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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 September 25, 1997
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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
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19,253,800 shares of Registrant's Common Stock, Par Value $1 Per Share, were
outstanding as of the close of business on September 25, 1997.
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BUSH BOAKE ALLEN INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION*
Item 1. Financial Statements 2
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
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*A summary of the Registrant's significant accounting policies is contained in
the Registrant's Form 10-K for the year ended December 25, 1996 which has
previously been filed with the Commission.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 25, SEPTEMBER 25,
---------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $122,577 $112,463 $366,688 $332,891
Costs and other charges:
Cost of goods sold 79,813 71,734 236,861 211,175
Selling and administrative
expenses 23,393 23,431 72,468 69,098
Research and development
expenses 5,894 5,390 17,335 16,427
-------- ------- ------- -------
Income from operations 13,477 11,908 40,024 36,191
-------- ------- ------- -------
Interest expense 788 522 2,301 1,899
Other (income) expense, net 979 (9) 1,847 (3,148)
-------- ------- ------- -------
Income before income taxes 11,710 11,395 35,876 37,440
-------- ------- ------- -------
Income taxes 3,605 3,511 12,058 12,598
-------- ------- ------- -------
Net Income $8,105 $7,884 $23,818 $24,842
======== ======= ======= =======
Net income per share $0.42 $0.41 $1.24 $1.29
======== ======= ======= =======
Weighted average number of
shares outstanding 19,243,497 19,222,200 19,231,223 19,219,588
========== ========== ========== ==========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
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BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 25, DECEMBER 25,
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $5,849 $4,330
Receivables, net 97,987 91,404
Inventories 105,155 102,217
Other 5,409 3,623
-------- ---------
Total current assets 214,400 201,574
Property, plant and equipment, net 171,832 165,577
Other assets 42,448 40,648
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Total Assets $428,680 $407,799
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current installments of long-term debt $7 $8
Notes payable 49,024 43,172
Accounts payable 39,416 39,462
Accrued liabilities 24,287 27,413
Income and other taxes 1,316 1,462
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Total current liabilities 114,050 111,517
Long-term debt 1,835 2,009
Deferred income taxes 20,996 20,323
Other long-term liabilities 11,158 10,817
Stockholders' equity (Shares outstanding
1997: 19,253,800; 1996: 19,222,200) 280,641 263,133
-------- ---------
Total Liabilities and Stockholders' Equity $428,680 $407,799
======== ========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
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BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 25,
--------------------
1997 1996
---- ----
<S> <C> <C>
Cash provided by (used for) operations:
Net income $23,818 $24,842
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization 12,590 9,753
Deferred income taxes 480 1,838
Other 1,095 (4,644)
Changes in operational assets and liabilities:
Receivables, net (11,725) (7,634)
Inventories (7,641) (4)
Other assets (3,692) (3,848)
Accounts payable, taxes and other
liabilities 3,743 3,047
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Cash provided by operations 18,668 23,350
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Cash provided by (used for) investment activities:
Capital expenditures (23,449) (28,962)
Payments for acquisitions (3,859) 0
Other 248 6,322
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Cash used for investment activities (27,060) (22,640)
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Cash provided by (used for) financing activities:
Change in notes payable, net 9,575 (27)
Repayments of long-term debt (3) (2,166)
Other 567 67
------- -------
Cash provided by (used for)
financing activities 10,139 (2,126)
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Effect of exchange rate changes on cash (228) 230
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Increase (decrease) in cash and cash equivalents 1,519 (1,186)
Balance at beginning of period 4,330 4,966
------- -------
Balance at end of period $5,849 $3,780
======== =======
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
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BUSH BOAKE ALLEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The information furnished in this report is unaudited but includes all
adjustments which, in the opinion of management, are necessary for a
fair presentation of results for the interim periods reported. The
adjustments made were of a normal recurring nature.
Note 2. In February 1997, the Financial Accounting Standards Board issued SFAS
128, "Earnings per Share" which must be adopted in fiscal year 1997.
This statement establishes standards for computing and presenting
earnings per share (EPS) and is comparable to international EPS
standards. The Company does not expect the adoption of this standard to
materially affect its computation and presentation of EPS.
Note 3. Inventories
<TABLE>
<CAPTION>
September 25, 1997 December 25, 1996
------------------ -----------------
($ in thousands)
<S> <C> <C>
Finished goods $30,782 $30,156
Raw materials 57,493 55,077
Work in process 12,200 12,579
Supplies 4,680 4,405
-------- ---------
Total $105,155 $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 23,818 23,818
Issuance of Stock for Options 32 32 535 567
Foreign Currency Translation (6,877) (6,877)
------ --------- --------- --------- ------- ---------
Balance September 25, 1997 19,254 $ 19,254 $ 167,935 $ 102,919 $(9,467) $ 280,641
====== ========= ========= ========= ======= =========
</TABLE>
Note 5. "Other (income) expense, net" for the nine months ended September 25,
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 during the second quarter of 1996.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 25, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 25, 1996
NET SALES
Net sales for the quarter ended September 25, 1997 increased 9.0% to $122.6
million from $112.5 million for the quarter ended September 25, 1996. The aroma
chemicals segment reported growth in third quarter external sales of 10.0% over
the third quarter of 1996. This growth reflects increased volume of chemical
shipments under a long-term supply agreement with a major customer, higher sales
of terpene based products and the addition of certain resale chemicals
previously classified as flavor and fragrance sales. The flavor and fragrance
segment recorded growth in third quarter sales of 8.7% over the third quarter of
1996. The sales increase also reflects the impact of three acquisitions made
during the fourth quarter of 1996 which added approximately $2.8 million of
incremental flavor and fragrance sales in the third quarter of 1997. The
International region had the highest internal growth rate with a sales increase
of 20%, while Europe region sales were down slightly from the third quarter of
1996. Net sales were adversely affected by the movement in foreign currency
exchange rates. If exchange rates had remained unchanged from the third quarter
1996 to the third quarter 1997, the increase in total net sales would have been
approximately 13%.
COST OF GOODS SOLD
Cost of goods sold in the third quarter of 1997 increased to $79.8 million
from $71.7 million in the third quarter of 1996 due primarily to increased
sales, higher raw material turpentine costs, and additional depreciation and
amortization expenses resulting from the completion of major capital projects
and recent acquisitions. Cost of goods sold as a percentage of net sales
increased to 65.1% from 63.8%,
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses in the third quarter of 1997 were $23.4
million, the same as the third quarter of 1996. Selling and administrative
expenses as a percentage of net sales decreased to 19.1% 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 complete.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses in the third quarter of 1997 increased to
$5.9 million from $5.4 million in the third quarter of 1996. The increase is due
primarily to additional creative and technical personnel for the flavor and
fragrance segment. Research and development expenses as a percentage of net
sales was 4.8% for both periods.
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INCOME FROM OPERATIONS
Income from operations in the third quarter of 1997 increased 13.2% to
$13.5 million from $11.9 million in the third quarter of 1996. Operating margins
improved to 11.0% from 10.6% in the third 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 5% since the end of last year and severance costs in the
third quarter of 1997 totaled approximately $1.3 million.
Income from operations, exclusive of corporate items, for the flavor and
fragrance segment was $13.6 million compared to $12.0 million in the third
quarter of 1996. An increase in operating income was reported in all regions
with the largest increase being in the International region. The Company's aroma
chemical segment recorded third quarter operating income (exclusive of corporate
items) of $3.8 million in 1997 compared to $5.1 million in the third quarter of
1996. The decrease in operating income is primarily due to continuing cost
pressure affecting turpentine-based products and competitive pricing pressure in
Europe resulting from the strong Pound Sterling. Also, a pump failure at the
Widnes, England aroma chemical plant resulted in a shutdown of part of that
plant for three weeks during the third quarter of 1997. Although the pump
failure created some scheduling difficulties, the financial impact during the
quarter was minimized and much of the expense is believed to be recoverable
under the Company's insurance.
OTHER (INCOME) EXPENSE, NET
Other (income) expense for the third quarter of 1997 was $1.0 million
expense compared to $9,000 income in the third quarter of 1996. The primary
reason for the increase in other expense was the foreign exchange losses
incurred during the third quarter of 1997, primarily from the devaluations of
currencies in Southeast Asia.
INTEREST EXPENSE
Interest expense for the third quarter of 1997 increased to $800,000 from
$500,000 in the third 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 third quarter of 1997.
INCOME TAXES
Income tax expense in the third quarter of 1997 increased to $3.6 million
from $3.5 million in the third quarter of 1996 primarily as a result of higher
pre-tax income. The Company's effective tax rate in the third quarter of 1997
was 30.8%, the same as in the third quarter of 1996. The third quarter this year
reflects a deferred tax benefit due to the reduction in the UK statutory income
tax rate while the third quarter of 1996 reflected the final valuation of
reduced capital gains taxes on property dispositions in the UK and Australia.
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NINE MONTHS ENDED SEPTEMBER 25, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 25, 1996
NET SALES
Net sales for the nine months ended September 25, 1997 increased 10.2% to
$366.7 million from $332.9 million in the comparable prior year period. Net
sales of aroma chemicals increased 9.2% to $74.9 million from $68.6 million
primarily due to the increased volume of shipments under a long-term supply
agreement with a major customer, higher sales of terpene based products and the
addition of certain resale chemicals previously classified as flavor and
fragrance sales. Net sales of the flavor and fragrance segment increased 10.4%
to $291.8 million from $264.3 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 $11.6 million of incremental
flavor and fragrance sales in the first nine months 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 nine
months of 1996 to the first nine months of 1997, the increase in total net sales
would have been approximately 13%.
COST OF GOODS SOLD
Cost of goods sold for the nine months ended September 25, 1997 increased
12.2% to $236.9 million from $211.2 million in the comparable prior year period.
The Company's cost of goods sold as a percentage of net sales increased to 64.6%
from 63.4% 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 nine months ended September 25,
1997 increased to $72.5 million from $69.1 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 19.8% 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 complete.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the nine months ended September 25,
1997 increased to $17.3 million from $16.4 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 for
the Company 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 4.9%.
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INCOME FROM OPERATIONS
Income from operations for the nine months ended September 25, 1997
increased 10.6% to $40.0 million from $36.2 million in the comparable prior year
period.
Income from operations, exclusive of corporate items, for the flavor and
fragrance segment increased 10% to $38.4 million from $35.0 million in the prior
year first nine months. The Company's aroma chemical segment recorded nine
months operating income (exclusive of corporate items) of $15.1 million in 1997,
compared to $17.3 million in the comparable prior year period. 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. Also, a pump failure at the Widnes, England
aroma chemical plant resulted in a shutdown of part of that plant for three
weeks during the third quarter of 1997. Although the pump failure created some
scheduling difficulties, the financial impact during the quarter was minimized
and much of the expense is believed to be recoverable under the Company's
insurance.
OTHER (INCOME) EXPENSE, NET
Other (income) expense for the nine months ended September 25, 1997 was
$1.8 million 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.
INTEREST EXPENSE
Interest expense for the nine months ended September 25, 1997 increased to
$2.3 million from $1.9 million in the comparable prior year period. The increase
in net interest expense is primarily attributable to the higher level of notes
payable outstanding during 1997.
INCOME TAXES
Income tax expense for the nine months ended September 25, 1997 decreased
to $12.1 million from $12.6 million in the comparable prior year period
primarily as a result of lower pre-tax income. The Company's effective tax rate
was 33.6% for both periods.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations for the nine months ended September 25,
1997 were $18.7 million compared to $23.4 million for the nine months ended
September 25, 1996. The decrease is primarily due to changes in operational
assets and liabilities, mainly from an increase in trade receivables and
inventories during the first nine months of 1997. The gain on the sale of land
during the second quarter of 1996 is excluded from cash provided by operations.
At September 25, 1997, working capital of the Company was $100.4
million, a $10.3 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.
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As of September 25, 1997, the Company had cash and cash equivalents of $5.8
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.
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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
third 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: 11/5/97 By: Fred W. Brown, Jr.
------------------------------ --------------------
Fred W. Brown, Jr.
Vice President Finance and
Chief Financial Officer
Date: 11/5/97 By: 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 Nine Months Ended
September 25, September 25,
------------------------ -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $8,105,000 $7,884,000 $23,818,000 $24,842,000
Shares used to compute
earnings per share 19,243,497 19,222,200 19,231,223 19,219,588
Earnings Per Share $0.42 $0.41 $1.24 $1.29
Shares used to compute
earnings per share including
common stock equivalents - Primary Basis 19,480,313 19,293,877 19,410,425 19,356,351
Primary Earnings Per Share $0.42 $0.41 $1.23 $1.28
Shares used to compute
earnings per share including
common stock equivalents - Fully Diluted Basis 19,483,274 19,332,662 19,471,000 19,356,351
Fully Diluted Earnings Per Share $0.42 $0.41 $1.22 $1.28
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-25-1997
<PERIOD-START> DEC-26-1996
<PERIOD-END> SEP-25-1997
<CASH> 5,849
<SECURITIES> 0
<RECEIVABLES> 97,987
<ALLOWANCES> 0
<INVENTORY> 105,155
<CURRENT-ASSETS> 214,400
<PP&E> 171,832
<DEPRECIATION> 0
<TOTAL-ASSETS> 428,680
<CURRENT-LIABILITIES> 114,050
<BONDS> 1,835
<COMMON> 280,641
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 428,680
<SALES> 366,688
<TOTAL-REVENUES> 366,688
<CGS> 236,861
<TOTAL-COSTS> 326,664
<OTHER-EXPENSES> 1,847
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,301
<INCOME-PRETAX> 35,876
<INCOME-TAX> 12,058
<INCOME-CONTINUING> 23,818
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,818
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.22
</TABLE>
