<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 25, 2000
------------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________to______________________________
Commission file number 1-13030
Bush Boake Allen Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Virginia 13-2560391
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
7 Mercedes Drive, Montvale, New Jersey 07645
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(Address of Principal Executive Offices) (Zip Code)
(201) 391-9870
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES ____X____ NO ______
19,351,063 shares of Registrant's Common Stock, par value $1 per share, were
outstanding as of the close of business on September 25, 2000.
<PAGE>
BUSH BOAKE ALLEN INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION*
Item 1. Financial Statements 2
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
-------------------------------------------
*A summary of the Registrant's significant accounting policies is contained in
the Registrant's Form 10-K for the year ended December 25, 1999 which has
previously been filed with the Securities and Exchange Commission.
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share)
(unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 25, SEPTEMBER 25,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
(restated) (restated)
<S> <C> <C> <C> <C>
Net Sales $121,648 $122,148 $362,554 $370,741
Costs and other charges:
Cost of goods sold 78,018 80,472 232,506 249,167
Selling and administrative expenses 22,519 23,756 71,384 72,222
Research and development expenses 6,769 6,585 20,760 18,867
---------- ---------- ---------- ----------
Income from operations 14,342 11,335 37,904 30,485
------ ------ ------ ------
Interest expense 433 547 1,434 1,634
Other (income) expense, net (1,380) 833 (113) 3,285
---------- ---------- ---------- ----------
Income before income taxes 15,289 9,955 36,583 25,566
---------- ---------- ---------- ----------
Income taxes 5,088 3,664 13,180 9,488
---------- ---------- ---------- ----------
Net Income $10,201 $6,291 $23,403 $16,078
======= ====== ======= =======
Net income per share:
- Basic $0.53 $0.33 $1.21 $0.83
===== ===== ===== =====
- Diluted $0.53 $0.32 $1.20 $0.83
===== ===== ===== =====
Weighted average number of
shares outstanding:
- Basic 19,341,508 19,297,469 19,322,738 19,293,875
========== ========== ========== ==========
- Diluted 19,708,599 19,388,582 19,534,994 19,396,729
========== ========== ========== ==========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
-2-
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 25, DECEMBER 25,
2000 1999
---- ----
(unaudited) (restated)
<S> <C> <C>
ASSETS
Cash and cash equivalents $35,136 $9,338
Receivables, net 89,579 93,370
Inventories 103,330 100,374
Other 8,642 11,255
--------------- -----------
Total current assets 236,687 214,337
--------------- -----------
Property, plant and equipment, net 177,848 194,999
Other assets 52,824 54,684
--------------- -----------
Total Assets $467,359 $464,020
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable and current maturities $7,164 $9,551
Accounts payable 38,870 37,689
Accrued liabilities 33,634 31,248
Income and other taxes 114 3,954
--------------- -----------
Total current liabilities 79,782 82,442
Long-term debt 8,999 8,003
Deferred income taxes 23,035 24,794
Other long-term liabilities 11,195 10,212
Stockholders' equity:
Common stock - (Shares outstanding:
2000: 19,351,063 and 1999: 19,299,534) 19,351 19,300
Additional paid-in capital 170,000 168,680
Retained earnings 192,992 169,589
Accumulated other comprehensive income/(loss) (37,995) (19,000)
--------------- -----------
Total stockholders' equity 344,348 338,569
--------------- -----------
Total Liabilities and Stockholders' Equity $467,359 $464,020
======== ========
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
-3-
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 25,
-------------
2000 1999
---- ----
(restated)
<S> <C> <C>
Cash provided by (used for) operations:
Net income $23,403 $16,078
Adjustments to reconcile net income
to cash provided by operations:
Depreciation and amortization 15,665 14,834
Deferred income taxes 709 (1,643)
Loss/(gain) on sale of assets (1,913) 524
Other 1,529 138
Changes in operational assets and liabilities:
Receivables, net (1,446) (5,519)
Inventories (8,292) 2,313
Other assets (2,377) (6,843)
Accounts payable, taxes and other liabilities 6,063 1,978
------- -------
Cash provided by operations 33,341 21,860
------ ------
Cash provided by (used for) investment activities:
Capital expenditures (9,305) (22,310)
Other 2,004 208
------- -------
Cash used for investment activities (7,301) (22,102)
------- -------
Cash provided by (used for) financing activities:
Proceeds from issuance of common stock, net 1,244 248
Change in notes payable, net (2,245) (6,692)
Proceeds from issuance of long-term debt 3,203 --
Repayments of long-term debt (1,803) (981)
------- -------
Cash provided by (used for) financing activities 399 (7,425)
------- -------
Effect of exchange rate changes on cash (641) 230
------- -------
Increase (decrease) in cash and cash equivalents 25,798 (7,437)
Balance at beginning of period 9,338 11,072
------- -------
Balance at end of period $35,136 $3,635
======= ======
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
-4-
<PAGE>
BUSH BOAKE ALLEN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
(unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 25, SEPTEMBER 25,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
(restated) (restated)
<S> <C> <C> <C> <C>
Net Income $10,201 $6,291 $23,403 $16,078
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustments (6,860) 5,424 (18,995) (6,456)
--------- ---------- --------- ---------
Total other comprehensive income/(loss) (6,860) 5,424 (18,995) (6,456)
--------- ---------- --------- ---------
Comprehensive Income/(Loss) $3,341 $11,715 $4,408 $9,622
====== ======= ====== ======
</TABLE>
See accompanying notes to the Consolidated Financial Statements.
-5-
<PAGE>
BUSH BOAKE ALLEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Pending Sale of Business
As announced in a joint press release between International Flavors & Fragrances
Inc. (IFF) and Bush Boake Allen Inc. (BBA), dated September 25, 2000, the Boards
of Directors of both companies have approved a definitive merger agreement,
under which IFF will acquire all the outstanding shares of BBA for $48.50 per
share in cash. IFF anticipates completing this transaction in the fourth quarter
of 2000. The waiting period under the Hart-Scott-Rodino Antitrust Act has
expired and the tender offer is scheduled to expire at 12:00 Midnight on
November 3, 2000, unless extended.
Note 2. Interim Reporting
The information furnished in this report is unaudited but includes all
adjustments which, in the opinion of management, are necessary for a fair
presentation of results for the interim periods reported. The adjustments made
were of a normal recurring nature. Results for the interim periods are not
necessarily indicative of results for the full period or for any other interim
period.
Note 3. Change in Accounting
Effective December 26, 1999, the Company changed its method of determining the
cost of its United States aroma chemicals inventory from a last-in, first-out
(LIFO) method to a first-in, first-out (FIFO) method. The change was made
because the Company has begun to realize and expects to continue to experience
operating efficiencies as a result of process improvements from several capital
investment initiatives at its United States aroma chemicals facility. The
Company believes that the FIFO method is preferable to the LIFO method as the
change conforms the inventories of all operations to the same methodology,
inventories are reflected in the Company's balance sheet at their most recent
value, the FIFO or average cost methods are the predominant method used in the
Company's industry and the FIFO method also results in a better matching of
revenues and expenses.
This change in accounting method has been applied retroactively and financial
information for all periods presented has been restated to apply the FIFO cost
method. As a result of the change, net income was decreased by $500,000
(approximately $.03 per share diluted) in the third quarter of 1999 and $1.0
million (approximately $.05 per share diluted) in the nine months ended
September 25, 1999. As a result of the retroactive application of the new
method, retained earnings were increased by $1.8 million and inventories were
increased by $3.0 million as of December 25, 1999. The effect of the accounting
change on the third quarter and the nine months ended September 25, 2000 was not
material.
-6-
<PAGE>
Note 4. Inventories
<TABLE>
<CAPTION>
(Restated)
September 25, 2000 December 25, 1999
------------------ -----------------
($ in thousands)
<S> <C> <C>
Finished goods $35,766 $36,484
Raw materials 48,832 49,498
Work in process 15,386 11,530
Supplies 3,346 2,862
-------- --------
Total $103,330 $100,374
======== ========
</TABLE>
Note 5. Stockholders' Equity (in thousands)
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED OTHER TOTAL
COMMON STOCK PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNTS CAPITAL EARNINGS INCOME (LOSS) EQUITY
------ ------- ------- -------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Restated
Balance December 25, 1999 19,300 $19,300 $168,680 $169,589 $(19,000) $338,569
Net Income 23,403 23,403
Issuance of Stock for Options 51 51 1,320 1,371
Foreign Currency Translation (18,995) (18,995)
------ ------- -------- -------- -------- --------
Balance September 25, 2000 19,351 $19,351 $170,000 $192,992 $(37,995) $344,348
====== ======= ======== ======== ======== ========
</TABLE>
Note 6. Other Comprehensive Income
The components of Other Comprehensive Income consist entirely of the Foreign
Currency Translation Adjustments as reported in the Consolidated Statement of
Comprehensive Income for the periods ending September 25, 2000 and 1999, and as
reported in the Consolidated Balance Sheets as of September 25, 2000 and
December 25, 1999. Bush Boake Allen Inc. does not provide any Federal or State
deferred income taxes on the cumulative undistributed earnings of foreign
subsidiaries including cumulative translation adjustments with respect to such
foreign subsidiaries, because the earnings have been reinvested in the
businesses of those companies.
Note 7. Other (Income) Expense, Net
Other (income) expense, net for the third quarter 2000 includes a non-recurring
pre-tax gain of $1.9 million related to the sale of surplus land and vacated
buildings adjacent to the Company's Walthamstow, England site. This sale reduced
the effective tax rate in the third quarter, reflecting the UK capital gains tax
benefit on this transaction.
-7-
<PAGE>
Note 8. Segment Information
The following chart sets forth sales and operating profit for the principal
business segments of the Company for the quarters ended September 25, 2000 and
1999 and for the nine months ended September 25, 2000 and 1999. There has not
been a material change in total assets from the amounts disclosed in the 1999
annual report, except for the restatement due to the accounting change as
described in Note 3. The basis of segmentation and the measurement of segment
operating profit has been consistently applied.
<TABLE>
<CAPTION>
CORPORATE
FLAVOR & AROMA ITEMS AND
FRAGRANCE CHEMICALS UNALLOCATED CONSOLIDATED
--------- --------- ----------- ------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
QUARTER ENDED
SEPTEMBER 25, 2000
------------------
Net sales to customers $102,382 $19,266 -- $121,648
Intersegment sales -- 5,006 $(5,006) --
------- ------ ------ -------
Total net sales 102,382 24,272 (5,006) 121,648
Operating profit 15,316 2,855 (3,829) 14,342
SEPTEMBER 25, 1999 (RESTATED)
------------------
Net sales to customers $ 99,541 $22,607 -- $122,148
Intersegment sales -- 5,304 $(5,304) --
------- ------ ------ -------
Total net sales 99,541 27,911 (5,304) 122,148
Operating profit 12,807 2,094 (3,566) 11,335
</TABLE>
<TABLE>
<CAPTION>
CORPORATE
FLAVOR & AROMA ITEMS AND
FRAGRANCE CHEMICALS UNALLOCATED CONSOLIDATED
--------- --------- ----------- ------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
NINE MONTHS ENDED
SEPTEMBER 25, 2000
------------------
Net sales to customers $303,090 $59,464 -- $362,554
Intersegment sales -- 15,608 $(15,608) --
-------- ------- -------- --------
Total net sales 303,090 75,072 (15,608) 362,554
Operating profit 38,498 11,703 (12,297) 37,904
SEPTEMBER 25, 1999 (RESTATED)
------------------
Net sales to customers $302,665 $68,076 -- $370,741
Intersegment sales -- 19,065 $(19,065) --
-------- ------- -------- --------
Total net sales 302,665 87,141 (19,065) 370,741
Operating profit 36,969 7,404 (13,888) 30,485
</TABLE>
-8-
<PAGE>
Reconciliation of reportable segment sales and income before taxes:
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 25,
-------------
2000 1999 (RESTATED)
---- ----
($ IN THOUSANDS)
<S> <C> <C>
NET SALES
---------
Total net sales for reportable segments $126,654 $127,452
Elimination of intersegment sales (5,006) (5,304)
-------- --------
Total consolidated net sales $121,648 $122,148
-------- --------
INCOME BEFORE INCOME TAXES
--------------------------
Total operating profit for reportable segments $18,171 $14,901
Elimination of intersegment profits (672) 188
Unallocated amounts:
Corporate administration expenses (3,157) (3,754)
Interest expense (433) (547)
Other income (expense) 1,380 (833)
-------- --------
Total consolidated income before
income taxes $15,289 $9,955
-------- --------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 25,
-------------
2000 1999 (RESTATED)
---- ----
($ IN THOUSANDS)
<S> <C> <C>
NET SALES
---------
Total net sales for reportable segments $378,162 $389,806
Elimination of intersegment sales (15,608) (19,065)
-------- --------
Total consolidated net sales $362,554 $370,741
-------- --------
INCOME BEFORE INCOME TAXES
--------------------------
Total operating profit for reportable segments $50,201 $44,373
Elimination of intersegment profits (2,531) (3,052)
Unallocated amounts:
Corporate administration expenses (9,766) (10,836)
Interest expense (1,434) (1,634)
Other income (expense) 113 (3,285)
-------- --------
Total consolidated income before
income taxes $36,583 $25,566
======== =======
</TABLE>
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 25, 2000 COMPARED TO QUARTER ENDED SEPTEMBER 25, 1999
NET SALES
Net sales for the third quarter ended September 25, 2000 decreased 0.4% to
$121.6 million from $122.1 million for the quarter ended September 25, 1999. The
aroma chemicals segment reported a decrease in sales of 14.8% compared with the
third quarter of 1999. The decrease reflects lower sales volume and prices.
Average selling prices were down approximately 2% primarily due to continued
market pressure on terpene-based products, the strength of the Pound Sterling
versus the Euro, and increased volumes of Chinese material becoming available
for domestic use and for exports. Sales volumes for major chemical products
declined approximately 12% from the third quarter of 1999. The flavor and
fragrance segment recorded an increase in third quarter sales of 2.9% over the
third quarter of 1999. The Americas region and the International region sales
increased 12.8% and 6.4%, respectively, from the third quarter of 1999 partially
offset by decreases of 9.0% in the European region and 1.9% in the Asia Pacific
region. Net sales were adversely affected by the movement in foreign currency
exchange rates, especially in the European, Asia Pacific and International
regions. If exchange rates had remained unchanged from the third quarter 1999 to
the third quarter 2000, total net sales would have increased approximately 5%.
COST OF GOODS SOLD
Cost of goods sold in the third quarter of 2000 decreased to $78.0 million
from $80.5 million in the third quarter of 1999 due primarily to lower aroma
chemical materials costs and manufacturing cost efficiency gains generated from
improved yields and process improvements in both chemical plants. Cost of goods
sold as a percentage of net sales decreased to 64.1% from 65.9%.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses in the third quarter of 2000 decreased
to $22.5 million from $23.8 million in the third quarter of 1999 primarily as a
result of reduced staffing levels. Selling and administrative expenses as a
percentage of net sales decreased to 18.5% from 19.4%.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses in the third quarter of 2000 increased to
$6.8 million from $6.6 million in the third quarter of 1999. Research and
development expenses as a percentage of net sales increased slightly to 5.6%
from 5.4%.
-10-
<PAGE>
INCOME FROM OPERATIONS
Income from operations in the third quarter of 2000 increased 26.5% to
$14.3 million from $11.3 million in the third quarter of 1999. Operating margins
increased to 11.8% from 9.3% in the third quarter of 2000 due primarily to lower
material costs and operating efficiencies in the aroma chemicals segment.
Income from operations, exclusive of corporate items, for the flavor and
fragrance segment was $15.3 million compared to $12.8 in the third quarter of
1999. Increases in operating income were reported in the Asia Pacific, Americas
and International regions, partially offset by a decrease in the European
region. The Company's aroma chemical segment recorded third quarter operating
income, exclusive of corporate items, of $2.9 million in 2000, compared to $2.1
million in the third quarter of 1999.
OTHER (INCOME) EXPENSE, NET
Other (income) expense, net for the third quarter of 2000 was $1.4 million
income compared to $800,000 expense in the third quarter of 1999 primarily due
to the sale of surplus UK property, resulting in a pre-tax gain of approximately
$1.9 million.
INTEREST EXPENSE
Interest expense, net decreased to $400,000 from $500,000 in the third
quarter of 1999.
INCOME TAXES
Income tax expense in the third quarter of 2000 increased to $5.1 million
from $3.7 million in the third quarter of 1999 as a result of higher pre-tax
earnings. The Company's effective tax rate in the third quarter of 2000
decreased to 33.3% from 36.8% for the third quarter of 1999 reflecting capital
gains tax benefits on property dispositions in the UK.
-11-
<PAGE>
NINE MONTHS ENDED SEPTEMBER 25, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 25,
1999
NET SALES
Net sales for the nine months ended September 25, 2000 decreased 2.2% to
$362.6 million from $370.7 million in the comparable prior year period. Net
sales of aroma chemicals decreased 12.7% to $59.5 million from $68.1 million
primarily due to a reduction in sales volume and prices. Average selling prices
were down approximately 6% primarily due to a sharp decline in crude sulfate
turpentine costs and competitive market pressure in Europe resulting from a
strong Pound Sterling versus the Euro. Sales volumes for major chemical products
declined approximately 9% reflecting the loss of business in the Asian market
due to lower priced Chinese material and some year-end Y2K buying. Net sales of
the flavor and fragrance segment increased slightly to $303.1 million from
$302.7 million. The European region and the Asia Pacific region sales decreased
10.0% and 1.4%, respectively from the nine months ended September 25, 1999
offset by increases of 6.0% in the Americas region and 5.9% in the International
region. Net sales were adversely affected by the movement in foreign currency
exchange rates, especially in the European and International regions. If
exchange rates had remained unchanged from the first nine months of 1999 to the
first nine months of 2000, total net sales would have increased approximately
2%.
COST OF GOODS SOLD
Cost of goods sold for the nine months ended September 25, 2000 decreased
to $232.5 million from $249.2 million in the comparable prior year period due
primarily to lower aroma chemical materials costs and manufacturing cost
efficiency gains generated from improved yield and higher throughput as both
chemical plants ran near capacity with some rebuilding of key products that were
diminished as a result of Y2K demands at the end of 1999. Cost of goods sold as
a percentage of net sales decreased to 64.1% from 67.2%.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for the nine months ended September 25,
2000 decreased to $71.4 million from $72.2 million in the comparable prior year
period. Selling and administrative expenses as a percentage of net sales
increased slightly to 19.7% from 19.5%.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the nine months ended September 25,
2000 increased to $20.8 million from $18.9 million in the comparable prior year
period. Research and development expenses as a percentage of net sales increased
to 5.7% from 5.1% reflecting additional technical staff and a new technical and
creative center that was opened late last year in Rotterdam to support future
growth in the European flavor business on the continent.
-12-
<PAGE>
INCOME FROM OPERATIONS
Income from operations for the nine months ended September 25, 2000
increased 24.3% to $37.9 million from $30.5 million in the comparable prior year
period. Operating margins increased to 10.5% from 8.2% in the prior year due
primarily to lower material costs and operating efficiencies in the aroma
chemicals segment.
Income from operations, exclusive of corporate items, for the flavor and
fragrance segment increased 4.1% to $38.5 million from $37.0 million in the
prior year first nine months. Increases in operating income were reported in the
Asia Pacific, International and Americas regions, partially offset by a decrease
in the European region. The Company's aroma chemical segment recorded nine
months operating income, exclusive of corporate items, of $11.7 million in 2000,
compared to $7.4 million in the first nine months of 1999.
OTHER (INCOME) EXPENSE, NET
Other (income) expense, net for the nine months ended September 25, 2000
was $100,000 income compared to $3.3 million expense for the nine months ended
September 25, 1999. The increase is primarily due to the sale of surplus UK
property, resulting in a pre-tax gain of approximately $1.9 million during the
third quarter 2000.
INTEREST EXPENSE
Interest expense, net for the nine months ended September 25, 2000
decreased to $1.4 million from $1.6 million in the comparable prior year period
primarily due to lower average borrowings.
INCOME TAXES
Income tax expense for the nine months ended September 25, 2000 increased
to $13.2 million from $9.5 million in the comparable prior year period primarily
as a result of higher pre-tax earnings. The Company's effective tax rate
decreased to 36.0% from 37.1% in the comparable prior year period reflecting
capital gains tax benefits on property dispositions in the UK.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations for the nine months ended September 25,
2000 were $33.3 million compared to $21.9 million for the nine months ended
September 25, 1999. The increase is primarily due to higher net income.
At September 25, 2000, working capital of the Company was $156.9 million, a
$25.0 million increase from $131.9 million at December 25, 1999. The change in
working capital reflects a build up in total cash, resulting mainly from a
reduced level of capital expenditures.
As of September 25, 2000, the Company had cash and cash equivalents of
$35.1 million. The Company believes that its available cash, funds provided by
operations and available borrowing capacity under its credit facilities will be
sufficient to support its debt service, working capital and capital expenditure
requirements for the foreseeable future.
-13-
<PAGE>
ACCOUNTING MATTERS
During the first quarter of 2000, the Company changed its method of
accounting for its domestic aroma chemicals inventory from a last-in, first-out
(LIFO) method to a first-in, first-out (FIFO) method. This change standardizes
the method of accounting for all Company inventories. As required by generally
accepted accounting principles, the Company has retroactively adjusted prior
year financial statements for the change. See Note 3 of the Notes to the
Consolidated Financial Statements for a discussion of this accounting change and
its effect.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments. The
statement, which is effective for the first quarter of 2001, requires all
derivatives to be measured at fair value and recognized as either assets or
liabilities. Management does not expect adoption of this statement to have a
material effect on the Company's consolidated financial position or results of
operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
which provides guidance and interpretations of the application of generally
accepted accounting principles to revenue recognition. Adoption of this bulletin
is not expected to have a material effect on the Company's consolidated
financial position or results of operations.
EURO CONVERSION
On January 1, 1999 certain member nations of the European Economic and
Monetary Union (EMU) adopted a common currency, the "Euro". For a three-year
transition period, both the Euro and the members' national currencies will
remain in circulation. After June 30, 2002, the Euro will be the sole legal
tender for EMU countries. The Company does not expect that the adoption of the
Euro currency unit will have a material impact on its operations, financial
condition or liquidity. The costs of addressing the Euro conversion are not
expected to be material and will be charged to operations as incurred.
OTHER MATTERS
As announced in a joint press release between International Flavors &
Fragrances Inc. (IFF) and Bush Boake Allen Inc. (BBA), dated September 25, 2000,
the Boards of Directors of both companies have approved a definitive merger
agreement, under which IFF will acquire all the outstanding shares of BBA for
$48.50 per share in cash. IFF anticipates completing this transaction in the
fourth quarter of 2000. The waiting period under the Hart-Scott-Rodino Antitrust
Act has expired and the tender offer is scheduled to expire at 12:00 Midnight on
November 3, 2000, unless extended.
--------------------------------------------------------------------------------
Statements in this report that are not historical are forward-looking
statements which are subject to risks and uncertainties that could cause
actual results to differ materially. Such risks and uncertainties with
respect to Bush Boake Allen's business include general economic conditions,
customers changing flavor and/or fragrance formulations, pricing and
availability of raw materials, the effect of the transition to the Euro and
political and economic uncertainties including currency fluctuations in the
many countries in which we operate.
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<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
See the Company's most recent Annual Report filed on Form 10-K (Item
7a). There has been no material change in this information.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS
<TABLE>
<CAPTION>
No. Description
--- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
B) REPORTS ON FORM 8-K
A current Report on Form 8-K was filed by the Company on September 27,
2000 reporting that it had entered into an Agreement and Plan of
Merger, dated September 25, 2000 (the "Merger Agreement"), pursuant to
which the Company will merge with and into a subsidiary of
International Flavors & Fragrances Inc., a New York corporation
("IFF). Under the terms of the Merger Agreement, such subsidiary of
IFF will commence a tender offer for all the outstanding shares of BBA
common stock not later than October 10, 2000 at a price of $48.50 per
share in cash. International Paper Company ("IP"), which owns
approximately 68% of the outstanding common stock of BBA, has entered
into a Voting and Tender Agreement, dated as of September 25, 2000,
with IFF and BBA (the "Voting and Tender Agreement") pursuant to which
IFF has agreed to tender its shares of BBA common stock in the tender
offer. Furthermore, the Voting and Tender Agreement grants IFF an
option to purchase the shares of BBA common stock held by IP
exercisable under certain conditions in connection with termination of
the Merger Agreement.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUSH BOAKE ALLEN INC.
Date: November 7, 2000 By: /s/ Fred W. Brown
------------------------------ ------------------------------------
Fred W. Brown, Jr.
Vice President Finance and
Chief Financial Officer
Date: November 7, 2000 By: /s/ Dennis M. Meany
------------------------------ ------------------------------------
Dennis M. Meany
Vice President, General Counsel
and Secretary
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