable due to the change in control occasioned by the merger of Union
Camp and International Paper. The following table summarizes activity in
BBA's stock option plan during 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
at beginning of year .................. 949,126 $23.98 739,627 $22.21 563,520 $19.28
Granted ................................ 251,910 $29.94 254,250 $28.72 230,520 $28.75
Exercised .............................. (14,717) $16.87 (26,017) $16.49 (36,600) $18.60
Forfeited .............................. (23,516) $29.31 (18,734) $28.95 (17,813) $20.81
--------------------------------------------------------------
Options outstanding
at end of year ....................... 1,162,803 $25.25 949,126 $23.98 739,627 $22.21
--------------------------------------------------------------
Options exercisable
at end of year ....................... 917,213 $24.00 397,536 $19.93 317,227 $20.29
==============================================================
</TABLE>
For options outstanding as of the end of 1999, the range of exercise prices
was $16.00 to $32.25 per share and the weighted average remaining
contractual life was 6.3 years. The weighted average fair value on the date
of grant was $11.03 for options granted in 1999, $10.11 for options granted
in 1998 and $11.11 for options granted in 1997.
Fair value was determined through the use of the Black-Scholes options
pricing formula. For options granted in 1999, the risk-free interest rate
was 5.5%, the expected life was 6 years, the expected volatility was 24%
and the expected dividend yield was zero, all calculated on a weighted
average basis. For options granted in 1998, the risk-free interest rate was
5.5%, the expected life was 6 years, the expected volatility was 21% and
the expected dividend yield was zero, all calculated on a weighted average
basis. For options granted in 1997, the risk-free interest rate was 6.7%,
the expected life was 6 years, the expected volatility was 22% and the
expected dividend yield was zero, all calculated on a weight average basis.
9. SUPPLEMENTAL EARNINGS PER SHARE INFORMATION
<TABLE>
<CAPTION>
($ in thousands, except per share) (Restated)
For the Year Ended December 25,
1999 1998 1997
----------------------------------- --------------------------------- ------------------------------
Income . Shares Per Share Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------------------------------- --------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income ................ $21,280 $33,573 $32,544
BASIC EPS
Income available to
common shareholders.... $21,280 19,295,286 $1.10 $33,573 19,279,028 $1.74 $32,544 19,237,909 $1.69
===== ===== =====
Effect of Dilutive
Securities Stock Options.. $ -- 96,796 $ -- 126,541 $ -- 180,368
----------------------------------------------------------------------------------------------------
DILUTED EPS
Income available to
common shareholders
+ assumed conversions... $21,280 19,392,082 $1.10 $33,573 19,405,569 $1.73 $32,544 19,418,277 $1.68
====================================================================================================
</TABLE>
In 1999, 1998 and 1997 there were 772,961, 67,550 and 73,327 potential
common shares, respectively, excluded from the computation of diluted
earnings per share because the effect would have been antidilutive.
10. COMMITMENTS AND CONTINGENT LIABILITIES
BBA is involved in various legal proceedings arising in the ordinary course
of business. Based upon the information presently available and BBA's
evaluation of the proceedings pending, management believes that the
determination of any such proceedings or all of them combined will not have
a material adverse effect on BBA's business or financial position or
results of operations.
11. SEGMENT AND GEOGRAPHIC INFORMATION
BBA evaluates performance based on operating earnings of the respective
business units. Total revenue and operating profit by business segment and
geographic region include both sales to customers, as reported in BBA's
consolidated income statement, and intersegment sales, which are accounted
for at prices charged to customers and eliminated in consolidation.
Operating profit by business segment is total revenue less operating
expenses. In computing operating profit by business segment, none of the
following items has been added or deducted: other income, interest expense
or income taxes. The amount of the elimination of intersegment profit on
any product that remains in inventory at the end of the period is
determined by changes in quantities of inventory and changes in the margins
of profit.
Identifiable assets by business segment and geographic region are those
assets used in company operations in each segment and geographic region.
Corporate assets principally include property and investments in
unconsolidated affiliates. Capital expenditures are reported exclusive of
acquisitions.
The following chart sets forth operating results and other financial data
for the principal business segments of BBA for the years ended December 25,
1999, 1998 and 1997.
Segment Information
BBA's business is organized into two operating segments: flavor and
fragrance and aroma chemicals. BBA's flavor and fragrance products impart a
desired taste or smell to a broad range of consumer products. BBA
manufactures its flavors and fragrance products at 20 compounding
facilities in 14 countries and maintains sales offices in 38 countries.
BBA's aroma chemicals are primarily used as raw materials in fragrance
compounds. BBA manufactures its aroma chemicals products primarily at its
Jacksonville, Florida and its Widnes, United Kingdom plants.
<TABLE>
<CAPTION>
Corporate
Flavor & Aroma Items and
Fragrance Chemicals Unallocated Consolidated
(Restated)
---------------------------------------------------------------------------------------------------------------
1999 ($ in thousands)
<S> <C> <C> <C> <C>
Net sales to customers ........................ $ 406,018 $ 93,019 -- $ 499,037
Intersegment sales ............................ -- 25,101 $ (25,101) --
----------------------------------------------------------
Total net sales ............................... 406,018 118,120 (25,101) 499,037
Operating profit .............................. 47,061 12,239 (18,151) 41,149
Identifiable assets ........................... 322,810 126,737 14,473 464,020
Depreciation .................................. 10,834 7,768 342 18,944
Capital expenditures .......................... 16,353 10,631 1,062 28,046
1998
Net sales to customers ........................ $ 384,200 $ 101,174 -- $ 485,374
Intersegment sales ............................ -- 21,274 $ (21,274) --
----------------------------------------------------------
Total net sales ............................... 384,200 122,448 (21,274) 485,374
Operating profit .............................. 50,151 23,618 (17,124) 56,645
Identifiable assets ........................... 304,984 153,150 7,925 466,059
Depreciation .................................. 9,376 6,945 310 16,631
Capital expenditures .......................... 21,008 13,991 962 35,961
1997
Net sales to customers ...................... $388,690 $101,895 -- $490,585
Intersegment sales .......................... -- 25,373 $(25,373) --
-----------------------------------------------------------
Total net sales ............................. 388,690 127,268 (25,373) 490,585
Operating profit ............................ 50,547 23,871 (19,076) 55,342
Identifiable assets ......................... 283,320 140,314 8,358 431,992
Depreciation ................................ 8,500 6,533 332 15,365
Capital expenditures ........................ 20,716 12,023 742 33,481
----------------------------------------------------------------------------------------------------------------
</TABLE>
OPERATIONS BY GEOGRAPHIC AREAS
BBA has operations in 38 countries in North and South America, Europe,
Asia, Australia, the Middle East and Africa. BBA's flavor and fragrance
business is separately managed in four geographic regions: Americas,
Europe, Asia Pacific and International. The aroma chemicals business is
managed globally from Jacksonville, Florida and Widnes, United Kingdom. The
operations of the Americas region outside of the United States for the
purpose of this table are included as a component of "Other".
<TABLE>
<CAPTION>
Corporate
Asia Items and
U.S.A. Europe Pacific Other Unallocated Consolidated
---------------------------------------------------------------------------------------------------
($ in thousands)
1999
<S> <C> <C> <C> <C> <C> <C>
Net sales to customers ... $166,345 $156,345 $ 88,293 $ 88,054 -- $499,037
Sales between areas ...... 26,155 28,730 123 673 $(55,681) --
------------------------------------------------------------------
Total net sales .......... 192,500 185,075 88,416 88,727 (55,681) 499,037
Long-lived assets ........ 61,798 81,768 29,426 22,007 -- 194,999
1998
Net sales to customers ... $158,995 $164,665 $78,083 $ 83,631 -- $ 485,374
Sales between areas ...... 28,721 30,960 18 542 $(60,241) --
------------------------------------------------------------------
Total net sales .......... 187,716 195,625 78,101 84,173 (60,241) 485,374
Long-lived assets ........ 50,500 87,547 30,590 22,292 -- 190,929
1997
Net sales to customers ... $147,939 $167,751 $ 88,043 $ 86,852 -- $490,585
Sales between areas ...... 33,328 33,108 26 347 $(66,809) --
------------------------------------------------------------------
Total net sales .......... 181,267 200,859 88,069 87,199 (66,809) 490,585
Long-lived assets ........ 41,920 86,117 31,595 17,585 -- 177,217
------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF REPORTABLE SEGMENT SALES, INCOME BEFORE INCOME TAXES AND ASSETS:
(Restated)
1999 1998 1997
-------------------------------------
($ in thousands)
<S> <C> <C> <C>
NET SALES
Total net sales for reportable segments ...... $ 524,138 $ 506,648 $ 515,958
Elimination of intersegment sales ............ (25,101) (21,274) (25,373)
------------------------------------
Total consolidated net sales ........... $ 499,037 $ 485,374 $ 490,585
------------------------------------
INCOME BEFORE INCOME TAXES
Total operating profit for reportable segments $ 59,300 $ 73,769 $ 74,418
Elimination of intersegment profits .......... (4,470) (3,990) (4,260)
Unallocated amounts:
Corporate administration expenses ......... (13,681) (13,134) (14,816)
Interest expense .......................... (2,322) (3,326) (3,075)
Other income (expense) .................... (4,348) (2,852) (3,362)
------------------------------------
Total consolidated income before income
taxes ................................ $ 34,479 $ 50,467 $ 48,905
------------------------------------
ASSETS
Total assets for reportable segments ......... $ 449,547 $ 458,134 $ 423,634
Unallocated corporate assets ................. 14,473 7,925 8,358
------------------------------------
Total consolidated assets .............. $ 464,020 $ 466,059 $ 431,992
------------------------------------
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
-----------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF BUSH BOAKE ALLEN INC.
In our opinion, the accompanying restated consolidated balance sheets and
the related restated consolidated statements of income, comprehensive
income and of cash flows present fairly, in all material respects, the
financial position of Bush Boake Allen Inc. and its subsidiaries at
December 25, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 25,
1999, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of BBA's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with auditing standards generally accepted in the United
States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
As discussed in Note 1 to the financial statements, the accompanying
financial statements have been restated to reflect BBA's fiscal 2000 change
in accounting for certain inventories to the first-in first-out method from
the last-in first-out method of accounting.
PRICEWATERHOUSECOOPERS LLP
Florham Park, New Jersey
January 28, 2000, except
as it relates to the change in
accounting for certain inventories
described in Note 1, which is
as of January 17, 2001
<TABLE>
<CAPTION>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share)
(unaudited)
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 25, SEPTEMBER 25,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
(restated) (restated)
<S> <C> <C> <C> <C>
Net Sales $121,648 $122,148 $362,554 $370,741
Costs and other charges:
Cost of goods sold 78,018 80,472 232,506 249,167
Selling and administrative expenses 22,519 23,756 71,384 72,222
Research and development expenses 6,769 6,585 20,760 18,867
-------- ---------- ---------- ----------
Income from operations 14,342 11,335 37,904 30,485
------ ------ ------ ------
Interest expense 433 547 1,434 1,634
Other (income) expense, net (1,380) 833 (113) 3,285
---------- ---------- ---------- ----------
Income before income taxes 15,289 9,955 36,583 25,566
---------- ---------- ---------- ----------
Income taxes 5,088 3,664 13,180 9,488
---------- ---------- ---------- ----------
Net Income $10,201 $6,291 $23,403 $16,078
======= ====== ======= =======
Net income per share:
- Basic $0.53 $0.33 $1.21 $0.83
===== ===== ===== =====
- Diluted $0.53 $0.32 $1.20 $0.83
===== ===== ===== =====
Weighted average number
of shares outstanding:
- Basic 19,341,508 19,297,469 19,322,738 19,293,875
========== ========== ========== ==========
- Diluted 19,708,599 19,388,582 19,534,994 19,396,729
========== ========== ========== ==========
See accompanying notes to the Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
SEPTEMBER 25, DECEMBER 25,
2000 1999
---- ----
(unaudited) (restated)
ASSETS
<S> <C> <C>
Cash and cash equivalents $35,136 $9,338
Receivables, net 89,579 93,370
Inventories 103,330 100,374
Other 8,642 11,255
--------------- -----------
Total current assets 236,687 214,337
--------------- -----------
Property, plant and equipment, net 177,848 194,999
Other assets 52,824 54,684
--------------- -----------
Total Assets $467,359 $464,020
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current maturities $7,164 $9,551
Accounts payable 38,870 37,689
Accrued liabilities 33,634 31,248
Income and other taxes 114 3,954
--------------- -----------
Total current liabilities 79,782 82,442
Long-term debt 8,999 8,003
Deferred income taxes 23,035 24,794
Other long-term liabilities 11,195 10,212
Stockholders' equity:
Common stock - (Shares outstanding:
2000: 19,351,063 and 1999: 19,299,534) 19,351 19,300
Additional paid-in capital 170,000 168,680
Retained earnings 192,992 169,589
Accumulated other comprehensive income/(loss) (37,995) (19,000)
--------------- -----------
Total stockholders' equity 344,348 338,569
--------------- -----------
Total Liabilities and Stockholders' Equity $467,359 $464,020
======== ========
See accompanying notes to the Consolidated Financial Statements.
</TABLE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 25,
-------------
2000 1999
---- ----
(restated)
Cash provided by (used for) operations:
<S> <C> <C>
Net income $23,403 $16,078
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization 15,665 14,834
Deferred income taxes 709 (1,643)
Loss/(gain) on sale of assets (1,913) 524
Other 1,529 138
Changes in operational assets and liabilities:
Receivables, net (1,446) (5,519)
Inventories (8,292) 2,313
Other assets (2,377) (6,843)
Accounts payable, taxes and other liabilities 6,063 1,978
------- -------
Cash provided by operations 33,341 21,860
------ ------
Cash provided by (used for) investment activities:
Capital expenditures (9,305) (22,310)
Other 2,004 208
------- -------
Cash used for investment activities (7,301) (22,102)
------- -------
Cash provided by (used for) financing activities:
Proceeds from issuance of common stock, net 1,244 248
Change in notes payable, net (2,245) (6,692)
Proceeds from issuance of long-term debt 3,203 --
Repayments of long-term debt (1,803) (981)
------- -------
Cash provided by (used for) financing activities 399 (7,425)
------- -------
Effect of exchange rate changes on cash (641) 230
------- -------
Increase (decrease) in cash and cash equivalents 25,798 (7,437)
Balance at beginning of period 9,338 11,072
------- -------
Balance at end of period $35,136 $3,635
======= ======
See accompanying notes to the Consolidated Financial Statements.
</TABLE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
(unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 25, SEPTEMBER 25,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
(restated) (restated)
<S> <C> <C> <C> <C>
Net Income $10,201 $6,291 $23,403 $16,078
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustments (6,860) 5,424 (18,995) (6,456)
--------- ---------- --------- ---------
Total other comprehensive income/(loss) (6,860) 5,424 (18,995) (6,456)
--------- ---------- --------- ---------
Comprehensive Income/(Loss) $3,341 $11,715 $4,408 $9,622
====== ======= ====== ======
See accompanying notes to the Consolidated Financial Statements.
</TABLE>
BUSH BOAKE ALLEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Pending Sale of Business
As announced in a joint press release between International Flavors &
Fragrances Inc. (IFF) and Bush Boake Allen Inc. (BBA), dated September 25,
2000, the Boards of Directors of both companies have approved a definitive
merger agreement, under which IFF will acquire all the outstanding shares
of BBA for $48.50 per share in cash. IFF anticipates completing this
transaction in the fourth quarter of 2000. The waiting period under the
Hart-Scott-Rodino Antitrust Act has expired and the tender offer is
scheduled to expire at 12:00 Midnight on November 3, 2000, unless extended.
Note 2. Interim Reporting
The information furnished in this report is unaudited but includes all
adjustments which, in the opinion of management, are necessary for a fair
presentation of results for the interim periods reported. The adjustments
made were of a normal recurring nature. Results for the interim periods are
not necessarily indicative of results for the full period or for any other
interim period.
Note 3. Change in Accounting
Effective December 26, 1999, BBA changed its method of determining the cost
of its United States aroma chemicals inventory from a last-in, first-out
(LIFO) method to a first-in, first-out (FIFO) method. The change was made
because BBA has begun to realize and expects to continue to experience
operating efficiencies as a result of process improvements from several
capital investment initiatives at its United States aroma chemicals
facility. BBA believes that the FIFO method is preferable to the LIFO
method as the change conforms the inventories of all operations to the same
methodology, inventories are reflected in BBA's balance sheet at their most
recent value, the FIFO or average cost methods are the predominant method
used in BBA's industry and the FIFO method also results in a better
matching of revenues and expenses.
This change in accounting method has been applied retroactively and
financial information for all periods presented has been restated to apply
the FIFO cost method. As a result of the change, net income was decreased
by $500,000 (approximately $.03 per share diluted) in the third quarter of
1999 and $1.0 million (approximately $.05 per share diluted) in the nine
months ended September 25, 1999. As a result of the retroactive application
of the new method, retained earnings were increased by $1.8 million and
inventories were increased by $3.0 million as of December 25, 1999. The
effect of the accounting change on the third quarter and the nine months
ended September 25, 2000 was not material.
Note 4. Inventories
(Restated)
September 25, 2000 December 25, 1999
------------------ -----------------
($ in thousands)
Finished goods $35,766 $36,484
Raw materials 48,832 49,498
Work in process 15,386 11,530
Supplies 3,346 2,862
-------- --------
Total $103,330 $100,374
======== ========
Note 5. Stockholders' Equity (in thousands)
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED OTHER TOTAL
COMMON STOCK PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNTS CAPITAL EARNINGS INCOME (LOSS) EQUITY
------ ------- ------- -------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Restated
Balance December 25, 1999 19,300 $19,300 $168,680 $169,589 $(19,000) $338,569
Net Income 23,403 23,403
Issuance of Stock for Options 51 51 1,320 1,371
Foreign Currency Translation (18,995) (18,995)
------ ------- -------- -------- -------- --------
Balance September 25, 2000 19,351 $19,351 $170,000 $192,992 $(37,995) $344,348
====== ======= ======== ======== ======== ========
</TABLE>
Note 6. Other Comprehensive Income
The components of Other Comprehensive Income consist entirely of the
Foreign Currency Translation Adjustments as reported in the Consolidated
Statement of Comprehensive Income for the periods ending September 25, 2000
and 1999, and as reported in the Consolidated Balance Sheets as of
September 25, 2000 and December 25, 1999. Bush Boake Allen Inc. does not
provide any Federal or State deferred income taxes on the cumulative
undistributed earnings of foreign subsidiaries including cumulative
translation adjustments with respect to such foreign subsidiaries, because
the earnings have been reinvested in the businesses of those companies.
Note 7. Other (Income) Expense, Net
Other (income) expense, net for the third quarter 2000 includes a
non-recurring pre-tax gain of $1.9 million related to the sale of surplus
land and vacated buildings adjacent to BBA's Walthamstow, England site.
This sale reduced the effective tax rate in the third quarter, reflecting
the UK capital gains tax benefit on this transaction.
Note 8. Segment Information
The following chart sets forth sales and operating profit for the principal
business segments of BBA for the quarters ended September 25, 2000 and 1999
and for the nine months ended September 25, 2000 and 1999. There has not
been a material change in total assets from the amounts disclosed in the
1999 annual report, except for the restatement due to the accounting change
as described in Note 3. The basis of segmentation and the measurement of
segment operating profit has been consistently applied.
<TABLE>
<CAPTION>
CORPORATE
FLAVOR & AROMA ITEMS AND
FRAGRANCE CHEMICALS UNALLOCATED CONSOLIDATED
--------- --------- ----------- ------------
($ IN THOUSANDS)
QUARTER ENDED
SEPTEMBER 25, 2000
------------------
<S> <C> <C> <C> <C>
Net sales to customers $102,382 $19,266 -- $121,648
Intersegment sales -- 5,006 $(5,006) --
------- ------ ------ -------
Total net sales 102,382 24,272 (5,006) 121,648
Operating profit 15,316 2,855 (3,829) 14,342
SEPTEMBER 25, 1999 (RESTATED)
------------------
Net sales to customers $ 99,541 $22,607 -- $122,148
Intersegment sales -- 5,304 $(5,304) --
------- ------ ------ -------
Total net sales 99,541 27,911 (5,304) 122,148
Operating profit 12,807 2,094 (3,566) 11,335
CORPORATE
FLAVOR & AROMA ITEMS AND
FRAGRANCE CHEMICALS UNALLOCATED CONSOLIDATED
--------- --------- ----------- ------------
($ IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 25, 2000
------------------
Net sales to customers $303,090 $59,464 -- $362,554
Intersegment sales -- 15,608 $(15,608) --
-------- ------- -------- --------
Total net sales 303,090 75,072 (15,608) 362,554
Operating profit 38,498 11,703 (12,297) 37,904
SEPTEMBER 25, 1999 (RESTATED)
------------------
Net sales to customers $302,665 $68,076 -- $370,741
Intersegment sales -- 19,065 $(19,065) --
-------- ------- -------- --------
Total net sales 302,665 87,141 (19,065) 370,741
Operating profit 36,969 7,404 (13,888) 30,485
Reconciliation of reportable segment sales and income before taxes:
QUARTER ENDED
SEPTEMBER 25,
-------------
2000 1999 (RESTATED)
---- ----
($ IN THOUSANDS)
NET SALES
---------
Total net sales for reportable segments $126,654 $127,452
Elimination of intersegment sales (5,006) (5,304)
-------- --------
Total consolidated net sales $121,648 $122,148
-------- --------
INCOME BEFORE INCOME TAXES
--------------------------
Total operating profit for reportable segments $18,171 $14,901
Elimination of intersegment profits (672) 188
Unallocated amounts:
Corporate administration expenses (3,157) (3,754)
Interest expense (433) (547)
Other income (expense) 1,380 (833)
-------- --------
Total consolidated income before
income taxes $15,289 $9,955
-------- --------
NINE MONTHS ENDED
SEPTEMBER 25,
-------------
2000 1999 (RESTATED)
---- ----
($ IN THOUSANDS)
NET SALES
---------
Total net sales for reportable segments $378,162 $389,806
Elimination of intersegment sales (15,608) (19,065)
-------- --------
Total consolidated net sales $362,554 $370,741
-------- --------
INCOME BEFORE INCOME TAXES
--------------------------
Total operating profit for reportable segments $50,201 $44,373
Elimination of intersegment profits (2,531) (3,052)
Unallocated amounts:
Corporate administration expenses (9,766) (10,836)
Interest expense (1,434) (1,634)
Other income (expense) 113 (3,285)
-------- --------
Total consolidated income before
income taxes $36,583 $25,566
======== =======
</TABLE>
(b) Pro forma financial information.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements illustrate
the effect of the Offer as if it had been consummated on September 30, 2000
for the Unaudited Pro Forma Consolidated Balance Sheet. The Unaudited Pro
Forma Combined Income Statements for the year ended December 31, 1999 and
for the first nine months of 2000 assume the merger was effected as of the
beginning of the period presented.
The pro forma adjustments do not reflect any operating
efficiencies and cost savings that may be achieved with respect to the
acquisition. The pro forma adjustments do not include any adjustments to
historical sales for any future price changes nor any adjustments to
selling, marketing or any other expenses for any future operating changes.
Upon the closing of the BBA merger, IFF will incur certain integration
related expenses and a preliminary estimate is reflected in the pro forma
financial statements as a result of the elimination of duplicate
facilities, operational realignment and related workforce reductions. Such
costs will generally be recognized by IFF as a liability assumed as of the
merger date resulting in additional goodwill in accordance with Emerging
Issues Task Force No. 95-3, Recognition of Liabilities in Connection with a
Purchase Business Combination ("EITF 95-3"). The assessment of integration
related expenses is ongoing. The following pro forma information is not
necessarily indicative of the financial position or operating results that
would have occurred had the BBA merger, been consummated on the dates, or
at the beginning of the periods, for which such transactions are being
given effect. The pro forma adjustments reflecting the consummation of the
merger are based upon the assumptions set forth in the notes hereto.
The merger with BBA closed on November 9, 2000. IFF has accounted
for the BBA merger under the purchase method of accounting. Accordingly,
IFF has established a new basis for BBA's assets and liabilities based upon
the fair values and the IFF purchase price including the costs of the
merger. The purchase accounting adjustments made in connection with the
development of the pro forma condensed financial statements are preliminary
and have been made solely for purposes of developing such pro forma
condensed financial information.
IFF currently knows of no events other than those disclosed in
these pro forma notes that would require a material change to the
preliminary purchase price allocation of BBA. However, a final
determination of required purchase accounting adjustments will be made upon
the completion of a study undertaken by IFF in conjunction with independent
appraisers to determine the fair value of certain of BBA assets, including
intangible assets, and liabilities, including the aforementioned "EITF
95-3" liabilities. Refer to note 8 of the Notes to the Unaudited Pro Forma
Financial Information for a discussion of the sensitivity to earnings that
may occur as a result of the final determination of fair value. The future
financial position and results of operations will differ, perhaps
significantly, from the pro forma amounts reflected herein because of a
variety of factors, including access to additional information, changes in
value not currently identified and changes in operating results.
<TABLE>
<CAPTION>
INTERNATIONAL FLAVORS & FRAGRANCES INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
PRO PRO
HISTORICAL FORMA FORMA
------------------------
IFF BBA ADJUSTMENTS COMBINED
----------------------------------------- ----------------
<S> <C> <C> <C> <C>
Net sales $1,078,262 $362,554 ($4,439)(1) $1,436,377
----------------------------------------- ----------------
Cost of goods sold 587,852 232,506 (4,630)(2) 815,728
Research and development expenses 82,423 20,760 103,183
Selling and administrative expenses 197,570 71,384 268,954
Nonrecurring charges 17,039 0 17,039
Interest expense 9,406 1,434 54,690(3) 65,530
Amortization 0 0 31,611(4) 31,611
Other (income) expense, net 2,488 (113) 2,375
----------------------------------------- ----------------
896,778 325,971 81,671 1,304,420
----------------------------------------- ----------------
Income before taxes on income 181,484 36,583 (86,110) 131,957
Taxes on income 59,865 13,180 (21,775)(5) 51,270
----------------------------------------- ----------------
Net income $121,619 $23,403 ($64,335) $80,687
========================================= ================
Net income per share - basic $1.19 $1.21 $0.79
Net income per share - diluted $1.19 $1.20 $0.79
Weighted average number of shares outstanding - basic 102,152 19,323 102,152
Weighted average number of shares outstanding - diluted 102,169 19,535 102,169
Cash dividends per share of common stock $1.14 $0.00
See Notes to Unaudited Pro Forma Financial Information
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL FLAVORS & FRAGRANCES INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(DOLLARS IN THOUSANDS)
PRO PRO
HISTORICAL FORMA FORMA
--------------------------
IFF BBA ADJUSTMENTS COMBINED
-------------------------------------------- ----------------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $106,820 $35,136 $141,956
Short-term investments 324 0 324
Receivables:
Trade 283,592 84,237 ($493)(8) 367,336
Allowance for doubtful accounts (10,193) (2,354) (12,547)
Other 26,483 7,696 34,179
Inventories 358,363 103,330 461,693
Prepaid and deferred charges 60,954 8,642 10,500(7) 80,096
-------------------------------------------- ----------------
Total Current Assets 826,343 236,687 10,007 1,073,037
Property, plant and equipment, net 506,693 177,848 684,541
Goodwill and other intangibles 0 0 737,212(7) 737,212
Other Assets 33,902 52,824 (42,534)(7) 44,192
-------------------------------------------- ----------------
Total Assets $1,366,938 $467,359 $704,685 $2,538,982
============================================ ================
Liabilities and Shareholders' Equity
Current Liabilities:
Bank loans $43,841 $7,164 $51,005
Commercial paper 207,095 0 $972,260(6) 1,179,355
Accounts payable 48,714 38,870 (493)(8) 87,091
Dividends payable 37,902 0 37,902
Income taxes 55,816 114 55,930
Other current liabilities 138,836 33,634 30,000(7) 202,470
-------------------------------------------- ----------------
Total Current Liabilities 532,204 79,782 1,001,767 1,613,753
-------------------------------------------- ----------------
Other Liabilities:
Long-term debt 15,617 8,999 24,616
Deferred income taxes 28,572 23,035 53,415(7) 105,022
Retirement and other liabilities 144,947 11,195 (6,149)(7) 149,993
-------------------------------------------- ----------------
Total Other Liabilities 189,136 43,229 47,266 279,631
-------------------------------------------- ----------------
Shareholders' Equity
Common stock 14,470 19,351 (19,351)(7) 14,470
Capital in excess of par value 133,113 170,000 (170,000)(7) 133,113
Retained earnings 1,217,789 192,992 (192,992)(7) 1,217,789
Accumulated other comprehensive income:
Cumulative translation adjustment (100,278) (37,995) 37,995(7) (100,278)
-------------------------------------------- ----------------
1,265,094 344,348 (344,348) 1,265,094
Treasury stock (619,496) 0 (619,496)
-------------------------------------------- ----------------
Total Shareholders' Equity 645,598 344,348 (344,348) 645,598
-------------------------------------------- ----------------
Total Liabilities and Shareholders' Equity $1,366,938 $467,359 $704,685 $2,538,982
============================================ ================
See Notes to Unaudited Pro Forma Financial Information
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL FLAVORS & FRAGRANCES INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
PRO PRO
HISTORICAL FORMA FORMA
-----------------------
IFF BBA ADJUSTMENTS COMBINED
-------------------------------------- -------------
<S> <C> <C> <C> <C>
Net sales $1,439,499 $499,037 ($7,156)(1) $1,931,380
-------------------------------------- -------------
Cost of goods sold 791,787 334,491 (6,995)(2) 1,119,283
Research and development expenses 103,794 25,398 129,192
Selling and administrative expenses 262,642 97,999 360,641
Nonrecurring charges 32,948 0 32,948
Interest expense 5,154 2,322 72,920(3) 80,396
Amortization 0 0 42,148(4) 42,148
Other (income) expense, net (291) 4,348 4,057
-------------------------------------- -------------
1,196,034 464,558 108,073 1,768,665
-------------------------------------- -------------
Income before taxes on income 243,465 34,479 (115,229) 162,715
Taxes on income 81,465 13,199 (29,782)(5) 64,882
-------------------------------------- -------------
Net income $162,000 $21,280 ($85,447) $97,833
====================================== =============
Net income per share - basic $1.53 $1.10 $0.93
Net income per share - diluted $1.53 $1.10 $0.92
Weighted average number of shares outstanding - basic 105,748 19,295 105,748
Weighted average number of shares outstanding - diluted 105,943 19,392 105,943
Cash dividends per share of common stock $1.52 $0.00
See Notes to Unaudited Pro Forma Financial Information
</TABLE>
Notes to Unaudited Pro Forma Financial Information
(1) To eliminate intercompany sales between IFF and BBA.
(2) To eliminate cost of goods sold relating to intercompany sales and
to account for related estimated profit that remains in inventory.
(3) To reflect the recognition of incremental interest expense on the
additional borrowings equal to the cash consideration exchanged in
the acquisition. Interest expense was calculated using an interest
rate of 7.5%. The interest rate reflects IFF's average borrowing
rate in effect at the acquisition date.
(4) To reflect the amortization of goodwill and other intangibles
resulting from the preliminary allocation of the excess of
consideration over the net assets of BBA. Under current accounting
rules, IFF would expect the amount of excess consideration
allocated to goodwill to be amortized over 20 years. In December
2000, the Financial Accounting Standards Board (FASB) reached a
tentative decision to use the nonamortization approach to account
for purchased goodwill. Under the revised proposal, goodwill would
not be amortized annually, but instead would be reviewed for
impairment and written down (expensed against earnings) when the
carrying value of the goodwill exceeds its fair value. Such FASB
tentative decision is not yet final and may change before a
definitive standard is issued.
(5) To reflect the tax effect, as appropriate, of the pro forma
adjustments.
(6) To reflect the additional commercial paper used to finance the
acquisition.
(7) To record the preliminary allocation of purchase price to tangible
and intangible assets acquired and liabilities assumed. Intangible
assets acquired include formulations, technology, customer
relationships and assembled workforce. The total value of such
intangible assets and goodwill of $737 million is amortized over 7
to 20 years. A preliminary estimate of certain restructuring costs
related to the planned elimination of duplicate facilities,
operational realignment and related workforce reductions are
reflected as a liability in accordance with EITF 95-3.
Assuming an estimated useful life of 20 years, each $10 million of
consideration allocated to intangible assets other than
franchise/goodwill would have the effect of decreasing net income
by $0.5 million annually ($0.005 per diluted share).
(8) To eliminate intercompany balances between BBA and IFF.
(c) Exhibits:
Exhibit No. Description
----------- -----------
23 Consent of PricewaterhouseCoopers LLP.
99 Press release, dated November 9, 2000
(incorporated by reference to IFF's Current
Report on Form 8-K filed with the Commission
on November 13, 2000).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
INTERNATIONAL FLAVORS & FRAGRANCES INC.
By: /s/ Stephen A. Block
------------------------------------------
Name: Stephen A. Block
Title: Senior Vice President, General
Counsel and Secretary
Dated: January 17, 2001
EXHIBIT INDEX
Exhibit No. Description
23 Consent of PricewaterhouseCoopers LLP.
99 Press release, dated November 9, 2000 (incorporated by
reference to IFF's Current Report on Form 8-K filed with
the Commission on November 13, 2000).
