<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.





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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]




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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



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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




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                                                                         [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



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<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





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<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



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<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

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                     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

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[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>
                                  


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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!

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