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 30, 1995
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 18, 1995
Common Stock, $.10 par value 48,059,110 shares
CROMPTON & KNOWLES CORPORATION
FORM 10-Q
FOR QUARTER ENDED September 30, 1995
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Financial Statements and
Accompanying Notes
. Consolidated Statements of Earnings
(unaudited) - Quarters and nine months ended
September 30, 1995 and September 24, 1994
. Consolidated Balance Sheets - September 30, 1995
(unaudited) and December 31, 1994
. Consolidated Statements of Cash Flows
(unaudited) - Quarters and nine months ended
September 30, 1995 and September 24, 1994
. Notes to the Consolidated Financial
Statements - Quarter ended September 30, 1995
(unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings
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 30, 1995 and September 24, 1994
(In thousands, except per share data)
Quarters ended Nine months ended
Sept 30, Sept 24, Sept 30, Sept 24,
1995 1994 1995 1994
Net sales $159,065 $142,821 $502,875 $430,867
Cost of products sold 114,459 98,796 354,817 293,206
Selling, general and administrative 25,584 24,233 77,742 66,399
Depreciation and amortization 4,035 3,596 11,529 9,995
Interest 2,141 578 5,743 962
Other expense(income) 49 (424) (192) (1,059)
Total costs and expenses 146,268 126,779 449,639 369,503
Earnings before income taxes 12,797 16,042 53,236 61,364
Income taxes 4,720 5,818 19,905 22,275
Net earnings $ 8,077 $ 10,224 $ 33,331 $ 39,089
Net earnings per common share $ 0.17 $ 0.20 $ 0.69 $ 0.76
Dividends per common share $ .135 $ .12 $ 0.39 $ 0.34
Average shares outstanding 48,343 51,059 48,516 51,708
See accompanying notes to the consolidated financial statements.
- 2 -
September 30, 1995 UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994
(In thousands)
September 30, December 31
1995 1994
ASSETS
CURRENT ASSETS
Cash $ 2,913 $ 1,832
Accounts receivable 110,723 81,859
Inventories 162,367 157,356
Other current assets 27,920 19,610
Total current assets 303,923 260,657
NON-CURRENT ASSETS
Property, plant and equipment 124,864 117,105
Cost in excess of acquired net assets 50,453 43,429
Other assets 11,412 11,137
$ 490,652 $ 432,328
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 68,943 $ 39,670
Accounts payable 48,916 47,000
Accrued expenses 31,232 33,369
Income taxes payable 3,993 4,138
Other current liabilities 17,754 14,865
Total current liabilities 170,838 139,042
NON-CURRENT LIABILITIES
Long-term debt 64,000 54,000
Accrued postretirement liability 8,011 8,698
Deferred income taxes 7,011 6,681
Total non-current liabilities 79,022 69,379
STOCKHOLDERS' EQUITY
Common stock 5,336 5,336
Additional paid-in capital 60,078 62,241
Retained earnings 233,435 218,837
Accumulated translation adjustment 6,677 1,858
Treasury stock at cost (62,350) (54,213)
Deferred compensation (2,384) (10,152)
Total stockholders' equity 240,792 223,907
$ 490,652 $ 432,328
See accompanying notes to the consolidated financial statements.
- 3 -
UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine months ended September 30, 1995 and September 24, 1994
(In thousands)
Sept. 30, Sept. 24
Increase (decrease) to cash 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 33,331 $ 39,089
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 11,529 9,995
Deferred compensation 574 272
Changes in assets and liabilities, net (37,177) (35,283)
Net cash provided by operations 8,257 14,073
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (9,538) (13,734)
Capital expenditures (14,122) (13,722)
Other investing activities (737) 420
Net cash used by investing activities (24,397) (27,036)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 10,000 30,000
Payments of long-term debt 0 (10,000)
Change in notes payable 29,116 31,399
Net treasury stock activity (3,281) (23,288)
Dividends paid (18,733) (17,382)
Net cash provided by financing activities 17,102 10,729
CASH
Effect of exchange rates on cash 119 157
Change in cash 1,081 (2,077)
Cash at beginning of period 1,832 9,284
Cash at end of period $ 2,913 $ 7,207
See accompanying notes to the consolidated financial statements.
-4-
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Quarter ended September 30, 1995 (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 $2,973 in 1995 and $3,829 at December 31, 1994.
Accumulated depreciation amounted to $96,925 in 1995 and $85,691
at December 31, 1994.
Accumulated amortization of cost in excess of acquired net assets
amounted to $7,784 in 1995 and $6,622 at December 31, 1994.
Other current liabilities consist primarily of customer deposits.
It is suggested that the interim consolidated financial
statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1994
Annual Report on Form 10-K.
CAPITAL STOCK
There are 53,361,072 common shares issued at $.10 par value, of
which 5,301,962 shares and 4,703,891 shares were held in the
treasury at September 30, 1995 and December 31, 1994,
respectively.
INVENTORIES
Components of inventories are as follows:
Sept. 30, Dec. 31,
1995 1994
Finished goods $89,805 $ 90,386
Work in process 31,850 32,640
Raw materials and supplies 40,712 34,330
$162,367 $157,356
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 January 1995, the Company acquired the business and certain
assets of McNeil Akron Repiquet S.a.r.l. in France at a cost of
$4,638. In March 1995, the Company acquired Killion Extruders,
Inc. at a cost of $4,900. 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 the purchase price over
fair value of net assets acquired in the amount of $7,738 is
being amortized over forty years. The operating results of each
acquisition are included in the Consolidated Statements of
Earnings since the dates of acquisition.
DEBT
In June 1995, the Company amended its credit agreement with a
group of five banks whereby the revolving credit loans available
to the Company were increased from $70,000 to $125,000 through
September 28, 1998. Borrowings under the revolving credit
agreement amounted to $60,000 at September 30, 1995.
STOCK INCENTIVE PLANS
In December 1994, the Company transferred 448,000 shares to an
independent trustee to administer long-term performance awards
under the Company's Long Term Incentive Plan. In June 1995, such
shares were returned to the Company and will be issued to the
trustee at the end of the incentive period in 1997, as earned.
Compensation expense is being accrued annually based upon the
expected level of incentive achievement.
BUSINESS SEGMENT DATA
Quarter ended
Sept. 30, Sept. 24,
1995 1994
SALES
Specialty chemicals $ 92,486 $ 92,633
Specialty process equipment
and controls 66,579 50,188
$159,065 $142,821
OPERATING PROFIT
Specialty chemicals $ 7,921 $ 11,973
Specialty process equipment
and controls 9,697 7,132
General corporate expense ( 2,631) ( 2,909)
Consolidated operating profit 14,987 16,196
Interest expense ( 2,141) ( 578)
Other income (expense) (49) 424
Earnings before income taxes $ 12,797 $ 16,042
Nine months ended
Sept. 30, Sept. 24,
1995 1994
SALES
Specialty chemicals $296,257 $293,599
Specialty process equipment
and controls 206,618 137,268
$502,875 $430,867
OPERATING PROFIT
Specialty chemicals $ 36,645 $ 47,605
Specialty process equipment
and controls 30,797 22,450
General corporate expense ( 8,655) ( 8,788)
Consolidated operating profit 58,787 61,267
Interest expense ( 5,743) ( 962)
Other income 192 1,059
Earnings before income taxes $ 53,236 $ 61,364
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER RESULTS
Overview
Consolidated net sales of $159.1 million for the third quarter
of 1995 increased 11% over the comparable 1994 period. Net
earnings of $8.1 million declined 21% from the third quarter of
1994. Net earnings per common share of $.17 was 15% lower than
the $.20 reported last year.
Gross margin as a percentage of net sales decreased to 28.0%
from 30.8% in last year's third quarter, primarily from lower
margins in the domestic and international dyes businesses.
Consolidated operating profit of $15.0 million declined 7% from
the third quarter of 1994 as specialty chemicals decreased 34%
and specialty process equipment and controls segment increased
36%.
Specialty Chemicals
The Company's specialty chemicals segment sales of $92.5 million
were approximately even with the 1994 third quarter as increases
in unit volume were offset by lower selling prices.
Domestic dyes sales of $45.2 million declined 7% from the third
quarter of 1994 primarily due to lower unit volume (-2%) and
lower selling prices (-5%). International dyes sales of $21.4
million were essentially even versus the comparable 1994 period
primarily as a result of unit volume increases (7%) plus foreign
currency translation (2%) offset by lower selling prices (-9%).
Specialty ingredient sales of $25.9 million rose 14% primarily
as a result of increased unit volume. The percentage of
specialty chemicals sales outside the United States increased to
25% from 24% in the third quarter of 1994.
Operating profit of $7.9 million for the third quarter of 1995
declined 34% from the comparable quarter in 1994. The decline
was attributable to both domestic and international dyes.
Domestic dyes operating profit declined due to lower unit volume
and pricing. International dyes operating profit declined
primarily due to lower pricing and exchange rate fluctuations
among European currencies, offset in part by certain accrual
adjustments. The percentage of specialty chemicals operating
profit outside the United States decreased to 2% from 21% in the
third quarter of 1994.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
reported sales of $66.6 million representing an increase of 33%
from the third quarter of 1994. Approximately 11% was
attributable to the incremental impact of acquisitions with the
balance of 22% primarily from increased unit volume.
International sales of $21.0 million increased 69% from 1994 and
accounted for 32% of total segment sales versus 25% for the
comparable period in 1994. Operating profit for the third
quarter of 1995 increased 36% to $9.7 million primarily
attributable to increased unit volume. The order backlog for
extruders and related equipment at the end of the third quarter
amounted to $82 million compared to $66 million at December 31,
1994.
Other
Selling, general and administrative expenses of $25.6 million
increased 6% versus the comparable period in 1994 primarily due
to the impact of acquisitions and inflation. Depreciation and
amortization of $4.0 million increased 12% versus 1994 primarily
as a result of a higher fixed asset base including acquisitions.
Interest expense increased $1.6 million to $2.1 million
primarily as a result of increased borrowings. Other expense
(income) of $49 thousand increased by $473 thousand versus 1994
principally from lower foreign currency gains. The Company's
effective tax rate of 36.9% increased versus the 36.3% in the
1994 period.
YEAR-TO-DATE RESULTS
Overview
Consolidated net sales for the first nine months of 1995 of
$502.9 million increased 17% from the comparable period in 1994.
Net earnings of $33.3 million decreased 15% versus the $39.1
million earned in the comparable period in 1994. Net earnings
per common share of $.69 decreased 9% from the $.76 reported
last year.
Gross margin as a percentage of net sales decreased to 29.4%
from 31.9% in the comparable 1994 period primarily from lower
margins in the domestic and international dyes businesses.
Consolidated operating profit of $58.8 million decreased 4% from
$61.3 million in the first nine months of 1994 as specialty
chemicals decreased 23% and specialty process equipment and
controls increased 37%.
Specialty Chemicals
The Company's specialty chemicals segment reported sales of
$296.3 million representing a 1% increase from $293.6 million in
the first nine months of 1994. The increase was primarily
attributable to foreign currency translation as unit volume
increases were offset by lower selling prices.
Domestic dyes sales of $147.1 million were 6% lower versus the
first nine months of 1994 primarily due to lower selling prices.
International dyes sales of $72.8 million increased by 8% versus
1994 primarily as a result of foreign currency translation (7%)
and unit volume growth (8%), offset by lower selling prices
(-7%). Specialty ingredients sales rose 10% to $76.4 million
reflecting primarily increased unit volume. The percentage of
sales outside the United States increased to 26% from 24% for
the comparable period in 1994.
Operating profit of $36.6 million for the first nine months of
1995 decreased 23% from 1994. The decline was attributable to
both domestic and international dyes. Domestic dyes operating
profit declined primarily due to lower pricing. International
dyes operating profit declined primarily due to lower pricing
and exchange rate fluctuations among European currencies, offset
in part by certain accrual adjustments. The percentage of
operating profit outside the United States decreased to 13% from
19% for the comparable period in 1994.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
reported sales of $206.6 million representing a 51% increase
over the first nine months of 1994. Approximately 34% of the
sales increase was attributable to the incremental impact of
acquisitions with the balance primarily from increased unit
volume. International sales of $51.4 million increased 51% from
1994 and accounted for 25% of total segment sales, virtually the
same as 1994. Operating profit of $30.8 million increased 37%
versus the comparable 1994 period. Approximately 15% was
attributable to acquisitions with the balance primarily from
higher unit volume.
Other
Selling, general and administrative expenses of $77.7 million
increased 17% versus the first nine months of 1994 primarily due
to the impact of acquisitions and inflation. Depreciation and
amortization of $11.5 million increased 15% versus the 1994
period as a result of a higher fixed asset base including
acquisitions. Interest expense increased $4.8 million primarily
as a result of increased borrowings. Other income of $192
thousand decreased $867 thousand versus 1994 primarily due to
lower foreign currency gains. The effective tax rate of 37.4%
increased versus the 36.3% in the comparable 1994 period.
LIQUIDITY AND CAPITAL RESOURCES
The September 30, 1995 working capital balance of $133.1 million
increased $11.5 million from $121.6 million at year-end 1994.
The current ratio declined to 1.8 from 1.9 at the end of 1994
primarily as a result of the increase in notes payable. Days
sales in receivables averaged 54 days essentially equal to the
level for all of 1994. Inventory turnover averaged 2.8 for the
first nine months of 1995 compared to 3.0 for all of 1994.
Cash flows from operating activities of $8.3 million decreased
$5.8 million from the first nine months of 1994 primarily
attributable to lower earnings. Cash provided by operating
activities and increased borrowings were used to finance
acquisitions, fund capital expenditures, pay cash dividends and
repurchase 222,800 shares of the Company's common stock. The
Company's debt to total capital increased to 36% from 29% at
year-end 1994. Capital expenditures are expected to approximate
$20 million in 1995 primarily for expansion and improvement of
operating facilities in the United States and Europe. The
Company's long-term liquidity needs including such items as
capital expenditures and dividends are expected to be financed
from operations.
INTERNATIONAL OPERATIONS
The lower U.S. dollar exchange rate versus the Belgian Franc and
French Franc accounted primarily for the favorable increase of
$4.8 million in the accumulated translation adjustment account
since year-end 1994. 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 275 engineers, draftsmen, chemists,
and technicians responsible for developing new and improved
chemical products and process equipment systems for the
industries served by the Company. Often, new products are
developed in response to specific customer needs. The Company's
process of developing and commercializing new products and
product improvements is ongoing and involves many products, no
one of which is large enough to significantly impact the
Company's results of operations from year-to-year. Research and
development expenditures totaled $10.8 million for the first
nine months of 1995 compared to $8.6 million in the comparable
1994 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 three 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 1. Legal Proceedings
On September 28, 1995, Kem Manufacturing Corporation, a
wholly owned subsidiary of the Corporation, was released by the
state of New Jersey as a potentially responsible party with respect
to the Evor Phillips waste disposal site located in New Jersey upon
payment to the state of New Jersey of $175,000.
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.
-13-
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 13, 1995 By:/s/ Charles J. Marsden
Charles J. Marsden
Vice President-Finance
and Chief Financial Officer
November 13, 1995 By:/s/ John T. Ferguson, II
John T. Ferguson, II
General Counsel and Secretary
-14-
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 30, Sept 24, Sept 30, Sept 24,
1995 1994 1995 1994
Earnings
Net earnings $ 8,077 $10,224 $33,331 $39,089
Shares
Weighted average shares
outstanding 48,051 50,599 48,038 51,037
Common stock equivalents 267 444 415 617
Average shares outstanding48,318 51,043 48,453 51,654
Per share
Net earnings $ 0.17 $ 0.20 $ 0.69 $ 0.76
FULLY DILUTED
Quarter Ended Nine Months Ended
Sept 30, Sept 24, Sept 30, Sept 24,
1995 1994 1995 1994
Earnings
Net earnings $ 8,077 $10,224 $33,331 $39,089
Shares
Weighted average shares
outstanding 48,051 50,599 48,038 51,037
Common stock equivalents 292 460 478 671
Average shares outstanding48,343 51,059 48,516 51,708
Per share
Net earnings $ 0.17 $ 0.20 $ 0.69 $ 0.76
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<CASH> 2,913
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<CGS> 354,817
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