SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the quarterly period
ended September 28, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the transition period
from to
Commission File No. 1-4663
Crompton & Knowles Corporation
(exact name of registrant as specified in its charter)
Massachusetts 04-1218720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Station Place, Metro Center
Stamford, Connecticut 06902
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203)353-5400
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at October 16, 1996
Common Stock, $.10 par value 72,755,490 shares
CROMPTON & KNOWLES CORPORATION
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 28, 1996
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Financial Statements and
Accompanying Notes
. Consolidated Statements of Operations
(unaudited) - Quarters and nine months
ended September 28, 1996 and September 30, 1995
. Consolidated Balance Sheets - September 28, 1996
(unaudited) and Year end 1995
. Consolidated Statements of Cash Flows
(unaudited) - Nine months ended
September 28, 1996 and September 30, 1995
. Notes to the Consolidated Financial
Statements - Quarter ended September 28, 1996
(unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION:
Item 4. Submission of Matter to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit 11 Statement Re Computation of Per Share Earnings
*Exhibit 27 Financial Data Schedule
* A copy of this Exhibit is annexed to this report on Form 10-Q
provided to the Securities and Exchange Commission and the New
York Stock Exchange.
UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Quarters and nine months ended September 28, 1996 and September 30, 1995
(In thousands, except per share data)
Quarters ended Nine months ended
Sept.28, Sept.30, Sept.28, Sept.30,
1996 1995 1996 1995
Net sales $ 468,391 $ 453,819 $ 1,398,492 $ 1,370,555
Cost of products sold 303,834 296,930 894,041 873,932
Selling, general and admin. 72,524 74,007 212,241 209,383
Depreciation and amortization 21,129 21,144 63,477 61,122
Research and development 14,043 14,424 40,116 38,818
Merger and related costs 85,000 - 85,000 -
Special environmental provision 30,000 - 30,000 -
Operating profit (loss) (58,139) 47,314 73,617 187,300
Interest 28,792 28,203 86,818 89,182
Other expense(income) (483) 572 (762) (4,024)
Earnings(loss) before income
taxes and extraordinary loss (86,448) 18,539 (12,439) 102,142
Provision(benefit)
for income taxes (16,876) 6,727 11,603 (41,154)
Earnings(loss) before
extraordinary charge (69,572) 11,812 (24,042) 143,296
Extraordinary loss on early
extinguishment of debt - - (441) (8,279)
Net earnings(loss) $ (69,572) $ 11,812 $ (24,483) $ 135,017
Per common share:
Earnings(loss) before
extraordinary charge $ (.97) $ .16 $ (.34) $ 2.08
Extraordinary loss - - - (.12)
Net earnings (loss) $ (.97) $ .16 $ (.34) $ 1.96
Dividends per common share $ - $ .135 $ .27 $ .39
Average shares outstanding 72,140 72,256 71,747 68,945
See accompanying notes to consolidated financial statements.
September 28, 1996 UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 28, 1996 and Year End 1995
(In thousands of dollars)
September 28, Year End
1996 1995
ASSETS
CURRENT ASSETS
Cash $ 16,833 $ 30,437
Accounts receivable 294,608 271,989
Inventories 344,803 332,493
Other current assets 79,631 62,110
Total current assets 735,875 697,029
NON-CURRENT ASSETS
Property, plant and equipment 504,937 524,463
Cost in excess of acquired net assets 189,604 185,648
Other assets 238,723 248,705
$ 1,669,139 $ 1,655,845
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current installments of long-term debt $ 11,568 $ 11,434
Notes payable 12,297 93,744
Accounts payable 143,818 144,241
Accrued expenses 169,689 125,064
Income taxes payable 31,844 32,897
Other current liabilities 18,766 13,274
Total current liabilities 387,982 420,654
NON-CURRENT LIABILITIES
Long-term debt 1,036,228 974,156
Accrued postretirement liability 186,311 187,972
Other liabilities 155,680 132,248
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 7,708 7,708
Additional paid-in capital 229,529 227,401
Accumulated deficit (259,165) (213,347)
Accumulated translation adjustment (21,485) (12,168)
Treasury stock at cost (48,196) (62,972)
Deferred compensation (1,740) (2,190)
Pension liability adjustment (3,713) (3,617)
Total stockholders' deficit (97,062) (59,185)
$ 1,669,139 $ 1,655,845
See accompanying notes to consolidated financial statements.
UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine months ended September 28, 1996 and September 30, 1995
(In thousands of dollars)
Sept. 28, Sept. 30,
Increase (decrease) to cash 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ (24,483) $ 135,017
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 63,477 61,122
Noncash interest 12,515 13,344
Deferred taxes (10,598) (70,894)
Other 4,764 1,315
Changes in assets and liabilities, net 47,679 (31,861)
Net cash provided by operations 93,354 108,043
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (15,713) (84,279)
Capital expenditures (29,107) (75,222)
Other investing activities (3,429) (6,382)
Net cash used by investing activities (48,249) (165,883)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock, net 14,150 146,626
Proceeds (payments) on long-term borrowings, net 47,748 (135,992)
Proceeds (payments) on short-term borrowings, net (96,889) 52,670
Dividends paid (12,967) (18,733)
Other financing activities 2,122 (8,167)
Net cash provided (used) by financing activities (45,836) 36,404
CASH
Effect of exchange rates on cash 603 (982)
Change in cash (128) (22,418)
Fiscal year end cash adjustment (13,476) (68,326)
Cash at beginning of period 30,437 123,176
Cash at end of period $ 16,833 $ 32,432
See accompanying notes to consolidated financial statements.
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Quarter Ended September 28, 1996
(In thousands of dollars)
PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
On August 21, 1996, the Company merged with Uniroyal Chemical
Corporation ("Uniroyal") in a common stock transaction that was
accounted for on a pooling-of-interests basis. A total of
23,715,181 shares of the Company's common stock were exchanged
for all of Uniroyal's outstanding common and preferred shares.
The accompanying consolidated financial statements include the
accounts of both companies and all information has been restated
to reflect the combined operations of both companies. The results
of operations previously reported by the Company and Uniroyal for
the six months ended through June, 1996 are as follows:
Net Sales Net Earnings
Company $332,410 $19,180
Uniroyal 597,691 25,909
$930,101 $45,089
Because of differing fiscal year ends, the balance sheet for
year-end 1995 includes the Company as of December 30, 1995 and
Uniroyal as of October 1, 1995. The consolidated statements of
operations and cash flows reflect the combined results of both
companies for the actual three-month and nine-month periods
indicated in such statements. Accordingly, Uniroyal's net loss
for its first fiscal quarter ended December 31, 1995 of $8,368
has been charged to shareholders' equity and Uniroyal's change in
cash for such quarter and the comparable quarter of 1994 have
been reflected as fiscal year-end cash adjustments in the
consolidated statements of cash flows.
The information included in the foregoing consolidated financial
statements is unaudited but reflects all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair statement of the results for
the interim periods presented.
Included in accounts receivable are allowances for doubtful
accounts of $6,567 in 1996 and $6,142 at year end 1995.
Accumulated depreciation amounted to $349,223 in 1996 and
$311,082 at year end 1995.
Accumulated amortization of cost in excess of acquired net assets
amounted to $35,413 in 1996 and $29,562 at year end 1995.
Cash payments during the nine months ended September 28, 1996 and
September 30, 1995 include interest of $68,872 and $71,119 and
income taxes of $18,805 and $26,434, respectively.
It is suggested that the interim consolidated financial
statements be read in conjunction with the consolidated financial
statements and notes included in the Company's and Uniroyal's
1995 Annual Reports on Form 10-K.
CAPITAL STOCK
As of September 28, 1996, there are 77,076,253 common shares
issued at $.10 par value, of which 4,321,763 shares were held in
the treasury.
INVENTORIES
Components of inventories are as follows:
Sept. 28, Year end,
1996 1995
Finished goods $222,276 $218,440
Work in process 45,415 37,753
Raw materials and supplies 77,112 76,300
$344,803 $332,493
EARNINGS (LOSS) PER COMMON SHARE
The computation of loss per common share for the quarter and nine
months ended September 28, 1996 is based on the weighted average
number of common shares outstanding. Common stock equivalents
have been excluded because they are antidilutive for such
periods. The computation of earnings per common share for the
quarter and nine months ended September 30, 1995 is based on the
weighted average number of common shares outstanding and common
stock equivalents. A dual presentation of earnings (loss) 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.
DEBT
In August 1996, the Company entered into a revolving credit
agreement in the amount of $600,000 of which $300,000 is
available to the Company and $300,000 to Uniroyal. The agreement
extends through August, 2001 and is secured in the case of
Uniroyal's borrowings by a security interest in Uniroyal's
accounts receivable and inventory. The agreement calls for
interest based upon various options including a spread over LIBOR
that varies according to certain debt ratios for the trailing
four fiscal quarters and is currently at .875% over LIBOR.
Borrowings under the revolving credit agreement amounted to
$150,600 at September 28, 1996 and have an interest rate of 6.3%.
MERGER AND RELATED COSTS
Merger and related costs included in the consolidated statement
of operations comprise principally severance and other personnel
costs of $37,600, investment banking fees of $12,500, legal fees
of $9,700, debt related fees of $8,300, facility consolidation
costs of $6,400 and other costs of $10,500.
PROVISION FOR ENVIRONMENTAL COSTS
In the quarter ended September 28, 1996, the Company recorded a
special provision for environmental costs in the amount of
$30,000. The provision reflects the Company's evaluation, based
on current information, of its obligation for environmental
remediation activities. At September 28, 1996, the Company's
reserves for such environmental liabilities amounted to $95,000.
BUSINESS SEGMENT DATA
Quarter Ended
Sept. 28, Sept. 30,
1996 1995
SALES
Specialty Chemicals $ 395,684 $ 387,240
Specialty Equipment and Controls 72,707 66,579
Total net sales $ 468,391 $ 453,819
OPERATING PROFIT (LOSS)
Specialty Chemicals $ 57,939 $ 43,372
Specialty Equipment and Controls 4,605 9,697
Merger and related costs ( 85,000) -
Special environmental provision ( 30,000) -
General corporate expense ( 5,683) ( 5,755)
Total operating profit (loss) $( 58,139) $ 47,314
Nine Months Ended
Sept. 28, Sept. 30,
1996 1995
SALES
Specialty Chemicals $1,186,393 $1,163,937
Specialty Equipment and Controls 212,099 206,618
Total net sales $1,398,492 $1,370,555
OPERATING PROFIT
Specialty Chemicals $ 187,354 $ 173,647
Specialty Equipment and Controls 18,106 30,797
Merger and related costs (85,000) -
Special environmental provision (30,000) -
General corporate expense (16,843) ( 17,144)
Total operating profit $ 73,617 $ 187,300
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER RESULTS
Overview
In August 1996, the Company merged with Uniroyal Chemical
Corporation ("Uniroyal") in a common stock transaction that was
accounted for on a pooling-of-interests basis. Accordingly, the
consolidated financial information for all periods presented
includes the combined accounts and results of operations of both
the Company and Uniroyal.
Consolidated net sales of $468.4 million for the third quarter
of 1996 increased 3% from the comparable 1995 period due
principally to the impact of acquisitions, primarily the German
machinery business of Klockner ER-WE-PA GmbH acquired in January, 1996.
International sales, including U.S. exports, increased as a
percentage of total sales to 42% from 37% in the third quarter
of 1995.
The net loss of $69.6 million, or $.97 per common share, for the
third quarter of 1996 compares to from net earnings of $11.8
million, or $.16 per common share, reported for the third
quarter of 1995. The 1996 results include merger and related
costs of $85.0 million ($68.1 million after-tax) and a special
environmental provision of $30.0 million ($18.5 million after-tax).
The 1995 results include a charge of $5.0 million ($3.3
million after-tax) relating to a cost reduction program.
Adjusting for these items in both periods, earnings for the
third quarter of 1996 would be $17.0 million, or $.24 per common
share, compared to $15.1 million, or $.21 per common share, for
the third quarter of 1995.
Gross margin as a percentage of net sales increased to 35.1%
from 34.6% in the third quarter of 1995 as a result of improved
margins in all of the major business lines within the specialty
chemicals segment except dyes. Consolidated operating profit,
before merger and related costs of $85.0 million and a special
environmental provision of $30.0 million, increased 9% to $56.9
million from $52.3 million in the prior year after adjustment
for a charge of $5.0 million relating to a cost reduction
program in 1995. All of the increase in consolidated operating
profit is attributable to the specialty chemicals segment.
Specialty Chemicals
The Company's specialty chemicals segment reported sales of
$395.7 million representing a 2% increase from the third quarter
of 1995, primarily as a result of increased unit volume. An
analysis of sales by major product class within the specialty
chemicals segment follows.
Chemicals and polymers sales of $124.1 million rose 2% from the
1995 third quarter attributable in part to higher selling prices
for rubber chemicals implemented earlier in the year. In
addition, increased volume in nitrile rubber contributed to the
sales increase and more than offset lower EPDM sales
attributable to lower pricing.
Crop protection sales of $102.2 million were 1% lower versus the
third quarter of 1995 primarily attributable to lower unit
volume of insecticide sales resulting from low cotton
infestation levels in the United States. International and seed
treatment sales continued strong in the quarter.
Specialty sales of $77.3 million increased 11% from the 1995
third quarter primarily due to improved market share, strong
demand for lubricant additives and continued growth in the
international markets for urethane prepolymers.
Dyes sales of $65.6 million declined 1% from the comparable 1995
quarter due primarily to lower selling prices of approximately
3% offset in part by higher unit volume.
Specialty ingredients sales of $26.5 million rose 2% primarily
as a result of increased unit volume.
Operating profit of $57.9 million in the third quarter of 1996
increased 20% versus $48.4 million in the prior year before a
charge of $5.0 million relating to a cost reduction program in
1995. The improvement in operating profit resulted from an
increase in unit volume, lower operating costs and improved
product mix.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
reported sales of $72.7 million, representing a 9% increase from
the third quarter of 1995. Approximately 19% was attributable to
the incremental impact of acquisitions, primarily ER-WE-PA in
Germany, offset partially by 4% from lower selling prices and 6%
from lower unit volume reflecting primarily reduced domestic
demand for extrusion systems.
Operating profit for the third quarter of 1996 declined 53% to
$4.6 million primarily attributable to lower selling prices and
lower unit volume in the higher margin domestic business. The
order backlog for extruders and related equipment at the end of
the third quarter of 1996 amounted to $95 million (including
ER-WE-PA backlog of $16 million) compared to $72 million at
December 30, 1995.
Other
Selling, general and administrative expenses of $72.5 million
decreased 2% due primarily to the cost reduction program charge
of $5.0 million included in the third quarter of 1995, plus the
benefits of that program in 1996, offset in part by the impact
of acquisitions and inflation. Depreciation and amortization of
$21.1 million approximated the 1995 third quarter. Research and
development cost of $14.0 million decreased slightly from the
third quarter of 1995.
Merger and related costs of $85.0 million comprise principally
severance and other personnel costs of $37.6 million, investment
banking fees of $12.5 million, legal fees of $9.7 million, debt
related fees of $8.3 million, facility consolidation costs of
$6.4 million and other costs of $10.5 million.
The special environmental provision of $30.0 million reflects
the Company's evaluation, based on current information, of its
obligation for environmental remediation activities. At
September 28, 1996, the Company's reserves for such
environmental liabilities totaled $95.0 million.
Interest expense of $28.8 million was slightly higher than the
comparable 1995 period. Other income of $483 thousand compares
to $572 thousand of other expense in the third quarter of 1995.
The effective tax rate excluding the tax impact of merger and
related costs ($16.9 million) and the special environmental
provision ($11.5 million) was 40.2% versus 36.3% in the
comparable 1995 period.
YEAR-TO-DATE RESULTS
Overview
Consolidated net sales of $1.4 billion for the first nine months
of 1996 increased 2% from the comparable period in 1995. The
increase is primarily attributable to the impact from
acquisitions of 4% offset in part primarily by unit volume. The
acquisitions include primarily the worldwide crop protection
business of Solvay Duphar B.V. acquired in March of 1995 and the
German extrusion machinery business of ER-WE-PA acquired
in January of 1996. International sales, including U.S.
exports, increased as a percentage of total sales to 41% from
36% for the nine months of 1995.
The net loss of $24.5 million, or $.34 per common share, for the
first nine months of 1996 compares to net earnings of $135.0
million, or $1.96 per common share, for the comparable 1995
period. The 1996 results include merger and related costs of
$85.0 million ($68.1 million after-tax), a special environmental
provision of $30.0 million ($18.5 million after-tax) and an
extraordinary charge of $.5 million. The 1995 results include
special tax credits of $78.9 million, an extraordinary charge of
$8.3 million and other special income, net of $7.4 million ($4.4
million after-tax). Adjusting for these items in both periods,
earnings for the nine months of 1996 would be $62.6 million, or
$.87 per common share, compared to $60.0 million, or $.87 per
common share, for the nine months of 1995.
Gross margin as a percentage of net sales of 36.1% declined
slightly from the 36.2% in the comparable period in 1995.
Consolidated operating profit, before merger and related costs
of $85.0 million and a special charge for environmental costs of
$30.0 million, increased 3% to $188.6 million from $182.4
million in the prior year after adjustment for certain special
income, net of $4.9 million in 1995. All of the increase in the
consolidated operating profit is attributable to the specialty
chemicals segment.
Specialty Chemicals
The Company's specialty chemicals segment reported sales of $1.2
billion representing a 2% increase from the comparable 1995
period. The increase is primarily attributable equally to the
impact of acquisitions and improved pricing. An analysis of
sales by major product class within the specialty chemicals
segment follows.
Chemicals and polymers sales of $374.1 million increased 2% from
the first nine months of 1995 primarily attributable to improved
selling prices in rubber chemicals and increased unit volume for
nitrile rubber, partially offset by lower unit volume and
pricing in the EPDM business.
Crop protection sales of $304.5 million increased 5% from the
comparable 1995 period due primarily to the acquisition of the
crop protection business of Solvay Duphar B.V. in March of 1995.
Lower insecticide sales due to lower infestation levels in the
U.S. were offset primarily by increases in international sales
and sales of seed treatment products.
Specialties sales of $222.6 million increased 5% from the nine
month period of 1995 primarily attributable to higher unit
volume of urethane prepolymers and lubricant additives.
Dyes sales of $206.2 million declined 6% from the first nine
months of 1995 attributable primarily to lower selling prices of
approximately 4% and lower unit volume.
Specialty ingredients sales of $79.0 million increased 4% from
the first nine months of 1995 primarily attributable to
increased unit volume.
Operating profit of $187.4 million for the first nine months of
1996 increased 11% versus $168.7 million in the prior year
before certain special income, net, of $4.9 million in 1995.
The improvement in operating profit resulted from an increase in
unit volume, lower operating costs and improved product mix.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
reported sales of $212.1 million representing a 3% increase from
the 1995 nine month period. Approximately 21% was attributable
to the incremental impact of acquisitions, primarily ER-WE-PA in
Germany, offset partially by 16% from lower unit volume
reflecting primarily reduced domestic demand for extrusion
systems and 2% from lower selling prices.
Operating profit of $18.1 million decreased 41% versus the
comparable 1995 period due primarily to lower selling prices and
lower unit volume in the domestic business.
Other
Selling, general and administrative expenses of $212.2 million
increased 1% versus the comparable period in 1995 due primarily
to the impact of acquisitions and inflation offset in part by
the cost reduction program charge of $5.0 million in 1995 and
the benefits of that program in 1996. Depreciation and
amortization of $63.5 million increased 4% versus the 1995
period primarily as a result of a higher fixed asset base
including acquisitions. Research and development cost of $40.1
million increased 3% from the comparable period in 1995
primarily as a result of the impact of acquisitions and
inflation.
Interest expense of $86.8 million decreased 3% from 1995
primarily due to lower levels of indebtedness. Other income of
$762 thousand decreased $3.3 million versus 1995 primarily due
to lower interest income in 1996 and special licensing income
reported in the prior year. The effective tax rate, excluding
the tax impact of merger and related costs ($16.9 million) and a
special charge for environmental costs ($11.5 million), was
39.0% versus 36.9% in the comparable 1995 period after
adjustment for special tax credits of $78.9 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The September 28, 1996 working capital balance of $347.9 million
increased $71.5 million from $276.4 million at year end 1995.
The current ratio increased to 1.9 from 1.7 at the end of 1995
primarily attributable to the decrease in notes payable. Days
sales in receivables averaged 54 days for the first nine months
of 1996 versus 55 days for all of 1995. Inventory turnover
averaged 3.4 for the first nine months of 1996 versus 3.3 for
all of 1995.
Net cash provided by operations of $93.4 million decreased $14.7
million from the first nine months of 1995 primarily as a result
of lower net earnings due to special charges. Net cash provided
by operations and proceeds from the sale of common stock were
used principally to finance acquisitions, fund capital
expenditures, reduce indebtedness and pay cash dividends. The
current dividend payout has been reduced to $.05 per share
payable annually in May. The Company's debt to total capital
percentage increased to 110% from 106% at year end 1995.
Capital expenditures are expected to approximate $40 million in
1996 primarily for replacement needs and improvement of domestic
and foreign facilities. The Company's long-term liquidity needs
including such items as capital expenditures and debt repayments
are ultimately expected to be financed from future operations.
In August 1996, the Company entered into a revolving credit
agreement in the amount of $600 million of which $300 million is
available to the Company and $300 million to Uniroyal. The
agreement extends through August, 2001 and is secured in the
case of Uniroyal's borrowings by a security interest in
Uniroyal's accounts receivable and inventory. The agreement
calls for interest based upon various options including a spread
over LIBOR that varies according to certain debt ratios for the
trailing four fiscal quarters and is currently at .875% over
LIBOR. Borrowings under the revolving credit agreement amounted
to $151 million at September 28, 1996 and bore an interest rate
of 6.3%.
ENVIRONMENTAL MATTERS
The Company is involved in claims, litigation, administrative
proceedings and investigations of various types in several
jurisdictions. A number of such matters involve claims for a
material amount of damages and relate to or allege environmental
liabilities, including clean-up costs associated with hazardous
waste disposal sites, natural resource damages, property damage
and personal injury. The Company and some of its subsidiaries
have been identified by federal, state or local governmental
agencies, and by other potentially responsible parties (each a
"PRP") under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or
comparable state statutes, as a PRP with respect to costs
associated with waste disposal sites at various locations in the
United States. In addition, the Company is involved with
environmental remediation and compliance activities at some of
its current and former sites in the United States and abroad.
Each quarter, the Company evaluates and reviews estimates for
future remediation and other costs to determine appropriate
environmental reserve amounts. For each site a determination is
made of the specific measures that are believed to be required
to remediate the site, the estimated total cost to carry out the
remediation plan, the portion of the total remediation costs to
be borne by the Company and the anticipated time frame over
which payments toward the remediation plan will occur. As a
result of current information and analysis, the Company recorded
a special provision in the amount of $30.0 million during the
third quarter of 1996 for environmental remediation activities.
As of September 28, 1996, the Company's reserves for such
environmental liabilities totaled $95.0 million. These
estimates may subsequently change should additional sites be
identified, further remediation measures be required or
undertaken, the interpretation of current laws and regulations
be modified or additional environmental laws and regulations be
enacted.
The Company intends to assert all meritorious legal defenses and
all other equitable factors which are available to it with
respect to the above matters. The Company believes that the
resolution of these environmental matters will not have a
material adverse effect on the consolidated financial position
of the Company. While the Company believes it is unlikely, the
resolution of these environmental matters could have a material
adverse effect on the Company's consolidated results of
operation in any given year if a significant number of these
matters are resolved unfavorably.
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders
(a) A Special Meeting of the Crompton & Knowles
Stockholders was held on August 21, 1996.
(b) Proxies for the Special Meeting were solicited pursuant
to Regulation 14A under the Securities Exchange Act of
1934.
(c) A brief description of the matter submitted to a vote
at the Special Meeting, and the results of voting, are
as follows:
Approval and adoption of the Agreement and Plan of
Merger, dated as of April 30, 1996 (the "Merger
Agreement"), by and among the Company, Uniroyal Chemical
Corporation, a Delaware corporation("Uniroyal"), and
Tiger Merger Corp., a Delaware corporation and a
wholly owned subsidiary of the Company, and the
transactions contemplated thereby, which will also
constitute approval of an amendment to Crompton's 1988
Long Term Incentive Plan to increase the number of
shares of Crompton common stock, par value $0.10
per share, reserved for issuance thereunder by 6,000,000
shares, as fully described in the Joint Proxy
Statement/Prospectus relating thereto.
Abstained/
For Against Withheld
32,176,169 Shares 1,567,754 Shares 275,528
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Number Description
(4)* Credit Agreement dated as of August 21, 1996,
among the Registrant and four subsidiaries as
borrowers, 15 initial lenders, 2 initial
issuing banks, Citicorp Securities, Inc. as
Arranger and Citicorp USA, Inc. as Agent and
The Chase Manhattan Bank as Managing Agent.
(11) Statement Re Computation of Per Share Earnings
(27)* Financial Data Schedule
(b) A report on Form 8K was filed by Crompton & Knowles
Corporation on August 21, 1996.
* A copy of this Exhibit is annexed to this report on
Form 10Q provided to the Securities and Exchange
Commission and the New York Stock Exchange.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
CROMPTON & KNOWLES CORPORATION
(Registrant)
November 12, 1996 By: /s/Charles J. Marsden
Charles J. Marsden
Senior Vice President - Finance
(Principal Financial Officer)
November 12, 1996 By: /s/John T. Ferguson II
Vice President,
General Counsel and Secretary