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 July 1, 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 July 19, 1995
Common Stock, $.10 par value 48,046,609 shares
CROMPTON & KNOWLES CORPORATION
FORM 10-Q
FOR QUARTER ENDED July 1, 1995
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Financial Statements and
Accompanying Notes
. Consolidated Statements of Earnings
(unaudited) - Quarters and six months ended
July 1, 1995 and June 25, 1994
. Consolidated Balance Sheets - July 1, 1995
(unaudited) and December 31, 1994
. Consolidated Statements of Cash Flows
(unaudited) - Quarters and six months ended
July 1, 1995 and June 25, 1994
. Notes to the Consolidated Financial
Statements - Quarter ended July 1, 1995
(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 six months ended July 1, 1995 and June 25, 1994
(In thousands, except per share data)
Quarters ended Six months ended
July 1, June 25, July 1, June 25,
1995 1994 1995 1994
Net sales $ 175,617 $ 154,452 $ 343,810 $ 288,046
Cost of products sold 123,799 103,500 240,358 194,410
Selling, general
and administrative 26,736 22,362 52,158 42,166
Depreciation and
amortization 3,769 3,173 7,494 6,399
Interest 2,034 202 3,602 384
Other income (13) (91) (241) (635)
Total costs
and expenses 156,325 129,146 303,371 242,724
Earnings before
income taxes 19,292 25,306 40,439 45,322
Income taxes 7,234 9,199 15,185 16,457
Net earnings $ 12,058 $ 16,107 $ 25,254 $ 28,865
Net earnings per
common share $ .25 $ .31 $ .52 $ .56
Dividends per
common share $ .135 $ .12 $ .255 $ .22
Average shares
outstanding 48,577 51,791 48,569 51,935
See accompanying notes to the consolidated financial statements.
- 2 -
July 1, 1995 UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
July 1, 1995 and December 31, 1994
(In thousands)
July 1, December 31,
1995 1994
ASSETS
CURRENT ASSETS
Cash $ 3,547 $ 1,832
Accounts receivable 106,722 81,859
Inventories 168,863 157,356
Other current assets 26,245 19,610
Total current assets 305,377 260,657
NON-CURRENT ASSETS
Property, plant and equipment 124,816 117,105
Cost in excess of acquired net assets 50,040 43,429
Other assets 11,330 11,137
$ 491,563 $ 432,328
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 73,212 $ 39,670
Accounts payable 51,280 47,000
Accrued expenses 34,146 33,369
Income taxes payable 4,757 4,138
Other current liabilities 18,732 14,865
Total current liabilities 182,127 139,042
NON-CURRENT LIABILITIES
Long-term debt 54,000 54,000
Accrued postretirement liability 8,493 8,698
Deferred income taxes 7,061 6,681
STOCKHOLDERS' EQUITY
Common stock 5,336 5,336
Additional paid-in capital 60,022 62,241
Retained earnings 231,730 218,837
Accumulated translation adjustment 7,777 1,858
Treasury stock at cost (62,408) (54,213)
Deferred compensation (2,575) (10,152)
Total stockholders' equity 239,882 223,907
$ 491,563 $ 432,328
See accompanying notes to the consolidated financial statements.
- 3 -
UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six months ended July 1, 1995 and June 25, 1994
(In thousands)
July 1, June 25,
Increase (decrease) to cash 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 25,254 $ 28,865
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 7,494 6,399
Deferred compensation 383 655
Changes in assets and liabilities, net (29,845) (26,306)
Net cash provided by operations 3,286 9,613
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition (8,633) (10,718)
Capital expenditures (10,037) (7,388)
Other investing activities (584) 106
Net cash used by investing activities (19,254) (18,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings - 10,000
Payments of long-term debt - (10,000)
Change in notes payable 33,329 18,903
Net treasury stock activity (3,395) (6,206)
Dividends paid (12,361) (11,287)
Net cash provided by financing activities 17,573 1,410
CASH
Effect of exchange rates on cash 110 52
Change in cash 1,715 (6,925)
Cash at beginning of period 1,832 9,284
Cash at end of period $ 3,547 $ 2,359
See accompanying notes to the consolidated financial statements.
-4-
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Quarter ended July 1, 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 $2,941 in 1995 and $3,829 at December 31, 1994.
Accumulated depreciation amounted to $93,658 in 1995 and $85,691
at December 31, 1994.
Accumulated amortization of cost in excess of acquired net assets
amounted to $7,444 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 5,314,463 shares and 4,703,891 shares were held in the
treasury at July 1, 1995 and December 31, 1994, respectively.
INVENTORIES
Components of inventories are as follows:
July 1, Dec. 31,
1995 1994
Finished goods $98,450 $ 90,386
Work in process 33,228 32,640
Raw materials and supplies 37,185 34,330
$168,863 $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 an estimated cost of $3,995. 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
$6,896 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 $50,000 at July 1, 1995.
STOCK INCENTIVE PLANS
In December 1994, the Company transferred 448,000 shares to an
independent trustee to administer long-term performance awards
for the 1995 to 1997 incentive period under the 1988 Long Term
Incentive Plan. In June 1995, such shares were returned to the
Company and, in the future, will be issued to the trustee at the
end of each incentive period, as earned. Compensation expense is
being accrued annually based upon the expected level of incentive
achievement.
BUSINESS SEGMENT DATA
Quarter ended
July 1, June 25,
1995 1994
SALES
Specialty chemicals $101,229 $105,380
Specialty process equipment
and controls 74,388 49,072
$175,617 $154,452
OPERATING PROFIT
Specialty chemicals $ 13,133 $ 19,554
Specialty process equipment
and controls 11,043 8,460
General corporate expense ( 2,863) ( 2,597)
21,313 25,417
Interest expense ( 2,034) ( 202)
Other income 13 91
Earnings before income taxes $ 19,292 $ 25,306
Six months ended
July 1, June 25,
1995 1994
SALES
Specialty chemicals $203,771 $200,966
Specialty process equipment
and controls 140,039 87,080
$343,810 $288,046
OPERATING PROFIT
Specialty chemicals $ 28,724 $ 35,632
Specialty process equipment
and controls 21,100 15,318
General corporate expense ( 6,024) ( 5,879)
43,800 45,071
Interest expense ( 3,602) ( 384)
Other income 241 635
Earnings before income taxes $ 40,439 $ 45,322
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER RESULTS
Overview
Consolidated net sales of $175.6 million for the second quarter
of 1995 increased 14% over the comparable 1994 period. Net
earnings of $12.1 million were 25% lower than the $16.1 million
reported in the second quarter of 1994. Net earnings per common
share of $.25 decreased 19% from the $.31 reported last year.
Gross margin as a percentage of net sales decreased to 29.5%
from 33% in last year's second quarter, primarily as a result of
lower margins in the domestic and international dyes businesses.
Consolidated operating profit of $21.3 million declined 16% from
the second quarter of 1994 as specialty chemicals decreased 33%
and specialty process equipment and controls segment increased
31%.
Specialty Chemicals
The Company's specialty chemicals segment reported sales of
$101.2 million representing a decrease of 4% from the comparable
period in 1994. The decrease was attributable to the impact of
lower selling prices (-4%) and lower unit volume (-2%), offset
in part by favorable currency translation (2%).
Domestic dyes sales of $49.6 million declined 14% from the 1994
second quarter primarily due to lower unit volume (-10%) and
lower selling prices (-4%). International dyes sales of $26.9
million increased 12% versus the second quarter of 1994
primarily as a result of foreign currency translation (9%) and
higher unit volume (10%), offset in part by lower selling prices
(-7%). Specialty ingredients sales of $24.7 million rose 3%
primarily as a result of increased unit volume. The percentage
of specialty chemicals sales outside the United States increased
to 28% from 24% in the second quarter of 1994.
Operating profit of $13.1 million for the second quarter of 1995
decreased 33% from the comparable quarter in 1994 primarily
attributable to the impact of lower unit volume and pricing in
domestic dyes and lower pricing and exchange rate fluctuations
among European currencies in international dyes. The percentage
of specialty chemicals operating profit outside the United
States decreased to 15% from 19% in the second quarter of 1994.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
reported sales of $74.4 million representing an increase of 52%
from the second quarter of 1994. Approximately 40% was
attributable to the incremental impact of acquisitions completed
since May of 1994 with the balance of 12% primarily from increased unit
volume. International sales of $18.3 million increased 21%
from 1994 primarily as a result of acquisitions and accounted
for 25% of total segment sales versus 31% for the comparable
period in 1994. Operating profit for the second quarter of 1995
increased 31% to $11.1 million. Approximately 14% was
attributable to the incremental impact of acquisitions completed
since May of 1994 with the balance primarily from increased unit
volume. The order backlog for extruders and related equipment
at the end of the second quarter amounted to $83 million
compared to $66 million at December 31, 1994.
Other
Selling, general and administrative expenses of $26.7 million
increased 20% versus the comparable period in 1994 primarily due
to the impact of acquisitions and inflation. Depreciation and
amortization of $3.8 million increased 19% versus 1994 primarily
as a result of a higher fixed asset base including acquisitions.
Interest expense increased $1.8 million to $2.0 million
primarily as a result of increased borrowings.
Other income of $13 thousand decreased by $78 thousand versus
1994. The Company's effective tax rate of 37.5% increased
versus the 36.4% in the 1994 period.
YEAR-TO-DATE RESULTS
Overview
Consolidated net sales of $343.8 million for the first six
months of 1995 increased 19% from the comparable period in 1994.
Net earnings of $25.3 million decreased 13% versus the $28.9
million earned in the first half of 1994. Net earnings per
common share of $.52 decreased 7% from the $.56 reported last
year.
Gross margin as a percentage of net sales decreased to 30.1%
from 32.5% in the comparable 1994 period primarily as a result
of lower margins in the domestic and international dyes
businesses. Consolidated operating profit of $43.8 million
declined 3% from $45.1 million in the first half of 1994 as
specialty chemicals decreased 19% and specialty process
equipment and controls increased 38%.
Specialty Chemicals
The Company's specialty chemicals segment reported sales of
$203.8 million representing a 1% increase from $201 million in
the first six 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 $101.9 million were 5% lower than the
first six months of 1994 primarily due to lower selling prices.
International dyes sales of $51.5 million increased by 11%
versus 1994 primarily as a result of foreign currency
translation (9%) and unit volume growth (8%), offset by lower
selling prices (-6%). Specialty ingredients sales rose 7% to
$50.4 million reflecting primarily increased unit volume. The
percentage of sales outside the United States increased to 27%
from 24% for the comparable period in 1994.
Operating profit of $28.7 million for the first six months of
1995 decreased 19% from 1994. The decrease was attributable
primarily to the impact of lower pricing in the domestic and
international dyes businesses. The percentage of operating
profit outside the United States decreased to 16% from 19% in
the first half of 1994.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
reported sales of $140 million representing a 61% increase over
the first six months of 1994. Approximately 47% of the sales
increase was attributable to the incremental impact of
acquisitions completed since May of 1994 and the balance of 14%
primarily from increased unit volume. International sales of
$30.4 million increased 41% from 1994 primarily as a result of
acquisitions and accounted for 22% of total segment sales versus
25% in the first six months of 1994. Operating profit of $21.1
million increased 38% versus the comparable 1994 period.
Approximately 21% was attributable to acquisitions with the
balance primarily from higher unit volume.
Other
Selling, general and administrative expenses of $52.2 million
increased 24% versus the first six months of 1994 primarily due
to the impact of acquisitions and inflation. Depreciation and
amortization of $7.5 million increased 17% versus the 1994
period primarily as a result of a higher fixed capital base
including acquisitions. Interest expense increased $3.2 million
primarily as a result of increased borrowings. Other income of
$241 thousand decreased $394 thousand versus 1994 primarily due
to lower royalty income and higher miscellaneous expense. The
effective tax rate of 37.6% increased versus the 36.3% in the
comparable 1994 period.
LIQUIDITY AND CAPITAL RESOURCES
The July 1, 1995 working capital balance of $123.2 million
increased $1.6 million from $121.6 million at year-end 1994.
The current ratio declined to 1.7 from 1.9 at the end of 1994
primarily as a result of the increase in notes payable.
Average days sales in receivables decreased to 51 days in 1995
from 54 days for all of 1994. Inventory turnover averaged 2.8
for the first half of 1995 compared to 3.0 for all of 1994.
Cash flows from operating activities of $3.3 million decreased
$6.3 million from the first half of 1994 primarily attributable
to lower earnings and increased working capital requirements.
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 35% 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 adjustment of
$5.9 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 totalled $7.2 million for the first
half of 1995 compared to $5.6 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 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,
will not be material to the results of the Company's operations
in any given year.
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 11, 1995 By: /s/ Charles J. Marsden
Charles J. Marsden
Vice President-Finance
and Chief Financial
Officer
August 11, 1995 By: /s/ John T. Ferguson, II
John T. Ferguson, II
General Counsel and Secretary
-13-
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 Six Months Ended
July 1, June 25, July 1, June 25,
1995 1994 1995 1994
Earnings
Net earnings $ 12,058 $ 16,107 $ 25,254 $ 28,865
Shares
Weighted average shares
outstanding 48,034 51,206 48,031 51,255
Common stock equivalents 530 576 504 655
Average shares outstanding 48,564 51,782 48,535 51,910
Per share
Net earnings $ 0.25 $ 0.31 $ 0.52 $ 0.56
FULLY DILUTED
Quarter Ended Six Months Ended
July 1, June 25, July 1, June 25,
1995 1994 1995 1994
Earnings
Net earnings $ 12,058 $ 16,107 $ 25,254 $ 28,865
Shares
Weighted average shares
outstanding 48,034 51,206 48,031 51,255
Common stock equivalents 543 585 538 680
Average shares outstanding 48,577 51,791 48,569 51,935
Per share
Net earnings $ 0.25 $ 0.31 $ 0.52 $ 0.56
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> JUL-01-1995
<CASH> 3547
<SECURITIES> 0
<RECEIVABLES> 106722
<ALLOWANCES> 2941
<INVENTORY> 168863
<CURRENT-ASSETS> 305377
<PP&E> 124816
<DEPRECIATION> 93658
<TOTAL-ASSETS> 491563
<CURRENT-LIABILITIES> 182127
<BONDS> 0
<COMMON> 5336
0
0
<OTHER-SE> 234546
<TOTAL-LIABILITY-AND-EQUITY> 491563
<SALES> 343810
<TOTAL-REVENUES> 343810
<CGS> 240358
<TOTAL-COSTS> 300010
<OTHER-EXPENSES> (241)
<LOSS-PROVISION> (92)
<INTEREST-EXPENSE> 3602
<INCOME-PRETAX> 40439
<INCOME-TAX> 15185
<INCOME-CONTINUING> 25254
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25254
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
