CROMPTON & KNOWLES CORPORATION EXHIBIT 13
1993 Annual Report
Performance
Service
Technology
Crompton & Knowles is a worldwide producer and marketer of
specialty chemicals and equipment. The company's 51 million
shares of common stock outstanding are traded on the New York
Stock Exchange under the symbol CNK. Dividends on the stock have
been paid for 244 consecutive quarters and have increased in each
of the last 17 years. Crompton & Knowles has gained leadership
positions in its chosen markets by providing quality products,
technical service and performance know-how to solve problems and
add value to customers' products. The company's businesses are
grouped into two segments:
SPECIALTY CHEMICALS
Crompton & Knowles is a major producer and marketer of dyes
worldwide and a major producer and marketer of specialty food and
pharmaceutical ingredients in North America.
SPECIALTY PROCESS EQUIPMENT AND CONTROLS
The company is a recognized world leader in extrusion systems,
industrial blow molding equipment and related electronic controls
for the plastics industry.
(pie charts)
SALES BY BUSINESS SEGMENT
Specialty Process Equipment and Controls - $151.0
Specialty Chemicals - $407.3
OPERATING PROFIT BY BUSINESS SEGMENT
Specialty Process Equipment and Controls - $26.0
Specialty Chemicals - $68.0
Crompton & Knowles is a member of the Chemical Manufacturers
Association and a signatory of the Association's Responsible
Care@ Program. The company is committed to a continuous good
faith effort to improve performance in health, safety and
environmental quality.
FINANCIAL HIGHLIGHTS
(In thousands of dollars, except per share data) 1993
1992 % Change
Net sales........................$558,348 $517,718
8%
Earnings from operations before
income taxes.....................$ 82,473 $ 68,337
21
Income taxes..................... 30,515 25,072
22
Earnings from operations......... 51,958 43,265
20
Cumulative effect of accounting
changes and extraordinary loss... - (8,800)
- -
Net earnings.....................$ 51,958 $ 34,465
51
Per common share:
Earnings from operations.....$ 1.00 $ .87
15
Net earnings.................$ 1.00 $ .69
45
Dividends....................$ .38 $ .31
25
Book value...................$ 4.68 $ 4.14
13
Return on average common equity
(from operations)................ 23.1% 27.1%
Common stock trading range:
High......................... 27 1/4 23 7/8
Low.......................... 17 5/8 16
Average shares outstanding
(in thousands)................... 52,176 49,967
Shareholders of record........... 4,000 3,100
SALES
Continuing Operations
(In millions of dollars)
(bar graph referencing ELEVEN YEAR SELECTED FINANCIAL DATA)
EARNINGS PER SHARE
Continuing Operations
(bar graph referencing ELEVEN YEAR SELECTED FINANCIAL DATA)
RETURN ON AVERAGE COMMON EQUITY
Continuing Operations
(bar graph referencing ELEVEN YEAR SELECTED FINANCIAL DATA)
Fellow Shareholders:
Crompton & Knowles completed its 11th consecutive year of record
sales and operating earnings in 1993. Nevertheless, it was not an
easy year. In fact, it was very difficult in many of our markets
as domestic growth remained weak and economic recession continued
its grip on many parts of the world. Yet, through the efforts of
all of our employees, we were able to overcome these hurdles and
demonstrate the value of market focus as a basis for delivering
results for shareholders.
At Crompton & Knowles, market focus is a commitment to understand
and satisfy our customers' changing needs with quality products
and technical service in order for them to be successful. This
focus guides the activities of everyone in our organization, from
the development of new products to the implementation of specific
sales programs in the field. The result has been consistent
growth.
Sales in 1993 reached $558.3 million, an increase of eight
percent from the prior year. Net earnings were $52.0 million, or
$1.00 per share, compared to earnings from operations of $43.3
million, or 87 cents per share, in 1992. Net earnings in 1992
were $34.5 million, or 69 cents per share, reflecting special
charges of $8.8 million, or 18 cents per share, relating to
changes in accounting standards and prepayment penalties incurred
for the early retirement of certain long-term debt.
It is noteworthy that these gains were accomplished primarily
through internal growth and that both segments of the company's
business - specialty chemicals and specialty process equipment
and controls - contributed to these results.
Our specialty chemicals segment - comprised of worldwide dyes and
specialty ingredients for the North American food and
pharmaceutical industries - had record sales of $407.3 million,
an increase of three percent. The segment's operating profit rose
seven percent to $68.0 million.
In our largest product line - domestic dyes - we met the
challenge to deliver gains in the face of lower industry-wide
demand. This was accomplished with specific and targeted efforts
directed at key markets and customers. While certain apparel
sectors declined, we increased sales to home furnishings and
industrial applications. We strengthened our position in the
hosiery market and we participated in the strong demand for
automotive textile dyes. Several new dyes introductions for the
carpet, paper and leather industries enabled us to improve our
position in these sectors.
The lower demand for dyes in Europe continued into 1993 but
showed signs of improvement as the year ended. Results from our
operations in Europe remained flat compared to the prior year's
record results.
Productivity programs and cost containment programs also helped
assure improved operating profits in all of our dyes business.
Our specialty ingredients business, serving the food and
pharmaceutical industries, improved over the prior year as sales
increased three percent. New product developments in 1993 - both
those commercialized and those introduced for testing by major
customers during the year - increased and set the stage for more
significant improvements for this business in the future.
An outstanding year was posted by our specialty process equipment
and controls segment as sales surged 23 percent to $151.0 million
and operating profit rose 30 percent to $26.0 million. Business
volume in North America was strong in key sectors. International
sales also increased, accounting for 27 percent of the segment's
sales. To meet increased demand in this business, manufacturing
capacity was increased late in the year.
We're proud of the results we achieved in 1993. We increased
sales and earnings to record levels. We realized a return on
average common equity of 23.1 percent as average equity increased
41 percent. For the 17th consecutive year we increased the
dividend paid to shareholders and in 1993 the increase was 25
percent to 40 cents per share. This was accomplished without the
cooperation of many of our market sectors. Yet, we are neither
satisfied nor content with these results.
As we've stated repeatedly in our reports to shareholders, we
recognize that our job is to continue to produce better results
every year. We take this assignment very seriously and want to
reiterate our commitment to achieving increased shareholder
value. Our success will continue to be dependent on our ability
to stay market focused - to provide customers with the products
and service they must have to be successful. We will continue to
work to understand our customers' businesses as well as they do,
and to work with them to solve their problems. We are confident
this philosophy will continue to produce positive results.
We fully expect 1994 to be another excellent year for Crompton &
Knowles. We thank you for your continuing support and look
forward to reporting to you on our progress.
Respectfully yours,
Vincent A. Calarco
Chairman, President, and
Chief Executive Officer
March 2, 1994
HIGHLIGHTS
Record sales, up 8% to $558.3 million.
Record earnings from operations, rising 20% to $52.0 million.
Return on average common equity was 23.1%.
Dividend increased 17th consecutive year; up 25% to 40 cents
annually.
Stockholders' equity reached record $240.0 million.
Sales per employee rose 9th consecutive year, to $240 thousand.
SPECIALTY CHEMICALS
Improved results in domestic dyes and specialty ingredients
operations brought sales and operating profit to record levels.
Segment sales reached a record $407.3 million, an increase of
three percent from the prior year's sales of $395.2 million.
Operating profit was $68.0 million, seven percent higher than
1992 operating profit of $63.4 million.
Despite weak industry-wide demand in the domestic apparel dyes
industry, the dyes operations posted record results with gains in
virtually all major market sectors. This performance was achieved
as a result of a careful focus on key industry sectors while
maintaining flexible production capabilities at the company's
five domestic locations.
In the apparel market, sales of dyes for nylon, cotton and
acrylics improved. The company is a leading producer of dyes for
each of these fibers. Upscale fashion-driven apparel, dependent
on well-executed styling features and quick delivery to retail
outlets, continued to be an important domestic market less
affected by low-priced imported fabrics or garments. A growing
position in dyes for hosiery also benefitted the company.
In addition, the introduction of specialized new products for the
dyeing of paper, leather and plastic resulted in growth for the
company in each of these markets.
The strongest domestic dyes market throughout 1993 was the carpet
industry, as housing construction increased and redecorating of
existing homes continued. The introduction of several new
products strengthened the company's position in this market.
The company's foreign dyes operations were negatively affected by
poor economic conditions in Europe. Yet, with the benefits of the
dyes acquisition in May 1992, operating results of the foreign
dyes operations were virtually unchanged from the record results
of 1992.
In keeping with its commitment to produce environmentally
friendly products under the Responsible Care Program of the
Chemical Manufacturers Association, the company in 1993 continued
its program of introducing new dyes with improved fixation rates,
reduced salt content, and higher exhaustion levels. These new
products will benefit Crompton & Knowles, its customers and the
environment by delivering better dyeing results while using less
resources and producing less waste.
The highly specialized nature of many of the company's dyes
products, growing customer dependence on prompt and knowledgeable
technical service and increasingly sophisticated production and
environmental regulations should permit Crompton & Knowles to
continue to grow and strengthen its dyes business as it stays
aligned with the less import-sensitive segments of the textile
industry.
HIGHLIGHTS
Sales increased 3 percent to record $407.3 million
Operating profit increased 7 percent to record $68.0 million
Domestic dyes business overcomes industry weakness
New dyes strengthen positions at key customers
Market share gains in specialized dyes segments
(photo captions)
Nylon apparel producers depend on Crompton & Knowles as a leading
provider of quality dyes and technical support to the industry.
Brightly-colored activewear maintains its colorfastness due to
specialized
dyes manufactured by Crompton & Knowles.
Home furnishings, including carpeting, upholstery fabrics and
draperies, are a key market for Crompton & Knowles' dyes.
SPECIALTY CHEMICALS (continued)
The specialty ingredients operations of Crompton & Knowles
improved sales by three percent in 1993 to $91.9 million. The
business benefitted from internal developments as well as the
greater dependence of major food and pharmaceutical companies on
suppliers of systems solutions for their new products.
In the food ingredients sector, the company's broad technological
base, including innovative and functional flavors, seasonings,
colors and sweeteners, has enabled it to offer unique
problem-solving capabilities to its customers.
Convenience foods - including entrees, processed meats, side
dishes, soups, sauces, gravies and salad dressings - have been an
area of strength for the company as leading food companies have
introduced products meeting consumer demands for tasty and
attractive frozen, microwaveable, shelf-stable packaged products.
The demand for "clean labels" with minimal sodium and other
additives such as MSG and hydrolyzed vegetable proteins have
played to Crompton & Knowles' strength in this area. The
company's proprietary sauteed flavor systems have been popular
among producers of packaged convenience foods, as have dairy
flavor systems which remain stable through freeze/thaw and
microwave cycles in food preparation.
Food service companies seeking products which appeal to
health-conscious consumers at restaurants, cafeterias and
fast-food chains, have also turned to Crompton & Knowles for
unique flavor solutions which improve their offerings and keep
customers returning.
Snack ingredients systems combining seasonings, flavors and
colors is an area of specialization for the company. The most
important consumer products in this market have been potato,
corn, tortilla and multigrain chips. In the beverage market,
growth in flavored waters, clear sodas, sports drinks and fruit-
and tea-flavored drinks has presented the company's flavor
technologists with increasing product development opportunities.
Sweetener systems for the bakery, cereal and confectionery
industries experienced growth for the company in 1993. As one of
North America's leading suppliers of molasses and malt products,
Crompton & Knowles has a longstanding reputation for product
quality and service which has reinforced flavor systems marketing
and sales efforts.
With a marketing effort structured to focus technical development
efforts on evolving consumer and food industry trends, Crompton &
Knowles is well positioned to continue growth in sales in the
specialty food ingredients industry.
Sales in the company's pharmaceutical ingredients business
reached record levels with growth in polymer coatings, colors,
excipients, binders and flavors for vitamins, prescription drugs
and over-the-counter pharmaceuticals. The proven record of the
pharmaceutical industry's ability to improve the health of
patients while containing medical costs should present
opportunities for ongoing growth in this business.
HIGHLIGHTS
Sales of specialty ingredients increased 3% as product mix
continued to improve
Development pipeline continued to increase and improve in quality
"Ingredient Systems" marketing strategy gains acceptance in food
industry
(photo captions)
Leading North American producers of packaged convenience foods
turn to Crompton & Knowles for proprietary sauteed flavor
systems.
Prescription drugs and over-the-counter pharmaceuticals
incorporate polymer coatings, colors, excipients and flavors made
by Crompton & Knowles.
SPECIALTY PROCESS EQUIPMENT AND CONTROLS
The company's specialty process equipment and controls segment
had record sales and operating profits in 1993. Sales increased
23 percent to $151.0 million compared with $122.5 million in the
prior year. Operating profit was $26.0 million, or 30 percent
higher than in 1992.
Contributing to the segment's record performance were gains in
North American and international markets. Domestically, sales
gains were achieved in all major sectors of the business, due in
part to the resurgent automotive industry and growing demand for
non-disposable plastic products used by industry and consumers.
Systems for the production of wire and cable insulation and
jacketing and medical systems also increased.
To meet this increased demand during the year and to respond to
customer
requirements for shorter delivery schedules, the company expanded
production facilities in Pawcatuck, Connecticut.
International business remained strong, reaching $41 million or
27 percent of sales, increasing from the prior year's record
levels as sales to the Far East, especially to the Peoples
Republic of China, continued to increase. The company's growth in
the Far East should be enhanced in future years as a result of a
new technical sales and service center opened in Hong Kong.
New products introduced during 1993 included specialized
equipment for the rubber industry, used in tire production; a
parallel twin screw extruder for fast and efficient production of
siding and pipe made of PVC; unique telephone wire take-up
equipment designed to satisfy international telecommunications
demand; and specialized dies for blown film production facilities
making coextruded film with as many as eight layers of plastic.
1993 ended with an order backlog of $38 million.
Highlights
Sales surged 23 percent to record $151.0 million on strong
domestic and
international demand
Operating profit gained 30 percent to record $26.0 million
Profile extrusion system sales rose on automobile industry
strength
Medical products extrusion systems continue strong growth
Order backlog at $38 million at year-end
Opened Hong Kong sales and service center
(photo captions)
Plastics producers around the world produce single layer and
multi-layer blown film for packaging using plastics extrusion
systems from Crompton & Knowles.
Specialized elastomer extrusion systems from Crompton & Knowles
assure consistent quality and performance of dual durometer
weatherstripping in automobiles.
Crompton & Knowles is a leading supplier of extrusion equipment
for the production of precise multilumen tubing and IV bags for
medical applications.
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
Liquidity and Capital Resources
The December 25, 1993 working capital balance of $125.O million
increased
$20.2 million from the December 26, 1992 balance of $104.8
million as current assets rose $13.O million and current
liabilities declined $7.2 million. The current ratio increased to
2.3 from 2.O at the end of 1992. Days sales in receivables
increased to 52 days in 1993 from 46 days in 1992 primarily as a
result of increased export sales. Inventory turnover of 2.9
improved from 2.7 in 1992 primarily as a result of inventory
reduction programs.
Cash flow from operating activities of $52.4 million increased 8%
from $48.5 million in 1992 and was used primarily to finance
capital expenditures, reduce long-term indebtedness, repurchase
280,000 shares of the Company's common stock and pay cash
dividends. Dividends paid in 1993 of $19.5 million represent a
payout ratio of 38% of earnings. The Company's debt-to-capital
ratio was reduced to 7% from 12% at year-end 1992.
Capital expenditures increased to $14.3 million from $12.8
million in 1992.
Capital expenditures are expected to approximate $20 million in
1994 primarily for expansion and improvement of operating
facilities in the United States and Europe. The Company's
long-term liquidity needs including such items as capital
expenditures and dividends are expected to be financed through
operations. The Company has available numerous uncommitted
short-term lines of credit and a revolving credit agreement
providing for borrowings up to $70 million through September 28,
1996. At year-end, there were $5.1 million of short-term
borrowings outstanding and $10.0 million outstanding under the
revolving credit agreement.
Inflation
During the last three years, inflation has not been a significant
factor in the net earnings of the Company. The LIFO method of
accounting is used for a major portion of the Company's
inventories. Under this method, the cost of products sold
approximates current costs and thus reduces possible distortion
of reported earnings due to rising costs. The Company continually
emphasizes cost controls and efficient management of resources to
mitigate the influence of inflation.
International Operations
The stronger U.S. dollar exchange rate versus primarily the
Belgian Franc and the French Franc accounted for the reduction of
$4.4 million in the accumulated translation adjustment account
since year-end 1992. Changes in the balance of this account are
primarily a function of fluctuations in exchange rates and do not
necessarily reflect either enhancement or impairment of the net
asset values or the earnings potential of the Company's foreign
operations.
The Company operates manufacturing facilities in Europe which
serve primarily the European market. Exchange rate disruptions
between the United States and European currencies, and among
European currencies, are not expected to have a material effect
on year-to-year comparisons of the Company's earnings.
Research and Development
The Company employs about 240 engineers, draftsmen, chemists, and
technicians responsible for developing new and improved chemical
products and process equipment systems for the industries served
by the Company. Often, new products are developed in response to
specific customer needs. The Company's process of developing and
commercializing new products and product improvements is ongoing
and involves many products, no one of which is large enough to
significantly impact the Company's results of operations from
year to year. Research and development expenditures totalled
$11.2 million, $10.1 million and $9.7 million in the fiscal years
1993, 1992 and 1991, respectively.
Environmental Matters
The Company's manufacturing facilities are subject to various
federal, state and local requirements with respect to the
discharge of materials into the environment or otherwise relating
to the protection of the environment. Although precise amounts
are difficult to define, the Company spent approximately $13.0
million in 1993 to comply with those requirements, including
approximately $4.1 million in capital expenditures.
The Company has been designated, along with others, as a
potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
or comparable state statutes, at two waste disposal sites; and
two inactive subsidiaries have been designated, along with
others, as potentially responsible parties at a total of four
other sites.
While the cost of compliance with existing environmental
requirements is expected to increase, based on the facts
currently known to the Company, management expects that those
costs, including the cost to the Company of remedial actions at
the waste disposal sites where it has been named a potentially
responsible party, will not have a material effect on the
Company's liquidity and financial condition and that the cost to
the Company of any remedial actions will not be material to the
results of the Company's operations in any given year.
OPERATING RESULTS - 1993 AS COMPARED TO 1992
Overview
Consolidated net sales of $558.3 million increased 8% from $517.7
million in 1992. Net earnings increased 20% to $52.0 million
compared with 1992 operating earnings of $43.3 million. Operating
earnings in 1992 excluded charges relating to the adoption of two
new accounting standards ($5.8 million) and the penalty for early
extinguishment of debt ($3.0 million). Earnings per common share
of $1.00 increased 15% compared with operating earnings per share
of $.87 in 1992. Average shares outstanding increased 2.2 million
to 52.2 million primarily as a result of the stock offering in
December, 1992.
The gross margin percentage increased to 31.8% from 31.0% in 1992
primarily due to lower raw material costs and improved product
mix in the specialty chemicals segment. Operating profit of $94.0
million increased $10.6 million, or 13%, from $83.4 million in
1992 due to gains in both business segments.
Specialty Chemicals
The Company's specialty chemicals segment reported a sales
increase of $12.1 million, or 3%, to $407.3 million from $395.2
million in 1992. Approximately 3% was attributable to incremental
sales from the pre-metallized dyes acquisition in May, 1992, 2%
to unit volume growth and minus 2% to foreign currency
translation. The proportion of sales outside the United States
decreased slightly to 25% from 26% in 1992.
Domestic dyes sales improved 5% reflecting higher unit volume in
certain key markets and new product introductions. International
dyes sales approximated the level in 1992 as incremental sales
from the pre-metallized dyes acquisition were offset by foreign
currency translation and the recessionary environment in Europe.
Sales of specialty ingredients increased 3%, reflecting increased
unit volume and improved product mix.
Operating profit increased $4.7 million, or 7%, to $68.0 million
from $63.4 million in 1992. Approximately 2% was attributable to
the pre-metallized dyes acquisition with the balance of 5%
attributable primarily to unit volume growth, lower raw materials
costs and improved product mix. The proportion of operating
profit outside the United States was 21% versus 23% in 1992.
Specialty Process Equipment and Controls
Sales of $151.0 million reported by the Company's specialty
process equipment and controls segment rose $28.5 million, or
23%, from $122.5 million in 1992. The sales increase was
attributable primarily to higher unit volume (21%) and pricing in
the second half of the year (2%). Domestic sales increased 19%
over 1992 while exports, particularly to the Far East, increased
37%. Export sales accounted for 27% of total segment sales versus
24% in 1992. Operating profit increased $6.0 million, or 30%, to
$26.0 million from $20.0 million in 1992, primarily as a result
of higher unit volume and improved pricing. The equipment order
backlog totalled $38 million at the end of 1993 compared to $34
million at the end of 1992.
Other
Selling, general and administrative expenses increased 9%
primarily due to the pre-metallized dyes acquisition and the
increased level of business. Depreciation and amortization
increased 4% over 1992 primarily as a result of a higher fixed
capital base including the pre-metallized dyes acquisition.
Interest expense of $1.1 million was 84% lower than 1992
primarily as a result of the long-term debt repayment in
December, 1992. Other income of $1.2 million was $1.4 million
below 1992 primarily due to lower foreign exchange gains and
lower interest income. The Company's effective tax rate of 37%
was up slightly from 36.7% in 1992 reflecting primarily the
higher U.S. tax rate in 1993.
OPERATING RESULTS - 1992 AS COMPARED TO 1991
Overview
Consolidated net sales of $517.7 million represent a 15% increase
from $450.2 million in 1991. Earnings from operations of $43.3
million increased 20% from $35.9 million in 1991. Net earnings
amounted to $34.5 million reflecting charges of $8.8 million
relating to the adoption of two new accounting standards ($5.8
million) and the penalty for early extinguishment of debt ($3.0
million). Earnings per share from operations of $.87 increased
19% from $.73 in 1991.
The gross margin percentage decreased to 31.0% from 31.9% in 1991
primarily as a result of the pre-metallized dyes acquisition, and
a lower margin product mix and competitive pricing in the
specialty process equipment and controls segment. Operating
profit of $83.4 million increased $11.9 million, or 17%, from
$71.5 million in 1991 due to gains in the specialty chemicals
segment.
Specialty Chemicals
The Company's specialty chemicals segment reported a sales
increase of $54.3 million, or 16%, to $395.2 million from $340.9
million in 1991. Approximately 6% was attributable to the
pre-metallized dyes acquisition, approximately 1% to foreign
currency translation and the balance of 9% primarily to unit
volume growth. The proportion of sales outside the United States
increased to 26% from 21% in 1991 primarily as a result of the
pre-metallized dyes acquisition.
Domestic dyes sales improved primarily due to stronger demand for
apparel dyes as well as improved broadloom carpet business. Sales
of the Company's international operations improved significantly
primarily due to the inclusion of the pre-metallized dyes
acquisition. Sales of specialty ingredients increased as a result
of increased demand for food flavors and additives for the
pharmaceutical industry.
Operating profit increased $11.9 million, or 23%, to $63.4
million from $51.5 million in 1991. Approximately 4% was
attributable to the pre-metallized dyes acquisition with the
balance of 19% attributable primarily to unit volume growth. The
proportion of operating profit outside the United States was 23%
in 1992, unchanged from 1991.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
reported a
sales increase of $13.2 million, or 12%, to $122.5 million from
$109.3 million in 1991. All of the sales increase was
attributable to higher unit volume as demand for wire and cable
extrusion systems strengthened, especially in the export market,
and sales gains were reported in the plastic sheet and profile
extrusion markets. Export sales accounted for 24% of total
segment sales and were equal to the 1991 level. Operating profit
of $20.0 million was unchanged from 1991 as a lower-margin
product mix and competitive pricing offset volume gains. The
equipment order backlog of $34 million at the end of 1992
increased over the prior year-end level of $31 million.
Other
Selling, general and administrative expenses increased 6%
primarily due to the pre-metallized dyes acquisition and the
impact of inflation and foreign translation. Depreciation and
amortization increased 16% over 1991 due primarily to a higher
fixed capital base and the pre-metallized dyes acquisition.
Interest expense decreased 6% versus 1991 due primarily to lower
interest rates on short-term borrowings. Other income increased
by $281 thousand (less than 1% of pre-tax earnings) versus 1991.
The Company's effective tax rate of 36.7% was up slightly from
the prior year level of 36.5%.
FINANCIAL CONTENTS
Consolidated Financial Statements...........................14
Notes To Consolidated Financial Statements..................18
Responsibility For Financial Statements.....................25
Independent Auditors' Report................................25
Eleven Year Selected Financial Data.........................26
Corporate Officers And Operating Management.................28
Corporate Data...............................Inside Back Cover
CONSOLIDATED STATEMENTS OF EARNINGS
Fiscal years ended December 25, 1993, December 26, 1992, and
December 28, 1991
(In thousands of dollars, except per share data)
1993 1992 1991
SALES
Net sales...............................$558,348 $517,718
$450,228
COSTS AND EXPENSES
Cost of products sold................... 380,941 357,089
306,598
Selling, general and administrative..... 82,970 76,251
71,880
Depreciation and amortization........... 12,076 11,635
10,028
Interest................................ 1,093 6,984
7,419
Other income............................ (1,205) (2,578)
(2,297)
Total costs and expenses............... 475,875 449,381
393,628
EARNINGS
Earnings before income taxes, cumulative
effect of accounting changes and
extraordinary loss..................... 82,473 68,337
56,600
Income taxes............................ 30,515 25,072
20,659
Earnings before cumulative effect of
accounting changes and extraordinary
loss................................... 51,958 43,265
35,941
Cumulative effect of accounting changes. - (5,800)
-
Extraordinary loss on early
extinguishment of debt................. - (3,000)
-
Net earnings............................$ 51,958 $34,465
$35,941
EARNINGS PER COMMON SHARE
Earnings before cumulative effect of
accounting changes and extraordinary
loss...................................$ 1.00 $ .87
$ .73
Cumulative effect of accounting changes. - (.12)
-
Extraordinary loss on early
extinguishment of debt................. - (.06)
-
Net earnings............................$ 1.00 $ .69
$ .73
See accompanying notes to consolidated financial statements
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 25, 1993 and December 26, 1992
(In thousands of dollars, except per share data)
1993 1992
ASSETS
CURRENT ASSETS
Cash.............................................$ 9,284 $
2,441
Accounts receivable.............................. 84,482
74,759
Inventories...................................... 113,932
115,688
Other current assets............................. 12,698
14,495
Total current assets........................... 220,396
207,383
NON-CURRENT ASSETS
Property, plant and equipment.................... 99,925
98,827
Cost in excess of acquired net assets............ 33,275
34,629
Other assets..................................... 9,650
9,876
$363,246
$350,715
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable....................................$ 5,100 $
5,421
Accounts payable................................. 44,905
46,465
Accrued expenses................................. 25,574
33,296
Income taxes payable............................. 12,935
8,955
Other current liabilities........................ 6,925
8,456
Total current liabilities...................... 95,439
102,593
NON-CURRENT LIABILITIES
Long-term debt................................... 14,000
24,000
Accrued postretirement liability................. 9,084
8,774
Deferred income taxes............................ 4,727
3,896
Total non-current liabilities.................. 27,811
36,670
STOCKHOLDERS' EQUITY
Common stock, $.10 par value - issued
53,361,072 shares.............................. 5,336
5,336
Additional paid-in capital....................... 61,783
59,644
Retained earnings................................ 191,230
158,754
Accumulated translation adjustment............... (557)
3,803
Treasury stock at cost........................... (11,278)
(7,956)
Deferred compensation............................ (6,518)
(8,129)
Total stockholders' equity..................... 239,996
211,452
$363,246
$350,715
See accompanying notes to consolidated financial statements
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal years ended December 25, 1993, December 26, 1992 and
December 28, 1991
Increase (decrease) to cash (in thousands of dollars)
1993 1992 1991
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings from operations......................$ 51,958 $ 43,265
$ 35,941
Adjustments to reconcile earnings from
operations to net cash provided by operations:
Depreciation and amortization................. 12,076 11,635
10,028
Deferred compensation......................... 1,611 1,850
740
Deferred income taxes......................... 340 1,280
(1,068)
Cumulative effect of accounting changes and
extraordinary loss........................... _ (8,800)
_
Changes in assets and liabilities:
Accounts receivable.......................... (11,798) (16,943)
(7,021)
Inventories.................................. (253) 5,939
(11,590)
Other current assets......................... 722 (5,833)
408
Other assets................................. 2 (373)
1,116
Accounts payable and accrued expenses........ (4,937) 4,830
8,494
Income taxes payable......................... 3,918 279
4,527
Other current liabilities.................... (1,435) 2,792
(2,775)
Accrued postretirement liability............. 310 8,774
_
Other........................................ (109) (197)
233
Net cash provided by operations.............. 52,405 48,498
39,033
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions ................................. _ (21,817)
(5,435)
Capital expenditures.......................... (14,299) (12,835)
(11,434)
Other investing activities.................... 1,972 (626)
(727)
Net cash used by investing activities........ (12,327) (35,278)
(17,596)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock............ _ 45,743
_
Proceeds from long-term borrowings............ _ _
10,000
Payments of long-term debt.................... (10,000) (56,331)
(20,881)
Change in notes payable....................... (282) 5,421
-
Net treasury stock activity................... (3,198) 830
(980)
Dividends paid................................ (19,482) (14,807)
(11,787)
Net cash used by financing activities........ (32,962) (19,144)
(23,648)
CASH
Effect of exchange rates on cash.............. (273) (118)
(626)
Change in cash................................ 6,843 (6,042)
(2,837)
Cash at beginning of year..................... 2,441 8,483
11,320
Cash at end of year...........................$ 9,284 $ 2,441
$ 8,483
See accompanying notes to consolidated financial statements
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Fiscal years ended December 25, 1993, December 26, 1992 and
December 28, 1991
(In thousands of dollars, except per share data)
1993 1992 1991
COMMON STOCK
Balance at beginning of year................$ 5,336 $ 2,668
$ 2,668
Stock split................................. _ 2,668
_
Balance at end of year...................... 5,336 5,336
2,668
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year................ 59,644 16,982
15,945
Sale of common stock........................ _ 38,236
_
Stock split................................. _ (2,858)
_
Stock options and other issuances........... 2,139 1,376
1,037
Issuance under long-term incentive plan..... _ 5,908
_
Balance at end of year...................... 61,783 59,644
16,982
RETAINED EARNINGS
Balance at beginning of year................ 158,754 139,096
114,942
Net earnings................................ 51,958 34,465
35,941
Cash dividends declared on common stock
($.38 per share in 1993, $.305 in 1992
and $.2475 in 1991)........................ (19,482) (14,807)
(11,787)
Balance at end of year...................... 191,230 158,754
139,096
ACCUMULATED TRANSLATION ADJUSTMENT
Balance at beginning of year................ 3,803 3,365
6,781
Equity adjustment for translation of foreign
currencies.................................. (4,360) 438
(3,416)
Balance at end of year...................... (557) 3,803
3,365
TREASURY STOCK
Balance at beginning of year................ (7,956) (18,029)
(18,712)
Sale of 2,225,680 common shares............. _ 7,507
_
Issued, primarily under stock options
(489,976 shares in 1993, 578,431 in 1992
and 481,396 in 1991)....................... 1,781 1,814
1,801
Common stock acquired (280,000 shares in
1993 and 127,000 in 1991).................. (5,103) _
(1,118)
Issuance under long-term incentive plan
(369,950 shares in 1992)................... _ 752
_
Balance at end of year...................... (11,278) (7,956)
(18,029)
DEFERRED COMPENSATION
Balance at beginning of year................ (8,129) (3,319)
(4,059)
Issuance under long-term incentive plan..... _ (6,660)
_
Amortization................................ 1,611 1,850
740
Balance at end of year...................... (6,518) (8,129)
(3,319)
Total stockholders' equity..................$239,996 $211,452
$140,763
See accompanying notes to consolidated financial statements
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars, except per share data)
ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all
subsidiaries. Intercompany balances and transactions are
eliminated in consolidation. The Company's fiscal year ends on
the last Saturday in December for domestic operations and a week
earlier for most foreign operations.
TRANSLATION OF FOREIGN CURRENCIES
Foreign currency accounts are translated into U.S. dollars as
follows: exchange rates at the end of the period are used to
translate all assets and liabilities; average exchange rates
during the year are used to translate income and expense
accounts. Gains and losses resulting from the translation of
foreign currency balance sheet accounts into U.S. dollars and
related hedging transactions are included in a separate caption,
"Accumulated translation adjustment," in the stockholders' equity
section of the consolidated balance sheets.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost, less
accumulated depreciation. Depreciation expense ($10,828 in 1993,
$10,394 in 1992 and $8,813 in 1991) is computed generally on the
straight-line method using
the following ranges of asset lives: buildings and improvements -
10 to
40 years, machinery and equipment - 5 to 15 years, and furniture
and fixtures - 5 to 10 years.
Renewals and improvements which extend the useful lives of the
assets are capitalized. Capitalized leased assets and leasehold
improvements are depreciated over their useful lives or the
remaining lease term, whichever is shorter. Expenditures for
maintenance and repairs are charged to expense as incurred.
INVENTORY VALUATION
Inventories are valued at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for a
significant portion of chemicals inventories and the first-in,
first-out (FIFO) method for the remaining inventories.
COST IN EXCESS OF ACQUIRED NET ASSETS
The cost of acquisitions in excess of tangible and identifiable
intangible assets acquired prior to 1971 in the amount of $2,412
is not being amortized, as in the opinion of management, no
permanent impairment in value has occurred. Such costs arising
subsequent to 1970 are being amortized using the straight-line
method over periods from twenty to forty years. Accumulated
amortization amounted to $5,456 in 1993 and $4,510 in 1992.
INCOME TAXES
Effective in 1992, the Company adopted the provisions of FASB
Statement No.109 "Accounting for Income Taxes." Further
information is provided in the footnote on income taxes.
A provision has not been made for U.S. income taxes which would
be payable if undistributed earnings of foreign subsidiaries of
approximately $54,000 at December 25, 1993, were distributed to
the Company in the form of dividends, since it is management's
intention to permanently invest such earnings in the related
foreign operations. If distributed, such earnings would incur
income tax expense at substantially less than the U.S. income tax
rate, primarily because of the offset of foreign tax credits.
RESEARCH AND DEVELOPMENT
Expenditures for research and development costs are charged to
operations as incurred ($11,184 in 1993, $10,114 in 1992 and
$9,669 in 1991).
STATEMENTS OF CASH FLOWS
Cash includes bank term deposits of three months or less. Cash
payments during the years ended 1993, 1992 and 1991 included
interest of $1,556, $7,248 and $7,868 and income taxes of
$24,347, $19,786 and $17,187, respectively.
POSTRETIREMENT HEALTH CARE BENEFITS
Effective in 1992, the Company adopted the provisions of FASB
Statement No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions." Further information is provided in
the footnote on post- retirement health care benefits.
EARNINGS PER COMMON SHARE
The computation of earnings per common share is based on the
weighted average number of common and common equivalent shares
outstanding amounting to 52,175,691 in 1993, 49,967,453 in 1992
and 49,317,078 in 1991. A dual presentation of earnings per
common share has not been made since there is no significant
difference in earnings per share calculated on a primary or fully
diluted basis.
FINANCIAL INSTRUMENTS
Financial instruments are presented in the accompanying
consolidated financial statements at either cost or fair value as
required by generally accepted accounting principles. The fair
value of the Company's financial instruments approximate carrying
value.
OTHER DISCLOSURES
Included in accounts receivable are allowances for doubtful
accounts in the amount of $4,072 in 1993 and $3,736 in 1992.
Included in other current liabilities are customer deposits in
the amount of $5,757 in 1993 and $6,916 in 1992.
ACQUISITIONS
On December 31, 1990, the Company acquired the business and
certain assets and liabilities of the Sterling line of extruders
and blow molding equipment at a cost of $5,435. On May 8, 1992,
the Company acquired a pre-metallized dyes business and facility
located in Oissel, France at a cost of $21,817. The acquisitions
have been accounted for using the purchase method and,
accordingly, the acquired assets and liabilities have been
recorded at their fair values at the dates of acquisition. The
excess cost of purchase price over fair value of net assets
acquired in the amount of $5,916 is being amortized over forty
years. The operating results of each acquisition are included in
the Consolidated Statements of Earnings since the date of
acquisition.
INVENTORIES 1993
1992
Finished goods........................... $ 57,987 $
62,936
Work in process.......................... 25,748
25,448
Raw materials and supplies............... 30,197
27,304
$113,932
$115,688
At December 25, 1993, inventories valued using the last-in,
first-out (LIFO) method amounted to $60,983 ($63,653 at December
26, 1992). The LIFO reserve was not significant in 1993 and 1992.
PROPERTY, PLANT AND EQUIPMENT 1993
1992
Land..................................... $ 5,494 $
5,395
Buildings and improvements............... 55,537
54,151
Machinery and equipment.................. 101,285
93,658
Furniture and fixtures................... 3,470
3,335
Construction in progress................. 7,526
6,575
173,312
163,114
Less accumulated depreciation............ 73,387
64,287
$ 99,925 $
98,827
DEBT
Long-term debt is summarized as follows:
1993
1992
Revolving credit loans.....................$10,000 $20,000
Industrial revenue bonds................... 4,000 4,000
Total long-term debt..............$14,000 $24,000
In December 1992, the Company repaid certain long-term debt in
the amount of $52,000 utilizing proceeds from the sale of
common stock and short-term borrowings. An aftertax penalty of
$3,000 was realized on the early extinguishment of such debt.
The industrial revenue bonds mature in 1997 and carry an interest
rate that
fluctuates within the tax exempt market. The average interest
rate incurred in 1993 was 2.4%. The bonds are secured by a bank
letter of credit.
The Company has a credit agreement with a group of five banks
providing for up to $70,000 of revolving credit loans through
September 28, 1996. The agreement calls for interest at the prime
rate on revolving loans, but offers pricing options based on
certificate of deposit and Eurodollar rates which generally are
more favorable than the prime rate option. The Company must pay
an annual fee of 5/16% of the total unused commitment. The
covenants of the revolving credit agreement impose restrictions
on the Company with respect to debt and tangible net worth
levels. These restrictions are not expected to adversely affect
the Company's operations. At December 25, 1993, the $10,000
borrowed under the revolving credit agreement bore an interest
rate of 3.5%.
At December 25, 1993, notes payable outstanding of $5,100 bore an
interest
rate of 3.2%.
The aggregate annual maturities of long-term debt are $10,000 in
1996 and
$4,000 in 1997.
LEASES
The future minimum rental payments under operating leases having
initial or
remaining non-cancelable lease terms in excess of one year (as of
December
25, 1993) total $23,585 as follows: $5,127 in 1994, $4,519 in
1995, $3,744 in 1996, $2,838 in 1997, $2,419 in 1998 and $4,938
in later years. Total rental expense for all operating leases was
$6,509 in 1993, $6,379 in 1992, and $6,004 in 1991.
All long-term leases expire prior to 2013. Real estate taxes,
insurance and maintenance expenses generally are obligations of
the Company and, accordingly, are not included as part of rental
payments. It is expected that, in the normal course of business,
leases that expire will be renewed or replaced by leases on other
properties.
CAPITAL STOCK
In April 1992, the shareholders approved an increase in the
number of authorized common shares from 60,000,000 to 250,000,000
shares and the Board of Directors declared a two-for-one stock
split payable on May 22, 1992. The Company is authorized to issue
250,000 shares of preferred stock without par value, none of
which are outstanding.
There are 53,361,072 common shares issued, of which 2,069,547
shares and 2,279,523 shares were held in the treasury at December
25, 1993 and December 26, 1992, respectively. In December 1992,
the Company sold 2,225,680 shares of common stock through a
public offering. The net proceeds were used to repay certain
long-term debt.
Preferred share purchase rights (Rights) outstanding with respect
to each share of the Company's common stock entitle the holder to
purchase one eight-hundredth of a share of Series A Junior
Participating Preferred Stock at an exercise price of $18.75. The
Rights cannot become exercisable until ten days following a
public announcement that a person or group has acquired 20% or
more of the common shares of the Company or intends to make a
tender or exchange offer which would result in their ownership of
20% or more of the Company's common shares. The Rights also
entitle the holder under certain circumstances to receive shares
in another company which acquires the Company or merges with it.
INCOME TAXES
Effective in 1992, the Company adopted the provisions of FASB
Statement No.
109 "Accounting for Income Taxes" resulting in a cumulative
charge of $300.
Total income tax expense for 1992 amounted to $19,579 and was
allocated as follows: earnings from operations $25,072,
cumulative effect of accounting changes ($3,424) and
extraordinary loss on early extinguishment of debt ($2,069).
The components of earnings from operations before income taxes
and taxes are as follows:
1993 1992
1991
PRETAX EARNINGS:
Domestic................................ $68,498 $53,732
$43,243
Foreign................................. 13,975 14,605
13,357
Total................................... $82,473 $68,337
$56,600
TAXES:
DOMESTIC
Current taxes ...................... $27,857 $18,104
$17,031
Deferred taxes ..................... (587) 2,237
(509)
$27,270 $20,341
$16,522
FOREIGN
Current taxes....................... $ 2,318 $ 5,688
$ 4,696
Deferred taxes...................... 927 (957)
(559)
$ 3,245 $ 4,731
$ 4,137
TOTAL
Current taxes....................... $30,175 $23,792
$21,727
Deferred taxes...................... 340 1,280
(1,068)
$30,515 $25,072
$20,659
The following is a percentage reconciliation of computed
"expected" tax
expense:
1993 1992
1991
Computed "expected" tax expense.......... 35.0% 34.0%
34.0%
State taxes (net of U.S. tax benefit).... 3.6 3.4
3.3
Foreign tax differential................. (2.0) (.3)
(.7)
Other, net............................... .4 (.4)
(.1)
37.0% 36.7%
36.5%
Deferred income taxes are comprised of temporary differences
between financial and taxable income. The components of the net
deferred tax asset as of December 25, 1993 and December 26, 1992,
are as follows:
1993
1992
Deferred tax asset
Inventory obsolescence reserve and
overhead capitalization...................$ 2,431 $
2,035
Bad debt reserves .......................... 480
355
Deferred compensation liability ............ 879
424
Various expense accruals ................... 1,782
1,802
Accrued postretirement liability ........... 3,738
3,724
Total deferred tax assets ................ 9,310
8,340
Deferred tax liability - depreciation ........ (8,806)
(7,496)
Net deferred tax asset .....................$ 504 $
844
Total deferred tax assets for 1993 and 1992 include current
assets of $5,231 and $4,740, respectively. The deferred tax
liability is non-current for 1993 and 1992.
CONTINGENCIES
In the normal course of its business, the Company is subject to
investigations, claims and legal proceedings, some of which
concern environmental matters, involving both private and
governmental parties. In some cases, the remedies sought or
damages claimed may be substantial. While each of these matters
is subject to various uncertainties as to outcome, and some of
them may be decided unfavorably to the Company, based on the
facts known to the Company at December 25, 1993, and on
consultation with legal counsel, management believes that there
are no such matters pending or threatened which will have a
material effect on the financial position of the Company or the
results of the Company's operations in any given year.
OTHER INCOME
Major items in other income are as follows:
1993 1992
1991
Interest income $ (469) $ (722) $
(970)
Royalty income (413) (523)
(383)
Gain on foreign exchange (319) (1,091)
(1,242)
Miscellaneous (4) (242)
298
$(1,205) $(2,578)
$(2,297)
STOCK INCENTIVE PLANS
On April 13, 1993, the stockholders approved the Crompton &
Knowles Corporation 1993 Stock Option Plan for Non-Employee
Directors. The Plan authorizes 100,000 shares to be optioned to
non-employee directors at the rate of their annual retainer
divided by the stock price on the date of grant. The option will
vest over a two year period and be exercisable over a ten year
period from the date of grant, at a price equaling the fair
market value on the date of grant. An initial grant of 6,736
shares was made in 1993.
The 1988 Long Term Incentive Plan (the 1988 Plan) authorizes the
Board to grant stock options, stock appreciation rights,
restricted stock and long-term performance awards to the officers
and other key employees of the Company over a period of ten
years. Non-qualified and incentive stock options may be granted
under the 1988 Plan at prices not less than 100% of the market
value on the date of the grant. All outstanding options will
expire not more than ten years and one month from the date of
grant. There were 4,000,000 shares of common stock reserved for
awards under the 1988 Plan.
In 1989, 736,000 shares of treasury stock were transferred to an
independent trustee to administer long-term performance awards
under the 1988 Plan. The market value of the shares at the time
of grant, in the amount of $2,804, is being amortized over the
estimated service period of seven years.
In 1990, 335,800 shares of restricted stock were granted to
certain officers and key employees. The shares are being held by
an independent trustee until they vest with the recipients upon
their retirement or earlier termination of employment. The market
value of the shares at the time of grant, in the amount of
$2,435, is being amortized over the estimated service period of
fifteen years.
In 1992, 369,950 shares of treasury stock were transferred to an
independent trustee to administer long-term performance awards.
The market value of the shares at the time of grant, in the
amount of $6,660, is being amortized over the estimated service
period of six years.
Changes during 1993, 1992 and 1991 in shares under option are
summarized as follows:
Price Per Share
Range Average
Shares
Outstanding at 12/29/90...............$ .91-9.32 $ 3.98
2,452,800
Granted........................... 18.32 18.32
228,400
Exercised......................... .91-9.32 2.63
(471,590)
Lapsed............................ 4.01-9.32 6.00
(10,672)
Outstanding at 12/28/91............... 1.29-18.32 5.75
2,198,938
Granted........................... 18.19-22.78 19.16
224,250
Exercised......................... 1.29-9.31 3.40
(483,954)
Lapsed............................ 4.01-9.31 8.18
(9,334)
Outstanding at 12/26/92...............$ 1.29-22.78 $ 7.88
1,929,900
Granted .......................... 19.31-23.75 19.45
218,736
Exercised ........................ 1.29-18.31 2.87
(424,419)
Lapsed ........................... 4.01-19.19 14.01
(6,667)
Outstanding at 12/25/93 ..............$ 2.15-23.75 $ 10.57
1,717,550
Exercisable at 12/25/93 ..............$ 2.15-19.19 $ 8.03
1,302,294
Shares available for grant at December 25, 1993, and December 26,
1992, were 1,360,037 and 1,472,606, respectively.
The Company has an Employee Stock Ownership Plan that is offered
to eligible employees of the Company and certain of its
subsidiaries. The Company makes contributions equivalent to a
stated percentage of employee contributions. The Company's
contributions were $1,617, $1,276 and $895 in 1993, 1992 and
1991,respectively.
PENSIONS
The Company maintains a defined contribution pension plan for
eligible employees under provisions of section 401(k) of the
Internal Revenue Code.
The plan provides for Company contributions at a certain
percentage of each participant's salary and allows voluntary
tax-deferred employee contributions up to a stated percentage of
salary. Other foreign and domestic pension plans are not
significant. Total pension expense aggregated $4,036 in 1993,
$3,853 in 1992 and $3,162 in 1991.
POSTRETIREMENT HEALTH CARE BENEFITS
Effective January 1, 1992, the Company adopted the provisions of
FASB Statement No.106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The Company elected to record
immediately the transition
obligation, resulting in a one-time aftertax charge to earnings
of $5,500 or $.11 per share. The charge represents the aftertax
present value of post-retirement health benefits attributable to
past service of eligible retired and active employees under the
Company's postretirement health care benefit plans. Prior to
1992, the Company recognized the cost of providing postretirement
health care benefits on a cash basis, which had an insignificant
impact on net earnings. In 1993 and 1992, the postretirement
health care benefit expense did not have a material effect on net
earnings.The financial status of the accrued postretirement
liability is as follows:
1993
1992
Retirees......................................$ 4,056 $
4,067
Fully eligible active participants............ 1,956
1,445
Other active participants..................... 3,277
3,262
Total accumulated postretirement liability.... 9,289
8,774
Unrecognized actuarial loss................... (205)
_
Accrued postretirement liability..............$ 9,084 $
8,774
For measurement purposes, a 13.5% annual rate of increase in the
per capita cost of covered health care benefits was assumed for
1993. The rate is assumed to decrease 1% per year to 6.5% in
2000 and remain at that level thereafter. The weighted-average
discount rate used in determining the accumulated postretirement
benefit obligation was 7.0%. An increase in the assumed health
care cost rate of 1% in each year would increase the accumulated
postretirement benefit obligation by approximately $1,634.
FOREIGN OPERATIONS
Financial data applicable to the Company's foreign operations are
as follows:
1993 1992
1991
Net sales.................................$103,356 $104,307
$ 71,122
Net earnings..............................$ 10,730 $ 9,874
$ 9,220
Assets....................................$ 82,789 $ 81,733
$ 58,123
SUMMARIZED UNAUDITED QUARTERLY FINANCIAL DATA
1993
First Second
Third Fourth
Net sales........................$133,743 $147,677 $134,031
$142,897
Gross profit..................... 42,681 48,853 42,783
43,090
Net earnings..................... 12,295 15,653 11,506
12,504
Net earnings per common share.... 24 .30 .22
.24
Common dividends per share....... .08 .10 .10
.10
Market price per common share:
High............................. 24 3/4 27 1/4 23
1/4 23 7/8
Low.............................. 21 3/8 21 19
17 5/8
1992
First Second
Third Fourth
Net sales........................$113,641 $134,629 $131,849
$137,599
Gross profit..................... 37,386 43,675 39,535
40,033
Earnings before cumulative effect
of accounting changes and extra-
ordinary loss................... 9,874 12,865 10,079
10,447
Net earnings..................... 4,074 12,865 10,079
7,447
Earnings per common share before
cumulative effect of accounting
changes and extraordinary loss.. .20 .26 .20
.21
Net earnings per common share.... .08 .26 .20
.15
Common dividends per share....... .065 .08 .08
.08
Market price per common share:
High............................. 23 7/8 20 5/8 20
7/8 22 1/8
Low.............................. 18 16 16
3/4 17 5/8
BUSINESS SEGMENT DATA
Sales by segment represent sales to unaffiliated customers only.
Intersegment sales and transfers between geographic areas are
nominal and have not been disclosed separately. Operating profit
is defined as total revenue less operating expenses. In computing
operating profit, the following items have not been deducted: net
corporate expenses, interest expense and income taxes.
Identifiable assets by segment are those assets that are used in
the Company's operations in each segment. Corporate assets are
principally cash, prepayments and other assets maintained for
general corporate purposes.
Information by Business Segment
1993 1992
1991
SALES
Specialty chemicals.......................$407,280 $395,192
$340,910
Specialty process equipment and controls.. 151,068 122,526
109,318
$558,348 $517,718
$450,228
OPERATING PROFIT
Specialty chemicals.......................$ 68,067 $ 63,407
$ 51,487
Specialty process equipment and controls.. 25,967 20,009
19,978
94,034 83,416
71,465
General corporate expenses, net........... (10,468) (8,095)
(7,446)
Interest expense.......................... (1,093) (6,984)
(7,419)
Earnings before income taxes..............$ 82,473 $ 68,337
$ 56,600
IDENTIFIABLE ASSETS
Specialty chemicals.......................$281,804 $278,931
$252,375
Specialty process equipment and controls.. 69,279 58,099
47,272
351,083 337,030
299,647
Corporate................................. 12,163 13,685
8,915
$363,246 $350,715
$308,562
DEPRECIATION AND AMORTIZATION
Specialty chemicals.......................$ 10,628 $ 10,332
$ 8,628
Specialty process equipment and controls.. 1,324 1,186
1,277
11,952 11,518
9,905
Corporate................................. 124 117
123
$ 12,076 $ 11,635
$ 10,028
CAPITAL EXPENDITURES
Specialty chemicals.......................$ 12,057 $ 11,669
$ 10,639
Specialty process equipment and controls.. 2,131 1,125
772
14,188 12,794
11,411
Corporate................................. 111 41
23
$ 14,299 $ 12,835
$ 11,434
INFORMATION BY MAJOR GEOGRAPHIC SEGMENT
1993 1992
1991
SALES
United States.............................$454,992 $413,411
$379,106
Europe.................................... 93,808 94,791
61,542
Canada.................................... 9,548 9,516
9,580
$558,348 $517,718
$450,228
EXPORTS TO UNAFFILIATED CUSTOMERS
Included in United States sales:
Far East................................$ 26,244 $ 19,177
$ 7,435
Latin America........................... 10,183 7,681
9,891
Europe.................................. 7,251 4,318
5,396
Canada.................................. 3,500 3,263
8,382
Other................................... 838 785
418
Total................................. 48,016 35,224
31,522
Included in European sales:
Far East................................ 8,649 7,413
6,661
Latin America........................... 4,261 2,768
2,279
Other................................... 3,756 5,355
5,001
Total................................. 16,666 15,536
13,941
$ 64,682 $ 50,760
$ 45,463
OPERATING PROFIT
United States.............................$ 79,536 $ 68,617
$ 59,754
Europe.................................... 13,736 13,108
9,463
Canada.................................... 762 1,691
2,248
$ 94,034 $ 83,416
$ 71,465
IDENTIFIABLE ASSETS
United States.............................$280,457 $268,982
$250,439
Europe.................................... 77,203 76,439
53,510
Canada.................................... 5,586 5,294
4,613
$363,246 $350,715
$308,562
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying financial statements have been prepared in
conformity with
generally accepted accounting principles and have been audited by
KPMG Peat Marwick, Independent Certified Public Accountants,
whose report is presented herein.
Management of the Company assumes responsibility for the accuracy
and reliability of the financial statements. In discharging such
responsibility, management has established certain standards
which are subject to continuous review and are monitored through
the Company's financial management and internal audit group.
The Board of Directors pursues its oversight role for the
financial statements through its Audit Committee which consists
of outside directors. The Audit Committee meets on a regular
basis with representatives of management, the internal audit
group and KPMG Peat Marwick.
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
CROMPTON & KNOWLES CORPORATION
We have audited the consolidated balance sheets of Crompton &
Knowles Corporation and subsidiaries as of December 25, 1993 and
December 26, 1992 and the related consolidated statements of
earnings, stockholders' equity and cash flows for each of the
fiscal years in the three-year period ended December 25, 1993.
These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards 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. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Crompton & Knowles Corporation and subsidiaries at
December 25, 1993 and December 26, 1992 and the results of their
operations and their cash flows for each of the fiscal years in
the three-year period ended December 25, 1993 in conformity with
generally accepted accounting principles.
In 1992, as discussed in the notes to consolidated financial
statements, the Company adopted the provisions of the Financial
Accounting Standards Board's Statement No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and
Statement No. 109, "Accounting for Income Taxes."
/S/KPMG PEAT MARWICK
Stamford, Connecticut
January 20, 1994
ELEVEN YEAR SELECTED FINANCIAL DATA
(In thousands of dollars except per share data) 1993
1992 1991 1990
SUMMARY OF OPERATIONS
Net sales....................... $558,348 517,718 450,228
390,032
Interest expense................ $ 1,093 6,984 7,419
5,842
Pretax earnings................. $ 82,473 68,337 56,600
47,260
Income taxes.................... $ 30,515 25,072 20,659
17,250
Earnings from continuing
operations..................... $ 51,958 43,265 35,941
30,010
Cumulative effect of accounting
changes........................ $ _ (5,800) _
_
Extraordinary loss on early
extinguishment of debt......... $ _ (3,000) _
_
Earnings (loss) from
discontinued operations........ $ _ _ _
_
Loss on disposal of discontinued
operations..................... $ _ _ _
_
Net earnings.................... $ 51,958 34,465 35,941
30,010
PER SHARE STATISTICS
Earnings from continuing
operations before cumulative
effect of accounting changes
and extraordinary loss......... $ 1.00 .87 .73
.61
Net earnings.................... $ 1.00 .69 .73
.61
Dividends....................... $ .38 .31 .25
.20
Book value...................... $ 4.68 4.14 2.94
2.47
Common stock
trading range: High......... 27 1/4 23 7/8 20
1/4 11 5/8
Low.......... 17 5/8 16 8
3/8 6 3/4
Average shares outstanding
(thousands).................... 52,176 49,967 49,317
49,270
FINANCIAL POSITION
Current assets.................. $220,396 207,383 185,235
164,442
PP&E, net....................... $ 99,925 98,827 80,154
76,709
Other assets.................... $ 42,925 44,505 43,173
41,493
Total assets.................... $363,246 350,715 308,562
282,644
Current liabilities............. $ 95,439 102,593 85,712
88,340
Long-term debt.................. $ 14,000 24,000 76,118
70,330
Accrued postretirement
liability...................... $ 9,084 8,774 _
_
Deferred income taxes........... $ 4,727 3,896 5,969
6,409
Stockholders' equity............ $239,996 211,452 140,763
117,565
Current ratio................... 2.3 2.0 2.2
1.9
Total debt-to-equity %.......... 8.0 13.9 57.1
77.6
Total debt-to-capital %......... 7.4 12.2 36.3
43.7
PROFITABILITY STATISTICS
(CONTINUING OPERATIONS)
% Effective tax rate............ 37.0 36.7 36.5
36.5
% Return on sales............... 9.3 8.4 8.0
7.7
% Return on average total
capital........................ 21.0 19.3 18.9
19.8
% Return on average common
equity......................... 23.1 27.1 28.4
28.1
OTHER STATISTICS
(CONTINUING OPERATIONS)
Capital spending................ $ 14,299 12,835 11,434
16,374
Depreciation.................... $ 10,828 10,394 8,813
7,156
Sales per employee.............. $ 240 237 222
218
ELEVEN YEAR SELECTED FINANCIAL DATA
(In thousands of dollars except per share data) 1989
1988 1987 1986
SUMMARY OF OPERATIONS
Net sales....................... $355,817 289,787 199,394
178,256
Interest expense................ $ 6,006 3,606 2,042
789
Pretax earnings................. $ 38,588 26,943 20,353
16,800
Income taxes.................... $ 14,087 10,098 8,341
7,421
Earnings from continuing
operations..................... $ 24,501 16,845 12,012
9,379
Cumulative effect of accounting
changes........................ $ _ _ _
_
Extraordinary loss on early
extinguishment of debt......... $ _ _ _
_
Earnings (loss) from
discontinued operations........ $ _ (597) (262)
(678)
Loss on disposal of
discontinued operations........ $ _ (920) _
(7,700)
Net earnings.................... $ 24,501 15,328 11,750
1,001
PER SHARE STATISTICS
Earnings from continuing
operations before cumulative
effect of accounting changes
and extraordinary loss......... $ .50 .36 .25
.17
Net earnings.................... $ .50 .32 .24
.01
Dividends....................... $ .15 .11 .08
.08
Book value...................... $ 2.08 1.75 1.59
1.42
Common stock
trading range: High......... 7 7/8 4 1/2 3
7/8 2 1/2
Low.......... 3 3/4 2 1/2 2
1/4 1 5/8
Average shares outstanding
(thousands).................... 49,064 47,239 48,168
50,974
FINANCIAL POSITION
Current assets.................. $127,216 120,584 94,069
95,931
PP&E, net....................... $ 50,847 43,685 29,085
28,511
Other assets.................... $ 39,787 41,373 12,075
10,349
Total assets.................... $217,850 205,642 135,229
134,791
Current liabilities............. $ 71,068 72,352 40,922
41,687
Long-term debt.................. $ 41,213 44,594 12,927
19,455
Accrued postretirement
liability...................... $ _ _ _
_
Deferred income taxes........... $ 6,668 6,775 5,575
5,174
Stockholders' equity............ $ 98,901 81,921 75,805
68,475
Current ratio................... 1.8 1.7 2.3
2.3
Total debt-to-equity %.......... 52.4 72.1 25.1
47.0
Total debt-to-capital %......... 34.4 41.9 20.1
32.0
PROFITABILITY STATISTICS
(CONTINUING OPERATIONS)
% Effective tax rate............ 36.5 37.5 41.0
44.2
% Return on sales............... 6.9 5.8 6.0
5.3
% Return on average total
capital........................ 19.3 17.2 14.8
13.6
% Return on average common
equity......................... 27.6 22.7 17.7
15.0
OTHER STATISTICS
(CONTINUING OPERATIONS)
Capital spending................ $ 13,407 6,798 3,523
2,967
Depreciation.................... $ 5,666 4,658 3,468
3,101
Sales per employee.............. $ 215 190 168
146
ELEVEN YEAR SELECTED FINANCIAL DATA
(In thousands of dollars except per share data) 1985
1984 1983
SUMMARY OF OPERATIONS
Net sales........................ $ 163,287 155,435
147,786
Interest expense................. $ 571 1,011
1,445
Pretax earnings.................. $ 15,443 14,255
10,306
Income taxes..................... $ 7,122 6,368
4,628
Earnings from continuing
operations...................... $ 8,321 7,887
5,678
Cumulative effect of accounting
changes......................... $ - -
-
Extraordinary loss on early
extinguishment of debt.......... $ - -
-
Earnings (loss) from discontinued
operations...................... $ (746) 4
624
Loss on disposal of discontinued
operations...................... $ - -
-
Net earnings..................... $ 7,575 7,891
6,302
PER SHARE STATISTICS
Earnings from continuing
operations before cumulative
effect of accounting changes
and extraordinary loss.......... $ .15 .14
.10
Net earnings..................... $ .14 .14
.11
Dividends........................ $ .08 .07
.07
Book value....................... $ 1.34 1.26
1.25
Common stock
trading range: High.......... 1 3/4 1 1/2
1 7/8
Low........... 1 1/4 1 1/4
1 1/8
Average shares outstanding
(thousands)..................... 51,694 51,418
50,948
FINANCIAL POSITION
Current assets................... $ 87,400 82,125
82,068
PP&E, net........................ $ 30,376 30,809
31,205
Other assets..................... $ 12,146 11,964
14,015
Total assets..................... $ 129,922 124,898
127,288
Current liabilities.............. $ 32,366 31,149
30,732
Long-term debt................... $ 19,093 20,322
24,459
Accrued postretirement liability. $ - -
-
Deferred income taxes............ $ 4,708 4,031
3,697
Stockholders' equity............. $ 73,755 69,396
68,400
Current ratio.................... $ 2.7 2.6
2.7
Total debt-to-equity %........... 30.5 35.3
42.8
Total debt-to-capital %.......... 23.4 26.1
30.0
PROFITABILITY STATISTICS
(CONTINUING OPERATIONS)
% Effective tax rate............. 46.1 44.7
44.9
% Return on sales................ 5.1 5.1
3.8
% Return on average total
capital......................... 13.2 12.8
9.3
% Return on average common
equity.......................... 14.3 14.4
10.6
OTHER STATISTICS
(CONTINUING OPERATIONS)
Capital spending................. $ 2,888 3,185
2,184
Depreciation..................... $ 3,061 2,973
2,891
Sales per employee............... $ 128 123
126
RETURN ON SALES
Continuing Operations
(bar graph referencing ELEVEN YEAR SELECTED FINANCIAL DATA)
RETURN ON AVERAGE TOTAL CAPITAL
Continuing Operations
(bar graph referencing ELEVEN YEAR SELECTED FINANCIAL DATA)
SALES PER EMPLOYEE
Continuing Operations
(bar graph referencing ELEVEN YEAR SELECTED FINANCIAL DATA)
CORPORATE OFFICERS AND OPERATING MANAGEMENT
Vincent A. Calarco
Chairman, President and
Chief Executive Officer
Robert W. Ackley
Vice President
President - Davis-Standard Division
Nicholas Fern, Ph.D.
President - International Dyes and Chemicals Division
Edmund H. Fording
Vice President
President - Dyes and Chemicals Division
Marvin H. Happel
Vice President - Organization
Charles J. Marsden
Vice President - Finance and Chief Financial Officer
Frank H. Schoonyoung
President - Ingredient Technology Division
Peter Barna
Treasurer and
Principal Accounting Officer
John T. Ferguson, II
General Counsel and Secretary
Robert A. Marchitello
Assistant Treasurer
(photo caption)
Corporate Management Committee of Crompton & Knowles
(standing from left to right)
Peter Barna, John T. Ferguson, II, Vincent A. Calarco, Marvin H.
Happel, and Robert W. Ackley,
(seated from left to right)
Frank H. Schoonyoung, Charles J. Marsden, and Edmund H. Fording
(not present - Nicholas Fern)
CORPORATE DATA
DIRECTORS
3 James A. Bitonti
President and
Chief Executive Officer
TCOM, L.P.
1,2 Harry W. Buchanan
Retired Vice President
Celanese Corporation
Vincent A. Calarco
Chairman of the Board
President and
Chief Executive Officer
2,3 Robert A. Fox
President and
Chief Executive Officer
Foster Farms
2,3 Roger L. Headrick
President and
Chief Executive Officer
Minnesota Vikings Football Club
1,2 Leo I. Higdon
Dean
The Darden Graduate
School of Business Administration
University of Virginia
1,3 Michael W. Huber
Retired Chairman of the Board
J.M. Huber Corporation
1,3 Warren A. Law
Retired Professor
Graduate School of
Business Administration
Harvard University
Charles J. Marsden
Vice President-Finance and
Chief Financial Officer
1,2 C.A. Piccolo
Chairman and
Chief Executive Officer
Caremark International Inc.
1 Howard B. Wentz, Jr.
Chairman of the Board
ESSTAR Incorporated
Chairman of the Board
Tambrands Inc.
1 Member of Audit Committee
2 Member of Nominating Committee
3 Member of Committee on Executive Compensation
Copyright 1994 Crompton &Knowles Corporation.
All rights reserved.
CORPORATE HEADQUARTERS
One Station Place, Metro Center
Stamford, CT 06902
(203) 353-5400
AUDITORS
KPMG Peat Marwick
Stamford, CT
TRANSFER AGENT AND REGISTRAR
Mellon Securities Transfer Services
Pittsburgh, PA
(800) 288-9541
ANNUAL MEETING
The annual meeting of stockholders will be held at 11:15 a.m. on
Tuesday, April 12, 1994, at The Metropolitan Club, 1 East 60th
Street, New York, New York
FORM 10-K
A copy of the Company's report on Form 10-K for 1993, as filed
with the Securities and Exchange Commission, may be obtained free
of charge by writing to the Secretary of the Corporation, One
Station Place, Metro Center, Stamford, CT 06902