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 29, 1997
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 16, 1997
Common Stock, $.10 par value 73,199,672 shares
CROMPTON & KNOWLES CORPORATION
FORM 10-Q
FOR QUARTER ENDED MARCH 29, 1997
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Financial Statements and
Accompanying Notes
. Consolidated Statements of Earnings
(unaudited) - Quarters ended
March 29, 1997 and March 30, 1996
. Consolidated Balance Sheets - March 29, 1997
(unaudited) and December 28, 1996
. Consolidated Statements of Cash Flows
(unaudited) - Quarters ended
March 29, 1997 and March 30, 1996
. Notes to Consolidated Financial
Statements - Quarter ended March 29, 1997
(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.
UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Quarters ended March 29, 1997 and March 30, 1996
(In thousands, except per share data)
March 29, March 30,
1997 1996
Net sales $ 473,873 $ 460,468
Cost of products sold 304,372 294,539
Selling, general and administrative 66,672 68,613
Depreciation and amortization 19,853 20,591
Research and development 12,884 12,933
Operating profit 70,092 63,792
Interest 26,953 28,991
Other expense 198 320
Earnings before income taxes 42,941 34,481
Income taxes 16,330 13,327
Net earnings $ 26,611 $ 21,154
Net earnings per common share $ .35 $ .29
Dividends per common share $ - $ .135
Average shares outstanding 75,870 72,118
See accompanying notes to consolidated financial statements.
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 29, 1997 and December 28, 1996
(In thousands of dollars)
(UNAUDITED)
March 29, December 28
1997 1996
ASSETS
CURRENT ASSETS
Cash $ 18,236 $ 21,120
Accounts receivable 290,501 267,871
Inventories 373,822 362,349
Other current assets 89,181 90,897
Total current assets 771,740 742,237
NON-CURRENT ASSETS
Property, plant and equipment 483,773 497,979
Cost in excess of acquired net assets 186,063 189,012
Other assets 219,763 227,962
$ 1,661,339 $ 1,657,190
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current installments of long-term debt $ 87 $ 731
Notes payable 9,270 8,595
Accounts payable 150,565 151,270
Accrued expenses 152,913 143,133
Income taxes payable 41,384 33,214
Other current liabilities 22,366 20,536
Total current liabilities 376,585 357,479
NON-CURRENT LIABILITIES
Long-term debt 1,025,650 1,054,982
Accrued postretirement liability 181,625 181,980
Other liabilities 151,431 159,167
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 7,733 7,724
Additional paid-in capital 231,524 232,010
Accumulated deficit (230,566) (257,177)
Accumulated translation adjustment (32,531) (25,592)
Treasury stock at cost (45,916) (48,083)
Deferred compensation (1,436) (1,587)
Pension liability adjustment (2,760) (3,713)
Total stockholders' deficit (73,952) (96,418)
$ 1,661,339 $ 1,657,190
See accompanying notes to consolidated financial statements.
UNAUDITED
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Quarters ended March 29, 1997 and March 30, 1996
(In thousands of dollars)
March 29, March 30,
Increase (decrease) to cash 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 26,611 $ 21,154
Adjustments to reconcile net earnings
to net cash provided by operations:
Depreciation and amortization 19,853 20,591
Noncash interest 3,424 3,874
Deferred taxes 4,220 731
Changes in assets and liabilities, net (21,348) (19,361)
Net cash provided by operations 32,760 26,989
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions 0 (10,025)
Capital expenditures (6,176) (9,680)
Other investing activities 33 (2,487)
Net cash used by investing activities (6,143) (22,192)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term borrowings (33,164) (8,782)
Proceeds on short-term borrowings 1,140 18,005
Dividends paid 0 (6,483)
Other financing activities 1,489 83
Net cash provided (used) by financing activities (30,535) 2,823
CASH
Effect of exchange rates on cash 1,034 (235)
Change in cash (2,884) 7,385
Cash at beginning of period 21,120 16,961
Cash at end of period $ 18,236 $ 24,346
See accompanying notes to consolidated financial statements.
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Quarter Ended March 29, 1997
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 $7.8 million in 1997 and $7.3 million at December 28,
1996.
Accumulated depreciation amounted to $386.3 million in 1997 and
$375.7 million at December 28, 1996.
Accumulated amortization of cost in excess of acquired net assets
amounted to $37.9 million in 1997 and $36.6 million at December
28, 1996.
Accumulated amortization of patents, unpatented technology and
other intangibles amounted to $111.8 million in 1997 and $108.2
million at December 28, 1996.
Cash payments during the quarters ended March 29, 1997 and March
30, 1996 included interest of $16.3 million and $19.9 million and
income taxes of $5.6 million and $4.2 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 1996 Annual Report
on Form 10-K.
CAPITAL STOCK
As of March 29, 1997, there were 77,332,751 common shares issued
at $.10 par value, of which 4,133,160 shares were held in the
treasury.
INVENTORIES
Components of inventories are as follows:
March 29, Dec. 28,
(In thousands) 1997 1996
Finished goods $249,110 $242,587
Work in process 48,580 44,445
Raw materials and supplies 76,132 75,317
$373,822 $362,349
EARNINGS PER COMMON SHARE
The computations of earnings per common share for the quarters
ended March 29, 1997 and March 30, 1996 are based on the weighted
average number of common shares outstanding and common stock
equivalents. 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.
BUSINESS SEGMENT DATA
Quarter Ended
March 29, March 30,
(In thousands) 1997 1996
SALES
Specialty Chemicals $ 398,706 $ 391,711
Specialty Equipment and Controls 75,167 68,757
Total net sales $ 473,873 $ 460,468
OPERATING PROFIT
Specialty Chemicals $ 68,558 $ 62,570
Specialty Equipment and Controls 7,626 7,106
General corporate expense ( 6,092) ( 5,884)
Total operating profit $ 70,092 $ 63,792
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER RESULTS
Overview
Consolidated net sales of $473.9 million for the first quarter
of 1997 increased 3% from the comparable 1996 period. The
increase was primarily attributable to higher unit volume of 5%
offset equally by lower pricing and the impact of foreign
currency translation. International sales, including U.S.
exports, decreased as a percentage of total sales to 38% from
40% in the first quarter of 1996. Net earnings of $26.6 million
increased 26% versus the first quarter of 1996. Net earnings
per common share of $.35 were 21% higher than the first quarter
of 1996.
Gross margin as a percentage of net sales decreased slightly to
35.8% from 36.0% in the first quarter of 1996. Consolidated
operating profit increased 10% to $70.1 million as the specialty
chemicals segment rose 10% and the specialty process equipment
and controls segment increased 7%.
Specialty Chemicals
The Company's specialty chemicals segment reported sales of
$398.7 million representing a 2% increase from the first quarter
of 1996. The increase resulted from improved unit volume of 4%
offset equally by lower pricing and the impact of foreign
currency translation. An analysis of sales by major product
class within the specialty chemicals segment follows.
Chemicals and polymers sales of $127.8 million rose 2% from the
1996 first quarter. Sales of rubber chemicals, EPDM and nitrile
rubber increased as higher unit volume of 5% was partially
offset by lower selling prices and the impact of foreign
currency translation.
Crop protection sales of $104.6 million were 7% higher versus
the first quarter of 1996 primarily attributable to higher unit
volume. Improved sales in Europe and increased seed treatment
business contributed to the improvement.
Specialty sales of $75.4 million increased 5% from the 1996
first quarter primarily due to increased unit volume for
urethane prepolymers and additives for plastics and lubricants.
Colors sales of $64.7 million decreased 8% from the comparable
1996 quarter due primarily to lower unit volume of approximately
3%, lower selling prices of 3% and foreign currency translation
of 2%.
Specialty ingredients sales of $26.2 million were slightly
higher than the first quarter of 1996.
Operating profit of $68.6 million for the first quarter of 1997
increased 10% versus the first quarter of 1996. The improvement
in operating profit resulted primarily from an increase in unit
volume and lower operating costs.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls segment
reported sales of $75.2 million, representing a 9% increase from
the first quarter of 1996. Approximately 8% was attributable to
higher unit volume and 4% to the incremental impact from
acquisitions, partially offset by the impact of foreign currency
translation of 2% and lower pricing of 1%. Sales growth was
achieved in most product lines, especially in wire and cable and
profile applications.
Operating profit for the first quarter of 1997 of $7.6 million
increased 7%, primarily attributable to higher unit volume in
the domestic business. The order backlog for extruders and
related equipment at the end of the first quarter of 1997
amounted to $98 million compared to $92 million at December 28,
1996.
Other
Selling, general and administrative expenses of $66.7 million
decreased 3% primarily due to planned cost reductions partially
offset by inflation and increased spending to support a higher
sales level. Depreciation and amortization of $19.9 million
decreased 4% from the comparable 1996 period as a result of
certain assets becoming fully depreciated and amortized.
Research and development cost of $12.9 million approximated the
first quarter of 1996. Interest expense of $27.0 million
decreased 7% from the comparable 1996 period primarily due to
lower levels of indebtedness. Other expense of $198 thousand
decreased from $320 thousand in the first quarter of 1996. The
effective tax rate of 38% decreased slightly versus 38.7% in the
comparable 1996 period.
LIQUIDITY AND CAPITAL RESOURCES
The March 29, 1997 working capital balance of $395.2 million
increased $10.4 million from year-end 1996. The current ratio
decreased slightly to 2.0 from 2.1 at the end of 1996. Days
sales in receivables averaged 54 days for the first quarter of
1997 versus 55 days for 1996. Inventory turnover averaged 3.2
for the first quarter of 1997 unchanged from 1996.
Net cash provided by operations of $32.8 million increased $5.8
million from the first quarter of 1996 primarily as a result of
increased net earnings and was used with cash reserves to fund
capital expenditures and reduce indebtedness. The annual
dividend payout has been reduced to $.05 per share payable in
May 1997. The Company's debt to total capital percentage
decreased to 108% from 110% at year end 1996.
Capital expenditures are expected to approximate $60 million in
1997 primarily for replacement needs and improvement of domestic
and foreign facilities. The Company's long-term liquidity needs
including such items as capital expenditures and debt repayments
are ultimately expected to be financed from future operations.
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 29, 1997, the Company's reserves for environmental
remediation activities totaled $93.6 million. These estimates
may subsequently change 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.
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 29, 1997
(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 three (3) Directors to serve for a term
expiring in 2000:
FOR WITHHELD
Robert A. Fox 62,625,906 shares 965,271 shares
Roger L. Headrick 62,625,102 shares 966,075 shares
Leo I. Higdon Jr. 62,590,202 shares 1,000,975 shares
2. Approval of the selection by the Board of Directors of
an auditor for 1997.
FOR AGAINST ABSTAINED
63,289,365 shares 101,242 shares 200,570 shares
3. A proposal to approve the material terms of the performance
goals under which annual incentive compensation is
determined under the 1997 Management Incentive Plan.
FOR AGAINST ABSTAINED
60,281,749 shares 2,683,927 shares 625,501 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, 1997 By:/s/ Charles J. Marsden
Charles J. Marsden
Senior Vice President &
Chief Financial Officer
May 12, 1997 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)
PRIMARY
THREE MONTHS ENDED
March 29, March 30,
1997 1996
Earnings
Net earnings $ 26,611 $ 21,154
Shares
Weighted average shares outstanding 73,078 71,537
Common stock equivalents 2,349 462
Average shares outstanding 75,427 71,999
Per share
Net earnings $ 0.35 $ 0.29
FULLY DILUTED
THREE MONTHS ENDED
March 29, March 30,
1997 1996
Earnings
Net earnings $ 26,611 $ 21,154
Shares
Weighted average shares outstanding 73,078 71,537
Common stock equivalents 2,792 581
Average shares outstanding 75,870 72,118
Per share
Net earnings $ 0.35 $ 0.29
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