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 March 28, 1998
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 April 15, 1998
Common Stock, $.10 par value 74,424,702 shares
CROMPTON & KNOWLES CORPORATION
FORM 10-Q
FOR QUARTER ENDED MARCH 28, 1998
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Financial Statements and
Accompanying Notes
. Consolidated Statements of Earnings
(unaudited) - Quarters ended
March 28, 1998 and March 29, 1997
. Consolidated Balance Sheets - March 28, 1998
(unaudited) and December 27, 1997
. Consolidated Statements of Cash Flows
(unaudited) - Quarters ended
March 28, 1998 and March 29, 1997
. Notes to Consolidated Financial
Statements - Quarter ended March 28, 1998
(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.
-1-
UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Quarters ended March 28, 1998 and March 29, 1997
(In thousands, except per share data)
March 28, March 29,
1998 1997
Net sales $ 477,219 $ 473,873
Cost of products sold 302,465 304,372
Selling, general and administrative 67,273 66,672
Depreciation and amortization 20,093 19,853
Research and development 13,163 12,884
Operating profit 74,225 70,092
Interest 23,613 26,953
Other (income) expense (289) 198
Earnings before income taxes
and extraordinary loss 50,901 42,941
Provision for income taxes 18,958 16,330
Earnings before
extraordinary loss 31,943 26,611
Extraordinary loss on early
extinguishment of debt (1,951) -
Net earnings $ 29,992 $ 26,611
Basic Earnings per common share:
Earnings before
extraordinary loss $ .43 $ .36
Extraordinary loss (.03) -
Net earnings $ .40 $ .36
Diluted Earnings per common share:
Earnings before
extraordinary loss $ .42 $ .35
Extraordinary loss (.03) -
Net earnings $ .39 $ .35
See accompanying notes to consolidated financial statements.
- 2 -
March 28, 1998 UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 28, 1998 and December 27, 1997
(In thousands of dollars)
March 28, December 27,
1998 1997
ASSETS
CURRENT ASSETS
Cash $ 9,985 $ 10,607
Accounts receivable 286,708 262,412
Inventories 374,450 356,716
Other current assets 63,872 85,314
Total current assets 735,015 715,049
NON-CURRENT ASSETS
Property, plant and equipment 466,999 474,892
Cost in excess of acquired net assets 178,858 181,025
Other assets 185,977 177,854
$ 1,566,849 $ 1,548,820
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 3,324 $ 1,770
Accounts payable 142,473 145,405
Accrued expenses 154,026 149,910
Income taxes payable 40,774 38,909
Other current liabilities 24,684 27,094
Total current liabilities 365,281 363,088
NON-CURRENT LIABILITIES
Long-term debt 878,442 896,291
Accrued postretirement liability 148,786 149,344
Other liabilities 154,884 160,187
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 7,733 7,733
Additional paid-in capital 237,796 232,213
Accumulated deficit (144,027) (174,019)
Accumulated translation adjustment (45,241) (42,045)
Treasury stock at cost (33,211) (40,228)
Deferred compensation (834) (984)
Pension liability adjustment (2,760) (2,760)
Total stockholders' equity (deficit) 19,456 (20,090)
$ 1,566,849 $ 1,548,820
See accompanying notes to consolidated financial statements.
- 3 -
UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Quarters ended March 28, 1998 and March 29, 1997
(In thousands of dollars)
March 28, March 29,
Increase (decrease) to cash 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 29,992 $ 26,611
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 20,093 19,853
Noncash interest 3,764 3,424
Deferred taxes 5,053 4,220
Changes in assets and liabilities, net (34,830) (21,348)
Net cash provided by operations 24,072 32,760
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (8,662) (6,176)
Other investing activities 298 33
Net cash used by investing activities (8,364) (6,143)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term borrowings (24,016) (33,164)
Proceeds from short-term borrowings 1,639 1,140
Other financing activities 6,266 1,489
Net cash used by financing activities (16,111) (30,535)
CASH
Effect of exchange rates on cash (219) 1,034
Change in cash (622) (2,884)
Cash at beginning of period 10,607 21,120
Cash at end of period $ 9,985 $ 18,236
See accompanying notes to consolidated financial statements.
-4-
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Quarter ended March 28, 1998
PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The information included in the foregoing consolidated financial
statements is unaudited but reflects all 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 $9.7 million in 1998 and $8.7 million at December 27,
1997.
Accumulated depreciation amounted to $430.1 million in 1998 and
$416.6 million at December 27, 1997.
Accumulated amortization of cost in excess of acquired net assets
amounted to $43.2 million in 1998 and $42.2 million at December
27, 1997.
Accumulated amortization of patents, unpatented technology and
other intangibles included in other assets amounted to $127.0
million in 1998 and $123.3 million at December 27, 1997.
Cash payments during the quarters ended March 28, 1998 and March
29, 1997 included interest of $13.8 million and $16.3 million,
respectively, and income taxes of $6.5 million and $5.6 million,
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 1997 Annual Report
on Form 10-K.
CAPITAL STOCK
As of March 28, 1998, there were 77,332,751 common shares issued
at $.10 par value, of which 2,929,198 shares were held in the
treasury.
INVENTORIES
Components of inventories are as follows:
March 28, Dec. 27,
(In thousands) 1998 1997
Finished goods $258,100 $226,730
Work in process 41,215 47,029
Raw materials and supplies 75,135 82,957
$374,450 $356,716
EARNINGS(LOSS)PER COMMON SHARE
The computation of basic earnings per common share is based on
the weighted average number of common shares outstanding. The
computation of diluted earnings per common share is based on the
weighted average number of common and common equivalent shares
outstanding. The following is a reconciliation of the shares used
in both computations:
(In thousands) 1998 1997
Weighted average common shares outstanding 74,103 73,078
Stock options, warrants and other equivalents 2,311 1,611
Weighted average common and
common equivalent shares outstanding 76,414 74,689
COMPREHENSIVE INCOME
Effective in the first quarter of 1998, the Company adopted
Financial Accounting Standards Board Statement No. 130 "Reporting
Comprehensive Income". The statement establishes standards for
reporting "comprehensive income" and its components in financial
statements and notes thereto. The Company's comprehensive income
consists of net earnings, minimum pension liability adjustment
and foreign currency translation adjustment. Comprehensive income
for the quarters ended March 28, 1998 and March 29, 1997 was
$26.8 million and $20.6 million, respectively. The tax effect for
the minimum pension liability adjustment was $0.6 million in the
first quarter of 1997. The Company does not provide for U.S.
income taxes on foreign currency translation adjustments since a
tax provision has not been made for undistributed earnings of
foreign subsidiaries.
BUSINESS SEGMENT DATA
Quarter Ended
March 28, March 29,
(In thousands) 1998 1997
SALES
Specialty Chemicals $ 393,610 $ 398,706
Specialty Equipment and Controls 83,609 75,167
Total net sales $ 477,219 $ 473,873
OPERATING PROFIT
Specialty Chemicals $ 70,218 $ 68,558
Specialty Equipment and Controls 10,366 7,626
General corporate expense ( 6,359) ( 6,092)
Total operating profit $ 74,225 $ 70,092
SUBSEQUENT EVENTS
On March 31, 1998, the Company amended its $600 million revolving
credit agreement with a syndicate of banks. The termination date
was extended to September 2003 from August 2001. Borrowings
under the credit agreement were amended as follows: Tranche I
provides a maximum of $375 million (up from $300 million)
available to the Company for working capital and general
corporate purposes. Tranche II provides a maximum of $75 million
(down from $150 million) available to Uniroyal Chemical Company,
Inc. for working capital and general corporate purposes. Tranche
III continues to provide up to $150 million available to the
European and Canadian subsidiaries of the Company.
On April 8, 1998, the Company's outstanding 11% Senior
Subordinated Notes and the 12% Subordinated Discount Notes were
called for redemption as of May 8, 1998. The 11% Senior
Subordinated Notes will be redeemed at a price of 105.5% of the
principal amount thereof plus accrued and unpaid interest. The
12% Subordinated Discount Notes will be redeemed at a price of
100% of the principal amount thereof plus accrued and unpaid
interest. The payment for the redemption including accrued
interest will approximate $366.2 million and be funded by drawing
on the Company's $600 million revolving credit agreement, under
which borrowings totaled $82.6 million at March 28, 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER RESULTS
Overview
Consolidated net sales of $477.2 million for the first quarter
of 1998 increased 1% from the comparable 1997 period. The
increase was primarily attributable to higher unit volume of 3%
offset by the impact of lower foreign currency translation and
lower pricing. International sales, including U.S. exports, were
39% of total sales compared to 38% in the first quarter of 1997.
Net earnings before extraordinary losses on early extinguishment
of debt increased 20% to $31.9 million, or $.43 per common
share basic and $.42 per common share diluted compared to $26.6
million, or $.36 per common share basic and $.35 per common
share diluted, in the prior year. Net earnings were $30.0
million, or $.40 per common share basic and $.39 per common
share diluted, compared to $26.6 million, or $.36 per common
share basic and $.35 per common share diluted, in 1997.
Gross margin as a percentage of net sales increased to 36.6%
from 35.8% in the first quarter of 1997. The increase was
attributable primarily to lower manufacturing costs and improved
product mix. Consolidated operating profit increased 6% to
$74.2 million from $70.1 million in the prior year. Both
segments contributed to the increase as specialty chemicals rose
2% and specialty process equipment and controls increased 36%.
Specialty Chemicals
The Company's specialty chemicals segment sales of $393.6
million decreased 1% from the comparable 1997 period. The
decrease was primarily due to the impact of lower foreign
currency translation and reduced pricing of approximately 1%
each, partially offset by higher unit volume of 1%. An analysis
of sales by major product class within the specialty chemicals
segment follows.
Chemicals and polymers sales of $120.8 million decreased 5% from
the first quarter of 1997 primarily attributable to the impact
of lower foreign currency translation of 2% and lower pricing of
3%. Sales of rubber chemicals were lower than 1997 primarily
due to lower pricing and the impact of lower foreign currency
translation. EPDM sales increased primarily due to higher unit
volume and improved pricing. Nitrile rubber sales decreased
primarily as a result of lower unit volume.
Crop protection sales of $107.9 million were 3% higher than the
first quarter of 1997. The increase was primarily attributable
to higher unit volume in fungicides and herbicides.
Specialty sales of $79.0 million increased 5% from the first
quarter of 1997. The increase resulted primarily from higher
unit volume in lubricant additives and specialty intermediates.
Colors sales of $61.1 million decreased 6% from the comparable
1997 quarter primarily due to lower foreign currency translation
of 3%, lower pricing of 1% and lower unit volume, principally in
apparel dyes, of 2%.
Specialty ingredients sales of $24.8 million were 5% lower than
the first quarter of 1997 primarily attributable to lower unit
volume as a result of product line rationalization.
Operating profit of $70.2 million increased 2% versus the first
quarter of 1997 primarily as a result of lower manufacturing
costs and improved product mix.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
sales of $83.6 million increased 11% from the first quarter of
1997, primarily attributable to higher unit volume. Sales gains
were achieved in most of the segments major markets.
Operating profit of $10.4 million increased 36% from the prior
year primarily as a result of increased sales and improved
product mix. The order backlog for extruders and related
equipment at the end of the first quarter of 1998 amounted to
$109 million compared to $106 million at the end of 1997.
Other
Selling, general and administrative expenses of $67.3 million
increased 1% versus the first quarter of 1997 as the impact of
inflation was partially offset by cost containment programs.
Depreciation and amortization of $20.1 million increased 1% from
the comparable 1997 period primarily as a result of a higher
fixed asset base. Research and development cost of $13.2 million
increased 2% from the first quarter of 1997, but as a percentage
of sales remained constant at 3%. Interest expense of $23.6
million decreased 12% from the comparable period of 1997
primarily due to lower levels of indebtedness. Other income of
$289,000 compared to $198,000 of other expense in the first
quarter of 1997. The effective tax rate of 37.2% decreased
versus 38.0% in the comparable 1997 quarter.
LIQUIDITY AND CAPITAL RESOURCES
The March 28, 1998 working capital balance of $369.7 million
increased $17.8 million from year-end 1997. The current ratio
of 2.0 remained unchanged from the end of 1997. Days sales in
receivables averaged 54 days in the first quarter of 1998
unchanged from 1997. Inventory turnover averaged 3.3 unchanged
from 1997.
Net cash provided by operations of $24.1 million decreased $8.7
million compared to the first three months of 1997 primarily as
a result of increased working capital. Cash provided by
operations was used to reduce indebtedness and fund capital
expenditures. The Company's debt to total capital percentage
decreased to 98% from 102% at year-end 1997. The Company's
liquidity needs, including debt servicing, are expected to be
financed from operations.
On March 31, 1998 the Company amended its $600 million revolving
credit agreement with a syndicate of banks. The termination
date was extended to September 2003 from August 2001.
Borrowings under the credit agreement were amended as follows:
Tranche I provides a maximum of $375 million (up from $300
million) available to the Company for working capital and
general corporate purposes. Tranche II provides a maximum of
$75 million (down from $150 million) available to Uniroyal
Chemical Company, Inc. for working capital and general corporate
purposes. Tranche III continues to provide up to $150 million
available to the European and Canadian subsidiaries of the
Company.
On April 8, 1998 the Company's outstanding 11% Senior
Subordinated Notes and the 12% Subordinated Discount Notes were
called for redemption as of May 8, 1998. The 11% Senior
Subordinated Notes will be redeemed at a price of 105.5% of the
principal amount thereof plus accrued and unpaid interest. The
12% Subordinated Discount Notes will be redeemed at a price of
100% of the principal amount thereof plus accrued and unpaid
interest. The payment for the redemption including accrued
interest will approximate $366.2 million and be funded by
drawing on the Company's $600 million revolving credit
agreement, under which borrowings totaled $82.6 million at March
28, 1998.
Capital expenditures are expected to approximate $60 million in
1998 primarily for replacement needs and improvement of domestic
and foreign facilities.
ACCOUNTING STANDARD CHANGE
In June 1997 the Financial Accounting Standards Board issued
Statement No. 131 "Disclosures about Segments of an Enterprise
and Related Information", which is effective for years beginning
after 1997. The Company plans to adopt statement No. 131 in the
fourth quarter of 1998.
ENVIRONMENTAL MATTERS
The Company is involved in claims, litigation, administrative
proceedings and investigations of various types in a number of
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 of
March 28,1998, the Company's reserves for environmental
remediation activities totaled $102.8 million. These estimates
may change in the future should additional sites be identified,
circumstances change with respect to any site, 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.
FORWARD-LOOKING STATEMENTS
The information in this Form 10-Q contains forward-looking
statements and estimates which are based on currently available
information. The Company's actual results may differ
significantly from the results discussed. Investors are
cautioned that there can be no assurance that the actual results
will not differ materially from those suggested in such forward-
looking statements and estimates.
PART II. OTHER INFORMATION:
Item 4. Submission of Matter to a Vote of Security Holders
(a) The Annual Meeting of the Stockholders was held
on April 28, 1998
(b) Proxies for the Annual Meeting were solicited
pursuant to Regulation 14A under the Securities
Exchange Act of 1934, there was no solicitation
in opposition to the nominees for the Board of
Directors as listed in the Proxy Statement, and
all of such nominees were elected.
(c) A brief description of each matter voted upon at
the Annual Meeting, and the results of voting,
are as follows:
1. Election of two (2) Directors to serve for a term
expiring in 2001:
FOR WITHHELD
James A. Bitonti 65,140,179 shares 795,810 shares
Patricia K. Woolf, Ph.D. 65,170,118 shares 765,871 shares
2. Approval of the selection by the Board of Directors of
an independent auditor for 1998.
FOR AGAINST ABSTAINED
65,318,452 shares 474,478 shares 143,059 shares
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
(11) Statement Re Computation of Per
Share Earnings
(27)* Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
For which this report is filed.
* 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.
SIGNATURES
Pursuant to the requirements of the Securities and 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)
May 12, 1998 By:/s/ Charles J. Marsden
Charles J. Marsden
Senior Vice President &
Chief Financial Officer
May 12, 1998 By:/s/ John T. Ferguson II
John T. Ferguson II
Vice President, General
Counsel and Secretary
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
BASIC
QUARTER ENDED
March 27, March 29,
1998 1997
Earnings
Earnings before extraordinary charge $ 31,943 $ 26,611
Extraordinary loss on early extinguishment
of debt (1,951) -
Net earnings $ 29,992 $ 26,611
Shares
Weighted average shares outstanding 74,103 73,078
Per share
Earnings before extraordinary charge $ .43 $ .36
Extraordinary loss on early extinguishment
of debt (.03) -
Net earnings $ .40 $ .36
DILUTED
QUARTER ENDED
March 27, March 29,
1998 1997
Earnings
Earnings before extraordinary charge $ 31,943 $ 26,611
Extraordinary loss on early extinguishment
of debt (1,951) -
Net earnings $ 29,992 $ 26,611
Shares
Weighted average shares outstanding 74,103 73,078
Common stock equivalents 2,311 1,611
Average shares outstanding 76,414 74,689
Per share
Earnings before extraordinary charge $ .42 $ .35
Extraordinary loss on early extinguishment
of debt (.03) -
Net earnings $ .39 $ .35