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 June 25, 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 July 20, 1994
Common Stock, $.10 par value 50,922,368 shares
CROMPTON & KNOWLES CORPORATION
FORM 10-Q
FOR QUARTER ENDED JUNE 25, 1994
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Financial Statements and
Accompanying Notes
. Consolidated Statements of Earnings
(unaudited) - Quarters and six months ended
June 25, 1994 and June 26, 1993
. Consolidated Balance Sheets - June 25, 1994
(unaudited) and December 25, 1993
. Consolidated Statements of Cash Flows
(unaudited) - Six months ended June 25, 1994
and June 26, 1993
. Notes to the Consolidated Financial
Statements - Six months ended June 25, 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
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UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Quarters and six months ended June 25, 1994 and June 26, 1993
(In thousands, except per share data)
Quarters ended Six months ended
June 25, June 26, June 25, June 26,
1994 1993 1994 1993
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Net sales $ 154,452 $ 147,677 $ 288,046 $ 281,420
Cost of products sold 103,500 98,824 194,410 189,886
Selling, general and administra 22,362 20,932 42,166 41,093
Depreciation and amortization 3,173 3,171 6,399 6,321
Interest 202 303 384 711
Other income (91) (322) (635) (876)
Total costs and expenses 129,146 122,908 242,724 237,135
Earnings before income taxes 25,306 24,769 45,322 44,285
Income taxes 9,199 9,116 16,457 16,337
Net earnings $ 16,107 $ 15,653 $ 28,865 $ 27,948
Net earnings per common share $ .31 $ .30 $ .56 $ .54
Dividends per common share $ .12 $ .10 $ .22 $ .18
Average shares outstanding 51,791 52,176 51,935 52,155
See accompanying notes to the consolidated financial statements.
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June 25, 1994 UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 25, 1994 and December 25, 1993
(In thousands)
June 25, December 25,
1994 1993
ASSETS
CURRENT ASSETS
Cash $ 2,359 $ 9,284
Accounts receivable 98,752 84,482
Inventories 132,569 113,932
Other current assets 16,896 12,698
Total current assets 250,576 220,396
NON-CURRENT ASSETS
Property, plant and equipment 109,174 99,925
Cost in excess of acquired net assets 41,386 33,275
Other assets 9,673 9,650
$ 410,809 $ 363,246
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 24,038 $ 5,100
Accounts payable 50,344 44,905
Accrued expenses 33,036 25,574
Income taxes payable 8,146 12,935
Other current liabilities 13,444 6,925
Total current liabilities 129,008 95,439
NON-CURRENT LIABILITIES
Long-term debt 14,000 14,000
Accrued postretirement liability 9,080 9,084
Deferred income taxes 4,837 4,727
Total non-current liabilities 27,917 27,811
STOCKHOLDERS' EQUITY
Common stock 5,336 5,336
Additional paid-in capital 61,773 61,783
Retained earnings 208,808 191,230
Accumulated translation adjustment 1,207 (557)
Treasury stock at cost (17,377) (11,278)
Deferred compensation (5,863) (6,518)
Total stockholders' equity 253,884 239,996
$ 410,809 $ 363,246
See accompanying notes to the consolidated financial statements.
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UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six months ended June 25, 1994 and June 26, 1993
(In thousands)
June 25, June 26,
Increase (decrease) to cash 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
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Net earnings $ 28,865 $ 27,948
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 6,399 6,321
Deferred compensation and income taxes 655 729
Changes in assets and liabilities, net (26,306) (18,489)
Net cash provided by operations 9,613 16,509
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition (10,718) -
Capital expenditures (7,388) (4,775)
Other investing activities 106 1,508
Net cash used by investing activities (18,000) (3,267)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 10,000 -
Payments of long-term debt (10,000) -
Change in notes payable 18,903 (3,398)
Net treasury stock activity (6,206) 393
Dividends paid (11,287) (9,221)
Net cash used by financing activities 1,410 (12,226)
CASH
Effect of exchange rates on cash 52 (46)
Change in cash (6,925) 970
Cash at beginning of period 9,284 2,441
Cash at end of period $ 2,359 $ 3,411
See accompanying notes to the consolidated financial statements.
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CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Six months ended June 25, 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 $3,882 in 1994 and $4,072 at December 25, 1993.
Accumulated depreciation amounted to $79,273 in 1994 and $73,387
at December 25, 1993.
Accumulated amortization of cost in excess of acquired net assets
amounted to $6,012 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 December 25, 1993
Annual Report on Form 10-K.
CAPITAL STOCK
There are 53,361,072 common shares issued at $.10 par value, of
which 2,359,704 shares and 2,069,547 shares were held in the
treasury at June 25, 1994 and December 25, 1993, respectively.
INVENTORIES
Components of inventories are as follows:
June 25, Dec. 25,
1994 1993
Finished goods $ 65,862 $ 57,987
Work in process 34,240 25,748
Raw materials and supplies 32,467 30,197
$132,569 $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.
ACQUISITION
On May 18, 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. The acquisition has been
accounted for using the purchase method and, accordingly, the
acquired assets and liabilities have been recorded at their fair
value at the date of acquisition. The results of operations of
this business have been included in the Consolidated Statements
of Earnings since the date of acquisition.
BUSINESS SEGMENT DATA
Six Months Ended
June 25, June 26,
1994 1993
SALES
Specialty chemicals $200,966 $208,291
Specialty process equipment
and controls 87,080 73,129
$288,046 $281,420
OPERATING PROFIT
Specialty chemicals $ 35,632 $ 38,407
Specialty process equipment
and controls 15,318 11,914
50,950 50,321
General corporate expenses, net ( 5,244) ( 5,325)
Interest expense ( 384) ( 711)
Earnings before income taxes $ 45,322 $ 44,285
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER RESULTS
Overview
Consolidated net sales of $154.5 million for the second quarter
of 1994 increased 5% over the comparable 1993 period. Net
earnings of $16.1 million were 3% higher than the second quarter
of 1993. Net earnings per common share of $.31 increased 3%
from the $.30 reported last year.
Gross margin as a percentage of net sales was 33%, essentially
unchanged from the second quarter of 1993. Operating profit of
$28.0 million increased 2% from the second quarter of 1993 with
all of the increase coming from the specialty process equipment
and controls segment.
Specialty Chemicals
The Company's specialty chemicals segment reported sales of
$105.4 million representing a 3% decrease from the comparable
period in 1993. The decrease was attributable primarily to
lower selling prices (2%) and the impact of foreign currency
translation (1%).
Domestic dyes sales of $57.4 million were 4% lower than the
second quarter of 1993 primarily due to lower selling prices.
International dyes sales of $24.0 million were lower by 7%
versus the comparable 1993 period with 2% attributable to
foreign currency translation and the balance primarily
attributable to lower unit volume under a long-term supply
agreement. Specialty ingredients sales of $24.0 million rose 4%
primarily from increased unit volume. The percentage of sales
outside the United States decreased slightly to 24% from 25% in
the second quarter of 1993.
Operating profit of $19.6 million for the second quarter of 1994
decreased 9% from the comparable quarter in 1993 primarily
attributable to lower selling prices and unit volume, offset in
part by lower dye intermediate costs. The percentage of
operating profit outside the United States of 19% was unchanged
versus the comparable period in 1993.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
reported sales of $49.1 million representing a 26% increase over
the second quarter of 1993. Approximately 14% was attributable
to the acquisition of Egan Machinery, 8% to unit volume and 4%
to pricing. Export sales of $15.1 million were up 9% versus
1993 and accounted for 31% of total segment sales versus 35% for
the second quarter of 1993. Operating profit increased 36% to
$8.4 million in the second quarter of 1994 primarily as a result
of unit volume growth and improved pricing. The order backlog
for extruders and related equipment at the end of the second
quarter amounted to $58 million compared to $38 million at the
end of 1993.
Other
Selling, general and administrative expenses of $22.4 million
increased 7% versus the second quarter of 1993 primarily due to
the acquisition of Egan Machinery and the impact of inflation.
Depreciation and amortization of $3.2 million approximated the
level in the second quarter of 1993. Interest expense of $202
thousand decreased 33% from the second quarter of 1993 primarily
as a result of lower borrowings. Other income of $91 thousand
was lower by $231 thousand (less than 1% of pretax earnings)
versus 1993. The Company's effective tax rate of 36.4% was
slightly lower than the 37% in the 1993 period.
YEAR-TO-DATE RESULTS
Overview
Consolidated net sales for the first six months of 1994 of $288
million increased 2% from the comparable period in 1993. Net
earnings of $28.9 million increased 3% versus the $27.9 million
earned in the first half of 1993. Net earnings per common share
of $.56 increased 4% versus $.54 reported last year.
Gross margin as a percentage of net sales was 32.5%, unchanged
from the comparable 1993 period. Operating profit of $51.0
million increased slightly from $50.3 million in the first half
of 1993.
Specialty Chemicals
The Company's specialty chemicals segment reported sales of $201
million representing a decline of 4% versus the first six months
of 1993. The decrease was attributable to lower selling prices
(2%), lower unit volume (1%) and the impact of foreign currency
translation (1%).
Domestic dyes sales of $107.7 million were lower than the first
six months of 1993 by 5% due to lower selling prices and weak
demand for apparel dyes. International dyes sales of $46.4
million were lower by 6% versus 1993 primarily as a result of
foreign currency translation and lower unit volume under a long-
term supply agreement. Specialty ingredients sales rose 4% to
$46.9 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 $35.7 million for the first six months of
1994 decreased 7% from 1993. Most of the decrease was
attributable 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 slightly to
19% from 20% in the first half of 1993.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
reported sales of $87 million representing a 19% increase over
the first six months of 1993. The sales increase was
attributable to the acquisition of Egan Machinery (7%), unit
volume growth (8%), and pricing (4%). Export sales of $21.6
million declined 4% from 1993 and accounted for 25% of total
segment sales versus 31% in the first six months of 1993.
Operating profit of $15.3 million increased 29% versus the
comparable 1993 period primarily as a result of unit volume
growth and improved pricing.
Other
Selling, general and administrative expenses of $42.2 million
increased 3% versus the first six months of 1993 primarily due
to the acquisition of Egan Machinery. Depreciation and
amortization of $6.4 million increased slightly versus the 1993
period as a result of a higher fixed capital base. Interest
expense of $384 thousand decreased 46% as a result of lower
borrowings for the six months in 1994 versus 1993.
Other income decreased by $241 thousand (less than 1% of pretax
earnings) versus 1993. The Company's effective tax rate of
36.3% was slightly lower than the 37% in the comparable 1993
period.
LIQUIDITY AND CAPITAL RESOURCES
The June 25, 1994 working capital balance of $121.6 million
decreased 3% 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
53 days increased slightly from 52 days at year-end 1993.
Inventory turnover of 3.0 for the first half of 1994 improved
slightly from 2.9 at year-end 1993.
Cash flows from operating activities of $9.6 million decreased
$6.9 million from the first half 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 338,300
shares of the Company's common stock. The Company's debt to
total capital ratio increased to 13% 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 June 25, 1994 versus
year-end 1993 for the Belgian Franc and French Franc accounted
for the increase of $1.8 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 $5.6 million for the first half of 1994
compared to $5.5 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
(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)
August 9, 1994 By: /s/ Charles J. Marsden
Charles J. Marsden
Vice President - Finance
(Principal Financial Officer)
August 9, 1994 By: /s/ John T. Ferguson
John T. Ferguson, II
General Counsel and Secretary
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CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
PRIMARY
Quarter Ended Six Months Ended
June 25, June 26, June 25, June 26,
1994 1993 1994 1993
Earnings
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Net earnings $ 16,107 $ 15,653 $ 28,865 $ 27,948
Shares
Weighted average shares
outstanding 51,206 51,258 51,255 51,204
Common stock equivalents 576 885 655 881
Average shares outstanding 51,782 52,143 51,910 52,085
Per share
Net earnings $ 0.31 $ 0.30 $ 0.56 $ 0.54
FULLY DILUTED
Quarter Ended Six Months Ended
June 25, June 26, June 25, June 26,
1994 1993 1994 1993
Earnings
Net earnings $ 16,107 $ 15,653 $ 28,865 $ 27,948
Shares
Weighted average shares
outstanding 51,206 51,258 51,255 51,204
Common stock equivalents 585 918 680 951
Average shares outstanding 51,791 52,176 51,935 52,155
Per share
Net earnings $ 0.31 $ 0.30 $ 0.56 $ 0.54
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