<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 June 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)
<TABLE>
<S> <C>
Virginia 13-2560391
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
7 Mercedes Drive, Montvale, New Jersey 07645
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(201) 391-9870
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
</TABLE>
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
------ -------
19,294,534 shares of Registrant's Common Stock, par value $1 per share, were
outstanding as of the close of business on June 25, 1999.
<PAGE>
BUSH BOAKE ALLEN INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION*
Item 1. Financial Statements 2
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
-------------------------------------------
*A summary of the Registrant's significant accounting policies is contained in
the Registrant's Form 10-K for the year ended December 25, 1998 which has
previously been filed with the Commission.
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 25, JUNE 25,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $127,223 $122,291 $248,593 $240,537
Costs and other charges:
Cost of goods sold 85,535 77,173 167,895 152,788
Selling and administrative expenses 24,881 23,827 48,466 46,943
Research and development expenses 6,088 6,431 12,282 12,620
------- ------- -------- -------
Income from operations 10,719 14,860 19,950 28,186
------- ------- -------- -------
Interest expense 537 853 1,087 1,630
Other (income) expense, net 825 1,139 2,452 1,903
------- ------- -------- -------
Income before income taxes 9,357 12,868 16,411 24,653
------- ------- -------- -------
Income taxes 3,605 4,147 6,144 8,281
------- ------- -------- -------
Net Income $5,752 $8,721 $10,267 $16,372
====== ====== ======= =======
Net income per share:
- Basic $0.30 $0.45 $0.53 $0.85
===== ===== ===== =====
- Diluted $0.30 $0.45 $0.53 $0.84
===== ===== ===== =====
Weighted average number of
shares outstanding:
- Basic 19,293,712 19,280,800 19,292,059 19,275,086
========== ========== ========== ==========
- Diluted 19,394,324 19,391,618 19,411,163 19,400,044
========== ========== ========== ==========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
-2-
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
JUNE 25, DECEMBER 25,
1999 1998
<S> <C> <C>
ASSETS
Cash and cash equivalents $8,625 $11,072
Receivables, net 97,606 93,109
Inventories 100,224 102,321
Other 10,658 10,225
-------- --------
Total current assets 217,113 216,727
Property, plant and equipment, net 189,715 190,929
Other assets 55,532 50,754
-------- --------
Total Assets $462,360 $458,410
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current maturities $22,570 $17,307
Accounts payable 44,967 42,617
Accrued liabilities 29,804 27,756
Income and other taxes 602 4,421
-------- --------
Total current liabilities 97,943 92,101
Long-term debt 10,285 10,354
Deferred income taxes 24,770 25,367
Other long-term liabilities 10,285 10,067
Stockholders' equity:
Common stock - (Shares outstanding:
1999: 19,294,534 and 1998: 19,284,817) 19,295 19,285
Additional paid-in capital 168,606 168,447
Retained earnings 154,041 143,774
Accumulated other comprehensive income (22,865) (10,985)
-------- --------
Total stockholders' equity 319,077 320,521
-------- --------
Total Liabilities and Stockholders' Equity $462,360 $458,410
======== ========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
-3-
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 25,
------------------------------
1999 1998
---- -----
<S> <C> <C>
Cash provided by (used for) operations:
Net income $10,267 $16,372
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization 9,890 8,900
Deferred income taxes 81 1,047
Other 618 1,388
Changes in operational assets and liabilities:
Receivables, net (8,635) (8,445)
Inventories (1,456) (5,114)
Other assets (6,687) (3,892)
Accounts payable, taxes and other liabilities 2,208 2,326
------- -------
Cash provided by operations 6,286 12,582
------- -------
Cash provided by (used for) investment activities:
Capital expenditures (14,729) (18,541)
Payments for acquisitions 0 (372)
Other 215 266
------- -------
Cash used for investment activities (14,514) (18,647)
------- -------
Cash provided by (used for) financing activities:
Proceeds from issuance of common stock, net 169 352
Change in notes payable, net 7,128 137
Proceeds from issuance of long-term debt 0 6,825
Repayments of long-term debt (659) 0
------- -------
Cash provided by financing activities 6,638 7,314
------- -------
Effect of exchange rate changes on cash (857) (713)
------- -------
Increase (decrease) in cash and cash equivalents (2,447) 536
Balance at beginning of period 11,072 4,358
------- -------
Balance at end of period $8,625 $4,894
======= =======
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
-4-
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 25, JUNE 25,
-------- -------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 5,752 $ 8,721 $ 10,267 $16,372
Other comprehensive income, net of tax:
Foreign currency translation adjustments (4,956) (2,057) (11,880) (510)
------- ------- -------- -------
Total other comprehensive income (4,956) (2,057) (11,880) (510)
------- ------- -------- -------
Comprehensive Income $796 $ 6,664 ($1,613) $15,862
======= ======= ======= =======
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
-5-
<PAGE>
BUSH BOAKE ALLEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The information furnished in this report is unaudited but includes all
adjustments which, in the opinion of management, are necessary for a
fair presentation of results for the interim periods reported. The
adjustments made were of a normal recurring nature. Results for the
interim periods are not necessarily indicative of results for the full
period or for any other interim period.
Note 2. Inventories
<TABLE>
<CAPTION>
June 25, 1999 December 25, 1998
------------- -----------------
($ in thousands)
<S> <C> <C>
Finished goods $36,728 $39,012
Raw materials 51,859 45,160
Work in process 8,750 14,846
Supplies 2,887 3,303
-------- --------
Total $100,224 $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 10,267 10,267
Issuance of Stock for Options 10 10 159 169
Foreign Currency Translation (11,880) (11,880)
------ ------- -------- -------- -------- --------
Balance June 25, 1999 19,295 $19,295 $168,606 $154,041 $(22,865) $319,077
====== ======= ======== ======== ======== ========
</TABLE>
-6-
<PAGE>
Note 4. Other Comprehensive Income
The components of Other Comprehensive Income consist entirely of the Foreign
Currency Translation Adjustments as reported in the Consolidated Statement of
Comprehensive Income for the periods ending June 25, 1999 and 1998, and as
reported in the Consolidated Balance sheets as of June 25, 1999 and December 25,
1998. Bush Boake Allen Inc. does not provide any Federal or State deferred
income taxes on the cumulative undistributed earnings of foreign subsidiaries
including cumulative translation adjustments with respect to such foreign
subsidiaries, because it is management's intention to permanently reinvest the
earnings of foreign subsidiaries within the business of those companies.
Note 5. Segment Information
The following chart sets forth sales and operating profit for the principal
business segments of the Company for quarters ended June 25, 1999 and 1998 and
for the six months ended June 25, 1999 and 1998. There has not been a material
change in total assets from the amounts disclosed in the 1998 annual report and
the basis of segmentation and the measurement of segment operating profit has
been consistently applied.
<TABLE>
<CAPTION>
CORPORATE
FLAVOR & AROMA ITEMS AND
FRAGRANCE CHEMICALS UNALLOCATED CONSOLIDATED
--------- --------- ----------- ------------
QUARTER ENDED ($ IN THOUSANDS)
<S> <C> <C> <C> <C>
JUNE 25, 1999
- --------------
Net sales to customers $105,372 $21,851 - $127,223
Intersegment sales - 7,226 $(7,226) -
-------- ------- -------- --------
Total net sales 105,372 29,077 (7,226) 127,223
Operating profit 13,386 2,546 (5,213) 10,719
JUNE 25, 1998
- -------------
Net sales to customers $98,627 $23,664 - $122,291
Intersegment sales - 5,476 $(5,476) -
-------- ------- -------- --------
Total net sales 98,627 29,140 (5,476) 122,291
Operating profit 13,983 4,846 (3,969) 14,860
</TABLE>
<TABLE>
<CAPTION>
CORPORATE
FLAVOR & AROMA ITEMS AND
FRAGRANCE CHEMICALS UNALLOCATED CONSOLIDATED
--------- --------- ----------- ------------
SIX MONTHS ENDED ($ IN THOUSANDS)
<S> <C> <C> <C> <C>
JUNE 25, 1999
- -------------
Net sales to customers $203,124 $45,469 - $248,593
Intersegment sales - 13,761 $(13,761) -
-------- ------- -------- --------
Total net sales 203,124 59,230 (13,761) 248,593
Operating profit 24,162 6,110 (10,322) 19,950
JUNE 25, 1998
- -------------
Net sales to customers $192,779 $47,758 - $240,537
Intersegment sales - 10,401 $(10,401) -
-------- ------- -------- --------
Total net sales 192,779 58,159 (10,401) 240,537
Operating profit 26,147 10,890 (8,851) 28,186
</TABLE>
-7-
<PAGE>
Reconciliation of reportable segment sales and income before taxes:
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 25,
--------
1999 1998
----------------------------
($ IN THOUSANDS)
<S> <C> <C>
NET SALES
---------
Total net sales for reportable segments $134,449 $127,767
Elimination of intersegment sales (7,226) (5,476)
-------- --------
Total consolidated net sales $127,223 $122,291
-------- --------
INCOME BEFORE INCOME TAXES
--------------------------
Total operating profit for reportable segments $15,932 $18,829
Elimination of intersegment profits (1,646) (445)
Unallocated amounts:
Corporate administration expenses (3,567) (3,524)
Interest expense (537) (853)
Other income (expense) (825) (1,139)
-------- --------
Total consolidated income before
income taxes $9,357 $12,868
-------- --------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 25,
--------
1999 1998
----------------------------
($ IN THOUSANDS)
<S> <C> <C>
NET SALES
---------
Total net sales for reportable segments $262,354 $250,938
Elimination of intersegment sales (13,761) (10,401)
-------- --------
Total consolidated net sales $248,593 $240,537
-------- --------
INCOME BEFORE INCOME TAXES
--------------------------
Total operating profit for reportable segments $30,272 $37,037
Elimination of intersegment profits (3,240) (1,826)
Unallocated amounts:
Corporate administration expenses (7,082) (7,025)
Interest expense (1,087) (1,630)
Other income (expense) (2,452) (1,903)
-------- --------
Total consolidated income before
income taxes $16,411 $24,653
-------- --------
</TABLE>
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED JUNE 25, 1999 COMPARED TO QUARTER ENDED JUNE 25, 1998
NET SALES
Net sales for the second quarter ended June 25, 1999 increased 4.0% to
$127.2 million from $122.3 million for the quarter ended June 25, 1998. The
aroma chemicals segment reported a decrease in sales of 7.7% compared with the
second 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 growth in second quarter sales of 6.8% over the
second quarter of 1998. The Asia Pacific region and the Americas region sales
increased 21.4% and 15.2%, respectively, from the second quarter of 1998 offset
by a 7.9% decrease in the European region. Growth in sales resulted from a
combination of new products and increased volume with existing customers. Net
sales were adversely affected by the movement in foreign currency exchange
rates. If exchange rates had remained unchanged from the second quarter 1998 to
the second quarter 1999, the increase in total net sales would have been
approximately 10%.
COST OF GOODS SOLD
Cost of goods sold in the second quarter of 1999 increased to $85.5 million
from $77.2 million in the second quarter of 1998 due primarily to increased
sales and aroma chemical inventory lower of cost or market adjustments. Cost of
goods sold as a percentage of net sales increased to 67.2% from 63.1%.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses in the second quarter of 1999 increased
to $24.9 million from $23.8 million in the second quarter of 1998. Selling and
administrative expenses as a percentage of net sales increased slightly to 19.6%
from 19.5%.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses in the second quarter of 1999 decreased
to $6.1 million from $6.4 million in the second quarter of 1998 reflecting the
discontinuation of R&D services previously provided by Union Camp Corporation.
Research and development expenses as a percentage of net sales decreased to 4.8%
from 5.3%.
INCOME FROM OPERATIONS
Income from operations in the second quarter of 1999 decreased 27.9% to
$10.7 million from $14.9 million in the second quarter of 1998. Operating
margins declined to 8.4% from 12.2% in the second quarter of 1998 reflecting
unfavorable product mix in both business segments and price reductions on aroma
chemicals which averaged 15% across all major products.
-9-
<PAGE>
Income from operations, exclusive of corporate items, for the flavor and
fragrance segment was $13.4 million compared to $14.0 million in the second
quarter of 1998. An increase in operating income was reported in the Asia
Pacific and Americas regions offset by decreases in the European region. The
Company's aroma chemical segment recorded second quarter operating income
(exclusive of corporate items) of $2.5 million in 1999, compared to $4.8 million
in the second quarter of 1998. Adverse foreign currency exchange rate movements
accounted for a decrease in operating income of approximately 5%.
OTHER (INCOME) EXPENSE, NET
Other (income) expense for the second quarter of 1999 was $800,000 expense
compared to $1.1 million expense in the second quarter of 1998 primarily due to
lower foreign exchange losses compared with the prior year.
INTEREST EXPENSE
Interest expense, net for the second quarter of 1999 decreased to $500,000
from $900,000 in the second quarter of 1998 primarily due to lower average
borrowings.
INCOME TAXES
Income tax expense in the second quarter of 1999 decreased to $3.6 million
from $4.1 million in the second quarter of 1998 as a result of lower pre-tax
earnings. The Company's effective tax rate in the second quarter of 1999
increased to 38.5% from 32.2% for the second quarter of 1998 which included a
deferred tax rate benefit due to the reduction in the UK statutory income tax
rate.
SIX MONTHS ENDED JUNE 25, 1999 COMPARED TO SIX MONTHS ENDED JUNE 25, 1998
NET SALES
Net sales for the six months ended June 25, 1999 increased 3.3% to $248.6
million from $240.5 million in the comparable prior period. Net sales of aroma
chemicals decreased 4.8% to $45.5 million from $47.8 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
$203.1 million from $192.8 million. The Asia Pacific region and the Americas
region sales increased 13.2% and 10.4%, respectively from the six months ended
June 25, 1998 offset by a 2.4% 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 half of 1998 to the first
half of 1999, the increase in total net sales would have been approximately 8%.
COST OF GOODS SOLD
Cost of goods sold for the six months ended June 25, 1999 increased to
$167.9 million from $152.8 million in the comparable prior year period due
primarily to increased sales and aroma chemical inventory lower of cost or
market adjustments. Cost of goods sold as a percentage of net sales increased to
67.5% from 63.5%.
-10-
<PAGE>
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for the six months ended June 25, 1999
increased to $48.5 million from $46.9 million in the comparable prior year
period. Selling and administrative expenses as a percentage of net sales was
19.5% for both periods.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the six months ended June 25, 1999
decreased to $12.3 million from $12.6 million in the comparable prior year
period reflecting the discontinuation of R&D services previously provided by
Union Camp Corporation. Research and development expenses as a percentage of net
sales decreased to 5.0% from 5.2%.
INCOME FROM OPERATIONS
Income from operations for the six months ended June 25, 1999 decreased
29.2% to $20.0 million from $28.2 million in the comparable prior year period.
Operating margins declined to 8.0% from 11.7% in the prior year reflecting
unfavorable product mix in both business segments and price reductions on aroma
chemicals which averaged 14% across all major products.
Income from operations, exclusive of corporate items, for the flavor and
fragrance segment decreased 7.6% to $24.2 million from $26.1 million in the
prior year first half. The decrease in operating income is primarily
attributable to the weak results in the European region. The Company's aroma
chemical segment recorded first half operating income (exclusive of corporate
items) of $6.1 million in 1999, compared to $10.9 million in the first half of
1998. Adverse foreign currency exchange rate movements accounted for a decrease
in operating income of approximately 5%.
OTHER (INCOME) EXPENSE, NET
Other (income) expense for the six months ended June 25, 1999 was $2.5
million expense compared to $1.9 million expense for the six months ended June
25, 1998 primarily due to a greater loss on asset disposal and higher rental
expense on UK property compared to the prior year.
INTEREST EXPENSE
Interest expense, net for the six months ended June 25, 1999 decreased to
$1.1 million from $1.6 million in the comparable prior year period primarily due
to lower average borrowings.
INCOME TAXES
Income tax expense for the six months ended June 25, 1999 decreased to $6.1
million from $8.3 million in the comparable prior year period as a result of
lower pre-tax earnings. The first half of 1998 reflects a deferred tax benefit
due to a reduction in the UK statutory income tax rate. The tax benefit recorded
in the first half of 1998 lowered the effective tax rate to 33.6% as compared to
37.4% in the first half of 1999.
-11-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations for the six months ended June 25, 1999
were $6.3 million compared to $12.6 million for the six months ended June 25,
1998. The decrease is primarily due to lower net income.
At June 25, 1999, working capital of the Company was $119.2 million, a $5.4
million decrease from $124.6 million at December 25, 1998. The change in working
capital is primarily due to the increase in total current liabilities, mainly
from an increase in notes payable and current maturities.
As of June 25, 1999, the Company had cash and cash equivalents of $8.6
million. The Company currently 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
The Company believes it is substantially Year 2000 ready with the planned
exception of one, local system. This remaining system is on track for its
scheduled mid-August implementation.
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. To the best of our knowledge, we are now ready to continue to
transact business as usual without significant interruption due to dates greater
than 1999 with the exception of our one remaining system to be completed in
August.
THIRD PARTY RELATIONSHIPS: We have contacted our 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 suppliers whose target dates have
passed to review their readiness 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 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 at each
location covering potential issues including problems with critical suppliers.
These plans will continue to be updated based on responses from 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, 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 $3.5 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
$2.4 million, of which $2.1 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 so far 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 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
No. Description
--- -----------
27 Financial Data Schedule
b) REPORTS ON FORM 8-K
A current Report on Form 8-K was filed by the Company on May
12, 1999 reporting changes in its Board of Directors related
to the transfer of Union Camp Corporation's majority interest
in the Company to International Paper Company by merger
completed on April 30, 1999.
-15-
<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: August 6, 1999 By: Fred W. Brown, Jr.
------------------------------ ------------------------------------
Fred W. Brown, Jr.
Vice President Finance and
Chief Financial Officer
Date: August 6, 1999 By: Dennis M. Meany
------------------------------ ------------------------------------
Dennis M. Meany
Vice President, General Counsel
and Secretary
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-START> DEC-26-1998
<PERIOD-END> JUN-25-1999
<CASH> 8,625
<SECURITIES> 0
<RECEIVABLES> 97,606
<ALLOWANCES> 0
<INVENTORY> 100,224
<CURRENT-ASSETS> 217,113
<PP&E> 189,715
<DEPRECIATION> 0
<TOTAL-ASSETS> 462,360
<CURRENT-LIABILITIES> 97,943
<BONDS> 10,285
<COMMON> 319,077
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 462,360
<SALES> 248,593
<TOTAL-REVENUES> 248,593
<CGS> 167,895
<TOTAL-COSTS> 228,643
<OTHER-EXPENSES> 2,452
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,087
<INCOME-PRETAX> 16,411
<INCOME-TAX> 6,144
<INCOME-CONTINUING> 10,267
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,267
<EPS-BASIC> 0.53
<EPS-DILUTED> 0.53
</TABLE>
