BUSH BOAKE ALLEN INC, 10-K405, 1998-03-20

BUSH BOAKE ALLEN INC
10-K405, 1998-03-20
INDUSTRIAL ORGANIC CHEMICALS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-K

-------------------------
(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 25, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________________ to _________________
Commission File Number 1-13030

-------------------------

BUSH BOAKE ALLEN INC.
(Exact name of registrant as specified in its charter)

VIRGINIA 13-2560391
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7 MERCEDES DRIVE, MONTVALE, NEW JERSEY 07645
(Address of Principal Executive Offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 201-391-9870

-------------------------

Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange on
Title of Each Class Which Registered
------------------- ------------------------
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

NONE
-------------------------

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 (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

On February 25, 1998, 19,278,800 shares of Registrant's Common Stock,
$1 par value, were outstanding. On March 1, 1998, the closing price per share
for the Common Stock as reported on the Composite Tape for issues listed on the
New York Stock Exchange was $32.4375 and the aggregate market value of the
Common Stock held by non-affiliates of the Registrant was $198,640,763.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's Annual Report to Stockholders for the fiscal
year ended December 25, 1997 (the "Bush Boake Allen 1997 Annual Report") are
incorporated by reference in Parts I, II and IV of this Form 10-K.

Portions of Registrant's Proxy Statement, dated March 22, 1998 (the
"Bush Boake Allen 1998 Proxy Statement"), are incorporated by reference in Part
III of this Form 10-K.

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COPIES OF THE EXHIBITS MAY BE OBTAINED BY STOCKHOLDERS UPON WRITTEN REQUEST
DIRECTED TO THE SECRETARY, BUSH BOAKE ALLEN INC., 7 MERCEDES DRIVE, MONTVALE,
NEW JERSEY 07645, ACCOMPANIED BY A CHECK IN THE AMOUNT OF $10.00 PAYABLE TO BUSH
BOAKE ALLEN INC. TO COVER PROCESSING AND MAILING COSTS. COSTS OF INDIVIDUAL
EXHIBITS ARE AVAILABLE UPON REQUEST TO THE SECRETARY.

PART I

ITEM 1. BUSINESS

GENERAL

Bush Boake Allen Inc., a Virginia corporation ("BBA" or the "Company")
or its predecessors have been in the flavor and fragrance business since the
mid-1800s. In 1966, Albright & Wilson, a United Kingdom company, formed BBA as
an independent integrated flavor and fragrance business through the merger of W.
J. Bush Limited ("Bush"), A. Boake Roberts Limited ("Boake") and Stafford Allen
Limited ("Allen"), each based in the United Kingdom. Bush produced liquid
flavors and historically conducted business throughout the former British
Empire. Boake produced aroma chemicals and fragrances and Allen produced spices
and seasonings.

Union Camp Corporation ("Union Camp"), which manufactures paper,
paperboard, packaging, wood and chemical products, acquired BBA in 1982 from
Albright & Wilson which was then a wholly-owned subsidiary of Tenneco, Inc. In
June 1994, the Company completed an initial public offering of 6,065,000 shares
of its Common Stock, $1 par value (the "Common Stock") which resulted in 31.6%
of its outstanding Common Stock being publicly held, with the remaining 68.4%
held by Union Camp. Prior to the initial public offering, the Company was
reincorporated from New York to Virginia.

BBA's business is organized into two operating segments: (i) flavor (including
essential oils, seasonings and spice extracts) and fragrance and (ii) aroma
chemicals. In 1997, flavor and fragrance and aroma chemicals accounted for
approximately 79% and 21%, respectively, of the Company's total net sales. The
Company's flavor products impart a desired taste and smell to a broad range of
consumer products including soft drinks, confections, dietary foods, snack
foods, dairy products, pharmaceuticals and alcoholic beverages. The Company's
fragrance products are used in a wide variety of household products including
soaps, detergents, air fresheners, toiletries and related products. The
Company's flavor and fragrance compounds are sold primarily to consumer products
companies which use these products in conjunction with other natural and
synthetic ingredients to make their products more appealing to consumers.
Included within the flavor and fragrance segment is the Company's natural
extracts and seasonings business which consists of essential oils and spice
extracts that are sold primarily to manufacturers of food and beverage products.

BBA is also a major producer of aroma chemicals, products which are
primarily used as raw materials in fragrance compounds. Aroma chemicals are
derived primarily from turpentine, a by-product of the wood pulping process, and
from certain petroleum-based products. The Company sells the majority of its
aroma chemicals directly to major

multinational consumer products manufacturers and other fragrance and flavor
compounders who use them as fragrance raw materials. The remainder are sold to
agrichemical and specialty chemical manufacturers and used internally by BBA in
its production of fragrance compounds. The Company's aroma chemicals are
produced at highly efficient, automated facilities located in Jacksonville,
Florida (terpene-based aroma chemicals) and Widnes, United Kingdom (terpene- and
petrochemical-based aroma chemicals).

The Company has operations in 39 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: the Americas (North
and South America and Caribbean operations); Europe (United Kingdom and Western
Europe), Asia Pacific (East Asia, Southeast Asia, Australia and New Zealand) and
International (India, Middle East, Eastern Europe, Africa and Russia).
Technical, production, sales and customer service capabilities are located in
each region which enhance the Company's focus on individual market and customer
preferences. The Company's aroma chemicals business is managed globally from
Jacksonville. The Company's New Jersey Headquarters and London office provide
administrative and technical support worldwide.

Revenue, operating profits and other financial data for the principal
business segments and for regional operations for the years ended December 25,
1997, 1996 and 1995 appear in Note 12 of Notes to Consolidated Financial
Statements on pages 35 to 37 of the Bush Boake Allen 1997 Annual Report and are
incorporated by reference in this Item 1.

The Company's principal executive offices are located at 7 Mercedes
Drive, Montvale, New Jersey 07645 (Tel. No. (201) 391-9870).

INDUSTRY OVERVIEW

Flavor and fragrance compounds are used in numerous end products.
Fragrance compounds may be single-ingredient or highly complex blends of
essential oils, natural extracts or aroma chemicals. These compounds are sold
primarily to manufacturers of consumer products, including perfumes, cosmetics,
personal care products, soaps, detergents, household cleaners and ambient
deodorizers. Flavor compounds also may be single-ingredient, such as menthol or
vanillin, or complex blends of natural and synthetic materials. These compounds
are sold primarily to manufacturers of beverages, confections, dairy and meat
products, snack foods, baked goods and other food products. Pharmaceuticals,
oral care products and pet food are also significant end-use categories.
Essential oils (such as citrus and mint) and natural extracts (such as vanilla
and fruit extracts) are key components of flavor and fragrance end products.

Aroma chemicals are organic chemicals derived from either conversion of
turpentine or petrochemical raw materials, or isolation from natural sources.
More than

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3,000 of these chemicals are used by flavor and fragrance companies, which both
use aroma chemicals as raw materials for their compound products and sell them
directly to others. Certain of the larger volume aroma chemicals are generally
considered commodity products, with price and customer relationships
constituting the key selling factors.

PRODUCTS

The Company's principal flavor and fragrance products consist of
compounds of large numbers of ingredients blended under proprietary formulas
created by its perfumers and flavorists. Most of these compounds contribute
substantially all of the flavor or fragrance to the consumer end products in
which they are incorporated. Numerous compounds are produced by the Company, and
new compounds are constantly being created in order to meet the many and
changing characteristics of its customers' end products. The Company's flavor
products also include essential oils, natural extracts, spice extracts and
seasonings derived from various fruits, vegetables, nuts, herbs and spices as
well as enzymatically enhanced ingredients. The Company's products are sold in
liquid, powder and paste forms in volumes ranging from a few kilograms to
several tons, depending on the nature of the customer's finished product. The
Company also produces aroma chemicals for use in its own flavor and fragrance
compounds as well as for sale directly to other flavor and fragrance consumer
product manufacturers.

Flavor Products

The Company produces flavor compounds which are sold primarily to the
food, beverage, and pharmaceutical industries and include (i) compounds
typically consisting of natural and synthetic substances, (ii) reaction or
process flavors, which are substances that enhance flavor when heat or pressure
cooking is applied and (iii) enzymatically enhanced flavors. Flavor compounds
typically consist of either sweet or savory flavors. Sweet flavors include
various fruits as well as vanilla, coffee, chocolate and cola. The Company's
sweet flavor compounds are used in such consumer products as soft drinks,
candies, baked goods, desserts, prepared foods, dietary foods, dairy products
and drink powders. Savory flavors are composed of spices and herbs and include
primarily meat, fish and cheese flavors. The Company's savory flavor compounds
are used in snack products of all kinds as well as processed foods, such as
prepared meals, soups and sauces. In addition to sweet and savory flavors, the
Company produces flavors for specific applications, such as oral hygiene and
pharmaceutical products. In 1995, 1996 and 1997, sales of flavor compounds
accounted for approximately 37%, 37% and 36%, respectively, of the Company's
total net sales.

The Company produces natural products which are sold primarily to the
food industry and consist of essential oils, natural extracts, spices and
seasonings. Essential oils are mixtures of natural aroma chemicals typically
obtained by steam distillation or expression from plants, fruits, seeds, barks,
leaves and berries. Essential oils and natural extracts are used as flavoring
items in their own right and also as raw materials for

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compounding flavors, as well as fragrances. In addition to selling such products
to customers, the Company uses them to produce its own flavor and fragrance
compounds. Spices are dried plant products which, due to their high content of
essential oils, are highly aromatic. In each of 1995, 1996 and 1997, sales of
natural products accounted for approximately 21% of the Company's total net
sales.

Fragrance Products

The Company produces a broad range of fragrance compounds which are sold
primarily to manufacturers of cosmetics and toiletries, household cleaners, and
personal care products. The Company has also been successful in promoting the
use of deodorants in a variety of applications such as masking diesel automotive
fuel odor. In addition, the Company has devoted substantial research and
development activity toward developing malodor counteractive fragrances for use
in laundry and air freshener applications. The Company is also promoting a line
of fragrance compounds based on extensive analysis of scents from living plants
and flowers. These fragrances are being marketed by the Company under the
GENERESSENCE'r' trade name. In 1995, 1996 and 1997, sales of fragrances
(excluding the resale of aroma chemicals purchased from BBA's Aroma Chemical
Division) accounted for approximately 17%, 17% and 18%, respectively, of the
Company's total net sales.

Aroma Chemicals

The Company produces aroma chemicals for use in its own flavor and
fragrance compounds as well as for sale directly to other flavor and fragrance
and consumer product manufacturers, which, in turn, use them as raw materials in
their own formulations and products. The Company obtains approximately 18% of
its crude turpentine needs from Union Camp operations and also uses procurement
services provided by Union Camp for other external purchases of turpentine, in
each case at approximately fair market value. The Company is a major supplier of
terpene-based aroma chemicals throughout the world. The Company's aroma chemical
products include geraniol, citral, citronellol, linalol, terpineol, ionones and
various synthetic musks, including ABBALIDE'tm' and TETRALIDE'r'. The Company
also manufactures LILESTRALIS'tm', a well-known petrochemical-based product with
lily-type floral aroma. A different grade of LILESTRALIS is sold by the Company
to agrichemical manufacturers for use as an intermediate in certain fungicides.
In each of 1995, 1996 and 1997, sales of aroma chemicals (including the resale
of aroma chemicals by BBA's Fragrance business) accounted for approximately 25%
of the Company's total net sales.

-4-

MARKETING AND CUSTOMERS

The Company sells flavor and fragrance compounds to major international
food, beverage and other consumer product manufacturers. BBA regards these large
multinational consumer products companies as a key customer segment and manages
business development for these accounts ("international target accounts") on an
integrated, worldwide basis. The Company often cooperates with these customers
in the development of specific flavors or fragrances for a particular end
product. The Company also sells its products to a large number of regional and
local customers. The Company's approach to servicing regional and local
customers is similar to that for its international target accounts; however, the
flavor or fragrance products offered typically reflect the tastes and
preferences of the specific region.

The Company's aroma chemical products are sold primarily to major
manufacturers of household products, including soaps and detergents, fabric
conditioners, cosmetics and toiletries for incorporation in fragrances
compounded by these customers and other fragrance and flavor compounders. During
1997, the Company's ten largest external aroma chemical customers accounted for
approximately 55% of the Company's total aroma chemicals sales. Product quality,
product consistency, timely delivery and overall service are important factors
in successfully maintaining aroma chemical accounts.

During 1997, the Company's ten largest customers accounted for an
aggregate of approximately 23% of its total net sales, its three largest
customers and their affiliates accounted for approximately 5%, 4% and 2%
respectively, of its total net sales, and no other single customer accounted for
more than approximately 2% of total net sales.

RESEARCH AND DEVELOPMENT

The work of the Company's perfumers and flavorists is conducted in the
Company's three major regional creative and technical centers located in
Montvale, New Jersey (for the Americas region), London (for the Europe and
International regions), and Singapore (for the Asia Pacific region). Ideas and
products generated in these creative and technical centers are made available to
the Company's regional centers for further development. In addition, the Company
maintains 40 laboratories located throughout the world which support technical
and development efforts in local markets. The Company's flavor and fragrance
research is conducted at its facility in London and at Union Camp's research
facility in Princeton, New Jersey. The Company continues to contract for
services from Union Camp's Princeton facility. See "Certain Relationships and
Related Transactions". The Company also has extensive analytical capabilities at
its London facilities which aid in the isolation and identification of flavor
and fragrance ingredients.

Research and development for the Company's aroma chemicals business is
conducted principally in advanced technical centers in Widnes, United Kingdom
and Jacksonville, Florida, with strong support from the central laboratories in
London and

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from Union Camp's research facility in Princeton. See "Certain Relationships and
Related Transactions".

The Company spent a total of approximately $23.6 million, $22.5 million
and $19.9 million in 1997, 1996 and 1995, respectively, on research and
development activities. The Company expects these expenditures to increase in
1998 to an aggregate of approximately $25 million.

MANUFACTURING AND DISTRIBUTION

The major manufacturing and compounding facilities of the Company are
located in Australia, Canada, China, India, Mexico, New Zealand, Philippines,
Singapore, South Africa, the United Kingdom and the United States.

BBA's aroma chemicals manufacturing facility in the United Kingdom is
located in Widnes. Operations began at Widnes in 1958 and, following expansions
in 1964, 1988, 1992 and 1993, the facility now includes highly automated,
versatile and sophisticated processing equipment. During 1996 and 1997, an
annual amount of approximately 6,000 and 7,000 tons of terpene- and
petroleum-based aroma chemicals as well as technical grade LILESTRALIS, an
intermediate used in the production of agricultural fungicides, were produced at
Widnes and sold to customers including the manufacturers of soaps, detergents,
cleaners, and other fragrance products.

In the U. S., the Jacksonville facility processes approximately ten
million gallons per year of turpentine through high-efficiency distillation
columns. Beta pinene, one of the distillation products, is further processed
through versatile batch equipment to produce a broad range of aroma chemicals
including geraniol, citral, citronellol, and ionones. The Jacksonville facility
also supplies aroma chemical intermediates to Widnes for further processing.

BBA's flavor and fragrance compounding facilities, as well as those of
the other major producers, are primarily batch weighing and blending and liquid
packaging facilities that are operated manually. Given the complexity of most
flavor and fragrance compounds, small quantities of the various components are
dispensed, weighed and added to a mixing unit by hand. BBA has begun to automate
its compounding processes, starting with its raw material delivery system.
Automated carousels which deliver numerous small-scale ingredients to the
compounder have been installed at the London and Norwood, New Jersey fragrance
compounding facilities.

BBA's major essential oil production facility is located in Long
Melford, United Kingdom.

The Company's two major production centers for seasonings are located at
Long Melford, United Kingdom and Carrollton, Texas. At both facilities, various
spices, flavors

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and essential oils are dry mixed with salt, flour or other carriers to produce a
finished seasoning. As with flavor and fragrance compounding, the weighing and
adding of raw materials to the blending process is mostly manual.

The Company's products are primarily distributed through its own sales
force, operating from 5 sales offices in the United States and 54 sales offices
in 38 other countries. In addition, the Company currently markets its products
through sales agencies in countries in which it does not have a direct sales
force. Most of the Company's 59 sales facilities around the world stock
inventory of the Company's products.

RAW MATERIAL PURCHASES; SUPPLIERS

The Company purchases thousands of different raw materials from many
sources throughout the world. The principal natural raw material purchases
consist of essential oils, extracts and concentrates derived from fruits,
vegetables, flowers, woods and other botanicals. The Company's principal raw
material purchases consist of organic chemicals, primarily turpentine. No single
supplier accounted for more than 3% of the Company's raw material requirements
in 1996 and 1997. The Company believes that alternate sources of materials are
available to enable it to maintain its competitive position in the event of an
interruption in the supply of raw materials from a single supplier.

COMPETITION

The Company has more than 300 competitors worldwide, approximately 15 of
which the Company believes have significant international operations. The
Company's competitive position is based principally on the creative skills of
its perfumers and flavorists, technological advances resulting from its research
and development and customer service and support provided by its marketing and
application groups, as well as product quality and, to a lesser extent, price.
The Company believes it is one of the ten largest manufacturers of flavors and
fragrances and aroma chemicals, as measured by revenues, in the world. In
particular countries and localities, the Company competes with numerous
companies specializing in certain product lines, some of which are larger than
the Company and some stronger in a particular product line or lines. Most of the
Company's customers do not buy all of their flavor and/or fragrance products
from a single supplier, and some customers make their own flavor or fragrance
compounds with ingredients supplied by the Company or others.

EMPLOYEES

As of December 25, 1997, the Company had 1,964 full-time equivalent
employees.

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GOVERNMENTAL REGULATION

Manufacture and sale of the Company's products are subject to regulation
in the United States by federal regulatory agencies, including the Food and Drug
Administration, the Alcohol, Tobacco and Firearms Bureau of the Treasury
Department, the Environmental Protection Agency, the Occupational Safety and
Health Administration, and by various state and local authorities. The Company's
operations outside the United States are subject to similar regulation in a
number of countries. Compliance with existing governmental requirements of such
bodies has not materially affected the Company's operations, earnings or
competitive position. The Company is subject to various United States federal,
state and local environmental laws and regulations concerning emissions to the
air, discharges to waterways, the release of materials into the environment, or
otherwise relating to the protection of the environment. In addition, a number
of local communities and countries other than the United States have enacted, or
have under consideration, laws and regulations relating to the use and disposal
of materials relating to the production of flavors and fragrances. The Company's
capital expenditures relating to environmental projects totaled $1.5 million in
1997. In addition, the Company estimates capital expenditures relating to
environmental projects will be approximately $3 million in 1998.

ITEM 2. PROPERTIES

The following table sets forth the locations of the Company's principal
properties, all of which are owned, unless otherwise indicated:

<TABLE>
<CAPTION>
LOCATION NATURE OF PROPERTY
-------- ------------------
<S> <C>
Atlacomulco, Mexico Manufacturing (Flavors and seasonings)
Auckland, New Zealand Manufacturing (Flavors, fragrances and seasonings)
Carrollton, Texas (1) Manufacturing (Seasonings)
Chicago, Illinois Manufacturing (Flavors)
Guangzhou, Peoples Republic of China Manufacturing (Flavors and fragrances)
Jacksonville, Florida Manufacturing (Terpene derivatives and aroma chemicals)
Johannesburg, South Africa Manufacturing (Flavors, fragrances and seasonings)
Jurong, Singapore(2) Manufacturing (Flavors and fragrances)
London, United Kingdom Regional headquarters, manufacturing (Flavors and
fragrances)

Long Melford, United Kingdom Manufacturing (Spices, essential oils and seasonings)
Madras, India(3) Manufacturing (Flavors and fragrances)
Manila, Philippines(1) Manufacturing (Flavors, fragrances and seasonings)
Melbourne, Australia Manufacturing (Flavors, fragrances and seasonings)
Montreal, Canada Manufacturing (Flavors, fragrances, spices, essential oils and
seasonings)
Montvale, New Jersey(1) Corporate administrative headquarters and technical center
Norwood, New Jersey(1) Manufacturing (Fragrances and essential oils)
Sydney, Australia(1) Manufacturing (Flavors)
Widnes, United Kingdom Manufacturing (Aroma chemicals)
Witham, United Kingdom Manufacturing (Flavors)
</TABLE>

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(1) Leased.
(2) Land is leased and buildings are owned.
(3) The Company has approximately a 70% interest in the subsidiary company which
owns this facility.

ITEM 3. LEGAL PROCEEDINGS

The Company is a party to various legal proceedings arising in the
ordinary course of business. Based upon the information presently available and
the Company's evaluation of the pending proceedings and applicable enforcement
and penalty policies and practices, management believes that the adverse
determination of any such proceeding or all of them combined would not have a
material adverse effect on the Company's business or financial position or
results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

EXECUTIVE OFFICERS OF BUSH BOAKE ALLEN INC.

Set forth below are the names, ages and positions of the executive
officers of the Company as of March 1, 1998.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Julian W. Boyden.....................53 Chairman, President and Chief Executive Officer
Fred W. Brown........................51 Vice President, Finance and Chief Financial Officer
T. John Dunlea.......................52 Vice President, Asia Pacific Region
James H. Dunsdon.....................51 Executive Vice President
Bruce J. Edwards.....................51 Vice President, International Region
Johannes Kleppers....................41 Vice President, Europe Region
Ronald A. Landis.....................50 Vice President, Human Resources & Safety
P. C. Mathew.........................47 Vice President, Aroma and Terpene Chemicals
Kenneth M. McHugh....................46 Controller
Dennis M. Meany......................50 Vice President, General Counsel and Secretary
Peter A. Thorburn....................55 Vice President, Global Chemical Sales and Marketing
Charles D. Weller....................50 Treasurer
John R. Wright.......................51 Vice President, Commerce and Technology
</TABLE>

Set forth below is a description of the backgrounds of the executive
officers of the Company. As used in such description, the term "Company" means
BBA or one or more of BBA's predecessors.

Julian W. Boyden was named Chairman of the Board of Directors of the
Company effective January 1, 1997 and has been President and Chief Executive
Officer since February 1994. Mr. Boyden was a Vice President of Union Camp since
January 1991 and

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the General Manager of the Company since January 1989. Mr. Boyden has been a
Director of the Company since 1994 and has been associated with the Company
since 1968.

Fred W. Brown was named Vice President, Finance in February 1994. Mr.
Brown was Controller of the Company from January 1990 until February 1994. Mr.
Brown has been associated with the Company or Union Camp since 1971.

T. John Dunlea has been Vice President, Asia Pacific Region since
February 1992. From February 1987 to February 1992 Mr. Dunlea was the U.K.
Natural Products Manager. Mr. Dunlea has been associated with the Company since
1969.

James H. Dunsdon has been Executive Vice President of the Company since
August 1996. Prior to that he was Vice President, Europe Region since July 1990.
Mr. Dunsdon has been associated with the Company since 1969.

Bruce J. Edwards has been Vice President, International Region of the
Company since December 1993. From 1980 to November 1993 Mr. Edwards was employed
as Sales Director by Borthwicks Plc, a U.K.-based producer of flavor compounds.
Mr. Edwards was previously associated with the Company from 1965 until 1980.

Johannes Kleppers was elected Vice President, Europe Region in November
1996. From January 1995 to November 1996 he was General Manager of BBA's Flavor
Division in the United Kingdom. From 1988 to January 1995 he was Flavor Sales
Manager of such Flavor Division.

Ronald A. Landis has been Vice President, Human Resources & Safety since
February 1997. Mr. Landis joined the Company as Director of Human Resources in
October 1996. Prior to that he was a principal with Gemini Consulting from April
1994 to September 1996. Prior to April 1994 Mr. Landis was employed by Olin
Corporation and then Sterling Drug in various Human Resources roles since 1978.

P. C. Mathew has been Vice President, Aroma and Terpene Chemicals since
January 1994. From April 1989 to January 1994 he was Vice President,
Administration. Prior to that time he was Managing Director of BBA India. Mr.
Mathew has been associated with the Company since 1984.

Kenneth M. McHugh was named Controller of the Company in February 1994.
From August 1986 to January 1994 he was Regional Controller for BBA's Americas
Region. Mr. McHugh has been associated with the Company or Union Camp since
1976.

Dennis M. Meany was named Vice President, General Counsel and Secretary
in February 1994. From May 1986 to February 1994 Mr. Meany was Associate General

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Counsel and Assistant Secretary of Union Camp Corporation. He has been
associated with the Company or Union Camp since 1977.

Peter A. Thorburn has been Vice President, Global Chemical Sales and
Marketing since January 1994. From January 1992 to December 1993 he was Vice
President, International Region. From July 1990 to January 1992 he was Vice
President, with responsibility for the Middle East and Africa. From September
1981 to June 1990 he was Vice President with responsibility for Western Europe.
Mr. Thorburn has been associated with the Company since 1981.

Charles D. Weller was named Treasurer of the Company in October 1994.
From 1988 to 1994 Mr. Weller was Assistant Treasurer of Duracell International.

John R. Wright was named Vice President, Commerce and Technology in
January 1995. From September 1993 to December 1994 Mr. Wright was General
Manager of BBA's Flavor Division in the United Kingdom. From January 1991 until
September 1993 he was Customer Service Manager of such Flavor Division and prior
thereto Technical Manager of BBA's Europe Region. Mr. Wright has been associated
with the Company since 1973.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The Common Stock began trading on the New York Stock Exchange under the
symbol BOA on May 12, 1994. The following table sets forth for the fiscal
periods indicated the high and low sales prices of the Common Stock.

<TABLE>
<CAPTION>
1995 1996 1997
-------------------- ----------------------- -------------------
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $27.125 $23.375 $30.875 $26.25 27.625 24.25
2nd Quarter 31.25 26.125 28.125 24.00 30.375 25.00
3rd Quarter 30.875 28.50 24.125 20.50 34.25 28.50
4th Quarter 32.75 26.375 26.75 23.625 35.6875 26.00
</TABLE>

The approximate number of stockholders of record at December 25, 1997 was 275.

Since its initial public offering, the Company has not declared any
dividends on its Common Stock. The Company currently intends to retain all
future earnings to finance the operations and expansion of the Company's
business.

-11-

ITEM 6. SELECTED FINANCIAL DATA

Information in response to the disclosure requirements specified by
this Item 6 appears on page 39 of the Bush Boake Allen 1997 Annual Report and is
incorporated by reference in this Item 6.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Information in response to the disclosure requirements specified by
this Item 7 appears in the text under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 20 to 24 of
the Bush Boake Allen 1997 Annual Report and is incorporated by reference in this
Item 7.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information in response to the disclosure requirements specified by
this Item 8 appears on pages 25 to 37 of the Bush Boake Allen 1997 Annual Report
and is incorporated by reference in this Item 8.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information in response to the disclosure requirements specified by
this Item 10, with respect to (i) the directors of Bush Boake Allen Inc.,
appears under the caption "Proposal 1 - Election of Directors" on pages 1 and 2
of the Bush Boake Allen 1998 Proxy Statement and (ii) the executive officers of
Bush Boake Allen Inc., appear under the caption "Executive Officers of Bush
Boake Allen Inc." in Part I of this Form 10-K. Such information is incorporated
by reference in this Item 10.

ITEM 11. EXECUTIVE COMPENSATION

Information in response to the disclosure requirements specified by
this Item 11 appears under the captions "Board of Directors and Committees",
"Executive Compensation", and "Retirement Plans" on pages 2 and 3, 4 and 5, and
9 to 11 respectively, of the Bush Boake Allen 1998 Proxy Statement. Such
information is incorporated by reference in this Item 11.

-12-

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information in response to the disclosure requirements specified by
this Item 12 appears under the captions "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management as of December 25,
1997" on pages 3 to 4 of the Bush Boake Allen 1998 Proxy Statement and is
incorporated by reference in this Item 12.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information in response to the disclosure requirements specified by
this Item 13 appears under the caption "Certain Relationships and Related Party
Transactions" on pages 11 and 12 of the Bush Boake Allen 1998 Proxy Statement
and is incorporated by reference in this Item 13.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1) Index to financial statements

The following financial statements are included at the
indicated page in the Bush Boake Allen 1997 Annual Report and are
incorporated by reference in this Annual Report on Form 10-K:

Page
----
Consolidated Statements of Income
For each of the three years ended
December 25, 1997.......................................... 25

Consolidated Balance Sheets - December 25, 1997
and 1996................................................... 26

Consolidated Statements of Cash Flows for each of the three
years ended December 25, 1997.............................. 27

Notes to Consolidated Financial Statements.................... 28 - 37

Report of Independent Accountants............................. 38

(2) All exhibits, including those incorporated by reference.

-13-

NO. DESCRIPTION
- --- -----------
3.1 Articles of Incorporation of the Company (filed as Exhibit 3.1 on Bush
Boake Allen Inc.'s Form S-1 which became effective on May 12, 1994 and
incorporated herein by reference).

3.2 Bylaws of the Company (filed as Exhibit 3.2. on Bush Boake Allen
Inc.'s Form 10-Q for the quarter ended September 25, 1994 and
incorporated herein by reference).

4.1 Specimen Common Stock Certificate of the Company (filed as Exhibit 4.1
on Bush Boake Allen Inc.'s Form S-1 which became effective on May 12,
1994 and incorporated herein by reference).

10.1 Services Agreement, dated May 19, 1994, between Union Camp Corporation
and the Company (filed as Exhibit 10.1 on Bush Boake Allen Inc.'s Form
S-1 which became effective on May 12, 1994 and incorporated herein by
reference).

10.2 Technology Cross-License Agreement, dated May 19, 1994, between Union
Camp Corporation and the Company (filed as Exhibit 10.2 on Bush Boake
Allen Inc.'s Form S-1 which became effective on May 12, 1994 and
incorporated herein by reference).

10.3 Separation Agreement, dated May 19, 1994, between Union Camp
Corporation and the Company (filed as Exhibit 10.3 on Bush Boake Allen
Inc.'s Form S-1 which became effective on May 12, 1994 and
incorporated herein by reference).

10.4 Assumption of Liabilities and Cross-Indemnification Agreement, dated
May 19, 1994, between Union Camp Corporation and the Company (filed as
Exhibit 10.4 on Bush Boake Allen Inc.'s Form S-1 which became
effective on May 12, 1994 and incorporated herein by reference).

10.5 Registration Rights Agreement, dated May 19, 1994, between Union Camp
Corporation and the Company (filed as Exhibit 10.5 on Bush Boake Allen
Inc.'s Form S-1 which

-14-

became effective on May 12, 1994 and incorporated herein by
reference).

10.6 Supply Agreement, dated May 19, 1994, between Union Camp Corporation
and the Company (filed as Exhibit 10.6 on Bush Boake Allen Inc.'s Form
S-1 which became effective on May 12, 1994 and incorporated herein by
reference).

10.7 Tax Allocation Agreement, dated April 6, 1994, between Union Camp
Corporation and the Company (filed as Exhibit 10.7 on Bush Boake Allen
Inc.'s Form S-1 which became effective on May 12, 1994 and
incorporated herein by reference).

10.8* Stock Option and Stock Award Plan, as amended (filed as Exhibit 10.8
on Bush Boake Allen's Form 10-K for the fiscal year ended December 25,
1996 and incorporated herein by reference).

10.9* Form Executive Severance Agreement approved by Registrant's Board of
Directors effective December 1, 1996 (filed as Exhibit 10.10 on Bush
Boake Allen's Form 10-K for the fiscal year ended December 25, 1996
and incorporated herein by reference).

10.10 Form Director Indemnity Agreement approved by Registrant's Board of
Directors on November 19, 1996 (filed as Exhibit 10.11 on Bush Boake
Allen's Form 10-K for the fiscal year ended December 25, 1996 and
incorporated herein by reference).

11.1 Statement re: computation of pro forma per share net income.

13.1 1997 Annual Report; except for those portions thereof that are
expressly incorporated by reference in this Form 10-K, this exhibit is
furnished for the information of the Commission and is not deemed to
be filed as part of this Form 10-K.

21.1 Subsidiaries of the registrant.

23.1 Consent of Price Waterhouse LLP.

-15-

27 Financial Data Schedule

- -----------
* Denotes a management contract or compensatory plan or arrangement
required to be filed as exhibits pursuant to Item 14(c) of Form 10-K.

(b) Reports on Form 8-K.

No Current Report on Form 8-K was filed by the Registrant during the
quarter ended December 25, 1997.

-16-

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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, IN MONTVALE, NEW
JERSEY, ON THE 18TH DAY OF MARCH, 1998.

BUSH BOAKE ALLEN INC.

By /s/ Julian W. Boyden
----------------------------------
JULIAN W. BOYDEN
Chairman of the Board, President
and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities stated below on March 18, 1998.

Signatures Title
---------- -----

/s/ Julian W. Boyden
- ----------------------- Chairman of the Board, President and Chief
Julian W. Boyden Executive Officer (Principal Executive Officer)

/s/ Fred W. Brown, Jr.
- ----------------------- Vice President, Finance (Principal
Fred W. Brown, Jr. Financial Officer)

/s/ Kenneth M. McHugh
- ----------------------- Controller Principal Accounting
Kenneth M. McHugh Officer)

/s/ Peter L. Acton
- ----------------------- Director
Peter L. Acton

/s/ Thomas R. Crane, Jr.
- ----------------------- Director
Thomas R. Crane, Jr.

-17-

/s/ L. Robert Pfund
- ------------------------ Director
L. Robert Pfund

/s/ James M. Reed
- ------------------------ Director, Vice Chairman of the Board
James M. Reed

/s/ George J. Sella, Jr.
- ------------------------ Director
George J. Sella, Jr.

/s/ William H. Trice
- ------------------------ Director
William H. Trice

-18-

EXHIBIT INDEX

No. Description
- ---- -----------
3.1 Articles of Incorporation of the Company
(filed as Exhibit 3.1 on Bush Boake Allen
Inc.'s Form S-1 which became effective on
May 12, 1994 and incorporated herein by
reference).

3.2 Bylaws of the Company (filed as Exhibit 3.2.
on Bush Boake Allen Inc.'s Form 10-Q for
the quarter ended September 25, 1994 and
incorporated herein by reference).

4.1 Specimen Common Stock Certificate of the
Company (filed as Exhibit 4.1 on Bush Boake
Allen Inc.'s Form S-1 which became effective
on May 12, 1994 and incorporated herein by
reference).

10.1 Services Agreement, dated May 19, 1994,
between Union Camp Corporation and the
Company (filed as Exhibit 10.1 on Bush Boake
Allen Inc.'s Form S-1 which became effective
on May 12, 1994 and incorporated herein by
reference).

10.2 Technology Cross-License Agreement, dated
May 19, 1994, between Union Camp Corporation
and the Company (filed as Exhibit 10.2 on
Bush Boake Allen Inc.'s Form S-1 which
became effective on May 12, 1994 and
incorporated herein by reference).

10.3 Separation Agreement, dated May 19, 1994,
between Union Camp Corporation and the
Company (filed as Exhibit 10.3 on Bush Boake
Allen Inc.'s Form S-1 which became effective
on May 12, 1994 and incorporated herein by
reference).

10.4 Assumption of Liabilities and
Cross-Indemnification Agreement, dated May
19, 1994, between Union Camp Corporation and
the Company (filed as Exhibit 10.4 on Bush
Boake Allen Inc.'s Form S-1 which became
effective on May 12, 1994 and incorporated
herein by reference).

10.5 Registration Rights Agreement, dated May 19,
1994, between Union Camp Corporation and the
Company (filed as Exhibit 10.5 on Bush Boake
Allen Inc.'s Form S-1 which became effective
on May 12, 1994 and incorporated herein by
reference).

10.6 Supply Agreement, dated May 19, 1994, between
Union Camp Corporation and the Company (filed
as Exhibit 10.6 on Bush Boake Allen Inc.'s
Form S-1 which became effective on May 12,
1994 and incorporated herein by reference).

10.7 Tax Allocation Agreement, dated April 6,
1994, between Union Camp Corporation and the
Company (filed as Exhibit 10.7 on

Bush Boake Allen Inc.'s Form S-1 which became
effective on May 12, 1994 and incorporated
herein by reference).

10.8* Stock Option and Stock Award Plan, as amended
(filed as Exhibit 10.8 on Bush Boake Allen's
Form 10-K for the fiscal year ended December
25, 1996 and incorporated herein by
reference).

10.9* Form Executive Severance Agreement approved
by Registrant's Board of Directors effective
December 1, 1996 (filed as Exhibit 10.10 on
Bush Boake Allen's Form 10-K for the fiscal
year ended December 25, 1996 and
incorporated herein by reference).

10.10 Form Director Indemnity Agreement approved by
Registrant's Board of Directors on November
19, 1996 (filed as Exhibit 10.11 on Bush
Boake Allen's Form 10-K for the fiscal year
ended December 25, 1996 and incorporated
herein by reference).

11.1 Statement re: computation of pro forma per
share net income.

13.1 1997 Annual Report; except for those
portions thereof that are expressly
incorporated by reference in this Form 10-K,
this exhibit is furnished for the
information of the Commission and is not
deemed to be filed as part of this Form
10-K.

21.1 Subsidiaries of the registrant.

23.1 Consent of Price Waterhouse LLP.

27 Financial Data Schedule
- -----------

* Denotes a management contract or compensatory plan or arrangement required to
be filed as exhibits pursuant to Item 14(c) of Form 10-K.

STATEMENT OF DIFFERENCES
------------------------

The registered trademark symbol shall be expressed as................. 'r'
The trademark symbol shall be expressed as............................ 'tm'

<PAGE>

<PAGE>
EXHIBIT 11.1

COMPUTATION OF PER SHARE EARNINGS

<TABLE>
<CAPTION>
Quarter Ended Year Ended
December 25, December 25,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income $ 7,163,000 $ 6,713,000 $30,981,000 $31,555,000

Shares used to compute
earnings per share - Basic 19,258,042 19,222,200 19,237,909 19,220,238

Earnings Per Share - Basic $ 0.37 $ 0.35 $ 1.61 $ 1.64

Shares used to compute
earnings per share including
common stock equivalents - Diluted 19,452,556 19,391,620 19,418,277 19,389,658

Earnings Per Share - Diluted $ 0.37 $ 0.35 $ 1.60 $ 1.63
</TABLE>

<PAGE>

1997 Annual Report

[LOGO] Bush Boake Allen Inc.

Building for growth and
customer service

[LOGO] Bush Boake Allen Inc.

Argentina Denmark Malaysia Spain

Australia France Mexico Sweden

Benelux Germany New Zealand Thailand

Brazil India Pakistan Turkey

Bulgaria Indonesia Philippines Ukraine

Canada Ireland Poland United Arab Emirates

Chile Italy Russia United Kingdom

China Jamaica Singapore United States

Colombia Japan Slovakia Zimbabwe

Czech Republic Kenya South Africa

7 Mercedes Drive, Montvale, New Jersey 07645

Bush Boake Allen is a major, international flavor, fragrance and aroma chemical
company as well as a producer of fine chemicals and chemical intermediates for
industrial and agricultural applications.

The company conducts operations on six continents and has 63 locations in 39
countries worldwide. BBA is a respected global supplier to an estimated $12
billion international market.

The company's business is characterized by a high level of creative skill and
technical expertise. It's likely that many of the flavored or scented consumer
products you use every day contain a flavor or fragrance created and produced by
Bush Boake Allen.

BBA flavors and fragrances help provide a broad range of consumer products with
a more compelling and unique character through either a pleasant, satisfying
taste or a distinctive, pleasing aroma.

Flavors produced by Bush Boake Allen are used in beverages, dairy products,
baked goods, confectionery items and processed foods.

BBA fragrance compounds are used by consumer product manufacturers in perfumes
and colognes, soaps, detergents and cleansers, air fresheners, cosmetics and a
variety of personal care products.

The company's aroma chemicals, fine chemicals, natural extracts and essential
oils serve as raw materials for a wide range of compounded flavors and
fragrances.

Sales
($ In Millions)

Americas Region

[BAR CHART]

Europe Region

[BAR CHART]

Asia Pacific Region

[BAR CHART]

International Region

[BAR CHART]

Aroma Chemicals

[BAR CHART]

[WORLD MAP]

Americas Region Mexico Germany
Argentina Tlalnepantla Kreuzau-Stockheim
Buenos Aires United States Ireland
Brazil Black Creek, WI Clonee, Co. Meath
Sao Paulo Carrollton, TX Italy
Canada Chicago, IL Mantova
Montreal Montvale, NJ Spain
Toronto Norwood, NJ Barcelona
Chile Sweden
Santiago Europe Region Knislinge
Colombia Benelux United Kingdom
Bogota Capelle Aan Den IJssel Glasgow
Jamaica Denmark London
Kingston Birkerod Long Melford
France Witham
Paris

International Region Poland United Arab Emirates
Bulgaria Warsaw Dubai
Sofia Russia Zimbabwe
Czech Republic Moscow Harare

Prague Slovakia Asia Pacific Region
India Bratislava Australia
Bangalore South Africa Adelaide
Calcutta Cape Town Brisbane
Chennai Durban Melbourne
Chittoor Johannesburg Perth
Delhi Turkey Sydney
Mumbai Bursa China
Kenya Istanbul Guangzhou
Nairobi Ukraine Hong Kong
Pakistan Kiev Shanghai
Karachi

Indonesia Aroma Chemicals
Bogor, West Java United Kingdom
Japan Widnes
Tokyo United States
Malaysia Jacksonville, FL
Selangor
New Zealand
Auckland
Philippines
Manila
Singapore
Jurong
Thailand
Bangkok

Worldwide Sales
By End Use
(Percent)

Bush Boake Allen

[PIE CHART]

Aroma Chemicals 25%
Fragrance 18%
Flavor 57%

The World Market

[PIE CHART]

Aroma Chemicals 16%
Fragrance 30%
Flavor 54%

Worldwide Sales
By Category
(Percent)

BBA Flavors

[PIE CHART]

Oral Hygiene 3%
Other 8%
Dairy/Ice Cream 11%
Beverages 19%
Confectionery/Bakery 22%
Snacks/Processed Foods 37%

BBA Fragrances

[PIE CHART]

Colognes/Perfumes 8%
Cosmetics/Toiletries 23%
Soaps/Detergents 31%
Cleaners/Air Fresheners 38%

BBA Aroma Chemicals

[PIE CHART]

Intermediates 4%
Agrichemicals 19%
Fragrances 77%

Financial Highlights
($ in thousands, except per share)

<TABLE>
<CAPTION>
1997 1996 % Change
- ------------------------------------------------------------------------------------

<S> <C> <C> <C>
Sales and Earnings:

Net Sales........................ $490,585 $449,365 9
Income From Operations........... 52,737 46,531 13
Income Before Income Taxes....... 46,300 46,761 (1)
Net Income....................... 30,981 31,555 (2)
- ------------------------------------------------------------------------------------
Per Share:
Net Income - basic............... $ 1.61 $ 1.64 (2)
- diluted................ 1.60 1.63 (2)
Stockholders' Equity............. 14.97 13.69 9
- ------------------------------------------------------------------------------------
Ratios:
Net Income to Net Sales.......... 6.3% 7.0%
Long-Term Debt to Total Capital.. 1.2 0.8
- ------------------------------------------------------------------------------------
Financial Position at Year-End:
Total Assets..................... $424,143 $407,799 4
Long-Term Debt................... 3,456 2,009 72
Stockholders' Equity............. 288,392 263,133 10
- ------------------------------------------------------------------------------------
Additional Information:
Cash Provided by Operations...... $ 35,610 $ 34,807 2
Capital Expenditures............. 33,481 39,629 (16)
Number of Employees.............. 1,964 2,103 (7)
- ------------------------------------------------------------------------------------
</TABLE>
Net Sales
($ in millions)

[BAR CHART]

Net Income
($ in millions)

[BAR CHART]

Dear Stockholder:

I'm pleased to report that Bush Boake Allen registered another year of solid
growth in 1997. We continued to gain market share and achieved record high sales
and operating income in spite of a very difficult year for our industry.

Earnings per share in 1997 were $1.61 compared to $1.64 in 1996 when the
sale of excess company land in England added a one-time gain of $.14 a share to
1996 earnings. Net income in 1997 was $31 million compared to $31.6 million in
1996. Net sales increased 9% to $490.6 million from $449.4 million previously.
More significantly, income from continuing operations, which reflects the
underlying vitality of our business, grew substantially to $52.7 million, a
13% increase.

Global markets for the company's flavors and fragrances were essentially
healthy during 1997 although demand was tentative in some areas and adverse
currency exchange and devaluations made it more difficult to be competitive in
others. Nevertheless, Bush Boake Allen continued to grow vigorously during the
year with all our regions reporting increased sales and operating income. For
the company as a whole, worldwide flavor and fragrance sales and operating
income both grew 9%. Our fragrance business was especially robust with sales
rising 19% for the year.

Increased sales and market share are key goals we established for the
company in our strategic plan -- and we are achieving those goals. To continue
our growth into the future and generate additional shareholder value our
strategic plans also call for sharpening our focus on research and the creation
of new products; allocating additional resources to the development of
higher-margin products such as compounded flavors and fine chemicals and further
upgrading and automating our facilities even as we continue to implement our
cost reduction programs. This latter effort has enabled us to reduce our total
headcount by nearly 7% in 1997 without widespread layoffs or workforce
disruption.

Even though severance costs rose $3.1 million over 1996, operating margins
improved and company productivity, which increased an average of 11% a year
since 1992, rose 17% in 1997 as our return on total assets moved us close to the
top of our industry. Clearly we are making progress.

Reviewing our regional activities; in the Americas the company's U.S.
operations grew more than 8% with strong double-digit growth in natural products
and fragrances more than offsetting some flattening in U.S. compound flavor
sales. In Latin America and the Caribbean, where we have added additional
resources and significantly strengthened our position, all our operating units,
except Brazil, reported double-digit sales growth.

Rising Productivity

BBA Productivity Growth

[GRAPH]

Currency exchange adversely affected results in the company's Europe Region
as the strong Pound Sterling made it more difficult to be competitive in Europe
and sales for the year flattened. Operating income, however, advanced strongly
by more than one third due, in large part, to staff reductions under the
company's cost control programs and recent investments for plant modernization
and automation.

In 1997, BBA's International Region led the company in both sales and
operating income growth with the company's operations in Eastern Europe
registering a stand-out performance. As our business in many of the new
political entities of the former USSR moved ahead strongly, BBA

[PHOTO]

Julian W. Boyden

companies in India, Turkey and the United Arab Emirates also reported solid,
double-digit growth in both sales and income.

Looking at the Asia Pacific Region, sales increased nearly 12% in 1997 due
largely to the full year inclusion of results in the Philippines where, in late
1996, the company acquired the remaining share of a former joint venture. In
addition, company operations in Australia and Thailand also registered moderate
growth. Operating income, however, was affected by the financial and economic
turmoil in the region and advanced only modestly.

World markets for aroma chemicals also continued to reflect strong demand
in 1997 and BBA's aroma chemical sales increased more than 11%. Income could
not keep pace, however, as the strong U.S. Dollar and Pound Sterling contributed
to highly competitive markets and aroma chemical prices continued to lag raw
material cost increases. Our strategy for this business is to accelerate our
development of new, higher-margin fine chemicals and continue to modernize and
automate our plants for efficiency and productivity.

There is no doubt that our ability to be competitive and grow our sales
volume has been helped significantly by our ongoing expansion overseas. With 63
locations in 39 countries BBA is now represented in every major flavor and
fragrance market in the world. Our multinational customers are assured of
receiving the same high quality products and service in Kuala Lumpur, Istanbul
or Buenos Aires that they get in New York, Chicago, Dallas or London. At the
same time, our global network of Bush Boake Allen facilities enables us to
provide better service to our local customers by BBA representatives who not
only understand local tastes, culture and customs, but who are also in close
touch with developing worldwide trends.

At Bush Boake Allen, it's our belief that our business ultimately rests on
creativity and service and the value our customers perceive in the products we
supply them. Many of our customers are new to BBA, but many others have had long
standing relationships with us over the years. We value them all and we're
proud to be able to feature some of these customers in the pages of this report.

With markets that presently show every indication of continued long-term
growth; modern automated plants; continuing productivity improvement and some of
the best creative, technical and marketing people in our industry, we believe
BBA is building for future growth, better service for our customers and
increased value for our shareholders.

To our stockholders, directors and employees I extend my thanks for your
effort and support as we continue to build for the future.

JULIAN BOYDEN
J.W. Boyden
Chairman, President and Chief Executive Officer
March 2, 1998

creating excitement in our products

[PHOTO]

Americas Region

"With over 100 locations, Don Pablos has become the fastest growing and most
profitable Mexican restaurant chain in the country. We think it's because our
restaurants provide a complete Mexican experience; atmosphere as well as great
tasting food. There's no doubt BBA has contributed to that. We're currently
using their blended seasonings in more than 20 of our menu items. The creative
way they've put these flavors together and their service to our company have
both earned Bush Boake Allen an Ole."

David Mitchell
Vice President,
Food and Beverages
Don Pablos Mexican
Restaurants
Dallas, Texas

Americas Region
Percent of Total Company
Flavor & Fragrance Sales

[PIE CHART]

Flavor 24%
Fragrance 9%

The Americas Region had a strong year in 1997. Sales increased 10% as the region
accounted for nearly one third of the company's total sales of flavors and
fragrances. Operating income also rose substantially helped by continued growth
in Latin America and the Caribbean.

Flavor and fragrance markets in the Americas are among the largest and most
diverse in the world. Most of the new concepts in processed and convenience
food, prepared meals, snacks and other consumer packaged food and fragranced
products have started in the United States. A great many of these products have
been introduced around the world by multinational consumer products companies
where they have found enthusiastic acceptance in the marketplace.

It is a dynamic, changing market and the ability to create new ideas and
concepts for these flavored and scented products is critical to growth. Bush
Boake Allen is one of the industry's leading companies in this all important
capability.

During the year BBA's fragrance business in the United States continued the
solid growth that began building in mid-1996. In addition to the many attractive
fragrance wins recorded in that year, the company's U.S. fragrance operations
gained significant, additional new business in 1997 in products such as fine
fragrances, air fresheners, toiletries, hair and baby care, detergents and a
variety of household products. As a result, the company's U.S. fragrance sales
grew strongly rising more than 15% in 1997.

Although sales in the company's U.S. compound flavor business flattened in 1997,
as food manufacturers delayed some new product launches, our U.S. flavor
operations still generated the largest contribution to total company sales
volume of any single country among the 39 where BBA is represented. In addition,
significant additional new flavor wins were recorded in a variety of end
products in beverages, dairy items, cereal and sauces. Moreover, as the year
ended we began to see signs of some pickup in our flavor business. In addition,
new flavor wins, recorded earlier in the year, should provide additional sales
volume going forward.

Our seasonings business also continued to grow strongly in 1997 as demand for
ethnic and savory foods continued unabated. Both sales and income moved up and
plans are now underway for another major expansion of BBA's Carrollton, Texas
seasonings manufacturing complex.

Americas Region
(continued)

"In fine soaps, toiletries and personal care products, fragrance is vitally
important to success. We have worked with Bush Boake Allen since they
established themselves in Buenos Aires and have always received the highest
level of support in terms of service and fragrance creativity. Their marketing
advice has also helped us interpret and stay up with consumer preferences in
various locations. They have surely helped us to be more successful in the
marketplace."

Jorge Gleria
Director
Jose Guma S.A.
Jesus Maria
Cordoba, Argentina

The company also added significant resources in Latin America which has been
another area of strong growth for BBA. In October, BBA started-up a new
manufacturing unit for the production of seasonings at the company's plant in
Santiago, Chile. The company also began an expansion and modernization of its
facility in Buenos Aires, Argentina which was acquired in late 1996. The plant
which has been producing compounded fragrances is being upgraded and expanded
for the production of flavors as well. In addition, in the fall of 1997 the
company also acquired a plant in Mexico for the production of compounded flavors
and dry blended seasonings.

These new and expanded plants coordinate well with the company's other
facilities in Colombia, Brazil and Jamaica. With flavor and fragrance markets
throughout Latin America and the Caribbean expected to continue their healthy
growth, BBA is in a favorable position to share in that growth.

Creativity and Service

[PHOTO]

Europe Region

"We have never compromised on quality. That's how we built the Cuetara label up
to be the leading biscuit brand in the Spanish and Portugese markets and
extended our operations overseas as well. Good taste is what distinguishes our
products and BBA has contributed to that. They provided technical assistance and
have supplied flavors to us since we started production in Spain nearly 50 years
ago. We have had a good relationship that has worked well for both our
companies."

D. Fernando Gomez-Cuetara
President
Cuetara
Madrid, Spain

[PHOTO]

The Europe Region serves a variety of flavor and fragrance customers in all the
countries that comprise the European Union, plus Norway and Switzerland. The
region's sales, which in 1997, made up 22% of total company sales, advanced
modestly in 1997 as adverse currency exchange contributed to a very competitive
pricing environment. If the Europe Region's operations were measured in local
currencies their sales increase would have been closer to 7%.

For the most part, flavors and fragrances sold to customers in continental
Europe are produced in company plants in England and priced in Pounds Sterling
which is currently strong versus the Deutschemark and other EMU countries. This
makes it much more difficult to be competitive in some markets. Nevertheless,
the Europe

Europe Region
(continued)

[PHOTO]

"As marketers to consumers, Sara Lee/Household & Body Care is at the center of
a dynamic, fast-paced business. When you are also dealing with new products, as
I often do, product quality and timing are everything. We need suppliers who
understand this and who bring innovative thinking and fast service to the table.
That's a big reason we like BBA. They work with our needs in mind--that's
consumer marketing!"

Kay Downs
Marketing and
Development Director
Sara Lee/Household &
Body Care
Slough, England

Region improved its position and gained a substantial number of new flavor and
fragrance wins in 1997. Fragrances were particularly strong in the region,
during the year. Fine fragrance applications--colognes and perfumes grew 27%
and soap and detergent product applications grew even more strongly. Flavor
sales, which constitute the largest share of the region's total were level with
the prior year.

Over the last several years, the company has had major programs underway to
upgrade and modernize its production facilities in Europe and to strengthen its
creative, technical and marketing capabilities throughout the region. One of the
initial steps was construction, in 1995, of a new essential oil plant in Long
Melford, England. High theoretical-plate, production stills were installed and a
number of new, high purity specialty natural products are being produced. With
the continued worldwide demand for natural food products, our ability to produce
these high impact natural extracts strengthens our position in supplying a
greater variety of natural food flavors.

In addition, the company also invested in upgrading and automating the London
flavors plant. During 1997, an additional production line for automated flavor
blending was installed and is now undergoing trial runs as operating parameters
are established. The company has already seen significant productivity growth
from the first installation and additional productivity improvement is
anticipated as both lines work in concert.

Other flavor plant investments have been made to enhance flavor delivery
systems. In 1997 a new spray dryer was started-up at the company's Witham,
England plant to make encapsulated flavors for processed food applications.

During the year, work was completed on upgrading and expanding BBA's flavor and
seasonings plant in Knislinge, Sweden. The company has also engaged in
significant development work in process flavors, many of which have been
perfected in a pilot plant program, set up for the purpose, at BBA's facility in
Kreuzau, Germany. Construction is now well under way on a new plant at our Long
Melford site for the production of a complete range of savory, process flavors
that are widely used in meat products, prepared foods and snacks.

The Europe Region also augmented its creative and technical resources during
1997 and along with its more efficient plants and a wide range of new products
is well positioned for continued future growth.

Europe Region
Percent of Total Company
Flavor & Fragrance Sales

[PIE CHART]
Flavor 22%
Fragrance 6%

Close working relationships

[PHOTO]

Asia Pacific Region

"At Hup Seng we are very proud of the many awards and gold medals our products
have received in demanding international competitions. However, the awards we
are most proud of are those we get every time a customer chooses a Hup Seng
product in the supermarket. We're now marketing all over the world and BBA's
international experience in flavor ingredients has helped us. They provided good
technical support when we were just starting, their flavors helped us produce
products that have consumer flavor appeal and their service has been excellent."

Kerk Chu Koh
Managing Director
Hup Seng Perusahaan
Makanan (M) SDN. BHD.
Batu Pahat, Malaysia

There is no doubt that in Asia, 1997 was an eventful year marked by currency
devaluations, financial upheaval and rising economic uncertainty.

Notwithstanding these events, BBA's Asia Pacific Region recorded a 12% increase
in sales and a moderate increase in operating income. Weakness in Japan, as well
as in Malaysia and Indonesia was more than offset by growth in Australia and
Thailand and the full year inclusion of sales in the Philippines from the
remaining share of a former joint venture acquired in late 1996.

Japan, which represents the largest market for flavors and fragrances in the
region, was still experiencing lagging economic growth in 1997. With the
Japanese Yen weak against a stronger Singapore Dollar, it was much more
difficult for BBA products produced in Singapore to compete in Japanese markets.
Much the same situation prevailed in several other countries in Southeast Asia
and as anxiety over their economies grew, business conditions softened
considerably.

Nevertheless, Bush Boake Allen's flavors and fragrances are used to produce the
kinds of products that consumers are least likely to do without even in a
difficult economic environment. According to some economists, after shelter, the
products most desired by consumers are food products, beverages, soaps, cleaners
and cosmetics. Its highly likely that these will continue to reflect healthy
demand. Moreover, with more than half the world's population living in the Asia
Pacific Region, basic demand plus the force of changing demographics and rising
economic expectations, suggest reasonable growth, in the future, in markets for
most flavor and fragrance end products.

Asia Pacific Region
Percent of Total Company
Flavor & Fragrance Sales

[PIE CHART]

Flavor 17%
Fragrance 5%

[PHOTO]

Flavor markets for processed foods, meat products, convenience food, noodles,
sauces and snacks are continuing to grow in Thailand and other parts of Asia.
This new BBA flavor and seasonings facility near Bangkok will help meet that
demand.
11

Asia Pacific Region
(continued)

"From a small beginning many years ago our company has grown to be a market
leader in food products in the Philippines. Along the way, Bush Boake Allen has
been an important resource for us. They have not only helped us by providing
creative food flavors but also through their experience and understanding of our
business and our needs and by offering knowledgeable technical help when we
needed it. Their willingness to be of service has made BBA a valuable supplier."

Lance Y. Gokongwei
Executive Vice President,
General Manager-Branded Consumer Foods
Universal Robina Corporation
Quezon City, Philippines

The company has strengthened its operational and customer service base in the
Asia Pacific Region in recent years by expanding and upgrading its facilities in
Singapore and Australia and opening a new modern flavor and fragrance plant in
Guangzhou, China in early 1997. Despite a somewhat slower start-up process than
anticipated, the China facility is expected to play a significant part in the
Asia Pacific Region's growth, which longer term still looks very attractive.

Moreover, in the spring of 1998 the company will open a new spice and seasonings
plant in Bangkok. Sales in BBA Thailand advanced during 1997 notwithstanding
that country's well publicized financial problems. Thailand is rapidly becoming
a key center in Southeast Asia and both its domestic and export markets are
expanding. Over the last four years BBA's sales in Thailand have more than
tripled measured in local currency. The new plant will further enhance BBA's
position in Thailand and along with the company's other facilities in the
region, strengthen our marketing and service capabilities throughout the Asia
Pacific Region.

[PHOTO]
understanding customer needs

International Region

"Markets here in India, for toiletries, personal care and household products,
share many of the same characteristics as similar markets around the world but
there are also many things about our business that are distinctly Indian. That's
why Bush Boake Allen has become such a valuable supplier to us. They well
understand the nuances of the Indian culture but they also bring a balanced
international flair to fragrance creation. They have helped us build several of
our branded products into dominant market leaders. BBA is a good resource for
us."

R.B. Mohile
General Manager, R&D
Marico Industries Ltd.
Mumbai, India

[PHOTO]

The International Region registered a solid year of growth in 1997. Sales
increased 16% and operating income grew even more substantially. It was the best
performance in 1997 of any operating group in the company.

The International Region supplies a wide ranging, diverse mix of customers out
of 21 BBA locations in 13 countries. The area covered by the International
Region contains nearly half the world's population and consumption of the kinds
of consumer products that contain a flavor or fragrance is rising rapidly. BBA's
sales in these markets are growing strongly as well.

During 1997 all the operating units within the region shared in the growth but
BBA's performance in Eastern Europe was outstanding with sales rising by 50% and
operating income advancing better than four-fold. The economies of many of the
East European countries have made great strides in recent years. More women have
entered the workforce and hand-in-hand with that worldwide trend has gone

International Region
(continued)

creative partnerships
increased sales

[PHOTO]

[PHOTO]

A two-building, 36,000 square foot BBA factory for the production of compounded
flavors and seasonings, nears completion in the Gebze organized area near
Istanbul, Turkey.

"No matter how progressive and modern your business, it's always helpful to
understand your history and how things were done in the past. That's one reason
I started our museum of old beverage production equipment. Nevertheless, in our
business we constantly need new ideas. Bush Boake Allen gives us that. They have
a long history and a lot of experience and we have worked with them for decades.
Their service to us has been excellent."

Mehmet Erbak
Chairman & CEO
Erbak-Uludag
Bursa, Turkey

a greater demand for the smaller luxuries of life such as improved cosmetics,
finer soaps, shampoos and conditioners and a range of other personal care
products. Process foods and prepared meals are also in greater demand as people
have less time and inclination for cooking traditional meals.

Those trends are also evident in other countries within the region. Sales in the
United Arab Emirates grew a strong 25% in 1997 with operating income growing
strongly. Turkey has also grown rapidly and although BBA has a dominant position
there, we have continued to strengthen our resources. In mid-1998 the company
will start operations at a new, highly efficient plant for the production of
compounded flavors and seasonings. Located in Istanbul, the new plant will
greatly enhance our ability to serve growing markets in Turkey and the
surrounding area.

BBA India has also registered strong sales and operating income growth during
the year. With locations in six cities, BBA is now the largest flavor
manufacturer in India and continues to enhance its ability to serve food and
beverage manufacturers. In addition, the company is also growing rapidly in
fragrances as well. At mid-year 1997 BBA India dedicated a sophisticated new $3
million creative center in Mumbai which strengthens our position as a
service-oriented flavor and fragrance supplier to a growing number of customers
in Northern and Western India.

[PHOTO]

"We at Zao Nevskaya Kosmetica have had a close, productive working relationship
with Bush Boake Allen for a long time. Their fragrances and technical advice
have helped us to significantly improve the quality of our products and gain
market leadership. It has been a mutually beneficial partnership."

V.A. Plesovskisch
Director General
Zao Nevskaya Kosmetica
St. Petersburg, Russia

International Region
Percent of Total Company
Flavor & Fragrance Sales

[PIE CHART]

Flavor 13%
Fragrance 4%

automated efficient plants located on two continents

[PHOTO]

Aroma Chemicals

"One of my responsibilities is to work with all our business units to advance
our company-wide purchasing programs. Consequently, I am well aware of the
reputation our various suppliers have within Reckitt & Colman's operating
groups. Bush Boake Allen has been one of our valued suppliers for quite a few
years. They have earned a very high standing within our company for both their
products and their service. We consider BBA an important part of our team."

Philip Boyd
Director of Global Procurement
Reckitt & Colman plc
London, England

Global market demand for aroma chemicals was strong in 1997 and Bush Boake
Allen's aroma chemical sales rose 11% to a record $102 million and accounted for
21% of the company's total sales.

A significant portion of BBA's production is sold to major international
manufacturers of consumer products such as laundry products, soap, other
household and personal care products and fabric softeners. A substantial
additional quantity is also sold to other fragrance manufacturers.

Having an internal supply of aroma chemicals is a major advantage to BBA's
creative perfumers and flavorists since many of these proprietary materials have
been developed in company aroma chemical research programs and are presently
only available to BBA's own creative staff.

BBA aroma chemicals are produced at two, large ISO 9002 certified chemical
facilities in Jacksonville, Florida and Widnes, England. The Jacksonville plant
distills turpentine into alpha and beta pinene. Alpha pinene yields several
hydrocarbons and pine oil which is widely used for its pine fragrance and
germicidal properties in household cleaners. Beta pinene is further processed
into aroma chemicals such as geraniol, citronellol, linalool and ionones.

In addition to turpentine, which represents about half the aroma chemical raw
material used by the company, petrochemicals are also employed and are processed
at the Widnes plant into a wide variety of specialized chemicals for use in
fragrances and as chemical intermediates.

BBA has undertaken significant capital investment programs at both plants for
expansion, modernization and automation. Those programs are ongoing as we create
greater efficiency and productivity, as well as the flexibility to shift
production among a number of alternate products as market opportunities arise.

[PHOTO]

"For more than twenty years, we've found BBA to be an extremely helpful resource
to our company not only through their technical support people but also due to
their product quality and service as well. We use several of BBA's aroma
chemicals in our operations and their quality has always been high and very
consistent. We value our relationship with them."

Steve Tanner
President
Arylessence Inc.
Marietta, Georgia

Aroma Chemicals
Percent of Total Company Sales

[PIE CHART]

Aroma Chemicals 21%

Research and Development

A major focus of the company's research effort is the development of new
specialty products from natural and synthesized sources. In pursuit of that goal
a scientist at the Princeton Research Center studies the structure of various
materials using an electron microscope. (far right)

At BBA's technical laboratories in Widnes, England work proceeds on the
development of new aroma chemicals. (right)

BBA's research staff, working closely with our marketing organization, devotes a
significant part of the company's development activity to helping our customers
produce distinctive new products that will give them a competitive edge in
consumer markets. To help that process, we have brought the company's technical
development as close to our markets as possible through our 36 development and
application laboratories around the world. Longer, more broad-based research is
undertaken at three principal company centers in Montvale, New Jersey, London,
England and Chenai, India. Support is also provided by Union Camp's Corporate
Technology Center at Princeton, New Jersey. In 1997, BBA invested $23.6 million
on research, a 5.2% increase over 1996. Since 1990 we have invested a total of
almost $150 million in research and development activities.

Significant progress has been made in developing a stream of new and improved
products for use by the company's perfumers and flavorists. For example, BBA's
Generessence'r' program which captures the complex mix of chemicals given off by
growing plants, has enabled BBA researchers to isolate and replicate a number of
unique new chemicals, several now under patent application. Many of these
Generessence'r' flavors and fragrances are already in use resulting in flavors
and fragrances remarkably close to the original.

[PHOTO]

In other areas, extensive research is ongoing in improving the quality and yield
of vanilla and in furthering BBA's position in enzyme modified dairy products,
as well as process flavors for meat and other savory applications. Our
laboratories are also investigating molecular structure in order to create a
more substantial mouth feel, as well as less volatile molecules with stronger
flavor to withstand the extreme temperatures encountered in commercial food
processing.

In aroma chemicals we're pursuing new, higher-margin chemicals and fuller use of
our pinene raw materials. In addition, new products from non-pinene raw
materials are being developed which hold the promise of further extending the
company's strong position as an international manufacturer of aroma chemicals.

Research & Development
Expenditures
($ in millions)

[BAR CHART]

exploring every new product opportunity

[PHOTO]

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations

Overview

Bush Boake Allen Inc. (BBA) is a global producer of flavors and fragrances and
aroma chemicals. The Company believes it is one of the ten largest manufacturers
of flavors (including essential oils, seasonings and spice extracts) and
fragrances and aroma chemicals in the world, as measured by revenues, and its
products are sold to many of the leading multinational consumer product
companies throughout the world. BBA's business is organized into two operating
segments: (i) flavor and fragrance and (ii) aroma chemicals, which accounted for
79% and 21%, respectively, of total 1997 net sales. The Company conducts its
operations in 39 countries. BBA's sales in the Americas, Europe, Asia Pacific
and International regions accounted for 35%, 34%, 18% and 13%, respectively, of
total 1997 net sales. See Note 12 to Consolidated Financial Statements.

The Company operates in competitive markets where product quality, integrity,
innovation and customer service and support, in addition to price, are critical
factors. During 1997, the Company's three largest customers accounted for
approximately 5%, 4% and 2%, respectively, of its total sales and no other
single customer accounted for more than approximately 2% of total sales.

The following table sets forth the percentage relationship to net sales of
certain income statement items for the periods presented:

<TABLE>
<CAPTION>
Year Ended December 25,
1997 1996 1995
<S> <C> <C> <C>
Net sales..................................... 100.0% 100.0% 100.0%
Costs and other charges:
Cost of goods sold.................... 64.4 64.0 62.9
Selling and administrative expenses... 20.0 20.6 20.6
Research and development expenses..... 4.9 5.0 4.7
Income from operations........................ 10.7 10.4 11.8
Net income.................................... 6.3 7.0 7.2
</TABLE>

Year Ended December 25, 1997 Compared to
Year Ended December 25, 1996

Net Sales

Net sales for the year ended December 25, 1997 increased 9.2% to $490.6 million
from $449.4 million in the prior year. Net sales of flavor and fragrance
compounds increased 8.6% to $388.7 million from $357.8 million due to market
growth in all operating regions, with sales increase percentages ranging from
1.3% to 15.6%. The sales increase also reflects the impact of three acquisitions
made during the fourth quarter of 1996 which added approximately $13.8 million
of incremental flavor and fragrance sales during the year 1997. Net sales of
aroma chemicals increased 11.2% to $101.9 million from $91.6 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 in both product segments were adversely affected by the movement in
foreign currency exchange rates, primarily with currencies in Asia Pacific and
Western Europe versus the U.S. dollar. If exchange rates had remained unchanged
from 1996 to 1997, the increase in total net sales would have been approximately
13%.

Cost of Goods Sold

Cost of goods sold in 1997 increased 9.8% to $316.1 million from $287.8 million
in the prior year due primarily to increased sales. The Company's cost of goods
sold as a percentage of net sales increased to 64.4% from 64.0% in the prior
year primarily due to higher raw material turpentine costs, and additional
depreciation and amortization expenses resulting from the completion of major
capital projects and the acquisitions made during the fourth quarter of 1996.

BBA
Operating
Margin
(Percent)

[BAR CHART]

Selling and Administrative Expenses

Selling and administrative expenses in 1997 increased 5.9%
to $98.1 million from $92.6 million in the prior year. This increase includes
the effect of acquisitons made during the

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES

fourth quarter of 1996. Selling and administrative expenses as a percentage of
net sales decreased to 20.0% from 20.6% 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 increased 5.2% to $23.6 million from $22.5
million in the prior year 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. The Company
contracts for research services from Union Camp at rates that are intended to
approximate the fair value of the services provided. The total charges in 1997
and 1996 were approximately $3.8 million and $3.7 million, respectively.

Income from Operations

Income from operations in 1997 increased 13.3% to $52.7 million from $46.5
million in the prior year. Adverse foreign exchange rate movements negatively
impacted operating income by approximately 2%. As a percentage of net sales,
income from operations increased to 10.7% from 10.4% reflecting the benefits
from plant automation and continuing Company cost reduction programs which
resulted in a reduction of the number of employees by approximately 7%, mainly
in Europe. Income from operations, exclusive of corporate items, for the flavor
and fragrance segment increased 9.3% to $50.5 million from $46.2 million in the
prior year primarily due to growth in the International region, including India,
South Africa and Eastern Europe. In the aroma chemicals segment, income from
operations, exclusive of corporate items, decreased 6.2% to $21.3 million from
$22.7 million in the prior year. Continuing cost pressure affecting
turpentine-based products and competitive pricing pressure in Europe resulting
from the strong Pound Sterling were the primary reasons for the decrease in
operating income.

BBA
Operating
Income
($ in Millions)

[BAR CHART]

Other (Income) Expense, Net

Other (income) expense in 1997 was $3.4 million expense compared to $2.6 million
income in 1996. 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. Also, the loss on foreign exchange was higher in 1997 compared
to 1996.

Interest Expense

Interest expense in 1997 increased to $3.1 million from $2.4 million in the
prior year. The increase in net interest expense is primarily due to the higher
level of notes payable outstanding during the first nine months of 1997 and
lower capitalized interest for the year compared to 1996.

Income Taxes

Income tax expense increased in 1997 to $15.3 million from $15.2 million in the
prior year. The Company's effective tax rate increased to 33.1% from 32.5% in
the prior year. The 1997 effective tax rate reflects a deferred tax benefit due
to the reduction in the UK statutory income tax rate during the year. The 1996
tax rate reflects the benefit from reduced capital gains taxes on property
dispositions in the UK and Australia.

Year Ended December 25, 1996 Compared to
Year Ended December 25, 1995

Net Sales

Net sales for the year ended December 25, 1996 increased 5.8% to $449.4 million
from $424.6 million in the prior year. Net sales of flavor and fragrance
compounds increased 6.3% to $357.8 million from $336.5 million due to market
growth in all operating regions, with sales increase percentages ranging from
4.2% to 8.2%. Net sales of aroma chemicals increased 4.0% to $91.6 million from
$88.1 million as a result of improved product mix and higher pricing on certain
commodity aroma-chemicals. Net sales in both product segments were adversely
affected by the movement in foreign currency exchange rates, primarily the Pound
Sterling and currencies in India, Turkey and Japan versus the U.S. dollar. If
exchange rates had remained unchanged from 1995 to 1996, the increase in total
net sales would have been approximately 9%.

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

Cost of Goods Sold

Cost of goods sold in 1996 increased 7.7% to $287.8 million from $267.1 million
in the prior year due primarily to increased sales. Also contributing was an
increase in raw material costs, particularly turpentine, and higher depreciation
expense. The Company's cost of goods sold as a percentage of net sales increased
to 64.0% from 62.9% in the prior year.

Selling and Administrative Expenses

Selling and administrative expenses in 1996 increased 5.9% to $92.6 million from
$87.4 million in the prior year. This increase includes the effect of additional
sales and marketing personnel for the flavor and fragrance segment. Selling and
administrative expenses as a percentage of net sales was 20.6% for both years.

Research and Development Expenses

Research and development expenses increased 13.2% to $22.5 million from $19.9
million in the prior year 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. The Company
contracts for research services from Union Camp at rates that are intended to
approximate the fair value of the services provided. The total charges in 1996
and 1995 were approximately $3.7 million and $2.9 million, respectively.

Income from Operations

Income from operations in 1996 decreased 7.3% to $46.5 million from $50.2
million in the prior year. Adverse foreign exchange rate movements account for
approximately 2% of the decrease. As a percentage of net sales, income from
operations decreased to 10.4% from 11.8% due primarily to reduced gross profit
margins in the aroma chemicals segment. Income from operations, exclusive of
corporate items, for the flavor and fragrance segment increased 5.9% to $46.2
million from $43.7 million in the prior year primarily due to growth in the
Americas region, India and Eastern Europe. In the aroma chemicals segment,
income from operations, exclusive of corporate items, decreased 8.5% to $22.7
million from $24.8 million in the prior year. Reduced sales volumes, continuing
cost pressure affecting turpentine-based products and a lower contracted selling
price under a long-term supply agreement with a major customer were the primary
reasons for the decrease in operating income.

Other (Income) Expense, Net

Other income in 1996 increased to $2.6 million from $300,000 in the prior year
due primarily to a gain on the sale of excess Company land in Widnes, England
during the second quarter of 1996. Partially offsetting the increase in other
income was a higher loss on foreign exchange in 1996 compared to 1995.

Interest Expense

Interest expense in 1996, decreased to $2.4 million from $3.6 million in the
prior year. The decrease in interest expense was primarily attributable to the
repayment of debt payable to Union Camp during 1995 and capitalized interest
during 1996 on a manufacturing facility constructed in China and a chemical
plant expansion in Jacksonville, Florida.

Income Taxes

Income tax expense decreased in 1996 to $15.2 million from $16.5 million in the
prior year primarily due to reduced capital gains taxes on property dispositions
in the UK and Australia. The Company's effective tax rate decreased to 32.5%
from 35.1% in the prior year.

Foreign Currency

Operations outside the United States represent a significant portion of the
Company's business. The Company operates in a global marketplace and,
accordingly, is subject to foreign exchange restrictions and currency
fluctuations. Currency fluctuations impact the company in several ways,
including (i) the translation of the Company's results of operations and balance
sheet initially recorded in foreign currencies into U.S. dollars, (ii) the
Company's ability to offer products manufac-

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES

tured in foreign markets at competitive prices in local markets and (iii) the
settlement of cross-border transactions in foreign currencies. In order to
mitigate the impact of currency fluctuations relating to cross-border
transactions, the Company, when appropriate, enters into foreign currency
hedging transactions. The Company's hedging activities have not had a material
impact on the Company's results of operations.

Environmental

The Company is subject to various United States federal, state and local
environmental laws and regulations as well as those in the countries outside the
United States in which it operates. The Company believes that it is in
compliance in all material respects with applicable laws and regulations. The
Company has invested approximately $1.5 million, $800,000 and $1.4 million in
1997, 1996 and 1995, respectively, for environmental projects and expects to
make total capital expenditures of approximately $3 million for environmental
projects in 1998. The Company does not believe that environmental matters
currently relevant to its business, taken individually or in the aggregate, will
have a material adverse effect on its financial position or results of
operations.

Acquisitions

During the fourth quarter of 1996, the Company completed three small
acquisitions for a combined purchase price of $10.8 million. BBA acquired the
remaining shares of its joint venture operations in Italy and the Philippines
and purchased a small fragrance compounding company in Argentina. These
acquisitions are a strategic step forward in the Company's plan for
strengthening our ability to serve important flavor and fragrance markets in
Latin America, Southeast Asia and the European continent. The impact of these
acquisitions on 1996 results of operations was not significant. In 1997 these
acquisitions added approximately $13.8 million of incremental flavor and
fragrance sales.

Liquidity and Capital Resources

Cash flow provided by operations in 1997 was $35.6 million, an increase of
$800,000 from the prior year. Cash flow provided by operations increased $11.7
million in the year ended December 25, 1996 to $34.8 million from $23.1 million
in the prior year. Improved working capital management of inventory levels and
receivable collections continues to benefit cash flow provided by operations.

Capital expenditures were $33.5 million, $39.6 million and $25.0 million for
1997, 1996 and 1995 respectively. The aroma chemicals segment, which requires a
relatively large investment in chemical processing plants, is more capital
intensive than the flavor and fragrance segment, which is engaged in less
capital-intensive mixing and blending operations. During 1995, construction
began on a new $12 million manufacturing facility in the People's Republic of
China and the Company purchased land in Turkey for expansion plans in its flavor
and fragrance segment. Capital expenditures in 1996 included the completion of
the China facility and the expansion of aroma chemical production capacity.
During 1997, the Company purchased a flavor manufacturing plant in Mexico and
began construction on a new plant in Turkey. The Company plans to spend a total
of approximately $36 million in 1998 for capital improvements.

During 1997, working capital increased $11.8 million to $101.9 million from
$90.1 million in the prior year due primarily to a reduction in current
liabilities, mainly from a decrease in notes payable. During 1996, working
capital decreased $3.6 million to $90.1 million from $93.7 million in the prior
year due primarily to increases in notes payable, accounts payable and accrued
liabilities partially offset by increases in trade receivables and inventories.

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)

The Company has revolving credit facilities in numerous countries other than the
United States which provide for aggregate availability of $75.1 million. In
addition, the Company has a $19.6 million, three year committed multi-option
borrowing facility from a leading European bank. At December 25, 1997
approximately $35.4 million was outstanding under these facilities and included
in notes payable ($41.0 million as of December 25, 1996). Commitment fees are
either nominal or zero. Covenants, to the extent they exist, are presently being
met. Borrowings under these agreements bear interest at local market rates which
ranged from 1.9% to 20.0% in local currencies during 1997.

During 1995, the Company established revolving bank credit facilities under
which the Company 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 U.S. dollar LIBOR rate. As of December 25, 1997,
$400,000 was outstanding and included in notes payable ($2.2 million as of
December 25, 1996). There are no commitment fees or borrowing covenants.

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.

The Company is currently in the process of evaluating its computer software and
database to assure that any modifications required to be "Year 2000" compliant
are made in a timely manner. Management does not expect the financial impact of
such modifications to be material to the Company's financial position or results
of operations in any period.

<TABLE>
<CAPTION>
Quarterly Information (Unaudited)
($ in thousands, except per share)
Net Income Net Income
Gross Net Per Share Per Share
Net Sales Profit Income Basic Diluted
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Fourth Quarter ... $123,897 $44,626 $ 7,163 $.37 $.37
Third Quarter .... 122.577 42,764 8,105 .42 .42
Second Quarter ... 125,704 45,701 8,471 .44 .44
First Quarter .... 118,407 41,362 7,242 .38 .37
- -----------------------------------------------------------------------------------
1996

Fourth Quarter ... $116,474 $39,869 $ 6,713 $.35 $.35
Third Quarter .... 112,463 40,729 7,884 .41 .41
Second Quarer .... 113,539 41,641 10,020 .52 .52
First Quarter .... 106,889 39,346 6,938 .36 .35
- -----------------------------------------------------------------------------------
1995

Fourth Quarter ... $107,677 $37,844 $ 6,599 $.34 $.34
Third Quarter .... 111,939 41,753 8,450 .44 .44
Second Quarter ... 107,662 41,356 8,497 .44 .44
First Quarter .... 97,338 36,520 6,900 .36 .35
- -----------------------------------------------------------------------------------
</TABLE>

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
Consolidated Statements of Income
($ in thousands, except per share)
<TABLE>
<CAPTION>

Year Ended December 25, 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales.................................... $490,585 $449,365 $424,616
Costs and other charges:
Cost of goods sold................... 316,132 287,780 267,143
Selling and administrative expenses.. 98,076 92,573 87,412
Research and development expenses.... 23,640 22,481 19,864
- -----------------------------------------------------------------------------------
Income from operations....................... 52,737 46,531 50,197
Interest expense............................. 3,075 2,417 3,597
Other (income) expense, net.................. 3,362 (2,647) (318)
- -----------------------------------------------------------------------------------
Income before income taxes................... 46,300 46,761 46,918
Income taxes................................. 15,319 15,206 16,472
- -----------------------------------------------------------------------------------
Net income................................... $ 30,981 $ 31,555 $ 30,446
===================================================================================
Net income per share - basic................. $1.61 $1.64 $1.58
- diluted............... $1.60 $1.63 $1.57
===================================================================================
</TABLE>

See the accompanying notes to the Consolidated Financial Statements.

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>

As of December 25, 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents.............................. $ 4,358 $ 4,330
Receivables, net....................................... 88,841 91,404
Inventories............................................ 102,491 102,217
Other.................................................. 5,706 3,623
- ------------------------------------------------------------------------------------
Total current assets........................... 201,396 201,574
Property, plant and equipment, net..................... 177,217 165,577
Other assets........................................... 45,530 40,648
- ------------------------------------------------------------------------------------
Total Assets................................... $424,143 $407,799
=====================================================================================
Liabilities and Stockholders' Equity

Notes payable and current maturities................... $ 35,833 $ 43,180
Accounts payable....................................... 37,519 38,322
Accrued liabilities.................................... 24,713 28,553
Income and other taxes................................. 1,474 1,462
- ------------------------------------------------------------------------------------
Total current liabilities...................... 99,539 111,517
Long-term debt......................................... 3,456 2,009
Deferred income taxes.................................. 22,105 20,323
Other long-term liabilities............................ 10,651 10,817
Stockholders' equity (Shares outstanding 1997:
19,258,800; 1996: 19,222,200)................. 288,392 263,133
- ------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity..... $424,143 $407,799
====================================================================================

</TABLE>

See accompanying notes to the Consolidated Financial Statements.

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in thousands)
<TABLE>
<CAPTION>

Year Ended December 25, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used for) operations:
Net income...................................... $ 30,981 $ 31,555 $ 30,446
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization... 16,930 13,445 12,661
Deferred income taxes........... 1,574 2,702 2,637
Loss/(gain) on sale of assets... 22 (4,646) (603)
Other........................... 2,018 (126) (565)
Changes in operational assets and liabilities,
net of acquisitions:
Receivables, net................ (5,986) (4,723) (10,516)
Inventories..................... (6,790) (1,923) (13,890)
Other assets.................... (6,800) (5,072) (5,427)
Accounts payable, taxes and
other liabilities............ 3,661 3,595 8,359
- -----------------------------------------------------------------------------------------------------
Cash provided by operations..... 35,610 34,807 23,102
- -----------------------------------------------------------------------------------------------------
Cash provided by (used for) investment activities:
Capital expenditures............................ (33,481) (39,629) (25,044)
Proceeds on sale of assets...................... 436 5,198 883
Payments for acquisitions....................... (4,154) (6,036) --
Other........................................... -- 74 (1,836)
- -----------------------------------------------------------------------------------------------------
Cash used for investment activities..... (37,199) (40,393) (25,997)
- -----------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities:
Proceeds from issuance of common stock, net..... 681 67 48
Change in notes payable, net.................... (1,655) 7,212 8,742
Proceeds from issuance of long-term debt........ 1,852 -- 292
Repayments of long-term debt.................... (3) (2,420) (2,953)
- -----------------------------------------------------------------------------------------------------
Cash provided by financing activities... 875 4,859 6,129
- -----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash................. 742 91 (278)
- -----------------------------------------------------------------------------------------------------
Increases (decreases) in cash and cash equivalents...... 28 (636) 2,956
Balance at beginning of period.......................... 4,330 4,966 2,010
- -----------------------------------------------------------------------------------------------------
Balance at end of period................................ $ 4,358 $ 4,330 $ 4,966
=====================================================================================================
</TABLE>

See the accompanying notes to the Consolidated Financial Statements.

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 the company 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.

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 and
raw materials of domestic chemical operations are valued at last in, first out
(LIFO) cost. Supplies and all other inventories 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. The Company 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. The Company 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 the Company'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 the Company'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 Cumulative Translation Adjustments.
The primary factor used to determine the functional currency of the Company'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.

The Company 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

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------

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

In accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 128 "Earnings Per Share", the Company is presenting its net income
per share on a `basic' and `diluted' basis. 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

The Company 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 the Company'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. The Company's policy is to grant
options with an exercise price equal to the quoted market price of the Company's
stock on the grant date. Accordingly, no compensation cost has been recognized
for its stock option plan. The Company provides additional pro forma disclosures
as required under Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation."

2. Related Party Transactions

Bush Boake Allen Inc. ("BBA" or the "Company"), was a wholly-owned subsidiary of
Union Camp Corporation ("Union Camp") prior to an initial public offering
("IPO") of the Company's stock in May 1994. Union Camp owns 13,150,000 shares of
BBA common stock.

The Company enters into various operating transactions with Union Camp and its
subsidiaries. These transactions include trade purchases of raw materials to be
used in certain of the Company's manufacturing processes. The net trade
purchases from Union Camp for 1997, 1996 and 1995 were $1.8 million, $1.5
million and $1.0 million, respectively. Concurrent with the May 1994 IPO, the
Company and Union Camp entered into a Supply Agreement relating to the terms and
conditions pursuant to which the Company purchases, at approximate fair market
value, turpentine from Union Camp as well as turpentine procured by Union Camp
from other sources for sale to the Company.

Concurrent with the IPO, the Company entered into a Service Agreement with Union
Camp under which Union Camp provides the Company 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.

Union Camp or BBA may terminate any or all of the services covered by the
Services Agreement upon ninety days prior written notice, except for research
and development services which will require two years prior written notice. The
rates charged by Union Camp to the Company are intended to approximate the fair
value of the services provided to the Company. The total charges approximated
$4.0 million, $4.0 million and $3.5 million in 1997, 1996 and 1995,
respectively. At December 25, 1997 and 1996, the net payable to Union Camp was
approximately $800,000 and $1.1 million, respectively, which is payable on
demand.

There was no interest expense to Union Camp in 1997 or 1996. Interest expense to
Union Camp was approximately $500,000 in 1995.

3. Supplemental Information

Statements of Income

Total interest costs incurred and amounts capitalized for each of the years
ended December 25 were:

<TABLE>
<CAPTION>
1997 1996 1995
($ in thousands)
---------------------------------
<S> <C> <C> <C>
Total interest .......................... $3,599 $3,062 $3,637
Interest capitalized .................... (524) (645) (40)
------------------------------------
Net interest expense ............ $3,075 $2,417 $3,597
====================================
</TABLE>

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
- --------------------------------------------------------------------------------

3. Supplemental Information (continued)

Total other (income) expense, net includes loss from foreign exchange of $2.0
million in 1997, $1.5 million in 1996 and $300,000 in 1995.

Balance Sheets
As of December 25,
------------------
1997 1996
------------------
($ in thousands)
Receivables, net
Trade ................................... $82,743 $86,028
Other ................................... 8,074 7,676
------------------
90,817 93,704
Less allowance for doubtful accounts .... 1,976 2,300
------------------
Total ........................... $88,841 $91,404
==================

There were no significant uncollectible accounts written off during 1997,
1996 or 1995 that were not previously reserved.
As of December 25,
------------------
1997 1996
------------------
($ in thousands)
Inventories
Finished goods .......................... $ 29,035 $ 30,156
Raw materials ........................... 54,621 55,077
Work in process ......................... 14,170 12,579
Supplies ................................ 4,665 4,405
-------------------
Total ........................... $102,491 $102,217
===================

As of December 25, 1997 and 1996, finished goods, work in process and raw
materials totaling $10.5 million and $25.6 million, respectively, were valued at
LIFO cost. The excess of current cost over LIFO value was $9.5 million and $7.9
million in 1997 and 1996, respectively.
As of December 25,
------------------
1997 1996
------------------
($ in thousands)
Other current assets
Prepayments ............................. $ 3,148 $ 3,623
Other ................................... 2,558 -
-------------------
Total ........................... $ 5,706 $ 3,623
===================
Property, plant and equipment
Land .................................... $ 5,118 $ 5,374
Buildings and improvements .............. 54,695 45,589
Machinery and equipment ................. 219,352 198,752
Construction in progress ................ 22,624 31,000
-------------------
301,789 280,715
Less accumulated depreciation ........... 124,572 115,138
-------------------
Property, plant and equipment, net .............. $177,217 $165,577
====================
The Company's capital spending backlog under approved projects was
approximately $47.6 million at year-end 1997.
As of December 25,
------------------
1997 1996
------------------
($ in thousands)
Other non-current assets
Pension asset ........................... $30,829 $27,000
Intangible assets ....................... 10,945 12,272
Other ................................... 3,756 1,376
------------------
Total ........................... $45,530 $40,648
==================

Included within intangible assets as of December 25, 1997 and 1996 was
goodwill of $10.7 million and $11.5 million, respectively.
As of December 25,
------------------
1997 1996
------------------
($ in thousands)
Accrued liabilities
Payroll ................................. $ 7,616 $ 7,148
Payable to Union Camp ................... 796 1,140
Deferred payments on acquisitions ....... 925 4,784
Other ................................... 15,376 15,481
------------------
Total ........................... $24,713 $28,553
==================
Other long-term liabilities
Postretirement benefits ................. $ 3,198 $ 2,854
Deferred revenue ........................ 2,234 3,350
Other ................................... 5,219 4,613
------------------
Total ........................... $10,651 $10,817
==================

Statements of Cash Flows

Cash paid for income taxes was $13.1 million in 1997, $12.3 million in 1996 and
$8.9 million in 1995. Cash paid for interest, net of amounts capitalized, was
$3.3 million in 1997, $2.5 million in 1996 and $3.5 million in 1995. In 1996,
the Company completed three small acquisitions for a combined purchase price of
$10.8 million. In connection with these acquisitions, the Company paid $6.0
million in cash in 1996 and incurred fixed deferred payments of $4.8 million, of
which $3.9 million was paid in 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

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES

- --------------------------------------------------------------------------------

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 the Company.

Derivative Financial Instruments

The Company'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, 1997, the Company had outstanding foreign exchange contracts
valued at $49.6 million, primarily denominated in European and Asian
currencies. These contracts mature in the first half of 1998. The purpose of
these contracts is to neutralize foreign currency transaction risk generated by
the Company'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 counterparties, which meet Moody's credit rating
of A1 or better.

4. Debt

The Company had outstanding debt comprised as follows:
As of December 25,
------------------
1997 1996
------------------
($ in thousands)

Notes payable ................................... $35,828 $43,172
Current installments of long-term debt .......... 5 8
Long-term debt .................................. 3,456 2,009

The Company 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 $75.1 million. In
addition, the Company has available a $19.6 million, three year committed
multi-option borrowing facility from a leading European bank.

As of December 25, 1997, $35.4 million was outstanding and included in
notes payable, compared with $41.0 million as of December 25, 1996. 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 1.9% to 20.0% in local currencies during 1997.

The Company has revolving bank credit facilities under which the Company
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, 1997, $400,000 was outstanding
and included in notes payable, compared with $2.2 million as of December 25,
1996. There are no commitment fees or borrowing covenants.

The Company's $3.5 million in long-term debt, payable in 1999 and 2000, has
been issued in Australia and Turkey to satisfy the Company's financing needs, at
annual interest rates of 5.9% and 5.94%, respectively.

5. Income Taxes

The components of income before income taxes were:

Year Ended December 25,
-----------------------------
1997 1996 1995
-----------------------------
($ in thousands)
Domestic ............................. $ 8,571 $ 4,733 $ 3,274
Foreign .............................. 37,729 42,028 43,644
-----------------------------
Income before
income taxes ......... $46,300 $46,761 $46,918
=============================

The provision for income taxes is comprised of the following:

Year Ended December 25,
-----------------------------
1997 1996 1995
-----------------------------
($ in thousands)
Current
Federal ...................... $ 1,843 $ 2,254 $ 889
State and local .............. 332 382 199
Foreign ...................... 11,570 9,868 12,747
-----------------------------
$13,745 $12,504 $13,835
-----------------------------
Deferred
Federal ...................... $ 963 $ (675) $ 655
State and local .............. 5 (93) (9)
Foreign ...................... 606 3,470 1,991
-----------------------------
1,574 2,702 2,637
-----------------------------
Total ................ $15,319 $15,206 $16,472
=============================

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
- --------------------------------------------------------------------------------

5. Income Taxes (continued)

The significant components of the cumulative deferred tax liability are as
follows:

As of December 25,
------------------
1997 1996
------------------
($ in thousands)

Deferred federal taxes
Depreciation ........................... $ 6,008 $ 5,103
Other .................................. (3,574) (3,637)
Deferred foreign taxes
Pensions ............................... 9,107 8,412
Other .................................. 10,564 10,445
------------------
Total .......................... $22,105 $20,323
==================
A detailed analysis of the effective tax rate is as follows:

Year Ended December 25,
-----------------------
1997 1996 1995
-----------------------
Statutory federal tax rate ................. 35.0% 35.0% 35.0%
State taxes (net of federal
tax impact) ........................ 0.5 0.4 0.3
Foreign income taxes ....................... (2.8) (3.7) (0.2)
Other ...................................... 0.4 0.8 -
-----------------------
Effective rate ............................. 33.1% 32.5% 35.1%
=======================

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, 1997, the total of all
such undistributed earnings amounts to $126.8 million.

Taxable income of the Company's U.S. operations was included in the consolidated
U.S. federal income tax return of Union Camp for all periods prior to the IPO.
Under a Tax Allocation Agreement, income taxes were allocated as if the Company
filed a separate tax return. The provision for income taxes was prepared as if
the consolidated U.S. federal income tax return had been filed separately by
the Company and its subsidiaries. For all periods subsequent to the IPO, the
Company files consolidated U.S. federal income tax returns separate from Union
Camp.

Under the terms of the Company's Tax Allocation Agreement with Union Camp,
parties to the agreement have agreed to mutually indemnify each other against
potential claims, assessments or adjustments made by any taxing authority with
respect to any tax position taken by the Company or Union Camp for all periods
prior to the IPO.

6. Stockholders' Equity

<TABLE>
<CAPTION>
Additional Cumulative Total
Common Stock Paid-In Retained Translation Stockholders'
Shares Amounts Capital Earnings Adjustments Equity
- ------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 25, 1994 ............... 19,215 $19,215 $167,292 $17,100 $ (9,764) $193,843
Net income ....................... - - - 30,446 - 30,446
Issuance of stock for options .... 3 3 45 - - 48
Foreign currency translation ..... - - - - (2,555) (2,555)
----------------------------------------------------------------------
Balance, December 25, 1995 ............... 19,218 19,218 167,337 47,546 (12,319) 221,782
----------------------------------------------------------------------
Net income ....................... - - - 31,555 - 31,555
Issuance of stock for options .... 4 4 63 - - 67
Foreign currency translation ..... - - - - 9,729 9,729
----------------------------------------------------------------------
Balance, December 25, 1996 ............... 19,222 19,222 167,400 79,101 (2,590) 263,133
----------------------------------------------------------------------
Net income ....................... - - - 30,981 - 30,981
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 $110,082 $ (8,993) $288,392
==================================================================================================================
</TABLE>

7. Pension Plans

The Company and certain foreign subsidiaries have non-contributory defined
benefit pension plans covering substantially all of their employees. Benefits
are based on years of service and, for salaried employees, final average
earnings. The Company funds these 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.

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------

The following tables set forth the funded status of all the Company's
pension plans for 1997 and 1996 and the components of pension expense of all
pension plans in 1997, 1996 and 1995:
<TABLE>
<CAPTION>
December 25, 1997 December 25, 1996
- -----------------------------------------------------------------------------------------------------
Foreign Foreign
U.S. Plans Plans U.S. Plans Plans
- -----------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation ............ $ 16,835 $127,055 $13,249 $112,257
=====================================================
Accumulated benefit obligation ....... $ 19,285 $128,281 $15,083 $113,211
=====================================================
Projected benefit obligation ................. $ 25,570 $150,985 $18,969 $134,784
Plan assets at fair value .................... 22,539 167,018 19,702 146,511
Projected benefit obligation in excess
of (less than) plan assets ........... 3,031 (16,033) (733) (11,727)
Unrecognized net gain (loss) ................. (667) (17,614) 2,015 (17,535)
Unrecognized prior service cost .............. (104) 1,447 (115) 73
Unrecognized transition asset ................ 291 1,371 389 2,189
-----------------------------------------------------
Pension liability (asset) recorded on
balance sheet ........................ $ 2,551 $(30,829) $ 1,556 $(27,000)
=====================================================
</TABLE>
The pension expense for these plans included the following components:

Year Ended December 25,
-----------------------------
1997 1996 1995
-----------------------------
($ in thousands)
Service cost--benefits earned
during the period ........... $ 4,982 $ 5,400 $ 4,622
Interest cost on projected
benefit obligation .......... 11,802 10,878 10,916
Actual return on assets ............. (28,365) (16,034) (18,762)
Net amortization and deferral ....... 10,888 (557) 3,789
--------------------------------
Total pension expense (gain) ........ $ (693) $ (313) $ 565
================================

The assumptions used in determining the pension expense for these plans were:

Year Ended December 25,
----------------------------------------------
1997 1996 1995
----------------------------------------------
U.S. Foreign U.S. Foreign U.S. Foreign
Plans Plans Plans Plans Plans Plans
----------------------------------------------
Rate of salary
progression .......... 4.75% 6.0% 4.75% 6.0% 4.75% 7.0%
Expected long-term
rate of return on
plan assets .......... 9.5% 10.5% 9.5% 11.5% 9.5% 11.5%

At December 25, 1997 and 1996, the discount rates used to determine the
pension benefit obligation were 7.0% and 7.5%, respectively, for the U.S. plans
and 7.0% and 8.0%, respectively, for the foreign plans.

8. Postretirement Benefits

The Company 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. The Company funds
its plans on a "pay-as-you-go" basis in an amount equal to the retirees' medical
claims paid.

The components of the APBO as of December 25, 1997 and 1996 are as follows:

1997 1996
-------------------
($ in thousands)
Retirees ....................................... $ 399 $ 180
Fully eligible active plan participants ........ 452 316
Other active plan participants ................. 2,729 2,246
Unrecognized net gain (loss) ................... (282) 112
-------------------
Accrued postretirement benefits
obligation ............................. $3,298 $2,854
===================

This obligation includes the estimated postretirement obligation of all
active employees as of December 25, 1997 and 1996.

The components of the net periodic expense for the years ended December 25,
1997, 1996 and 1995 are as follows:

1997 1996 1995
--------------------------
($ in thousands)
Service cost--benefits earned
during period ...................... $298 $315 $155
Interest cost on accumulated benefit
obligation ......................... 210 221 136
Net amortization and deferral .............. - - (131)
--------------------------
Net periodic postretirement
benefit expense .................... $508 $536 $160
==========================

At December 25, 1997 and 1996, the discount rates used to determine the
accumulated postretirement benefit obligation were 7.0% and 7.5%, respectively.

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)

- --------------------------------------------------------------------------------

8. Postretirement Benefits (continued)

For measurement purposes, an 8.0% increase in the medical cost trend rate
was assumed for 1997. This rate decreases incrementally to 5.0% after seven
years and will remain at that level thereafter. It is estimated that a 1%
increase in the medical cost trend rate would increase the accumulated
postretirement benefit obligation as of December 25, 1997 by $603,000 and the
net periodic expense for 1997 by $99,000.

9. Employee Stock Option Plan

In February 1994, the Company 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 the Company 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 makes 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, the
Company granted options to purchase approximately 500,000 shares of Common Stock
to officers and key employees of the Company which will become exercisable at a
rate of 20% per year.

At the end of 1997, 543,185 shares were available for future grants under
the 1994 plan. The options outstanding at December 25, 1997 do not have stock
appreciation rights attached.

The Company 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 the Company's stock option plan been determined based
on the fair value at the grant date for awards in 1997, 1996 and 1995 consistent
with the provisions of SFAS No. 123, total compensation cost recognized in
income for stock-based compensation would have been $497,000 in 1997, $516,000
in 1996 and $67,000 in 1995 on a pro forma basis. Also, if SFAS No. 123 had been
adopted, pro forma net income and earnings per share would have been $30.4
million or $1.58 per share basic and $1.57 per share diluted in 1997, $31.2
million or $1.63 per share basic and $1.62 per share diluted in 1996 and $30.4
million or $1.58 per share basic and $1.57 per share diluted in 1995.

The following table summarizes activity in the Company's stock option plan
during 1997, 1996 and 1995:

<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------------
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 .... 563,520 $19.28 544,707 $19.07 453,500 $16.46
Granted .......................... 230,520 $28.75 33,428 $25.00 94,207 $31.58
Exercised ........................ (36,600) $18.60 (4,200) $16.00 (3,000) $16.00
Forfeited ........................ (17,813) $20.81 (10,415) $27.84 -- --
-----------------------------------------------------------------------
Options outstanding
at end of year ........... 739,627 $22.21 563,520 $19.28 544,707 $19.07
-----------------------------------------------------------------------
Options exercisable
at end of year ........... 317,227 $20.29 192,500 $17.08 87,600 $16.00
=======================================================================
</TABLE>

BUSH BOAK ALLEN INC. AND SUBSIDIARIES

- --------------------------------------------------------------------------------

For options outstanding as of the end of 1997, the range of exercise prices
was $16.00 to $32.25 per share and the weighted average remaining contractual
life was 7.6 years. The weighted average fair value on the date of grant was
$11.11 for options granted in 1997, $9.37 for options granted in 1996 and $11.31
for options granted in 1995.

Fair value was determined through the use of the Black-Scholes options
pricing formula. 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 weighted average basis.
For options granted in 1996, the risk-free interest rate was 6.0%, the expected
life was 6 years, the expected volatility was 23% and the expected dividend
yield was zero, all calculated on a weighted average basis. For options granted
in 1995, the risk-free interest rate was 5.8%, 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.

10. Supplemental Earnings Per Share Information

($ in thousands, except per share)
<TABLE>
<CAPTION>
For the Year Ended December 25,
---------------------------------- ---------------------------------- --------------------------------
1997 1996 1995
--------------------------------- ---------------------------------
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 ................... $30,981 $31,555 $30,446
Basic EPS
Income available to
common shareholders ..... $30,981 19,237,909 $1.61 $31,555 19,220,238 $1.64 $30,446 19,215,156 $1.58
Effect of Dilutive ====== ====== ======
Securites Stock Options.... $ - 180,368 $ - 169,420 $ - 173,682
-----------------------------------------------------------------------------------------------------
Diluted EPS
Income available to
common shareholders
+ assumed conversions.... $30,981 19,418,277 $1.60 $31,555 19,389,658 $1.63 $30,446 19,388,838 $1.57
=====================================================================================================
</TABLE>

In 1997, 1996 and 1995 there were 73,327, 78,292 and 85,207 potential common
shares, respectively, excluded from the computation of diluted earnings per
share because the effect would have been antidilutive.

11. Commitments and Contingent Liabilities

The Company is involved in various legal proceedings arising in the ordinary
course of business. Based upon the information presently available and the
Company'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 the Company's business or financial position or
results of operations.

12. Segment and Geographic Information

The Financial Accounting Standards Board recently issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for the reporting of financial information about
a company's operating segments for both interim and annual reporting. The
Company is required to adopt this statement in 1998. This statement will not
have an impact on reported net income.

Total revenue and operating profit by business segment and geographic
region include both sales to customers, as reported in the Company'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 and geographic region is total revenue less operating
expenses. In computing operating profit by business segment and geographic
region, 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.

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
- -------------------------------------------------------------------------------

12. Segment and Geographic Information (continued)

The following chart sets forth operating results and other financial data for
the principal business segments of the Company for the years ended December 25,
1997, 1996 and 1995.

Segment Information

The Company's business is organized into two operating segments: flavor and
fragrance and aroma chemicals. The Company's flavor and fragrance products
impart a desired taste or smell to a broad range of consumer products. The
Company manufactures its flavors and fragrance products at 20 compounding
facilities in 14 countries and maintains sales offices in 39 countries. The
Company's aroma chemicals are primarily used as raw materials in fragrance
compounds. The Company 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
- ----------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C>
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 21,266 (19,076) 52,737
Identifiable assets ....... 283,320 132,465 8,358 424,143
Depreciation .............. 8,500 6,533 332 15,365
Capital expenditures ...... 20,716 12,023 742 33,481
1996
Net sales to customers .... $357,772 $91,593 - $449,365
Intersegment sales ........ - 25,088 $ (25,088) -
-------------------------------------------------
Total net sales ........... 357,772 116,681 (25,088) 449,365
Operating profit .......... 46,239 22,666 (22,374) 46,531
Identifiable assets ....... 272,270 129,455 6,074 407,799
Depreciation .............. 6,349 5,510 266 12,125
Capital expenditures ...... 28,298 10,616 715 39,629
1995
Net sales to customers .... $336,541 $ 88,075 - $424,616
Intersegment sales ........ - 22,965 $ (22,965) -
-------------------------------------------------
Total net sales ........... 336,541 111,040 (22,965) 424,616
Operating profit .......... 43,653 24,770 (18,226) 50,197
Identifiable assets ....... 234,272 110,650 4,931 349,853
Depreciation .............. 5,897 5,186 302 11,385
Capital expenditures ...... 18,649 5,878 517 25,044
</TABLE>

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES

- -------------------------------------------------------------------------------

12. Segment and Geographic Information (continued)

Operations by Geographic Areas

The Company has operations in 39 countries in North and South America, Europe,
Asia, Australia, the Middle East and Africa. The Company'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)
<S> <C> <C> <C> <C> <C>
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
Operating profit ................. 22,830 27,132 11,290 11,140 (19,655) 52,737
Identifiable assets .............. 92,122 204,683 70,760 48,220 8,358 424,143
1996
Net sales to customers ........... $135,789 $160,135 $78,778 $74,663 - $449,365
Sales between areas .............. 25,604 30,669 25 275 $(56,573) -
-------------------------------------------------------------------------------------
Total net sales .................. 161,393 190,804 78,803 74,938 (56,573) 449,365
Operating profit ................. 19,812 29,136 11,093 8,605 (22,115) 46,531
Identifiable assets .............. 89,271 184,198 81,277 46,979 6,074 407,779
1995
Net sales to customers ........... $130,024 $154,280 $72,839 $67,473 - $424,616
Sales between areas .............. 22,471 28,457 188 274 $(51,390) -
-------------------------------------------------------------------------------------
Total net sales .................. 152,495 182,737 73,027 67,747 (51,390) 424,616
Operating profit ................. 16,873 32,076 11,300 8,245 (18,297) 50,197
Identifiable assets .............. 80,387 163,755 60,661 40,119 4,931 349,853
</TABLE>

Report of Independent Accountants

- -------------------------------------------------------------------------------

To the Board of Directors and Stockholders of
Bush Boake Allen Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of 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, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
25, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company'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
generally accepted auditing standards 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.

PRICE WATERHOUSE LLP

Morristown, New Jersey
January 30, 1998

BUSH BOAKE ALLEN INC. AND SUBSIDIARIES

Five-Year Summary
($ in thousands, except per share)
- -------------------------------------------------------------------------------

Operating Results 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales.................................... $490,585 $449,365 $424,616 $374,991 $336,333
Costs and Other Charges...................... 437,848 402,834 374,419 333,233 302,558
- ------------------------------------------------------------------------------------------------------------------------------
Income From Operations............... 52,737 46,531 50,197 41,758 33,775
- ------------------------------------------------------------------------------------------------------------------------------
Interest Expense............................. 3,075 2,417 3,597 4,258 2,338
Other (Income) Expense-Net................... 3,362 (2,647) (318) (544) (1,295)
- ------------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes........... 46,300 46,761 46,918 38,044 32,732
Income Taxes................................. 15,319 15,206 16,472 12,501 12,175
- ------------------------------------------------------------------------------------------------------------------------------
Net Income........................... 30,981 31,555 30,446 25,543 20,557
- ------------------------------------------------------------------------------------------------------------------------------
Per Share(1)
Net Income - basic........................... 1.61 1.64 1.58 1.33 1.07
- diluted......................... 1.60 1.63 1.57 1.32 1.07
Stockholders' Equity......................... 14.97 13.69 11.54 10.09 4.44
- ------------------------------------------------------------------------------------------------------------------------------
Financial Position at Year-End
Current Assets............................... 201,396 201,574 190,695 162,516 172,882
Current Liabilities.......................... 99,539 111,517 96,992 80,895 169,515
- ------------------------------------------------------------------------------------------------------------------------------
Working Capital.............................. 101,857 90,057 93,703 81,621 3,367
Total Assets................................. 424,143 407,799 349,853 307,568 303,415
- ------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt............................... 3,456 2,009 3,731 6,554 5,846
Debt Payable to Union Camp................... - - - - 20,000
Stockholders' Equity......................... 288,392 263,133 221,782 193,843 85,291
- ------------------------------------------------------------------------------------------------------------------------------
Percent of Long-Term Debt to Total Capital... 1.2% 0.8% 1.7% 3.3% 23.3%
- ------------------------------------------------------------------------------------------------------------------------------
Additional Data
Gross Profit Margin.......................... 35.6% 36.0% 37.1% 37.0% 35.7%
Operating Margin............................. 10.7% 10.4% 11.8% 11.1% 10.0%
Depreciation and Amortization................ $ 16,930 $ 13,445 $ 12,661 $ 10,678 $ 10,900
Capital Expenditures (excluding
acquisitions)............................. $ 33,481 $ 39,629 $ 25,044 $ 18,250 $ 36,603
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Net Income Per Share prior to 1995 and Stockholders' Equity Per Share prior
to 1994 are based on pro forma shares outstanding of 19,215,000.

BUSH BOAKE ALLEN INC.
Directors and Officers

- -------------------------------------------------------------------------------

Board of Directors Corporate Officers

Julian W. Boyden Julian W. Boyden
Chairman of the Board, President Chairman, President and
and Chief Executive Officer Chief Executive Officer

James M. Reed James H. Dunsdon
Vice Chairman of the Board of the Executive Vice President
Company; retired Vice Chairman
of the Board and Chief Financial Fred W. Brown
Officer of Union Camp Corporation. Vice President and
Chief Financial Officer
Peter L. Acton
Vice President and General T. John Dunlea
Manager, Union Camp Vice President
Chemical Products Division Asia Pacific Region

Thomas R. Crane, Jr. Bruce J. Edwards
Former President and Chief Vice President
Executive Officer of Castrol International Region
North America Holdings Inc.
Jos Kleppers
L. Robert Pfund Vice President
Retired Corporate Group Europe Region
Vice President of Avon
Products, Inc. Ronald A. Landis
Vice President
George J. Sella, Jr. Human Resources and Safety
Retired Chairman of the Board
and Chief Executive Officer of P. C. Mathew
American Cyanamid Company. Vice President
Aroma and Terpene Chemicals
William H. Trice
Former Chairman of the Board of Dennis M. Meany
the Company; Retired Executive Vice President
Vice President of Union Camp General Counsel and
Corporation. Secretary

Peter A. Thorburn
Vice President
Global Chemical Sales
and Marketing

John R. Wright
Vice President
Commerce and Technology

Kenneth M. McHugh
Controller

Charles D. Weller
Treasurer

Richard J. Aiello
Assistant Controller

Alan R. Kelsey
Assistant Secretary

James M. Brannick
Assistant Treasurer

BUSH BOAKE ALLEN INC.
Shareholder Information
- -------------------------------------------------------------------------------

Corporate Headquarters Quarterly Earnings Reports
7 Mercedes Drive The company does not issue printed
Montvale, New Jersey 07645 Quarterly Reports to Shareholders
(201) 391-9870 since we believe they are not timely
or cost effective. Quarterly earnings
Annual Meeting are dissem-inated regularly and
The 1998 Annual Meeting will be held widely through news wire services and
at 11:00 am (EST) on May 6, 1998 at the media.
the Woodcliff Lake Hilton, Woodcliff Stockholders desiring copies of
Lake, New Jersey. these earnings releases as well as
individuals or organizations seeking
Stock Exchange Listing further information about the company
The common stock of Bush Boake Allen should write to Stewart J. Phelps,
Inc. is traded on the New York Stock Director Corporate Communications at
Exchange (ticker symbol BOA). the corporate headquarters address.

Stockholder Records SEC Form 10-K
Transfer agent is The Bank of A copy of the annual report on
New York, 101 Barclay Street, 12 W, Form 10-K for 1997 as filed with the
New York, New York 10286 Securities and Exchange Commission
may be obtained without charge by
Inquiries relating to change of writing to Stewart J. Phelps,
registered ownership or change of Director Corporate Communications, at
address should be forwarded to: the corporate headquarters address.

The Bank of New York
P.O. Box 11258
Church Street Station
New York, New York 10286-1258
(800) 524-4458 or (212) 815-5800

[LOGO]

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 businesses 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.

<PAGE>

EXHIBIT 21.1

SUBSIDIARIES OF BUSH BOAKE ALLEN INC.

Percentage of
Place of Voting Stock
Subsidiary Incorporation Owned
- ---------- ------------- ------------
Bush Boake Allen Canada Inc. Canada 100%

Bush Boake Allen (Chile) S.A. Chile 100%

Bush Boake Allen Industria E Commercial do Brazil 100%
Brasil Limitada

Bush Boake Allen Colombia S.A. Colombia 100%

Bush Boake Allen Mexico, S.A. de C.V. Mexico 100%

Bush Boake Allen Controladora S.A. de C.V. Mexico 100%

Bush Boake Allen Servicios S.A. de C.V. Mexico 100%

Bush Boake Allen (Nominees) Limited England 100%

Bush Boake Allen Holdings (U.K.) Limited England 100%

Bush Boake Allen Pension Investments Limited England 100%

Bush Boake Allen (Executive Pension England 100%
Trustees) Limited

Bush Boake Allen (Pension Trustees) Limited England 100%

Bush Boake Allen (Works Pension England 100%
Trustees) Limited

Bush Boake Allen Limited England 100%

W.J. Bush & Co., Inc. Delaware 100%

GMB Proteins Limited England 100%

Bush Boake Allen Australia Ltd. Australia 100%

Bush Boake Allen Espana S.A. Spain 100%

Bush Boake Allen Morimura Limited Japan 65%

Bush Boake Allen (Guangzhou) Co. Ltd. China 95%

EXHIBIT 21.1
Page 2

Percentage of
Place of Voting Stock
Subsidiary Incorporation Owned
- ---------- ------------- ------------
Bush Boake Allen (Hong Kong) Limited Hong Kong 100%

A. Boake, Roberts And Company (Holding), England 100%
Limited

Bush Boake Allen Esans ve Aromatik Turkey 99.9%
Urunler Sanayi AS

PT Bush Boake Allen Indonesia Indonesia 60%

Bush Boake Allen (New Zealand) Limited New Zealand 100%

Bush Boake Allen Singapore Pte. Ltd. Singapore 100%

Bush Boake Allen (Malaysia) SDN. BHD. Malaysia 100%
(Kuala Lumpur)

Bush Boake Allen Denmark ApS. Denmark 100%

Bush Boake Allen France France 100%

Bush Boake Allen Zimbabwe (Private) Zimbabwe 100%
Limited

Bush Boake Allen (India) Limited India 72%

Hindustan Flavours and Fragrances (Inter- India 70%
national) Limited

Bush Boake Allen (Jamaica) Limited Jamaica 70%

Bush Boake Allen (SA) (Proprietary) Limited South Africa 100%

Bush Boake Allen (Thailand) Limited Thailand 60%

Bush Boake Allen Deutschland GmbH West Germany 100%

Bush Boake Allen, Moscow, Ltd. Russia 100%

Bush Boake Allen Benelux B.V. Netherlands 100%

Bush Boake Allen Scandinavia Aktielbolag Sweden 100%

- 2 -

EXHIBIT 21.1
Page 3

Percentage of
Place of Voting Stock
Subsidiary Incorporation Owned
- ---------- ------------- ------------
Bush Boake Allen (C.R.) s.r.o. Czech Republic 100%

Stafford Specialty Ingredients Limited England 100%

Bush Boake Allen Italia S.P.A. Italy 100%

Bush Boake Allen Pakistan (Private) Limited Pakistan 50%

Bush Boake Allen Philippines, Inc. Philippines 100%

Asian Investments, Inc. Delaware 100%

Fragrance Holdings Private Limited India 40%

Essence Scientific Research Private Limited India 40%

Jamaica Extracts Limited Jamaica 58%

Thai Flavour & Fragrance Co. Limited Thailand 49%

Bush Boake Allen Aromatica S.A. Argentina 100%

Bush Boake Allen Barbados Inc. Barbados 100%

Bush Boake Allen Enterprises Ltd. England 100%

- 3 -

<PAGE>

[PRICE WATERHOUSE LETTERHEAD]

Exhibit 23.1

Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-93084 and No. 33-86588) of Bush Boake Allen Inc.
of our report dated January 30, 1998 appearing on page 38 of the 1997 Annual
Report to Shareholders which is incorporated in this Annual Report on Form 10-K.

Price Waterhouse LLP

Morristown, New Jersey
March 18, 1998

<PAGE>

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-25-1997
<PERIOD-START> DEC-26-1996
<PERIOD-END> DEC-25-1997
<CASH> 4,358
<SECURITIES> 0
<RECEIVABLES> 88,841
<ALLOWANCES> 0
<INVENTORY> 102,491
<CURRENT-ASSETS> 201,396
<PP&E> 177,217
<DEPRECIATION> 0
<TOTAL-ASSETS> 424,143
<CURRENT-LIABILITIES> 99,539
<BONDS> 3,456
0
0
<COMMON> 288,392
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 424,143
<SALES> 490,585
<TOTAL-REVENUES> 490,585
<CGS> 316,132
<TOTAL-COSTS> 437,848
<OTHER-EXPENSES> 3,362
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,075
<INCOME-PRETAX> 46,300
<INCOME-TAX> 15,319
<INCOME-CONTINUING> 30,981
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,981
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.60

</TABLE>