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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
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(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, 1998
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OR
[ ] 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
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BUSH BOAKE ALLEN INC.
(Exact name of registrant as specified in its charter)
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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)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 201-391-9870
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Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange on
Title of Each Class Which Registered
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COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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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 March 1, 1999, 19,292,817 shares of Registrant's Common Stock, $1
par value, were outstanding. On March 1, 1999, the closing price per share for
the Common Stock listed on the New York Stock Exchange was $31.875 and the
aggregate market value of the Common Stock held by non-affiliates of the
Registrant was $195,642,917.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Stockholders for the fiscal
year ended December 25, 1998 (the "Bush Boake Allen 1998 Annual Report") are
incorporated by reference in Parts I, II and IV 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.
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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.
On November 24, 1998, International Paper Company ("International
Paper") and Union Camp announced an agreement to merge through the exchange of
Union Camp stock for International Paper stock. The proposed merger is subject
to approval by International Paper and Union Camp shareholders and is expected
to close early in the second calendar quarter of 1999. If and when completed,
International Paper would become the majority shareholder of the Company.
BBA's business is organized into two operating segments: (i) flavor
(including compound flavors, essential oils, seasonings and spice extracts) and
fragrance and (ii) aroma chemicals. In 1998, 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 products including soaps, detergents, air fresheners, cleaners, cosmetics and
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
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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 agrochemical 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 area); Europe (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 enhances 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,
1998, 1997 and 1996 appear in Note 11 of Notes to Consolidated Financial
Statements on pages 36 to 37 of the Bush Boake Allen 1998 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,
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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 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 primarily sold to the
food, beverage and pharmaceutical industries. They include (i) natural and
synthetic flavoring substances, (ii) process flavors, (iii) enzyme modified
dairy products and (iv) carriers. Flavors may be either sweet or savory. Sweet
flavors include the full range of fruit flavors as well as other flavors such as
vanilla, coffee, chocolate and cola. The Company's sweet flavors are used in
consumer products, including beverages, candies, baked goods, desserts and dairy
applications. Savory flavors include meat, cheese and fish flavors. The
Company's savory flavors are used in snack products, soups, prepared meals and
other processed foods. In addition to sweet and savory flavors, the Company
produces flavors for specific applications, principally in the tea, oral hygiene
and pharmaceutical industries. In 1996, 1997 and 1998, sales of flavor compounds
accounted for approximately 37%, 36% and 35%, respectively, of the Company's
total net sales.
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The Company produces natural products which are sold primarily to the
food industry and consist of essential oils, natural extracts, spices, herbs 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 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 and
herbs are plant products which, due to their high content of essential oils, are
highly aromatic. Seasonings are a blend of spices, herbs, flavors, essential
oils and a carrier such as salt or flour. In each of 1996, 1997 and 1998, sales
of natural products accounted for approximately 21%, 21% and 22%, respectively,
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,
soaps and detergents 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 1996, 1997 and
1998, sales of fragrances (excluding the resale of aroma chemicals purchased
from BBA's Aroma Chemical Division) accounted for approximately 17%, 18% and
19%, 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,
BOISVELONE'TM', ANANDOL'TM' and ABBALIDE'TM'. 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 agrochemical
manufacturers for use as an intermediate in certain fungicides. In each of 1996,
1997 and 1998, sales of aroma chemicals (including the resale of aroma chemicals
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by BBA's Fragrance business) accounted for approximately 25%, 25% and 24%,
respectively, of the Company's total net sales.
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
1998, the Company's ten largest external aroma chemical customers accounted for
approximately 52% 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 1998, the Company's ten largest customers accounted for an
aggregate of approximately 25% of its total net sales, its three largest
customers and their affiliates accounted for approximately 6%, 4% and 3%
respectively, of its total net sales, and no other single customer accounted for
more than approximately 3% 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 43 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 Montvale. The Company
also has extensive analytical capabilities at its London and Montvale facilities
which aid in the isolation and identification of flavor and fragrance
ingredients.
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Research and development for the Company's aroma chemicals business is
conducted principally in advanced technical centers in Widnes, United Kingdom
and Jacksonville, Florida.
The Company spent a total of approximately $25.2 million, $23.6 million
and $22.5 million in 1998, 1997 and 1996, respectively, on research and
development activities. The Company expects these expenditures in 1999 to be
approximately $26 million.
MANUFACTURING AND DISTRIBUTION
The major manufacturing and compounding facilities of the Company are
located in Argentina, Australia, Canada, China, India, Mexico, New Zealand,
Philippines, Singapore, South Africa, Sweden, Thailand, Turkey, 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 1997 and 1998, an
annual amount of approximately 7,000 and 6,300 tons, respectively, of terpene-
and petroleum-based aroma chemicals 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 10
million gallons per year of turpentine through high-efficiency distillation
columns. Beta pinene, one of the distillation products, is further processed to
produce a broad range of aroma chemicals including geraniol, citral,
citronellol, and ionones. The Jacksonville facility also supplies 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 51 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 56 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% and 5%, respectively, of the Company's raw
material requirements in 1997 and 1998. 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 and its principal methods of competition are
based primarily 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, 1998, the Company had 1,977 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 $2.5 million in 1998. The Company
estimates capital expenditures relating to environmental projects will be
approximately $3 million in 1999.
FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K (including information from
the Bush Boake Allen 1998 Annual Report incorporated herein by reference) which
are not historical are forward-looking statements that are subject to risks and
uncertainties which could cause actual results to differ materially. Such risks
and uncertainties with respect to the Company's business include general
economic conditions, customers changing flavor and/or fragrance formulations,
pricing, availability and capacity of both materials which are purchased and
products which are sold, potential disruption to operations from Year 2000
issues, the effect of the transition to the Euro and political and economic
uncertainties, currency fluctuations, devaluations and/or revaluations in the
many countries in which the Company operates. The Company assumes no duty to
update any such forward-looking information.
ITEM 2. PROPERTIES
The following table sets forth the locations of the Company's principal
properties, all of which are owned, unless otherwise indicated:
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LOCATION NATURE OF PROPERTY
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Atlacomulco, Mexico Manufacturing (Flavors and seasonings)
Auckland, New Zealand Manufacturing (Flavors and seasonings)
Bangkok, Thailand (1) Manufacturing (Seasonings)
Buenos Aires, Argentina Manufacturing (Flavors and fragrances)
Carrollton, Texas (1) Manufacturing (Seasonings)
Chicago, Illinois Manufacturing (Flavors)
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Guangzhou, Peoples Republic of China Manufacturing (Flavors and fragrances)
Istanbul, Turkey Manufacturing (Flavors and seasonings)
Jacksonville, Florida Manufacturing (Terpene derivatives and aroma chemicals)
Johannesburg, South Africa Manufacturing (Flavors, fragrances and seasonings)
Jurong, Singapore(2) Manufacturing (Flavors and fragrances)
Knislinge, Sweden Manufacturing (Seasonings)
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, spices, essential oils and
seasonings)
Montvale, New Jersey(1) Corporate administrative headquarters and technical center
Norwood, New Jersey(1) Manufacturing (Fragrances)
Sydney, Australia(1) Manufacturing (Flavors)
Widnes, United Kingdom Manufacturing (Aroma chemicals)
Witham, United Kingdom Manufacturing (Flavors)
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(1) Leased.
(2) Land is leased and buildings are owned.
(3) The Company has approximately a 75% 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.
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.
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1997 1998
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High Low High Low
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1st Quarter $27.625 $24.25 $33.875 $25.4375
2nd Quarter 30.375 25.00 33.00 28.00
3rd Quarter 34.25 28.50 33.6875 26.25
4th Quarter 35.6875 26.00 34.125 25.00
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The approximate number of stockholders of record at December 25, 1998 was 230.
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.
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 1998 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 18 to 24 of
the Bush Boake Allen 1998 Annual Report and is incorporated by reference in this
Item 7.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information in response to the disclosure requirements specified by
this Item 7a appears on page 21 of the Bush Boake Allen 1998 Annual Report and
is incorporated by reference in this Item 7a.
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 1998 Annual Report
and is incorporated by reference in this Item 8.
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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
Set forth below are the names, ages and positions of the directors and
executive officers of the Company as of March 1, 1999.
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NAME AGE POSITION
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Peter L. Acton.........................52 Director
Julian W. Boyden.......................54 Chairman of the Board, President
and Chief Executive Officer
Fred W. Brown..........................52 Vice President, Finance and Chief Financial Officer
Chia Siang Ee..........................50 Vice President, Asia Pacific Region
Thomas R. Crane, Jr....................58 Director
James H. Dunsdon.......................52 Executive Vice President
Bruce J. Edwards.......................52 Vice President, International Region
Johannes Kleppers......................42 Vice President, Europe Region
Ronald A. Landis.......................51 Vice President, Human Resources & Safety
P. C. Mathew...........................48 Vice President, Aroma and Terpene Chemicals
Kenneth M. McHugh......................47 Controller
Dennis M. Meany........................51 Vice President, General Counsel and Secretary
L. Robert Pfund........................62 Director
James M. Reed..........................66 Director
George J. Sella, Jr....................70 Director
Peter A. Thorburn......................56 Vice President, Global Chemical Sales and Marketing
William H. Trice.......................65 Director
Charles D. Weller......................51 Treasurer
John R. Wright.........................52 Vice President, Commerce and Technology
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Set forth below is a description of the backgrounds of the directors
and executive officers of the Company. As used in such description, the term
"Company" means BBA or one or more of BBA's predecessors.
Peter L. Acton has been a Director of the Company since November 1994.
He is Vice President and General Manager of the Chemical Products Division of
Union Camp. Prior to December 1995, Mr. Acton was General Manager of the
Chemical Products Division of Union Camp.
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Julian W. Boyden has been a Director, President and Chief Executive
Officer of the Company since February 1994 and was appointed to the additional
position of Chairman of the Board of the Company effective January 1, 1997.
Prior to February 1994, Mr. Boyden was a Vice President of Union Camp since
January 1991 and the General Manager of the Company since January 1989. Mr.
Boyden 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.
Chia Siang Ee has been Vice President, Asia Pacific Region since May
1998. Prior to that he was a Senior Vice President of Albright & Wilson Asia
Pacific Pte Ltd. with various sales and general management responsibilities
since 1987. Mr. Chia was associated with Albright & Wilson from 1974 until 1998.
Thomas R. Crane, Jr. has been a Director of the Company since June 1994
and is Chairman of the Audit Committee and a member of the Compensation
Committee. From January 1, 1987 until January 31, 1998, Mr. Crane was a
Director, President and Chief Executive Officer of Castrol North America
Holdings Inc. (a manufacturer and marketer of motor oil and other lubricants)
and also a Director of various affiliates of Castrol North America.
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.
-12-
<PAGE>
<PAGE>
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
Counsel and Assistant Secretary of Union Camp Corporation. He has been
associated with the Company or Union Camp since 1977.
L. Robert Pfund has been a Director of the Company since July 1995 and
is a member of the Audit Committee and the Compensation Committee. Mr. Pfund
retired in 1993 from the position of Corporate Group Vice President of Avon
Products, Inc. (a manufacturer and marketer of fragrances and cosmetics), which
position he held since 1990. Mr. Pfund is also a Director of Techart, Inc. and a
Trustee on the Board of The Valley Hospital in Ridgewood, New Jersey.
James M. Reed has been a Director and Vice Chairman of the Board of the
Company since February 1994. He was the Vice Chairman of the Board and the Chief
Financial Officer of Union Camp from April 1993 until June 1997 and Vice
Chairman and Chief Administrative Officer from June 1997 until his retirement
from active employment with Union Camp in November 1997. Mr. Reed is also a
Director of Martin Marietta Materials, Inc.
George J. Sella, Jr. has been a Director of the Company since February
1994 and is Chairman of the Compensation Committee and a member of the Audit
Committee. Mr. Sella retired in March 1993 from the positions of Chairman of the
Board and Chief Executive Officer of American Cyanamid Company (a research-based
biotechnology company), which positions he held since January 1991. Mr. Sella is
a Director of The Equitable Life Assurance Society of the United States, The
Equitable Companies Incorporated, Coulter Pharmaceutical and Union Camp.
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. Mr. Thorburn has been associated with the
Company since 1981.
William H. Trice has been a Director of the Company since February 1994
and was Chairman of the Board of Directors of the Company from that time until
December 31, 1996. Mr. Trice was Executive Vice President of Union Camp from
1985 until his retirement from active employment on December 31, 1996.
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<PAGE>
<PAGE>
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. Mr. Wright has been
associated with the Company since 1973.
Each director's term will continue until the next Annual Meeting of
Stockholders and each officer's term will continue until the annual meeting of
the Board following the next Annual Meeting of Stockholders, in both cases
subject to resignation or other earlier termination.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission. The Company believes that all Section 16(a) filing requirements
applicable to the Company's directors and executive officers were complied with
in respect to transactions during fiscal 1998.
ITEM 11. EXECUTIVE COMPENSATION
The following table shows information with respect to the annual and
long-term compensation for services in all capacities to the Company and its
subsidiaries during the Company's fiscal years which ended December 25, 1996,
1997 and 1998, paid or accrued to the chief executive officer and the other four
most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------------- ----------------
ALL OTHER
OTHER ANNUAL AWARDS COMPEN-
COMPENSATION OPTIONS/SARS SATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) (# OF SHARES)(2) ($)(3)
- --------------------------- ---- --------- -------- ---- ---------------- -------
<S> <C> <C> <C> <C> <C> <C>
Julian W. Boyden . . . . . . . 1998 435,000 285,900 0 35,910 17,507
Chairman, President and 1997 410,000 255,400 0 25,740 21,897
Chief Executive Officer 1996 380,000 205,399 0 0 20,550
James H. Dunsdon . . . . . . 1998 259,200 103,100 0 17,880 7,887
Executive Vice President 1997 240,000 120,800 0 12,090 3,600
1996(1) 185,554 57,971 0 0 1,749
</TABLE>
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<PAGE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
P. C. Mathew . . . . . . . . . . 1998 236,580 83,500 0 10,070 9,053
Vice President, Aroma 1997 227,700 94,000 0 7,310 11,254
And Terpene Chemicals 1996 220,000 88,901 64,004 0 9,900
Peter A. Thorburn . . . . . . . 1998 224,900 78,100 0 8,150 9,198
Vice President, 1997 217,300 94,000 0 6,570 11,892
Chemical Sales 1996 211,000 84,033 0 0 11,472
Fred W. Brown, Jr. . . . . . 1998 198,500 90,000 0 8,150 6,984
Vice President and Chief 1997 187,300 83,000 0 6,570 9,145
Financial Officer 1996 175,000 68,892 0 0 8,682
</TABLE>
- -----------
(1) Compensation was converted into U.S. dollars from pounds sterling at a rate
of U.S. $1.56/'L'.
(2) 1994 option awards constituted a grant for the years 1994, 1995 and 1996.
(3) The compensation reported represents (i) Company contributions under the
Union Camp Salaried Employees Savings and Investment Plan in 1995 and
through June 30, 1997 and, thereafter, under its replacement, the Bush
Boake Allen Inc. Employees Savings and Investment Plan and (ii) amounts
imputed or credited to the named executive officer for premiums paid for
group life insurance. The Company contributions during 1998 pursuant to the
Employee Savings and Investment Plans were as follows: $13,610 for Mr.
Boyden, $7,887 for Mr. Dunsdon, $7,776 for Mr. Mathew, $6,778 for Mr.
Thorburn and $5,969 for Mr. Brown. The amounts imputed or credited for life
insurance premiums were as follows: $3,897 to Mr. Boyden, $1,277 to Mr.
Mathew, $2,410 to Mr. Thorburn and $1,015 to Mr. Brown.
OPTION/SAR GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL POTENTIAL REALIZABLE VALUE AT
UNDERLYING OPTIONS/SARs ASSUMED ANNUAL RATES OF STOCK
OPTIONS/ GRANTED TO EXERCISE(2) PRICE APPRECIATION FOR OPTION TERM(3)
SARs EMPLOYEES OR BASE EXPIRATION --------------------------------------
NAME GRANTED(1) IN 1998 PRICE($/Sh) DATE 5%(4) 10%(5)
---- ---------- ------- ------ ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
Julian W. Boyden ....... 35,910 14.3 28.72 5/5/08 $648,535 $1,643,601
James H. Dunsdon ...... 17,880 7.1 28.72 5/5/08 322,913 818,368
P. C. Mathew ........... 10,070 4.0 28.72 5/5/08 181,864 460,904
Peter A. Thorburn ...... 8,150 3.3 28.72 5/5/08 147,189 373,026
Fred W. Brown, Jr. ..... 8,150 3.3 28.72 5/5/08 147,189 373,026
</TABLE>
- -----------
(1) The options become exercisable three years from the date of grant, i.e., on
May 5, 2001.
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<PAGE>
<PAGE>
(2) The exercise price is the fair market value of the underlying stock on the
date of the option grant.
(3) The dollar amounts under these columns are the result of calculations at an
annual rate of 5% and 10%, rates set by the SEC and are not intended to
forecast possible future appreciation, if any, of Company Common Stock
(4) Company Common Stock would be trading at $46.78 per share for the values
shown to be realizable, an increase in stock price which would benefit all
shareholders.
(5) Company Common Stock would be trading at $74.49 per share for the values
shown to be realizable, an increase in stock price which would benefit all
shareholders.
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
VALUE UNDERLYING UNEXERCISED IN-THE-MONEY
REALIZED OPTIONS/SARS AT OPTIONS/SARS AT FISCAL
SHARES ACQUIRED --------- FISCAL YEAR-END (#) YEAR-END ($)
NAME ON EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- --------------- --- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Julian W. Boyden ......... 0 0 51,076 / 73,650 869,383 / 540,783
James H. Dunsdon ......... 0 0 24,000 / 35,970 432,000 / 265,900
P. C. Mathew ............. 0 0 24,000 / 23,380 432,000 / 199,559
Peter A. Thorburn ........ 0 0 24,000 / 20,720 432,000 / 185,534
Fred W. Brown, Jr. ....... 0 0 22,000 / 17,720 327,875 / 131,534
</TABLE>
- -----------
(1) Value is the difference between the market value of the Company's common
stock on December 25, 1998, i.e., $34.00 per share, and the exercise price.
RETIREMENT PLANS
Mr. Boyden and other named executives, except Mr. Brown, participate in
the BBA Pension Scheme and the BBA Executive Pension Scheme, as deferred
members. As of February 1997, the BBA Executive Pension Scheme was merged with
the larger BBA Pension Scheme (collectively the "BBA Pension Scheme"). The years
of pensionable service credited under the BBA Pension Scheme are 31 for Mr.
Boyden, 29 for Mr. Dunsdon, 18 for Mr. Thorburn and 14 for Mr. Mathew.
The BBA Pension Scheme is a defined benefit arrangement, funded solely
by company contributions, and is exempt approved under the United Kingdom Income
& Corporation Taxes Act 1988. An enhanced level of benefit is granted, at the
discretion of the company, to a limited number of executives who have attained a
predetermined employment grade based primarily on the level of job
responsibility. The participants who have been granted enhanced benefits are Mr.
Boyden and the other named executives, except Mr. Brown, and three other
executives based in the United Kingdom.
The calculation of benefits under the BBA Pension Scheme is directly
linked to pensionable service and final average compensation, which includes
base salary and bonuses (see "Summary Compensation Table" above), as well as
certain ancillary benefits in kind, received by
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<PAGE>
the member during the 36 consecutive most highly compensated months of the 120
months preceding retirement ("Final Pensionable Salary").
The amount of benefit provided for participating members is 1.6667% of
Final Pensionable Salary for each year, and completed months of pensionable
service, subject to the benefits payable not exceeding limits imposed by the UK
Inland Revenue regulations, which are reflected in the table shown below.
The table shows the approximate pension payable under the BBA Pension
Scheme and assumes retirement at age 65 and Final Pensionable Salary and years
of pensionable service in the classifications indicated. Such benefits are not
subject to deduction for social security benefits or other offset amounts.
BBA PENSION SCHEME
APPROXIMATE ANNUAL PENSION AT AGE 65
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------------------------------------
FINAL PENSIONABLE SALARY 15 20 25 30 35 40
------------------------ -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 100,000..................... $ 25,000 $ 33,300 $ 41,700 $ 50,000 $ 58,300 $ 66,700
200,000..................... 50,000 66,700 83,300 100,000 116,700 133,300
300,000..................... 75,000 100,000 125,000 150,000 175,000 200,000
400,000..................... 100,000 133,300 166,700 200,000 233,300 266,700
500,000..................... 125,000 166,700 208,300 250,000 291,700 333,300
600,000..................... 150,000 200,000 250,000 300,000 350,000 400,000
700,000..................... 175,000 233,300 291,700 350,000 408,300 466,700
800,000..................... 200,000 266,700 333,300 400,000 466,700 533,300
900,000..................... 225,000 300,000 375,000 450,000 525,000 600,000
</TABLE>
The calculation of the amounts shown above assumes that employees
remain in service of the company until age 65 and that the BBA Pension Scheme
continues in its present form. The employee receives the benefit shown for life
and a surviving spouse receives a benefit of fifty percent of such amount for
life following the employee's death after retirement.
The Pension Plan for Eligible Employees of BBA in the United States
(the "Retirement Plan") in which Messrs. Boyden, Brown, Dunsdon, Mathew and
Thorburn participate is a defined benefit plan and is funded solely by Company
contributions. The calculation of benefits under the Retirement Plan is based
upon final average earnings. Final average earnings are determined by dividing
by five the sum of all compensation, including base salary and bonuses (see
"Summary Compensation Table", above), as well as any ancillary benefits in kind
and certain vacation payments, received by the member during the 60 consecutive
most highly compensated months of the 120 months preceding retirement (the
"Final Average Earnings"). The amount of the retirement benefit provided to a
participating employee under the Retirement Plan equals the product of the sum
of 1.05% of the participating employee's Final Average Earnings plus .45% of
those Final Average Earnings in excess of the average applicable Social Security
wage base at the date of retirement, multiplied by the number of years of
credited service of the employee with the Company. Benefits under the Retirement
Plan are not subject to any deduction for Social Security benefits or other
offset amounts. To the extent that retirement benefits payable exceed
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<PAGE>
<PAGE>
limitations imposed by the Internal Revenue Code of 1986, as amended (the
"Code"), with respect to payments from tax qualified trusts, such excess amounts
will not be paid from a qualified trust fund, but will be paid by the Company
under its supplemental retirement plan on an unfunded basis out of its general
assets.
The following table shows the approximate annual pension payable under
the Retirement Plan to Messrs. Boyden, Brown, Dunsdon, Mathew and Thorburn
assuming retirement at age 65 and Final Average Earnings and years of service in
the classifications indicated.
BBA RETIREMENT PLAN
APPROXIMATE ANNUAL PENSION AT AGE 65
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------ ------------- ------------ ------------ -----------------------------------
FINAL AVERAGE EARNINGS 10 15 20 25 30 35 40
---------------------- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
$ 100,000................... $ 13,500 $ 20,300 $ 27,000 $ 33,800 $ 40,500 $ 47,300 $ 54,000
200,000................... 28,500 42,800 57,000 71,300 85,500 99,800 114,000
300,000................... 43,500 65,300 87,000 108,800 130,500 152,300 174,000
400,000................... 58,500 87,800 117,000 146,300 175,500 204,800 234,000
500,000................... 73,500 110,300 147,000 183,800 220,500 257,300 294,000
600,000................... 88,500 132,800 177,000 221,300 265,500 309,800 354,000
700,000................... 103,500 155,300 207,000 258,800 310,500 362,300 414,000
800,000................... 118,500 177,800 237,000 296,300 355,500 414,800 474,000
900,000 .................. 133,500 200,300 267,000 333,800 400,500 467,300 534,000
</TABLE>
The calculation of the amounts shown above assumes that these
executives remain in the service of the Company until age 65, that the
retirement programs are continued in their present form and that each of them
receives the benefits in the form of a single life annuity. As of December 25,
1998, Messrs. Boyden and Thorburn were each credited with 4 years, Mr. Mathew
credited with 3 years, Mr. Dunsdon credited with 2 years, and Mr. Brown credited
with 27 years, of vested service under the Retirement Plan.
RELOCATION RETIREMENT PLAN
The Bush Boake Allen Inc. Relocation Retirement Income Plan for
Executives (the "Relocation Plan"), in which Messrs. Boyden, Dunsdon, Mathew and
Thorburn participate, is a non-qualified defined benefit plan funded solely by
Company contributions. The Relocation Plan is designed, in part, to provide
participants who have worked for the Company outside the United States, and who
then transferred to the Company in the United States, with pension benefits
calculated as if they worked for their entire careers in the United States.
Benefits under the Relocation Plan equal (1) the amount that a
covered participant would have received under the Retirement Plan (without
regard to limitations imposed by the Code) had the participant served all years
of employment with the Company in the United States, minus (2) the participant's
actual benefits payable at retirement under the Retirement Plan (without regard
to limitations imposed by the Code) and the BBA Pension Scheme. Benefits
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<PAGE>
<PAGE>
payable under the Relocation Plan will be paid by the Company on an unfunded
basis out of its general assets, and will be paid at the same time and in the
same form as the participant is paid under the Retirement Plan.
Messrs. Boyden, Dunsdon, Mathew and Thorburn were granted,
respectively, 26.5, 27.4, 11.2 and 13.5 years of foreign service for purposes of
the Relocation Plan.
The estimated annual benefits payable under the Relocation Plan upon
retirement at age 65 to Messrs. Boyden and Dunsdon are, respectively, $169,397
and $32,436. Estimated payments to Messrs. Mathew and Thorburn are zero. This
calculation assumes that the participants remain in service with the Company
until age 65 at their present compensation and that the Relocation Plan,
Retirement Plan and BBA Pension Scheme all continue in their present forms.
DIRECTOR COMPENSATION
Directors are reimbursed for their expenses associated with each
meeting. The directors who are not employees of the Company or Union Camp
("eligible directors") received as compensation for their services in 1998 an
annual retainer of $15,000 and fees of $1,000 for each Board meeting and $750
for each Committee meeting attended. In addition, a $1,000 annual retainer is
paid to each of the two Committee Chairpersons and a stock option grant was made
to eligible directors in 1998 with an expected value of $10,000 as determined
using a version of the Black-Scholes formula. In 1998, the Board of Directors
held four meetings, the Compensation Committee three meetings and the Audit
Committee two meetings.
EXECUTIVE OFFICER AGREEMENTS
The discussion set forth below includes summaries of significant terms
of various agreements between the Company and certain of the Company's executive
officers.
As partial consideration for Mr. Dunsdon's, acceptance of his current
position which required relocation to the United States, the Company agreed that
if his employment is terminated during the initial three years after relocation
(other than for voluntary resignation, retirement, death or disability) he would
receive twelve months salary in lieu of notice.
The individuals named in the Summary Compensation Table and six other
executive officers have executed individual severance agreements with the
Company which provide that if, following a "change in control" of the Company or
Union Camp, the Company terminates the executive's employment without "cause"
(other than for disability) or the executive terminates his employment for "good
reason" (as such terms are defined in the severance agreements), the executive
will receive from the Company as a severance benefit a lump sum payment equal to
two and one-half times the sum of such executive's annual salary and two and
one-half times the amount of his normal bonus opportunity (as such term is
defined in the severance agreements). A "change in control" is defined generally
to include significant changes in the stock ownership or board of directors of
the Company or Union Camp, or either's dissolution. "Good reason" is defined
generally to include certain reductions in duties or reporting responsibilities,
certain unapproved relocations, certain reductions in compensation or benefits
and material breaches of
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<PAGE>
<PAGE>
the agreement by the Company. "Cause" is defined generally to cover certain
failures to perform duties to the Company or willfully engaging in conduct
injurious to the Company. An executive officer would also be entitled to
continue to receive certain benefits for thirty months. The Company will also
make an additional payment to the executive to ensure that the components of the
severance benefit described above that are multiples of salary and bonus will
not be subject to net reduction due to the imposition of excise taxes under
section 4999 of the Code. The individual severance agreements provide for the
distribution to the executives of their benefits under the Company's
supplemental retirement plan promptly following both a change in control of the
Company or Union Camp and termination, as noted above.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF MANAGEMENT
AS OF DECEMBER 25, 1998
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL
OWNERSHIP
-----------------------------------------
BBA UCC
------------- PERCENT ------------ PERCENT
NAME OF BENEFICIAL OWNER COMMON (1)(2) OF CLASS COMMON(3)(4) OF CLASS
------------------------ ------------- -------- ------------ --------
<S> <C> <C> <C> <C>
Peter L. Acton ....................... 1,900 * 12,000 *
Julian W. Boyden ..................... 56,076 * 1,550 *
Fred W. Brown, Jr. ................... 23,150 * 3,820 *
Thomas R. Crane, Jr. ................. 3,200 * 0 *
James H. Dunsdon ..................... 24,000 * 0 *
P. C. Mathew ......................... 28,000 * 5,600 *
L. Robert Pfund ...................... 2,700 * 0 *
James M. Reed ........................ 5,710 * 155,596 *
George J. Sella, Jr. ................. 4,200 * 3,716 *
Peter A. Thorburn .................... 24,800 * 5,649 *
William H. Trice ..................... 11,700 * 106,777 *
Directors & Executive Officers as a
Group (19 Persons) ................... 251,615 1.3 296,876 *
</TABLE>
- -----------
* Less than one percent of the BBA common shares outstanding and less than one
percent of the Union Camp common stock outstanding.
(1) BBA common stock.
(2) The shares shown as beneficially owned include the number of shares of BBA
common stock that directors and executive officers had the right to acquire
within 60 days after December 25, 1998 pursuant to unexercised options under
BBA stock option plans as follows: 51,076 shares for Mr. Boyden, 22,000
shares for Mr. Brown, 24,000 shares for Mr. Dunsdon, 24,000 shares for Mr.
Mathew, 24,000 shares for Mr. Thorburn, 700 shares for Mr. Crane, 700 shares
for Mr. Pfund, 710 shares for Mr. Reed, 700 shares for Mr. Sella, 700 shares
for Mr. Trice and 211,665 shares for all directors and executive officers as
a group (19 persons).
(3) Union Camp common stock.
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<PAGE>
<PAGE>
(4) The shares shown as beneficially owned include the number of shares of Union
Camp common stock that directors and executive officers had the right to
acquire within 60 days after December 25, 1998 pursuant to unexercised
options under Union Camp stock option plans as follows: 12,000 shares for
Mr. Acton, 2,950 shares for Mr. Brown, 5,600 shares for Mr. Mathew, 5,600
shares for Mr. Thorburn, 115,119 shares for Mr. Reed, 1,200 shares for Mr.
Sella, 94,829 shares for Mr. Trice and 237,798 for all directors and
executive officers as a group (19 persons). The shares shown include 1,210
shares held in a family trust by Mr. Trice in which he is a trustee.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the knowledge of the Company, and based on a review of filings on
Schedule 13G and Schedule 13D in February 1999 with the Securities and Exchange
Commission, no person or group owned beneficially more than five percent of the
outstanding Common Stock of the Company except as follows:
<TABLE>
<CAPTION>
TITLE OF NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) CLASS
-------- ------------------- ----------------------- ----------
<S> <C> <C> <C>
Common Union Camp Corporation(2) 13,150,000 68.19
1600 Valley Road
Wayne, N.J. 07470
</TABLE>
- -----------
(1) As used in this Form 10-K, "beneficially owned" or words of similar import
mean the sole or shared power to direct the voting of a security or the sole
or shared power to direct the disposition of a security.
(2) Union Camp owns these shares through its wholly-owned subsidiary, Union Camp
Patent Holdings, Inc.
As previously referred to, Union Camp is expected to merge with and into
International Paper at approximately the beginning of the second calendar
quarter of 1999. If and when completed, International Paper would become the
beneficial owner of the shares of the Company currently owned by Union Camp.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH PRINCIPAL STOCKHOLDER
The Company and Union Camp have entered into various agreements
described below which initially provided for the transition of the Company from
a wholly-owned subsidiary of Union Camp to a public company and which govern
certain ongoing relationships between the Company and Union Camp.
Services Agreement. Prior to the initial public offering of the
Company's Common Stock, Union Camp provided to the Company certain
administrative services, including treasury activities, employee benefit
administration, human resource administration, environmental, tax,
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<PAGE>
risk management, legal, accounting, safety and health administration,
transportation logistics, corporate communication and research and development
activities. The Company has a Services Agreement with Union Camp under which
Union Camp agreed to continue to make these services available to the Company.
Union Camp or BBA may terminate any or all of the services covered by the
Services Agreement upon ninety days prior written notice. The obligations of
Union Camp under the Services Agreement are subject to the reasonable demands
and requirements of the Company's ongoing operations. Union Camp may provide for
independent subcontractors to perform the work if it is unable to do so itself.
The rates charged by Union Camp to the Company approximate the fair market value
of the services to be provided by the Company. The only services agreement which
has been terminated through the end of 1998 relates to the provision of research
and development services.
Technology Agreement. Union Camp and BBA have each granted (or caused
one or more of their subsidiaries to grant) to each other an irrevocable,
non-exclusive, royalty-free license to use their respective patents, patent
applications, know-how and trademarks that are used or useful in their
respective businesses.
Supply Agreement. The Company and Union Camp have a Supply Agreement
relating to the terms and conditions pursuant to which the Company will purchase
turpentine from Union Camp as well as the procurement of turpentine by Union
Camp from other sources for sale to the Company, in each case at approximately
fair market value.
Tax Allocation Agreement. The Company has a tax allocation agreement
with Union Camp. Under terms of this agreement Union Camp and the Company agree
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 periods prior to the initial public offering of
the Company's common stock.
Cross-Indemnification Agreement. The Company and Union Camp have an
agreement whereby each party will indemnify the other party against liabilities
relating to the business of the indemnifying party as it has been conducted
prior to the initial public offering of the Company's common stock, including
Union Camp's agreement to indemnify the Company against all liabilities relating
to the operations and business of the Company's Jacksonville facility at any
time up to and including December 31, 1986, after which date the Jacksonville
facility was operated as part of BBA.
Registration Rights Agreement. The Company and Union Camp have a
Registration Rights Agreement pursuant to which the Company has granted certain
registration rights to Union Camp and certain of its affiliates with respect to
the shares of Common Stock of the Company owned by Union Camp or acquired by any
such affiliate from Union Camp following the public offering of Company Common
Stock. In the event that the Company proposes to register any of its shares of
Common Stock for sale under the Securities Act of 1933, as amended (the
"Securities Act"), Union Camp is entitled to require the Company to include all
or a portion of the shares of Common Stock of the Company held by Union Camp or
its affiliates, subject to the restrictions set forth in the Registration Rights
Agreement. Union Camp also has the right to require that the Company register
all or a portion of the Common Stock of the Company held by Union Camp or its
affiliates for sale under the Securities Act up to three times, subject to the
terms of the Registration Rights Agreement. The Company's obligations are
subject to limitations relating to
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<PAGE>
a minimum number of shares of Common Stock of the Company required for any such
registration, the timing of registration and other similar matters. The Company
is obligated to pay all expenses incidental to any such registration, excluding
underwriters' discounts and certain legal fees and expenses. The Company has
agreed to indemnify Union Camp for certain liabilities, including liabilities
under the Securities Act, in connection with any such registration. Under the
Registration Rights Agreement, Union Camp and certain of its affiliates have the
right to transfer their respective rights to a transferee other than pursuant to
a public offering.
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
pages in the Bush Boake Allen 1998 Annual Report and are
incorporated by reference in this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Statements of Income and
Comprehensive Income for each of the
three years ended December 25, 1998....................... 25
Consolidated Balance Sheets - December 25, 1998
and 1997................................................... 26
Consolidated Statements of Cash Flows for each of the three
years ended December 25, 1998.............................. 27
Notes to Consolidated Financial Statements.................... 28-37
Report of Independent Accountants............................. 38
</TABLE>
(2) All exhibits, including those incorporated by reference.
<TABLE>
<CAPTION>
NO. DESCRIPTION
- ---- ------------
<S> <C>
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).
</TABLE>
-23-
<PAGE>
<PAGE>
<TABLE>
<S> <C>
3.2 Bylaws of the Company, as amended.
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).
</TABLE>
-24-
<PAGE>
<PAGE>
<TABLE>
<C> <C>
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 Inc.'s Form 10-K for the
fiscal year ended December 25, 1996 and incorporated herein by
reference).
10.9* Directors' Stock Option Plan (filed as Exhibit B to Bush Boake
Allen Inc.'s 1998 Proxy Statement and incorporated herein by
reference).
10.10* 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).
10.11 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).
10.12* Bush Boake Allen Inc. Relocation Retirement Income Plan for
Executives.
11.1 Statement re: computation of per share net income.
13.1 1998 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 PricewaterhouseCoopers LLP.
27 Financial Data Schedule
</TABLE>
- -----------
-25-
<PAGE>
<PAGE>
* 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, 1998.
-26-
<PAGE>
<PAGE>
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, 1999.
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, 1999.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C>
/s/ Julian W. Boyden Chairman of the Board, President and Chief
- ------------------------- Executive Officer (Principal Executive
Julian W. Boyden Officer)
/s/ Fred W. Brown, Jr. Vice President, Finance (Principal
- ------------------------- Financial Officer)
Fred W. Brown, Jr.
/s/ Kenneth M. McHugh Controller (Principal Accounting
- ------------------------- Officer)
Kenneth M. McHugh
/s/ Peter L. Acton Director
- -------------------------
Peter L. Acton
/s/ Thomas R. Crane, Jr. Director
- -------------------------
Thomas R. Crane, Jr.
</TABLE>
-27-
<PAGE>
<PAGE>
<TABLE>
<S> <C>
/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
</TABLE>
-28-
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION
- ---- ------------
<S> <C>
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, as amended.
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
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C>
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* Directors' Stock Option Plan (filed as Exhibit B to Bush Boake
Allen Inc.'s 1998 Proxy Statement and incorporated herein by
reference).
10.10* 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).
10.11 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).
10.12* Bush Boake Allen Inc. Relocation Retirement Income Plan for
Executives.
11.1 Statement re: computation of per share net income.
13.1 1998 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 PricewaterhouseCoopers LLP.
27 Financial Data Schedule
</TABLE>
- -----------
* 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 trademark symbol shall be expressed as.................................'TM'
The registered trademark symbol shall be expressed as.......................'r'
The British pound sterling sign shall be expressed as.......................'L'
<PAGE>
<PAGE>
EXHIBIT 3.2
BYLAWS
of
BUSH BOAKE ALLEN INC.
(As Amended February 16, 1999)
ARTICLE I.
Stock
SECTION 1. Form and Execution of Certificates. The certificates of shares
of stock of the Corporation shall be in such form not inconsistent with the
Articles of Incorporation as shall be approved by the Board of Directors.
Certificates of stock shall be signed by the Chairman of the Board, the
President or by a Vice President and the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, except that where any such certificates
shall be countersigned by a transfer agent or by a registrar, other than the
Corporation, the signatures of any of the officers above specified may be
facsimiles, engraved or printed. In case any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of its
issue.
SECTION 2. Regulations. The Board of Directors may make such rules and
regulations as it may deem expedient concerning the issue, transfer and
registration of certificates of stock and concerning certificates of stock
issued, transferred or registered in lieu or replacement of any lost, stolen,
destroyed or mutilated certificates of stock.
SECTION 3. Transfer Agent and Registrar. The Board of Directors may appoint
a transfer agent or transfer agents and a registrar or registrars of transfer
for any or all classes of the capital stock of the Corporation, and may require
stock certificates of any or all classes to bear the signature of either or
both.
SECTION 4. Closing of Transfer Books, Fixing of Record Date. The Board of
Directors may fix in advance a date, not exceeding 70 days preceding the date of
any meeting of stockholders, or the date for the payment of any dividend, or the
date for the determination of stockholders for any other proper purpose, as a
record date for the determination of the stockholders exclusively entitled to
notice of and to vote at any such meeting, or any adjournment thereof, or
entitled to receive payment of any such dividend, or for any other proper
purpose.
<PAGE>
<PAGE>
ARTICLE II.
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall, in 1999, be held on September 8, 1999
and, in subsequent years, be held on the first Wednesday in May, in all cases at
such time and at such place, either within or without the Commonwealth of
Virginia, as determined by the Board of Directors and as designated in the
notice thereof.
At the annual meeting of stockholders, only such business shall be
conducted as shall have been properly brought before the meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
Corporation who shall be entitled to vote at such meeting and who complies with
the procedures set forth in this Section 1.
In addition to any other applicable requirements, for business, including
the nomination of one or more persons for election as Directors, to be properly
brought before the annual meeting by a stockholder, such stockholder must have
given timely advance written notice thereof to the Secretary of the Corporation.
The Secretary shall deliver timely received notices to the Board of Directors or
a committee designated by the Board for review. To be timely, a stockholder's
notice must be received by the Secretary at the principal executive offices of
the Corporation not less than 60 days in advance of the day established in
accordance with this Section as the day of the annual meeting of stockholders.
In calculating days in advance of the annual meeting, the day of such annual
meeting shall not be included so that stockholders shall begin counting with the
day immediately preceding the day of the annual meeting which, for purposes of
such calculation, shall be one day in advance of the annual meeting.
A stockholder's notice to the Secretary shall set forth as to each matter
of business the stockholder proposes to bring before the annual meeting: (a) a
description of the business intended to be brought before the annual meeting,
including the text of any resolution to be presented, and the reasons for
conducting such business at the annual meeting; (b) the name and address of the
stockholder proposing such business; (c) a representation that the stockholder
is a holder of record of stock of the Corporation entitled to vote at the annual
meeting and intends to appear in person or by proxy at the meeting to bring the
business specified in the notice before the meeting; (d) the class and number of
shares of stock of the Corporation owned (i) of record and (ii) beneficially by
the stockholder; and (e) any material interest of the stockholder in the
business to be brought before the meeting.
A stockholder's notice of intent to make a nomination of one or more
persons for election as Directors at the annual meeting of stockholders shall,
in addition to the information required above, set forth as to each such person:
(a) the name, age and business and residence addresses of the person; (b) the
principal occupation or employment of the person; (c) the class and number of
shares of stock of the Corporation owned (i) of record and (ii) beneficially by
the person; (d) a description of all arrangements or understandings between the
stockholder and the person and any
-2-
<PAGE>
<PAGE>
other person or persons (naming such other person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder; (e) such other
information regarding the person as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission, had the person been nominated by the Board of Directors; and (f) the
written consent of the person to serve as a Director of the Corporation if so
elected. The Corporation may require any stockholder proposing to nominate one
or more persons for election as Directors to furnish such other information as
may reasonably be required by the Corporation to determine the eligibility of
each such person to serve as a Director of the Corporation.
In the event a stockholder attempts to bring business before the annual
meeting without complying with the provisions of this Section 1, the presiding
officer of the meeting shall determine and declare to the meeting that the
business was not properly brought before the meeting, and such business shall
not be transacted.
SECTION 2. Special Meeting. Special meetings of the stockholders for any
purpose or purposes may be held at any time and at any place, within or without
the Commonwealth of Virginia, designated in the call thereof, whenever called by
the Board of Directors, the Chairman of the Board, the President, or as
otherwise provided by law.
SECTION 3. Notice. Written notice of every annual or special meeting of the
stockholders, stating the place, day and hour and purpose or purposes thereof,
shall be given to each stockholder of record entitled to vote thereat, either
personally or by mailing the notice to him at his address as it appears on the
stock transfer books of the Corporation. Where such notice of a stockholders'
meeting includes as a purpose thereof action with respect to an amendment of the
Articles of Incorporation or a plan of merger or consolidation or share
exchange, a proposed sale of assets pursuant to Section 13.1-724 of the Virginia
Stock Corporation Act or the dissolution of the Corporation, such notice shall
be given in the manner hereinabove provided, but at least 25 and not more than
60 days before the date of any such meeting.
SECTION 4. Quorum. A quorum at any meeting of the stockholders shall
consist of a majority of the stock of the Corporation entitled to vote, present
in person or by proxy, unless otherwise required by law or the Articles of
Incorporation. If at the time and place of the meeting there is present less
than a quorum, a majority of the stock present in person or by proxy and
entitled to vote, shall have power to adjourn the meeting from time to time
without notice until a quorum is secured, and thereupon any business may be
transacted which might have been transacted at the meeting as originally called.
SECTION 5. Organization. All meetings of the stockholders shall be presided
over by the Chairman of the Board or by the President, or in their absence, by
the Vice Chairman. In case none of these shall be present, a chairman shall be
elected by the vote of a majority of the stock present in person or by proxy
entitled to vote. The Secretary of the Corporation or an Assistant Secretary
shall act as secretary of every such meeting when present, and in the absence of
either, the presiding officer may appoint any other officer of the Corporation
to act as Secretary.
SECTION 6. Inspectors. At any annual or special meeting of stockholders,
inspectors of election may be appointed by the presiding officer of the meeting
for the purpose of opening and
-3-
<PAGE>
<PAGE>
closing the polls, receiving and taking charge of proxies, and receiving and
counting the ballots or the votes of stockholders otherwise given and shall in
writing certify to the returns. No candidate for election as director shall be
appointed or act as inspector.
ARTICLE III.
Directors
SECTION 1. Number, Vacancy. The property, business and affairs of the
Corporation shall be managed by a Board of seven directors. Except as otherwise
provided by law or in these Bylaws or in the Articles of Incorporation, the
directors shall be elected by the stockholders at each annual meeting of
stockholders and shall serve until the next succeeding annual meeting and until
their successors shall have been elected. In the event of any vacancy in the
directors resulting from death, resignation, disqualification, or other cause,
the remaining directors, although less than a quorum, by an affirmative vote of
a majority thereof, may fill such vacancy. The Board of Directors may designate
a director to serve as Chairman of the Board and a director to serve as Vice
Chairman of the Board. Neither the Chairman of the Board nor the Vice Chairman
shall be an officer of the Corporation unless elected as an officer by the Board
of Directors.
SECTION 2. Regular Meeting. Regular meetings of the Board of Directors
shall be held, either within or without the Commonwealth of Virginia, as shall
from time to time be determined by the Board of Directors. After there has been
such determination and notice thereof has been given to each member of the Board
of Directors, no further notice shall be required for any such regular meeting.
The annual meeting of the Board of Directors may be held, without notice, on the
same day as and after the annual meeting of the stockholders.
SECTION 3. Special Meeting. Special meetings of the Board of Directors
shall be held, either within or without the Commonwealth of Virginia, upon the
order of the Board, or the call of the Chairman of the Board, the President, or
3 directors. The Secretary, or other officer performing his duties, shall give
notice to each director of the time and place of each meeting, by mailing the
same at least two days before the meeting or by telegraphing or telephoning the
same prior to the meeting.
SECTION 4. Quorum. A majority of the number of directors fixed by these
Bylaws shall constitute a quorum for the transaction of business except as
otherwise provided by law or the Articles of Incorporation or these By-laws, but
a majority of those present at the time and place of any meeting, although less
than a quorum, may adjourn from time to time without notice, until a quorum is
secured.
SECTION 5. Compensation. The Board of Directors shall have the authority to
fix the compensation of the directors and of members of the committees of the
Board.
SECTION 6. Indemnification of Officers, Directors and Employees. (a) Each
director and officer of the Corporation shall be indemnified by the Corporation
against all costs and expenses reasonably incurred by or imposed upon him in
connection with or resulting from any action, suit or proceeding to which he may
be made a party by reason of his being or having been a
-4-
<PAGE>
<PAGE>
director or officer of the Corporation (whether or not he continues to be a
director or officer at the time of incurring such cost or expense), except in
relation to matters as to which a recovery shall be had against him by reason of
his having been finally adjudged in such action, suit or proceeding to have been
derelict in the performance of his duty as such director or officer. The
foregoing qualification shall not, however, prevent a settlement by the
Corporation prior to final adjudication when such settlement appears to be in
the interest of the Corporation. The right of indemnification herein provided
shall not be exclusive of other rights to which any director or officer may be
entitled as a matter of law.
(b) As used in the following subsections of this Section 6:
"Applicant" means the person seeking indemnification pursuant to this
Section.
"Expenses" includes counsel fees.
"Liability" means the obligation to pay a judgment, settlement, penalty,
fine, including any excise tax assessed with respect to an employee benefit
plan, or reasonable expenses incurred with respect to a proceeding.
"Official capacity" means, (i) when used with respect to a director, the
office of director of the Corporation; or (ii) when used with respect to an
individual other than a director, the office of the Corporation held by the
officer or the employment or agency relationship undertaken by the employee or
agent on behalf of the Corporation. "Official capacity" does not include service
for any other foreign or domestic corporation or any partnership, joint venture,
trust, employee benefit plan, or other enterprise.
"Party" includes an individual who was, is, or is threatened to be made a
named defendant or respondent in a proceeding.
"Proceeding" means any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative or investigative and whether
formal or informal.
(c) The Corporation shall indemnify any person who was or is a party to any
proceeding by reason of the fact that he is or was a director, officer or
employee of the Corporation, or is or was serving at the request of the
Corporation as a director, trustee, partner, officer or employee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability incurred by him in connection with such
proceeding if (i) he believed, in the case of conduct in his official capacity,
that his conduct was in the best interests of the Corporation, and in all other
cases that his conduct was at least not opposed to its best interests, and, in
the case of any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful, (ii) in connection with a proceeding by or in the right of
the Corporation, he was not adjudged liable to the Corporation, and (iii) in
connection with any proceeding charging improper benefit to him, whether or not
involving action in his official capacity, he was not adjudged liable on the
basis that personal benefit was improperly received by him. A person is
considered to be serving an employee benefit plan at the Corporation's request
if his duties to the Corporation also impose duties on, or otherwise involve
services by, him to the plan or to participants in or beneficiaries of
-5-
<PAGE>
<PAGE>
the plan. A person's conduct with respect to an employee benefit plan for a
purpose he believed to be in the interests of the participants and beneficiaries
of the plan is conduct that satisfies the requirements of this subsection.
(d) The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not of
itself create a presumption that the applicant did not meet the standard of
conduct described in subsection (c) of this Section.
(e) To the extent that the applicant has been successful on the merits or
otherwise in defense of any proceeding referred to in subsection (c) of this
Section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses actually and reasonably incurred by him in
connection therewith.
(f) Any indemnification under subsection (c) of this Section (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the applicant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in subsection (c).
The determination shall be made:
(i) By the Board of Directors by a majority vote of a quorum consisting of
directors not at the time parties to the proceeding;
(ii) If a quorum cannot be obtained under paragraph (i) of this subsection,
by majority vote of a committee duly designated by the Board of Directors (in
which designation directors who are parties may participate), consisting solely
of two or more directors not at the time parties to the proceeding;
(iii) By special legal counsel:
(A) Selected by the Board of Directors or its committee in the manner
prescribed in paragraph (i) or (ii) of this subsection; or
(B) If a quorum of the Board of Directors cannot be obtained under
paragraph (i) of this subsection and a committee cannot be designated under
paragraph (ii) of this subsection, selected by majority vote of the full Board
of Directors, in which selection directors who are parties may participate; or
(iv) By the shareholders, but shares owned by or voted under the control of
directors who are at the time parties to the proceeding may not be voted on the
determination.
Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under paragraph (iii)
of this subsection to select counsel.
-6-
<PAGE>
<PAGE>
(g) (i) The Corporation may pay for or reimburse the reasonable expenses
incurred by any applicant who is a party to a proceeding in advance of final
disposition of the proceeding if:
(A) The applicant furnishes the Corporation a written statement of his good
faith belief that he has met the standard of conduct described in subsection
(c);
(B) The applicant furnishes the Corporation a written undertaking, executed
personally or on his behalf, to repay the advance if it is ultimately determined
that he did not meet the standard of conduct; and
(C) A determination is made that the facts then known to those making the
determination would not preclude indemnification under this Section.
(ii) The undertaking required by subparagraph (B) of paragraph (i) of
this subsection shall be an unlimited general obligation of the applicant but
need not be secured and may be accepted without reference to financial ability
to make repayment.
(iii) Determinations and authorizations of payments under this
subsection shall be made in the manner specified in subsection (f).
(h) The Board of Directors is hereby empowered, by majority vote of a
quorum of disinterested directors, to cause the Corporation to indemnify or
contract in advance to indemnify any person not specified in subsection (c) of
this Section who was or is a party to any proceeding, by reason of the fact that
he is or was an agent of the corporation, or is or was serving at the request of
the Corporation as an agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, to the same extent as if such
person were specified as one to whom indemnification is granted in subsection
(c). The provisions of subsections (d) through (g) of this Section shall be
applicable to any indemnification provided pursuant to this subsection (h).
(i) The Corporation may purchase and maintain insurance to indemnify it
against the whole or any portion of the liability assumed by it in accordance
with this Section and may also procure insurance, in such amounts as the Board
of Directors may determine, on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability asserted against or incurred by him in any
such capacity or arising from his status as such, whether or not the Corporation
would have power to indemnify him against such liability under the provisions of
this Section.
(j) The Board of Directors is hereby empowered to cause the Corporation to
contract in advance to indemnify any person specified in subsection (c) of this
Section provided that such contract does not permit indemnification if the
proposed indemnitee failed to meet the standard of conduct set forth in
subsection (c).
-7-
<PAGE>
<PAGE>
(k) Every reference herein to directors, officers, employees or agents
shall include former directors, officers, employees and agents and their
respective heirs, executors and administrators. The indemnification hereby
provided and provided hereafter pursuant to the power hereby conferred on the
Board of Directors shall not be exclusive of any other rights to which any
person may be entitled, including any right under policies of insurance that may
be purchased and maintained by the Corporation or others, with respect to
claims, issues or matters in relation to which the Corporation would not have
the power to indemnify such person under the provisions of this Section.
(1) For the purposes of this Section, references to the "Corporation"
include all constituent corporations absorbed in a consolidation or merger as
well as the resulting or surviving corporation so that any person who is or was
a director, officer or employee of such a constituent corporation or is or was
serving at the request of such constituent corporation as a director, officer or
employee of another corporation, partnership, joint venture, trust or other
enterprise shall stand in the same position under the provisions of this Section
with respect to the resulting or surviving corporation as he would if he had
served the resulting or surviving corporation in the same capacity.
(m) If any part of this Section 6 shall be found, in any claim, action,
suit or proceeding, to be invalid or ineffective, the validity and the effect of
the remaining parts shall not be affected.
SECTION 7. Committees. From time to time the Board of Directors by a
resolution adopted by the greater number of (i) a majority of all directors in
office when the action is taken and (ii) a majority of the directors present at
a meeting at which a quorum is present may appoint any committee or committees,
each to consist of two or more directors, for any purpose or purposes, to the
extent lawful, which shall have such powers as shall be determined and specified
by the Board of Directors in the resolution of appointment. Meetings of any such
committees shall be held either within or without the Commonwealth of Virginia,
upon the order of such committee, or the call of the Chairman of such committee,
or two or more members of such committee. The Secretary, or other officer
performing his duties, shall give notice to each member of such committee of the
time and place of each meeting of such committee, by mailing the same at least
two days before the meeting or by telegraphing or telephoning the same prior to
the meeting.
SECTION 8. Action Without a Meeting. Unless otherwise restricted by law or
the Articles of Incorporation, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if a written consent, setting forth the action so to be taken,
shall be signed by all of the directors or all of the members of the committee,
as the case may be. Action taken under this Section is effective when the last
director signs the consent unless the consent specifies a different effective
date, in which event the action taken is effective as of the date specified
therein provided the consent states the date of execution by each director.
SECTION 9. Termination of Committee Membership. In the event any person
shall cease to be a director of the Corporation, such person shall
simultaneously therewith cease to be a member of any committee.
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ARTICLE IV.
Officers
SECTION 1. Officers. The officers of the Corporation shall be the
President, one or more Executive Vice Presidents, Senior Vice Presidents, Vice
Presidents, Secretary, Treasurer, General Counsel, Comptroller, Assistant
Secretaries, Assistant Treasurers, and Assistant Comptrollers, and such other
officers and. agents as may be required by law, or as may be deemed useful. The
President shall be a member of the Board of Directors. Any person may hold at
the same time any two of the offices above named, except the offices of
President and Secretary.
SECTION 2. Election of Officers; Term of Office. All officers and agents
shall be elected annually by the Board of Directors at each annual meeting of
the Board. If the Board of Directors shall fail to fill any designated office at
an annual meeting or if any vacancy shall occur, or if any office shall be newly
created, such office may be filled at any meeting of the Board of Directors.
Each officer shall hold office until his successor is duly elected, or
until his earlier death, resignation or removal, provided that the terms of
office of all officers shall terminate at any annual meeting of the Board of
Directors at which the President is elected. The Board of Directors shall have
the power to remove any officer, with or without cause, at any time.
ARTICLE V.
Powers and Duties of Officers
SECTION 1. President. The President shall be the chief operating officer of
the Corporation. The President may appoint one or more divisional vice
presidents by geographic region, product segment or other category, with such
powers and duties as the President shall designate, provided that such
divisional vice presidents shall not be officers of the Corporation. The
President shall have such other powers and duties as may from time to time be
assigned to him by the Board of Directors or the Chairman of the Board.
SECTION 2. Other officers. All officers other than those expressly referred
to in this Article V shall have such powers and duties as usually pertain to
their respective offices, in addition to the powers and duties conferred by law
or by other sections of these Bylaws, and such other duties and powers as may be
assigned to them by the Board of Directors, the Chairman of the Board or the
President.
ARTICLE VI.
Fiscal Year
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall end on
December 25 of each year.
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ARTICLE VII.
Checks, Notes, Drafts, Contracts, Etc.
SECTION 1. Checks, Notes. Drafts, Etc. All checks, notes, drafts or other
orders for the payment of money of the Corporation shall be signed, endorsed or
accepted in the name of the Corporation by such officer or person as may be
designated from time to time either by the Board of Directors or by an officer
authorized by the Board of Directors to make such designation.
SECTION 2. Execution of Contracts, Deeds, Etc. The Board of Directors may
authorize any officer or agent in the name and on behalf of the Corporation to
enter into or execute and deliver any and all deeds, bonds, mortgages, contracts
and other obligations or instruments, and such authority may be general or
confined to specific instances.
ARTICLE VIII.
Seal
SECTION 1. Form. The Corporate Seal of the Corporation shall be the Seal
impressed on the margin hereof.
ARTICLE IX.
Waiver of Notice
SECTION 1. Waiver of Notice. Any stockholder, director or officer may waive
any notice required to be given in accordance with law, these Bylaws or the
Articles of Incorporation by attendance in person or by a writing signed by the
person or persons entitled to said notice or by his proxy, whether before or
after the time or event referred to in said notice, which waiver shall be deemed
equivalent to such notice.
ARTICLE X.
Amendment to By-laws
SECTION 1. By the Directors. Except as otherwise provided by law, the Board
of Directors shall have the power to make, amend and repeal the Bylaws of the
Corporation.
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SECTION 2. By the Stockholders. Bylaws made by the Board of Directors may
be repealed or changed, and new Bylaws made, by the stockholders and the
stockholders may prescribe that any Bylaws made by them shall not be altered,
amended or repealed by the directors. Any such action shall be taken at any
annual or special meeting of stockholders, provided that the notice of such
meeting shall have included such action among the purposes of the meeting.
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EXHIBIT 10.12
November 6, 1998
BUSH BOAKE ALLEN INC.
RELOCATION RETIREMENT INCOME PLAN FOR EXECUTIVES
Effective October 1, 1998
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<TABLE>
<S> <C>
PREAMBLE........................................................1
ARTICLE 1 - DEFINITIONS.........................................2
1.1 Actuarial Equivalent.......................................2
1.2 Board of Directors.........................................2
1.3 Change in Control..........................................2
1.4 Code.......................................................3
1.5 Committee..................................................3
1.6 Company....................................................3
1.7 Effective Date.............................................3
1.8 ERISA......................................................3
1.9 Executive..................................................3
1.10 Good Reason................................................4
1.11 Normal Retirement Date.....................................5
1.12 Pension Plan...............................................5
1.13 Pension Plan Benefit.......................................5
1.14 Prior Service..............................................5
1.15 Prior Service Benefit......................................5
1.16 Plan.......................................................6
1.17 Plan Year..................................................6
1.18 Relocation Retirement Income Benefit.......................6
1.19 Retirement Board...........................................6
1.20 Supplemental Plan..........................................6
1.21 Supplemental Plan Pension Benefit..........................6
1.22 Target Benefit.............................................7
1.23 Total Actual Benefit.......................................7
ARTICLE 2 -RELOCATION RETIREMENT INCOME BENEFIT.................8
2.1 Relocation Retirement Income Benefit.......................8
2.2 Total Actual Benefit.......................................8
ARTICLE 3 - PAYMENT OF BENEFIT..................................9
3.1 Vesting....................................................9
3.2 Retirement.................................................9
3.3 Termination Prior to Retirement Eligibility under the
Pension Plan...............................................9
3.4 Lump Sum Available Upon Change in Control..................9
3.5 Death Benefit.............................................10
ARTICLE 4 - ADMINISTRATION.....................................11
4.1 Retirement Board..........................................11
4.2 Decision of the Retirement Board..........................11
4.3 Bonding, Compensation, Indemnification....................11
4.4 Agents and Service Providers..............................11
4.5 Accounts and Records......................................11
4.6 Interpretation of Plan....................................11
4.7 Establishment of Rules....................................12
</TABLE>
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<TABLE>
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ARTICLE 5 - PLAN FUNDING.......................................13
5.1 Nature of Obligation......................................13
5.2 Contract or Trust.........................................13
ARTICLE 6 - MISCELLANEOUS PROVISIONS...........................14
6.1 No Guarantee of Employment................................14
6.2 Non-Alienation of Benefits................................14
6.3 Payment to Representatives................................14
6.4 Timing of Payments........................................14
6.5 Governing Law.............................................14
6.6 Gender and Number.........................................15
6.7 Titles and Headings.......................................15
6.8 Separability..............................................15
6.9 Claims Procedure..........................................15
6.10 Competition With Company; Cause...........................15
6.11 Disputes..................................................16
ARTICLE 7 - AMENDMENT AND EFFECTIVE DATE.......................17
7.1 Amendment.................................................17
7.2 Effective Date............................................17
APPENDIX A.....................................................19
</TABLE>
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PREAMBLE
The principal purpose of the Bush Boake Allen Inc. Relocation Retirement Income
Plan for Executives (the "Plan") is to ensure the payment of a competitive level
of retirement income to certain officers and executives of Bush Boake Allen Inc.
(the "Company") in order to attract, retain and motivate such officers and
executives. It provides benefits to such officers of the Company, identified by
the Compensation Committee of the Board of Directors (the "Committee"), who are
then officers or executives or who join or who have joined the Company in
mid-career and who otherwise would receive retirement benefits from the Company
which would not reflect their experience prior to employment with the Company or
would not be appropriate for the position of responsibility which they hold with
the Company.
The Plan is also designed to provide, at the discretion of the Committee,
benefits to certain officers and executives who relocated from the United
Kingdom to the United States in connection with the relocation of corporate
headquarters.
In 1966, Albright and Wilson (a UK company) formed Bush Boake Allen (the
"Company") as a merger of W. J. Bush Limited, A. Boake Roberts Limited, and
Stafford Allen Limited. In 1982, the Company was acquired by Union Camp
Corporation (a US company) from Albright and Wilson, then owned by Tenneco (a US
company). In May 1994, approximately 32% of the stock in the Company was sold to
investors in an initial public offering (the "IPO"). The Company's stock is
currently listed on the New York Stock Exchange, and approximately 68% of the
stock continues to be held by Union Camp Corporation.
Historically, headquarter employees of the Company have been located in the
United Kingdom. Employees located in the UK are generally covered under the Bush
Boake Allen Pension Scheme, while employees located in the US are covered by
qualified and nonqualified retirement plans based on similar plans sponsored by
Union Camp Corporation.
Following the May 1994 IPO, Company headquarters was moved to the US and a
number of employees of the Company relocated from the UK to the US. Generally,
these employees have substantial service with the Company prior to relocation,
and were at least 10 years from normal retirement under the qualified US pension
plan at the time of relocation. Due to the benefit accrual patterns in the UK
and US retirement programs, certain employees may earn substantially less in
retirement benefits under the two programs (reflecting separate entitlements for
service in the UK and for service in the US) than if they had either (i) spent
an entire career under the Bush Boake Allen Pension Scheme, or (ii) spent an
entire career under the US program.
In consideration for the agreement of employees to relocate from the UK to the
US, the management of Union Camp Corporation intended that no employee be
adversely affected with respect to pension entitlements and assured employees to
that effect. To that end, an affected employee would be able to receive
retirement benefits at least as great as if such employee spent his entire
career under the current US program. As stated above, one purpose of this
Relocation Retirement Income Plan for Executives is to provide benefit
calculated as the promised benefits, less any benefits actually payable to the
affected employee under the Bush Boake Allen Pension Scheme and the US program.
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ARTICLE 1
DEFINITIONS
1.1 "Actuarial Equivalent" means for any calculation made under the Plan where
not otherwise specified, the appropriate calculation assuming:
-- Interest: the applicable mortality table under section 417(e) of the
Code for the calendar month prior to first day of the Plan Year for
which the calculation is made.
-- Mortality: the applicable mortality table under section 417(e) of the
Code.
1.2 "Board" means the Board of Directors of Bush Boake Allen Inc.
1.3 "Change in Control" of the Company shall be deemed to have occurred if
(i) any "person," as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
(other than the Company, any employee benefit plan sponsored by the
Company, any trustees or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned,
directly or indirectly, by the stockholders of the Company, in
substantially the same proportions as their ownership of stock of the
Company), after the Effective Date becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more of
the combined voting power of the Company's then outstanding
securities;
(ii) during any period of no more than two consecutive years, individuals
who at the beginning of such period constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at least a
majority of the Board; provided, that, any new director whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of
the Incumbent Directors who remain on the Board (including those
directors whose election or nomination for election was previously so
approved) shall also be deemed to be Incumbent Directors; provided,
however, that no director who during such two year period is
designated by a person who has entered into an agreement with the
Company to effect a transaction of the type described in clause (i)
or (iii) of this Section or is initially elected or nominated as a
director of the Company as a result of an actual or threatened
election contest with respect to directors or any other actual or
threatened solicitation of proxies or consents by or on behalf of any
person other than the Board shall be treated as an Incumbent Director
for purposes of determining whether this clause (ii) has been
triggered for such two year period;
(iii) the consummation of a merger or consolidation of the Company or any
such type of transaction involving the Company or any of its
subsidiaries that requires the approval of the Company's stockholders
(whether for the transaction or the issuance of securities in the
transaction or otherwise) (a "Business Combination"), other than a
Business Combination which would result in the
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voting securities of the Company outstanding immediately prior
thereto continuing to represent directly or indirectly (either by
remaining outstanding or by being converted into voting securities of
the surviving entity) more than 50% of the combined voting power of
the voting securities of the Company or such surviving entity
outstanding immediately after such Business Combination; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or the sale of all or substantially all of
the Company's assets.
A Change in Control of the Company shall be deemed not to have occurred
with respect to an Executive if the Executive participates as an investor
in the acquiring entity in any such Change in Control transaction, unless
such acquiring entity is a publicly-traded corporation and the Executive's
interest in such acquiring entity immediately prior to the acquisition
constitutes less than one percent (1%) of both (1) the combined voting
power of such entity's outstanding securities and (2) the aggregate fair
market value of such entity's outstanding securities. For this purpose the
Executive's interest shall include any such interest of which the Executive
is a "beneficial owner" as defined in Rule 13d-3 under the Exchange Act.
Subject only to the provision in the immediately preceding paragraph, if
the Executive's employment is terminated prior to a Change in Control
(including pursuant to an event which would constitute Good Reason if it
occurred prior to the Change in Control), and the Executive reasonably
demonstrates that such termination was at the request or suggestion of a
third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control (a "Third Party") then for all
purposes of this Plan, the date of a Change in Control with respect to such
Executive shall mean the date immediately prior to the date of such
termination of employment.
1.4 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
1.5 "Committee" means the Compensation Committee of the Board.
1.6 "Company" means Bush Boake Allen Inc., a Virginia corporation, and any
successor or predecessor employer.
1.7 "Effective Date" means October 1, 1998.
1.8 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.9 "Executive" means such officers and other executives as the Committee may
from time to time designate as covered by the Plan if each such officer is
(i) an executive officer of the Company and/or (ii) an executive of the
Company who when first employed by the Company already had prior business
or professional experience which was valuable to the Company and relevant
to the position for which he was employed. Such Executives shall be listed
in Appendix A to the Plan which shall be maintained by the Committee and
revised from time to time. Participation shall be limited to a select group
of management or highly compensated employees. This term shall also include
the Executive's spouse in the event Benefit payments, as described
hereinafter, to such spouse have commenced under the Plan.
3
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1.10 "Good Reason" means without the Executive's express written consent, the
occurrence after a Change in Control of the Company of any of the following
circumstances:
(a) the assignment to the Executive of any duties inconsistent with the
position in the Company that he held immediately prior to a Change in
Control of the Company (other than in nature of a promotion), or a
significant adverse alteration in the nature or status of the
Executive's responsibilities or the conditions of his employment from
those in effect immediately prior to such Change in Control;
(b) a reduction by the Company in the Executive's annual base salary as
in effect on the date of a Change in Control except for
across-the-board salary reductions similarly affecting all management
personnel of the Company and all management personnel of any person
in control of the Company;
(c) the relocation of the Company's offices at which the Executive is
principally employed immediately prior to the date of the Change in
Control of the Company to a location more than 25 miles from such
location, or the Company's requiring the Executive to be based
anywhere other than the Company's offices at such location except for
required travel on the Company's business to an extent substantially
similar to his business travel obligations immediately prior to a
Change in Control;
(d) the failure by the Company to pay the Executive any portion of his
current compensation or to pay to him any portion of an installment
of deferred compensation under any deferred compensation program of
the Company within seven (7) days of the date such compensation is
due;
(e) the failure by the Company to continue to provide substantially the
same compensation plans in which the Executive participates
immediately prior to a Change in Control of the Company, including
without limitation, a savings and investment plan, a stock option and
stock award plan, a restricted stock performance plan, and an annual
incentive compensation plan, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made
with respect to each such plan, or the failure by the Company to
continue the Executive's participation therein (or in any such
substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the
level of his participation relative to other participants, than that
which existed at the time of a Change in Control of the Company; or
(f) the failure by the Company to continue to provide the Executive with
benefits and coverage substantially similar to those provided to him
under any of the Company's pension, life insurance, medical,
accident, or disability plans in which he was participating at the
time of a Change in Control of the Company, the taking of any action
by the Company which would directly or indirectly materially reduce
any of such benefits, or the failure by the Company to provide the
Executive with the number of paid vacation days to which he is
entitled on the basis of years of service with the Company in
accordance with the Company's
4
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vacation policy for salaried employees in effect at the time of a
Change in Control of the Company.
1.11 "Normal Retirement Date" means the first day of the month coincident with
or next following the date on which the Executive attains age 65.
1.12 "Pension Plan" means the Pension Plan for Eligible Employees of Bush Boake
Allen Inc., effective May 1, 1994 and including any successor plan and
amendments thereto.
1.13 "Pension Plan Benefit" means the annual benefit, calculated as payable in
the annuity form elected by an Executive, that would be payable to such
Executive under the Pension Plan as of a retirement date.
1.14 "Prior Service " means credit for periods of service prior to the
Executive's commencement of service under the Pension Plan as granted by
the Committee from time to time with respect to Executives and maintained
in Appendix A to the Plan. The amount of Prior Service credited by the
Committee cannot thereafter be reduced by the Committee except as
explicitly provided herein.
1.15 "Prior Service Benefit" means retirement income payments provided under a
plan or plans sponsored by a Previous Employer (including, at the
Committee's discretion, unrelated corporations and affiliates of the
Company for which service in the Pension Plan and the Supplemental Plan is
not granted) and for which the Committee grants Prior Service under this
Plan. To the extent determined by the Committee in its discretion and
maintained in Appendix A to the Plan, retirement income payments under any
plan or plans of such Previous Employer shall be an offset to an
Executive's Relocation Retirement Income Benefit payable hereunder.
An Executive's Prior Service Benefit shall be determined as of the date
benefits commence under this Plan.
The Prior Service Benefit will be calculated assuming an Executive elects
payment of retirement income benefits from a Previous Employer's plan or
plans commencing at the same time as the Executive elects payment under
this Plan.
If the Executive cannot elect payment of retirement income benefits from a
Previous Employer's plan or plans as of the date benefits commence under
this Plan, the Prior Service Benefit shall be calculated as the Actuarial
Equivalent of the retirement income benefits payable under such plan or
plans as of the earliest date when such retirement income benefits could be
elected.
The Prior Service Benefit will be calculated assuming the Executive elects
payment of retirement income benefits from a Previous Employer's plan or
plans in the same form of benefit as the Executive elects under this Plan.
If the Executive cannot elect such form under the Previous Employer's plan
or plans, the Prior Service Benefit shall be calculated as the Actuarial
Equivalent of the retirement income benefit payable under the Previous
Employer's plan or plans that is most
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comparable to the benefit elected by the Executive for the payment of
benefits under this Plan.
An Executive's Prior Service Benefit shall not be adjusted for cost of
living increases granted by the Plan under which such Prior Service Benefit
is paid subsequent to the benefit commencement date under this Plan.
If an Executive's Prior Service Benefit is denominated in a currency other
than US dollars, the rate used for converting such Prior Service Benefit to
US dollars shall be the noon buying rate in the City of New York for cable
transfers in foreign currencies announced by the Federal Reserve Board of
New York for customs purposes on the last day of the month for which such
rate is published prior to the retirement date.
1.16 "Plan" means the Bush Boake Allen Inc. Relocation Retirement Income Plan
for Executives, and, subject to Article 7, any amendments thereto.
1.17 "Plan Year" means the period from October 1, 1998 to December 31, 1998 and
the calendar year beginning on January 1, 1999 and each January 1
thereafter.
1.18 "Relocation Retirement Income Benefit" means a monthly benefit, payable in
the same annuity form as the Executive's Pension Plan benefit, as
calculated under section 2.1 of the Plan.
1.19 "Retirement Board" means the management committee appointed by the Board to
administer and manage the operations of the Pension Plan as provided in the
Pension Plan.
1.20 "Supplemental Plan" means the Supplemental Retirement Plan of Bush Boake
Allen Inc., effective May 1, 1994 and including any successor plan and
amendments thereto. The Supplemental Plan shall not include any portion of
the Supplemental Retirement Plan of Bush Boake Allen Inc. which
provides for savings type benefits.
1.21 "Supplemental Plan Pension Benefit" means the annual pension benefit,
calculated as payable in the same annuity form as the Executive's Pension
Plan benefit, payable under the Supplemental Plan as of a retirement date.
An Executive's Supplemental Plan Pension Benefit shall not include any
benefits provided under the Supplemental Plan characterized as savings
benefits.
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1.22 "Target Benefit" means the annual benefit, calculated as payable in the
same annuity form as the Executive's Pension Plan Benefit, that would be
payable to an Executive under the Pension Plan and Supplemental Plan, as of
a retirement date if the Executive was credited with Prior Service, as set
forth in Appendix A, under those plans for all plan purposes. The Target
Benefit calculation is subject to all of the same calculation conventions
as apply to the benefit under the Pension Plan.
An Executive's Target Benefit shall not include any benefits under the
Supplemental Plan characterized as savings benefits.
In calculating an Executive's Target Benefit, if a five year earnings
history with the Company in the US is not available, final average earnings
for purposes of calculating an Executive's Target Benefit shall be such
Executive's actual earnings over the period of employment with the Company
in the US, divided by such Executive's service period with the Company in
the US.
1.23 "Total Actual Benefit" means an annual benefit as calculated under section
2.2 of the Plan, and used as one of the inputs in an Executive's Relocation
Retirement Income Benefit.
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ARTICLE 2
RELOCATION RETIREMENT INCOME BENEFIT
2.1 Relocation Retirement Income Benefit - An Executive's Relocation Retirement
Income Benefit shall be a monthly benefit, beginning on the same day an
Executive's benefits commence under the Pension Plan in an amount equal to
one-twelfth of such Executive's Target Benefit less one-twelfth of such
Executive's Total Actual Benefit. An Executive's Relocation Retirement
Income Benefit shall never be less than $0. An Executive's Relocation
Retirement Income Benefit shall be paid in the same annuity form as the
Executive's benefit under the Pension Plan.
2.2 Total Actual Benefit - An Executive's Total Actual Benefit shall be an
annual benefit, calculated as the sum of:
(a) such Executive's Pension Plan Benefit;
(b) such Executive's Supplemental Plan Pension Benefit; and
(c) such Executive's Prior Service Benefit.
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ARTICLE 3
PAYMENT OF BENEFIT
3.1 Vesting - An Executive shall be fully vested in such Executive's Relocation
Retirement Income Benefit at the same time that such Executive becomes
fully vested under the Pension Plan.
3.2 Retirement - If an Executive terminates employment on a date when such
Executive is eligible to retire under the Pension Plan, the Executive's
Relocation Retirement Income Benefit shall be payable in United States
dollars as of the date such Executive's Pension Plan benefit commences. The
Executive's Relocation Retirement Income Benefit shall be payable in the
same annuity form as the Executive's Pension Plan benefit.
3.3 Termination Prior to Retirement Eligibility under the Pension Plan - If an
Executive terminates employment prior to the date when such Executive is
eligible to retire under the Pension Plan, the Executive's Relocation
Retirement Income Benefit shall be deferred until the time such Executive
is eligible for and elects payment under the Pension Plan. Such Executive's
Relocation Retirement Income Benefit at such time shall reflect the Target
Benefit and Total Actual Benefit as of the date payment is elected.
3.4 Lump Sum Available Upon Change in Control - Upon a Change in Control, and
termination by the Company or by the Executive for Good Reason, any benefit
accrued hereunder shall be fully vested, and shall be payable as a lump
sum.
The amount of the lump-sum payment shall be determined by calculating the
Executive's net annual Benefit as a single life annuity and converting such
annuity to a present value. The rate that shall be used to calculate such
present value shall be determined on the first business day of each
calendar quarter in accordance with the following formula and shall apply
to each lump-sum payment made in such calendar quarter:
The rate shall be the net after-tax rate derived by multiplying
one (1) minus the current U.S. income tax rate expected to be
applicable to the Company for financial reporting purposes by the sum
of (a) and (b), where:
(a) is the average of (i) the interest rate on 10 year U.S.
Treasuries and (ii) the interest rate on 30 year U.S. Treasuries, and,
(b) is the spread on 10 plus year taxable debt of industrial
companies with similar credit rating to that of the Company over10
plus year U.S. Treasuries.
If payment of any part of the lump-sum amount must be deferred due to its
non-deductibility pursuant to Section 162(m) of the Code, the amount of the
lump-sum payment to be deferred shall be converted back into a single life
annuity form of payment using the interest rate assumption used to
calculate the amount of the lump-sum payment. As soon as the payment of all
or any part of the deferred lump-sum payment can be deducted by the
Company, such single life annuity shall be converted to
9
<PAGE>
<PAGE>
a present value, using the rate set forth above as in effect for the
calendar quarter in which the payment occurs and using the Executive's age
as of the Retirement Plan Commencement Date.
3.5 Death Benefit - If an Executive covered by the Plan dies prior to
commencement of benefits under the Plan, such Executive's spouse (or a
trust whose beneficiary is the spouse, if the Executive so elects) shall be
eligible hereunder to receive a benefit calculated as if the benefit were
payable under the Pension Plan. Offsets shall apply for benefits to the
spouse payable under the Pension Plan and the Supplemental Plan and for any
Prior Service Benefit.
If an Executive covered by the Plan dies after commencement of benefits
under the Plan, benefits shall continue to be paid to such Executive's
beneficiary in accordance with the election made under this Plan, the
Pension Plan, and the Supplemental Plan at the time benefits commenced.
10
<PAGE>
<PAGE>
ARTICLE 4
ADMINISTRATION
4.1 Retirement Board - The Plan shall be administered by the Retirement Board
provided for in the Pension Plan. Any member of the Retirement Board may be
an Executive covered by the Plan.
4.2 Decision of the Retirement Board - On all matters and questions the
decisions of a majority on the members of the Retirement Board shall govern
and control and shall conclusively represent a unanimous decision of the
entire Retirement Board. Such decision shall either be evidenced by a vote
at any meeting, or by written instrument signed by a majority of the
Retirement Board when no meeting is held.
4.3 Bonding, Compensation, Indemnification - No bond or other security shall be
required of any individual on the Retirement Board except as may be
required by law. No fee or compensation shall be paid to any such
individual for his services on the Retirement Board relating to the Plan.
Neither the Retirement Board nor any individual thereon shall be liable or
responsible to any person or party for any matter or thing whatsoever
connected with, or related to, the Plan or the administration thereof by
the Retirement Board except in circumstance involving bad faith. The
Company shall indemnify and hold harmless each member of the Retirement
Board from the consequences of his acts and omissions, except those
constituting willful misconduct or gross negligence.
4.4 Agents and Service Providers - The Retirement Board may appoint from its
number such sub-committees with such powers with regard to the Plan as the
Retirement Board shall determine, and may authorize one or more of its
number or any agent to execute or deliver any instrument relating to the
Plan in its behalf, and may employ such counsel, actuaries, medical
examiners, accountants and such clerical or other services as it may
require in carrying out the provisions of the Plan. The Company shall pay
the fees, salaries, and other charges and costs of such services.
The Retirement Board may designate any person not a member thereof to carry
out such of its responsibilities under the Plan as it shall delegate to
such person. Any such designation or delegation shall be made in accordance
with such rules and regulations as the Retirement Board shall deem
advisable. The Retirement Board shall cause the performance of such person
to be reviewed not less than annually.
Any person or group of persons may serve in more than one fiduciary
capacity with respect to the Plan.
4.5 Accounts and Records - The Retirement Board shall cause to be maintained
such accounts and records as it deems necessary or advisable to properly
reflect the administration of the Plan. An Executive shall be entitled to
examine at any reasonable time any such accounts and records directly
pertaining to him.
4.6 Interpretation of Plan - The Retirement Board has the exclusive power to
determine any debatable question arising in connection with the
interpretation, application or
11
<PAGE>
<PAGE>
administration of the Plan. Its decision or action in respect thereof shall
be conclusive and binding on all persons and parties concerned.
4.7 Establishment of Rules - The Retirement Board may establish rules from time
to time for the transaction of its business and for the operation and
administration of the Plan.
12
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<PAGE>
ARTICLE 5
PLAN FUNDING
5.1 Nature of Obligation - The Plan is unfunded, and the Company will make
benefit payments solely on a current disbursement basis, provided, however,
that the Company reserves the right to purchase insurance contracts, which
may or may not be in the name of an Executive, and/or establish one or more
trusts to provide alternative sources of benefit payments under this Plan.
Notwithstanding the unfunded nature of the plan, upon a Change of Control,
or earlier in the event that the Board determines that a Change of Control
is likely or imminent, the Company shall transfer a sum of money into a
trust (the "Rabbi Trust") to secure the benefits payable hereunder. The
amount transferred shall equal the full present value of the benefits
payable to all Executives covered under the Plan, calculated under the
assumption that each Executive shall be discharged from the Company for a
reason other than Cause two (2) years after the Change of Control. Such
calculation shall use the interest rate that would be used to calculate a
lump sum benefit under the terms of Section 3.4 and such other reasonable
actuarial assumptions determined by the Retirement Board. The Rabbi Trust
shall be irrevocable but the Trust Agreement shall provide that assets in
the Rabbi Trust shall be available to creditors of the Company in the event
of the bankruptcy or insolvency of the Company. The Trust Agreement shall
provide that benefits payable to Executives under this Relocation
Retirement Income Plan for Executives shall be payable from such Trust and
that Executives have the right to seek payment directly from the Trustee of
such Trust in the event that benefits are not paid by the Company.
5.2 Contract or Trust - If the Company elects or is required to provide for the
payment of its obligations hereunder through the purchase of a contract
from an insurance company or the establishment of a trust or otherwise, no
Executive or beneficiary or any other person who acquires a right to
receive payments hereunder shall have any rights or interest in such
contract or trust greater than those of an unsecured general creditor of
the Company.
13
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<PAGE>
ARTICLE 6
MISCELLANEOUS PROVISIONS
6.1 No Guarantee of Employment - The establishment of the Plan shall not be
construed to confer upon any Executive any legal right to be continued as
an employee, and the Company expressly reserves the right to discharge any
Executive or to increase or decrease his compensation whenever the interest
of the Company, in its sole judgment, may so require, subject to the
provisions herein regarding a Change in Control.
6.2 Non-Alienation of Benefits - No benefits payable under the Plan shall,
except as otherwise specifically provided by law, be subject in any manner
to anticipation, alienation, attachment, sale, transfer, assignment,
pledge, encumbrance or charge, and any attempt to anticipate, alienate,
attach, sell, transfer, assign, pledge, encumber or charge any such
benefits shall be void; and any such benefits shall not in any manner be
liable or subject to the debts, contracts, liabilities, engagements or
torts of any Executive, nor shall they be subject to attachment or legal
process for or against such Executive or his beneficiary.
If any Executive or beneficiary shall be adjudicated a bankrupt or shall
attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber
or charge such benefits, or if any attempt is made to subject any benefits
hereunder on the debts, contracts, liabilities, engagements or torts of the
Executive or his beneficiary entitled to such benefits, then such benefits
shall, in the discretion of the Retirement Board cease and terminate, and
in that event the Retirement Board may cause such benefits or any part
thereof, to be held or applied for the benefit of such Executive or
beneficiary, his children or other dependents, or any of them, or other
beneficiary in such manner and in such proportion as the Retirement Board
shall determine.
6.3 Payment to Representatives - If, for any reason, the Retirement Board shall
determine that it is not desirable, because of the incapacity of an
Executive or beneficiary who shall be entitled to receive any payments of
benefits, to make such payments directly to such person, the Retirement
Board may apply such payment for the benefit of such Executive or
beneficiary in any way that the Retirement Board shall deem advisable or to
make any such payments to any third person, who, in the judgment of the
Retirement Board, will apply such payment for the benefit of the Executive
or beneficiary entitled thereto. In the event of such payment the Company
and the Retirement Board shall be discharged from all further liability for
such payment.
6.4 Timing of Payments - If the Retirement Board is unable to make the
determinations required under this Plan in sufficient time for payments to
be made when due, the Retirement Board shall make the payments upon the
completion of such determinations with interest at a reasonable rate from
the due date and may, at is option, make provisional payments, subject to
adjustment, pending such determinations.
6.5 Governing Law -To the extent not preempted by any laws of the United States
now or hereafter enacted, including the Employee Retirement Income Security
Act of 1974, as amended, the Plan shall be construed and all provisions
hereof shall be enforced and administered according to the laws of the
State of New Jersey.
14
<PAGE>
<PAGE>
6.6 Gender and Number - The masculine pronoun wherever used shall include the
feminine. Wherever any words are used herein in the singular, they shall be
construed as though they were also used in the plural in all cases where
they shall so apply.
6.7 Titles and Headings - The titles to articles and headings of sections of
this Plan are for convenience of reference and in case of any conflict the
text of the Plan, rather than such titles and headings, shall control.
6.8 Separability - Any provision of the Plan deemed to be in violation of any
law or regulation shall be null and void and of no effect and shall not
affect the validity of any other provision hereof.
6.9 Claims Procedure - Except as otherwise established by the Retirement Board,
any and all claims for benefits shall be processed in accordance with the
terms of the claims procedure under the Pension Plan.
6.10 Competition With Company; Cause -Notwithstanding any other provision of the
Plan to the contrary, no benefits or no further benefits, as the case may
be, shall be paid to an Executive if the Committee reasonably determines
that such Executive has:
(i) to the detriment of the Company or any affiliate, directly or
indirectly acquired, without the prior written consent of the
Committee, an interest in any other company, firm, association, or
organization (other than an investment interest of less than 1% in a
publicly-owned company or organization), the business of which is in
direct competition with the business (present or future) of the
Company or any of its affiliates;
(ii) to the detriment of the Company or any affiliate, directly or
indirectly competed with the Company or any affiliate as an owner,
employee, partner, director or contractor of a business, in a field
of business activity in which the Executive has been primarily
engaged on behalf of the Company or any affiliate or in which he has
considerable knowledge as a result of his employment by the Company
or any affiliate, either for his own benefit or with any person other
than the Company or any affiliate, without the prior written consent
of the Committee; or
(iii) been discharged from employment with the Company or any affiliate for
"cause." "Cause" shall include the occurrence of any of the following
events or such other dishonest or disloyal act or omission as the
Committee reasonably determines in its sole discretion to be "cause":
(a) the Executive has misappropriated any funds or property of the
Company or any affiliate;
(b) the Executive has, without the prior knowledge or written consent
of the Committee, obtained personal profit as a result of any
transaction by a third party with the Company or any affiliate;
or
(c) the Executive has sold or otherwise imparted to any person, firm,
or corporation the names of the customers of the Company or any
affiliate
15
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<PAGE>
or any confidential records, data, formula, specifications and
other trade secrets or other information of value to the Company
or any affiliate derived by his association with the Company or
any affiliate.
In any case described in this Section 6.10, the Executive shall be given
prior written notice that no benefits or no further benefits, as the case
may be, will be paid to such Executive. Such written notice shall specify
the particular acts(s), or failures to act, on the basis of which the
decision to terminate his Benefits has been made.
Notwithstanding the preceding provisions of this Article, following a
Change in Control of the Company, this Section 6.10 shall not be
applicable.
6.11 Disputes - If any dispute arises under the Plan between the Company and a
Executive as to the amount or timing of any Benefit payable under the Plan
or as to the persons entitled thereto, such dispute shall be resolved by
binding arbitration proceedings initiated by either party to the dispute in
accordance with the rules of the American Arbitration Association and the
results of such proceedings shall be conclusive on both parties and shall
not be subject to judicial review. If the disputed benefits involve the
benefits of an Executive who is no longer employed by the Company or any
affiliate, the Company shall pay or continue to pay the benefit (except a
benefit payable in a lump-sum pursuant to Section 3.4) until the results of
the arbitration proceedings are determined unless such claim is patently
without merit; provided, however, that if the results of the arbitration
proceedings are adverse to the Executive, then in such event the recipient
of the benefits shall be obligated to repay the excess benefits to the
Company. The Company shall pay any and all legal fees and expenses incurred
by the Executive in seeking to obtain or enforce any rights under the Plan.
16
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<PAGE>
ARTICLE 7
AMENDMENT AND EFFECTIVE DATE
7.1 Amendment -The Board of Directors of Bush Boake Allen Inc. shall have the
right at any time or from time to time to modify, amend or terminate the
Plan in whole or in part. No such modification, amendment or termination
shall reduce the amount of benefits that would have been payable under the
Plan to an Executive for service prior to such modification, amendment or
termination.
7.2 Effective Date -The Plan is effective as of October 1, 1998.
17
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<PAGE>
IN WITNESS WHEREOF, the Board of Directors of Bush Boake Allen Inc. has adopted
this Plan effective as of October 1, 1998.
Attest:
- -----------------------------------------------
BUSH BOAKE ALLEN INC.
Title
By:
--------------------------------------------
Title
18
<PAGE>
<PAGE>
APPENDIX A
BUSH BOAKE ALLEN INC.
RELOCATION RETIREMENT INCOME PLAN FOR EXECUTIVES
Executives Covered by the Plan as of October 1, 1998
<TABLE>
<CAPTION>
Prior Service Granted
by the Compensation Plan Providing
Executive Committee Prior Service Benefit
- --------- ---------------------- -----------------------
<S> <C> <C>
Julian W. Boyden 26.5000 years BBA Pension Scheme (UK)
James H. Dunsdon 27.4167 years BBA Pension Scheme (UK)
J. Hollyhead 35.9167 years BBA Pension Scheme (UK)
P.C. Mathew 11.1667 years BBA Pension Scheme (UK)
Peter A. Thorburn 13.5833 years BBA Pension Scheme (UK)
L. Trinnaman 21.8333 years BBA Pension Scheme (UK)
John R. Wright 21.9167 years BBA Pension Scheme (UK)
</TABLE>
19
<PAGE>
<PAGE>
EXHIBIT 11.1
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Quarter Ended Year Ended
December 25, December 25,
------------------------------ ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 9,224,000 $ 7,163,000 $33,692,000 $30,981,000
Shares used to compute
earnings per share - Basic 19,283,462 19,258,042 19,279,028 19,237,909
Earnings Per Share - Basic $0.48 $0.37 $1.75 $1.61
Shares used to compute
earnings per share including
common stock equivalents - Diluted 19,401,626 19,452,556 19,405,569 19,418,277
Earnings Per Share - Diluted $0.48 $0.37 $1.74 $1.60
</TABLE>
<PAGE>
<PAGE>
[LOGO] Bush Boake Allen Inc
1998
Annual
Report
[PHOTO]
FLAVORS
FRAGRANCES
AROMA CHEMICALS
enhancing the essence of life
<PAGE>
<PAGE>
Bush Boake Allen Inc.
Shareholder Information
CORPORATE HEADQUARTERS
7 Mercedes Drive
Montvale, New Jersey 07645
(201) 391-9870
ANNUAL MEETING
The 1999 Annual Meeting will be held at 11:00 am (EDT) on September 8, 1999 at
the Montvale Holiday Inn, Montvale, New Jersey.
STOCK EXCHANGE LISTING
The common stock of Bush Boake Allen Inc. is traded on the New York Stock
Exchange (ticker symbol BOA).
STOCKHOLDER RECORDS
Transfer agent is The Bank of New York, 101 Barclay Street, 12 W,
New York, New York 10286
Inquiries relating to change of registered ownership or change of address should
be forwarded to:
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
QUARTERLY EARNINGS REPORTS
The company does not issue printed Quarterly Reports to Shareholders since we
believe they are not timely or cost effective. Quarterly earnings are
disseminated regularly and widely through news wire services, the media, and the
company's internet website; www.bushboakeallen.com.
Stockholders desiring copies of these earnings releases, as well as
individuals or organizations seeking further information about the company,
should write to Stewart J. Phelps, Director Corporate Communications at the
corporate headquarters address.
SEC FORM 10-K
A copy of the annual report on Form 10-K for 1998 as filed with the Securities
and Exchange Commission may be obtained without charge by writing to Stewart J.
Phelps, Director Corporate Communications, at the corporate headquarters
address.
[LOGO]
STATEMENTS IN THIS ANNUAL REPORT WHICH ARE NOT HISTORICAL ARE FORWARD-LOOKING
STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES WHICH 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, AVAILABILITY AND CAPACITY OF BOTH
MATERIALS WHICH ARE PURCHASED AND PRODUCTS WHICH ARE SOLD, POTENTIAL DISRUPTION
TO OPERATIONS FROM YEAR 2000 ISSUES, THE EFFECT OF THE TRANSITION TO THE EURO
AND POLITICAL AND ECONOMIC UNCERTAINTIES, CURRENCY FLUCTUATIONS, DEVALUATIONS
AND/OR REVALUATIONS IN THE MANY COUNTRIES IN WHICH THE COMPANY OPERATES. THE
COMPANY ASSUMES NO DUTY TO UPDATE ANY SUCH FORWARD-LOOKING INFORMATION.
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
($ IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
1998 1997 % Change
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales and Earnings:
Net Sales ..................... $485,374 $490,585 (1)
Income From Operations ........ 56,844 52,737 8
Income Before Income Taxes .... 50,666 46,300 9
Net Income .................... 33,692 30,981 9
- -------------------------------------------------------------------------------------
Per Share:
Net Income - basic ............ $ 1.75 $ 1.61 9
- diluted .......... 1.74 1.60 9
Stockholders' Equity .......... 16.62 14.97 11
- -------------------------------------------------------------------------------------
Ratios:
Net Income to Net Sales ....... 6.9% 6.3%
Long-Term Debt to Total Capital 3.2 1.2
- -------------------------------------------------------------------------------------
Financial Position at Year-End:
Total Assets .................. $458,410 $424,143 8
Long-Term Debt ................ 10,354 3,456 200
Stockholders' Equity .......... 320,521 288,392 11
- -------------------------------------------------------------------------------------
Additional Information:
Cash Provided by Operations ... $ 47,110 $ 35,610 32
Capital Expenditures .......... 35,961 33,481 7
Number of Employees ........... 1,977 1,964 1
- -------------------------------------------------------------------------------------
</TABLE>
NET SALES NET INCOME
($ in Millions) ($ in Millions)
[BAR CHART] [BAR CHART]
<PAGE>
<PAGE>
BUSH BOAKE ALLEN WORLDWIDE
AMERICAS REGION KENYA
ARGENTINA Nairobi
Buenos Aires PAKISTAN
BRAZIL Karachi
Sao Paulo POLAND
CANADA Warsaw
Montreal RUSSIA
Toronto Moscow
CHILE SLOVAKIA
Santiago Bratislava
COLOMBIA SOUTH AFRICA
Bogota Cape Town
JAMAICA Durban
Kingston Johannesburg
MEXICO TURKEY
Tlalnepantla Bursa
UNITED STATES Istanbul
Black Creek, WI UKRAINE
Carrollton, TX Kiev
Chicago, IL UNITED ARAB EMIRATES
Montvale, NJ Dubai
Norwood, NJ ZIMBABWE
Harare
EUROPEREGION
BENELUX ASIA PACIFIC REGION
Capelle Aan Den IJssel AUSTRALIA
DENMARK Adelaide
Birkerod Brisbane
FRANCE Melbourne
Paris Perth
GERMANY Sydney
Kreuzau-Stockheim CHINA
IRELAND Guangzhou
Clonee, Co. Meath Hong Kong
ITALY Shanghai
Mantova INDONESIA
SPAIN Bogor, West Java
Barcelona JAPAN
SWEDEN Tokyo
Knislinge MALAYSIA
UNITED KINGDOM Selangor
Glasgow NEW ZEALAND
London Auckland
Long Melford PHILIPPINES
Witham Manila
SINGAPORE
INTERNATIONAL REGION Jurong
BULGARIA THAILAND
Sofia Bangkok
CZECH REPUBLIC
Prague AROMA CHEMICALS
INDIA UNITED KINGDOM
Bangalore Widnes
Calcutta UNITED STATES
Chennai Jacksonville, FL
Chittoor
Delhi
Mumbai
AMERICAS REGION
SALES BY REGION
($ in Millions)
AMERICAS
REGION
[BAR CHART]
EUROPE
REGION
[BAR CHART]
ASIA PACIFIC
REGION
[BAR CHART]
INTERNATIONAL
REGION
[BAR CHART]
AROMA
CHEMICALS
[BAR CHART]
2
<PAGE>
<PAGE>
EUROPE REGION
ASIA PACIFIC REGION
INTERNATIONAL REGION
Worldwide Sales By End Use Worldwide Sales By Category
(Percent) (Percent)
BUSH BOAKE ALLEN BBA FLAVORS
[PIE CHART] [PIE CHART]
Aroma Chemicals 24% Oral Hygiene 3%
Fragrance 19% Other 7%
Flavor 57% Dairy/Ice Cream 13%
Beverages 18%
THE WORLD MARKET Confectionery/Bakery 22%
Snacks/Processed Foods 37%
[PIE CHART]
BBA FRAGRANCES
Aroma Chemicals 16%
Fragrance 30% [PIE CHART]
Flavor 54%
Colognes/Perfumes 7%
Cosmetics/Toiletries 26%
Soaps/Detergents 28%
Cleaners/Air Fresheners 39%
BBA AROMA CHEMICALS
[PIE CHART]
Intermediates 4%
Agrichemicals 16%
Fragrances 80%
3
<PAGE>
<PAGE>
[PHOTO]
Julian W. Boyden
Dear Stockholder:
Without a doubt, 1998 was a challenging year for Bush Boake Allen as many
of our overseas markets were upset by currency devaluations, persistent
financial turmoil and ongoing economic uncertainty. Nevertheless, with a few
exceptions, we continued to grow in overseas markets, as measured in local
currencies, and with company performance anchored by strong growth in the United
States, income from operations increased 8% to a record $56.8 million.
Company net sales for the year, which were penalized 6% by adverse foreign
exchange, declined 1% to $485 million. Net income, which included a $2.3 million
non-recurring gain from the sale of some land and buildings in England, rose 9%
to $33.7 million or $1.75 a share.
During the year the currency devaluations, financial disarray and economic
problems that have been so pervasive throughout Asia, created reverberations
that were felt in a number of other areas of the world.
In India, where Bush Boake Allen has a major presence, the Rupee was
devalued by 10% and South Africa's currency also sagged during the year followed
by the unexpected collapse of the Russian Ruble. This latter event resulted in a
loss on foreign exchange of slightly more than $2 million and had a significant
impact on BBA's business in our International Region. Taken together, the
company's currency losses this year have amounted to $3.5 million.Yet in spite
of the financial disruptions, we are still seeing reasonable growth within a
number of our overseas markets that is being masked by adverse foreign exchange.
In our International Region, for example, we reported 1998 sales in U.S. Dollars
that were down 6%. In local currencies however, sales actually increased by 12%.
Even in the Asia Pacific Region, which has encountered some of the most severe
economic turmoil, BBA's sales in local currencies actually increased 8% but
reflected an 11% decline when exchanged for U.S. Dollars.
In the Americas Region in 1998 slower sales throughout Latin America and
the Caribbean were more than offset by strong growth in the United States with
the company's fragrances and seasonings operations leading the way. In addition,
all three of BBA's U.S. based businesses; flavors, fragrances and seasonings
registered double digit growth in operating income for the year.
However in Europe, sales both in local currency and in U.S. Dollars,
declined modestly as the region began to show some signs of economic slowdown.
Exports of consumer products by European companies to Asia as well as to Eastern
Europe have been tempered by the economic problems in those areas. In addition,
the continued strength in the Pound Sterling added to competitive problems on
the European Continent for BBA products exported from the company's production
facilities in England.
In our global aroma chemical business, market demand started to soften
early in 1998 and that weakness persisted throughout the year. In addition,
shipments of BBA musk chemicals also declined significantly in both price and
volume. Overseas markets were also highly competitive as the strong Pound
Sterling and U.S. Dollar made price competition much more intense. Although
sales of company aroma chemicals declined modestly during 1998, operating income
increased 12% helped by product mix and increased efficiency from recent
modernizations at the Widnes and Jacksonville aroma chemical plants.
4
<PAGE>
<PAGE>
Looking across BBA's business over this past year and the diversity of the
global markets that we serve, it's obvious that 1998 has seen the confluence of
a series of unexpected economic events that have had a profoundly unsettling
effect on our global economy. It is surely a testament to how closely woven the
economic fabric of the world has become. All the more reason for BBA to be a
significant part of it if we are to continue to grow in the future.
As Bush Boake Allen started this decade and we assessed our strategic
position in the flavor and fragrance business, we reasoned that it was
imperative for the company to continue the strategy of building our
international presence that we had started in the early 1980's. That building
process has now been largely completed. Since 1981 we have greatly extended our
local ability to serve customers and today we have locations in 39 countries
with a number of them in developing or newly industrialized markets.
Despite the current problems in many of these markets, we believe these
countries still possess the long-term growth potential that made them attractive
in the first place.
As the movement of labor from agriculture to industry continues, and
increasing numbers of women enter the work force, products such as cleansers,
soaps, cosmetics, easy to prepare foods and snacks are still high on consumers'
lists of necessities. That trend may fluctuate, in the short run, but over time
will almost certainly continue.
The fact that Bush Boake Allen is today a truly global company is one of
our most important key strengths. We are well positioned to provide our large
international customers with the consistent service and uniform, high quality
products they require anywhere in the world. At the same time having an
organization locally that can serve regional and local customers, nurture them
and help them grow has also enabled BBA to build important, lasting, customer
relationships with many local companies that have now become substantial
businesses.
Another very important company strength is our strong raw material base.
Our position as a producer of a wide range of aroma chemicals, as well as basic
flavor ingredients such as vanilla, natural specialities and concentrated oils,
as well as spices and seasonings, gives us an unusual ability to provide our
creative flavorists and perfumers with some truly innovative ingredients.
In short, we believe Bush Boake Allen is built upon a balanced foundation
of creativity, advanced technology, broad global service capabilities and a
strong raw material position. This foundation has served the company well and is
one important reason we have progressed in terms of market share growth over the
last five years.
In other matters, in November 1998, International Paper Company and Union
Camp announced that they had reached an agreement to merge the two companies
through an exchange of stock. In addition to regulatory approval, the merger
must be approved by the shareholders of both companies. Assuming approval, it is
expected that the merger will close early in the second calendar quarter of
1999. When completed, International Paper will become the majority shareholder
of Bush Boake Allen.
As we approach the end of this decade and the beginning of a new
millennium, I can report to you that the company's market and financial
positions are both strong. Relying on the creativity and energy of our
employees, we will continue to pursue innovative ways of building BBA to better
serve our customers and create increasing value for our shareholders.
To all our shareholders, directors and employees, my sincere thanks for
your effort and support.
/s/ J.W. Boyden
J.W. Boyden
Chairman, President and Chief Executive Officer
March 12, 1999
BUSH BOAKE ALLEN IS BUILT UPON A BALANCED FOUNDATION OF CREATIVITY, ADVANCED
TECHNOLOGY, BROAD GLOBAL SERVICE CAPABILITIES AND A STRONG RAW MATERIAL
POSITION.
5
<PAGE>
<PAGE>
AMERICAS REGION
[PHOTO]
BUSH BOAKE ALLEN IS A LEADING
SUPPLIER OF FLAVORS FOR THE
FAST GROWING BEVERAGE MARKET.
THIS HIGH-SPEED PACKAGING LINE
IS PART OF A MAJOR EXPENSION
OF THE CARROLLTON, TEXAS
SEASONINGS PLANT.
6
<PAGE>
<PAGE>
[PHOTO]
SCENTED CANDLES BASED ON
PROPRIETARY PATENTED TECHNOLOGY
AND BBA FRAGRANCES ARE RECEIVING
ENTHUSIASTIC MARKET ACCEPTANCE.
Americas Region
Percent of Total
Company Flavor &
Fragrance Sales
[PIE CHART]
Flavor 25%
Fragrance 10%
The U.S. based flavor and fragrance business was strong in 1998 with sales
advancing in double digits and operating income growing even more strongly.
Although smaller in absolute numbers, Canada also had increased sales and along
with the U.S. operations contributed to results that more than offset weaker
markets in Latin America and the Caribbean.
Growth was particularly strong in the company's seasonings business, during the
year. Significant growth was gained in snack food and prepared food seasonings.
The growing consumer trend to more processed food shortcuts and meals purchased
for in-home dining has also fueled growth in seasonings for poultry and red meat
products. Sales of BBA seasonings grew 21% in 1998 and operating income also
increased solidly.
To stay ahead of the growth we anticipate in this business, work started in the
second half of 1998 on a further expansion and modernization of the Carrollton,
Texas seasonings production complex. This latest plant improvement, the second
significant expansion since 1992, will provide additional capacity, further
increase automation and also enhance Good Manufacturing Practices for even
higher quality and customer service.
In BBA's U.S. fragrance operations, the creative staff was augmented during the
year as the fragrance organization concentrated on improving efficiency,
automating its operations, and enhancing the level of service provided to
customers. In addition, there were significant new business wins in toiletries,
fabric care and household products. In the latter category, BBA began to
capitalize on the rapidly growing market for scented candles by commercializing
new, patented technology which has started to generate significant
additional sales in line with expectations.
Faced with price pressure, retail rationalization and customer cost-cutting,
BBA's U.S. flavor sales achieved moderate growth in 1998. However, tight control
over costs and significant improvement in the Americas essential oil operation,
combined to help the company's U.S. flavor business achieve double-digit
operating income growth. Moreover, a number of new business wins, in 1998, have
the potential for significant future sales growth if the consumer acceptance
seen in early trials continues as the new products roll out nationally.
Also during the year a major modernization and expansion of the company's
Chicago flavor plant got underway. This facility is BBA's production center for
compounded flavors and vanilla products in the U.S. In addition to a new 25,000
square foot building, the modernization includes state-of-the-art equipment to
fully automate liquid compounding operations. Along with other improvements, the
modernization will advance efficiency and further heighten customer service.
7
<PAGE>
<PAGE>
EUROPE REGION
[PHOTO]
SAVORY SNACK FOODS ARE GAINING
INCREASING POPULARITY WORLDWIDE.
BBA IS A MAJOR FLAVOR SUPPLIER
TO THIS GROWING MARKET.
THIS NEW BBA PROCESS FLAVOR
PLANT AT LONG MELFORD,
ENGLAND IS HELPING MEET
DEMAND FOR SAVORY FLAVORS.
8
<PAGE>
<PAGE>
[PHOTO]
BBA FLAVORS ENHANCE THE APPEAL
AND ENJOYMENT OF A VARIETY
OF CONFECTIONERY AND DAIRY PRODUCTS.
Europe Region
Percent of Total
Company Flavor &
Fragrance Sales
[PIE CHART]
Flavor 21%
Fragrance 7%
In 1998, the Europe Region generated 22% of total company sales and 28% of Bush
Boake Allen's flavor and fragrance sales.
Markets for flavors and fragrances in Europe were mixed in 1998. Overall, sales
declined modestly in the Europe Region with operating income also moving down.
The company's fragrance operations in the U.K. registered solid double-digit
growth but U.K. flavor sales were essentially level with the prior year.
On the European continent, markets were soft and with some economists predicting
slower economic growth, BBA's sales were down across the continent. Spain and
France were the exception with both companies reporting strong sales growth.
Currency was a significant adverse factor in the Europe Region in 1998. The
continued strength of the Pound Sterling made for a difficult competitive
pairing against the German Deutschemark. With BBA's principal manufacturing
sites located in the U.K., the currency exchange differential can often put
BBA's products at a competitive disadvantage in Europe contributing to a squeeze
on margins.
Reverberations from the collapse of the Russian Ruble, in August of 1998, were
also felt in Western Europe and in Scandinavia. Denmark, which is a major
exporter of food products and other consumer goods to Russia, was particularly
affected by the devaluation as many Danish manufacturers could no longer compete
effectively in the Russian market. This impacted BBA's business and the
company's sales in Denmark were off significantly.
The company has taken steps to strengthen operations in Europe by modernizing
and automating its plants in London, Long Melford and Witham, England and
Knislinge, Sweden. In 1998 a new facility was started up at BBA's Long Melford,
England site for the production of process flavors which impart a basic,
"home-made" taste to many savory food products including soups, sauces, various
meat dishes and convenience meals.
In another step to spur future growth, the company broke ground at mid-year for
a new state-of-the-art creative center in the Netherlands. This new center will
bring together creative flavorists, specially skilled in savory, dairy and
confectionery flavor technology with newly designed laboratories and some of the
latest application and pilot plant equipment, providing BBA's European customers
fast track technical and creative service.
Advanced technology and service, innovative new products and efficient,
automated plants promise to give Bush Boake Allen a stronger position in an
uncertain economic environment.
9
<PAGE>
<PAGE>
ASIA PACIFIC REGION
[PHOTO]
A NEW PLANT IN BANGKOK IS
PRODUCING SEASONINGS FOR FOODS
WIDELY CONSUMED IN THAILAND
AND THROUGHOUT THE REGION.
10
<PAGE>
<PAGE>
[PHOTO]
COSMETICS, TOILETRIES AND
PERSONAL CARE PRODUCTS ARE
SIGNIFICANT END USE APPLICATIONS
FOR MANY BBA FRAGRANCE
COMPOUNDS.
Asia Pacific Region
Percent of Total
Company Flavor &
Fragrance Sales
[PIE CHART]
Flavor 15%
Fragrance 4%
Sales and operating income declined in 1998 in Bush Boake Allen's Asia Pacific
Region as the financial and economic malaise that has settled over Asia
persisted through the year. Recession, high unemployment and some social unrest,
all contributed to creating a difficult operating environment.
In spite of economic setbacks in the region, there are still locations where BBA
has continued to grow. The company has built a strong and competitive position
in Asia and the Pacific Rim. For example, Bush Boake Allen has had operations in
Australia for more than a century and in New Zealand for over fifty years. BBA
was first in the industry to establish a regional headquarters complex in
Singapore and has operated sales and technical facilities in Japan and in the
Philippines for well over a decade.
In 1998, BBA Australia's sales increased 12%, in Australian Dollars, with
operating income rising strongly in local currency. The Australian economy has
been firm, with increasing GDP and growing consumer purchasing power. BBA enjoys
a strong market position in Australia with extensive creative and production
facilities in Melbourne and Sydney as well as additional service and technical
facilities in Adelaide, Brisbane and Perth. In 1998, Bush Boake Allen Australia
accounted for more than one third of the Asia Pacific Region's sales and more
than half of its total operating income.
The company's business in New Zealand and the Philippines also registered sales
gains of 8% and 22% respectively in local currencies in 1998. This is an
encouraging indication that the underlying demand for the company's flavors and
fragrances, in these markets, is still fundamentally healthy even though the
results are obscured in foreign exchange translations.
In another of the company's major markets, Japan is still struggling to break
out of its longest recession since WWII. With the Yen weak against a stronger
Singapore Dollar, it has been more difficult for BBA to ship into Japan from
our regional manufacturing center in Singapore and be competitive in the
Japanese market. Nevertheless, BBA Japan's operating income improved modestly
during the year as certain products were produced within the country.
The company is encouraged, however, by rising sales in China where a highly
efficient BBA flavor and fragrance plant in Guangzhou is now into its stride.
Sales in China increased more than 20% in 1998 along with a considerable
improvement in financial performance as we steadily advanced our position in
this large and important market.
11
<PAGE>
<PAGE>
INTERNATIONAL REGION
[PHOTO]
THE COMPANY'S EFFICIENT
NEW FLAVOR AND FRAGRANCE
PLANT IN ISTANBUL,
TURKEY STRENGTHENS
BBA'S MARKET POSITION.
12
<PAGE>
<PAGE>
[PHOTO]
BUSH BOAKE ALLEN
FLAVORS AND SEASONINGS ARE
WIDELY USED IN A VARIETY OF
SNACK FOODS AND PROCESSED MEALS
THROUGHOUT EASTERN EUROPE
AND THE MIDDLE EAST.
International Region
Percent of Total
Company Flavor &
Fragrance Sales
[PIE CHART]
Flavor 12%
Fragrance 4%
Bush Boake Allen's International Region includes markets that span one of the
most culturally diverse areas on the globe and is home to nearly half the
world's population.
The company serves these markets from 21 locations in 13 countries that range
from Eastern Europe to the Middle East, Africa and the Indian sub-continent. In
1998, as monetary and economic problems of seismic proportions rippled around
the world, countries in BBA's International Region also felt tremors. This was a
factor in contributing to a decline in sales in the region although operating
income remained essentially unchanged.
Bush Boake Allen India generates the largest portion of the International
Region's total sales. In 1998, BBA India's operations were strong with total
sales, in Rupees, rising 11% and operating income in local currency growing even
more solidly. Bush Boake Allen is India's largest producer of compounded flavors
used in a variety of food products. The company has invested significantly in
recent years, to expand and modernize its capabilities and to enhance its
creative and technical staffs. Headquartered in Chennai, BBA India has sales,
technical or production facilities in Bangalore, Calcutta, Chittoor, Delhi and
Mumbai. In addition to flavors, the company is also growing rapidly in
production of fragrances for a broad spectrum of consumer household, toiletry
and personal care products.
In Russia, the sudden and unexpected devaluation of the Ruble resulted in the
company incurring a loss on foreign exchange of just over $2 million. At the
same time, prices for goods imported into Russia rose sharply depressing
consumption and limiting the ability of manufacturers in Europe to ship
competitively into Russia which also affected BBA's business.
Bush Boake Allen companies in Southern Africa and Eastern Europe also felt the
effects of currency and economic problems during the year. U.S.
Dollar-denominated sales were down in both areas although sales, measured in
local currency, increased 11% in Africa with operating income rising even more
strongly.
The company's operations in Turkey were also affected by the collapse of the
Russian currency. Many of our local customers' business with Russia and the
surrounding area dropped sharply. As a result, BBA's sales in Turkey and Eastern
Europe also declined significantly during the year. Nevertheless, BBA has built
an excellent reputation, in this region, over many years. With a new,
highly-efficient flavor plant now starting up in the Gebze area of Istanbul the
company is in a very strong position to be much more competitive in the Turkish
market.
13
<PAGE>
<PAGE>
AROMA CHEMICALS
[PHOTO]
LILESTRALIS'TM', A COMPANY
AROMA CHEMICAL, IMPARTS A
FRESH, SUBSTANTIVE, FRAGRANCE
TO MANY TYPES OF HOUSEHOLD PRODUCTS.
A NEW DISTILLATION COLUMN IS
LIFTED INTO PLACE IN A
FURTHER MODERNIZATION
OF THE JACKSONVILLE, FLORIDA
AROMA CHEMICAL PLANT.
14
<PAGE>
<PAGE>
DEVELOPMENT OF NEW, AROMA
AND FINE CHEMICALS IS THE PRIMARY
OBJECTIVE FOR NEW LABORATORY
FACILITIES BEING CONSTRUCTED AT
JACKSONVILLE.
[PHOTO]
Aroma Chemicals
Percent of Total
Company Sales
[PIE CHART]
Aroma Chemicals 21%
Aroma chemicals are primarily used as the building blocks for fragrances that
are employed in a wide variety of frequently used consumer products. These
include soaps and detergents, cleansers and household items, perfumes, cosmetics
and other personal care products.
The largest portion of Bush Boake Allen's aroma chemical production, which in
1998 represented 21% of external company sales, is sold to large international
consumer products manufacturers and fragrance compounders. In addition, an
increasing share of our aroma chemicals are used internally by BBA's own
creative perfumers and flavorists.
Sales of aroma chemicals in 1998 were essentially level with the prior year
reflecting softer markets, lower sales of musk chemicals and an intensely
competitive environment with increasing pressure on prices. Operating income
however, advanced strongly, helped by product mix and recent investments in the
company's aroma chemical facilities for automation and productivity.
Bush Boake Allen produces aroma chemicals at two large-scale, highly automated
plants at Jacksonville, Florida and Widnes, England, both of which are ISO 9002
certified. The Jacksonville plant utilizes turpentine as its raw material and
processes approximately 10 million gallons annually into a range of aroma
chemicals and pine oil which is widely used in household cleansers.
The Widnes facility today principally employs non-turpentine raw materials which
it processes into aroma and other fine chemicals used primarily in fragrances
and as an intermediate in agrichemical and pharmaceutical production.
Markets for aroma chemicals have become intensely competitive over the last
year. The economic problems in Asia and other regions have contributed to lower
overall demand as new capacity and incremental supply from plant optimizations
entered the market. Pine oil prices have also been under pressure as additional
supplies, principally from China, have become available.
In the present environment the company is actively working to create new,
higher-value aroma chemicals from our terpene raw material. We are also pursuing
ways of more fully utilizing the range of constituents contained in turpentine
as well as creating new chemicals from other raw materials.
In addition, recent investments in our aroma chemical facilities are enabling
BBA to lower costs and operate more efficiently. We believe the company is
presently the lowest cost producer of many of the large volume aroma chemicals
currently in use. Our strategy is to maintain that competitive advantage even as
we expand our base with new, specialized chemicals.
15
<PAGE>
<PAGE>
RESEARCH AND DEVELOPMENT
[PHOTO]
AN ARSENAL OF SOPHISTICATED
ANALYTICAL TECHNIQUES AND
ADVANCED INSTRUMENTATION
ARE EMPLOYED IN THE SEARCH FOR
TOMORROW'S PRODUCTS.
16
<PAGE>
<PAGE>
[PHOTO]
THE KEEN SENSES OF THE
COMPANY'S FLAVORISTS AND
PERFUMERS ARE ESSENTIAL IN
JUDGING THE ORGANOLEPTIC
QUALITIES OF A FLAVOR
OR FRAGRANCE.
Research &
Development
Expenditures
($ in millions)
[BAR CHART]
Bush Boake Allen's business is based on the application of a body of highly
sophisticated technology. The company's research and development effort is aimed
at keeping BBA at the leading edge of that technology and is a key element
underlying the company's strategic growth plan. In 1998, Bush Boake Allen
invested $25 million in research and development, a 7% increase over the prior
year.
Research and development is conducted at three principal, BBA technical centers
located at Montvale, New Jersey, London, England and Chennai, India. In
addition, 36 other company technical development and application laboratories
around the world serve to extend the research effort and provide technical
support to our local business development organizations and to customers. In
addition, aroma and fine chemical research is carried out at company facilities
in Jacksonville, Florida and Widnes, England.
A major goal of the company's research is to achieve constant improvement. While
we seek to improve our knowledge of the senses of taste and smell, our research
is primarily aimed at improvements in the efficacy of our products, the
processes by which they're made and the development of new flavor and fragrance
materials and fine chemicals.
In flavor and fragrance research, the company's Generessence'r' program has been
highly successful in the identification and synthesis of new chemicals which are
isolated from the essence given off by growing plants. To date, more than 50
novel chemicals have been identified in this program. Patents are being sought
on 15 of these. Many of these new chemicals are already being used by our
perfumers and flavorists to create new Generessence'r' flavor and fragrance
notes that recreate to a remarkable degree the fragrance or taste of the
original plant.
Additional research is also ongoing aimed at the development of new aroma and
fine chemicals from existing raw materials. Several new BBA chemicals, are being
commercialized including Citralis Nitrile, for which a patent has been issued,
which imparts a fresh citrus odor. Patents are pending on a new, tenacious,
rose-odored chemical and a new, low-cost, general purpose floral chemical.
In other studies, BBA has made major advances in developing its complement of
enzyme modified dairy flavors. In addition, significant progress has also been
made on research to enhance the quality and quantity of vanilla by starting with
genetic improvement of the growing plant through curing and final processing.
Company vanilla plantations have been established in India and we are now
starting to realize commercial size shipments of improved beans of superior
quality.
17
<PAGE>
<PAGE>
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 1998 net sales. The Company conducts its
operations in 39 countries. BBA's sales in the Americas, Europe, Asia Pacific
and International regions accounted for 38%, 34%, 16% and 12%, respectively, of
total 1998 net sales. See Note 11 to Consolidated Financial Statements.
On November 24, 1998, International Paper Company ("International Paper")
and Union Camp announced an agreement to merge through the exchange of Union
Camp stock for International Paper stock. The proposed merger is subject to
approval by International Paper and Union Camp shareholders, as well as
regulatory agencies. The merger is expected to close early in the second
calendar quarter of 1999. If and when completed, International Paper would
become the majority shareholder of the Company.
The Company operates in competitive markets where product quality,
integrity, innovation and customer service and support, in addition to price,
are critical factors. During 1998, the Company's three largest customers
accounted for approximately 6%, 4%, and 3%, respectively, of its total sales and
no other single customer accounted for more than approximately 3% 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,
1998 1997 1996
-----------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Costs and other charges:
Cost of goods sold. ..................... 64.1 64.0 64.0
Selling and administrative expenses ..... 19.0 20.0 20.6
Research and development expenses ....... 5.2 4.9 5.0
Income from operations ..................... 11.7 10.7 10.4
Net income ................................. 6.9 6.3 7.0
</TABLE>
YEAR ENDED DECEMBER 25, 1998 COMPARED TO YEAR ENDED DECEMBER 25, 1997
- --------------------------------------------------------------------------------
NET SALES
Net sales for the year ended December 25, 1998 decreased 1.1% to $485.4 million
from $490.6 million in the prior year. Net sales of flavor and fragrance
compounds decreased 1.2% to $384.2 million from $388.7 million. The Asia Pacific
region and the International region sales decreased 11.3% and 5.6%,
respectively, from 1997 partially offset by an 8.2% increase in the Americas
region. Net sales of aroma chemicals decreased less than 1% to $101.2 million
from $101.9 million primarily due to competitive pricing pressure in Europe due
to the strengthening of the Pound Sterling, lower sales of musk chemicals due to
a decline in volume and price and a decrease in volume of shipments under a
long-term supply agreement with a major customer. Net sales in both product
segments were adversely affected by the movement in foreign currency exchange
rates, primarily with currencies in Asia Pacific and the International Region
(mainly India, Russia and South Africa) versus the U.S. dollar. If exchange
rates had remained unchanged from 1997 to 1998, the increase in total net sales
would have been approximately 5%.
COST OF GOODS SOLD
Cost of goods sold in 1998 decreased 1.6% to $311.1 million from $316.1 million
in the prior year due primarily to lower sales. The Company's cost of goods sold
as a percentage of net sales decreased to 64.1% from 64.4% in the prior year
primarily due to process efficiencies offset partially by higher depreciation
expense.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses in 1998 decreased 6.0% to $92.2 million from
$98.1 million in the prior year. This decrease reflects the benefit from the
Company's cost reduction program of last year and a lower level of severance
cost this year. Selling and administrative expenses as a percentage of net sales
decreased to 19.0% from 20.0%.
BBA
OPERATING
MARGIN
(Percent)
[BAR CHART]
18
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
================================================================================
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased 6.7% to $25.2 million from $23.6
million in the prior year due primarily to additional creative and technical
personnel for the flavor and fragrance segment. The Company has been increasing
its in-house R&D capabilities to be in a position to replace the research
services performed by Union Camp at its research facility in Princeton, New
Jersey which were discontinued at the end of 1998. The Company had contracted
for research services from Union Camp at rates that approximate the fair value
of the services provided. The total charges for Union Camp research services in
1998 and 1997 were approximately $2.5 million and $3.8 million, respectively.
BBA
OPERATING
INCOME
($ in Millions)
[BAR CHART]
INCOME FROM OPERATIONS
Income from operations in 1998 increased 7.8% to $56.8 million from $52.7
million in the prior year. Adverse foreign exchange rate movements negatively
impacted operating income by approximately 4%. As a percentage of net sales,
income from operations increased to 11.7% from 10.7% reflecting the benefits
from Company cost reduction programs, lower severance costs and improved
chemical operating efficiencies.
Income from operations, exclusive of corporate items, for the flavor and
fragrance segment decreased less than 1% to $50.2 million from $50.5 million in
the prior year with strong growth in the Americas region almost offsetting
weakness in Europe and Asia Pacific. In the aroma chemicals segment, income from
operations, exclusive of corporate items, increased 12% to $23.8 million from
$21.3 million in the prior year. The increase in operating income reflects
improved operating efficiencies, lower severance costs and a $1.3 million price
adjustment. During the third quarter of 1998, the Company renegotiated a
long-term supply contract with a major chemicals customer. Because actual volume
offtake by the customer was below the required minimum, the customer agreed to a
$1.3 million "take or pay" price adjustment in favor of the Company. This
favorably impacted sales and operating income in the Company's aroma chemicals
segment.
OTHER (INCOME) EXPENSE, NET
Other (income) expense in 1998 was $2.9 million expense compared to $3.4 million
expense in 1997. Other (income) expense in 1998 includes a $2.7 million pre-tax
gain on the sale of a parcel of land and tenanted buildings adjacent to the
Company's Walthamstow, England site during the fourth quarter. Offsetting this
gain was a $3.5 million loss on foreign exchange during 1998 compared to a $2.0
million exchange loss in 1997.
INTEREST EXPENSE
Interest expense in 1998 increased to $3.3 million from $3.1 million in the
prior year due primarily to the increase in long-term debt.
INCOME TAXES
Income tax expense increased in 1998 to $17.0 million from $15.3 million in the
prior year primarily as a result of higher pre-tax income. The Company's
effective tax rate increased to 33.5% from 33.1% in the prior year. The 1998 tax
rate reflects the benefit from reduced capital gains taxes on property
dispositions in the UK and a deferred tax benefit due to a reduction in foreign
statutory income tax rates. The 1997 effective tax rate reflects a deferred tax
benefit due to the reduction in the UK statutory income tax rate during the
year.
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
19
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
================================================================================
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.
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
acquisitions made during the 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.
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.
20
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
================================================================================
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 manufactured 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.
FINANCIAL MARKET RISK
The Company is exposed to interest and foreign exchange rate risk due to various
transactions. The Company generates foreign currency exposures in its normal
course of business with activity involving intercompany and third party
obligations, dividends, expenses, commissions, royalties, acquisitions,
intercompany netting, intercompany loans, funding currency accounts and tax
payments. To mitigate the risk from foreign currency exchange rate fluctuations,
the Company will generally enter into forward currency exchange contracts for
the purchase or sale of a currency in accordance with authorized levels pursuant
to the Company's policy and procedures. The Company applies value at risk (VAR)
techniques when measuring the Company's exposure to interest rate and currency
fluctuations. VAR is a measurement of the estimated loss in fair value until
currency positions can be neutralized, recessed or liquidated and assumes a
95-percent confidence level with normal market conditions. The potential one day
loss, as of December 25, 1998, was approximately $1.2 million and it is
considered insignificant in relation to the Company's results of operations and
shareholders' equity.
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 $2.5 million, $1.5 million and $800,000 in
1998, 1997 and 1996, respectively, for environmental projects and expects to
make total capital expenditures of approximately $3 million for environmental
projects in 1999. 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. In 1998, sales from these operations totaled $21.0 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operations in 1998 was $47.1 million, an increase of $11.5
million from the prior year. Cash flow provided by operations increased $800,000
in the year ended December 25, 1997 to $35.6 million from $34.8 million in the
prior year. Improved working capital management of inventory levels and
receivable collections continues to benefit cash flow provided by operations.
Also, extending payment terms with certain suppliers have increased accounts
payable during 1998.
Capital expenditures were $36.0 million, $33.5 million and $39.6 million
for 1998, 1997 and 1996, 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.
Capital expenditures in 1996 included the completion of the flavor and
fragrance manufacturing facility in China and the expansion of aroma chemical
production capacity. During 1997,
21
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
================================================================================
the Company purchased a flavor manufacturing plant in Mexico and began
construction on a new plant in Turkey. In 1998, the Company completed
construction of the Turkey facility and began expanding the capacity of our
flavors and seasonings plants in the United States. The Company plans to spend a
total of approximately $30 million in 1999 for capital improvements.
During 1998, working capital increased $22.7 million to $124.6 million from
$101.9 million in the prior year due primarily to a reduction in current
liabilities, mainly from a decrease in notes payable. During 1997, working
capital increased $11.8 million to $101.9 million from $90.1 million in the
prior year also due primarily to a decrease in notes payable.
The Company has revolving credit facilities in numerous countries other
than the United States which provide for aggregate availability of $76.0
million. In addition, the Company has a $25.0 million, three year committed
multi-option-borrowing facility from a leading European bank. At December 25,
1998, approximately $16.4 million was outstanding under these facilities and
included in notes payable ($35.4 million as of December 25, 1997). 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 1.2% to 20.0% in local currencies during 1998.
The Company also 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 U.S. dollar LIBOR rate. As of December 25, 1998,
nothing was outstanding ($400,000 as of December 25, 1997 was included in notes
payable). 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.
ACCOUNTING MATTERS
In June, 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 Company in the first quarter of 2000,
requires all derivatives to be measured at fair value and recognized as either
assets or liabilities. Management is in the process of reviewing this new
pronouncement and currently does not expect adoption of this statement to have a
material effect on the Company's consolidated financial position or results of
operations.
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.
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 Year 2000 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 remediations.
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 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.
22
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
================================================================================
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, along with the items already
found to be compliant, into use and developing contingency plans where
appropriate.
STATUS BY CATEGORY
Major Systems: The Company has substantially completed the Assessment and
Inventory phases. The Company has made substantial progress on the
Renovation/Validation phase. The majority of our worldwide locations have
already implemented purchased systems whose versions the Company believes either
are or will be Year 2000 compliant. The Company currently believes it is on
track to meet a June 30, 1999 Implementation target date with the exception of
one system which will be installed in August of 1999.
Process and Facilities: The Company has completed the Inventory phase and
has substantially completed the Assessment phase. Of these items, approximately
98% have been assessed and approximately 95% have been found to be compliant or
have been renovated and are complete. All locations are currently targeted to be
compliant by June 30, 1999.
Data Communications and Computer Servers: The Company has completed the
Inventory phase and has substantially completed the Assessment phase. Of these
items approximately 91% have been assessed and approximately 70% have been found
to be compliant or have been renovated and are complete. The Company has
currently targeted these items to be compliant by June 30, 1999.
Personal Computers: The Company is completing the Inventory phase and is
active in the Assessment phase. Of these items over 40% have been assessed and
approximately 25% have been found to be compliant or have been renovated and are
complete. The Company has targeted these items to be compliant by June 30, 1999.
Third Party Relationships: The Company has completed the initial assessment
of its major raw material suppliers. A second phase of assessments involving
critical raw material suppliers and other material and service providers
including financial institutions, transportation companies, and utilities is now
underway. During the second quarter of 1999, suppliers will be assessed and
contingency plans developed as needed.
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 (whose 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. However, the Company will establish a formal
contingency plan for potential Year 2000 issues. The Company intends to base its
contingency plans on a review of the assessment of internal and external risks
and testing experience. The Company expects to begin this process in the first
quarter of 1999 and to complete such plans by September 30, 1999.
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, assessments, and material information being furnished by
vendors, suppliers and other third parties, any of which 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 third parties, including materials suppliers, to be Year
2000 compliant, failure of banking operations in the countries in which we
operate, and the failure of external transportation and shipping functions
23
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
================================================================================
required to support our operations. As we prepare our contingency plan, we will
continue to review these and other potential risks.
COSTS
Based upon a preliminary assessment, the Company currently estimates the costs
to modify or replace systems and equipment that require remedial action to be
between $3 to $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 $1.1 million, of which $900,000 relates to capital
equipment. The Company's aggregate cost estimate does not include time and costs
that may be incurred by the Company as a result of the failure of any third
parties, including suppliers, to become Year 2000 ready or costs to implement
any contingency plans. This estimate does take into consideration the
acceleration of projects for new equipment and systems over the normal scheduled
plans for such work. The Company has so far addressed Year 2000 issues using
primarily in-house personnel supplemented with a small amount of contract
programming and consulting.
EURO CONVERSION
On January 1, 1999, eleven of the European Union member countries began the
transition from their national currencies to the "Euro". The Euro will become
the single currency for the members of the European Monetary Union. In the first
phase, the permanent rates of exchange between the members' national currency
and the Euro will be established, and monetary, capital, foreign exchange, and
interbank markets will be converted to the Euro. National currencies will
continue to exist as legal tender and may continue to be used in commercial
transactions. By January 2002, Euro notes and coins will be issued, and by July
2002 the respective national currencies will be withdrawn. The Company's
operating subsidiaries affected by the Euro conversion have established plans to
address the related operating and information technology concerns. The Company
currently believes that the Euro conversion will not have a material adverse
effect on its financial condition or results of operations.
- --------------------------------------------------------------------------------
QUARTERLY INFORMATION (Unaudited)
($ IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
Net Income Net Income
Gross Net Per Share Per Share
Net Sales Profit Income Basic Diluted
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Fourth Quarter ........ $123,356 $42,019 $9,224 $.48 $.48
Third Quarter ......... 121,481 44,539 8,096 .42 .42
Second Quarter ........ 122,291 45,118 8,721 .45 .45
First Quarter ......... 118,246 42,631 7,651 .40 .39
- -------------------------------------------------------------------------------------
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 $.35
Third Quarter ......... 112,463 40,729 7,884 .41 .41
Second Quarter ........ 113,539 41,641 10,020 .52 .52
First Quarter ......... 106,889 39,346 6,938 .36 .35
- -------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ IN THOUSANDS, EXCEPT PER SHARE)
================================================================================
<TABLE>
<CAPTION>
Year Ended December 25, 1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales ..................................... $485,374 $490,585 $449,365
Costs and other charges:
Cost of goods sold ......................... 311,067 316,132 287,780
Selling and administrative expenses ........ 92,235 98,076 92,573
Research and development expenses .......... 25,228 23,640 22,481
- -----------------------------------------------------------------------------------------
Income from operations ........................ 56,844 52,737 46,531
Interest expense .............................. 3,326 3,075 2,417
Other (income) expense, net ................... 2,852 3,362 (2,647)
- -----------------------------------------------------------------------------------------
Income before income taxes .................... 50,666 46,300 46,761
Income taxes .................................. 16,974 15,319 15,206
- -----------------------------------------------------------------------------------------
Net income .................................... $ 33,692 $ 30,981 $ 31,555
=========================================================================================
Net income per share - basic .................. $1.75 $1.61 $1.64
- diluted ................ $1.74 $1.60 $1.63
=========================================================================================
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
================================================================================
<TABLE>
<CAPTION>
Year Ended December 25, 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income ............................................... $33,692 $30,981 $31,555
Other comprehensive (income) expense, net of tax:
Foreign currency translation adjustments .............. 1,992 6,403 (9,729)
- ----------------------------------------------------------------------------------------------
Total other comprehensive (income) expense ............... 1,992 6,403 (9,729)
- ----------------------------------------------------------------------------------------------
Comprehensive income ..................................... $31,700 $24,578 $41,284
==============================================================================================
</TABLE>
See the accompanying notes to the Consolidated Financial Statements.
25
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
================================================================================
<TABLE>
<CAPTION>
As of December 25, 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ................................ $ 11,072 $ 4,358
Receivables, net ......................................... 93,109 88,841
Inventories .............................................. 102,321 102,491
Other .................................................... 10,225 5,706
- ----------------------------------------------------------------------------------
Total current assets ................................... 216,727 201,396
Property, plant and equipment, net ....................... 190,929 177,217
Other assets ............................................. 50,754 45,530
- ----------------------------------------------------------------------------------
Total Assets ........................................... $458,410 $424,143
==================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current maturities ..................... $ 17,307 $ 35,833
Accounts payable ......................................... 42,617 37,519
Accrued liabilities ...................................... 27,756 24,713
Income and other taxes ................................... 4,421 1,474
- ----------------------------------------------------------------------------------
Total current liabilities ............................. 92,101 99,539
Long-term debt ........................................... 10,354 3,456
Deferred income taxes .................................... 25,367 22,105
Other long-term liabilities .............................. 10,067 10,651
Stockholders' equity (Shares outstanding 1998: 19,284,817;
1997: 19,258,800) ..................................... 320,521 288,392
- ----------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity ....... $458,410 $424,143
==================================================================================
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
26
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
================================================================================
<TABLE>
<CAPTION>
Year Ended December 25, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used for) operations:
Net income ...................................................... $33,692 $30,981 $31,555
Adjustments to reconcile net income to
cash provided by operations:
Depreciation and amortization ............................. 17,800 16,930 13,445
Deferred income taxes ..................................... 3,075 1,574 2,702
Loss/(gain) on sale of assets ............................. (2,833) 22 (4,646)
Other ..................................................... 1,707 2,018 (126)
Changes in operational assets and liabilities,
net of acquisitions:
Receivables, net .......................................... (5,647) (5,986) (4,723)
Inventories ............................................... (1,558) (6,790) (1,923)
Other assets .............................................. (10,272) (6,800) (5,072)
Accounts payable, taxes and
other liabilities ....................................... 11,146 3,661 3,595
- ----------------------------------------------------------------------------------------------------------
Cash provided by operations .......................... 47,110 35,610 34,807
- ----------------------------------------------------------------------------------------------------------
Cash provided by (used for) investment activities:
Capital expenditures ............................................ (35,961) (33,481) (39,629)
Proceeds on sale of assets ...................................... 7,307 436 5,198
Payments for acquisitions ....................................... (1,264) (4,154) (6,036)
Other ........................................................... -- -- 74
- ----------------------------------------------------------------------------------------------------------
Cash used for investment activities ....................... (29,918) (37,199) (40,393)
- ----------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities:
Proceeds from issuance of common stock, net ..................... 429 681 67
Change in notes payable, net .................................... (19,624) (1,655) 7,212
Proceeds from issuance of long-term debt ........................ 7,775 1,852 --
Repayments of long-term debt .................................... (2) (3) (2,420)
- ----------------------------------------------------------------------------------------------------------
Cash provided by (used for) financing activities .......... (11,422) 875 4,859
- ----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash ............................ 944 742 91
- ----------------------------------------------------------------------------------------------------------
Increases (decreases) in cash and cash equivalents ................. 6,714 28 (636)
Balance at beginning of period ..................................... 4,358 4,330 4,966
- ----------------------------------------------------------------------------------------------------------
Balance at end of period ........................................... $ 11,072 $ 4,358 $ 4,330
==========================================================================================================
</TABLE>
See the accompanying notes to the Consolidated Financial Statements.
27
<PAGE>
<PAGE>
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 Accumulated Other Comprehensive
Income (Loss). 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 are matched with the
offsetting exchange gains and losses recorded for exchange rate fluctuations on
the underlying assets and liabilities.
28
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
================================================================================
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. Compen-sation 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."
OTHER COMPREHENSIVE INCOME
In 1998, the Company implemented the provisions of Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". This
standard affects financial statement presentation and disclosure but has no
impact on the Company's consolidated financial position or results of
operations. The components of Other Comprehensive Income consist entirely of the
Foreign Currency Translation Adjustments as reported in the Consolidated
Statements of Comprehensive Income for the years ended December 25, 1998, 1997
and 1996 and as disclosed in Note 6 to the Consolidated Financial Statements.
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 1998, 1997 and 1996 were $1.7 million, $1.8
million and $1.5 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. Research and
development services were cancelled in 1998 by mutual agreement. 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 $2.9
million, $4.0 million and $4.0 million in 1998, 1997 and 1996, respectively. At
December 25, 1998 and 1997, the net payable to Union Camp was approximately
$700,000 and $800,000, respectively, which is payable on demand.
29
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
================================================================================
2. RELATED PARTY TRANSACTIONS (CONTINUED)
On November 24, 1998, International Paper Company ("International Paper")
and Union Camp announced an agreement to merge through the exchange of Union
Camp stock for International Paper stock. The proposed merger is subject to
approval by International Paper and Union Camp shareholders, as well as
regulatory agencies. The merger is expected to close early in the second
calendar quarter of 1999. If and when completed, International Paper would
become the majority shareholder of the Company.
3. SUPPLEMENTAL INFORMATION
- ---------------------------
Statements of Income
Total interest costs incurred and amounts capitalized for each of the years
ended December 25 were:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------
($ in thousands)
<S> <C> <C> <C>
Total interest ........................ $3,878 $3,599 $3,062
Interest capitalized .................. (552) (524) (645)
---------------------------------
Net interest expense .......... $3,326 $3,075 $2,417
=================================
</TABLE>
Total other (income) expense, net includes loss from foreign exchange of $3.5
million in 1998, $2.0 million in 1997 and $1.5 million in 1996.
BALANCE SHEETS
<TABLE>
<CAPTION>
As of December 25,
--------------------
1998 1997
--------------------
($ in thousands)
<S> <C> <C>
Receivables, net
Trade ..................................... $84,550 $82,743
Other ..................................... 10,304 8,074
--------------------
........................................ 94,854 90,817
Less allowance for doubtful accounts ...... 1,745 1,976
--------------------
Total ............................. $93,109 $88,841
====================
</TABLE>
There were no significant uncollectible accounts written off during 1998,
1997 or 1996 that were not previously reserved.
<TABLE>
<CAPTION>
As of December 25,
----------------------
1998 1997
----------------------
($ in thousands)
<S> <C> <C>
Inventories
Finished goods ........................... $ 39,012 $ 29,035
Raw materials ............................ 45,160 54,621
Work in process .......................... 14,846 14,170
Supplies ................................. 3,303 4,665
----------------------
Total ............................ $102,321 $102,491
======================
</TABLE>
As of December 25, 1998 and 1997, finished goods, work in process and raw
materials totaling $14.1 million and $10.5 million, respectively, were valued at
LIFO cost. The excess of current cost over LIFO value was $9.3 million and $9.5
million in 1998 and 1997, respectively.
<TABLE>
<CAPTION>
As of December 25,
----------------------
1998 1997
----------------------
($ in thousands)
<S> <C> <C>
Other current assets
Prepayments ............................ $ 3,332 $ 3,148
Other .................................. 6,893 2,558
----------------------
Total .......................... $ 10,225 $ 5,706
======================
Property, plant and equipment
Land ................................... $ 3,758 $ 5,118
Buildings and improvements ............. 61,916 54,695
Machinery and equipment ................ 234,599 219,352
Construction in progress ............... 28,169 22,624
----------------------
328,442 301,789
Less accumulated depreciation .......... 137,513 124,572
----------------------
Property, plant and equipment, net ............. $190,929 $177,217
======================
</TABLE>
<TABLE>
<CAPTION>
As of December 25,
----------------------
1998 1997
----------------------
($ in thousands)
<S> <C> <C>
Other non-current assets
Pension asset ........................... $36,230 $30,829
Intangible assets ....................... 10,361 10,945
Other ................................... 4,163 3,756
----------------------
Total ........................... $50,754 $45,530
======================
</TABLE>
Included within intangible assets as of December 25, 1998 and 1997 was
goodwill of $10.1 million and $10.7 million, respectively.
<TABLE>
<CAPTION>
As of December 25,
----------------------
1998 1997
----------------------
($ in thousands)
<S> <C> <C>
Accrued liabilities
Payroll ................................. $ 6,887 $ 7,616
Payable to Union Camp ................... 664 796
Other ................................... 20,205 16,301
----------------------
Total ........................... $27,756 $24,713
======================
Other long-term liabilities
Postretirement benefits ................. $ 3,604 $ 3,198
Deferred revenue ........................ 1,152 2,234
Other ................................... 5,311 5,219
----------------------
Total ........................... $10,067 $10,651
======================
</TABLE>
30
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
================================================================================
STATEMENTS OF CASH FLOWS
Cash paid for income taxes was $14.2 million in 1998, $13.1 million in 1997 and
$12.3 million in 1996. Cash paid for interest, net of amounts capitalized, was
$3.3 million in 1998, $3.3 million in 1997 and $2.5 million in 1996. 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 $500,000 was paid in 1998 and $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 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, 1998, the Company had outstanding foreign exchange
contracts valued at $36.9 million, primarily denominated in European and Asian
currencies. These contracts mature in the first half of 1999. The purpose of
these contracts is to neutralize foreign currency transaction risk generated by
the Company's firm foreign currency business commitments. The change in value of
the contracts resulting from changes in the respective foreign currency rates
versus the U.S. dollar is accrued monthly and credited or charged to foreign
exchange gain or loss. Foreign currency commitment exposures are evaluated on an
ongoing basis and foreign contracts are adjusted as required to match cover with
existing commitments. Currently, contracts are limited to currencies with
established forward markets and counterparties, which meet Moody's credit rating
of A1 or better.
4. DEBT
- --------------------------------------------------------------------------------
The Company had outstanding debt comprised as follows:
<TABLE>
<CAPTION>
As of December 25,
----------------------
1998 1997
----------------------
($ in thousands)
<S> <C> <C>
Notes payable ................................... $16,382 $35,828
Current installments of long-term debt .......... 925 5
Long-term debt .................................. 10,354 3,456
</TABLE>
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 $76.0 million. In
addition, the Company has available a $25.0 million, three year committed
multi-option borrowing facility from a leading European bank.
As of December 25, 1998, $16.4 million was outstanding and included in
notes payable, compared with $35.4 million as of December 25, 1997. 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 1.2% to 20.0% in local currencies during 1998.
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, 1998, zero was outstanding,
compared with $400,000 as of December 25, 1997, in notes payable. There are no
commitment fees or borrowing covenants.
The Company's $10.4 million in long-term debt, payable in 2000 and 2001,
has been issued in Australia, Japan and Turkey to satisfy the Company's
financing needs, at annual interest rates of 6.3%, 1.9% and 6.0%, respectively.
5. INCOME TAXES
- --------------------------------------------------------------------------------
The components of income before income taxes were:
<TABLE>
<CAPTION>
Year Ended December 25,
-----------------------------
1998 1997 1996
-----------------------------
($ in thousands)
<S> <C> <C> <C>
Domestic ..................................... $15,610 $ 8,571 $ 4,733
Foreign ...................................... 35,056 37,729 42,028
-----------------------------
Income before
income taxes ........................ $50,666 $46,300 $46,761
=============================
</TABLE>
31
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
================================================================================
5. INCOME TAXES (CONTINUED)
- --------------------------------------------------------------------------------
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 25,
-----------------------------
1998 1997 1996
-----------------------------
($ in thousands)
<S> <C> <C> <C>
Current
Federal ............................. $ 5,444 $ 1,843 $ 2,254
State and local ..................... 366 332 382
Foreign ............................. 8,089 11,570 9,868
-----------------------------
$13,899 $13,745 $12,504
-----------------------------
Deferred
Federal ............................. $ 254 $ 963 $ (675)
State and local ..................... (26) 5 (93)
Foreign ............................. 2,847 606 3,470
-----------------------------
............................ 3,075 1,574 2,702
-----------------------------
Total ....................... $16,974 $15,319 $15,206
=============================
</TABLE>
The significant components of the cumulative deferred tax liability are as
follows:
<TABLE>
<CAPTION>
As of December 25,
----------------------
1998 1997
----------------------
($ in thousands)
<S> <C> <C>
Deferred federal taxes
Depreciation ......................... $ 6,634 $ 6,008
Other ................................ (3,934) (3,574)
Deferred foreign taxes
Pensions ............................. 10,391 9,107
Other ................................ 12,276 10,564
----------------------
Total ........................ $25,367 $22,105
======================
</TABLE>
A detailed analysis of the effective tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 25,
-----------------------------
1998 1997 1996
-----------------------------
<S> <C> <C> <C>
Statutory federal tax rate ................... 35.0% 35.0% 35.0%
State taxes (net of federal
tax impact) .......................... 0.4 0.5 0.4
Foreign income taxes ......................... (2.3) (2.8) (3.7)
Other ........................................ 0.4 0.4 0.8
-----------------------------
Effective rate ............................... 33.5% 33.1% 32.5%
=============================
</TABLE>
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, 1998, the
total of all such undistributed earnings amounts to $138.8 million.
Taxable income of the Company's U.S. operations was included in the
consolidated U.S. federal income tax return of Union Camp for all periods prior
to the IPO. Under a Tax Allocation Agreement, income taxes were allocated as if
the Company filed a separate tax return. The provision for income taxes was
prepared as if the consolidated U.S. federal income tax return had been filed
separately by the Company and its subsidiaries. For all periods subsequent to
the IPO, the Company files consolidated U.S. federal income tax returns separate
from Union Camp.
Under the terms of the Company's Tax Allocation Agreement with Union Camp,
parties to the agreement have agreed to mutually indemnify each other against
potential claims, assessments or adjustments made by any taxing authority with
respect to any tax position taken by the Company or Union Camp for all periods
prior to the IPO.
6. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Additional Accumulated Other Total
Common Stock Paid-In Retained Comprehensive Stockholders'
Shares Amounts Capital Earnings Income (Loss) Equity
- --------------------------------------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
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
----------------------------------------------------------------------------------
Net income ............................ -- -- -- 33,692 -- 33,692
Issuance of stock for options ......... 26 26 403 -- -- 429
Foreign currency translation .......... -- -- -- -- (1,992) (1,992)
----------------------------------------------------------------------------------
Balance, December 25, 1998 ............... 19,285 $ 19,285 $ 168,447 $ 143,774 $ (10,985) $ 320,521
================================================================================================================================
</TABLE>
The authorized capital stock of the company at December 1998, 1997 and 1996
consisted of 50,000,000 shares of common stock, $1.00 par value, and 5,000,000
shares of authorized but unissued preferred stock, $1.00 par value.
32
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
================================================================================
7. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
- --------------------------------------------------------------------------------
The Company and certain foreign subsidiaries have noncontributory defined
benefit pension plans covering substantially all of their employees. Benefits
are based on years of service and, for salaried employees, final average
earnings. The Company funds its plans annually based upon a consistently applied
formula which amortizes the unfunded liability adjusted for actuarial gains or
losses. Assets of the plans are primarily fixed income instruments and publicly
traded stocks.
The Company also has a contributory postretirement health care plan
covering primarily its U.S. salaried employees. Employees become eligible for
these benefits when they meet minimum age and service requirements. The Company
funds its plan on a "pay-as-you-go" basis, in an amount equal to the retirees'
medical claims paid.
In 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." This statement standardizes the disclosure requirements for pensions
and other postretirement benefits. Prior year information has been restated to
conform with the requirements of SFAS No. 132.
The following tables set forth pension and postretirement obligations and
plan assets as of December 25:
<TABLE>
<CAPTION>
($ in thousands) Pension Benefits
Domestic Foreign Domestic Foreign Postretirement Benefits
------------------------------------------ -----------------------
1998 1997 1998 1997
------------------------------------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year ...................$25,570 $150,985 $18,969 $134,784 $ 3,580 $ 2,742
Service cost .............................................. 1,584 4,053 1,377 3,605 297 298
Interest cost ............................................. 1,773 10,469 1,547 10,255 209 210
Participant contributions ................................. -- 47 -- 42 7 5
Exchange rate changes ..................................... -- 1,466 -- (3,896) -- --
Benefits paid ............................................. (611) (5,923) (480) (5,685) (103) (67)
Actuarial (gain) loss ..................................... 1,651 15,179 4,157 11,880 (563) 392
------------------------------------------ ------------------
Benefit obligation at end of year .........................$29,967 $176,276 $25,570 $150,985 $ 3,427 $ 3,580
========================================== ==================
Change in plan assets:
Fair value of plan assets at beginning of year ............$22,539 $167,018 $19,702 $146,511 -- --
Actual return on plan assets .............................. 2,760 (3,462) 3,370 24,352 -- --
Employer contributions 34 2,486 92 2,429 $ 100 $ 64
Participant contributions ................................. -- 47 -- 42 7 5
Benefits paid ............................................. (611) (5,923) (480) (5,685) (103) (67)
Administrative expenses ................................... (55) -- (145) -- (4) (2)
Exchange rate changes ..................................... -- 1,434 -- (631) -- --
------------------------------------------ ------------------
Fair value of plan assets at end of year ..................$24,667 $161,600 $22,539 $167,018 -- --
========================================== ==================
Reconciliation of funded status:
Funded status as of December 25 ...........................$(5,301) $(14,676) $(3,031) $ 16,033 $(3,427) $(3,580)
Unrecognized actuarial (gain) loss ....................... 1,624 52,874 667 17,614 (277) 282
Unrecognized prior service cost ........................... 92 (1,317) 104 (1,447) -- --
Unrecognized transition (asset) obligation (192) (651) (291) (1,371) -- --
------------------------------------------ ------------------
Net (liability) asset recognized on Balance Sheet .........$(3,777) $ 36,230 $(2,551) $ 30,829 $(3,704) $(3,298)
========================================== ==================
Amounts recognized in the statement of financial position
consist of:
Prepaid benefit cost ....................................... -- $ 36,839 -- $ 31,177 -- --
Accrued (benefit) liability ................................$(3,777) (609) $(2,551) (348) $ 3,704 $ 3,298
------------------------------------------ ------------------
Net amount recognized at end of year .......................$(3,777) $ 36,230 $(2,551) $ 30,829 $ 3,704 $ 3,298
========================================== ==================
</TABLE>
33
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
================================================================================
7. PENSIONS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
($ in thousands) Pension Benefits
Domestic Foreign Domestic Foreign Postretirement Benefits
------------------------------------------ -----------------------
1998 1997 1998 1997
------------------------------------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
Additional year-end information for pension
plans with accumulated benefit
obligations in excess of plan assets:
Projected benefit obligation ............... $29,967 $176,276 $25,570 $6,505 -- --
Accumulated benefit obligation ............. 22,810 164,133 19,285 4,375 -- --
Fair value of plan assets .................. 24,667 161,600 22,539 6,335 -- --
Weighted-average assumptions as of December 25:
Discount rate .............................. 6.75% 6.5% 7.0% 7.0% 6.75% 7.0%
Expected return on plan assets ............. 9.5% 10.0% 9.5% 10.5% N/A N/A
Rate of compensation increase .............. 4.75% 6.0% 4.75% 6.0% N/A N/A
</TABLE>
<TABLE>
<CAPTION>
Components of net periodic benefit cost:
($ in thousands) Pension Benefits Postretirement Benefits
---------------------------------- -----------------------
1998 1997 1996 1998 1997 1996
---------------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost ....................................... $ 5,637 $ 4,982 $ 5,400 $ 297 $ 298 $ 315
Interest cost ...................................... 12,241 11,802 10,878 209 210 221
Expected return on plan assets ..................... (18,623) (16,821) (15,948) -- -- --
Amortization of prior service cost ................. (105) (116) (127) -- -- --
Amortization of transitional (asset) obligation .... (812) (816) (785) -- -- --
Recognized actuarial (gain) loss ................... 283 276 269 -- -- --
---------------------------------- -----------------------
Net periodic (benefit) cost ........................ $ (1,379) $ (693) $ (313) $ 506 $ 508 $ 536
==============================================================
</TABLE>
For measurement purposes, a 7% annual rate of increase in the per capita
cost of covered health care benefits for the first half of 1998 and a 5% rate
for the second half were assumed. After 1998, the rate remains level at 5%
thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one percentage point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
One Percentage One Percentage
Point Increase Point Decrease
-------------- --------------
<S> <C> <C>
Effect on total of service and
interest cost components .............. $ 90,000 $ (75,000)
Effect on postretirement
benefit obligation .................... $524,000 $(450,000)
</TABLE>
8. 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 1998, 503,987 shares were available for future grants under
the 1994 plan. The options outstanding at December 25, 1998 do not have stock
appreciation rights attached.
In February 1998, the Company adopted the BBA Directors' Stock Option Plan
(the "Directors' Plan"). The Directors' Plan provides for the grant of
immediately vested options to Directors who are not employees of the Company or
Union Camp at prices not less than 100% of the fair market value at the date of
grant. The Directors' Plan makes available up to 100,000 shares of common stock.
Initial grants under the Directors' Plan in 1998 totaled 3,510 options, leaving
96,490 shares available for future grants.
34
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
================================================================================
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 1998, 1997 and 1996 consistent
with the provisions of SFAS No. 123, total compensation cost recognized in
income for stock-based compensation would have been $520,000 in 1998, $497,000
in 1997 and $516,000 in 1996 on a pro forma basis. Also, if SFAS No. 123 had
been adopted, pro forma net income and earnings per share would have been $32.8
million or $1.70 per share basic and $1.69 per share diluted in 1998, $30.4
million or $1.58 per share basic and $1.57 per share diluted in 1997 and $31.2
million or $1.63 per share basic and $1.62 per share diluted in 1996.
The following table summarizes activity in the Company's stock option plan
during 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------------------
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 ............. 739,627 $22.21 563,520 $19.28 544,707 $19.07
Granted ............................. 254,250 $28.72 230,520 $28.75 33,428 $25.00
Exercised ........................... (26,017) $16.49 (36,600) $18.60 (4,200) $16.00
Forfeited ........................... (18,734) $28.95 (17,813) $20.81 (10,415) $27.84
--------------------------------------------------------------------
Options outstanding
at end of year ................... 949,126 $23.98 739,627 $22.21 563,520 $19.28
--------------------------------------------------------------------
Options exercisable
at end of year ................... 397,536 $19.93 317,227 $20.29 192,500 $17.08
====================================================================
</TABLE>
For options outstanding as of the end of 1998, the range of exercise prices
was $16.00 to $32.25 per share and the weighted average remaining contractual
life was 7.3 years. The weighted average fair value on the date of grant was
$10.11 for options granted in 1998, $11.11 for options granted in 1997 and $9.37
for options granted in 1996.
Fair value was determined through the use of the Black-Scholes options
pricing formula. For options granted in 1998, the risk-free interest rate was
5.5%, the expected life was 6 years, the expected volatility was 21% and the
expected dividend yield was zero, all calculated on a weighted average basis.
For options granted in 1997, the risk-free interest rate was 6.7%, the expected
life was 6 years, the expected volatility was 22% and the expected dividend
yield was zero, all calculated on a weighted average basis. For options granted
in 1996, the risk-free interest rate was 6.0%, the expected life was 6 years,
the expected volatility was 23% and the expected dividend yield was zero, all
calculated on a weight average basis.
9. SUPPLEMENTAL EARNINGS PER SHARE INFORMATION
- --------------------------------------------------------------------------------
($ IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
For the Year Ended December 25,
1998 1997 1996
---------------------------------- ---------------------------------- ----------------------------------
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 $33,692 $30,981 $31,555
Basic EPS
Income available to
common shareholders $33,692 19,279,028 $1.75 $30,981 19,237,909 $1.61 $31,555 19,220,238 $1.64
Effect of Dilutive ===== ===== =====
Securities Stock Options $ - 126,541 $ - 180,368 $ - 169,420
-------------------------------------------------------------------------------------------------------
Diluted EPS
Income available to
common shareholders
+ assumed conversions $33,692 19,405,569 $1.74 $30,981 19,418,277 $1.60 $31,555 19,389,658 $1.63
=======================================================================================================
</TABLE>
35
<PAGE>
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
================================================================================
9. SUPPLEMENTAL EARNINGS PER SHARE INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
In 1998, 1997 and 1996 there were 67,550, 73,327 and 78,292 potential common
shares, respectively, excluded from the computation of diluted earnings per
share because the effect would have been antidilutive.
10. 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.
11. SEGMENT AND GEOGRAPHIC INFORMATION
- --------------------------------------------------------------------------------
In 1998, the Company adopted the statement of the Financial Accounting Standards
(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 accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on operating earnings of the respective business
units. 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.
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, 1998, 1997 and 1996.
- --------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 ($ in thousands)
Net sales to customers ............ $384,200 $101,174 -- $485,374
Intersegment sales ................ -- 21,274 $(21,274) --
--------------------------------------------------------
Total net sales ................... 384,200 122,448 (21,274) 485,374
Operating profit .................. 50,151 23,817 (17,124) 56,844
Identifiable assets ............... 304,984 145,501 7,925 458,410
Depreciation ...................... 9,376 6,945 310 16,631
Capital expenditures .............. 21,008 13,991 962 35,961
1997
Net sales to customers ............ $388,690 $101,895 -- $490,585
Intersegment sales ................ -- 25,373 $(25,373) --
--------------------------------------------------------
Total net sales ................... 388,690 127,268 (25,373) 490,585
Operating profit .................. 50,547 21,266 (19,076) 52,737
Identifiable assets ............... 283,320 132,465 8,358 424,143
Depreciation ...................... 8,500 6,533 332 15,365
Capital expenditures .............. 20,716 12,023 742 33,481
</TABLE>
36
<PAGE>
<PAGE>
Bush Boake Allen Inc. and Subsidiaries
- --------------------------------------------------------------------------------
SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION> Corporate
Flavor & Aroma Items and
Fragrance Chemicals Unallocated Consolidated
- -------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C>
1996
Net sales to customers $357,772 $91,593 - $449,365
Intersegment sales - 25,088 $(25,088) -
-------------------------------------------------------------
Total net sales................. 357,772 116,681 (25,088) 449,365
Operating profit................ 46,239 22,666 (22,374) 46,531
Identifiable assets............. 272,270 129,455 6,074 407,799
Depreciation.................... 6,349 5,510 266 12,125
Capital expenditures............ 28,298 10,616 715 39,629
</TABLE>
- --------------------------------------------------------------------------------
OPERATIONS BY GEOGRAPHIC AREAS
The Company has operations in 39 countries in North and South America, Europe,
Asia, Australia, the Middle East and Africa. The Company's flavor and fragrance
business is separately managed in four geographic regions: Americas, Europe,
Asia Pacific and International. The aroma chemicals business is managed globally
from Jacksonville, Florida and Widnes, United Kingdom. The operations of the
Americas region outside of the United States for the purpose of this table are
included as a component of "Other".
<TABLE>
<CAPTION>
Corporate
Asia Items and
U.S.A. Europe Pacific Other Unallocated Consolidated
- -------------------------------------------------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C> <C> <C>
1998
Net sales to customers... $158,995 $164,665 $78,083 $83,631 - $485,374
Sales between areas...... 28,721 30,960 18 542 $(60,241) -
--------------------------------------------------------------------
Total net sales.......... 187,716 195,625 78,101 84,173 (60,241) 485,374
Long-lived assets........ 50,500 87,547 30,590 22,292 - 190,929
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
Long-lived assets........ 41,920 86,117 31,595 17,585 - 177,217
1996
Net sales to customers... $135,789 $160,135 $78,778 $74,663 - $449,365
Sales between areas...... 25,604 30,669 25 275 $(56,573) -
--------------------------------------------------------------------
Total net sales.......... 161,393 190,804 78,803 74,938 (56,573) 449,365
Long-lived assets........ 39,826 79,876 34,777 11,098 - 165,577
- -------------------------------------------------------------------------------------------------
RECONCILIATION OF REPORTABLE SEGMENT SALES, INCOME BEFORE INCOME TAXES AND ASSETS:
1998 1997 1996
-----------------------------------
($ in thousands)
Net Sales
Total net sales for reportable segments..................... $506,648 $515,958 $474,453
Elimination of intersegment sales........................... (21,274) (25,373) (25,088)
-----------------------------------
Total consolidated net sales........................ $485,374 $490,585 $449,365
-----------------------------------
Income before Income Taxes
Total operating profit for reportable segments.............. $ 73,968 $ 71,813 $ 68,905
Elimination of intersegment profits......................... (3,990) (4,260) (4,613)
Unallocated amounts:
Corporate administration expenses........................ (13,134) (14,816) (17,761)
Interest expense......................................... (3,326) (3,075) (2,417)
Other income (expense)................................... (2,852) (3,362) 2,647
-----------------------------------
Total consolidated income before income taxes............ $ 50,666 $ 46,300 46,761
-----------------------------------
Assets
Total assets for reportable segments........................ $450,485 $415,785 $401,725
Unallocated corporate assets................................ 7,925 8,358 6,074
-----------------------------------
Total consolidated assets........................... $458,410 $424,143 $407,799
-----------------------------------
37
</TABLE>
<PAGE>
<PAGE>
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholders of
Bush Boake Allen Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income and of cash flows
present fairly, in all material respects, the financial position of Bush Boake
Allen Inc. and its subsidiaries at December 25, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended December 25, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Florham Park, New Jersey
January 29, 1999
38
<PAGE>
<PAGE>
Bush Boake Allen Inc. and Subsidiaries
Five-Year Summary
($ in thousands, except per share)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating Results 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales........................................... $485,374 $490,585 $449,365 $424,616 $374,991
Costs and Other Charges............................. 428,530 437,848 402,834 374,419 333,233
- ----------------------------------------------------------------------------------------------------------------------------
Income From Operations........................ 56,844 52,737 46,531 50,197 41,758
- ----------------------------------------------------------------------------------------------------------------------------
Interest Expense.................................... 3,326 3,075 2,417 3,597 4,258
Other (Income) Expense-Net.......................... 2,852 3,362 (2,647) (318) (544)
- ----------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes.................... 50,666 46,300 46,761 46,918 38,044
Income Taxes........................................ 16,974 15,319 15,206 16,472 12,501
- ----------------------------------------------------------------------------------------------------------------------------
Net Income.................................... 33,692 30,981 31,555 30,446 25,543
- ----------------------------------------------------------------------------------------------------------------------------
Per Share(1)
Net Income - basic............................ 1.75 1.61 1.64 1.58 1.33
- diluted.......................... 1.74 1.60 1.63 1.57 1.32
Stockholders' Equity.......................... 16.62 14.97 13.69 11.54 10.09
- ----------------------------------------------------------------------------------------------------------------------------
Financial Position at Year-End
Current Assets................................ 216,727 201,396 201,574 190,695 162,516
Current Liabilities........................... 92,101 99,539 111,517 96,992 80,895
- ----------------------------------------------------------------------------------------------------------------------------
Working Capital............................... 124,626 101,857 90,057 93,703 81,621
Total Assets.................................. 458,410 424,143 407,799 349,853 307,568
- ----------------------------------------------------------------------------------------------------------------------------
Long-Term Debt................................ 10,354 3,456 2,009 3,731 6,554
Stockholders' Equity.......................... 320,521 288,392 263,133 221,782 193,843
- ----------------------------------------------------------------------------------------------------------------------------
Percent of Long-Term Debt to Total Capital.... 3.2% 1.2% 0.8% 1.7% 3.3%
- ----------------------------------------------------------------------------------------------------------------------------
Additional Data
Gross Profit Margin........................... 35.9% 35.6% 36.0% 37.1% 37.0%
Operating Margin.............................. 11.7% 10.7% 10.4% 11.8% 11.1%
Depreciation and Amortization................. $ 17,800 $ 16,930 $ 13,445 $ 12,661 $ 10,678
Capital Expenditures (excluding acquisitions). $ 35,961 $ 33,481 $ 39,629 $ 25,044 $ 18,250
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net Income Per Share prior to 1995 is based on pro forma shares outstanding
of 19,215,000.
39
<PAGE>
<PAGE>
Bush Boake Allen Inc. and Subsidiaries
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 Bruce J. Edwards
Manager, Union Camp Vice President
Chemical Products Division International Region
Thomas R. Crane, Jr. Jos Kleppers
Former President and Chief Vice President
Executive Officer of Castrol Europe Region
North America Holdings Inc.
Ronald A. Landis
L. Robert Pfund Vice President
Retired Corporate Group Human Resources and Safety
Vice President of Avon
Products, Inc. P. C. Mathew
Vice President
George J. Sella, Jr. Aroma and Terpene Chemicals
Retired Chairman of the Board
and Chief Executive Officer of Dennis M. Meany
American Cyanamid Company. Vice President
General Counsel and
William H. Trice Secretary
Former Chairman of the Board of
the Company; Retired Executive Chia Siang Ee
Vice President of Union Camp Vice President
Corporation. Asia Pacific Region
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
Philip J. Walpole
Assistant Controller
Alan R. Kelsey
Assistant Secretary
EXECUTIVE COMMITEE
[photo] [photo] [photo]
Julian W. Boyden James H. Dunsdon Fred W. Brown
[photo] [photo] [photo] [photo]
Bruce J. Edwards Jos Keppers Ronald A. Landis P.C. Mathew
[photo] [photo] [photo] [photo]
Dennis M. Meany Chia Siang Ee Peter A. Thorburn John R. Wright
40
<PAGE>
<PAGE>
[LOGO] Bush Boake Allen Inc.
7 Mercedes Drive, Montvale, New Jersey 07645
www.bushboakeallen.com
<TABLE>
<S> <C> <C> <C>
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
</TABLE>
<PAGE>
<PAGE>
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 business on six continents and has 63 locations in
39 countries worldwide. BBA's operations are characterized by a high level
of creative skill and technical expertise and the company is a respected
global supplier to an estimated $12 billion international market.
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. It's likely that many of
the flavored or scented products you use every day contain a flavor or
fragrance created and produced by Bush Boake Allen.
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.
In addition to innovative products and advanced technology, at Bush Boake
Allen customer service is paramount. Throughout the world, BBA creative
flavorists and perfumers along with skilled technologists and marketing
specialists are applying their special knowledge, experience and insights
to helping our customers develop products that satisfy and delight consumers.
As a service-oriented organization, Bush Boake Allen is a company fully
committed to the future...and thoroughly dedicated to our customers' success!
<PAGE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF BUSH BOAKE ALLEN INC.
<TABLE>
<CAPTION>
Percentage of
Place of Voting Stock
Subsidiary Incorporation Owned
- ---------- ------------- -----
<S> <C> <C>
Bush Boake Allen Canada Inc. Canada 100%
Bush Boake Allen (Chile) S.A. Chile 100%
Bush Boake Allen Industria E Commercial do
Brasil Limitada Brazil 100%
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%
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 21.1
Page 2
<TABLE>
<CAPTION>
Percentage of
Place of Voting Stock
Subsidiary Incorporation Owned
- ---------- ------------- ------------
<S> <C> <C>
Bush Boake Allen Morimura Limited Japan 65%
Bush Boake Allen (Guangzhou) Co. Ltd. China 95%
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 75%
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%
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 21.1
Page 3
<TABLE>
<CAPTION>
Percentage of
Place of Voting Stock
Subsidiary Incorporation Owned
- ---------- ------------- -------------
<S> <C> <C>
Bush Boake Allen, Moscow, Ltd. Russia 100%
Bush Boake Allen Benelux B.V. Netherlands 100%
Bush Boake Allen Scandinavia Aktielbolag Sweden 100%
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%
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-59463, No. 333-52319, No. 33-93084, and No.
33-86588) of Bush Boake Allen Inc. of our report dated January 29, 1999
appearing on page 38 of the Annual Report to Shareholders which is incorporated
in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Florham Park, New Jersey
March 18, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-START> DEC-26-1997
<PERIOD-END> DEC-25-1998
<CASH> 11,072
<SECURITIES> 0
<RECEIVABLES> 93,109
<ALLOWANCES> 0
<INVENTORY> 102,321
<CURRENT-ASSETS> 216,727
<PP&E> 190,929
<DEPRECIATION> 0
<TOTAL-ASSETS> 458,410
<CURRENT-LIABILITIES> 92,101
<BONDS> 10,354
<COMMON> 320,521
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 458,410
<SALES> 485,374
<TOTAL-REVENUES> 485,374
<CGS> 311,067
<TOTAL-COSTS> 428,530
<OTHER-EXPENSES> 2,852
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,326
<INCOME-PRETAX> 50,666
<INCOME-TAX> 16,974
<INCOME-CONTINUING> 33,692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,692
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.74
</TABLE>
