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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 25, 1998
---------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------------- ------------------------
Commission file number 1-13030
Bush Boake Allen Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Virginia 13-2560391
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
7 Mercedes Drive, Montvale, New Jersey 07645
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(Address of Principal Executive Offices) (Zip Code)
(201) 391-9870
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
19,280,800 shares of Registrant's Common Stock, par value $1 per share, were
outstanding as of the close of business on March 25, 1998.
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BUSH BOAKE ALLEN INC.
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION*
Item 1. Financial Statements 2
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
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*A summary of the Registrant's significant accounting policies is contained in
the Registrant's Form 10-K for the year ended December 25, 1997 which has
previously been filed with the Commission.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 25,
----------------------
1998 1997
---- ----
<S> <C> <C>
Net Sales $118,246 $118,407
Costs and other charges:
Cost of goods sold 75,615 77,045
Selling and administrative expenses 23,116 23,761
Research and development expenses 6,189 5,752
-------- --------
Income from operations 13,326 11,849
-------- --------
Interest expense 777 580
Other (income) expense, net 764 124
-------- --------
Income before income taxes 11,785 11,145
-------- --------
Income taxes 4,134 3,903
-------- --------
Net Income $ 7,651 $ 7,242
======== ========
Net income per share:
- Basic $ 0.40 $ 0.38
======== ========
- Diluted $ 0.39 $ 0.37
======== ========
Weighted average number of shares outstanding:
- Basic 19,269,244 19,222,200
========== ==========
- Diluted 19,399,576 19,381,039
========== ==========
</TABLE>
See accompanying notes to the Consolidated Financial Statements
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BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
MARCH 25, DECEMBER 25,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,061 $ 4,358
Receivables, net 98,296 88,841
Inventories 105,751 102,491
Other 4,305 5,706
-------- --------
Total current assets 212,413 201,396
Property, plant and equipment, net 183,005 177,217
Other assets 47,464 45,530
-------- --------
Assets $442,882 $424,143
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current maturities $ 40,375 $ 35,833
Accounts payable 39,191 37,519
Accrued liabilities 23,270 24,713
Income and other taxes 311 1,474
-------- --------
Total current liabilities 103,147 99,539
Long-term debt 8,225 3,456
Deferred income taxes 23,069 22,105
Other long-term liabilities 10,475 10,651
Stockholders' equity:
Common stock - (Shares outstanding:
1998: 19,280,800 and 1997:19,258,800) 19,281 19,259
Additional paid-in capital 168,398 168,044
Retained earnings 117,733 110,082
Accumulated other comprehensive income (7,446) (8,993)
-------- --------
Total stockholders' equity 297,966 288,392
-------- --------
Total Liabilities and Stockholders' Equity $442,882 $424,143
======== ========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
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BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 25,
-------------------
1998 1997
---- ----
<S> <C> <C>
Cash provided by (used for) operations:
Net income $ 7,651 $ 7,242
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization 4,537 4,177
Deferred income taxes 871 530
Other 93 (61)
Changes in operational assets and liabilities:
Receivables, net (9,741) (4,557)
Inventories (3,292) (2,493)
Other assets 165 (874)
Accounts payable, taxes and other liabilities (955) 44
------- -------
Cash provided by (used for) operations (671) 4,008
------- -------
Cash provided by (used for) investment activities:
Capital expenditures (8,930) (5,780)
Payments for acquisitions (348) (3,859)
Other 19 25
------- -------
Cash used for investment activities (9,259) (9,614)
------- -------
Cash provided by (used for) financing activities:
Proceeds from issuance of common stock, net 352 0
Change in notes payable, net 3,976 6,685
Proceeds from issuance of long-term debt 5,251 0
Other 0 (1)
------- -------
Cash provided by financing activities 9,579 6,684
------- -------
Effect of exchange rate changes on cash 54 (73)
------- -------
Increase (decrease) in cash and cash equivalents (297) 1,005
Balance at beginning of period 4,358 4,330
------- -------
Balance at end of period $ 4,061 $ 5,335
======= =======
</TABLE>
See accompanying notes to the Consolidated Financial Statements
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BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 25,
------------------
1998 1997
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<S> <C> <C>
Net Income $7,651 $7,242
Other comprehensive income, net of tax:
Foreign currency translation adjustments 1,547 (3,141)
Minimum pension liability adjustment -- --
Unrealized gains(losses) on investments -- --
------ ------
Total other comprehensive income 1,547 (3,141)
------ ------
Comprehensive Income $9,198 $4,101
====== ======
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
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BUSH BOAKE ALLEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The information furnished in this report is unaudited but includes
all adjustments which, in the opinion of management, are necessary for
a fair presentation of results for the interim periods reported. The
adjustments made were of a normal recurring nature. Results for the
interim periods are not necessarily indicative of results for the full
period or for any other interim period.
Note 2. Inventories
<TABLE>
<CAPTION>
March 25, 1998 December 25, 1997
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($ in thousands)
<S> <C> <C>
Finished goods $36,692 $29,035
Raw materials 52,697 54,621
Work in process 13,071 14,170
Supplies 3,291 4,665
-------- --------
Total $105,751 $102,491
======== ========
</TABLE>
Note 3. Stockholders' Equity (in thousands)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL OTHER TOTAL
------------------- PAID-IN RETAINED EQUITY STOCKHOLDERS'
SHARES AMOUNTS CAPITAL EARNINGS ADJUSTMENTS EQUITY
------ ------- ------- -------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance December 25, 1997 19,259 $19,259 $168,044 $110,082 $(8,993) $288,392
Net Income 7,651 7,651
Issuance of Stock for Options 22 22 354 376
Foreign Currency Translation 1,547 1,547
------ ------- -------- -------- ------- --------
Balance March 25, 1998 19,281 $19,281 $168,398 $117,733 $(7,446) $297,966
====== ======= ======== ======== ======= ========
</TABLE>
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Note 4. Other Comprehensive Income
The Company has adopted Statement of Financial Accounting Standard ("SFAS") No.
130, Reporting Comprehensive Income. This statement establishes standards for
the reporting and presentation of comprehensive income and its components in a
full set of financial statements. Comprehensive income encompasses all changes
in stockholders' equity and includes net income, net unrealized capital gains or
losses on available-for-sale securities, minimum pension liability and foreign
currency translation adjustments (CTA). This new statement only requires
additional disclosure in the financial statements, and does not affect the
Company's financial position or results of operations.
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN MINIMUM UNREALIZED OTHER
CURRENCY PENSION INVESTMENT COMPREHENSIVE
CTA ADJUSTMENT G(L) INCOME
-----------------------------------------------------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance December 25, 1997 $(8,993) $ - $ - $(8,993)
Current Period Change 1,547 - - 1,547
------- -------- -------- -------
Balance March 25, 1998 $(7,446) $ - $ - $(7,446)
======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 25, 1998 MARCH 25, 1997
-------------------------------------- --------------------------------------
PRE-TAX TAX (EXP) NET-OF-TAX PRE-TAX TAX (EXP) NET-OF-TAX
AMOUNT BENEFIT AMOUNT AMOUNT BENEFIT AMOUNT
-------------------------------------- --------------------------------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Foreign Currency CTA $1,547 $ - $1,547 $(3,141) $ - $(3,141)
Minimum Pension Adjustment - - - - - -
Unrealized Investment G(L) - - - - - -
------ ------- ------ ------- ------- -------
Other Comprehensive Income $1,547 $ - $1,547 $(3,141) $ - $(3,141)
====== ======= ====== ======= ======= ========
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NET SALES
Net sales for the first quarter ended March 25, 1998 decreased 0.1% to
$118.2 million from $118.4 million for the quarter ended March 25, 1997. The
aroma chemicals segment reported a decrease in sales of 2.1% over the first
quarter of 1997. This decrease reflects competitive pricing pressure in Europe
due to the strong Pound Sterling and lower sales of musk chemicals due to a
decline both in volume and price. The flavor and fragrance segment recorded
modest growth in first quarter sales of 0.4% over the first quarter of 1997. The
Americas region had the highest internal growth rate with a sales increase of
11.8%, while the Asia Pacific region and the Europe region sales decreased 9.1%
and 5.5%, respectively from the first quarter of 1997. Net sales were adversely
affected by the movement in foreign currency exchange rates. If exchange rates
had remained unchanged from the first quarter 1997 to the first quarter 1998,
the increase in total net sales would have been approximately 8%.
COST OF GOODS SOLD
Cost of goods sold in the first quarter of 1998 decreased to $75.6
million from $77.0 million in the first quarter of 1997 due primarily to
improved operating efficiencies in the Company's aroma chemical plants. Cost of
goods sold as a percentage of net sales decreased to 63.9% from 65.1%.
SELLING AND ADMINISTATIVE EXPENSES
Selling and administrative expenses in the first quarter of 1998
decreased to $23.1 million from $23.8 million in the first quarter of 1997. This
decrease reflects the benefit from the Company's cost reduction program of last
year which resulted in a reduction in total Company staff of over 5%. Selling
and administrative expenses as a percentage of net sales decreased to 19.5% from
20.1%.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses in the first quarter of 1998 increased
to $6.2 million from $5.8 million in the first quarter of 1997. The increase is
due primarily to additional creative and technical personnel for the flavor and
fragrance segment. Research and development expenses as a percentage of net
sales increased to 5.2% from 4.9%.
INCOME FROM OPERATIONS
Income from operations in the first quarter of 1998 increased to $13.3
million from $11.8 million in the first quarter of 1997. Operating margins
improved to 11.3% from 10.0% in the first quarter of 1997 reflecting the benefit
from Company cost reduction programs and higher gross margins in both business
segments due primarily to improved product mix and continued improvement in
operating efficiencies.
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Income from operations, exclusive of corporate items, for the flavor and
fragrance segment was $12.2 million compared to $10.8 million in the first
quarter of 1997. An increase in operating income was reported in the
International and Americas regions partially offset by decreases in the Europe
and Asia Pacific regions. The Company's aroma chemical segment recorded first
quarter operating income (exclusive of corporate items) of $6.0 million in 1998,
compared to $5.9 million in the first quarter of 1997. The increase in operating
income is primarily due to process efficiencies largely offset by competitive
pricing pressures in Europe resulting from the strong Pound Sterling and higher
turpentine raw material costs.
OTHER (INCOME) EXPENSE, NET
Other (income) expense for the first quarter of 1998 was $800,000
expense compared to $100,000 expense in the first quarter of 1997 primarily due
to lower rental income on UK property compared to the prior year.
INTEREST EXPENSE
Interest expense, net for the first quarter of 1998 increased to
$800,000 from $600,000 in the first quarter of 1997 primarily due to lower
capitalized interest.
INCOME TAXES
Income tax expense in the first quarter of 1998 increased to $4.1
million from $3.9 million in the first quarter of 1997 as a result of higher
pre-tax income. The Company's effective tax rate in the first quarter of 1998
increased to 35.1% from 35.0% for the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by (used for) operations for the three months ended
March 25, 1998 were $(700,000) compared to $4.0 million for the three months
ended March 25, 1997. The decrease is primarily due to changes in operational
assets and liabilities, mainly from an increase in trade receivables during the
first quarter of 1998.
At March 25, 1998, working capital of the Company was $109.3 million, a
$7.4 million increase from $101.9 million at December 25, 1997. The change in
working capital is primarily due to the increase in total current assets, mainly
from an increase in accounts receivable. Total current liabilities increased
$3.6 million primarily from an increase in notes payable.
As of March 25, 1998, the Company had cash and cash equivalents of $4.1
million. The Company believes that its available cash, funds provided by
operations and available borrowing capacity under its credit facilities will be
sufficient to support its debt service, working capital and capital expenditure
requirements for the foreseeable future, including implementation of its
strategy to strengthen its position as a leading producer of flavors, fragrances
and aroma chemicals and for long-term growth.
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ACCOUNTING MATTERS
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement requires the disclosure of segment information on
the same basis that is used internally for evaluating segment performance and
allocating resources to segments. In February 1998, the FASB issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits."
This statement will standardize the disclosure requirements for pensions and
other postretirement benefit plans. Implementation of these new statements is
required for calendar year 1998 and will affect financial statement presentation
and disclosure, but will not have a financial impact on the Company's
consolidated financial position or results of operations.
YEAR 2000
The Company is currently in the process of evaluating its operations to
ensure that its computer systems and process control equipment are "Year 2000"
compliant. Management does not expect the financial impact of necessary actions
to be material to the Company's financial position or results of operations in
any period. While the Company believes all necessary work will be completed in a
timely fashion, there can be no guarantee that all systems will be compliant by
the year 2000 or that the systems of other companies on which the Company relies
will be covered within the same timeframe.
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Statements in this report that are not historical are forward-looking statements
which are subject to risks and uncertainties that could cause actual results to
differ materially. Such risks and uncertainties with respect to Bush Boake
Allen's business include general economic conditions, customers changing flavor
and/or fragrance formulations, pricing and availability of raw materials and
political and economic uncertainties including currency fluctuations in the many
countries in which we operate.
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PART II.
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company's annual meeting of its stockholders was held on May 6,
1998.
At the annual meeting the Company's stockholders voted on four
proposals:
(1) the election of seven nominees to serve as directors until the
next annual meeting of stockholders; (2) the ratification of the
appointment of Price Waterhouse LLP as independent accountants for
the year 1998; (3) the approval of BBA 1994 Stock Option Plan; and
(4) the approval of Director's Stock Option Plan. The voting of the
Company's stockholders as to these matters was as follows:
1. ELECTION OF DIRECTORS
NOMINEES VOTES FOR VOTES WITHHELD
-------- --------- --------------
Peter L. Acton 18,587,251 41,265
Julian W. Boyden 18,587,251 41,265
Thomas R. Crane, Jr. 18,597,151 31,365
L. Robert Pfund 18,597,151 31,365
James M. Reed 18,584,951 43,565
George J. Sella, Jr. 18,594,551 33,965
William H. Trice 18,587,251 41,265
2. RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
18,611,786 13,961 2,769
3. APPROVAL OF BBA 1994 STOCK OPTION PLAN
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
17,852,227 751,685 24,604
4. APPROVAL OF DIRECTORS' STOCK OPTION PLAN
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
17,798,758 803,853 25,905
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
No. Description
--- -----------
11 Statement regarding computation of
per share earnings
27 Financial Data Schedule
B) REPORTS ON FORM 8-K
No Current Report on Form 8-K was filed by the Registrant during the
first quarter of 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUSH BOAKE ALLEN INC.
Date: May 8, 1998
---------------- -------------------------------
Fred W. Brown, Jr.
Vice President Finance and
Chief Financial Officer
Date: May 8, 1998
---------------- -------------------------------
Dennis M. Meany
Vice President, General Counsel
and Secretary
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EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
March 25, 1998 March 25, 1997
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<S> <C> <C>
Net Income $ 7,651,000 $ 7,242,000
Shares used to compute
earnings per share - Basic 19,269,244 19,222,200
Earnings Per Share - Basic $0.40 $0.38
Shares used to compute
earnings per share including
common stock equivalents - Diluted 19,399,576 19,381,039
Earnings Per Share - Diluted $0.39 $0.37
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000919998
<NAME> BOA
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-START> DEC-26-1997
<PERIOD-END> MAR-25-1998
<CASH> 4,061
<SECURITIES> 0
<RECEIVABLES> 98,296
<ALLOWANCES> 0
<INVENTORY> 105,751
<CURRENT-ASSETS> 212,413
<PP&E> 183,005
<DEPRECIATION> 0
<TOTAL-ASSETS> 442,882
<CURRENT-LIABILITIES> 103,147
<BONDS> 8,225
<COMMON> 297,966
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 442,882
<SALES> 118,246
<TOTAL-REVENUES> 118,246
<CGS> 75,615
<TOTAL-COSTS> 104,920
<OTHER-EXPENSES> 764
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 777
<INCOME-PRETAX> 11,785
<INCOME-TAX> 4,134
<INCOME-CONTINUING> 7,651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,651
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.39
</TABLE>
