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 24, 1994
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 19, 1994
Common Stock, $.10 par value 49,477,348 shares
CROMPTON & KNOWLES CORPORATION
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 24, 1994
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Financial Statements and
Accompanying Notes
. Consolidated Statements of Earnings
(unaudited) - Quarters and nine months ended
September 24, 1994 and September 25, 1993
. Consolidated Balance Sheets - September 24, 1994
(unaudited) and December 25, 1993
. Consolidated Statements of Cash Flows
(unaudited) - Nine months ended September 24,
1994 and September 25, 1993
. Notes to the Consolidated Financial
Statements - Nine months ended September 24,
1994 (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit 11 Statement Re Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
-1-
UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Quarters and nine months ended September 24, 1994 and September 25, 1993
(In thousands, except per share data)
Quarters ended Nine months ended
Sept 24, Sept 25, Sept 24, Sept 25,
1994 1993 1994 1993
Net sales $ 142,821 $ 134,031 $ 430,867 $ 415,451
Cost of products sold 98,796 91,248 293,206 281,134
Selling, general and administra 24,233 20,779 66,399 61,872
Depreciation and amortization 3,596 3,132 9,995 9,453
Interest 578 255 962 966
Other income (424) (246) (1,059) (1,122)
Total costs and expenses 126,779 115,168 369,503 352,303
Earnings before income taxes 16,042 18,863 61,364 63,148
Income taxes 5,818 7,357 22,275 23,694
Net earnings $ 10,224 $ 11,506 $ 39,089 $ 39,454
Net earnings per common share $ 0.20 $ 0.22 $ 0.76 $ 0.76
Dividends per common share $ .12 $ .10 $ 0.34 $ 0.28
Average shares outstanding 51,059 52,200 51,708 52,236
See accompanying notes to the consolidated financial statements.
- 2 -
September 24, 1994 UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 24, 1994 and December 25, 1993
(In thousands)
September 24, December 25,
1994 1993
ASSETS
CURRENT ASSETS
Cash $ 7,207 $ 9,284
Accounts receivable 93,830 84,482
Inventories 144,026 113,932
Other current assets 16,657 12,698
Total current assets 261,720 220,396
NON-CURRENT ASSETS
Property, plant and equipment 113,339 99,925
Cost in excess of acquired net assets 43,836 33,275
Other assets 10,028 9,650
$ 428,923 $ 363,246
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 36,551 $ 5,100
Accounts payable 50,304 44,905
Accrued expenses 32,766 25,574
Income taxes payable 6,474 12,935
Other current liabilities 12,116 6,925
Total current liabilities 138,211 95,439
NON-CURRENT LIABILITIES
Long-term debt 34,000 14,000
Accrued postretirement liability 8,722 9,084
Deferred income taxes 4,953 4,727
Total non-current liabilities 47,675 27,811
STOCKHOLDERS' EQUITY
Common stock 5,336 5,336
Additional paid-in capital 61,767 61,783
Retained earnings 212,937 191,230
Accumulated translation adjustment 3,696 (557)
Treasury stock at cost (34,453) (11,278)
Deferred compensation (6,246) (6,518)
Total stockholders' equity 243,037 239,996
$ 428,923 $ 363,246
See accompanying notes to the consolidated financial statements.
- 3 -
UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine months ended September 24, 1994 and September 25, 1993
(In thousands)
Sept. 24, Sept. 25,
Increase (decrease) to cash 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 39,089 $ 39,454
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 9,995 9,453
Deferred compensation 272 1,169
Changes in assets and liabilities, net (35,283) (18,769)
Net cash provided by operations 14,073 31,307
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (13,734) -
Capital expenditures (13,722) (8,938)
Other investing activities 420 1,766
Net cash used by investing activities (27,036) (7,172)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 30,000 -
Payments of long-term debt (10,000) (5,000)
Change in notes payable 31,399 332
Net treasury stock activity (23,288) 689
Dividends paid (17,382) (14,353)
Net cash provided (used) by financing activities 10,729 (18,332)
CASH
Effect of exchange rates on cash 157 36
Change in cash (2,077) 5,839
Cash at beginning of period 9,284 2,441
Cash at end of period $ 7,207 $ 8,280
See accompanying notes to the consolidated financial statements.
-4-
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Nine months ended September 24, 1994 (Unaudited)
(In thousands)
PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
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 $4,083 in 1994 and $4,072 at December 25, 1993.
Accumulated depreciation amounted to $83,223 in 1994 and $73,387
at December 25, 1993.
Accumulated amortization of cost in excess of acquired net assets
amounted to $6,377 in 1994 and $5,456 at December 25, 1993.
Other current liabilities primarily include customer deposits.
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 1993 Annual Report
on Form 10-K.
CAPITAL STOCK
There are 53,361,072 common shares issued at $.10 par value, of
which 3,375,891 shares and 2,069,547 shares were held in the
treasury at September 24, 1994 and December 25, 1993,
respectively.
INVENTORIES
Components of inventories are as follows:
Sept. 24, Dec. 25,
1994 1993
Finished goods $ 80,046 $ 57,987
Work in process 30,168 25,748
Raw materials and supplies 33,812 30,197
$144,026 $113,932
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. 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.
ACQUISITIONS
In May, 1994, the Company acquired the business and certain
assets of the Egan Machinery Division of John Brown Plastics
Machinery at a cost of $10,718. In June, 1994, the Company
acquired the business and certain assets of McNeil & NRM, Inc. at
a cost of $3,016. 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 $10,522 is being
amortized over forty years. The operating results of each
acquisition are included in the Consolidated Statements of
Earnings since the date of the acquisition.
BUSINESS SEGMENT DATA
Nine Months Ended
Sept. 24, Sept. 25,
1994 1993
SALES
Specialty chemicals $293,599 $308,971
Specialty process equipment
and controls 137,268 106,480
$430,867 $415,451
OPERATING PROFIT
Specialty chemicals $ 47,605 $ 54,381
Specialty process equipment
and controls 22,450 17,613
70,055 71,994
General corporate expenses, net ( 7,729) ( 7,880)
Interest expense ( 962) ( 966)
Earnings before income taxes $ 61,364 $ 63,148
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER RESULTS
Overview
Consolidated net sales of $142.8 million for the third quarter
of 1994 increased 7% over the comparable 1993 period. Net
earnings of $10.2 million declined 11% from the third quarter of
1993. Net earnings per common share of $.20 decreased 9% from
the $.22 reported last year.
Gross margin as a percentage of net sales decreased to 30.8%
from 31.9% in last year's third quarter primarily as a result of
the specialty chemicals segment. Operating profit of $19.1
million declined by 12% as profits of the specialty process
equipment and controls segment increased 25% while those of the
specialty chemicals segment declined 25%.
Specialty Chemicals
The Company's specialty chemicals segment reported sales of
$92.6 million representing an 8% decrease from the comparable
period in 1993. Approximately 6% was attributable to lower unit
volume and 3% to lower selling prices, partially offset by 1%
favorable impact from foreign currency translation.
Domestic dyes sales of $48.7 million were 11% lower than the
third quarter of 1993 due to weak demand for apparel dyes (7%)
and lower selling prices (4%). International dyes sales of
$21.3 million declined by 10% versus the comparable 1993 period
primarily attributable to lower unit volume under a long-term
supply agreement. Specialty ingredients sales were essentially
unchanged from the comparable 1993 period. The percentage of
sales outside the United States decreased slightly to 24% from
25% in the third quarter of 1993.
Operating profit of $12.0 million for the third quarter of 1994
declined 25% from the comparable quarter in 1993 primarily
attributable to lower unit volume and lower selling prices,
offset in part by lower dye intermediate costs. The proportion
of operating profit outside the United States decreased to 21%
from 27% in the third quarter of 1993.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
reported sales of $50.2 million representing a 51% increase over
the third quarter of 1993. Approximately 35% was attributable
to the acquisition of Egan Machinery, 11% to unit volume and 5%
to pricing. Export sales of $12.4 million were up 93% versus
1993 and accounted for 25% of total segment sales versus 19% for
the third quarter of 1993. Operating profit increased 25% to
$7.1 million in the third quarter of 1994. Approximately 11%
was attributable to the acquisition of Egan Machinery with the
balance attributable primarily to higher unit volume and
improved pricing. The order backlog for extruders and related
equipment at the end of the third quarter amounted to $68
million compared to $38 million at the end of 1993.
Other
Selling, general and administrative expenses of $24.2 million
increased 17% versus the third quarter of 1993 primarily due to
the acquisition of Egan Machinery and the impact of inflation.
Depreciation and amortization of $3.6 million increased 15%
versus the third quarter of 1993 primarily as a result of the
Egan Machinery acquisition and a higher fixed asset base.
Interest expense increased $323 thousand to $578 thousand in the
third quarter of 1994 primarily as a result of increased
borrowings. Other income of $424 thousand increased by $178
thousand versus 1993. The Company's effective tax rate of 36.3%
was lower than the 39% in the third quarter of 1993 primarily
because the latter rate reflected a retroactive charge for
increased federal income taxes.
YEAR-TO-DATE RESULTS
Overview
Consolidated net sales for the first nine months of 1994 of
$430.9 million increased 4% from the comparable period in 1993.
Net earnings of $39.1 million decreased slightly versus the
$39.5 million earned in the comparable period in 1993. Net
earnings per common share of $.76 were equal to last year.
Gross margin as a percentage of net sales decreased slightly to
31.9% from 32.3% reported in the comparable nine month period
last year. Operating profit of $70.1 million was 3% lower then
the comparable period in 1993 as profits of the specialty
process equipment and controls segment increased 27% while those
of the specialty chemicals segment decreased 13%.
Specialty Chemicals
The Company's specialty chemicals segment reported sales of
$293.6 million representing a decline of 5% versus the first
nine months of 1993. The decrease was attributable equally to
lower selling prices and unit volume.
Domestic dyes sales decreased 7% to $156.3 million for the first
nine months of 1994 due equally to lower selling prices and weak
demand for apparel dyes. International dyes sales of $67.7
million were lower by 7% versus 1993 primarily as a result of
lower unit volume under a long-term supply agreement. Specialty
ingredients sales rose 2% to $69.6 million reflecting increased
unit volume. The percentage of sales outside the United States
decreased slightly to 24% from 25% for the comparable period in
1993.
Operating profit of $47.6 million for the first nine months of
1994 decreased 13% from 1993 due primarily to lower unit volume
and lower pricing, offset in part by lower dye intermediate
costs. The percentage of operating profit outside the United
States decreased to 19% from 22% for the comparable period in
1993.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
reported sales of $137.3 million representing a 29% increase
over the first nine months of 1993. Approximately 16% was
attributable to the acquisition of Egan Machinery, 9% to unit
volume and 4% to pricing. Export sales of $34 million increased
18% from 1993 and accounted for 25% of total segment sales
versus 27% in the first nine months of 1993. Operating profit
of $22.5 million increased 28% versus the comparable period in
1993. Approximately 5% was attributable to the acquisition of
Egan Machinery with the balance attributable primarily to unit
volume and improved pricing.
Other
Selling, general and administrative expenses of $66.4 million
increased 7% versus the first nine months of 1993 primarily due
to the acquisition of Egan Machinery and the impact of
inflation. Depreciation and amortization of $10.0 million
increased 6% primarily as a result of the Egan Machinery
acquisition and a higher fixed asset base. Interest expense and
other income were essentially the same versus 1993. The
Company's effective tax rate of 36.3% was lower than the 37.5%
in the comparable 1993 period.
LIQUIDITY AND CAPITAL RESOURCES
The September 24, 1994 working capital balance of $123.5 million
decreased $1.4 million from year-end 1993. The current ratio
declined to 1.9 from 2.3 at the end of 1993 primarily as a
result of increased short-term borrowings. Days sales in
receivables of 54 days increased slightly from 52 days at year-
end 1993. Inventory turnover of 2.8 for the first nine months
of 1994 declined slightly from 2.9 at year-end 1993.
Cash flows from operating activities of $14.1 million decreased
$17.2 million from the first nine months of 1993 primarily
attributable to increased working capital requirements. Cash
provided by operating activities, cash reserves and increased
borrowings were used to finance the acquisition of Egan
Machinery, fund capital expenditures, pay cash dividends and
repurchase 1.4 million shares of the Company's common stock.
The Company's debt to total capital ratio increased to 22% from
7% at year-end 1993. Capital expenditures are expected to
approximate $20 million in 1994 primarily for expansion and
improvement of operating facilities in the United States and
Europe. Long-term liquidity requirements including such items
as capital expenditures and dividends are expected to be
financed from operations.
INTERNATIONAL OPERATIONS
The lower U.S. dollar exchange rate at September 24, 1994 for
the Belgian Franc and French Franc accounted for the increase of
$4.3 million in the accumulated translation adjustment account
since year-end 1993. 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, specialty food and pharmaceutical ingredients
and process equipment systems for the industries served by the
Company. Year-to-year variations in sales of such new products
generally are not expected to significantly affect the Company's
results versus the prior year. Research and development
expenditures totalled $8.6 million for the first nine months of
1994 compared to $8.3 million in the comparable 1993 period.
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. 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.
PART II. OTHER INFORMATION:
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.
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 7, 1994 By: /s/ Charles J. Marsden
Charles J. Marsden
Vice President - Finance
(Principal Financial Officer)
November 7, 1994 By: /s/ John T. Ferguson, II
John T. Ferguson, II
General Counsel and Secretary
Exhibit 11
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
PRIMARY
Quarter Ended Nine Months Ended
Sept 24, Sept 25, Sept 24, Sept 25,
1994 1993 1994 1993
Earnings
Net earnings $ 10,224 $ 11,506 $ 39,089 $ 39,454
Shares
Weighted average shares
outstanding 50,599 51,426 51,037 51,278
Common stock equivalents 444 665 617 731
Average shares outstanding 51,043 52,091 51,654 52,009
Per share
Net earnings $ 0.20 $ 0.22 $ 0.76 $ 0.76
FULLY DILUTED
Quarter Ended Nine Months Ended
Sept 24, Sept 25, Sept 24, Sept 25,
1994 1993 1994 1993
Earnings
Net earnings $ 10,224 $ 11,506 $ 39,089 $ 39,454
Shares
Weighted average shares
outstanding 50,599 51,426 51,037 51,278
Common stock equivalents 460 774 671 958
Average shares outstanding 51,059 52,200 51,708 52,236
Per share
Net earnings $ 0.20 $ 0.22 $ 0.76 $ 0.76
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<PERIOD-END> SEP-24-1994
<CASH> 7,207
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<RECEIVABLES> 93,830
<ALLOWANCES> 4,083
<INVENTORY> 144,026
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<OTHER-SE> 237,701
<TOTAL-LIABILITY-AND-EQUITY> 428,923
<SALES> 430,867
<TOTAL-REVENUES> 430,867
<CGS> 293,206
<TOTAL-COSTS> 369,600
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