<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 1999
[ ] 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.
- --------------------------------------------------------------------------------
(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
----- -----
19,299,534 shares of Registrant's Common Stock, par value $1 per share, were
outstanding as of the close of business on September 25, 1999.
<PAGE>
BUSH BOAKE ALLEN INC.
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I. FINANCIAL INFORMATION*
Item 1. Financial Statements 2
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
-------------------------------------------
*A summary of the Registrant's significant accounting policies is contained in
the Registrant's Form 10-K for the year ended December 25, 1998 which has
previously been filed with the Commission.
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 25, SEPTEMBER 25,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $122,148 $121,481 $370,741 $362,018
Costs and other charges:
Cost of goods sold 79,672 76,942 247,567 229,730
Selling and administrative expenses 23,756 22,498 72,222 69,441
Research and development expenses 6,585 6,296 18,867 18,916
-------- -------- -------- --------
Income from operations 12,135 15,745 32,085 43,931
-------- -------- -------- --------
Interest expense 547 784 1,634 2,414
Other (income) expense, net 833 2,305 3,285 4,208
-------- -------- -------- --------
Income before income taxes 10,755 12,656 27,166 37,309
-------- -------- -------- --------
Income taxes 3,984 4,560 10,128 12,841
-------- -------- -------- --------
Net Income $6,771 $8,096 $17,038 $24,468
====== ====== ======= =======
Net income per share:
- Basic $0.35 $0.42 $0.88 $1.27
===== ===== ===== =====
- Diluted $0.35 $0.42 $0.88 $1.26
===== ===== ===== =====
Weighted average number of
shares outstanding:
- Basic 19,297,469 19,282,439 19,293,875 19,277,555
========== ========== ========== ==========
- Diluted 19,388,582 19,401,027 19,396,729 19,399,881
========== ========== ========== ==========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
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<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 25, DECEMBER 25,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,635 $ 11,072
Receivables, net 95,505 93,109
Inventories 99,245 102,321
Other 11,558 10,225
-------- --------
Total current assets 209,943 216,727
Property, plant and equipment, net 195,888 190,929
Other assets 56,196 50,754
-------- --------
Total Assets $462,027 $458,410
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current maturities $11,179 $17,307
Accounts payable 40,676 42,617
Accrued liabilities 33,317 27,756
Income and other taxes 1,825 4,421
-------- --------
Total current liabilities 86,997 92,101
Long-term debt 8,615 10,354
Deferred income taxes 24,803 25,367
Other long-term liabilities 10,261 10,067
Stockholders' equity:
Common stock - (Shares outstanding:
1999: 19,299,534 and 1998: 19,284,817) 19,300 19,285
Additional paid-in capital 168,680 168,447
Retained earnings 160,812 143,774
Accumulated other comprehensive income (17,441) (10,985)
-------- --------
Total stockholders' equity 331,351 320,521
-------- --------
Total Liabilities and Stockholders' Equity $462,027 $458,410
======== ========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
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<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 25,
-------------
1999 1998
---- ----
<S> <C> <C>
Cash provided by (used for) operations:
Net income $ 17,038 $ 24,468
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization 14,834 13,284
Deferred income taxes (1,003) 1,899
Other 662 908
Changes in operational assets and liabilities:
Receivables, net (5,519) (12,248)
Inventories 713 (7,304)
Other assets (6,843) (5,349)
Accounts payable, taxes and other liabilities 1,978 6,147
------- -------
Cash provided by operations 21,860 21,805
------- -------
Cash provided by (used for) investment activities:
Capital expenditures (22,310) (25,869)
Payments for acquisitions 0 638
Other 208 (444)
------- -------
Cash used for investment activities (22,102) (25,675)
------- -------
Cash provided by (used for) financing activities:
Proceeds from issuance of common stock, net 248 395
Change in notes payable, net (6,692) (4,583)
Proceeds from issuance of long-term debt 0 8,467
Repayments of long-term debt (981) (878)
------- -------
Cash provided by (used for) financing activities (7,425) 3,401
------- -------
Effect of exchange rate changes on cash 230 1,005
------- -------
Increase (decrease) in cash and cash equivalents (7,437) 536
Balance at beginning of period 11,072 4,358
------- -------
Balance at end of period $ 3,635 $ 4,894
======== ========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
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<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 25, SEPTEMBER 25,
------------- ------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 6,771 $8,096 $17,038 $24,468
Other comprehensive income, net of tax:
Foreign currency translation adjustments 5,424 (452) (6,456) (962)
------- ------ ------- -------
Total other comprehensive income 5,424 (452) (6,456) (962)
------- ------ ------- -------
Comprehensive Income $12,195 $7,644 $10,582 $23,506
======= ====== ======= =======
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
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<PAGE>
BUSH BOAKE ALLEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The information furnished in this report is unaudited but includes all
adjustments which, in the opinion of management, are necessary for a
fair presentation of results for the interim periods reported. The
adjustments made were of a normal recurring nature. Results for the
interim periods are not necessarily indicative of results for the full
period or for any other interim period.
Note 2. Inventories
<TABLE>
<CAPTION>
September 25, 1999 December 25, 1998
------------------ -----------------
($ in thousands)
<S> <C> <C>
Finished goods $36,558 $39,012
Raw materials 51,359 45,160
Work in process 8,500 14,846
Supplies 2,828 3,303
-------- --------
Total $99,245 $102,321
======== ========
</TABLE>
Note 3. Stockholders' Equity (in thousands)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED OTHER TOTAL
---------------- PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNTS CAPITAL EARNINGS INCOME (LOSS) EQUITY
------ ------- ------- -------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance December 25, 1998 19,285 $19,285 $168,447 $143,774 $(10,985) $320,521
Net Income 17,038 17,038
Issuance of Stock for Options 15 15 233 248
Foreign Currency Translation (6,456) (6,456)
------ ------- -------- -------- -------- --------
Balance September 25, 1999 19,300 $19,300 $168,680 $160,812 $(17,441) $331,351
------ ------- -------- -------- -------- --------
------ ------- -------- -------- -------- --------
</TABLE>
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<PAGE>
Note 4. Other Comprehensive Income
The components of Other Comprehensive Income consist entirely of the Foreign
Currency Translation Adjustments as reported in the Consolidated Statement of
Comprehensive Income for the periods ending September 25, 1999 and 1998, and as
reported in the Consolidated Balance sheets as of September 25, 1999 and
December 25, 1998. Bush Boake Allen Inc. does not provide any Federal or State
deferred income taxes on the cumulative undistributed earnings of foreign
subsidiaries including cumulative translation adjustments with respect to such
foreign subsidiaries, because it is management's intention to permanently
reinvest the earnings of foreign subsidiaries within the business of those
companies.
Note 5. Segment Information
The following chart sets forth sales and operating profit for the principal
business segments of the Company for quarters ended September 25, 1999 and 1998
and for the nine months ended September 25, 1999 and 1998. There has not been a
material change in total assets from the amounts disclosed in the 1998 annual
report and the basis of segmentation and the measurement of segment operating
profit has been consistently applied.
<TABLE>
<CAPTION>
CORPORATE
FLAVOR & AROMA ITEMS AND
FRAGRANCE CHEMICALS UNALLOCATED CONSOLIDATED
--------- --------- ----------- ------------
QUARTER ENDED ($ IN THOUSANDS)
<S> <C> <C> <C> <C>
SEPTEMBER 25, 1999
- ------------------
Net sales to customers $99,540 $22,608 - $122,148
Intersegment sales - 5,304 $(5,304) -
-------- ------- -------- --------
Total net sales 99,540 27,912 (5,304) 122,148
Operating profit 12,807 2,894 (3,566) 12,135
SEPTEMBER 25, 1998
- ------------------
Net sales to customers $95,756 $25,725 - $121,481
Intersegment sales - 4,985 $(4,985) -
-------- ------- -------- --------
Total net sales 95,756 30,710 (4,985) 121,481
Operating profit 13,875 6,042 (4,172) 15,745
<CAPTION>
CORPORATE
FLAVOR & AROMA ITEMS AND
FRAGRANCE CHEMICALS UNALLOCATED CONSOLIDATED
--------- --------- ----------- ------------
NINE MONTHS ENDED ($ IN THOUSANDS)
<S> <C> <C> <C> <C>
SEPTEMBER 25, 1999
- ------------------
Net sales to customers $302,664 $68,077 - $370,741
Intersegment sales - 19,065 $(19,065) -
-------- ------- -------- --------
Total net sales 302,664 87,142 (19,065) 370,741
Operating profit 36,969 9,004 (13,888) 32,085
SEPTEMBER 25, 1998
- ------------------
Net sales to customers $288,535 $73,483 - $362,018
Intersegment sales - 15,386 $(15,386) -
-------- ------- -------- --------
Total net sales 288,535 88,869 (15,386) 362,018
Operating profit 40,022 16,932 (13,023) 43,931
</TABLE>
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<PAGE>
Reconciliation of reportable segment sales and income before taxes:
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 25,
-------------
1999 1998
----------------------------
($ in thousands)
<S> <C> <C>
NET SALES
---------
Total net sales for reportable segments $127,452 $126,466
Elimination of intersegment sales (5,304) (4,985)
----- -----
Total consolidated net sales $122,148 $121,481
-------- --------
INCOME BEFORE INCOME TAXES
--------------------------
Total operating profit for reportable segments $15,701 $19,917
Elimination of intersegment profits (321) (1,215)
Unallocated amounts:
Corporate administration expenses (3,245) (2,957)
Interest expense (547) (784)
Other income (expense) (833) (2,305)
--- -----
Total consolidated income before
income taxes $10,755 $12,656
------- -------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 25,
-------------
1999 1998
--------------------------------
($ in thousands)
<S> <C> <C>
NET SALES
---------
Total net sales for reportable segments $389,806 $377,404
Elimination of intersegment sales (19,065) (15,386)
-------- --------
Total consolidated net sales $370,741 $362,018
-------- --------
INCOME BEFORE INCOME TAXES
--------------------------
Total operating profit for reportable segments $45,973 $56,954
Elimination of intersegment profits (3,561) (3,041)
Unallocated amounts:
Corporate administration expenses (10,327) (9,982)
Interest expense (1,634) (2,414)
Other income (expense) (3,285) (4,208)
-------- -------
Total consolidated income before
income taxes $27,166 $37,309
-------- -------
</TABLE>
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 25, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 25, 1998
NET SALES
Net sales for the third quarter ended September 25, 1999 increased 0.6%
to $122.1 million from $121.5 million for the quarter ended September 25, 1998.
The aroma chemicals segment reported a decrease in sales of 12.1% compared with
the third quarter of 1998. This decrease reflects significant reductions in
selling prices due to a sharp decline in crude sulfate turpentine costs. The
flavor and fragrance segment recorded an increase in third quarter sales of 4.0%
over the third quarter of 1998. The Asia Pacific region, International region
and the Americas region sales increased 11.3%, 5.8% and 2.3%, respectively, from
the third quarter of 1998. The European region sales were basically level with
the third quarter of 1998. Net sales were adversely affected by the movement in
foreign currency exchange rates. If exchange rates had remained unchanged from
the third quarter 1998 to the third quarter 1999, the increase in total net
sales would have been approximately 5%.
COST OF GOODS SOLD
Cost of goods sold in the third quarter of 1999 increased to $79.7
million from $77.0 million in the third quarter of 1998 due primarily to
increased sales, changes in product mix and aroma chemical inventory lower of
cost or market adjustments. Cost of goods sold as a percentage of net sales
increased to 65.2% from 63.3%.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses in the third quarter of 1999
increased to $23.8 million from $22.5 million in the third quarter of 1998.
Selling and administrative expenses as a percentage of net sales increased to
19.4% from 18.5% reflecting additional resources directed to sales and marketing
in the flavor and fragrance segment.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses in the third quarter of 1999 increased
to $6.6 million from $6.3 million in the third quarter of 1998. Research and
development expenses as a percentage of net sales increased slightly to 5.4%
from 5.2%.
INCOME FROM OPERATIONS
Income from operations in the third quarter of 1999 decreased 22.9% to
$12.1 million from $15.7 million in the third quarter of 1998. Operating margins
declined to 9.9% from 13.0% in the third quarter of 1998 reflecting unfavorable
product mix in both business segments and price reductions on aroma chemicals
which averaged 11% across all products.
-9-
<PAGE>
Income from operations, exclusive of corporate items, for the flavor and
fragrance segment was $12.8 million compared to $13.9 million in the third
quarter of 1998. An increase in operating income was reported in the Asia
Pacific and International regions offset by decreases in the European and
Americas regions. The Company's aroma chemical segment recorded third quarter
operating income (exclusive of corporate items) of $2.9 million in 1999 compared
to $6.0 million in the third quarter of 1998. Adverse foreign currency exchange
rate movements accounted for a decrease in operating income of approximately 3%.
OTHER (INCOME) EXPENSE, NET
Other (income) expense for the third quarter of 1999 was $800,000
expense compared to $2.3 million expense in the third quarter of 1998 primarily
due to lower foreign exchange losses compared with the prior year. The sudden
devaluation of the Russian Ruble in the third quarter of 1998 resulted in the
Company registering a foreign exchange loss of approximately $1.6 million last
year.
INTEREST EXPENSE
Interest expense, net for the third quarter of 1999 decreased to
$500,000 from $800,000 in the third quarter of 1998 primarily due to lower
average borrowings.
INCOME TAXES
Income tax expense in the third quarter of 1999 decreased to $4.0
million from $4.6 million in the third quarter of 1998 as a result of lower
pre-tax income. The Company's effective tax rate in the third quarter of 1999
increased to 37.0% from 36.0% for the third quarter of 1998.
NINE MONTHS ENDED SEPTEMBER 25, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 25,
1998
NET SALES
Net sales for the nine months ended September 25, 1999 increased 2.4% to
$370.7 million from $362.0 million in the comparable prior year period. Net
sales of aroma chemicals decreased 7.4% to $68.1 million from $73.5 million
primarily due to significant reductions in selling prices due to a sharp decline
in crude sulfate turpentine costs. Net sales of the flavor and fragrance segment
increased to $302.7 million from $288.5 million. The Asia Pacific region and the
Americas region sales increased 12.6% and 7.6%, respectively from the nine
months ended September 25, 1998 partially offset by a 1.7% decrease in the
European region. Net sales were adversely affected by the movement in foreign
currency exchange rates. If exchange rates had remained unchanged from the first
nine months of 1998 to the first nine months of 1999, the increase in total net
sales would have been approximately 7%.
COST OF GOODS SOLD
Cost of goods sold for the nine months ended September 25, 1999
increased to $247.6 million from $229.7 million in the comparable prior year
period due primarily to increased sales, changes in product mix and aroma
chemical inventory lower of cost or market adjustments. Cost of goods sold as a
percentage of net sales increased to 66.8% from 63.5%.
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<PAGE>
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for the nine months ended September
25, 1999 increased to $72.2 million from $69.4 million in the comparable prior
year period. Selling and administrative expenses as a percentage of net sales
increased to 19.5% from 19.2%.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $18.9 million for the nine months
ended September 25, 1999 and for the nine months ended September 25, 1998.
Research and development expenses as a percentage of net sales decreased
slightly to 5.1% from 5.2%.
INCOME FROM OPERATIONS
Income from operations for the nine months ended September 25, 1999
decreased 27.0% to $32.1 million from $43.9 million in the comparable prior year
period. Operating margins declined to 8.7% from 12.1% in the prior year
reflecting unfavorable product mix in both business segments and price
reductions on aroma chemicals which averaged 11% across all products.
Income from operations, exclusive of corporate items, for the flavor and
fragrance segment decreased 7.6% to $37.0 million from $40.0 million in the
prior year first nine months. The decrease in operating income is primarily
attributable to the weak results in the European region. The Company's aroma
chemical segment recorded nine months operating income (exclusive of corporate
items) of $9.0 million in 1999, compared to $16.9 million in the comparable
prior year period. Adverse foreign currency exchange rate movements accounted
for a decrease in operating income of approximately 4%.
OTHER (INCOME) EXPENSE, NET
Other (income) expense for the nine months ended September 25, 1999 was
$3.3 million expense compared to $4.2 million expense for the nine months ended
September 25, 1998 primarily due to lower foreign exchange losses compared to
the prior year. The sudden devaluation of the Russian Ruble last year resulted
in the Company registering a foreign exchange loss of approximately $1.6 million
in the third quarter of 1998.
INTEREST EXPENSE
Interest expense, net for the nine months ended September 25, 1999
decreased to $1.6 million from $2.4 million in the comparable prior year period
primarily due to lower average borrowings.
INCOME TAXES
Income tax expense for the nine months ended September 25, 1999
decreased to $10.1 million from $12.8 million in the comparable prior year
period primarily as a result of lower pre-tax income. The Company's effective
tax rate increased to 37.3% from 34.4% in the comparable prior year period. The
first nine months of 1998 reflects a deferred tax benefit due to a reduction in
the UK statutory income tax rate which lowered the effective tax rate to 34.4%.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations for the nine months ended September
25, 1999 were $21.9 million compared to $21.8 million for the nine months ended
September 25, 1998. Lower net income cash flow in 1999 is offset by favorable
changes in operational assets and liabilities, primarily receivables and
inventories.
At September 25, 1999, working capital of the Company was $122.9
million, a $1.7 million decrease from $124.6 million at December 25, 1998. The
change in working capital reflects a decrease in total current assets and a
slightly lower decrease in total current liabilities, primarily reflecting the
utilization of cash to pay down notes payables.
As of September 25, 1999, the Company had cash and cash equivalents of
$3.6 million. The Company believes that its available cash, funds provided by
operations and available borrowing capacity under its credit facilities will be
sufficient to support its debt service, working capital and capital expenditure
requirements for the foreseeable future, including implementation of its
strategy to strengthen its position as a leading producer of flavors, fragrances
and aroma chemicals and for long-term growth.
ACCOUNTING MATTERS
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments. The
statement, which is effective for the first quarter of 2001, requires all
derivatives to be measured at fair value and recognized as either assets or
liabilities. Management does not expect adoption of this statement to have a
material effect on the Company's consolidated financial position or results of
operations.
EURO CONVERSION
On January 1, 1999 certain member nations of the European Economic and
Monetary Union (EMU) adopted a common currency, the "Euro". For a three-year
transition period, both the Euro and the members' national currencies will
remain in circulation. After June 30, 2002, the Euro will be the sole legal
tender for EMU countries. The Company does not expect that the adoption of the
Euro currency unit will have a material impact on its operations, financial
condition or liquidity. The costs of addressing the Euro conversion are not
expected to be material and will be charged to operations as incurred.
YEAR 2000
The Year 2000 issue is based on computer programs' use of two-digit
years primarily in sorts, calculations, or comparisons. Systems that have Year
2000 issues could result in erroneous results or system failures when processing
dates greater than 1999.
-12-
<PAGE>
In 1996, the Company began replacing its major business computer systems
with a set of standard, core business products, which the Company believes, are
or will be Year 2000 compliant. In order to address the remaining issues, the
Company began a formal Year 2000 project in April of 1998. The project team's
efforts target both the Company's internal systems, hardware and other equipment
and those systems interfacing with the Company from external, third party
sources. For our internal processes, the team divided all issues into four
categories of systems and equipment. They include:
Major Systems: Major business computer systems as well as major
manufacturing system installations or remediation.
Process and Facilities Systems: Embedded chip problems relating to
systems and equipment throughout our laboratories, manufacturing
operations, and sales offices.
Data Communications and Computer Servers: Equipment and software
involved with our computers and our worldwide data communications.
Personal Computers: Desktop and laptop personal computers and their
associated software.
Externally, the scope includes managing significant third-party relationships.
This includes reviewing major supplier relationships and determining their
compliance status and also communicating with customers concerning our Year 2000
project compliance status.
THE PROCESS
Our Year 2000 process includes five phases. AWARENESS involves educating
personnel about the problem. INVENTORY includes identifying all material items
that can be identified as potential Year 2000 concerns. ASSESSMENT involves
analyzing the inventory items to determine whether the items are compliant and
how to make them compliant. This analysis includes the use of vendor-supplied
information as well as internal testing, depending upon the Company's risk
assessment of the item, to determine compliancy. RENOVATION/VALIDATION includes
repairing or upgrading and testing the items. IMPLEMENTATION/CONTINGENCY
involves putting the upgraded and re-tested items into use and developing
contingency plans where appropriate.
CURRENT STATUS
INTERNAL PROCESSES: Our plan addressed identifying and correcting potential
problems in the four areas previously identified: Major System, Process and
Facilities Systems, Data Communications and Corporate Servers, and Personal
Computers. The plan has been completed in all substantive respects.
THIRD PARTY RELATIONSHIPS: We have contacted critical suppliers. Supplier
assessments are an on-going process to the extent that most suppliers have
stated their intention to be ready in or before the third quarter of 1999. We
are continuing our communications with those critical suppliers and will be
activating any contingency plans for those who in our assessment may not be
ready.
-13-
<PAGE>
DEFERRAL OF INFORMATION TECHNOLOGY PROJECTS
The Company's work on its Year 2000 project has not substantially impacted its
information technology plans. This is due primarily to decisions made in 1996 to
move the Company to a set of standardized core business systems products. This
plan (for which implementation is in-progress) compliments the Year 2000 project
goals.
RISKS AND CONTINGENCY PLANS
Based upon the assessment efforts to date, the Company does not currently
believe that the Year 2000 issue will have a material adverse impact on its
financial condition or its results of operations. Contingency plans have been
developed covering potential major issues including problems with critical
suppliers. These plans will continue to be updated based on responses from
critical suppliers concerning their ability to meet their Year 2000 target
dates. A team of personnel will be available to handle unforeseen issues that
may occur as we enter the new year.
While the Company currently expects no material adverse consequences on its
financial condition or results of operations due to Year 2000 issues, the Year
2000 problem is unique and the Company's beliefs and expectations are based on
certain assumptions and assessments that ultimately may prove to be inaccurate.
Possible risks include, but are not limited to: loss of communications between
our world-wide locations, loss of power to operate our facilities and support
the necessary infrastructure required for normal business functions, failure of
banking operations in the countries in which we operate, failure of suppliers to
be Y2K ready and the failure of external transportation and shipping functions
required to support our operations. The Company is continuing to review these
and other potential risks.
COSTS
The Company currently estimates the costs to modify or replace systems and
equipment that require remedial action to be approximately $3.3 million, all of
which is expected to be funded by operations. All modification costs will be
expensed as incurred. To date the total Year 2000 costs incurred approximates
$2.9 million, of which $2.5 million relates to capital equipment. The Company's
aggregate cost estimate does not include time and costs that may be incurred by
the Company as a result of the failure of any third parties, including
suppliers, to become Year 2000 ready or costs to implement any contingency
plans. This estimate does take into consideration the acceleration of projects
for new equipment and systems over the normal scheduled plans for such work. The
Company has addressed Year 2000 issues using primarily in-house personnel
supplemented with a small amount of contract programming and consulting. The
above costs do not include internal personnel costs.
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/or disruption to operations from Year 2000
issues, the effect of the transition to the Euro and political and economic
uncertainties including currency fluctuations in the many countries in which
we operate.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
See the Company's most recent Annual Report filed on Form 10-K (Item
7a). There has been no material change in this information.
-14-
<PAGE>
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 September
8, 1999.
At the annual meeting the Company's stockholders voted on two proposals:
(1) the election of seven nominees to serve as directors until the next
annual meeting of stockholders; and
(2) the ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants for the year 1999.
The voting of the Company's stockholders as to these matters was as
follows:
1. ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
NOMINEES VOTES FOR VOTES WITHHELD
-------- --------- --------------
<S> <C> <C>
Peter L. Acton 18,734,618 5,719
Julian W. Boyden 18,734,418 5,919
C. Cato Ealy 18,732,418 7,919
L. Robert Pfund 18,733,518 6,819
James M. Reed 18,731,718 8,619
C. Wesley Smith 18,732,218 8,119
William H. Trice 18,733,618 6,719
</TABLE>
2. RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
<S> <C> <C>
18,736,587 2,213 1,537
</TABLE>
-15-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
<TABLE>
<CAPTION>
No. Description
--- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
b) REPORTS ON FORM 8-K
No Current Report on Form 8-K was filed by the Registrant
during the third quarter of 1999.
-16-
<PAGE>
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: November 5, 1999 By: /s/ Fred W. Brown
------------------ --------------------------------
Fred W. Brown, Jr.
Vice President Finance and
Chief Financial Officer
Date: November 5, 1999 By: /s/ Dennis M. Meany
------------------ --------------------------------
Dennis M. Meany
Vice President, General Counsel
and Secretary
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-START> DEC-26-1998
<PERIOD-END> SEP-25-1999
<CASH> 3,635
<SECURITIES> 0
<RECEIVABLES> 95,505
<ALLOWANCES> 0
<INVENTORY> 99,245
<CURRENT-ASSETS> 209,943
<PP&E> 195,888
<DEPRECIATION> 0
<TOTAL-ASSETS> 462,027
<CURRENT-LIABILITIES> 86,997
<BONDS> 8,615
<COMMON> 331,351
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 462,027
<SALES> 370,741
<TOTAL-REVENUES> 370,741
<CGS> 247,567
<TOTAL-COSTS> 338,656
<OTHER-EXPENSES> 3,285
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,634
<INCOME-PRETAX> 27,166
<INCOME-TAX> 10,128
<INCOME-CONTINUING> 17,038
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,038
<EPS-BASIC> 0.88
<EPS-DILUTED> 0.88
</TABLE>
