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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 25, 1997
--------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________to______________________________
Commission file number 1-13030
Bush Boake Allen Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Virginia 13-2560391
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
7 Mercedes Drive, Montvale, New Jersey 07645
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(Address of Principal Executive Offices) (Zip Code)
(201) 391-9870
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
--------- -------
19,231,200 shares of Registrant's Common Stock, Par Value $1 Per Share, were
outstanding as of the close of business on June 25, 1997.
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BUSH BOAKE ALLEN INC.
INDEX
PAGE
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PART I. FINANCIAL INFORMATION*
Item 1. Financial Statements 2
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
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*A summary of the Registrant's significant accounting policies is contained in
the Registrant's Form 10-K for the year ended December 25, 1996 which has
previously been filed with the Commission.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 25 JUNE 25,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $125,704 $113,539 $244,111 $220,428
Costs and other charges:
Cost of goods sold 80,003 71,898 157,048 139,441
Selling and administrative expenses 25,314 23,599 49,075 45,667
Research and development expenses 5,689 5,642 11,441 11,037
----------- ----------- ----------- -----------
Income from operations 14,698 12,400 26,547 24,283
----------- ----------- ----------- -----------
Interest expense 933 657 1,513 1,377
Other (income) expense, net 744 (3,758) 868 (3,139)
----------- ----------- ----------- -----------
Income before income taxes 13,021 15,501 24,166 26,045
----------- ----------- ----------- -----------
Income taxes 4,550 5,481 8,453 9,087
----------- ----------- ----------- -----------
Net Income $ 8.471 $ 10.020 $ 15.713 $ 16.958
=========== =========== =========== ===========
Net income per share $ 0.44 $ 0.52 $ 0.82 $ 0.88
=========== =========== =========== ===========
Weighted average number of shares outstanding 19,227,776 19,218,548 19,225,019 19,218,268
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
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BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 25, DECEMBER 25,
1997 1996
-------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,632 $ 4,330
Receivables, net 96,274 91,404
Inventories 104,841 102,217
Other 4,437 3,623
-------- ------------
Total current assets 211,184 201,574
Property, plant and equipment, net 170,488 165,577
Other assets 43,097 40,648
-------- ------------
Total Assets $424,769 $407,799
======== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current installments of long-term debt $ 7 $ 8
Notes payable 44,506 43,172
Accounts payable 39,235 38,322
Accrued liabilities 24,431 28,553
Income and other taxes 3,168 1,462
-------- ------------
Total current liabilities 111,347 111,517
Long-term debt 1,903 2,009
Deferred income taxes 20,916 20,323
Other long-term liabilities 11,208 10,817
Stockholders' equity (Shares outstanding
1997: 19,231,200; 1996: 19,222,200) 279,395 263,133
-------- ------------
Total Liabilities and Stockholders' Equity $424,769 $407,799
======== ============
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
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BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 25,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash provided by (used for) operations:
Net income $15,713 $16,958
Adjustments to reconcile net income to cash provided by operations:
Depreciation and amortization 8,433 6,406
Deferred income taxes 627 1,110
Other 387 (4,325)
Changes in operational assets and liabilities:
Receivables, net (6,273) (6,607)
Inventories (3,664) 1,144
Other assets (1,949) (3,294)
Accounts payable, taxes and other liabilities 3,849 1,868
-------- --------
Cash provided by operations 17,123 13,260
-------- --------
Cash provided by (used for) investment activities:
Capital expenditures (14,081) (17,649)
Payments for acquisitions (3,859) 0
Other 58 4,969
-------- --------
Cash used for investment activities (17,882) (12,680)
-------- --------
Cash provided by (used for) financing activities:
Change in notes payable, net 2,763 (318)
Other (2) (86)
-------- --------
Cash provided by (used for) financing activities 2,761 (404)
-------- --------
Effect of exchange rate changes on cash (700) 55
-------- --------
Increase in cash and cash equivalents 1,302 231
Balance at beginning of period 4,330 4,966
-------- --------
Balance at end of period $ 5,632 $ 5,197
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</TABLE>
See accompanying notes to the Consolidated Financial Statements.
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BUSH BOAKE ALLEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. 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.
Note 2. In February 1997, the Financial Accounting Standards Board issued
SFAS 128, "Earnings per Share" which must be adopted in fiscal year
1997. This statement establishes standards for computing and
presenting earnings per share (EPS) and is comparable to international
EPS standards. The Company does not expect the adoption of this
standard to materially affect its computation and presentation of EPS.
Note 3. Inventories
<TABLE>
<CAPTION>
June 25, 1997 December 25, 1996
------------- -----------------
($ in thousands)
<S> <C> <C>
Finished goods $ 31,346 $ 30,156
Raw materials 56,678 55,077
Work in process 12,018 12,579
Supplies 4,799 4,405
-------- ---------
Total $104,841 $102,217
======== ========
</TABLE>
Note 4. Stockholders' Equity (in thousands)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
------------- PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
SHARES AMOUNTS CAPITAL EARNINGS ADJUSTMENT EQUITY
------ ------- ------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance December 25, 1996 19,222 $ 19,222 $167,400 $ 79,101 $ (2,590) $263,133
Net Income 15,713 15,713
Issuance of Stock for Options 9 9 135 144
Foreign Currency Translation 405 405
Balance June 25, 1997 19,231 $ 19,231 $167,535 $ 94,814 $ (2,185) $279,395
====== ======== ======== ======== ======== ========
</TABLE>
Note 5. "Other (income) expense, net" for the second quarter of 1996
includes a non-recurring pre-tax gain of $4.2 million related to the
sale of excess Company land adjacent to the Widnes, England aroma
chemical plant.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED JUNE 25, 1997 COMPARED TO QUARTER ENDED JUNE 25, 1996
NET SALES
Net sales for the quarter ended June 25, 1997 increased 10.7% to $125.7
million from $113.5 million for the quarter ended June 25, 1996. The primary
reason for the increase in sales was the aroma chemicals segment, which reported
growth in second quarter sales of 16.4% over the second quarter of 1996. This
growth reflects increased volume of chemical shipments under a long-term supply
agreement with a major customer and higher sales of terpene based products. The
flavor and fragrance segment recorded growth in second quarter sales of 9.3%
over the second quarter of 1996. The sales increase also reflects the impact of
three acquisitions made during the fourth quarter of 1996 which added
approximately $4.6 million of incremental flavor and fragrance sales in the
second quarter of 1997. The International region had the highest internal growth
rate with a sales increase of 27%, while Europe region sales were flat with the
second quarter of 1996. Net sales were adversely affected by the movement in
foreign currency exchange rates. If exchange rates had remained unchanged from
the second quarter 1996 to the second quarter 1997, the increase in total net
sales would have been approximately 13%.
COST OF GOODS SOLD
Cost of goods sold in the second quarter of 1997 increased to $80.0
million from $71.9 million in the second quarter of 1996 due primarily to
increased sales. Cost of goods sold as a percentage of net sales increased
slightly to 63.6% from 63.3%. Improved operating efficiencies largely offset
higher raw material turpentine costs, and additional depreciation and
amortization expenses resulting from the completion of major capital projects
and recent acquisitions.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses in the second quarter of 1997
increased to $25.3 million from $23.6 million in the second quarter of 1996.
This increase includes the effect of acquisitions made during the fourth quarter
of 1996. Selling and administrative expenses as a percentage of net sales
decreased to 20.1% from 20.8% reflecting a reduction in corporate overhead
expense with the relocation of certain administrative services from the UK to
the U.S. now almost complete.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses in the second quarter of 1997
increased to $5.7 million from $5.6 million in the second quarter of 1996.
Research and development expenses as a percentage of net sales decreased to 4.5%
from 5.0% due primarily to the increased sales base.
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INCOME FROM OPERATIONS
Income from operations in the second quarter of 1997 increased 18.5% to
$14.7 million from $12.4 million in the second quarter of 1996. Operating
margins improved to 11.7% from 10.9% in the second quarter of 1996 reflecting
the benefit from Company cost reduction programs, mainly in Europe, where there
has been a substantial reduction in staff. The total number of employees for the
Company has been reduced almost 4% since the end of last year.
Income from operations, exclusive of corporate items, for the flavor and
fragrance segment was $14.0 million compared to $12.9 million in the second
quarter of 1996. An increase in operating income was reported in all regions
except Asia Pacific, which was adversely impacted by competitive pricing
throughout the region and higher costs associated with the new plant in China.
The Company's aroma chemical segment recorded second quarter operating income
(exclusive of corporate items) of $5.4 million in 1997 compared to $5.1 million
in the second quarter of 1996. The increase in operating income is primarily due
to higher sales volume partially offset by continuing cost pressure affecting
turpentine-based products and competitive pricing pressure in Europe resulting
from the strong Pound Sterling.
OTHER (INCOME) EXPENSE, NET
Other (income) expense for the second quarter of 1997 was $700,000
expense compared to $3.8 million income in the second quarter of 1996. The
primary reason for the decrease in other income was a $4.2 million non-recurring
pre-tax gain on the sale of excess Company land adjacent to the Widnes, England
aroma chemical plant during the second quarter of 1996.
INTEREST EXPENSE
Interest expense for the second quarter of 1997 increased to $900,000
from $700,000 in the second quarter of 1996. The increase in net interest
expense is primarily due to the higher level of notes payable outstanding and
lower capitalized interest during the second quarter of 1997.
INCOME TAXES
Income tax expense in the second quarter of 1997 decreased to $4.6
million from $5.5 million in the second quarter of 1996 primarily as a result of
lower pre-tax income. The Company's effective tax rate in the second quarter of
1997 decreased to 34.9% from 35.4% for the second quarter of 1996.
SIX MONTHS ENDED JUNE 25, 1997 COMPARED TO SIX MONTHS ENDED JUNE 25, 1996
NET SALES
Net sales for the six months ended June 25, 1997 increased 10.7% to
$244.1 million from $220.4 million in the comparable prior year period. Net
sales of aroma chemicals increased 8.8% to $50.5 million from $46.4 million
primarily due to the increased volume of shipments under a long-term supply
agreement with a major customer and higher sales of terpene based products. Net
sales of the flavor and fragrance segment increased 11.3% to $193.6 million from
$174.0 million with market growth in all regions. The sales increase also
reflects the impact of three acquisitions made during the fourth quarter of 1996
which added approximately $8.8 million of incremental flavor and fragrance sales
in the first half of 1997. Net sales in both product segments were adversely
affected by the movement in foreign currency exchange rates. If exchange rates
had remained unchanged from the first half of 1996 to the first half of 1997,
the increase in total net sales would have been approximately 12%.
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COST OF GOODS SOLD
Cost of goods sold for the six months ended June 25, 1997 increased
12.6% to $157.0 million from $139.4 million in the comparable prior year period.
The Company's cost of goods sold as a percentage of net sales increased to 64.3%
from 63.3% in the prior year primarily due to significantly higher raw material
turpentine costs, and additional depreciation and amortization expenses
resulting from the completion of major capital projects and recent acquisitions.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for the six months ended June 25,
1997 increased to $49.1 million from $45.7 million in the comparable prior year
period. This increase includes the effect of acquisitions made during the fourth
quarter of 1996. Selling and administrative expenses as a percentage of net
sales decreased to 20.1% from 20.7%.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the six months ended June 25, 1997
increased to $11.4 million from $11.0 million in the comparable prior year
period. This increase is due primarily to additional creative and technical
personnel for the flavor and fragrance segment, and for services performed by
Union Camp at its research facility in Princeton, New Jersey. Research and
development expenses as a percentage of net sales decreased to 4.7% from 5.0%.
INCOME FROM OPERATIONS
Income from operations for the six months ended June 25, 1997 increased
9.3% to $26.5 million from $24.3 million in the comparable prior year period.
Income from operations, exclusive of corporate items, for the flavor and
fragrance segment increased 8% to $24.8 million from $22.9 million in the prior
year first half. The Company's aroma chemical segment recorded first half
operating income (exclusive of corporate items) of $11.3 million in 1997,
compared to $12.2 million in the first half of 1996. The decrease in operating
income was primarily due to continuing cost pressure affecting turpentine-based
products and competitive pricing pressure in Europe resulting from the strong
Pound Sterling.
OTHER (INCOME) EXPENSE, NET
Other (income) expense for the six months ended June 25, 1997 was
$900,000 expense compared to $3.1 million income in the comparable prior year
period. The decrease in other income was primarily attributable to a gain on the
sale of excess Company land in Widnes, England during the second quarter of
1996.
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INTEREST EXPENSE
Interest expense for the six months ended June 25, 1997
increased to $1.5 million from $1.4 million in the comparable prior year period.
The increase in net interest expense is primarily attributable to lower
capitalized interest due to the completion of a manufacturing facility that was
constructed in China.
INCOME TAXES
Income tax expense for the six months ended June 25, 1997
decreased to $8.5 million from $9.1 million in the comparable prior year period
primarily as a result of lower pre-tax income. The Company's effective tax rate
increased slightly to 35.0% from 34.9% in the prior year first half.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations for the six months ended
June 25, 1997 were $17.1 million compared to $13.3 million for the six months
ended June 25, 1996. The increase is primarily due to higher operating income
before non-cash charges for depreciation and amortization expense. The gain on
the sale of land during the second quarter of 1996 is excluded from cash
provided by operations.
At June 25, 1997, working capital of the Company was $99.8
million, a $9.7 million increase from $90.1 million at December 25, 1996. The
change in working capital is primarily due to the increase in total current
assets, mainly from an increase in accounts receivable and inventories due to
the growth in business.
As of June 25, 1997, the Company had cash and cash equivalents
of $5.6 million. The Company believes that its available cash, funds provided by
operations and available borrowing capacity under its credit facilities will be
sufficient to support its debt service, working capital and capital expenditure
requirements for the foreseeable future, including implementation of its
strategy to strengthen its position as a leading producer of flavors, fragrances
and aroma chemicals and for long-term growth.
Statements in this report that are not historical are forward-looking statements
which are subject to risks and uncertainties that could cause actual results to
differ materially. Such risks and uncertainties with respect to Bush Boake
Allen's business include general economic conditions, customers changing flavor
and/or fragrance formulations, pricing and availability of raw materials and
political and economic uncertainties including currency fluctuations in the many
countries in which we operate.
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PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
No. Description
--- -----------
11 Statement regarding computation of
per share earnings
27 Financial Data Schedule
B) REPORTS ON FORM 8-K
No current Report on Form 8-K was filed by the Registrant during the
second quarter of 1997.
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SIGNATURES
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 thereunto duly authorized.
BUSH BOAKE ALLEN INC.
Date: 7/31/97 /s/ Fred W. Brown, Jr.
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Fred W. Brown, Jr.
Vice President Finance and
Chief Financial Officer
Date: 7/31/97 /s/ Dennis M. Meany
------------------------------ ---------------------------
Dennis M. Meany
Vice President, General Counsel
and Secretary
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EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 25, June 25,
-------------------------------- --------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 8,471,000 $10,020,000 $15,713,000 $16,958,000
Shares used to compute
earnings per share 19,227,776 19,218,548 19,225,019 19,218,268
Earnings Per Share $ 0.44 $ 0.52 $ 0.82 $ 0.88
Shares used to compute
earnings per share including
common stock equivalents - Primary Basis 19,404,140 19,362,676 19,376,427 19,380,606
Primary Earnings Per Share $ 0.44 $ 0.52 $ 0.81 $ 0.87
Shares used to compute
earnings per share including
common stock equivalents - Fully Diluted Basis 19,420,911 19,380,886 19,418,154 19,380,606
Fully Diluted Earnings Per Share $ 0.44 $ 0.52 $ 0.81 $ 0.87
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-25-1997
<PERIOD-END> JUN-25-1997
<CASH> 5,632
<SECURITIES> 0
<RECEIVABLES> 96,274
<ALLOWANCES> 0
<INVENTORY> 104,841
<CURRENT-ASSETS> 211,184
<PP&E> 170,488
<DEPRECIATION> 0
<TOTAL-ASSETS> 424,769
<CURRENT-LIABILITIES> 111,347
<BONDS> 1,903
<COMMON> 279,395
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 424,769
<SALES> 244,111
<TOTAL-REVENUES> 244,111
<CGS> 157,048
<TOTAL-COSTS> 217,564
<OTHER-EXPENSES> 868
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,513
<INCOME-PRETAX> 24,166
<INCOME-TAX> 8,453
<INCOME-CONTINUING> 15,713
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,713
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.81
</TABLE>
