SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 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 (I.R.S. Employer
of 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
Securities registered pursuant to Section 12(b)
of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $0.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-
affiliates of the registrant, computed as of February 27, 1998,
was $ 2,180,278,709.
The number of shares of Common Stock of the registrant
outstanding as of February 27, 1998, was 74,369,397.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Stockholders for fiscal year
ended December 27, 1997 ........ Parts I, II and IV
Proxy Statement for Annual Meeting of Stockholders
on April 28, 1998 ........ Part III
CROMPTON & KNOWLES CORPORATION
PART I
ITEM 1. BUSINESS
General
Crompton & Knowles Corporation (together with its consolidated
subsidiaries, the "Corporation"), was incorporated in Massachusetts in 1900.
The Corporation has engaged in the manufacture and sale of specialty chemicals
since 1954 and, since 1961, in the manufacture and sale of specialty process
equipment and controls.
The Corporation expanded its specialty chemical business in 1988 with the
acquisitions of Ingredient Technology Corporation, a leading supplier of
ingredients for the food and pharmaceutical industries, and Townley Dyestuffs
Auxiliaries Company, Ltd., one of the largest independent suppliers of dyes
for Great Britain's textile and paper industries. The Corporation made two
acquisitions in 1990, acquiring the business and certain assets and
liabilities of Atlantic Industries, Inc., a domestic dye manufacturer, and of
APV Chemical Machinery, Inc., which manufactured the Sterling line of
extruders, extrusion systems and industrial blow molding equipment for the
plastics industry. In 1991, the Corporation acquired a wire and cable
equipment business from Clipper Machines, Inc. In 1992, the Corporation
acquired a pre-metallized dyes business and facility located in Oissel,
France. The Corporation made two acquisitions in 1994, the Egan Machinery
plastics extrusion, precision coating and cast and blown film equipment
business and the plastics and rubber extrusion machinery and parts and after-
market services business of McNeil & NRM, Inc. Since January 1995, the
Corporation's domestic textile dyes and chemicals business and its specialty
process equipment and controls business have been conducted by Crompton &
Knowles Colors Incorporated and Davis-Standard Corporation, respectively,
wholly owned subsidiaries of the Corporation. In 1995, the Corporation
acquired the plastics and rubber extrusion business of McNeil Akron Repiquet
SARL, including a manufacturing facility located in Dannemarie, France, and
Killion Extruders, Inc., a producer of precision laboratory and small scale
extrusion systems in Cedar Grove, New Jersey. In January 1996, the
Corporation acquired Klockner ER-WE-PA GmbH, a manufacturer of extrusion
coating, cast film and plastic extrusion equipment located in Erkrath,
Germany. In April 1996, the Corporation acquired the Hartig line of plastic
blow molding machines from Battenfeld Gloucester Engineering Co.
In August 1996, Uniroyal Chemical Corporation ("UCC") was merged into and
became a wholly owned subsidiary of the Corporation. UCC is the parent of
Uniroyal Chemical Company, Inc. ("Uniroyal"), a multinational manufacturer of
elastomers, rubber chemicals, crop protection chemicals, specialty chemicals
and urethane prepolymers.
Information as to the sales, operating profit, and identifiable assets
attributable to each of the Corporation's business segments during each of
its last three fiscal years is set forth in the Notes to Consolidated
Financial Statements on page 30 of the Corporation's 1997 Annual Report to
Stockholders, and such information is incorporated herein by reference.
Products and Services
The Corporation's products are currently marketed in approximately 120
countries and serve a wide variety of end use markets including tires,
agriculture, automobiles, textiles, food, plastics, lubricants,
petrochemicals, leather, construction, recreation, mining, paper, packaging,
home furnishings, and appliances. The principal products and services offered
by the Corporation are described below.
SPECIALTY CHEMICALS
Chemicals & Polymers
Chemicals & Polymers, the Corporation's largest business with net sales
for fiscal 1997 of $496.4 million, has three principal product lines: rubber
chemicals, Royalene(R) EPDM rubber and Paracril(R) Nitrile Rubber.
The rubber chemicals product line contains over 100 different chemicals
for use in processing rubber. Those products include accelerators,
antioxidants, antiozonants, chemical foaming agents and waxes. Accelerators
are used for curing natural and synthetic rubber, and have a wide range of
activation temperatures, curing ranges and use forms. Antiozonants protect
rubber compounds from flex cracking and ozone, oxygen and heat degradation.
Antioxidants provide rubber compounds with protection against oxygen, light
and heat. Blowing agents produce gas by thermal decomposition or via a
chemical reaction with other components of a polymer system and are mixed with
rubber to produce sponge rubber products. Waxes inhibit static atmospheric
ozone cracking in rubber. Tire manufacturers accounted for approximately 60%
of the Corporation's rubber chemical sales in fiscal 1997, with the balance of
such sales to the industrial rubber market which includes numerous
manufacturers of hoses, belting, sponge and a wide variety of other engineered
rubber products.
The Corporation produces and markets approximately 30 different ethylene-
propylene-diene rubber ("EPDM") polymer variations. EPDM is popularly known
as "crackless rubber" because of its ability to withstand sunlight and ozone
without cracking. EPDM's applications include single ply roofing, automobile,
garden and radiator hoses, electrical insulation, tire sidewalls, mechanical
seals and gaskets, sponge rubber seals for automobile doors, oil additives,
and plastic modifiers.
Nitrile rubber polymers, produced and marketed by the Corporation under
the Paracril(R) trademark, are resistant to most types of oils. Paracril(R)
nitrile rubber is produced in 22 different variations to meet specific end use
requirements in automotive hoses, seals, rings, printing rolls, insulation and
many other products exposed to oil.
Net sales of rubber chemicals during fiscal 1997, 1996 and 1995 were
15.6%, 16.8% and 16.2% of the Corporation's net sales, respectively. The
Corporation believes it is one of the three largest suppliers of rubber
chemicals and EPDM polymers in the world, and the largest supplier of EPDM
polymers in North America. The Corporation's success in this business has
been due to several factors, including product performance, effective
technical assistance and outstanding customer service which have earned the
Corporation a reputation for excellence and strong customer loyalty.
The Chemicals & Polymers business' products are predominantly sold by a
direct common sales force to a generally overlapping customer base. The sales
force is supported by a highly qualified staff of technical service
specialists with extensive field and operational experience. Strong customer
relations and market knowledge result from this direct sales effort. In
certain geographic areas, the Chemicals & Polymers business' products are
sold through distributors.
Crop Protection
The Crop Protection business manufactures and markets a wide variety of
agricultural chemicals for many major food crops, including grains, fruits,
nuts and vegetables, and many non-food crops, such as tobacco, cotton, turf,
flax and ornamental plants. The business focuses its efforts mainly on
products used on high value cash crops, such as vegetables, nuts, citrus and
tree and vine fruits as opposed to commodity crops such as soybeans and corn.
The Crop Protection business had net sales for fiscal 1997 of $370.1 million.
The Crop Protection business offers four major crop protection chemical
product lines: fungicides; miticides/insecticides; growth regulants and
herbicides. Each product line is composed of numerous formulations for
specific crops and geographic regions.
The Corporation has a substantial presence in its targeted segments of
the agrichemicals market due to its strategy of focusing research, product
development, and sales and marketing on highly profitable market niches which
are less sensitive to competitive pricing pressures than commodity segments of
the market. While the products of the Crop Protection business represent a
relatively small percentage of the grower's overall costs, these products are
often critical to the success or failure of the crops being treated. In
addition, product line extensions, attention to application effectiveness and
customer service are important factors in developing strong customer loyalty.
The Corporation is also a leading producer and marketer of seed treatment
chemicals and, through Gustafson, Inc. ("Gustafson"), a wholly owned
subsidiary, is a leading producer of seed treatment formulations and
equipment. Gustafson has the leading share of the North American commercial
seed treatment formulation market and is recognized as a technological leader
in this market. Gustafson is engaged directly and through cooperative
ventures in developing and formulating seed treatment systems, offering a
broad line of chemical formulations which contain fungicides, insecticides and
seed conditioning aids in addition to commercial seed treating equipment.
Gustafson's expertise enables it to develop and produce formulations
consisting of multiple components to obtain optimum efficacy against seed and
soil disease pathogens and insects.
For the last several years, Gustafson has maintained a major
developmental program in the field of naturally occurring biological control
agents targeted for disease. Gustafson has focused its efforts on naturally
occurring organisms as opposed to genetically engineered organisms. Gustafson
received regulatory approval from the United States Environmental Protection
Agency ("EPA") in 1992 for the first of a series of new biological
formulations.
In Australia, the Corporation's subsidiary, Hannaford Seedmaster Services
Pty. Ltd., provides seed treatment chemicals and treating services to the
local market. The Crop Protection business, under the Uniroyal name, promotes
seed treatment chemicals in all regions of the world other than North America
and Australia and enjoys a substantial position in the international seed
treatment market. The Corporation anticipates continuing growth in seed
treatment, which is environmentally attractive because it involves very
localized use of agricultural chemicals and very low use rates compared to
broad foliar or soil treatment.
The Crop Protection business markets its products in North America
through a direct sales force selling to a distribution network consisting of
more than one hundred distributors and direct customers. In the international
market, the Crop Protection business' direct sales force services over 300
distributors, dealers and agents.
Specialties
The Specialties business consists of Adiprene(R)/ Vibrathane(R) urethane
prepolymers and a number of specialty chemicals used in the plastics and
petroleum industries. The Specialties business had net sales for fiscal 1997
of $315.2 million.
The Corporation offers its customers one of the broadest lines of
additives for plastics and lubricants in the specialty chemical industry,
including antioxidants, petroleum additives, chemical foaming agents,
synthetic fluids, chemical intermediates, polymerization inhibitors,
curatives, dispersants and polymer modifiers. These products are used in the
manufacture of numerous plastic and petroleum related products which in turn
have diverse end uses, including plastic products, adhesives, aerospace,
athletic equipment, automotive components, construction, electronics, food
packaging, vinyl flooring, wire and cable and automotive and industrial oils
and lubricants. These chemicals are often specially developed for a
customer's specific manufacturing requirements. Future growth is expected to
result from continued penetration in existing niche markets and expansion into
worldwide markets, particularly Europe and Asia, and through the further
development of a new series of polymerization inhibitors and high performance
antioxidants.
Specialty chemicals are sold through a specialized sales force, including
technical service professionals who address customer inquiries and problems.
The technical service professionals generally have degrees in chemistry and/or
chemical engineering and are knowledgeable in specific product application
fields. The sales and technical service professionals identify and focus on
customers' growth opportunities, working not only with the customers'
headquarters staff, but also with their research and development and
manufacturing personnel on a worldwide basis.
The Corporation believes that it is the leading manufacturer of high
performance liquid castable urethane prepolymers in the world. Among the most
common products using these prepolymers are solid industrial tires, printing
rollers, industrial rolls, abrasion-resistant mining products such as chutes,
hoppers and slurry transport systems, mechanical goods and a variety of sports
equipment and other consumer items. The Corporation effectively competes in
this business by providing efficient customer service and technical assistance
through a highly regarded technical service staff and a proven ability to
develop new products and technologies for its customers. Over 150 grades of
urethane prepolymers are commercially available from Uniroyal.
Adiprene(R)/Vibrathane(R) urethane prepolymers are sold directly by a
dedicated sales force in the United States, Canada and Australia and by direct
sales and through distributorships in Europe, Latin America and the Far East.
Adiprene(R)/Vibrathane(R) customers are serviced worldwide by a dedicated
technical and research and development staff, because the technology and
service needs related to liquid casting is unique. Technical service
personnel support field sales worldwide, while a research and development
staff is dedicated to support rapidly changing customer needs.
Colors
The Colors business had net sales in fiscal 1997 of $257.6 million.
Textile dyes manufactured and sold by the Colors business are used on both
synthetic and natural fibers for knit and woven garments, home furnishings
such as carpets, draperies, and upholstery, and automotive furnishings
including carpeting, seat belts, and upholstery. Industrial dyes and
chemicals are marketed to the paper, leather, and ink industries for use on
stationery, tissue, towels, shoes, apparel, luggage, and other products and
for transfer printing inks.
The Corporation also markets organic chemical intermediates and a line of
chemical auxiliaries for the textile industry, including leveling agents, dye
fixatives, and scouring agents.
The Corporation is among the largest suppliers of dyes in the United
States and is a leading domestic producer of specialty dyes for nylon, wool,
polyester, acrylics, and cotton. The Corporation is recognized domestically
as a leader in products and dyeing process technology for the broadloom carpet
industry. In addition, the Corporation supplies unique dyes for can coating
applications and ink-jet computer printers. In Europe, the primary dyes
offerings of the Corporation have been acid and pre-metallized dyes for wool
and nylon fibers. The Corporation is less of a factor in other segments of
the European dyes industry.
Sales of color and color chemical products accounted for 13.9%, 15.0% and
16.3% of the total revenues of the Corporation in 1997, 1996, and 1995,
respectively.
Domestically, the Corporation sells dyes and chemical auxiliaries
predominantly through its own dedicated sales force. The Corporation's
position as a leading dyes supplier in the United States has been maintained
by satisfying the market's needs with quick customer response, efficient
production, quality products and strong technical service. Outside the United
States, as much as one-half of the Corporation's sales of dyes are made
through third party distribution channels.
Ingredient Technology
The Ingredient Technology business had fiscal 1997 net sales of $100.2
million. The Corporation manufactures and sells reaction and compounded
flavor ingredients for the food processing, bakery, beverage and
pharmaceutical industries; colors certified by the Food & Drug Administration
for sale to domestic producers of food and pharmaceuticals; and inactive
ingredients for the pharmaceutical industry. The Corporation is also a
leading supplier of specialty sweeteners, including edible molasses, molasses
blends, malt extracts, and syrups for the bakery, confectionery and food
processing industries and a supplier of seasonings and seasoning blends for
the food processing industry.
The Corporation is a major supplier of edible molasses and malt extracts
in North America, and a significant supplier of sugar-based specialty
products. As a supplier of flavors and seasonings, the Corporation has many
competitors in the United States and abroad. As a supplier of pharmaceutical
excipients, the Corporation has a major position in sugar spheres used to
control dosage in time-released formulas.
The products of the Ingredient Technology business are sold predominantly
through the Corporation's own sales force.
SPECIALTY PROCESS EQUIPMENT AND CONTROLS
The Corporation's wholly owned subsidiary, Davis-Standard Corporation,
manufactures and sells plastics and rubber extrusion equipment, industrial
blow molding equipment, electronic controls, and integrated extrusion systems
and offers specialized service and modernization programs for in-place
extrusion systems. This business segment had net sales in the 1997 fiscal
year of $311.7 million.
Integrated extrusion systems, which include extruders in combination with
controls and other equipment, are used to process plastic resins and rubber
into various products such as plastic sheet used in appliances, automobiles,
home construction, sports equipment, and furniture; cast and blown film used
to package many consumer products; and extruded shapes used as house siding,
furniture trim, and substitutes for wood molding. Integrated extrusion
systems are also used to compound engineered plastics, to recycle and reclaim
plastics, to coat paper, cardboard and other materials used as packaging, and
to apply plastic or rubber insulation to high voltage power cable for
electrical utilities and to wire for the communications, construction,
automotive, and appliance industries.
Industrial blow molding equipment produced by the Corporation is sold to
manufacturers of non-disposable plastic items such as tool cases and beverage
coolers.
The Corporation produces electrical and electronic controls primarily for
use with extrusion systems and is a major user of such controls.
The Corporation is a leading producer of extrusion machinery for the
plastics industry and a leading domestic producer of industrial blow molding
equipment and competes with domestic and foreign producers of such products.
The Corporation is one of a number of producers of other types of plastics
processing machinery. Sales of this class of products accounted for 16.8%,
15.8% and 16.0% of the total revenues of the Corporation in 1997, 1996 and
1995, respectively.
In the United States, most of the Corporation's sales of specialty
process equipment and controls are made by its own dedicated sales force. In
other parts of the world, and for export sales from the United States, the
Corporation's sales of such equipment and controls are made largely through
agents.
* * *
Sources of Raw Materials
Chemicals, steel, castings, parts, machine components, edible molasses,
spices, and other raw materials required in the manufacture of the
Corporation's products are generally available from a number of sources, some
of which are foreign. The Corporation also uses large amounts of
petrochemical feedstocks in its chemical manufacturing processes. Large
increases in the cost of these petrochemical feedstocks could adversely affect
the Corporation's operating margins. Significant sales of the colors business
consist of dyes manufactured from intermediates purchased from foreign
sources.
The Corporation holds a 50% interest in Rubicon Inc. ("Rubicon"), a
manufacturing joint venture between Uniroyal and ICI American Holdings, Inc.
("ICI") located in Geismar, Louisiana, which supplies both ICI and Uniroyal
with aniline, and Uniroyal with diphenylamine ("DPA"). The Corporation
believes that its aniline and DPA needs in the foreseeable future will be met
by production from Rubicon and Uniroyal's DPA facility located in
Huddersfield, England.
Patents and Licenses
The Corporation has over 1,800 United States and foreign patents and
pending applications and has trademark protection for approximately 500
product names. Patents, trade names, trademarks, know-how, trade secrets,
formulae, and manufacturing techniques assist in maintaining the competitive
position of certain of the Corporation's products. Patents, formulae, and
know-how are of particular importance in the manufacture of a number of
specialty chemicals manufactured and sold by the Corporation, and patents and
know-how are also significant in the manufacture of certain wire insulating
and plastics processing machinery product lines. The Corporation is licensed
to use certain patents and technology owned by other companies, including some
foreign companies, to manufacture products complementary to its own products,
for which it pays royalties in amounts not considered material to the
consolidated results of the enterprise. Products to which the Corporation has
such rights include certain crop protection chemicals, dyes, plastics
machinery and flavored ingredients.
While the existence of a patent is prima facie evidence of its validity,
the Corporation cannot assure that any of its patents will not be challenged
nor can it predict the outcome of any such challenge. The Corporation
believes that no single patent, trademark, or other individual right is of
such importance, however, that expiration or termination thereof would
materially affect its business.
Seasonal Business
With the exception of the Crop Protection business which has
approximately 16% of its annual sales occurring in the fourth calendar
quarter, no material portion of any segment of the business of the Corporation
is seasonal.
Customers
The Corporation does not consider any segment of its business dependent
on a single customer or a few customers, the loss of any one or more of whom
would have a material adverse effect on the segment. No one customer's
business accounts for more than ten percent of the Corporation's gross
revenues nor more than ten percent of its earnings before taxes.
Backlog
Because machinery production schedules range from about 60 days to 10
months, backlog is important to the Corporation's specialty process equipment
and controls business. Firm backlog of customers' orders for this business at
the end of 1997, totalled approximately $106 million compared with $92 million
at the end of 1996. It is expected that most of the 1997 backlog will be
shipped during 1998. Orders for specialty chemicals are generally filled from
inventory stocks and thus are excluded from backlog.
Competitive Conditions
The Corporation is a major manufacturer of specialty chemicals and
specialty process equipment and controls. No single competitor currently
competes across the Corporation's full product line in either of its business
segments. Competition varies by product and by geographic region, except that
in rubber chemicals the market is fairly concentrated. In that market,
Uniroyal and its two principal competitors account for approximately 50% of
total worldwide sales. In addition, the EPDM and nitrile rubber markets are
fairly concentrated. Uniroyal and its two principal competitors in each of
these two products account for approximately 65% of sales within the United
States and approximately 55% worldwide.
Two new EPDM technologies are being developed and commercialized by
competitors. The first technology, which is based on a new metallocene
catalyst system and which may expand the application areas of EPDM, is also
being developed by the Corporation. The second technology is a gas phase
process that has not been fully commercialized by any company and cannot be
fully assessed at this time.
Product performance, service, and prices are all important factors in
competing in the specialty chemicals and specialty process equipment and
controls businesses.
Research and Development
The Corporation conducts research and development on a worldwide basis at
a number of facilities, including field stations that are used for crop
protection research and development activities. Research and development
expenditures by the Corporation totalled $53.6 million for the year 1997,
$52.4 million for the year 1996 and $50.1 million for the year 1995.
Environmental Matters
Chemical companies are subject to extensive environmental laws and
regulations concerning, among other things, emissions to the air, discharges
to land, surface, subsurface strata and water and the generation, handling,
storage, transportation, treatment and disposal of waste and other materials
and are also subject to other federal, state and local laws and regulations
regarding health and safety matters.
Environmental Regulation. The Corporation believes that its business,
operations and facilities have been and are being operated in substantial
compliance in all material respects with applicable environmental and health
and safety laws and regulations, many of which provide for substantial fines
and criminal sanctions for violations. However, the ongoing operations of
chemical manufacturing plants entail risks in these areas and there can be no
assurance that material costs or liabilities will not be incurred. In
addition, future developments, such as increasingly strict requirements of
environmental and health and safety laws and regulations and enforcement
policies thereunder, could bring into question the handling, manufacture, use,
emission or disposal of substances or pollutants at facilities owned, used or
controlled by the Corporation or the manufacture, use or disposal of certain
products or wastes by the Corporation and could involve potentially
significant expenditures. To meet changing permitting and regulatory
standards, the Corporation may be required to make significant site or
operational modifications, potentially involving substantial expenditures and
reduction or suspension of certain operations. The Corporation incurred $8.3
million of costs for capital projects and $29.0 million for operating and
maintenance costs related to environmental compliance at its facilities during
fiscal 1997. In fiscal 1998, the Corporation expects to incur approximately
$16.3 million of costs for capital projects and $30.5 million for operating
and maintenance costs related to environmental compliance at its facilities.
During fiscal 1997, the Corporation spent $12.7 million to clean up previously
utilized waste disposal sites and to remediate current and past facilities,
and, during the third quarter of the year, recorded a special provision in the
amount of $15 million for environmental remediation activities. The
Corporation expects to spend approximately $17.9 million during fiscal 1998 to
clean up such waste disposal sites.
Pesticide Regulation. The Corporation's Crop Protection business is
subject to regulation under various federal, state, and foreign laws and
regulations relating to the manufacture, sales and use of pesticide products.
In August, 1996, Congress enacted significant changes to the Federal
Insecticide, Fungicide, and Rodenticide Act ("FIFRA"), governing U.S. sale and
use of pesticide products, and the Federal Food, Drug, and Cosmetic Act
("FFDCA"), which limits pesticide residues on food with the Food Quality
Protection Act of 1996 ("FQPA"). Under FIFRA, the new law will facilitate
registrations and reregistrations of pesticides for special (so called
"minor") uses and authorize collection of maintenance fees to support
pesticide reregistrations. Coordination of regulations implementing FIFRA and
FFDCA will be required. Food safety provisions will establish a single
standard of safety for pesticide residue on raw and processed foods; provide
information through large food retail stores to consumers about the health
risks of pesticide residues and how to avoid them; preempt state and local
food safety laws if they are based on concentrations of pesticide residues
below recently established federal residue limits (called "tolerances"); and
ensure that tolerances protect the health of infants and children.
FFDCA, as amended by FQPA, authorizes EPA to set a tolerance for a
pesticide in or on food at a level which poses "a reasonable certainty of no
harm" to consumers. The EPA is required to review all tolerances for all
pesticide products within 10 years. It is not known when and to what extent
the Corporation's products will be reviewed and/or restricted under this
standard.
In April, 1996, UCC announced that it had voluntarily canceled registered
uses of its propargite miticide on certain crops in the United States. The
action was taken to reduce dietary exposure as requested by the EPA, using the
EPA's current risk assessment model. Tests to confirm that propargite does
not pose a dietary risk are continuing under EPA approved protocols.
Propargite will be reviewed under the new FQPA standard discussed above.
The European Commission ("EC") has established procedures whereby all
existing active ingredient pesticides will be reviewed. This EC regulation
became effective in 1993 and will result in a review of all commercial
products during the next few years. The initial round of reviews covered
ninety products, four of which are the Corporation's products. It is
anticipated that other of the Corporation's products will be reviewed in
subsequent years. The process may lead to full reregistration in member
states of the EC or may lead to some restrictions, if adverse data is
discovered.
Employees
The Corporation had approximately 5,519 employees on December 27, 1997.
Financial Information Concerning Foreign Operations and Export Sales
The information with respect to sales, operating profit, and identifiable
assets attributable to each of the major geographic areas served by the
Corporation and export sales, for each of the Corporation's last three fiscal
years, set forth in the Notes to Consolidated Financial Statements on page 30
of the Corporation's 1997 Annual Report to Stockholders, is incorporated
herein by reference.
The Corporation considers that the risks relating to operations of its
foreign subsidiaries are comparable to those of other U.S. companies which
operate subsidiaries in developed countries. All of the Corporation's
international operations are subject to fluctuations in the relative values of
the currencies in the various countries in which its activities are conducted.
ITEM 2. PROPERTIES
The following table sets forth information as to the principal operating
properties of the Corporation and its subsidiaries:
Location Facility Products/Businesses
UNITED STATES
Alabama
Bay Minette Plant* Specialties
Connecticut
Bethany Research Center* Crop Protection
Middlebury Office and Crop Protection,
Research Center** Chemicals &
Polymers, and
Specialties
Naugatuck Plant, Research Crop Protection,
Center* Chemicals &
Polymers and
Specialties
Location Facility Products/Businesses
Pawcatuck Office and Plastics and Rubber
Machine Shop* Extrusion and
Electronic Control
Equipment and Systems
Stamford Office** Corporate Headquarters
Idaho
Marsing Plant **** Crop Protection
Illinois
Calumet Plant* Food Ingredients
Pekin Plant** Crop Protection
Iowa
Des Moines Plant** Crop Protection
Louisiana
Geismar Plant* Crop Protection,
Chemicals & Polymers
and Specialties
Gretna Plant* Food Ingredients
Massachusetts
South Boston Plant* Food Ingredients
Minnesota
Eden Prairie Plant** Crop Protection
New Jersey
Cedar Grove Office and Precision Laboratory
Machine Shop** Extrusion Equipment
& Extrusion Systems
Edison Office and Blow Molding and
Machine Shop** Extrusion Equipment
Mahwah Office, Flavors and Seasonings
Laboratory
and Plant**
Newark Plant* Textile and Other Dyes
Nutley Office, Textile and Other Dyes
Laboratory
and Plant*
Somerville Office and Extrusion Systems
Machine Shop*
Vineland Office and Plant* Food & Pharmaceutical
Ingredients and Colors
Location Facility Products/Businesses
North Carolina
Charlotte Office and Dyes
Laboratory*
Gastonia Plant* Crop Protection and
Specialties
Lowell Plant* Textile and Other Dyes, Organic
Chemicals
Ohio
Elyria Office and Seasonings
Plant**
Painesville Plant* Chemicals & Polymers
Pennsylvania
Gibraltar Office, Textile and Other Dyes, Organic
Laboratory and Chemicals
Plant*
Reading Plant* Textile Dyes
and Food Colors
South Carolina
Greenville Plant, Laboratory Textile and Other Dyes
and Warehouse*
Texas
Frisco Research Center* Crop Protection
Plano Office** Crop Protection
INTERNATIONAL
Australia
South Australia
Regency Park, S.A. Office and Crop Protection
Machine Shop**
Bahamas
Freeport Plant* Specialties
Belgium
Tertre Office, Textile and Other
Laboratory Dyes
And Plant*
Brazil
Rio Claro Plant* Crop Protection,
Chemicals & Polymers
and Specialties
Canada
Ontario
Elmira Plant* Crop Protection, Chemicals
& Polymers and Specialties
Guelph Research Center* Crop Protection, Chemicals
& Polymers and Specialties
Location Facility Products/Businesses
France
Dannemarie Office and Extrusion Systems
Machine Shop*
Oissel Office, Laboratory Textile and Other Dyes
and Plant*
Germany
Erkrath Office and Extrusion Systems
Machine Shop*
Italy
Latina Plant* Crop Protection, Chemicals
& Polymers and Specialties
Mexico
Tampico Plant* Chemicals & Polymers and
Specialties
The Netherlands Plant* Crop Protection
Amsterdam
Republic of China
(Taiwan)
Kaohsiung Plant*** Chemicals & Polymers and
Specialities
United Kingdom
Evesham Research Center* Crop Protection
Huddersfield Plant **** Specialties
Langley Office** Chemicals & Polymers,
Specialties, Dyes and
Crop Protection
_______________
* Facility Owned by the Corporation
**Facility Leased by the Corporation
***Facility Owned by Uniroyal Chemical Taiwan Ltd., which is 80% owned by
Uniroyal
****Land Leased by and Facility Owned by Uniroyal Chemical
All facilities are considered to be in good operating condition, well
maintained, and suitable for the Corporation's requirements.
ITEM 3. LEGAL PROCEEDINGS
The Corporation is involved in claims, litigation, administrative
proceedings and investigations of various types in several 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.
Environmental Liabilities. Each quarter, the Corporation 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 Corporation and the
anticipated time frame over which payments toward the remediation plan will
occur. As a result of current information and analysis, the Corporation
recorded a special provision of $15 million during the third quarter of 1997
for environmental remediation activities. The total amount accrued for such
environmental liabilities at December 27, 1997, was $102.6 million. The
Corporation estimates the potential liabilities to range from $ 74 million to
$133 million at December 27, 1997. It is reasonably possible that the
Corporation's estimates for environmental remediation liabilities may change
in the future should additional sites be identified, further remediation
measures be required or undertaken, the interpretation of current laws and
regulations be modified or additional environmental laws and regulations be
enacted.
The Corporation generally assesses the possibility for toxic tort claims.
Such liabilities are dependent upon complex factors. Five facilities have
been identified where the possibility for toxic tort claims may be
significant, i.e. as situations where chemicals are believed to have migrated
off-site, thus posing risk of exposure. There are no lawsuits pending
involving any of these five facilities. Virtually all, if not all, of the
off-site disposal sites to which the Corporation may have sent toxic materials
pose a possibility for toxic tort claims. There are currently pending five
toxic tort claims against Uniroyal and others arising from these off-site
disposal sites.
The Corporation has been identified by federal, state or local
governmental agencies, and by other potentially responsible parties (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. Because these regulations have been construed to authorize joint and
several liability, the EPA could seek to recover all costs involving a waste
disposal site from any one of the PRP's for such site, including the
Corporation, despite the involvement of other PRPs. In many cases, the
Corporation is one of several hundred PRPs so identified. In a few instances,
the Corporation is one of only a handful of PRPs. In certain instances, a
number of other financially responsible PRPs are also involved, and the
Corporation expects that any ultimate liability resulting from such matters
will be apportioned between the Corporation and such other parties. In
addition, the Corporation is involved with environmental remediation and
compliance activities at some of its current and former sites in the United
States and abroad. The more significant of these matters are described below.
. Beacon Heights and Laurel Park - Uniroyal is a member of the Beacon
Heights Coalition, a group of entities engaged in remedial work at the Beacon
Heights site in the State of Connecticut pursuant to a Consent Decree entered
in 1987. The actions required by this Consent Decree have been essentially
completed. There is a continuing requirement for operation and maintenance at
the site.
Over many years, Uniroyal has entered into and performed activities
pursuant to a series of Administrative Orders with respect to the Laurel Park
site located in the State of Connecticut. The EPA, the State of Connecticut,
and the Laurel Park Coalition (consisting of Uniroyal and a number of other
parties) have entered into a Consent Decree governing the design and
implementation of the selected remedy. Remedial construction began at the
Laurel Park site in July 1996, and is anticipated to be completed in 1998.
Consolidated litigation brought by the Beacon Heights and Laurel Park
Coalitions seeking contribution to the costs from the owner/operators of the
site and later from other identified generator parties has resulted in
substantial recoveries from a number of parties. In November 1996, the United
States Court of Appeals for the Second Circuit reversed judgments granted to
other defendants in that litigation and the litigation has been remanded and
the remaining claims are currently the subject of further proceedings before a
Special Master appointed by the Court.
. Cleve Reber - Uniroyal and three other corporations named in an
Administrative Order issued by the EPA have complied with such Order which
governs remediation of the site located in the State of Louisiana. The
cooperating parties are negotiating a consent agreement with the EPA for
operation and maintenance of the site and to resolve all of the EPA's past
cost claims.
. Petro Processors - This matter relating to a site in the State of
Louisiana was initiated in 1981. Litigation was instituted by the EPA against
a number of parties, including Uniroyal, Inc. (which Uniroyal has agreed to
indemnify), seeking cleanup of the Petro Processors site. A Consent Decree
was entered to settle the case in February 1984, which required the defendants
to clean up the site to the satisfaction of the EPA under supervision of the
court. A settlement among the ten defendants, dated December 16, 1983,
defines the percentage to be borne by each defendant of the currently
estimated future cost of $100 million to complete remediation of the site.
Although the allocations are subject to a confidentiality order, Uniroyal
believes that the amount it will pay will not be material to its financial
condition or results of operations.
. Vertac - Uniroyal and its Canadian subsidiary, Uniroyal Chemical
Co./Cie. (formerly known as Uniroyal Chemical Ltd./Ltee) were joined with
others as defendants in consolidated civil actions brought in the United
States District Court, Eastern District of Arkansas, Western Division by the
United States of America, the State of Arkansas and Hercules Incorporated
("Hercules") relating to a Vertac Chemical Corporation site in Jacksonville,
Arkansas allegedly contaminated by dioxins. Uniroyal has been dismissed from
the litigation. On May 21, 1997, the Court entered an order finding that
Uniroyal Chemical Co./Cie. is jointly and severally liable to the United
States, and finding that Hercules and Uniroyal Chemical Co./Cie. are liable to
each other in contribution. The allocation phase of the proceeding has begun
with discovery ongoing and trial scheduled to begin in 1998. No ultimate
determination of the amount of Uniroyal Chemical Co./Cie.'s liability, if any,
is expected prior to the middle of 1999. In addition, the natural resource
damage case filed by several individuals in state court which named Uniroyal
Chemical Co./Cie. has been withdrawn without prejudice. These individuals
have refiled their case in Federal court against some of the parties but have
not as yet named Uniroyal Chemical Co./Cie as a defendant. Uniroyal Chemical
Co./Cie. received a notice from the United States Department of the Interior
of its intent to perform a Natural Resource Damage Assessment at the site. In
addition, the State of Arkansas has commenced an action for natural resource
damages which is currently pending in the State court, but Uniroyal Chemical
Co./Cie. has not been named a party in that action.
Other Environmental Matters
. Sundor Canada Inc. - On July 13, 1990, Sundor Canada Inc. ("Sundor")
instituted suit against Uniroyal Chemical Co./Cie. and others including the
Ontario Ministry of the Environment and the Regional Municipality of Waterloo
in the Ontario Court of Justice (General Division) at Toronto claiming that
Uniroyal Chemical Co./Cie. and others are responsible for losses resulting
from Sundor's recall of packaged juices and fruit due to Sundor's use of the
public water derived from Elmira groundwater which was allegedly contaminated
by Uniroyal Chemical Co./Cie. A tentative settlement has been reached with
Sundor by which the defendants, including Uniroyal Chemical Co./Cie., and
Uniroyal's insurer will pay CD$3,500,000 in the aggregate to Sundor.
. Painesville - Reference is made to Item 1(i) of Part II of the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June
28, 1997, for information relating to (a) Uniroyal's Painesville Lake County,
Ohio facility which manufactures nitrile rubber and the discharge of
Painesville's wastewater to the Lake County sanitary sewer system for
treatment at Lake County's Greater Mentor Wastewater Treatment Plant
("GMWTP"); and (b) a proposed Local Limit aimed at regulating the amount of
substances which absorb at 230 nanometers that are discharged in wastewater to
the GMWTP. From July 1996 through December 31, 1997, Lake County has assessed
against the Painesville facility a total of $487,000 in administrative fines
and has ordered Uniroyal to reimburse it for $106,295 in fines Lake County has
paid to the State of Ohio for the GMWTP's violations of its NPDES permit. The
Painesville facility appealed Lake County's Reimbursement Order and its
initial assessment of administrative fines to the Lake County Court of Common
Pleas. Since the parties commenced settlement negotiations in December 1996,
all legal proceedings concerning the above-described matters have been stayed
voluntarily by agreement of the parties. Uniroyal anticipates that any fines
and/or reimbursements paid to Lake County in connection with the resolution of
this matter will not substantially exceed $100,000 in the aggregate.
The Corporation intends to assert all meritorious legal defenses and all
other equitable factors which are available to it with respect to the above
matters. The Corporation believes that the resolution of these environmental
matters will not have a material adverse effect on its consolidated financial
position. While the Corporation believes it is unlikely, the resolution of
these environmental matters could have a material adverse effect on its
consolidated results of operations in any given year if a significant number
of these matters are resolved unfavorably.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information concerning the range of market prices for the
Corporation's Common Stock on the New York Stock Exchange and the amount of
dividends paid thereon during the past two years, set forth in the Notes to
Consolidated Financial Statements on page 31 of the Corporation's 1997 Annual
Report to Stockholders, is incorporated herein by reference.
The number of registered holders of Common Stock of the Corporation on
December 27, 1997, was 4,091.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the Corporation for each of its last six
fiscal years, set forth under the heading "Six Year Selected Financial Data"
on page 33 of the Corporation's 1997 Annual Report to Stockholders, is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of the Corporation's financial
condition and results of operations, set forth under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 16 through 18 of the Corporation's 1997 Annual Report to Stockholders,
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Corporation, notes thereto, and
supplementary data, appearing on pages 19 through 32 of the Corporation's 1997
Annual Report to Stockholders, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by this item concerning directors of the
Corporation is included in the definitive proxy statement for the
Corporation's Annual Meeting of Stockholders to be held on April 28, 1998,
which has been filed with the Commission pursuant to Regulation 14A of the
Securities Exchange Act of 1934, and such information is incorporated herein
by reference.
The executive officers of the Corporation are as follows:
Vincent A. Calarco, age 55, has served as President and Chief Executive
Officer of the Registrant since 1985 and Chairman of the Board since 1986. Mr.
Calarco has been a member of the Board of Directors of the Registrant since
1985.
Robert W. Ackley, age 56, has served as a Vice President of the Registrant
since 1986 and as President of Davis-Standard Corporation (prior to 1995,
Davis-Standard Division) since 1983.
Peter Barna, age 54, has served as Vice President-Finance of the Registrant
since 1996 and served as Treasurer of the Registrant from 1980 to 1996 and
Principal Accounting Officer of the Registrant since 1986.
James J. Conway, age 54, has served as President of Crompton & Knowles Colors
Incorporated since 1997. Prior to joining the Registrant, Mr. Conway was
Senior Vice President and General Manager of International Specialty Products,
Inc. from 1992 to 1997.
Joseph B. Eisenberg, Ph.D., age 55, has served as Executive Vice President,
Chemicals & Polymers, of Uniroyal since 1994; and served as Vice President and
General Manager of the Chemicals and Polymers Division of Uniroyal from
1991-1994.
John T. Ferguson II, age 51, has served as Vice President of the Registrant
since 1996, and General Counsel and Secretary of the Registrant since 1989.
Marvin H. Happel, age 58, has served as Vice President -Organization and
Administration of the Registrant since 1996 and Vice President-Organization
from 1986 to 1996.
Alfred F. Ingulli, age 56, has served as Executive Vice President, Crop
Protection of Uniroyal since 1994; and served as Vice President and General
Manager, Crop Protection Division of Uniroyal from 1989 to 1994.
Charles J. Marsden, age 57, has served as Senior Vice President and Chief
Financial Officer of the Registrant since 1996 and as Vice President-Finance
and Chief Financial Officer and as a member of the Board of Directors of the
Registrant since 1985.
Rudy M. Phillips, age 56, has served as President of Ingredient Technology
Corporation since January, 1996 and served as Vice President of Ingredient
Technology Corporation from 1992 to 1995.
William A. Stephenson, age 50, has served as Executive Vice President,
Specialties of Uniroyal since 1994; and served as Vice President and General
Manager, Specialties Division, Uniroyal from 1990 to 1994.
The term of office of each of the above-named executive officers is until
the first meeting of the Board of Directors following the next annual meeting
of stockholders and until the election and qualification of his successor.
There is no family relationship between any of such officers, and there
is no arrangement or understanding between any of them and any other person
pursuant to which any such officer was selected as an officer.
ITEM 11. EXECUTIVE COMPENSATION
Information called for by this item is included in the definitive proxy
statement for the Corporation's Annual Meeting of Stockholders to be held on
April 28, 1998, which has been filed with the Commission pursuant to
Regulation 14A, and such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by this item is included on pages 1 and 5 of the
definitive proxy statement for the Corporation's Annual Meeting of
Stockholders to be held on April 28, 1998, and such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by this item is included in the definitive proxy
statement for the Corporation's Annual Meeting of Stockholders to be held on
April 28, 1998, and such information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial statements and Independent Auditors' Report, as required
by Item 8 of this form, which appear on pages 19 through 32 of the
Corporation's 1997 Annual Report to Stockholders and are
incorporated herein by reference:
(i) Consolidated Statements of Operations for the fiscal years
ended 1997, 1996, and 1995;
(ii) Consolidated Balance Sheets for the fiscal years ended 1997
and 1996;
(iii) Consolidated Statements of Cash Flows for the fiscal years
ended 1997, 1996, and 1995;
(iv) Consolidated Statements of Stockholders' Equity [Deficit]
for the fiscal years ended 1997, 1996 and 1995;
(v) Notes to Consolidated Financial Statements; and
(vi) Independent Auditors' Report of KPMG Peat Marwick LLP
2. Independent Auditors' Report and Consent, and Financial Statement
Schedule II, Valuation and Qualifying Accounts, required by
Regulation S-X. Pages S-1 and S-2 hereof.
3. The following exhibits are either filed herewith or incorporated
herein by reference to the respective reports and registration
statements identified in the parenthetical clause following the
description of the exhibit:
Exhibit No. Description
2 Agreement and Plan of Merger dated April 30, 1996, by and among
Crompton & Knowles Corporation, Tiger Merger Corp. and UCC.
(Exhibit 2 to Form 10-Q for the period ended March 31, 1996.)
3(i) Restated Articles of Organization of the Corporation filed with the
Commonwealth of Massachusetts on October 27, 1988, as amended on
April 10, 1990 and on April 14, 1992. (Exhibit 3(a) to Form 10-K
for the fiscal year ended December 26, 1992.)
*3(ii) By-laws of the Corporation as amended to date.
4.1 Rights Agreement dated as of July 20, 1988, between the Registrant
and The Chase Manhattan Bank, N.A., as Rights Agent. (Exhibit 1 to
Form 8-K dated July 29, 1988.)
4.2 Agreement dated as of March 28, 1991, amending Rights Agreement
dated as of July 20, 1988, between the Registrant and The Chase
Manhattan Bank, N.A., as Rights Agent. (Exhibit 4(i)(i) to Form
10-K for the fiscal year ended December 29, 1990.)
4.3 Form of Indenture, dated as of February 8, 1993, among UCC and
State Street Bank and Trust Company, as Trustee, relating to the
10 1/2% Notes, including form of securities. (Exhibit 4.1 to the
UCC Registration Statement Nos. 33-45296 and 33-45295 on Form S-1
["UCC Form S-1, Registration No. 33-45296/45295"].)
4.4 Form of Indenture, dated as of February 8, 1993, among UCC and
United States Trust Company of New York, as Trustee, relating to
the 11% Notes, including form of securities. (Exhibit 4.1(a) to
UCC Form S-1, Registration No. 33-45296/45295.)
4.5 Form of Indenture, dated as of February 8, 1993, among UCC and The
Shawmut Bank Connecticut, N.A. as Trustee, relating to the 12%
Notes, including form of securities. (Exhibit 4.1(b) to UCC Form
S-1, Registration No. 33-45296/45295.)
4.6 Form of Indenture, dated as of September 1, 1993, among Uniroyal
and State Street Bank and Trust Company, as Trustee, relating to
$270 million of 9% Notes, including the form of securities.
(Exhibit 4.2 to UCC Form S-1, Registration No. 33-66740.)
4.7 $530 Million Amended and Restated Credit Agreement dated as of
December 19, 1996, by and among Crompton & Knowles Corporation and
certain of its subsidiaries, as Borrowers, and various lenders, and
Citicorp Securities, Inc., as Arranger, and Citicorp USA, Inc., as
Agent and the Chase Manhattan Bank, as Managing Agent. (Exhibit
10 to the UCC/Uniroyal Form 10-QT for the transition period ended
December 28, 1996.)
4.8 Warrant Agreement, dated as of October 30, 1989, between UCC and
Avery, Inc. (Exhibit 10.2 to UCC Form S-1, Registration No.
33-32770.)
4.9 $600 Million Second Amended and Restated Credit Agreement dated as
of July 25, 1997, by and among Crompton & Knowles Corporation and
certain of its subsidiaries, as Borrowers, and various lenders, and
Citicorp Securities, Inc., as Arranger, and Citicorp USA, Inc., as
Agent and the Chase Manhattan Bank, as Managing Agent. (Exhibit 4
to Form 10-Q for the quarter ended June 28, 1997.)
4.10 Second Amended and Restated Lease Agreement between the Middlebury
Partnership, as Lessor, and the Uniroyal Chemical Company, Inc., as
Lessee, dated as of August 28, 1997. (Exhibit 10 to the
UCC/Uniroyal 10-Q for the quarter ended September 27, 1997.)
+10.1 1983 Stock Option Plan of Crompton & Knowles Corporation, as
amended through April 14, 1987. (Exhibit 10(c) to Form 10-Q for
the quarter ended March 28, 1987.)
+10.2 Amendments to Crompton & Knowles Corporation Stock Option Plans
adopted February 22, 1988. (Exhibit 10(d) to Form 10-K for the
fiscal year ended December 26, 1987.)
+10.3 Summary of Management Incentive Bonus Plan for selected key
management personnel. (Exhibit 10(m) to Form 10-K for the fiscal
year ended December 27, 1980.)
+10.4 Supplemental Medical Reimbursement Plan. (Exhibit 10(n) to Form
10-K for the fiscal year ended December 27, 1980.)
+10.5 Supplemental Dental Reimbursement Plan. (Exhibit 10(o) to Form 10-
K for the fiscal year ended December 27, 1980.)
+10.6 Employment Agreement dated February 22, 1988, between the
Registrant and Vincent A. Calarco. (Exhibit 10(j) to the Form 10-K
for the fiscal year ended December 26, 1987.)
+10.7 Form of Employment Agreement entered into in 1988, 1989, 1992, 1994
and 1996 between the Registrant or one of its subsidiaries and nine
of the executive officers of the Registrant. (Exhibit 10(k) to
Form 10-K for the fiscal year ended December 26, 1987.)
+10.8 Form of Employment Agreement dated as of August 21, 1996, between a
subsidiary of the Registrant and three executive officers of the
Registrant. (Exhibit 10.28 to the UCC/Uniroyal Form 10-K for the
fiscal year ended September 28, 1996.)
+10.9 Amended Supplemental Retirement Agreement dated October 18, 1995,
between the Registrant and Vincent A. Calarco. (Exhibit 10(i) to
Form 10-K for the fiscal year ended December 30, 1995.)
+10.10 Form of Amended Supplemental Retirement Agreement dated October 18,
1995, between the Registrant and three of its executive officers.
(Exhibit 10(j) to Form 10-K for the fiscal year ended December 30,
1995.)
+10.11 Form of Supplemental Retirement Agreement dated October 18, 1995,
between the Registrant and five of its executive officers.
(Exhibit 10(k) to Form 10-K for the fiscal year ended December 30,
1995.)
+10.12 Form of Supplemental Retirement Agreement dated as of August 21,
1996, between a subsidiary of the Registrant and two executive
officers of the Registrant. (Exhibit 10.29 to the UCC/Uniroyal Form
10-K for the fiscal year ended September 28, 1996.)
+10.13 Form of Supplemental Retirement Agreement dated as of August 21,
1996, between a subsidiary of the Registrant and two executive
officers of the Registrant. (Exhibit 10.30 to the UCC/Uniroyal Form
10-K for the fiscal year ended September 28, 1996.)
+10.14 Supplemental Retirement Agreement Trust Agreement dated October 20,
1993, between the Registrant and Shawmut Bank, N.A. (Exhibit 10(l)
to Form 10-K for the fiscal year ended December 25, 1993.)
+10.15 Amended Benefit Equalization Plan dated October 20, 1993. (Exhibit
10(m) to Form 10-K for the fiscal year ended December 25, 1993.)
+10.16 Amended Benefit Equalization Plan Trust Agreement dated October 20,
1993, between the Registrant and Shawmut Bank, N.A. (Exhibit 10(n)
to Form 10-K for the fiscal year ended December 25, 1993.)
+10.17 Amended 1988 Long Term Incentive Plan. (Exhibit 10(o) to Form 10-K
for the fiscal year ended December 25, 1993.)
+10.171 Amendment No. 4 to 1988 Long Term Incentive Plan. (Exhibit 10.171
to Form 10-K for the fiscal year ended December 28, 1996.)
10.18 Trust Agreement dated as of May 15, 1989, between the Registrant
and Shawmut Worcester County Bank, N.A. and First Amendment thereto
dated as of February 8, 1990. (Exhibit 10(w) to Form 10-K for the
fiscal year ended December 30, 1989.)
+10.19 Form of 1992 - 1994 Long Term Performance Award Agreement.
(Exhibit 10(y) to Form 10-K for the fiscal year ended December 28,
1991.)
+10.20 Crompton & Knowles Corporation Restricted Stock Plan for Directors
approved by the stockholders on April 9, 1991. (Exhibit 10(z) to
Form 10-K for the fiscal year ended December 28, 1991.)
+10.21 Amended 1993 Stock Option Plan for Non-Employee Directors.
(Exhibit 10.21 to Form 10-K for the fiscal year ended December 28,
1996.)
10.22 Form of Assignment and Assumption of Raw Materials Agreement, dated
as of October 30, 1989, between UCC and Avery. (Exhibit 10.1 to
UCC Form S-1, Registration No. 33-32770.)
+10.23 UCC Purchase Right Plan, as amended and restated as of March 16,
1995. (Exhibit 10.1 to the UCC Form 10-Q for the period ended
April 2, 1995 ["UCC April 1995 Form 10-Q"].)
+10.24 UCC 1993 Stock Option Plan. (Exhibit 28.1 to UCC's Registration
Statement No. 33-62030 on Form S-8, filed on May 4, 1993.)
+10.25 Form of Amendment No. 2 to the UCC 1993 Stock Option Plan.
(Exhibit 10.2 to the UCC April 1995 Form 10-Q.)
+10.26 Form of Executive Stock Option Agreement, dated as of November 15,
1993. (Exhibit 10.22 to the UCC 1994 Form 10-K.)
*+10.27 Form of Amended and Restated 1996 - 1998 Long Term Performance
Award Agreement entered into in 1996 between the Registrant or one
of its subsidiaries and thirteen of the executive officers of the
Registrant.
*11 Statement re computation of per share earnings.
*13 1997 Annual Report to Stockholders of Crompton & Knowles
Corporation. (Not to be deemed filed with the Securities and
Exchange Commission except those portions expressly incorporated by
reference into this report on Form 10-K.)
*21 Subsidiaries of the Registrant.
*23 Consent of independent auditors. (See Item 14(a)2 herein.)
*24 Power of attorney from directors and executive officers of the
Registrant authorizing signature of this report. (Original on file
at principal executive offices of Registrant.)
*27 Financial Data Schedule for the fiscal year ended December 27,
1997.
* Copies of these Exhibits are annexed to this report on Form 10-K
provided to the Securities and Exchange Commission and the New York Stock
Exchange.
+ This Exhibit is a compensatory plan, contract or arrangement in which one
or more directors or executive officers of the Registrant participate.
(b) There were no reports on Form 8-K filed during the last quarter of the
period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
Date: March 27, 1998 By:/s/Charles J. Marsden
Charles J. Marsden
Senior Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Name Title
Vincent A. Calarco* Chairman of the Board, President,
and Director (Principal Executive Officer)
Charles J. Marsden* Senior Vice President and Director
(Chief Financial Officer)
Peter Barna* Vice President - Finance
(Principal Accounting Officer)
James A. Bitonti* Director
Robert A. Fox* Director
Roger L. Headrick* Director
Leo I. Higdon, Jr.* Director
Michael W. Huber* Director
C. A. Piccolo* Director
Patricia K. Woolf* Director
Date: March 27, 1998 *By:/s/Charles J. Marsden
Charles J. Marsden
as attorney-in-fact
Independent Auditors' Report and Consent
The Board of Directors and Stockholders
Crompton & Knowles Corporation
Under date of January 29, 1998, we reported on the consolidated balance sheets
of Crompton & Knowles Corporation and subsidiaries (the Company) as of
December 27, 1997 and December 28, 1996, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for
the two-year period ended December 27, 1997, which are incorporated by
reference in this Form 10-K. Our report includes an explanatory paragraph
regarding our responsibility for the Company's 1995 consolidated financial
statements. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule included in this Form 10-K for the years ended December 27,
1997 and December 28, 1996. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the 1997 and 1996 information set forth
therein.
We previously audited and reported on the consolidated financial statement
schedule as of and for the year ended December 30, 1995 of Crompton & Knowles
Corporation and subsidiaries prior to the Company's pooling-of-interests with
Uniroyal Chemical Corporation, as more fully described in the notes to the
consolidated financial statements under the heading "Accounting Policies -
Business Combination". A separate financial statement schedule of the other
company included in the restated consolidated financial statement schedule as
of and for the year ended December 30, 1995 was audited and reported on
separately by other auditors. We also audited the combination of the
financial statement schedule as of and for the year ended December 30, 1995,
after the restatement for the pooling-of-interests referred to above; in our
opinion, the restated schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, has been properly combined
on the basis described in the aforementioned note to the consolidated
financial statements.
We consent to the incorporation by reference in the registration statements
(Nos. 33-21246, 33-42280 and 33-67600) on Form S-8 of Crompton & Knowles
Corporation of our report, which includes an explanatory paragraph regarding
our responsibility related to the Company's consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the year ended
December 30, 1995, dated January 29, 1998, relating to the consolidated
balance sheets of Crompton & Knowles Corporation and subsidiaries as of
December 27, 1997 and December 28, 1996, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for
the two-year period ended December 27, 1997, which report is incorporated by
reference in the December 27, 1997 Annual Report on Form 10-K of Crompton &
Knowles Corporation.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Stamford, Connecticut
March 26, 1998
S-1
Schedule II
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
(In thousands of dollars)
Additions
Balance at charged to Adjustments Balance
beginning costs and at end
of year expenses Recurring Other of year
Fiscal Year ended December 27, 1997:
Allowance for doubtful accounts
$ 7,299 $ 2,230 $ (821)(1) $ 0 $ 8,708
Accumulated amortization of cost in
excess of acquired net assets
36,616 5,751 (67)(2) (57)(3) 42,243
Accumulated amortization of other
intangible assets
108,163 15,413 (314)(2) 0 123,262
Fiscal Year ended December 28, 1996:
Allowance for doubtful accounts
$ 6,142 $ 2,333 $ (1,525)(1) $ 349 (4) $ 7,299
Accumulated amortization of cost in
excess of acquired net assets
29,562 5,835 140 (2) 1,079 (4) 36,616
Accumulated amortization of other
intangible assets
89,036 15,700 (296)(2) 3,723 (4) 108,163
Fiscal Year ended December 30, 1995:
Allowance for doubtful accounts
$ 6,281 $ 1,415 $ (1,584)(1) $ 30 (5) $ 6,142
Accumulated amortization of cost in
excess of acquired net assets
23,816 5,544 214 (2) (12)(3) 29,562
Accumulated amortization of other
intangible assets
75,486 14,887 (815)(2) (522)(3) 89,036
(1) Represents accounts written off as uncollectible (net of recoveries),
and the translation effect of accounts
denominated in foreign currencies.
(2) Represents the translation effect of intangible assets denominated
in foreign currencies.
(3) Represents intangible asset retirements
(4) Represents adjustment to conform fiscal year of Uniroyal.
(5) Represents allowance related to the acquisition of Killion
Extruders, Inc. in 1995.
S-2
EXHIBIT 3(ii)
BY-LAWS
of
CROMPTON & KNOWLES CORPORATION
ARTICLE I
Stockholders
Section 1. Annual Meeting. The annual meeting of the
stockholders shall be held on the last Tuesday of April in each
year, at such time as shall be fixed by the Board of Directors in
the call of the meeting. If that day be a legal holiday at the
place where the meeting is to be held, the meeting shall be held
on the next succeeding day not a legal holiday at such place.
Purposes for which an annual meeting is to be held, in addition
to those prescribed by law, by the Articles of Organization, or
by these By-Laws, may be specified by the Board of Directors in
the notice of the meeting.
Section 2. Special Meeting in Lieu of Annual Meeting. If
no annual meeting has been held in accordance with the foregoing
provisions, a special meeting of the stockholders may be held in
lieu thereof. Any action taken at such special meeting shall have
the same force and effect as if taken at the annual meeting, and
in such case all references in these By-Laws to the annual
meeting of the stockholders shall be deemed to refer to such
special meeting. Any such special meeting shall be called as
provided in Section 3 of this Article I.
Section 3. Special Meetings. A special meeting of the
stockholders may be called at any time by the chairman of the
Board, the President, or by the Board of Directors. A special
meeting of the stockholders shall be called by the Clerk (or, in
the case of the death, absence, incapacity, or refusal of the
Clerk, by any other officer) upon written application of one or
more stockholders who hold at least forty percent in interest of
the capital stock entitled to vote at the meeting. Each call of
a meeting shall state the place, date, hour, and purposes of the
meeting.
Section 4. Place of Meetings. All meetings of the
stockholders shall be held at such place, either within or
without the Commonwealth of Massachusetts, within the United
States as shall be fixed by the board of Directors in the notice
of the meeting. Any adjourned session of any meeting of the
stockholders shall be held within the United States at the place
designated in the vote of adjournment.
Section 5. Notice of Meetings. A written notice of each
meeting of stockholders, stating the placated, hour, and purposes
of the meeting, shall be given at least seven days before the
meeting to each stockholder entitled to vote thereat and to each
stockholder who, by law, by the Articles of Organization, or by
these By-Laws, is entitled to notice, by leaving such notice with
him or at his residence or usual place of business, or by mailing
it, postage prepaid, addressed to such stockholder at his address
as it appears in the records of the Corporation. Such notice
shall be given by the Clerk or an Assistant Clerk or by an
officer designated by the Board of Directors. Whenever notice of
a meeting is required to be given to a stockholder under any
provision of the Business Corporation Law of the Commonwealth of
Massachusetts or of the Articles of Organization or these
By-Laws, a written waiver thereof, executed before or after the
meeting by such stockholder or his attorney thereunto authorized
and filed with the records of the meeting, shall be deemed
equivalent to such notice.
Section 6. Quorum of Stockholders. At any meeting of the
stockholders, a quorum shall consist of a majority in interest of
all stock issued and outstanding and entitled to vote at the
meeting, except when a larger quorum is required by law, by the
Articles of Organization, or by these By-Laws. Stock owned
directly or indirectly by the Corporation, if any, shall not be
deemed outstanding for this purpose. Any meeting may be
adjourned from time to time by a majority of the votes properly
cast upon the question, whether or not a quorum is present, and
the meeting may be held as adjourned without further notice
Section 7. Action by Vote. When a quorum is present at any
meeting, a plurality of the votes properly cast for election to
any office shall elect to such office, and a majority of the
votes properly cast upon any question other than an election to
an office shall decide the question, except when a larger vote is
required by law, by the Articles of Organization, or by these
By-Laws.
Section 8. Voting. Stockholders entitled to vote shall have
one vote for each share of stock held by them of record according
to the records of the Corporation, unless otherwise provided by
the Articles of organization. No ballot shall be required for
any vote for election to any office unless requested by a
stockholder present or represented at the meeting and entitled to
vote in such election. The Corporation shall not, directly or
indirectly, vote any share of its own stock.
Section 9. Proxies. To the extent permitted by law,
stockholders entitled to vote may vote either in person or by
written proxy. No proxy dated more than six months before the
meeting named therein shall be valid All proxies shall be filed
with the clerk of the meeting before being voted. Unless
otherwise specified or limited by their terms, such proxies shall
entitle the holders thereof to vote at any adjournment of such
meeting but shall not be valid after the final adjournment of
such meeting.
ARTICLE II
Board of Directors
Section 1. Number, Election, and Terms. Subject to the
rights of the holders of Preferred Stock to elect additional
directors under specified circumstances as provided in Article 4
of the Articles of organization, the Board of Directors shall
consist of not less than six nor more than 15 persons, the exact
number to be fixed from time to time by the Board of Directors
pursuant to a resolution adopted by a majority vote of the
directors then in office. The Board of Directors shall be
classified with respect to the time for which they shall
severally hold office by dividing them into three classes, as
nearly equal in number as possible, with the term of office of
one class expiring at the annual meeting of stockholders each
year. At each annual meeting of the stockholders of the
Corporation, the successors to the class of directors whose terms
expire at the meeting shall be elected to hold office for terms
expiring at the annual meeting of stockholders held in the third
year following the year of their election. If the number of
directors is changed, any increase or decrease shall be
apportioned by the Board of Directors among the classes so as to
maintain the number of directors in each class as nearly equal as
possible. Each director shall hold office until the annual
meeting for the year in which such director's term expires and
until such director's successor shall be elected and shall
qualify. No director need to be a stockholder.
Section 2. Nomination. Nominations for the election of
directors may be made by the Board of directors or a committee
appointed by the Board of Directors or by any stockholder
entitled to vote in the election of directors generally.
However, any stockholder entitled to vote in the election of
directors generally may nominate one or more persons for election
as directors at a meeting only if written notice of such
stockholder's intent to make such nomination or nominations has
been given, either by personal delivery or by mailing it, postage
prepaid, to the Clerk of the Corporation not later than (a) with
respect to an election to be held at an annual meeting of
stockholders, ninety (90) days prior to the anniversary date of
the immediately preceding annual meeting, and (b) with respect to
an election to be held at a special meeting of stockholders for
the election of directors, the close of business on the tenth day
following the date on which notice of such meeting is first given
to stockholders. Each such notice shall set forth (i) the name
and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (ii) a
representation that the stockholder is a holder of record of
stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (iii) a
description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination
or nominations are to be made by the stockholder;(iv) such other
information regarding each nominee proposed by such stockholder
as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange
Commission; and (v) the consent of each nominee to serve as a
director of the Corporation if so elected. The presiding officer
of the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure.
Section 3. Newly Created Directorships and Vacancies. Newly
created directorships resulting from any increase in the number
of directors and any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal, or
other cause shall be filled only by the affirmative vote of a
majority of the remaining directors then in office, even though
less than a quorum of the Board of directors. Any director
elected in accordance with the preceding sentence shall hold
office for the remainder of the full term of the class of
directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have
been elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the
term of any incumbent director.
Section 4. Removal of Directors. Any director may be
removed from office by stockholder vote at any time, with or
without assigning any cause, but only by the affirmative vote of
the holders of at least 80% of the voting power of the then
outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors, voting together
as a single class. Any director may also be removed from office
for cause by vote of a majority of the directors then in office.
Section 5. Directors Elected by Holders of Preferred Stock.
Whenever the holders of any class or series of Preferred stock or
of any other class or series of shares issued by the Corporation
shall have the right, voting separately as a class or series, to
elect one or more directors under specified circumstances, the
election, term of office, filling of vacancies, and other
features of such directorships shall be governed by the terms of
the Articles of Organization applicable thereto, and none of the
provisions of Sections 1 to 4 of this Article II shall apply with
respect to directors so elected.
Section 6. Resignations. Any director, member of a
committee, or officer may resign at any time by delivering his
resignation in writing to the Chairman of the Board, the
President, the Clerk, or to a meeting of the Board of Directors.
Such resignation shall be effective upon receipt unless specified
to be effective at some other time.
Section 7. Powers. Except as reserved to the stockholders by
law, the Articles of Organization, or by these By-Laws, the
business of the Corporation shall be managed by the Board of
Directors who shall have and may exercise all the powers of the
Corporation.
Section 8. Executive Committee. The Board of Directors may,
by vote of a majority of the directors then in office, elect from
their number an Executive Committee, which shall consist of the
Chief Executive Officer and such number of other directors as the
Board shall determine. The Executive Committee shall have and
may exercise, when the Board of Directors is not in session, the
authority of the Board of Directors in the management of the
business of the Corporation, except that it shall not have
authority to:
(a) Change the principal office of the Corporation;
(b) Amend the By-Laws;
(c) Issue stock;
(d) Establish and designate series of stock or fix and
determine the relative rights and preferences of any
series of stock;
(e) Elect officers required by law or these By-Laws to be
elected by the stockholders or directors or fill
vacancies in any such offices;
(f) Change the number of the Board of Directors or fill
vacancies in the Board of Directors;
(g) Remove officers or directors from office;
(h) Authorize the payment of any dividend or distribution
to stockholders;
(i) Authorize the reacquisition for value of stock of the
Corporation; or
(j) Authorize a merger which by law may be authorized by
the Board of Directors.
Section 9. Other Committees. The Board of Directors may, by
vote of a majority of the directors then in office, elect from
their number other committees and may delegate to any such
committee or committees some or all of the powers of the Board of
Directors except those powers which by law, by the Articles of
Organization, or by these By-Laws they are prohibited from
delegating. Except as the board of Directors may otherwise
determine, the Executive Committee and any such other committee
may make rules for the conduct of its business, but unless
otherwise provided by the Board of Directors or such rules, its
business shall be conducted as nearly as may be in the same
manner as is provided by these By-Laws for the conduct of
business by the Board of Directors. The Board of Directors shall
have power to rescind any vote, resolution, or other action of
any committee, provided that the rights of third parties shall
not be impaired by such rescission.
Section 10. Regular Meetings. At least one regular meeting
of the Board of Directors shall be held in each quarter of the
calendar year. A regular meeting of the Board of Directors shall
be held without call or notice immediately after and at the same
place as the annual meeting of the stockholders. Other regular
meetings of the Board of Directors may be held without call or
notice at such places and at such times as the Board of Directors
may, from time to time, determine, provided that notice of the
first regular meeting following any such determination shall be
given to absent directors.
Section 11. Special Meetings. Special meetings of the Board
of Directors may be held at any time and at any place designated
in the call of the meeting, when called by the Chairman of the
Board, the President, or by two or more directors.
Section 12. Notice of Meetings. It shall be sufficient
notice to a director of a meeting of the Board of Directors to
send notice by mail at least forty-eight (48) hours or by
telegram at least twenty-four (24)hours before the meeting,
addressed to such director at his usual or last known business or
residence address, or to give notice to such director in person
or by telephone at least twenty-four (24) hours before the
meeting. Notice of a meeting need not be given to any director
if a written waiver of notice, executed by him before or after
the meeting, is filed with the records of the meeting, or to any
director who attends the meeting without protesting prior thereto
or at its commencement the lack of notice to him. Neither notice
of a meeting nor a waiver of a notice need specify the purposes
of the meeting.
Section 13. Quorum of Directors. At any meeting of the
Board of Directors, a majority of the directors then in office
shall constitute a quorum. Any meeting may be adjourned from
time to time by a majority of the votes cast upon the question,
whether or not a quorum is present, and the meeting maybe held as
adjourned without further notice.
Section 14. Action by Vote. When a quorum is present at any
meeting, a majority of the directors present may take any action,
except when a larger vote is required by law, by the Articles of
organization, or by these By-Laws.
Section 15. Action by Written Consent. Unless the Articles
of Organization otherwise provide, any action required or
permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting if all
the directors or members of the committee, as the case maybe,
consent to the action in writing and the written consents are
filed with the records of the meetings of the Board of Directors
or such committee. Such consents shall be treated for all
purposes as a vote taken at a meeting.
Section 16. Participation Through Communications Equipment.
Unless otherwise provided by law or the Articles of Organization,
members of the Board of Directors or of any committee thereof may
participate in a meeting of such Board or committee, as the case
may be, through conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other at the same time, and participation
by such means shall constitute presence in person at a meeting.
Section 17. Compensation of Directors. The Board of
Directors may provide for the payment to any of the directors,
other than officers or employees of the Corporation, of a
specified amount for services as a director or member of a
committee of the Board, or of a specified amount for attendance
at each regular or special Board or committee meeting, or of
both, and all directors shall be reimbursed for expenses of
attendance at any such meeting; provided, however, that nothing
herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE III
Officers and Agents
Section 1. Enumeration; Qualification. The officers of the
Corporation shall be a President, a Treasurer, a Clerk, and such
other officers, including, without limitation, a Chairman of the
Board, one or more Vice Presidents, Assistant Treasurers, and
Assistant Clerks as the Board of Directors from time to time may
in their discretion elect or appoint. In addition, the
Corporation shall have such other agents as may be appointed by
management in accordance with these By-Laws. The Chairman of the
Board and the President shall each be a director. The Clerk
shall be a resident of Massachusetts unless the Corporation had a
resident agent appointed for the purpose of service of process.
Any two or more offices may be held by the same person. Any
officer may be required by the Board of Directors to give bond
for the faithful performance of his duties to the Corporation in
such amount and with such sureties as the directors may
determine.
Section 2. Powers. Subject to law, to the Articles of
Organization, and to the other provisions of these By-Laws, each
officer shall have, in addition to the duties and powers herein
set forth, such duties and powers as are commonly incident to his
office and such duties and powers as the Board of Directors may
from time to time designate.
Section 3. Election. The Chairman of the Board, if any, the
President, the Treasurer, and the Clerk shall be elected annually
by the Board of Directors at their first meeting following the
annual meeting of the stockholders. Other officers, if any, may
be elected or appointed by the Board of Directors at said meeting
or at any other time.
Section 4. Tenure. Except as otherwise provided by law, by
the Articles of Organization, or by these By-Laws, the Chairman
of the Board, if any, the President, the Treasurer, and the Clerk
shall hold office until the first meeting of the Board of
Directors following the next annual meeting of the stockholders
and until their respective successors are chosen and qualified,
and each other officer shall hold office for such term as may be
designated in the vote electing or appointing him, or in each
case until such officer sooner dies, resigns, is removed, or
becomes disqualified.
Section 5. Chief Executive Officer. The Chief Executive
Officer of the Corporation shall be the chairman of the Board,
the President, or such other officer as may from time to time be
designated by the Board of Directors. If no such designation is
made, the President shall be the Chief Executive Officer. The
Chief Executive Officer shall, subject to the control of the
Board of Directors, have general charge and supervision of the
business of the Corporation and, except as the Board of Directors
shall otherwise determine, shall preside at all meetings of the
stockholders and of the Executive Committee. Unless otherwise
determined by the Board of Directors, the Chief Executive Officer
shall have the authority to appoint such agents, in addition to
those officers enumerated in Section 1 of this Article III as
being elected or appointed by the Board of Directors, as he shall
deem appropriate and to define their respective duties and
powers.
Section 6. Chairman of the Board. If a Chairman of the
Board of Directors is elected, he shall preside at all meetings
of the Board of Directors and shall have the duties and powers
specified in these By-Laws and such other duties and powers as
may be determined by the Board of Directors.
Section 7. Presidents and Vice Presidents. The President
shall have the duties and powers specified in these By-Laws and
shall have such other duties and powers as may be determined by
the Board of directors.
The Vice Presidents shall have duties and powers as shall be
designated from time to time by the board of Directors. Unless
the Board of Directors otherwise determines, one Vice President
shall be designated as the Chief Financial Officer of the
Corporation and, as such, shall be the chief financial and
accounting officer of the Corporation and shall have the duties
and powers commonly incident thereto.
Section 8. Treasurer and Assistant Treasurers. The Treasurer
shall have general responsibility for the corporate treasury
function, shall be in charge of its funds and valuable paper,
and shall have such other duties and powers as may be designated
from time to time by the Board of Directors.
Any Assistant Treasurer shall have such other duties and
powers as shall be designated from time to time by the Board of
Directors or the Treasurer.
Section 9. Clerk and Assistant Clerks. The Clerk shall
record all proceedings of the stockholders and Board of Directors
in a book or series of books to be kept for that purpose, which
book or books shall be kept at the principal office of the
Corporation and shall be open at all reasonable time to the
inspection of any stockholder. In the absence of the Clerk from
any meeting of the stockholders or Board of directors, an
Assistant Clerk, or if there be none or he is absent, a temporary
clerk chosen at the meeting, shall record the proceedings thereof
in the aforesaid book.
Any Assistant Clerks shall have such other duties and powers
as shall be designated from time to time by the Board of
Directors or the Clerk.
The Clerk or any Assistant Clerk may also have the title
Secretary or Assistant Secretary, as the case may be, and may
execute or attest documents using either title.
ARTICLE IV
Capital Stock
Section 1. Stock Certificates. Each stockholder shall be
entitled to a certificate stating the number and the class and
the designation of the series, if any, of the shares held by him,
in such form as shall, in conformity to law, be prescribed from
time to time by the Board of Directors. Such certificate shall
be signed by the President or a Vice President and by the
Treasurer or an Assistant Treasurer. Such signatures may be
facsimile if the certificate is signed by a transfer agent or by
a registrar, other than a director, officer, or employee of the
Corporation. In case any officer who has signed or whose
facsimile signature has been placed on such certificate shall
have ceased to be such officer before such certificate is issued,
it may be issued by the Corporation with the same effect as if he
were such officer at the time of its issue.
Every certificate for shares of stock which are subject to
any restriction on transfer pursuant to the Articles of
Organization, these By-Laws, or any agreement to which the
Corporation is a party shall have the restriction noted
conspicuously on the certificate and shall also set forth on the
face or back either the full text of the restriction or a
statement of the existence of such restriction and a statement
that the Corporation will, upon written request, furnish a copy
thereof to the holder of such certificate without charge.
Every certificate issued when the Corporation is authorized
to issue more than one class or series of stock shall set forth
on its face or back either the full text of the preferences,
voting powers, qualifications, and special and relative rights of
the shares of each class and series authorized to be issued or a
statement of the existence of such preferences, powers,
qualifications, and rights and a statement that the Corporation
will, upon written request, furnish a copy thereof to the holder
of such certificate without charge.
Section 2. Lost Certificates. In the case of the alleged
loss, destruction, or mutilation of a certificate of stock, a
duplicate certificate may be issued in place thereof, upon such
conditions as the Board of directors may prescribe. When
authorizing such issue of a new certificate, the Board may in its
discretion require the owner of such lost, destroyed, or
mutilated certificate, or his legal representative, to give the
Corporation a bond, with or without surety, sufficient in the
Board's opinion to indemnify the Corporation against any loss or
claim that may be made against it with request to the certificate
alleged to have been lost, destroyed, or mutilated.
Section 3. Transfer of Shares. Subject to the restrictions,
if any, stated or noted on the stock certificates, shares of
stock may be transferred on the books of the Corporation by the
surrender to the Corporation or its transfer agent of the
certificate therefor properly endorsed or accompanied by a
written assignment and power of attorney properly executed with
necessary transfer stamps affixed, and with such proof of the
authenticity of signature as the Board of Directors or the
transfer agent of the Corporation may reasonably require. Except
as may be otherwise required by law, by the Articles of
Organization, or by these By-Laws, the Corporation shall be
entitled to treat the record holder of stock as shown on its
books as the owner of such stock for all purposes, including the
payment of dividends and the right to receive notice and to vote
with respect thereto, regardless of any transfer, pledge, or
other disposition of such stock, until the shares have been
transferred on the books of the Corporation in accordance with
the requirements of these By-Laws.
Section 4. Record Date and Closing Transfer Books. The
Board of Directors may fix in advance a time, which shall not be
more than sixty (60) days before the date of any meeting of
stockholders or the date for a payment of any dividend or making
of any distribution to stockholders or the last day on which the
consent or dissent of stockholders may be effectively expressed
for any purpose, as the record date for determining the
stockholders having the right to notice of and to vote at such
meeting any adjournment thereof or the right to receive such
dividend or distribution or the right to give such consent or
dissent, and in such case only stockholders of record on such
record date shall have such right, notwithstanding any transfer
of stock on the books of the Corporation after the record date;
or without fixing such record date the Board of Directors may for
any of such purposes close the transfer books for all of any part
of such period.
If no record date is fixed and the transfer books are not
closed, the record date for determining stockholders having the
right to notice of or to vote at a meeting of stockholders shall
be at the close of business on the date next preceding the day on
which notice is given, and record date for determining
stockholders for any other purpose shall be at the close of
business on the date on which the Board of directors acts with
respect thereto.
ARTICLE V
Indemnification of Directors and Officers
The Corporation shall, to the full extent permitted by law,
indemnify each of its directors and officers(including persons
who serve at its request as directors, officers, or trustees of
another organization in which it has any interest, direct or
indirect, as a shareholder, creditor, other otherwise or who
serve at its request in any capacity with respect to any employee
benefit plan) against all liabilities and expenses, including
amounts paid in satisfaction of judgments, in compromise, or as
fines and penalties, and counsel fees, reasonably incurred by him
in connection with the defense or disposition of any action,
suit, or other proceeding, whether civil or criminal, in which he
may be involved or with which he may be threatened, while in
office or thereafter, by reason of his being or having been such
a director, officer, or trustee, except with respect to any
matter as to which he shall have been adjudicated in any
proceeding not to have acted in good faith in the reasonable
belief that his action was in the best interests of the
Corporation or, to the extent that such matter relates to service
with respect to an employee benefit plan, in the best interests
of the participants of beneficiaries of such employee benefit
plan; provided, however, that as to any matter disposed of by a
compromise payment by such director or officer, pursuant to a
consent decree of otherwise, no indemnification either for said
payment or for any other expenses shall be provided unless such
compromise shall be approved as in the best interests of the
Corporation, after notice that it involves such indemnification:
(a) by a disinterested majority of the directors then in office;
or (b) by a majority of the disinterested directors then in
office, provided that there has been obtained an opinion in
writing of independent legal counsel to the effect that such
director or officer appears to have acted in good faith in the
reasonable belief that his action was in the best interests of
the Corporation; or (c) by the holders of a majority of the
outstanding stock at the time entitled to vote for directors,
voting as a single class, exclusive of any stock owned by any
interested director or officer.
Expenses, including counsel fees, reasonably incurred by any
director or officer in connection with the defense or disposition
of any such action, suite, or other proceeding may be paid from
time to time by the Corporation, at the discretion of a majority
of the disinterested directors then in office, in advance of the
final disposition thereof upon receipt of an undertaking by such
director or officer to repay the amounts so paid to the
Corporation if it is ultimately determined that indemnification
for such expenses is not authorized under this Article V, which
undertaking may be accepted without reference to the financial
ability of such director or officer to make repayment.
The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which any director or
officer may be entitled. As used in this section, the terms
"director" and "officer"include their respective heirs,
executors, and administrators, an "interested" director or
officer is one against whom in such capacity the proceedings in
question of another proceeding on the same or similar grounds is
then pending or threatened, and a "disinterested" director is one
against whom no such proceeding is then pending or threatened.
Nothing contained in this section shall affect any rights to
indemnification to which corporate personnel other than directors
and officers may be entitled by contractor otherwise under law.
The Board of Directors may authorize the purchase and
maintenance of insurance, in such amounts as the Board of
Directors may from time to time deem appropriate, on behalf of
any person who is or was a director or officer or agent of the
Corporation, or who is or was serving at the request of the
Corporation as a director, officer, or agent of another
organization in which it has any interest, direct or indirect, as
a shareholder, creditor, or otherwise, or with respect to any
employee benefit plan, against any liability incurred by him in
any such capacity, or arising out of his status as such, whether
or not such person is entitled to indemnification by the
Corporation pursuant to this Article V or otherwise and whether
or not the Corporation would have the power to indemnify him
against such liability.
ARTICLE VI
Miscellaneous
Section 1. Corporate Seal. The seal of the Corporation
shall be circular in form and shall bear substantially the
following legend: "Crompton & Knowles Corporation, Incorporated
Under Chapter 51 Acts of 1900 Massachusetts Laws"; provided,
however, that the Board of Directors may from time to time alter
or amend the form of the seal or the inscription thereon.
Section 2. Fiscal Year. The fiscal year of the Corporation
shall be such period as shall from time to time be determined by
the Board of Directors.
Section 3. Authorization of Loans and Indebtedness. No
loan shall be contracted on behalf of the Corporation, and no
bond, note, debenture, guarantee, or other obligation or evidence
of indebtedness of the Corporation issued with respect thereto
shall be made, executed, and delivered, unless authorized by the
Board of Directors, which authorization may be general or
confined to specific instances.
Section 4. Execution of Documents. Except as the Board of
Directors may generally or in specific instances authorize the
execution thereof in some other manner, all deeds, leases,
transfers, contracts, checks, drafts, and other orders for the
payment of money out of the funds of the Corporation, and (if the
issuance thereof shall have been authorized pursuant to Section 3
of this Article VI) all bonds, notes, debentures, guarantees, an
other obligations or evidences of indebtedness of the Corporation
shall be executed by the Chairman of the Board, the President,
any Vice President, or the Treasurer.
Section 5. Voting of Securities. Except as the Board of
Directors may generally or in specific instances direct
otherwise, the Chairman of the Board, the President, any Vice
President, or the Treasurer shall have the power, in the name and
on behalf of the Corporation, to waive notice of, appoint any
person or persons to act as proxy or attorney-in-fact of the
Corporation (with or without power of substitution)to vote at, or
attend and act for the Corporation at, any meeting of holders of
shares or other securities of any other organization of which the
Corporation holds shares or securities.
Section 6. Appointment of Auditor. The Board of Directors,
or a committee thereof, shall each year select independent public
accountants to report to the stockholders on the financial
statements of the Corporation for such year. The selection of
such accountants shall be presented to the stockholders for their
approval at the annual meeting each year; provided, however, that
if the stockholders shall not approve the selection made by the
Board, the Board shall appoint other independent public
accountants for such year.
ARTICLE VII
Amendments
Except as provided in the second paragraph of this Article
VII, these By-Laws may be altered, amended, or repealed, and new
By-Laws not inconsistent with any provision of the Articles of
organization or applicable statute may be made either by the
affirmative vote of a majority of the voting power of the then
outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors, voting together
as a single class, at any annual or special meeting of the
stockholders called for the purpose, or (except with respect to
any provision hereof which by law, the Articles of organization,
or these By-Laws requires action by the stockholders) by the
affirmative vote of a majority of the Board of Directors then in
office. Not later than the time of giving notice of the meeting
of stockholders next following the making, amending, or repealing
by the Board of Directors of any By-Law, notice thereof stating
the substance of such change shall be given to all stockholders
entitled to vote on amending the By-Laws. Any By-Law made,
amended, or repealed by the Board of Directors may be altered,
amended, repealed, or reinstated by the stockholders.
Notwithstanding anything contained in these By-Laws to the
contrary, the affirmative vote of the holders of 80% of the
voting power of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required
to alter, amend, adopt any provision inconsistent with, or repeal
by provision of Section 1, 2, 3, or 4 of Article II of these
By-Laws or this Article VII.
EXHIBIT 10.27
Form of Amended and Restated 1996-1998 Long Term
Performance Award Agreement
This Agreement, dated as of March 31, 1997, is made by and
between Crompton & Knowles Corporation (the "Corporation") and
________ (the "Executive").
WHEREAS, the Corporation has adopted the 1988 Long Term
Incentive Plan (the "Plan") for the purpose of attracting,
motivating and retaining key employees by offering them long term
performance-based incentives and an opportunity to acquire
ownership of shares of the Corporation's common stock;
WHEREAS, the Executive, a key employee of the Corporation or
a subsidiary of the Corporation, was granted the opportunity to
earn shares of common stock of the Corporation in accordance with
the terms and conditions of the Plan and an Agreement dated
January 23, 1996, entitled 1996-1998 Long Term Performance Award
Agreement (the "January 23 Agreement"); and.
WHEREAS, the Corporation and the Executive wish to amend and
restate in its entirety the January 23 Agreement;
NOW, THEREFORE, the parties hereby amend and restate the
January 23 Agreement to read as set forth herein.
1. The Executive is granted the opportunity to earn a
maximum ______ of Maximum Shares shares of the common
stock of the Corporation (the actual number of shares
earned by the Executive, if any, hereinafter being
called the "Award") during the Performance Period.
2. Definitions
For purposes of this Agreement, the following terms shall
have the following meanings:
(a) "Performance Period" shall mean the period
January 1, 1996, to December 31, 1998.
(b) "Cause" shall mean (i) the Executive's willful
and continued failure to substantially perform
assigned duties with the Corporation or its
subsidiary corporations (other than any such
failure resulting from incapacity due to physical
or mental illness or any such actual or
anticipated failure resulting from termination
for Good Reason), after a demand for substantial
performance is delivered to the Executive by the
Board of Directors of the corporation by which
the Executive is employed (the "Board"),
specifically identifying the manner in which the
Board believes that the duties have not been
substantially performed, or (ii) the Executive's
willful conduct which is demonstrably and
materially injurious to the Corporation or any
subsidiary corporation by which the Executive is
employed. For purposes of this subsection 2(b),
no act, or failure to act, shall be considered
"willful" unless done, or omitted to be done, not
in good faith and without reasonable belief that
such action or omission was in the best interest
of the Corporation and the subsidiary
corporation, if any, by which the Executive is
employed.
(c) "Good Reason" shall mean (i) the assignment to the
Executive of any duties inconsistent in any
respect with the Executive's position (including
status, offices, titles, and reporting
requirements), authority, duties or
responsibilities as contemplated by any
employment agreement between the Executive and
the Corporation or a subsidiary of the
Corporation, or any other action by the
Corporation or the subsidiary corporation, if
any, by which the Executive is employed which
results in a diminishment in such position,
authority, duties, or responsibilities, other
than an insubstantial and inadvertent action
which is remedied by the Corporation or such
subsidiary corporation promptly after receipt of
notice thereof given by the Executive; (ii) any
failure by the Corporation or the subsidiary
corporation, if any, by which the Executive is
employed to comply with any of the provisions of
any employment agreement between the Executive
and the Corporation or such subsidiary
corporation, other than an insubstantial and
inadvertent failure which is remedied by the
Corporation or such subsidiary corporation
promptly after receipt of notice thereof given by
the Executive; (iii) any change not concurred in
by the Executive in the location of the office at
which the Executive is principally based on the
date hereof, and travel reasonably required in
the performance of the Executive's
responsibilities and substantially consistent
with prior business travel obligations of the
Executive; or (iv) any purported termination by
the Corporation or the subsidiary corporation, if
any, by which the Executive is employed of the
Executive's employment otherwise than as
permitted by any employment agreement between the
Executive and the Corporation or such subsidiary
corporation.
(d) "Change in Control" shall mean a change in
control of the Corporation of a nature that would
be required to be reported in response to Item
1(a) of the Current Report on Form 8-K, as in
effect on January 1, 1988, pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act"); provided that, without
limitation, such a "Change in Control" shall be
deemed to have occurred if (x) a third person,
including a "group" as such term is used in
Section 13(d)(3) of the Exchange Act, other than
the trustee of any employee benefit plan of the
Corporation, becomes the beneficial owner,
directly or indirectly, of 20% or more of the
combined voting power of the Corporation's
outstanding voting securities ordinarily having
the right to vote for the election of directors
of the Corporation; (y) during any period of 24
consecutive months individuals who, at the
beginning of such consecutive 24-month period,
constitute the Board of Directors of the
Corporation (the "Crompton & Knowles Board"
generally and, as of the date of this Agreement,
the "Incumbent Board") cease for any reason
(other than retirement upon reaching normal
retirement age, disability, or death) to
constitute at lease a majority of the Crompton &
Knowles Board; provided that any person becoming
a director of the Corporation subsequent to the
date hereof whose election, or nomination for
election by the Corporation's shareholders, was
approved by a vote of at least three quarters of
the directors comprising the Incumbent Board
(other than an election or nomination of an
individual whose initial assumption of office is
in connection with an actual or threatened
election contest relating to the election of the
directors of the Corporation, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of
this Agreement, considered as though such person
were a member of the Incumbent Board; or (z) the
Corporation shall cease to be a publicly owned
corporation having its outstanding Common Stock
listed on the New York Stock Exchange or quoted
in the NASDAQ National Market System.
3. Performance Objectives
There shall be two Performance Objectives used to
determine the amount of the Award, if any, earned by
the Executive, as follows:
(a) Return on Capital Objective
This objective, which must be achieved in order
for the Executive to earn an Award, shall be the
achievement by the Corporation of an average
annual return on capital for the Performance
Period equal to or greater than the lesser of (i)
twelve percent (12%) or (ii) the average annual
return on capital achieved by a select group of
specialty chemical companies as monitored by the
Corporation.
(b) Earnings Per Share ("EPS") Objective
This objective shall be the achievement by the
Corporation of cumulative earnings per share for
the Performance Period of not less than $3.06 per
common share.
The following table shows by way of example the
cumulative earnings per share which will be
realized by the Corporation if the earnings per
share increase annually during the Performance
Period at rates of ten, thirteen and fifteen
percent from the 1995 base of $.84 per share and
the Award associated with cumulative earnings per
share at each of those levels:
Threshold Award Target Award Maximum Award
Cumulative EPS $3.06 $3.22 $3.36
Award Earned Threshold Shares Target Shares Maximum Shares
The actual Award, if any, earned by the Executive shall be
based upon the actual cumulative earnings per share achieved by
the Corporation during the Performance Period, and except in the
event that cumulative earnings per share for the Performance
Period are equal to the amounts shown in the above table, shall
be determined by interpolation from the values shown in the
table.
4. Termination of Employment During Performance Period
(a) If the Executive's employment with the
Corporation or a subsidiary of the Corporation
terminates during the Performance Period because
of death, disability, retirement, the Executive
Compensation Committee of the Crompton & Knowles
Board (the "Committee") may, in its sole
discretion, make a pro rata Award to the
Executive.
(b) If, following a Change in Control occurring after
the date of this Agreement, the Executive's
employment with the Corporation or a subsidiary
of the Corporation is terminated during the
Performance Period by the Executive for Good
Reason or by the corporation by which the
Executive is employed other than for Cause, the
Executive shall become immediately vested in, and
shall be promptly paid a pro rata Award which
Award shall be determined on the basis of the
cumulative earnings per share achieved by the
Corporation during the Performance Period through
the date of such termination of the Executive's
employment and a proration (based on the number
of days in the Performance Period which have
elapsed on the date of such termination of the
Executive's employment) of the share and
cumulative earnings per share quantities
specified in section 3 hereof. The Executive
shall be entitled to a prorated Award pursuant to
this subsection (b) without regard to whether or
not the Corporation has achieved the return on
capital objective specified in section 3 hereof.
(c) In the event that the Executive's employment with
the Corporation terminates during the Performance
Period for any reason other than
as specified in subsections 4(a) and 4(b) hereof,
the Executive shall not be entitled to receive
any Award for the Performance Period.
5. After the date of any Award to the Executive
hereunder, and prior to the transfer to the Executive
of all of the shares of the Corporation comprising
the Award, the Executive shall have the right to
instruct the trustee of the Crompton & Knowles
Corporation Long Term Incentive Plan Trust (the
"Trustee") as to the voting of such number of shares
of the Corporation comprising the Award as are held
by the Trustee, together with any other shares held
by the Trustee in any account which may be
established by the Trustee on or after the date of
the Award in the name of the Executive.
6. The Executive shall be paid, at the time any shares
earned by him are transferred to him, such sum of
money or, at the sole discretion of the Corporation,
such additional shares or other property, as shall be
equal to the Executive's pro rata share of the Trust
earnings to the date of and attributable to such
payment, but less such cash or shares, if any, as the
Corporation shall in its sole discretion determine
are required to be withheld to pay taxes due on the
cash or shares then being transferred to the
Executive. The Executive shall have the right to
defer any portion of the earned Award.
7. Any Award made to the Executive hereunder shall vest
in the Executive and the Executive shall be entitled
to receive the Award only as follows:
25% on December 31, 1998
25% on December 31, 1999
25% on December 31, 2000
25% on Retirement of the Executive
Notwithstanding any other provision of this Section 7, upon
the termination of the Executive's employment with the
Corporation on or after December 31, 1998, due to death,
disability, retirement or for any reason following a Change
in Control occurring after December 31, 1998, any Award
theretofore earned by the Executive hereunder shall
immediately become fully vested in him. Termination of the
Executive's employment with the Corporation on or after
December 31, 1998, for any reason other than those specified
in the preceding sentence shall cause the forfeiture of any
portion of an Award not vested prior to the date of such
termination of employment.
8. This Agreement does not alter the "at will" nature of
the Executive's employment, which employment may be
terminated at any time by the Executive or the
Corporation by which the Executive is employed.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
CROMPTON & KNOWLES CORPORATION
By: _________________________
___________________
Executive
CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
BASIC
YEAR ENDED
Dec.27, Dec.28, Dec.30,
1997 1996 1995
Earnings
Earnings(loss) before extraordinary charge $ 92,071 $ (22,054) $ 139,922
Extraordinary loss on early extinguishment
of debt (5,242) (441) (8,279)
Net earnings(loss) $ 86,829 $ (22,495) $ 131,643
Shares
Weighted average shares outstanding 73,373 72,026 65,572
Per share
Earnings(loss) before extraordinary charge $ 1.25 $ (.31) $ 2.13
Extraordinary loss on early extinguishment
of debt (.07) - (.12)
Net earnings(loss) $ 1.18 $ (.31) $ 2.01
DILUTED
YEAR ENDED
Dec.27, Dec.28, Dec.30,
1997 1996 1995
Earnings
Earnings(loss) before extraordinary charge $ 92,071 $ (22,054) $ 139,922
Extraordinary loss on early extinguishment
of debt (5,242) (441) (8,279)
Net earnings(loss) $ 86,829 $ (22,495) $ 131,643
Shares
Weighted average shares outstanding 73,373 72,026 65,572
Common stock equivalents 1,985 - 697
Average shares outstanding 75,358 72,026 66,269
Per share
Earnings(loss) before extraordinary charge $ 1.22 $ (.31) $ 2.11
Extraordinary loss on early extinguishment
of debt (.07) - (.12)
Net earnings(loss) $ 1.15 $ (.31) $ 1.99
EXHIBIT 13
Crompton & Knowles Corporation
1997 Annual Report
Service
Technology
Performance
Crompton & Knowles Corporation is a global producer and marketer
of specialty chemicals and equipment with 5,500 employees and
research, manufacturing, sales and administrative facilities in
the United States, Canada, Europe, Asia and Latin America. The
company's 73.6 million shares of common stock outstanding are
traded on the New York Stock Exchange under the symbol CNK.
Crompton & Knowles has gained leadership positions in its chosen
markets by providing quality products, technical service and
performance know-how to solve customer problems and add value to
customers' products. The company has six primary lines of
business grouped into two segments:
Specialty Chemicals Segment
4 Chemicals & Polymers
A leading worldwide producer and marketer of rubber chemicals,
EPDM and nitrile rubber polymers.
6 Crop Protection
A manufacturer and marketer of agricultural chemicals and a
leading producer and marketer of seed treatment formulations and
equipment.
8 Specialties
A leading global producer and marketer of specialty additives for
plastics and lubricants and high performance liquid castable
urethane prepolymers.
10 Colors
A major producer and marketer of textile, paper, leather and
specialty dyes.
12 Ingredients
A producer and marketer of food and pharmaceutical ingredients
and food ingredient systems.
Specialty Process Equipment and Controls Segment
13 Davis-Standard
A leading worldwide manufacturer and marketer of plastics and
rubber extrusion equipment, industrial blow molding equipment,
related electronic controls and integrated extrusion systems.
Financial Highlights
(3 bar charts)
Sales (In Billions of Dollars)
Return On Average Total Capital (Before Special Items)
Return On Sales (Before Special Items)
(In thousands of dollars, except per share amounts)
1997 1996
Net sales $ 1,851,180 $ 1,803,969
Operating profit $ 224,278 $ 103,615
Interest expense $ 103,349 $ 114,244
Net earnings (loss) $ 86,829 $ (22,495)
Basic earnings (loss) per share $1.18 $ (.31)
Diluted earnings (loss) per share $ 1.15 $ (.31)
Total assets $ 1,548,820 $ 1,657,190
Long-term debt $ 896,291 $ 1,054,982
Cash flow from operations $ 215,787 $ 95,353
Operating profit and net earnings (loss) before special items
(refer to page 33) would be as follows:
Adjusted operating profit $ 252,278 $ 218,615
Adjusted net earnings $ 92,071 $ 64,594
Crompton & Knowles is a member of the Chemical Manufacturers
Association and a signatory of the Association's Responsible
Care(R) Program. The company is committed to a continuous good
faith effort to improve performance in health, safety and
environmental quality.
Fellow Shareholders:
Crompton & Knowles had an outstanding year in 1997 as we achieved
our objective, the enhancement of shareholder value. Our
company's equity market capitalization increased by 39 percent
during 1997 to $2.0 billion, with an individual share of stock
rising to 26 1/2 per share at the end of the year, from 19 1/4
per
share on January 1, 1997. Since the end of the year, our stock
has continued to rise, making our company's equity market
capitalization exceed $2.0 billion.
We're proud of this accomplishment because it reflects investors'
confidence in the progress we've made in meeting the goals we set
for Crompton & Knowles at the time of our merger with Uniroyal
Chemical Corporation in August 1996. We've met or exceeded every
one of our key objectives:
Reduce debt
- - We reduced debt by $166 million during 1997, representing
$2.20 per share of cash flow used to reduce debt during the year.
Grow earnings
- - We increased earnings before special items by 43 percent to
$92.1 million, or $1.25 per share basic and $1.22 per share
diluted.
Grow sales
- - We increased sales by 3% to $1.85 billion despite the combined
2% negative effect of foreign currency translation and lower
pricing.
These significant accomplishments are the driving forces behind
our company's increased shareholder value. They also reflect the
major strides we've made in melding the cultures of the two
corporations and shaping an organization where everyone
understands the value of Crompton & Knowles' long-standing
principles of service, technology and performance.
The global production and marketing of specialty chemicals and
equipment is our company's business. Our dedication to the
principles of service, technology and performance, as practiced
by our 5,500 employees, is designed to support our strategy of
focusing on our customers and on solving their problems. Our
actions are governed by a small business culture, an
entrepreneurial spirit and a customer-first strategy aimed at
making our customers more efficient and more successful. In the
business review section of this report, our senior operating
managers discuss the results produced by this strategy.
While satisfying customers is our priority, Crompton & Knowles'
employees have also dedicated themselves to making our
organization more efficient by improving manufacturing processes,
simplifying our organizational structure and consolidating
international offices. These improvements were important
contributions to the record results in 1997. We are confident
that additional opportunities for efficiencies remain, and we are
in the process of identifying and acting upon them.
To assure that the interests of our management team and employees
are aligned with those of our shareholders, we have structured
our incentive and compensation programs to recognize and reward
those individuals who meet or exceed their objectives and
contribute to the success of the corporation. These programs
served us well in 1997 and will continue to be an integral part
of our future performance plans.
The excellent performance of our operations during 1997 resulted
in record earnings and strong cash flows which enabled us to
repay debt and positioned us to pass a milestone in early 1998.
Based on current estimates, we expect to achieve a positive net
worth for the company within the first quarter of 1998. Further,
as part of our strategy to lessen our debt burden, in May of 1998
we plan to restructure approximately $342 million of costly debt,
which will significantly reduce our interest expense. This
refinancing will benefit 1998 as well as our future financial
results.
International growth of our businesses will also continue to be a
management priority. In 1997 our international sales were 39
percent of total sales and, despite the negative impact of
foreign currency translation, increased one percent to $728
million from $718 million in 1996. With the opening of several
new foreign sales and technical service offices over the last
year, we expect continued growth over the coming years. Our
objective is to derive 50 percent of revenues from international
operations with a key focus in Western Europe, Central Europe,
Latin America and the Far East. The Asian region presently
accounts for approximately eight percent of our revenue and will
remain a long-term growth area for many of our specialized
products.
Retiring from our Board of Directors at this year's annual
meeting will be Michael W. Huber. He has served our company since
1983, offering valuable insights, advice and counsel as our
company increased twelve-fold in size during his tenure. We thank
him and wish him well. One notable senior management change
occurred in 1997, with James J. Conway joining Crompton & Knowles
as corporate vice president and president of C&K Colors, managing
our global dyes business. He succeeded Edmund H. Fording who
retired after eight years with the company.
By all significant measures, 1997 was an outstanding year for
Crompton & Knowles, a year in which we delivered against our
aggressive objectives. While the future will continue to offer
challenges, we remain confident that our flexibility and pro-
active approach to dealing with changing circumstances will keep
us on course to extend our record of performance into 1998 and
beyond. Our people have demonstrated their desire and ability to
continue to improve the operating performance of our businesses
around the world while dedicating themselves to value-added
service for our customers and increased financial value for our
shareholders.
We appreciate your support and will keep you informed of our
progress.
Respectfully yours,
Vincent A. Calarco
Chairman, President and
Chief Executive Officer
March 18, 1998
(photo caption)
Vincent A. Calarco
Chairman, President and
Chief Executive Officer
Specialty Chemicals Segment
Chemicals & Polymers
(photo caption)
"A customer-first approach, combined with new process
technologies, R&D investment and cost improvement programs, will
contribute to the continued profitability of the Chemicals &
Polymers business. Expansion into new market areas and regions
will fuel our global growth."
Joseph B. Eisenberg
Executive Vice President, Chemicals & Polymers, Uniroyal Chemical
Co., Inc.
Business At-A-Glance
(Pie chart)
Percentage of Sales - 27%
Trademarks > Delac(R) accelerators, Naugard(R) antioxidants,
Flexzone(R) antiozonants, Celogen(R) blowing agents, Royalene(R)
EPDM, Paracril(R) nitrile rubber
Markets > Rubber chemicals for producers of rubber products such
as tires, hoses, belting, sponge and engineered rubber products;
EPDM for producers of single-ply roofing, electrical insulation,
seals, gaskets, sponge rubber and oil additives; nitrile rubber
for producers of oil-resistant seals, hoses, rings, printing
rolls and insulation
The Specialty Chemicals Segment had an outstanding year in 1997.
Operating Profit increased 10 percent to $238.5 million. Sales of
$1.54 billion were one percent higher than the prior year as
higher unit volume of four percent was partially offset by lower
foreign currency translation of two percent and lower pricing of
one percent.
Chemicals & Polymers' sales were driven by strong growth of
Royalene(R) EPDM and Paracril(R) nitrile rubber. The strength of
these businesses more than offset the effect of competitive
pricing in the rubber chemicals business, resulting in a one
percent increase in sales to $496.4 million.
Despite worldwide competitive pricing pressure, which reduced
revenues in the rubber chemicals business, the company's volume
increased in line with worldwide market growth in 1997,
maintaining its position as a major global supplier.
In response to industry changes, the company worked aggressively
to bring costs in line with the marketplace. Presently, it
continues to emphasize the development of new products to
increase future sales, and proprietary process improvements to
reduce production costs.
To support the world's leading tire manufacturers' on-going
efforts to enhance the performance and durability of tires, the
company introduced Bonding Agent TZ. This new adhesive improves
the bond between rubber and wire belting in radial tires.
Similarly, for footwear and automotive applications, where non-
staining characteristics are integral to product performance, the
company introduced Durazone(R) 37, a new antiozonant.
In the area of new process technology, the company is installing
a proprietary system for manufacturing a key rubber chemical
intermediate used to produce Flexzone(R) antiozonant, the
company's single largest rubber chemical. The company is also in
the final development phase of a unique production process for
antiozonants, which will reduce costs further and offer a more
environmentally friendly production environment. A strengthened
rubber chemicals product line and low-cost production capacity
will position the company to maintain its strong position in
existing markets while capitalizing on long-term opportunities in
developing markets in Central Europe, Latin America and Asia.
The company's Royalene brand EPDM business had an outstanding
year in 1997, growing approximately nine percent, or about twice
the growth rate of the market. This resulted from a continued
focus on key customers in construction, roofing, automotive and
lubricants markets where the company has built long-standing
customer relationships. The strong demand in 1997 resulted in
firmer pricing throughout the industry and a sold-out position
for the company's production through 1998.
In anticipation of new industry trends and customer demands, the
company is emphasizing new product development and technical
innovation directed at value-added customer needs. RoyalEdge(R)
EPDM, a new generation polymer continues to offer optimized
performance characteristics for a variety of rubber goods
applications. This technology is fostering growth with key
customers in the automotive weatherseal market as well as in
hose, wire and cable, and mechanical goods.
The company has also been active in the area of metallocene
polymerization, and has invested in a multi-million dollar
metallocene development lab and pilot facility dedicated to the
development of EPDM products that cannot be produced by
conventional catalysis. These developments should open new
markets and applications for EPDM.
As the company's EPDM business outpaces the industry, it
continues to reinforce its position as the leading supplier in
North America and is debottlenecking its Geismar, Louisiana
facility to meet the growing needs of its customers.
The Paracril nitrile rubber (NBR) business reported sales growth
of 10 percent in 1997 attributable to increased demand for
specialized products for the automotive and industrial market
sectors, and specifically new Paracril OZO(R) grades for hose and
hose cover applications. The company's expansion in Mexico
through its acquisition of Negromex's NBR business and
manufacturing alliance has helped significantly to increase
Paracril sales in 1997, firmly establishing the company's
position as the major supplier of NBR in Latin America and the
only manufacturer and marketer of NBR in Mexico.
The Geismar, Louisiana manufacturing facility, the company's
largest production facility, continued to receive public
recognition for its history of strong environmental stewardship.
It was named "Facility of the Year" in 1997 by Environmental
Protection magazine, was recognized as an Environmental
Leadership Facility by the Louisiana Department of Environmental
Quality, and also received the National Performance Review award
from U.S. Vice President Albert A. Gore.
(photo captions)
The use of rubber chemical antioxidants and accelerators to
prevent deterioration by sunlight and weather make them the
preferred choice for use in high performance athletic footwear.
The inherent heat, ozone, and weathering resistance of
Royalene(R) EPDM, combined with the oil resistance of Paracril(R)
NBR, make them ideal candidates for an extensive array of
automotive underhood components such as hose, wire & cable, brake
cups, and seals and gaskets.
The growing market for longer-lasting automobile tires has
prompted the development of higher quality rubber additives which
can withstand the effects of ozone, oxygen, light and heat over
the long haul.
Crop Protection
(photo caption)
"The evolving needs of agribusiness-at home and abroad-have
changed the face of the industry. We are poised for growth in the
next millennium with highly specialized product lines that
satisfy our customers' needs."
Alfred F. Ingulli
Executive Vice President, Crop Protection, Uniroyal Chemical Co.,
Inc.
Business At-A-Glance
(Pie chart)
Percentage of Sales - 20%
Trademarks > Vitavax(R), Terrazole(R), Terraclor(R) and
Procure(TM) fungicides; Omite(R) and Comite(R) miticides;
Dimilin(R) insecticide; Harvade(R), Royal MH-30(R) and B-Nine(R)
growth regulants; Alanap(R), Pantera(R) and Casoron(R)
herbicides; Gustafson and Hannaford Seedmaster seed treatment
Markets > Worldwide growers of major food crops such as grains,
fruits, nuts and vegetables and non-food crops including tobacco,
cotton, turf, flax and ornamental plants
The Crop Protection business grew in 1997, by taking advantage of
increases in worldwide agricultural production in its chosen
markets. For the eleventh consecutive year, the business posted
record sales, with international sales making up approximately
fifty percent of the total. Sales for the business were $370.1
million in 1997, five percent above sales for 1996. Profitability
also improved for the fourteenth consecutive year.
As a marketer and manufacturer of insecticides, fungicides, plant
growth regulants, herbicides, seed treatment chemicals, and
equipment, the Crop Protection business is creating new platforms
for growth in the United States and overseas markets,
capitalizing on its diverse product portfolio that improves
farmers yields on over 400 crops in 82 countries.
Crop Protection's success is based on its strategy of targeting
distinct market niches with a diverse, yet highly specialized
product line. Crop Protection's strategy of product line, crop
and geographic diversity successfully works to offset the
cyclical nature inherent in the crop protection industry. The
value of this approach was demonstrated once again in 1997 when
sales decreased in the in-furrow cotton fungicide market, only to
be more than countered by increased demand for acaricides in the
California nut and vine market, and record sales of Vitavax(R) to
the Canadian canola market.
Sales in the fungicide business, driven by increased Vitavax(R)
consumption, were strong in 1997. A new fungicide, Procure(TM),
has enabled the business to participate in the foliar fungicide
market segment. Sales of this new product were exceptionally
strong in the Western United States, and research trials in the
Eastern United States apple groves show significantly larger
fruit sizes compared to apples treated with competing fungicides,
reinforcing management's confidence about this product's
effectiveness and potential. The company's plant growth regulants
for the horticultural market, B-Nine(R) and Bonzi(R), experienced
continued sales growth in the United States.
A new plant growth regulant, Butralin, was introduced to the
United States tobacco farmers market in 1997 with strong sales
results. Another plant growth regulant, Royal MH-30(R) received
registration in Brazil, and Royal MH-30(R)-SG was also introduced
into the U.S. rice market in 1997 under an emergency registration
that was requested by the state of Louisiana. Both products help
farmers control noxious red rice weed in white rice.
Herbicide sales growth in 1997 was boosted by significant growth
of Pantera(R), a post emergence herbicide. The gains came
primarily from market penetration in Eastern Europe and Latin
America as well as the issuance of new registrations for the
product.
Miticide product line sales were very strong in 1997. Sales of
Comite(R) and Omite(R) surged as severe and early infestations of
mites in California prompted farmers to protect their crops
aggressively. By contrast, low infestations of beet armyworms in
crops grown in the southern U.S. adversely affected sales of
Dimilin(R). A new registration for control of plume moth in
artichokes and promising test results for soybean yield
enhancement will help balance the cyclical nature of the Dimilin
cotton market in the future.
Additional new product opportunities satisfying specific customer
needs are also being developed. A new insecticide-Adept(TM)- for
use in greenhouses, was successfully introduced in 1997. The
company is also developing a new acaricide that is based on novel
chemistry that can be used on a broad range of crops worldwide. A
new insecticide class, with novel structure and new mode of
action, has been discovered and has potential use against cotton
pests. The company is also pursuing animal health opportunities
for the control of ectoparasites in companion animals, cattle,
sheep and commercial fish production and represents a new
business opportunity for Crompton & Knowles.
In North America, continued growth in new products such as
Raxil(R), a seed treatment fungicide, and Gaucho(R), an
innovative seed treatment insecticide for sorghum, canola,
cereals and cotton, helped the company's seed treatment
subsidiary, Gustafson, produce record results this year
overcoming the impact of lower cotton acreage. Gustafson's seed
treatment equipment business also grew to a record level this
year, strengthening the company's position as North America's
market leader in seed treatment.
Outside of North America, sales of the company's seed treatment
product line, led by Vitavax(R), were especially strong in
Central Europe, Ukraine, Brazil, Argentina, Germany and Canada. A
new product for the United Kingdom, Anchor(R), gained
registration in 1997, opening the way for increased sales in the
British market. A new Crop Protection office in Beijing, China
also led to increased sales in that country, while Hannaford
Seedmaster Services, the company's Australian subsidiary, also
enjoyed record results.
The outlook for the seed treatment business is bright as
bioengineered seeds are increasingly used by farmers around the
globe. As a result, protecting the high valued seeds from attack
by insects and diseases has become even more important. Crop
Protection's diverse line of seed treatment products and in-
furrow fungicides are thus well-positioned to take full advantage
of this emerging biotechnology trend. Additionally, the company's
insecticide line is generally complementary to the insect
resistance provided by bioengineered plants.
Regulatory agencies around the world are also encouraging the
industry to expand the use of Integrated Pest Management (IPM).
IPM strategies are environmentally sound pest control approaches
that rely not only on pesticides, but also on improved cultural
practices, activity of beneficial insects that prey on the
problem pests, and genetics. IPM practices usually result in
lower absolute amounts of pesticides being used during pest
control. By design, the company's product line is well suited to
IPM practices, and as this approach to farming increases in
acceptance, the company's leadership position in this segment
should help it grow in the future at rates above the industry
average.
(photo captions)
An innovative use of plant growth regulator Royal MH-30(R) helps
farmers remove noxious red rice from their rice crop, improving
quality and yields.
Crop Protection products are used on a wide range of high-value
crops, helping growers produce higher yielding, more marketable
produce.
The Division serves the expanding ornamental plant market with
proprietary products such as B-Nine(R) and Bonzi(R) plant growth
regulants.
Agricultural chemicals assist farmers in producing high quality,
low cost cotton to help clothe the world's expanding population.
Specialties
(photo caption)
"Specialties doesn't just want to compete in the new millennium-
it wants to lead. An ambitious global program is in place to grow
the business through international expansion and by introducing
new high value-added products to the marketplace."
William A. Stephenson
Executive Vice President, Specialties, Uniroyal Chemical Co.,
Inc.
Business At-A-Glance
(Pie chart)
Percentage of Sales - 17%
Trademarks > Naugard(R) plastic antioxidants and polymerization
inhibitors, Celogen(R) foaming agents, Naugalube(R) petroleum
additives, Synton(R) PAOs, Polybond(R) and Royaltuf(R) polymer
modifiers, Trilene(R) liquid EPDM, Adiprene(R) and Vibrathane(R)
urethane prepolymers
Markets > Specialty additives for producers of plastic and
petroleum related products such as adhesives, athletic equipment,
automotive parts, construction materials, food packaging,
industrial oils and lubricants. Urethane prepolymers for abrasion
resistant applications such as solid industrial tires, printing
rollers, industrial rolls, linings for mining equipment and
consumer goods
Sales for the Specialties business, including specialty chemicals
and urethane prepolymers, increased six percent to $315.2 million
as a result of increased market share, international expansion
and the introduction of new high value-added products.
In 1997, the company segmented its growing worldwide specialty
chemicals business unit into two market-focused businesses:
performance additives, and specialty additives and intermediates.
Performance additives focuses primarily on additives for the
lubricants market, a business which has been growing in excess of
10 percent annually. This growth is attributed to the increasing
demand for performance products such as antioxidants and
synthetic lubricants used in a variety of industrial and
automotive markets. The use of synthetic fluids as lubricants has
accelerated the growth of this business, primarily in the U.S.
and Europe.
To keep pace with this growth, the business completed a second
plant expansion for Synton(R) PAO, a synthetic fluid, and plans
are underway for an additional multi-million dollar plant
expansion expected to be completed in mid-1998. This expansion
will significantly add to the business's capacity to service
customers.
Changing requirements in the lubricants marketplace have led to
increasing demand for higher performing lubricating fluid
systems. The company is keeping pace with these changing
requirements by developing products and processes to help prolong
the service life of automotive and industrial lubricants. These
include new grades of Naugalube(R) lubricant additive products
specially designed to meet specific performance requirements.
The company's Trilene(R) liquid EPDM polymers also have key
performance characteristics to satisfy the special needs of the
lubricants, rubber, plastics and telecommunications markets. A
key innovation developed by the company is a unique new Trilene
polymer grade, being tested in automotive engine, gear and
industrial oils.
Aggressive marketing programs in specialty additives and
intermediates resulted in market share growth primarily derived
from the introduction of new products. The successful
commercialization of Naugard(R) SFR, a higher performing,
environmentally-safer polymerization inhibitor used by the
petrochemical industry to inhibit the adverse formation of
polymers in styrene monomer production, led the way. Also showing
strong growth were polymer modifiers used to toughen engineered
thermoplastics; synergistic blends of plastic antioxidants used
in the wire and cable, and thermoplastic composite markets; and a
liquid stabilizer for polyether polyols used to manufacture
flexible foam flabstock.
Contributing to the improved performance was diphenylamine (DPA),
a key intermediate used by the rubber, plastics and lubricant
additives industries worldwide. The company is the world leader
in the manufacture of DPA.
In Asia-Pacific, the fastest growing region for specialty
additives, the company's plastic antioxidants, polymer modifiers,
and polymerization inhibitors for styrene monomers have exhibited
strong demand. To assure further growth in specialty additives,
the company is continuing to focus on the development of new
inhibitors, polymer modifiers, and specialty antioxidants for the
plastics and petrochemical markets. The company's Freeport, Grand
Bahama manufacturing facility has implemented productivity
improvements which increased output to serve the growing demand
for high performance antioxidants.
In 1997, the Adiprene(R)/Vibrathane(R) liquid castable
polyurethane prepolymer business continued to perform strongly.
These products are used in fabricated parts such as solid
industrial tires, mining equipment, printing rolls, and sports
equipment because of the high abrasion resistance and toughness
they impart to the end product.
The company's technical, marketing and sales efforts are
currently focused on developing new urethane prepolymers in three
specific areas: Adiprene low-free isocyanate prepolymers offer
improved processability and workplace safety; sales are up
significantly due to the recognized value of ease of processing
and higher performance of the product; Ribbon Flow(R) Systems are
applied to exterior surfaces of industrial rolls, providing a
more cost efficient process to produce high performance rolls
used in the production of paper and steel; and Adiprene para-
phenylene diisocyanate (PPDI) based prepolymers are used in new,
higher performance applications such as sheave liners for "People
Mover" transit systems and bearing seals for steel mill rolls.
The partnership between Uniroyal Chemical and E.I. DuPont de
Nemours and Company in the production, development and marketing
of PPDI urethanes is expected to present unique opportunities
requiring the synergistic chemistries developed by both companies
for a higher-performing urethane prepolymer.
Success in these three areas has resulted in new versions of
urethanes opening new markets for new applications.
Because the Adiprene/Vibrathane business involves one-on-one
customer relationships built around leading-edge technology and
intensive technical service, additional investments are being
made in a trained workforce and production facilities in all
regions of the world to support our global customers. The
company's manufacturing capability for low-free toluene
diisocyanate prepolymers has undergone numerous capacity
expansions in the U.S., and plans are being developed to expand
its manufacturing capabilities in Europe to capitalize on the
growing acceptance of its products.
(photo captions)
An increasing demand for higher-performing lubricant additives
has resulted in the commercial success of Synton(R) PAOs to
improve the efficiency of a wide range of engine, gear and
industrial oils used by the automotive, diesel and aviation
industries.
Royaltuf(R) impact modifiers help to increase the toughness,
durability and weather resistance of these mid-Manhattan, NY bus
stop signs developed by Amsign (made of Centrex(R) weatherable
polymer and Lustran(R) ABS resin).
An automated "People Mover" system uses cable drawn sheave liners
made from Adiprene(R) PPDI-based urethane prepolymers, which
exhibit extreme abrasion resistance resulting in longer life of
the liner.
Colors
(photo caption)
"Crompton & Knowles continues to distinguish itself as a global
leader through its technical innovation and broad offering of
high quality products. Improvements in 1997 in customer service,
product quality and operating costs will all benefit the business
in 1998 and enable it to succeed in an increasingly competitive
market."
James J. Conway
President, Crompton & Knowles Colors Incorporated
Business At-A-Glance
(pie chart)
Percentage of Sales - 14%
Trademarks > Nylanthrene(R), Supernylite(R), Intrachrome(R),
Intracid(R), Intralan(R), Sevron(R), Intralite(R), Intraplast(R),
Intrasil(R), Intrasperse(R), Intracron(R), Intrawite(R),
Cenegen(R), Intrafix(R), Intrasoft(R), Intrassist(R)
Markets > International producers of apparel, home furnishings,
automotive fabrics, paper, leather and inks
The Crompton & Knowles Colors business maintained its established
position as a leading North American dyestuff supplier with new
product line introductions, additions to existing product ranges
and technological advances to support future growth. The business
recorded sales of $257.6 million in 1997 even as the worldwide
dyes business continued its multi-year realignment that has led
to consolidations among major dye producers. The realignment was
reflected in a five percent decline of Colors' sales this year
due to pricing and foreign exchange impacts.
Nonetheless, the Colors business expanded its market presence for
many of its product lines and continued to introduce
technological innovations to ensure its long-term competitiveness
and growth in specialized markets where it has proven strengths.
In the United States, these include Intracron(R) CD trichromy-a
trio of the primary colors yellow, red and blue fiber reactive
dyes which are especially well-suited for dyeing difficult shades
on cotton and viscose fibers. This product line will be broadened
further in 1998. Another new reactive dye line Intrafast(R) was
introduced to meet increased requirements for higher levels of
wetfastness and bleedfastness on wool.
Polyester disperse dyes for knitted and woven apparel and
polyester carpet were the fastest growing segments in 1997. In
response to this demand, Crompton & Knowles Colors introduced a
new line of Intrasil(R) LTM disperse dyes, offering low
temperature migration and high washfastness, and capitalized on
the success of the company's Intrasil(R) QE trichromy of disperse
dyes in the U.S. market.
Colors also began promoting its range of Intrasil(R) A disperse
dyes for polyester fibers in Latin America. The shorter dyeing
cycle and reduced down time for equipment cleanup will increase
dyehouse efficiency and significantly lower production costs for
the company's customers.
Also introduced was Intratex(R) DLM, a gas fade inhibitor for
disperse dyes on acetate. This product will reinforce the
business's range of specialty chemicals as well as its disperse
dyes for acetate. To further broaden its participation in the
acetate dye sector in 1998, the company plans to launch a new
range of acetate dyes. Customers were also attracted to the
company's new Intratex(R) SHC lubricant for cellulosics which
greatly reduces the occurrence of crease, fold or lap marks
during the dyeing process.
Crompton & Knowles Colors continued to gain position in the nylon
carpet segment following the introduction of its Intralan(R) and
Intralan(R) S dyes for commercial nylon carpet. These pre-
metallized acid dyes provide high levels of fade resistance that
is so important to the commercial carpet industry.
To help reinforce its long-standing position as the leading
producer of liquid acid dyes for nylon carpet, the company
introduced two new bluish red dyes. The addition of these colors
to the existing product line reinforces the company's proactive
position in providing the most complete range of liquid acid dyes
to the industry. The market for liquid acid dyes is expected to
grow rapidly in the coming years due to the many exceptional
properties unique to this line of products and the efficiency it
brings to our customers' operations.
The company has enjoyed continued success with Intrafix(R) RD, a
fixative launched two years ago to improve the wetfastness and
washfastness properties of specific direct dyes to rival those of
reactive dyes.
As part of its strategy, the business has continued its plan to
expand in more specialty type businesses with above average
growth and profitability. C&K Colors participated in a joint
development project with Technicolor, a leading film
manufacturer, for the purpose of producing highly specialized,
high-purity dyes for use in new film print technology. Moreover,
with its expertise in technical innovation for the printing
industry, the business has developed Intraplast(R) Blue GN, a dye
for printing inks. The business already has in development other
specialty dye products that will be introduced in 1998.
Internationally, 1997 was a year of renewed growth in the
company's European business with products such as acid dyes, pre-
metallized dyes and direct dyes leading the way. The company
focused on the growth markets of Italy, Spain and the former
Eastern Bloc and invested in plant improvements and research and
development in Western Europe, moving its U.K. operations to a
new commercial headquarters in Bolton, England, and opening a new
office and customer service laboratory facility in Como, Italy.
Sales in local currency in Europe grew eight percent in 1997.
While greater market activity was a positive factor, a highly
focused technical marketing approach gave excellent results in
those areas of core competence.
The company has begun expanding its South American business
segments by opening offices in Mexico and Brazil. A technical
laboratory was established in Brazil to provide custom shade
matching service supporting a network of distributors and dealers
serving customers in other Latin American countries. Colors also
maintains a local sales staff, technical laboratory and warehouse
in Hong Kong and has established direct sales in Southeast Asia.
The improved productivity and efficiency programs, which were put
into effect in the fourth quarter of 1997, are expected to help
enhance the business's effectiveness. New products and new market
penetrations should enable this business to grow in 1998.
During the year, the business's Gibraltar, Pennsylvania
manufacturing facility won the Pennsylvania Governor's Award for
Environmental Excellence in the "Striving for Zero Emissions"
category. The business also received the coveted EPA Region III
Award for demonstrating Excellence in Emergency Preparedness, as
well as for protecting the environment and the community.
(photo captions)
Plant Manager Barry Dobinsky conducts a tour of the Gibraltar, PA
facility discussing the company's proactive role in community
awareness and emergency response with government
officials of Robeson Township.
In the motion picture "Batman and Robin," rich, vivid colors
capturing the atmosphere of a graphic novel were enhanced by
Technicolor in its first project using specialized high-purity
dyes developed by C&K Colors.
C&K Colors produces a full spectrum of bright shades especially
suited for the unique dyeing characteristics of the newest
generation of ultrafine microfibers used in nylon active wear.
Ingredients
(photo caption)
"We are well positioned for the future as our domestic and global
customers have come to rely on our proprietary products for the
convenience food, food services, and health food market systems."
Rudy M. Phillips, President, Ingredient Technology Corporation
Business At-A-Glance
(pie chart)
Percentage of Sales - 5%
Trademarks > Flav-O-Roast(TM), Savory Saute(R), Ulta-Meat(TM),
Maltoline(R), Nulomoline(R), Sucrovert(R), Nulofond(R),
Homemaid(R), Dri-Flo(R), Rise'N Shine(R), and Miracle Middles(TM)
for food processing; Gel-Tone(TM), Gel-Klear, Chroma-Kote(R),
Chroma-Tone(R), Dri-Klear(R), Nu-Pareil(R), Nu-Core(R), Nu-
Tab(R), Cal-Carb(R) for pharmaceuticals
Markets > Food processing industries including bakery,
confectionery, cereal, snack, convenience and institutional
feeding establishments such as restaurants, fast food outlets and
cafeterias; producers of pharmaceutical products such as
vitamins, nutritional supplements, prescription, over-the-counter
and generic drugs
The Specialty Ingredients business completed a plant
consolidation program this year which led to significantly lower
operating costs. While the business had record earnings for the
year, sales for this business unit in 1997 declined by
approximately four percent to $100.2 million, primarily as a
result of the business rationalizing its product lines.
Specialty Ingredients remains dedicated to its three high-value
core businesses - flavored ingredients, specialty sweeteners, and
pharmaceutical ingredients - to foster its growth as a niche
player in North America. To take advantage of the growing food
business industry in Asia and Latin America, it established an
international sales department.
The flavored ingredients business capitalized on its unique line
of customized savory flavors to duplicate tastes produced by home
cooking. These flavor applications include sauces, gravies,
condiments, side dishes and soups. The company also stepped up
its efforts to gain a larger market share in the growing food
service segment of the convenience food market with its
proprietary sauteed flavor systems.
To meet the growing demand for ethnic cuisine in the United
States, the company has expanded its line of savory saute
flavors, including Oriental and Mexican cuisine flavors that are
popular with today's consumers.
The company is also taking into account the growing consumer
trend for convenience, simplicity, and quality in take-out meals,
and has expanded its marketing efforts to food producers that
sell to restaurant chains and to supermarkets that cater to
consumers with preferences for ease and convenience of prepared
foods.
Food service companies that are seeking a competitive advantage
with health-conscious consumers are continuing to turn to
Crompton & Knowles' technical innovations for unique flavor
solutions which improve their offerings and help keep customers
loyal to their products. According to studies done by the
National Restaurant Association, 97 percent of colleges and
universities and 80 percent of restaurants have incorporated
meatless entrees into their daily menus. Following this trend,
Crompton & Knowles has introduced a line of vegetarian meat
flavors for use in meatless products such as veggie burgers,
soups, and sauces.
The company's specialty sweeteners operation, a leading U.S.
supplier of food grade molasses for bakery, confectionery, cereal
and convenience foods, continued its growth in 1997. New grain
conversion products which provide natural sweeteners in health
foods and nutritional supplements, two of the fastest growing
segments in the food industry, experienced good growth in 1997
and are expected to maintain this growth in 1998.
As part of its effort to stay at the leading edge of technology,
the company developed a new cereal coating syrup that was a
market success in 1997. This product, along with other
proprietary cereal products, will contribute to future growth.
New growth initiatives such as the introduction of calcium
supplements, a reciprocal marketing arrangement for lactose
excipients with DMV International, and expansion of offshore
sales continued in the pharmaceutical ingredients business. This
unit's diverse product line includes coatings, colors,
excipients, and flavors used in prescription and over the counter
drugs.
(photo caption)
Customized food concepts with a "cooked at home" taste are
created using ITC's value-added flavors and seasonings-developed
for convenience food manufacturers and food service customers
using its proprietary processing technology.
Specialty Process Equipment & Controls Segment
Davis-Standard
(photo caption)
"Through the power of quality and technology we have been able to
meet the ever-increasing needs of our customers and expand our
global customer base. This has enabled Davis-Standard extrusion
equipment to maintain a leading position in the polymer
processing industry."
Robert W. Ackley, President, Davis-Standard Corporation
Business At-A-Glance
(pie chart)
Percentage of Sales - 17%
Trademarks > Davis-Standard(R), Egan, NRM Extrusion,
Sterling-FHB-Hartig, Killion, ER-WE-PA, Mark VI(TM), Gemini(R),
EPIC III(TM), Thermatic(R), DSB(R)
Markets > Worldwide processors of plastic resins and elastomers
making products such as plastic sheet for appliances,
construction and automobiles; cast and blown film for packaging
of consumer items; extruded shapes for construction and
furniture; compounders of engineered plastics; recyclers of
plastics; producers of wire and cable products; producers of non-
disposable containers
Sales of specialty process equipment and controls grew nine
percent to $311.7 million in 1997 and operating profit increased
54 percent to $35.9 million for the year. These results reflect a
continued expansion of the use of plastic products throughout the
world and the company's position as a leading international
producer of plastics processing equipment.
Sales of equipment to North American plastics processors
increased significantly this year capitalizing on the growth in
the consumption of plastics used in the construction, automotive
and packaging markets. In addition, the company expanded its
business in Europe and opened new offices in Singapore and Hong
Kong to support the Asia-Pacific region.
Davis-Standard continues to maintain a leadership position in
extrusion equipment and related systems for the polymer
processing industry. In 1997 the business capitalized on
opportunities in Europe and significantly improved profitability.
The business is well-positioned for continued growth in this
market.
Davis-Standard has strengthened its leadership position by
broadening its product line, focusing on traditional and niche
markets and addressing emerging customer needs. New products
introduced by the company included a new series of parallel twin
screw extruders to enhance its position in the PVC pipe industry,
as well as numerous additional applications for PVC polymers. Two
of the three sizes in the Gemini(R) parallel twin screw series
were unveiled in 1997 and a third model will be tested and
offered for sale in 1998. This line of equipment incorporates
many of the company's innovative technologies and processes which
enable it to meet the increased production requirements of the
PVC shape extrusion market.
In response to trends in the compounding industry, Davis-Standard
expanded its existing twin screw compounding line of extruders.
The New Alpha Class twin screw compounder delivers 50 percent
more power to process new materials at increased production
rates. Davis-Standard's compounding systems provide polymer
processors the ability to formulate and manufacture their own
engineered plastics and create their own market niches, such as
flame-retardant compounds found in automotive interiors and
aircraft parts.
(photo caption)
Research and development will continue to be a focus evidenced by
the opening of a European Technical Center in Germany.
In wire and cable extrusion systems, the company provided the
industry with innovative systems to produce fiber optic cable,
Category 5 cable lines, LAN cable and ribbon cable for the
telecommunications industry. Growth opportunities in the cable
market are strong as telecommunications and building requirements
continue to expand worldwide.
Progress has also been made in the production of extrusion
systems that reduce processing complexity for plastic and rubber
processors. Areas of significant interest include the in-line
compounding of a sheet product, whereby the process is combined
into a single step rather than two, and an automotive hose
process that typically took four steps to manufacture and is now
produced in a single continuous operation. This simplified
product technology is enabling Davis-Standard to offer customers
extrusion systems unavailable from other suppliers.
In the packaging market, Davis-Standard continues to offer and
expand its line of film and coating systems. Egan/Davis-Standard
in the United States and ER-WE-PA, Davis-Standard's subsidiary in
Germany, continue to provide impetus to the development of
coating and film technology. Technical emphasis is placed on
lines that reduce installation and start-up time and improve
product quality. Product breakthroughs utilizing this segment's
technology include innovative extrusion lines for shelf stable
barrier film for food packaging, aseptic liquid packaging and
flexible film packaging.
The company's blow molding products business developed the first
electric accumulator head. The new head, which is currently
undergoing field-testing, is powered by a direct-current
servomotor and is expected to be retrofitable on any machine.
This electric head is expected to provide blow-molding processors
with greater precision and energy efficiency for engineered
resins as well as medical and clean room applications. These high
technology systems can efficiently produce larger blow molded
automotive components, industrial containers and outdoor
products.
In 1997, the company launched an expansion project at its
Pawcatuck, Connecticut facility to meet the expanding needs of
the business. The addition includes expanded assembly and testing
areas dedicated to large extrusion systems and centralization of
the company's technical center. New capital equipment includes
the world's most sophisticated feedscrew machining center to
manufacture increasingly complex screw designs 80 percent faster
than traditional methods and various other programmable computer
machinery to increase production and technological capabilities
and efficiencies.
The business also opened a new European technical center in the
company's ER-WE-PA plant in Erkrath, Germany. Modeled after the
company's well-regarded Pawcatuck, Connecticut technical center,
the new facility offers European customers access to the
company's vast knowledge base and experience as well as the
ability to work side by side with the company's research and
development technicians.
The company's equipment order backlog at the end of 1997
increased to $106 million from $92 million at the end of 1996.
(photo captions)
Davis-Standard's commitment to advancing technology through an
innovative program of knowledge sharing among several of its
worldwide facilities has led to equipment innovations.
Investments in cutting edge capital equipment continue to improve
quality and delivery times.
Financials
Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Consolidated Financial Statements 19
Notes To Consolidated Financial Statements 23
Responsibility For Financial Statements 32
Independent Auditors' Report 32
Six Year Selected Financial Data 33
Corporate Management 34
Corporate Data IBC
Forward-Looking Statements
This annual report may contain forward-looking statements. These
statements are based on currently available information and the
Company's actual results may differ significantly from the
results discussed. Investors are cautioned that there can be no
assurance that the actual results will not differ materially from
those suggested in such forward-looking statements.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition and Liquidity
Liquidity and Capital Resources
The December 27, 1997 working capital balance of $352.0 million
decreased $32.8 million from the December 28, 1996 balance of
$384.8 million, while the current ratio decreased slightly to 2.0
from 2.1. Days sales in receivables decreased to 54 days in 1997
from 55 days in 1996. Inventory turnover averaged 3.3 in 1997
compared to 3.2 in 1996.
Net cash flow provided by operations of $215.8 million increased
$120.4 million from $95.4 million in 1996 primarily as a result
of improved net earnings. The cash flow was used principally to
reduce indebtedness, fund capital expenditures and pay cash
dividends. The Company's debt to total capital percentage
decreased to 102% from 110% in 1996. The Company's liquidity
needs, including debt servicing, are expected to be financed from
operations.
In July 1997 the Company amended the revolving credit agreement
with a syndicate of banks increasing the line of credit from $530
million to $600 million. Borrowings under the revised agreement
include $300 million available to the Company for working capital
and general corporate purposes, $150 million available to
Uniroyal Chemical Company, Inc. for working capital and general
corporate purposes and $150 million for borrowings by the
Canadian and European subsidiaries of the Company. Borrowings
under the agreement amounted to $88.3 million at December 27,
1997 and carried a weighted average interest rate of 7.2%.
Capital expenditures of $50.2 million increased $11.0 million
from $39.2 million in 1996. Capital expenditures are expected to
approximate $60 million in 1998 primarily for replacement needs
and improvement of domestic and foreign operating facilities.
In 1995 the Company initiated a program to update the current
information technology systems on a worldwide basis. The Company
evaluated its major computer systems and software applications
with the goal of avoiding interruption in the supply of goods,
services and business information at the turn of the century.
Year 2000 compliance remediation costs are not expected to have a
material effect on the Company's results of operations.
Accounting Standard Changes
In June 1997 the Financial Accounting Standards Board issued
Statement No. 130 "Reporting Comprehensive Income" and Statement
No. 131 "Disclosures About Segments of an Enterprise and Related
Information", which are effective for years beginning after 1997.
The Company plans to adopt Statement No. 130 in the first quarter
of 1998 and Statement No. 131 in the fourth quarter of 1998.
International Operations
The stronger U.S. dollar exchange rate versus the international
currencies in which the Company operates accounted for an
unfavorable adjustment of $16.5 million in the accumulated
translation adjustment account since year-end 1996. 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 net
asset value of foreign operations amounting to $211.4 million is
not currently being hedged with respect to translation in U.S.
dollars.
The Company operates on a worldwide basis and exchange rate
disruptions between the United States and foreign currencies are
not expected to have a material effect on year-to-year
comparisons of the Company's results of operations. Cash
deposits, borrowings and forward exchange contracts are used
periodically to hedge fluctuations between the U.S. and foreign
currencies if such fluctuations are earnings related. Such
hedging activities are not significant in total.
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. During the third
quarter of 1997, the Company recorded a special environmental
provision of $15.0 million. As of December 27, 1997, the
Company's reserves for environmental remediation activities
totaled $102.6 million. These estimates may change in the future
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
operations in any given year if a significant number of these
matters are resolved unfavorably.
Operating Results-1997 as Compared to 1996
Overview
Consolidated net sales increased 3% to $1.85 billion from $1.80
billion in 1996. The increase was primarily attributable to
increased unit volume of 5% offset by lower foreign currency
translation of 1% and lower pricing of 1%. International sales,
including U.S. exports, decreased slightly as a percentage of
total sales to 39% from 40% in 1996.
Net earnings before extraordinary losses on early extinguishment
of debt increased 43% to $92.1 million, or $1.25 per share basic
and $1.22 per share diluted, compared with $64.6 million, or $.90
per share basic and diluted, in 1996 before after-tax merger and
special environmental costs. Net earnings were $86.8 million, or
$1.18 per share basic and $1.15 per share diluted, compared to a
net loss of $22.5 million, or $.31 per share basic and diluted,
in the prior year.
Gross margins as a percentage of net sales increased slightly to
35.4% from 35.1% in the prior year. Consolidated operating
profit, before special charges of $28.0 million in 1997 and
$115.0 million in 1996, increased 15% to $252.3 million from
$218.6 million in the prior year. Both segments contributed to
the increase as specialty chemicals rose 10% and specialty
process equipment and controls increased 54%.
Specialty Chemicals
The Company's specialty chemicals segment reported sales of $1.54
billion representing an increase of 1% from 1996 primarily
attributable to higher unit volume of 4% offset by lower foreign
currency translation of 2% and lower pricing of 1%. An analysis
of sales by major product lines within the specialty chemicals
segment follows.
Chemicals and polymers sales of $496.4 million increased 1%
versus 1996. Unit volume increased 6%, but was offset by lower
pricing of 4% and lower foreign currency translation of 1%. Sales
of rubber chemicals were lower than 1996 primarily due to lower
pricing. Sales increased in both the nitrile rubber and EPDM
businesses primarily due to increased unit volume.
Crop protection sales of $370.1 million increased 5% versus 1996
primarily attributable to higher unit volume particularly in the
herbicides, insecticide and fungicide businesses.
Specialties sales of $315.2 million increased 6% from 1996
primarily attributable to increased unit volume for urethane
prepolymers and specialty additives.
Colors sales of $257.6 million decreased 5% versus 1996. The
decrease was primarily attributable to lower foreign currency
translation of 3% and lower pricing of 2%.
Specialty ingredients sales of $100.2 million decreased 4%
compared to 1996 primarily attributable to lower unit volume as a
result of product line rationalization.
Operating profit of $238.5 million increased 10% from $216.3
million in 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 $311.7 million representing an increase of 9%
from 1996. The increase is primarily attributable to increased
unit volume of 12% offset primarily by lower foreign currency
translation of 3%. Operating profit of $35.9 million increased
54% from $23.4 million in 1996 primarily as a result of higher
unit volume, cost reductions and improved product mix. The
equipment order backlog totaled $106 million at the end of 1997
compared to $92 million at the end of 1996.
Other
Selling, general and administrative expenses of $269.4 million
decreased 4% versus 1996 primarily due to planned cost reductions
and lower foreign currency translation. Depreciation and
amortization of $79.9 million decreased 3% from 1996 as a result
of certain assets becoming fully depreciated and amortized.
Research and development costs of $53.6 million increased 2% from
1996.
Severance and other costs of $13 million includes severance costs
relating to planned workforce reductions and other costs relating
primarily to certain product liability claims and costs
associated with the implementation of SAP software. The special
environmental charge of $15 million reflects the Company's
current estimate of additional requirements for future
remediation costs.
Interest expense of $103.3 million decreased 10% from 1996
primarily due to lower levels of indebtedness. Other income of
$27.8 million includes a gain in the amount of $28 million
relating to a settlement with the U.S. Department of the Army
(refer to page 28). The effective tax rate of 38.1% compares to
38.9% in the prior year after adjusting for the after-tax impact
of merger and special environmental costs in 1996.
Operating Results-1996 as Compared to 1995
Overview
Consolidated net sales increased 3% to $1.80 billion from $1.74
billion in 1995. The increase was primarily attributable to the
impact of acquisitions of 5% offset in part primarily by unit
volume. The acquisitions include primarily the worldwide crop
protection business of Solvay Duphar B.V. acquired in March of
1995 and the extrusion machinery business of Klockner ER-WE-PA
GmbH acquired in January of 1996. International sales, including
U.S. exports, increased as a percentage of total sales to 40%
from 35% in 1995.
The net loss for 1996 was $22.5 million, or $.31 per share basic
and diluted, compared to earnings of $131.6 million, or $2.01 per
share basic and $1.99 per share diluted, in 1995. Before after-
tax merger and related costs of $68.1 million, a special charge
for environmental costs of $18.5 million and an extraordinary
charge of $.5 million, net earnings were $64.6 million, or $.90
per share basic and diluted, in 1996, compared with adjusted
earnings of $56.6 million, or $.86 per share basic and $.85 per
share diluted, in 1995. The adjusted 1995 results exclude $78.9
million of a special tax credit, an extraordinary charge of $8.3
million and other special income, net of $4.4 million.
Gross margin as a percentage of net sales increased slightly to
35.1% from 34.9% in the prior year before certain special income
of $9.9 million in 1995. Consolidated operating profit, before
merger and related costs of $85 million and a special charge for
environmental costs of $30 million, increased 3% to $218.6
million from $213.2 million in the prior year before certain
special income, net of $4.9 million in 1995. The specialty
chemicals segment rose 11% (as adjusted for special income in
1995) and the specialty equipment and controls segment decreased
42%.
Specialty Chemicals
The Company's specialty chemicals segment sales of $1.52 billion
increased 4% from 1995. The increase is primarily attributable to
the impact of acquisitions of 2% and improved pricing. An
analysis of sales by major product class within the specialty
chemicals segment follows.
Chemicals and polymers sales of $493.7 million increased 4% from
1995 primarily attributable to improved selling prices in rubber
chemicals and increased unit volume for nitrile rubber, partially
offset by lower unit volume and pricing in the EPDM business.
Crop protection sales of $353.3 million increased 8% compared to
1995 primarily attributable to the acquisition of the crop
protection business of Solvay Duphar B.V. in March of 1995. Lower
insecticide sales due to lower U.S. infestation levels and
regulatory actions relative to Omite registrations in the U.S.
were offset primarily by increases in international sales and
sales of seed treatment products.
Specialties sales of $296.6 million increased 7% versus 1995
primarily attributable to higher unit volume and improved pricing
of urethane prepolymers and unit volume increases in lubricant
additives and other specialty chemicals.
Colors sales of $271.1 million decreased 5% from 1995 primarily
attributable to lower selling prices of approximately 3% and
lower unit volume. The lower unit volume was primarily in apparel
dyes which account for approximately 50% of the business.
Specialty ingredient sales of $104.4 million increased 3% versus
1995 primarily attributable to increased unit volume.
Operating profit of $216.3 million increased 11% from $195.2
million in the prior year before certain special income, net of
$4.9 million in 1995. The improvement in operating profit
resulted primarily from improved pricing and the impact of
acquisitions.
Specialty Process Equipment and Controls
The Company's specialty process equipment and controls sales of
$284.9 million represent a 2% increase from 1995. Approximately
20% was attributable to the incremental impact of acquisitions,
primarily Klockner ER-WE-PA GmbH, offset partially by 16% lower
unit volume reflecting primarily reduced domestic demand for
extrusion systems and 2% lower pricing.
Operating profit decreased 42% to $23.4 million from $40.2
million in 1995 primarily due to lower selling prices and lower
unit volume in the domestic business. The equipment order backlog
at the end of 1996 totalled $92 million (including $21 million
from 1996 acquisitions) compared to $72 million at the end of
1995.
Other
Selling, general and administrative expenses increased 3% due
primarily to the impact of acquisitions and inflation offset in
part by the cost reduction program charge of $5 million in 1995
and the benefits of that program in 1996. Depreciation and
amortization of $82.6 million increased 3% compared to 1995
primarily as a result of a higher asset base including
acquisitions. Research and development cost of $52.4 million
increased 5% versus 1995 primarily as a result of the impact of
acquisitions and inflation.
Interest expense of $114.2 million decreased 7% from 1995
primarily due to lower levels of indebtedness. Other income of
$1.3 million in 1996 decreased $1.4 million versus 1995 primarily
due to lower interest income and special licensing income in
1995. The effective tax rate, excluding the impact of merger and
related costs and a special charge for environmental costs, was
38.9% versus 38.0% in the prior year before special tax credits
of $78.9 million in 1995.
Consolidated Statements of Operations
Fiscal years ended 1997, 1996 and 1995
(In thousands of dollars, except per share data)
1997 1996 1995
Net Sales $1,851,180 $1,803,969 $1,744,834
Costs and Expenses
Cost of products sold 1,196,030 1,170,586 1,126,166
Selling, general and administrative 269,405 279,812 270,338
Depreciation and amortization 79,856 82,597 80,118
Research and development 53,611 52,359 50,090
Severance and other costs 13,000 - -
Special environmental charge 15,000 30,000 -
Merger and related costs - 85,000 -
Operating Profit 224,278 103,615 218,122
Interest expense 103,349 114,244 122,398
Other income (27,817) (1,285) (2,736)
Earnings
Earnings (loss) before income taxes
and extraordinary charge 148,746 (9,344) 98,460
Provision (benefit) for income taxes 56,675 12,710 (41,462)
Earnings (loss) before
extraordinary charge 92,071 (22,054) 139,922
Extraordinary loss on early
extinguishment of debt (5,242) (441) (8,279)
Net earnings (loss) $ 86,829 $ (22,495) $ 131,643
Basic Earnings (Loss) Per Common Share
Earnings (loss) before
extraordinary charge $ 1.25 $ (.31) $ 2.13
Extraordinary loss (.07) - (.12)
Net earnings (loss) $ 1.18 $ (.31) $ 2.01
Diluted Earnings (Loss) Per Common Share
Earnings (loss) before
extraordinary charge $ 1.22 $ (.31) $ 2.11
Extraordinary loss (.07) - (.12)
Net earnings (loss) $ 1.15 $ (.31) $ 1.99
See accompanying notes to consolidated financial statements
Crompton & Knowles Corporation and Subsidiaries
Consolidated Balance Sheets
Fiscal years ended 1997 and 1996
(In thousands of dollars, except per share data)
1997 1996
Assets
Current Assets
Cash $ 10,607 $ 21,120
Accounts receivable 262,412 267,871
Inventories 356,716 362,349
Other current assets 85,314 90,897
Total current assets 715,049 742,237
Non-Current Assets
Property, plant and equipment 474,892 497,979
Cost in excess of acquired net assets 181,025 189,012
Other assets 177,854 227,962
$1,548,820 $1,657,190
Liabilities and Stockholders' Equity
Current Liabilities
Current installments of long-term debt $ - $ 731
Notes payable 1,770 8,595
Accounts payable 145,405 151,270
Accrued expenses 149,910 143,133
Income taxes payable 38,909 33,214
Other current liabilities 27,094 20,536
Total current liabilities 363,088 357,479
Non-Current Liabilities
Long-term debt 896,291 1,054,982
Postretirement health care liability 149,344 181,980
Other liabilities 160,187 159,167
Stockholders' Equity (Deficit)
Common stock, $.10 par value -
issued 77,332,751 shares
in 1997 and 77,237,421 in 1996 7,733 7,724
Additional paid-in capital 232,213 232,010
Accumulated deficit (174,019) (257,177)
Accumulated translation adjustment (42,045) (25,592)
Treasury stock at cost (40,228) (48,083)
Deferred compensation (984) (1,587)
Pension liability adjustment (2,760) (3,713)
Total stockholders' deficit (20,090) (96,418)
$1,548,820 $1,657,190
See accompanying notes to consolidated financial statements
Crompton & Knowles Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Fiscal years ended 1997, 1996 and 1995
Increase (decrease) to cash (in thousands of dollars)
1997 1996 1995
Cash Flows from Operating Activities
Net earnings (loss) $ 86,829 $ (22,495) $131,643
Adjustments to reconcile net earnings (loss)
to net cash provided by operations:
Depreciation and amortization 79,856 82,597 80,118
Noncash interest 14,289 16,082 18,781
Deferred taxes 18,184 (16,308) (78,611)
Changes in assets and liabilities:
Accounts receivable (2,997) (9,675) (53,090)
Inventories (3,960) (7,033) (178)
Other current assets 5,688 (614) 2,707
Other assets 2,165 (169) 6,067
Accounts payable and
accrued expenses 8,573 22,548 16,721
Income taxes payable 13,055 3,249 (813)
Other current liabilities 7,244 2,066 (6,139)
Postretirement health
care liability (32,460) (2,653) (1,244)
Other liabilities 12,306 27,106 (9,599)
Other 7,015 652 (15)
Net cash provided by operations 215,787 95,353 106,348
Cash Flows from Investing Activities
Acquisitions - (15,713) (108,035)
Capital expenditures (50,176) (39,204) (87,744)
Other investing activities 5,569 2,689 (7,943)
Net cash used by investing
activities (44,607) (52,228) (203,722)
Cash Flows from Financing Activities
Proceeds (payments) on short-term
borrowings (5,903) (100,434) 29,976
Proceeds (payments) on long-term
borrowings (175,454) 55,985 (136,807)
Proceeds from sale of common
stock, net - 14,150 146,626
Dividends paid (3,671) (12,967) (25,217)
Other financing activities 4,240 4,873 (8,789)
Net cash provided (used) by
financing activities (180,788) (38,393) 5,789
Cash
Effect of exchange rates on cash (905) (573) (1,154)
Change in cash (10,513) 4,159 (92,739)
Cash adjustment to conform
fiscal year of Uniroyal - (13,476) -
Cash at beginning of period 21,120 30,437 123,176
Cash at end of period $ 10,607 $ 21,120 $ 30,437
See accompanying notes to consolidated financial statements
Crompton & Knowles Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
Fiscal years ended 1997, 1996 and 1995
(In thousands of dollars, except per share data)
1997 1996 1995
Common Stock
Balance at beginning of year $ 7,724 $ 7,676 $ 6,365
Stock options, warrants and other
issuances (95,330 shares in 1997,
481,546 in 1996 and 332,530 in 1995) 9 48 32
Uniroyal sale of common stock
(12,785,295 shares) - - 1,279
Balance at end of year 7,733 7,724 7,676
Additional Paid-in Capital
Balance at beginning of year 232,010 227,433 84,527
Stock options, warrants and other
issuances 203 5,062 (50)
Sale of common shares - (485) -
Uniroyal sale of common stock - - 145,347
Return of shares from long-term
incentive plan trust - - (2,391)
Balance at end of year 232,213 232,010 227,433
Accumulated Deficit
Balance at beginning of year (257,177) (213,347) (319,773)
Net earnings (loss) 86,829 (22,495) 131,643
Adjustment to conform fiscal year
of Uniroyal - (8,368) -
Cash dividends declared on common stock
($.05 per share in 1997, $.27
in 1996, and $.525 in 1995) (3,671) (12,967) (25,217)
Balance at end of year (174,019) (257,177) (213,347)
Accumulated Translation Adjustment
Balance at beginning of year (25,592) (12,168) (8,106)
Equity adjustment for translation
of foreign currencies (16,453) (13,424) (4,062)
Balance at end of year (42,045) (25,592) (12,168)
Treasury Stock
Balance at beginning of year (48,083) (62,972) (54,213)
Issued, primarily under stock options
(573,222 shares in 1997, 54,346 in
1996, and 72,729 in 1995) 7,855 254 340
Sale of 1,000,000 common shares - 14,635 -
Common stock acquired (272,800 shares) - - (4,296)
Return of shares from long-term
incentive plan trust (448,000 shares) - - (4,803)
Balance at end of year (40,228) (48,083) (62,972)
Deferred Compensation
Balance at beginning of year (1,587) (2,190) (10,152)
Return of shares from long-term
incentive plan trust - - 7,194
Amortization 603 603 768
Balance at end of year (984) (1,587) (2,190)
Pension Liability Adjustment
Balance at beginning of year (3,713) (3,617) (1,903)
Equity adjustment for pension liability 953 (96) (1,714)
Balance at end of year (2,760) (3,713) (3,617)
Total stockholders' deficit $ (20,090) $(96,418) $(59,185)
See accompanying notes to consolidated financial statements
Crompton & Knowles Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Accounting Policies
Business Combination
On August 21, 1996, the Company merged (the "Merger") with
Uniroyal Chemical Corporation ("Uniroyal") in a common stock
transaction that was accounted for on a pooling-of-interests
basis. The accompanying consolidated financial statements include
the accounts of both companies and all information has been
restated to reflect the combined operations of both companies.
Because of differing fiscal year ends, the consolidated
statements of operations and cash flows and consolidated
stockholders' equity (deficit) for year-end 1995 reflect the
combined results of the Company and Uniroyal for the years ended
December 30, 1995 and October 1, 1995, respectively. Accordingly,
Uniroyal's net loss of $8.4 million for its fiscal quarter ended
December 31, 1995, has been charged to the accumulated deficit
account and Uniroyal's change in cash for such quarter has been
reflected as a cash adjustment in the consolidated statements of
cash flows. The 1997 and 1996 consolidated financial statements
reflect the combined results of both companies for the twelve
month periods ended December 27, 1997 and December 28, 1996,
respectively.
In connection with the merger with Uniroyal, the Company incurred
$85 million of merger and related costs. The components of these
costs comprise principally severance and other personnel costs of
$37.6 million, investment banking fees of $12.5 million, legal
fees of $9.7 million, debt related fees of $8.3 million, facility
consolidation costs of $6.4 million and other costs of $10.5
million.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of all majority-owned subsidiaries. Other affiliates in
which the Company has a 20% to 50% ownership are accounted for in
accordance with the equity method. All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company's fiscal year ends on the last Saturday in December.
Translation of Foreign Currencies
Balance sheet accounts denominated in foreign currencies are
translated generally at the current rate of exchange as of the
balance sheet date, while revenues and expenses are translated at
average rates of exchange during the periods presented. The
cumulative foreign currency adjustments resulting from such
translation are included in the accumulated translation
adjustment account in the stockholders' equity (deficit) section
of the consolidated balance sheets. For foreign subsidiaries
operating in highly inflationary economies, monetary balance
sheet accounts and related revenue and expenses are translated at
current rates of exchange while non-monetary balance sheet
accounts and related revenues and expenses are translated at
historical exchange rates. The resulting translation gains and
losses related to those countries are reflected in operations and
are not significant in any of the years presented.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less
accumulated depreciation. Depreciation expense ($58.7 million in
1997, $59.2 million in 1996 and $57.4 million in 1995) is
computed generally on the straight-line method using the
following ranges of asset lives: buildings and improvements: 10
to 40 years, machinery and equipment: 3 to 25 years, and
furniture and fixtures: 3 to 10 years.
Renewals and improvements which extend the useful lives of the
assets are capitalized. Capitalized leased assets and leasehold
improvements are depreciated over their useful lives or the
remaining lease term, whichever is shorter. Expenditures for
maintenance and repairs are charged to expense as incurred.
Inventory Valuation
Inventories are valued at the lower of cost or market. Cost is
determined principally using the first-in, first-out (FIFO)
basis.
Intangible Assets
The excess cost over the fair value of net assets of businesses
acquired is being amortized on a straight-line basis over 20 to
40 years. Accumulated amortization was $42.2 million and $36.6
million in 1997 and 1996, respectively.
Patents, unpatented technology, trademarks and other intangibles
of $79.1 million in 1997 and $94.8 million in 1996, included in
other assets, are being amortized principally on a straight-line
basis over their estimated useful lives ranging from 6 to 20
years. Accumulated amortization was $123.3 million and $108.2
million in 1997 and 1996, respectively.
Long-Lived Assets
In March, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." This statement requires that long-lived
assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets
may not be recoverable. The Company adopted the new standard in
the first quarter of 1996. The effect of the adoption did not
materially impact the Company's financial position or results of
operations.
The Company evaluates the recoverability of the carrying value of
the intangible assets of each of its businesses by assessing
whether the projected earnings and cash flows of each of its
businesses is sufficient to recover the existing unamortized cost
of these assets. On this basis, if the Company determines that
any assets have been permanently impaired, the amount of the
impaired assets is written-off against earnings in the quarter in
which the impairment is determined.
Research and Development
Research and development costs are expensed as incurred.
Income Taxes
A provision has not been made for U.S. income taxes which would
be payable if undistributed earnings of foreign subsidiaries of
approximately $149.3 million at December 27, 1997, were
distributed
to the Company in the form of dividends, since certain foreign
countries limit the extent of repatriation of earnings, while for
others, the Company's intention is to permanently reinvest such
foreign earnings.
Statements of Cash Flows
Cash includes bank term deposits of three months or less. Cash
payments during the fiscal years ended 1997, 1996 and 1995
included interest payments of $90.8 million, $100.1 million and
$107.9 million and income tax payments of $28.3 million, $28.7
million and $32.2 million, respectively.
Earnings Per Common Share
Effective in 1997, the Company adopted FASB Statement No. 128
"Earnings Per Share." Further information is provided in the
footnote on earnings per common share.
Financial Instruments
Financial instruments are presented in the accompanying
consolidated financial statements at either cost or fair value as
required by generally accepted accounting principles.
Stock-Based Compensation
Effective in 1996, the Company adopted FASB Statement No. 123
"Accounting and Disclosure of Stock-Based Compensation". As
permitted, the Company elected to continue to follow the
provisions of Accounting Principles Board No. 25 "Accounting for
Stock Issued to Employees" and related interpretations in
accounting for stock-based compensation plans. Further
information is provided in the footnote on Stock Incentive Plans.
Other Disclosures
Included in accounts receivable are allowances for doubtful
accounts in the amount of $8.7 million in 1997 and $7.3 million
in 1996. Included in other current liabilities are customer
deposits in the amount of $25.1 million in 1997 and $18.7 million
in 1996.
Acquisitions
During 1996, the Company acquired Klockner ER-WE-PA GmbH and the
Hartig line of industrial blow molding systems at an aggregate
cost of $15.7 million. During 1995, the Company acquired the
worldwide crop protection business of Solvay Duphar, B.V., along
with five smaller acquisitions, at an aggregate cost of $108
million. 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 $34.9 million, is being
amortized from 20 to 40 years. The operating results of each
acquisition are included in the consolidated statement of
operations from the dates of acquisition.
Inventories
(In thousands) 1997 1996
Finished goods $226,730 $242,587
Work in process 47,029 44,445
Raw materials and supplies 82,957 75,317
$356,716 $362,349
Property, Plant and Equipment
(In thousands) 1997 1996
Land and improvements $ 29,295 $ 30,290
Buildings and improvements 159,734 159,893
Machinery and equipment 637,538 628,378
Furniture and fixtures 28,051 25,979
Construction in progress 36,892 29,173
891,510 873,713
Less accumulated depreciation 416,618 375,734
$474,892 $497,979
Leases
The future minimum rental payments under operating leases having
initial or remaining non-cancelable lease terms in excess of one
year (as of December 27, 1997) total $111.0 million as follows:
$12.6 million in 1998, $11.5 million in 1999, $9.6 million in
2000, $8.3 million in 2001, $7.1 million in 2002, and $61.9
million in later years. Total rental expense for all operating
leases was $16.8 million in 1997, $16.6 million in 1996 and $14.7
million in 1995.
Real estate taxes, insurance and maintenance expenses generally
are obligations of the Company and, accordingly, are not included
as part of rental payments. It is expected that, in the normal
course of business, leases that expire will be renewed or
replaced by leases on other properties.
Accrued Expenses
(In thousands) 1997 1996
Accrued interest $ 16,681 $ 18,739
Current portion of
environmental liability 17,914 20,270
Other accruals 115,315 104,124
$149,910 $143,133
Long-term Debt
(In thousands) 1997 1996
9% Senior Notes Due 2000 $226,623 $250,583
10.5% Senior Notes Due 2002 235,998 283,078
11% Senior Subordinated Notes
Due 2003 228,675 232,175
12% Subordinated Discount
Notes Due 2005 113,586 103,215
Credit Agreement 88,328 179,466
Other 3,081 7,196
896,291 1,055,713
Less amounts due within one year - (731)
$896,291 $1,054,982
9% Senior Notes
The 9% Senior Notes due 2000 are an obligation of Uniroyal
Chemical Company, Inc. (a wholly-owned subsidiary of Uniroyal)
and are unsecured. Interest is payable semi-annually. The 9%
Senior Notes are not redeemable prior to maturity, except upon a
change in control (as defined in the related indenture) whereupon
an offer shall be made to purchase the 9% Senior Notes then
outstanding at a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest. In connection
with the Merger, such an offer was made, resulting in $2.2
million of principal being redeemed. The 9% Senior Notes rank
pari passu in right of payment with all existing and future
senior indebtedness of Uniroyal Chemical Company, Inc.
10.5% Senior Notes
The 10.5% Senior Notes Due 2002 are an obligation of Uniroyal and
are unsecured. Interest is payable semi-annually.
11% Senior Subordinated Notes
The 11% Senior Subordinated Notes Due 2003 are an obligation of
Uniroyal and are unsecured. Interest is payable semi-annually.
The 11% Senior Subordinated Notes are redeemable in whole or in
part, at the option of Uniroyal at any time after May 1, 1998, at
prices commencing at 105.5% of par of the then outstanding
principal amount, plus accrued and unpaid interest, declining
ratably to par by May 1, 2000.
12% Subordinated Discount Notes
The 12% Subordinated Discount Notes Due 2005 are an unsecured
obligation of Uniroyal and have a final accreted value of $124.1
million at May 1, 1998. Beginning on such date, cash interest
will accrue on these securities and will be payable semi-
annually. The Notes are redeemable in whole or in part, at the
option of Uniroyal at any time after May 1, 1998, at 100% of
their principal amount, plus accrued and unpaid interest.
Merger Waivers
The note indentures require that upon a change in control (as
defined in the related indentures), an offer shall be made to
purchase all of the notes at a purchase price equal to 101% of
the principal amounts (or accreted value), thereof, plus accrued
and unpaid interest. In connection with the Merger, waivers of
the requirement were obtained, except the 9% Senior Notes for
which an offer to purchase was made.
Debt Repurchases
During 1997, the Company repurchased in the open market $24.0
million of 9% Senior Notes, $47.1 million of 10.5% Senior Notes,
$3.5 million of 11% Senior Subordinated Notes, and $2.5 million
of 12% Subordinated Discount Notes. As a result of the
repurchases, the Company recognized an extraordinary charge of
$5.3 million, net of tax benefit of $3.5 million.
During 1996, the Company repurchased $17.2 million of 9% Senior
Notes in the open market. As a result of this repurchase, the
Company recognized an extraordinary charge of $441 thousand, net
of tax benefit of $293 thousand.
Credit Agreement
In July 1997, the Company increased its revolving credit
agreement with a syndicate of banks to $600 million (from $530
million) which extends through August 2001. Borrowings under the
credit agreement are divided into three tranches. Tranche I
provides a maximum of up to $300 million available to the Company
for working capital and general corporate purposes. Tranche II
provides a maximum of up to $150 million available to Uniroyal
Chemical Company, Inc. (a wholly-owned subsidiary of Uniroyal)
for working capital and general corporate purposes. Tranche III
allows up to $150 million of borrowings by the European and
Canadian subsidiaries of the Company. Borrowings may be
denominated in U.S. dollars or the subsidiary's local currency.
The credit agreement calls for interest based upon various
options including a spread over LIBOR that varies according to
certain debt ratios for the trailing four fiscal quarters. In
addition, the Company must pay a commitment fee (currently .175%)
on the total unused portion of the credit agreement based upon
certain debt ratios for the trailing four fiscal quarters. At
December 27, 1997, borrowings under the credit agreement of $88.3
million bore a weighted average interest rate of 7.2%.
Debt Covenants
The Company's various debt agreements contain covenants which
limit the ability to incur additional debt, transfer funds
between affiliated companies, pay cash dividends or make certain
other payments. In addition, the credit agreement requires the
Company to maintain certain financial ratios.
Maturities
In 1997, the scheduled maturities of long-term debt during the
next five fiscal years and years thereafter were: 1998 - none;
1999 - $0.9 million; 2000 - $227.1 million; 2001 - $88.8 million;
2002 - $236.4 million and years thereafter - $343.1 million.
Financial Instruments
At December 27, 1997, the Company had an interest rate swap
contract ("the Swap") outstanding for $270 million with a major
financial institution. Net receipts or payments on the Swap are
accrued and recognized as adjustments to interest expense. The
Swap requires the Company to make semi-annual payments to its
counterparty of an amount ranging from 5.89%-6.25% in 1998 and
5.68% in 1999 with the last payment due on December 31, 1999. The
Swap requires the counterparty to make semi-annual payments at a
fixed rate of 5.24%. The Company paid $1.9 million under the Swap
in 1997. A settlement of the fair market value of the Swap as of
December 27, 1997 would require a payment of approximately $4.2
million.
At December 27, 1997, the Company had an interest rate lock
contract ("Interest Hedge") outstanding with a major financial
institution for $230 million at a rate of 6.04%. The interest
hedge expires on September 1, 2000, which corresponds to the date
of maturity of the 9% Senior Notes payable. Upon expiration an
amount of settlement is computed based upon the difference
between the rate of 6.04% and the 10 year U.S. Treasury rate. A
settlement of the fair market value of the interest hedge as of
December 27, 1997 would require payment of approximately $1.6
million.
The carrying amounts for cash, accounts receivable, notes
payable, accounts payable and other current liabilities
approximate fair value because of the short maturities of these
instruments. The fair market values of long term debt (including
current installments) were $972.2 million and $1,124.8 million in
1997 and 1996, respectively, and with respect to the notes have
been determined based on quoted market prices.
Income Taxes
The components of earnings (loss) before income taxes and
extraordinary loss and the provision (benefit) for income taxes
are as follows:
(In thousands) 1997 1996 1995
Pretax Earnings (Loss):
Domestic $104,886 $ (32,875) $ 76,575
Foreign 43,860 23,531 21,885
$148,746 $ (9,344) $ 98,460
Taxes:
Domestic
Current $ 22,506 $ 15,576 $ 25,253
Deferred 16,989 (9,566) (72,379)
39,495 6,010 (47,126)
Foreign
Current 15,985 13,517 10,603
Deferred 1,195 (6,817) (4,939)
17,180 6,700 5,664
Total
Current 38,491 29,093 35,856
Deferred 18,184 (16,383) (77,318)
$ 56,675 $ 12,710 $(41,462)
The provision (benefit) for income taxes differs from the Federal
statutory rate for the following reasons:
(In thousands) 1997 1996 1995
Provision (benefit) at
statutory rate $52,061 $ (3,270) $ 34,461
Nondeductible merger and
related costs - 14,709 -
Impact of valuation allowance (3,616) (2,904) (78,880)
Foreign dividends impact 524 3,744 2,367
Goodwill amortization 1,619 2,214 1,502
Foreign income tax rate differential 674 (2,168) (3,308)
State income taxes, net of
federal benefit 5,141 (601) 3,322
Other, net 272 986 (926)
Actual provision (benefit) for
income taxes $56,675 $12,710 $(41,462)
Provisions have been made for deferred taxes based on differences
between financial statement and tax bases of assets and
liabilities using currently enacted tax rates and regulations.
The components of the net deferred tax assets and liabilities are
as follows:
(In thousands) 1997 1996
Deferred tax assets:
Pension and other
postretirement benefits $ 78,348 $ 91,861
Accruals for environmental
restoration 31,886 30,427
Other accruals 41,722 38,265
AMT credit and NOL carryforwards 22,363 33,399
Inventories and other 12,487 12,569
Deferred tax liabilities:
Property, plant and equipment (71,557) (63,666)
Intangibles (10,055) (14,015)
Other (2,389) (4,235)
Net deferred tax asset before
valuation allowance $102,805 124,605
Valuation allowance (12,466) (16,082)
Net deferred tax asset after
valuation allowance $ 90,339 $108,523
Net deferred taxes (in thousands) include $47,969 and $47,167 in
current assets, $42,595 and $67,308 in long-term assets, $2 and
$114 in current liabilities and $223 and $5,838 in long-term
liabilities in 1997 and 1996, respectively.
The Company had domestic NOL carryforwards of $35 million,
expiring in the year 2007, which can be used to reduce future
Federal taxable income, while certain of the Company's foreign
subsidiaries had aggregate NOL carryforwards of $38 million which
can be used to reduce future taxable income in those countries.
As a result of the Uniroyal stock offering in 1995 and the
Merger, the Company has undergone an "ownership change" within
the meaning of Section 382 of the Internal Revenue Code of 1986,
as amended. Consequently, the Federal NOL carryforward is subject
to an annual limitation as prescribed thereunder.
Earnings Per Common Share
Effective in 1997, the Company adopted FASB Statement No. 128
"Earnings per Share". The computation of basic earnings (loss)
per common share is based on the weighted average number of
common shares outstanding. Diluted earnings per share is based on
the weighted average number of common and common equivalent
shares outstanding. The computation of diluted loss per share for
fiscal year 1996 follows the basic calculation since common stock
equivalents were antidilutive.
(In thousands, except per share amounts)
1997 1996 1995
Earnings (loss) before
extraordinary charge $92,071 $(22,054) $139,922
Net earnings (loss) $86,829 $(22,495) $131,643
Basic
Weighted average shares
outstanding 73,373 72,026 65,572
Earnings (loss) before
extraordinary charge $ 1.25 $ (.31) $ 2.13
Net earnings (loss) $ 1.18 $ (.31) $ 2.01
Diluted
Weighted average shares
outstanding 73,373 72,026 65,572
Stock options, warrants and
other equivalents 1,985 - 697
Weighted average shares adjusted
for dilution 75,358 72,026 66,269
Earnings (loss) before
extraordinary charge $ 1.22 $ (.31) $ 2.11
Net earnings (loss) $ 1.15 $ (.31) $ 1.99
Capital Stock
The Company is authorized to issue 250,000,000 shares of common
stock at a par value of $.10. There were 77,332,751 shares issued
in 1997, of which 3,724,394 shares were held in the treasury, and
77,237,421 shares issued in 1996, of which 4,297,616 shares were
held in the treasury.
The Company is authorized to issue 250,000 shares of preferred
stock without par value, none of which are outstanding. Preferred
share purchase rights ("Rights") outstanding with respect to each
share of the Company's common stock entitle the holder to
purchase one one-hundredth of a share of Series A Junior
Participating Preferred Stock at an exercise price of $800. The
Rights cannot become exercisable until ten days following a
public announcement that a person or group has acquired 20% or
more of the common shares of the Company or intends to make a
tender or exchange offer which would result in their ownership of
20% or more of the Company's common shares. The Rights also
entitle the holder under certain circumstances to receive shares
in another company which acquires the Company or merges with it.
Warrants
In connection with the Uniroyal merger, the Company assumed
warrants that had been issued by Uniroyal to purchase up to
107,195 converted shares, at an adjusted exercise price of $1.04
per share. At December 27, 1997 and December 28, 1996, warrants
to purchase 107,195 shares were still outstanding. The holder may
exercise these warrants, in whole or in part, until they expire
on October 30, 1999. No warrants were exercised in 1997 while
105,347 and 320,830 were exercised in 1996 and 1995,
respectively.
Stock Incentive Plans
The 1988 Long-Term Incentive Plan ("1988 Plan") authorizes the
Board to grant stock options, stock appreciation rights,
restricted stock and long-term performance awards to the officers
and other key employees of the Company over a period of ten
years. Non-qualified and incentive stock options may be granted
under the 1988 plan at prices not less than 100% of the market
value on the date of the grant. All outstanding options will
expire not more than ten years and one month from the date of
grant. In conjunction with shareholder approval of the Merger,
the number of common shares covered under the 1988 Plan was
increased from 4 million to 10 million shares.
The 1993 Stock Option Plan for Non-Employee Directors as amended
in 1996 authorizes 200,000 shares to be optioned to non-employee
directors at the rate of twice their annual retainer divided by
the stock price on the date of grant. The options will vest over
a two year period and be exercisable over a ten year period from
the date of grant, at a price equal to the fair market value on
the date of grant.
Under the 1988 Plan, 1,261,000 common shares have been
transferred to an independent trustee to administer restricted
stock awards for the Company's long-term incentive program. At
December 27, 1997 deferred compensation relating to such shares
in the amount of $984 thousand is being amortized over an
estimated service period of six to fifteen years. In 1996, the
Company granted long-term incentive awards in the amount of
824,300 shares to be earned at the end of 1998 if certain
financial criteria are met. If earned, such shares will vest
ratably through the year 2000 with the final 25% at retirement.
Compensation expense related to unearned shares is accrued
annually based upon the expected level of incentive achievement.
In connection with the Uniroyal merger, the Company assumed stock
options and rights that had been granted by Uniroyal in the
amount of 2,188,333 converted shares as of the merger date.
Effective in 1996, the Company adopted the provisions of FASB
Statement No. 123 "Accounting and Disclosure of Stock-Based
Compensation." As permitted, the Company elected to continue its
present method of accounting for stock-based compensation.
Accordingly, compensation expense has not been recognized for
stock-based compensation plans other than restricted stock awards
under the Company's long-term incentive programs. Had
compensation cost for the Company's stock option and long-term
incentive awards been determined under the new method, net
earnings (loss) (in thousands) would have been $84,660,
$(24,098), and $131,015 for the years 1997, 1996 and 1995,
respectively. Net earnings (loss) per common share (basic) would
have been $1.15, $(.33) and $2.00 and net earnings (loss) per
common share (diluted) would have been $1.11, $(.33) and $1.98
for the years 1997, 1996 and 1995, respectively. The fair value
per share of long-term incentive awards granted in 1996 was
$13.88 and the average fair value per share of options granted
was $10.53 in 1997, $5.72 in 1996 and $3.51 in 1995. The fair
value of options granted was estimated using the Black-Scholes
option pricing model with the following assumptions for 1997,
1996 and 1995, respectively: divided yield .19%, .34% and 4%,
expected volatility 28%, 30% and 36%, risk-free interest rate
6.1%, 6.5% and 6%, and expected life 6 years, 5 years and 5
years.
Changes during 1997, 1996 and 1995 in shares under option are
summarized as follows:
Price Per Share
Range Average Shares
Outstanding at 12/31/94 $ 2.47-23.75 $10.78 4,422,778
Granted 9.31-16.06 12.62 474,136
Exercised 2.49-9.31 6.21 (72,998)
Lapsed 5.22-23.75 14.02 (190,157)
Outstanding at 12/30/95 2.47-23.75 10.91 4,633,759
Granted 9.14-16.88 15.11 2,178,022
Exercised 4.01-18.19 10.19 (419,287)
Lapsed 3.13-23.75 8.14 (120,519)
Outstanding at 12/28/96 2.47-23.75 12.47 6,271,975
Granted 19.31-26.41 26.39 613,251
Exercised 2.47-19.31 6.69 (667,733)
Lapsed 9.31-19.31 14.62 (86,917)
Outstanding at 12/27/97 $ 3.13-26.41 $14.46 6,130,576
Exercisable at 12/30/95 $ 2.47-23.75 $ 9.98 3,012,170
Exercisable at 12/28/96 $ 2.47-23.75 $10.87 3,851,369
Exercisable at 12/27/97 $ 3.13-23.75 $12.32 3,866,992
Shares available for grant at year-end 1997 and 1996 were
3,595,467 and 4,034,849, respectively.
The following table summarizes information concerning currently
outstanding and exercisable options:
Number Weighted Avg. Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at end of Contractual Exercise at end of Exercise
Prices 1997 Life Price 1997 Price
$ 3.13-6.55 692,146 2.59 $ 4.89 692,146 $ 4.89
$ 9.14-13.00 1,724,497 5.52 $11.76 1,682,811 $11.73
$13.57-16.88 2,519,714 8.13 $14.99 910,067 $14.80
$18.31-22.78 577,758 4.69 $18.93 577,758 $18.93
$23.75-26.41 616,461 9.79 $26.38 4,210 $23.75
6,130,576 6.61 $14.46 3,866,992 $12.32
The Company has an Employee Stock Ownership Plan that is offered
to eligible employees of the Company and certain of its
subsidiaries. The Company makes contributions equivalent to a
stated percentage of employee contributions. The Company's
contributions were $2 million in 1997, 1996 and 1995.
Postretirement Health Care Liability
The Company provides health and life insurance benefits for
certain retired and active employees and their beneficiaries and
covered dependents in the U.S. and Canada. Postretirement
benefits for retired employees in other countries are generally
covered by government-sponsored plans.
Net postretirement health care cost included the following
components:
(In thousands) 1997 1996 1995
Service cost-benefits earned
during the period $ 1,174 $ 1,292 $ 1,372
Interest cost on accumulated
postretirement benefit obligation $10,298 10,134 10,230
Actual return on plan assets (910) 10 (677)
Net amortization and deferral (6,856) (7,455) (6,660)
Net postretirement health care cost$ 3,706 $ 3,981 $ 4,265
Postretirement health care costs are generally not pre-funded
(except for certain government-related plans) and are paid by the
Company as incurred. The accumulated postretirement health care
liability is as follows:
(In thousands) 1997 1996
Fully eligible and other active
plan participants $ 40,209 $ 42,559
Retirees 114,620 100,439
Accumulated benefit obligation 154,829 142,998
Plan assets at fair value 40,002 5,601
Unfunded status 114,827 137,397
Unrecognized reduction in prior
service cost 36,769 45,956
Unrecognized net loss (2,252) (1,373)
Postretirement health care liability $149,344 $181,980
The weighted-average discount rate used to calculate the
accumulated health care liability in 1997 and 1996 ranged from 7%
- - 7.5% and 7% - 8%, respectively. The expected long-term rate of
return on plan assets was 8% in 1997 and 3.5% in 1996. The
assumed health care cost trend rate ranged from 12.7% - 8.8% and
is assumed to decrease gradually to a range of 6.07% - 5.5% in
2020 and remain level thereafter.
An increase in the assumed health care cost rate of 1% in each
year would increase the postretirement health care liability by
approximately $9 million.
The U.S. Department of the Army funded certain costs during 1997
related to postretirement medical and life insurance benefits of
retirees of the Company's Uniroyal Chemical subsidiary who worked
at the Joliet Army Ammunition Plant in Joliet, Illinois. Uniroyal
Chemical operated the plant for the Army on a cost reimbursement
basis from the 1940's until 1993. The funds are held in trust in
satisfaction of the government's liability to reimburse Uniroyal
Chemical for these costs. At the same time, the government waived
its claim to certain funds held in pension trusts for the benefit
of these Joliet retirees. The resulting pretax gain to the
Company amounted to $28 million and is included in other income.
Pensions
The Company has several defined benefit and defined contribution
plans which cover substantially all employees in the United
States and Canada. Pension benefits for retired employees of the
Company in other countries are generally covered by government-
sponsored plans. The defined benefit plans provide retirement
benefits based on the employees' years of service and
compensation during employment. The Company will make
contributions to the defined benefit plans at least equal to the
minimum amounts required by law, while contributions to the
defined contribution plans are determined as a percentage of each
covered employees' salary.
The Company's net pension cost for the defined benefit plans
included the following components:
(In thousands) 1997 1996 1995
Service cost-benefits
earned during the period $ 6,249 $ 5,974 $ 5,044
Interest cost on projected
benefit obligation 14,712 13,135 11,882
Actual return on plan assets (14,328) (8,837) (13,888)
Net amortization and deferral 313 (1,016) 6,144
Net pension cost $ 6,946 $ 9,256 $ 9,182
The funded status and the (accrued) prepaid pension cost of the
defined benefit pension plans are as follows:
1997 1996
Accumulated Assets Accumulated Assets
Benefits Exceed Benefits Exceed
Exceed Accumulated Exceed
Accumulated
(In thousands) Assets Benefits Assets Benefits
Vested benefit obligation $179,155 $23,781 $132,958 $20,838
Non-vested benefit obligation 9,696 228 11,852 284
Accumulated benefit obligation 188,851 24,009 144,810 21,122
Excess of projected benefit
obligation over accumulated
benefit obligation 22,759 1,675 22,219 1,601
Projected benefit obligation 211,610 25,684 167,029 22,723
Plan assets at fair value 168,711 28,518 114,604 25,668
Funded status (42,899) 2,834 (52,425) 2,945
Unrecognized prior service cost 1,095 (204) 12,047 (351)
Unrecognized net (gain) loss 3,950 (259) 3,672 (342)
Unrecognized net transition asset (180) (499) (557) (606)
Equity adjustment to recognize
minimum liability (2,760) - (3,713) -
(Accrued) prepaid pension cost $ (40,794) $1,872 $ (40,976) $1,646
The weighted-average discount rate used to calculate the
projected benefit obligation ranged from 6% - 8% in 1997 and
6.25% - 8% in 1996. The expected long-term rate of return on plan
assets ranged from 7% - 9% in 1997 and from 6.25% - 9% in 1996.
The assumed rate of compensation increase ranged from 2% - 5.5%
in 1997 and 2% - 6% in 1996.
The Company's net cost for all pension plans, including defined
benefit plans, was $15.0 million, $17.0 million and $16.9 million
in 1997, 1996 and 1995, respectively.
Contingencies
The Company is involved in claims, litigation, administrative
proceedings and investigations of various types in several
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 (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 a result of
current information and analysis, the Company recorded a special
provision of $15 million during the third quarter of 1997 for
environmental remediation activities. The total amount accrued
for such environmental liabilities at December 27, 1997 was
$102.6 million. The Company estimates its potential environmental
liability to range from $74 million to $133 million at December
27, 1997. It is reasonably possible that the Company's estimates
for environmental remediation liabilities may change in the
future should additional sites be identified, further remediation
measures be required or undertaken, 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 its consolidated financial position.
While the Company believes it is unlikely, the resolution of
these environmental matters could have a material adverse effect
on its consolidated results of operations in any given year if a
significant number of these matters are resolved unfavorably.
Business Segment Data
Sales by segment represent sales to unaffiliated customers only.
Consolidated operating profit is defined as total revenue less
operating expenses. In computing consolidated operating profit,
the following items have not been deducted: interest expense,
other income and income taxes. Identifiable assets by segment are
those assets that are used in the Company's operations in each
segment. Corporate assets are principally cash, prepayments and
other assets maintained for general corporate purposes.
Information by Business Segment
(In thousands) 1997 1996 1995
Sales
Specialty chemicals $1,539,507 $1,519,093 $1,464,968
Specialty process equipment
and controls 311,673 284,876 279,866
$1,851,180 $1,803,969 $1,744,834
Operating Profit
Specialty chemicals $ 238,477 $ 216,349 $ 200,069
Specialty process equipment
and controls 35,921 23,372 40,154
General corporate expenses (22,120) (21,106) (22,101)
Severance and other costs (13,000) - -
Special environmental charge (15,000) (30,000) -
Merger and related costs - (85,000) -
$ 224,278 $ 103,615 $ 218,122
Identifiable Assets
Specialty chemicals $1,344,994 $1,436,551 $1,489,727
Specialty process equipment
and controls 188,694 196,372 150,320
Corporate 15,132 24,267 15,798
$1,548,820 $1,657,190 $1,655,845
Depreciation and Amortization
Specialty chemicals $75,505 $78,070 $76,593
Specialty process equipment
and controls 4,163 4,342 3,328
Corporate 188 185 197
$ 79,856 $ 82,597 $ 80,118
Capital Expenditures
Specialty chemicals $ 47,377 $ 37,362 $ 84,571
Specialty process equipment
and controls 2,676 1,807 3,087
Corporate 123 35 86
$ 50,176 $ 39,204 $ 87,744
Information by Major Geographic Segment
(In thousands) 1997 1996 1995
Net sales and transfers between geographic areas:
United States $1,572,235 $1,505,011 $1,501,000
Americas 229,400 214,018 191,195
Europe/Africa 293,529 308,675 238,982
Asia/Pacific 65,970 69,052 67,788
$2,161,134 $2,096,756 $1,998,965
Less transfers between geographic areas:
United States $ 181,628 $ 161,048 $ 147,195
Americas 62,975 63,580 51,821
Europe/Africa 64,269 67,341 54,115
Asia/Pacific 1,082 818 1,000
$ 309,954 $ 292,787 $ 254,131
Net sales from geographic areas to unaffiliated customers:
United States $1,390,607 $1,343,963 $1,353,805
Americas 166,425 150,438 139,374
Europe/Africa 229,260 241,334 184,867
Asia/Pacific 64,888 68,234 66,788
$1,851,180 $1,803,969 $1,744,834
Transfers between geographic areas are accounted for at market
prices or a negotiated price, with due consideration given to
trade and tax regulations of the respective countries.
Export sales included in United States sales:
Americas $ 59,344 $ 54,489 $ 51,235
Europe/Africa 118,974 108,349 105,031
Asia/Pacific 88,757 95,321 70,372
$ 267,075 $ 258,159 $ 226,638
Operating Profit
United States $ 191,090 $ 94,210 $ 206,407
Americas 37,185 21,444 19,643
Europe/Africa 15,760 10,052 16,688
Asia/Pacific 2,363 (985) (2,515)
General corporate expenses (22,120) (21,106) (22,101)
$ 224,278 $ 103,615 $ 218,122
Identifiable assets
United States $1,169,296 $1,287,534 $1,292,437
Americas 89,450 99,603 93,451
Europe/Africa 256,964 232,347 230,838
Asia/Pacific 33,110 37,706 39,119
$1,548,820 $1,657,190 $1,655,845
Summarized Unaudited Quarterly Financial Data
1997
(In thousands, except per share data)
First Second Third Fourth
Net sales $473,873 $494,142 $455,076 $428,089
Gross profit 169,501 181,504 167,450 136,695
Earnings before
extraordinary charge 26,611 31,768 24,822 8,870
Net earnings 26,611 30,541 22,940 6,737
Earnings per common share
before extraordinary charge:
Basic .36 .44 .33 .12
Diluted .35 .43 .32 .12
Net earnings per common share:
Basic .36 .42 .31 .09
Diluted .35 .41 .30 .09
Common dividends per share - .05 - -
Market price per common share:
High 23 1/4 24 3/4 27 1/8 27 3/8
Low 17 7/8 18 1/2 22 1/8 23 3/8
1996
(In thousands, except per share data)
First Second Third Fourth
Net sales $460,468 $469,633 $468,391 $405,477
Gross profit 165,929 173,965 164,557 128,932
Earnings (loss) before
extraordinary charge 21,154 24,376 (69,572) 1,988
Net earnings (loss) 21,154 23,935 (69,572) 1,988
Earnings (loss) per common
share before extraordinary
charge (basic and diluted) .29 .34 ( .97) .03
Net earnings (loss) per common
share (basic and diluted) .29 .34 ( .97) .03
Common dividends per share .135 .135 - -
Market price per common share:
High 15 1/2 18 3/8 17 20 1/8
Low 13 13 7/8 13 1/8 16 1/8
Responsibility for Financial Statements
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles and have
been audited by KPMG Peat Marwick LLP, Independent Certified
Public Accountants, whose report is presented herein.
Management of the Company assumes responsibility for the accuracy
and reliability of the financial statements. In discharging such
responsibility, management has established certain standards
which are subject to continuous review and are monitored through
the Company's financial management and internal audit group.
The Board of Directors pursues its oversight role for the
financial statements through its Audit Committee which consists
of outside directors. The Audit Committee meets on a regular
basis with representatives of management, the internal audit
group and KPMG Peat Marwick LLP.
Independent Auditors' Report
The Board of Directors and Stockholders
Crompton & Knowles Corporation
We have audited the accompanying consolidated balance sheets of
Crompton & Knowles Corporation and subsidiaries (the Company) as
of December 27, 1997 and December 28, 1996, and the related
consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the two-year period ended December
27, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of the Company as of December 27, 1997 and December 28,
1996, and the results of their operations and their cash flows
for the two-year period ended December 27, 1997 in conformity
with generally accepted accounting principles.
We have previously audited and reported on the consolidated
statements of operations, stockholders' equity (deficit) and cash
flows of the Company for the year ended December 30, 1995, prior
to their restatement for the 1996 pooling-of-interests. The
contribution of the Company to revenues and net income
represented 38 percent and 31 percent of the respective 1995
restated totals. Separate financial statements of the other
company included in the restated consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the
year ended December 30, 1995, were audited and reported on
separately by other auditors. We also audited the combination of
the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the year ended
December 30, 1995, after restatement for the 1996 pooling-of-
interests; in our opinion, such consolidated statements have been
properly combined on the basis described in the notes to the
consolidated financial statements under the heading "Accounting
Policies-Business Combination."
/s/KPMG Peat Marwick LLP
Stamford, Connecticut
January 29, 1998
Six Year Selected Financial Data
(In millions of dollars, except per share data)
1997 1996 1995 1994 1993 1992
Summary of Operations
Net sales $1,851.2 1,804.0 1,744.8 1,536.2 1,466.2 1,374.3
Cost of
products sold $1,196.0 1,170.6 1,126.2 972.9 926.3 859.1
Selling, general and
administrative $ 269.4 279.8 270.3 240.1 220.5 207.3
Depreciation and
amortization $ 79.9 82.6 80.1 86.1 89.9 89.2
Research and
development $ 53.6 52.4 50.1 44.7 42.1 41.1
Severance and other
costs $ 13.0 - - - - -
Special environmental
charge $ 15.0 30.0 - - - -
Merger and related
costs $ - 85.0 - - - -
Write-off of
intangibles $ - - - 191.0 - -
Operating profit $ 224.3 103.6 218.1 1.4 187.4 177.6
Interest expense $ 103.3 114.2 122.4 130.7 121.7 132.4
Other expense
(income) $ (27.8) (1.3) (2.7) (4.4) 1.5 6.7
Earnings (loss) before income taxes,
extraordinary charge and cumulative
effect of accounting changes
$ 148.8 (9.3) 98.4 (124.9) 64.2 38.5
Provision (benefit)
for income taxes $ 56.7 12.7 (41.5) 38.0 37.0 23.0
Earnings (loss) before extraordinary charge
and cumulative effect of accounting changes
$ 92.1 (22.0) 139.9 (162.9) 27.2 15.5
Extraordinary
charge $ (5.3) (.5) (8.3) - (100.1) (3.0)
Cumulative effect of
accounting
changes $ - - - - (111.9) (5.8)
Net earnings
(loss) $ 86.8 (22.5) 131.6 (162.9) (184.8) 6.7
Special items, net of tax (included above):
Severance and
other costs $ (7.8) - - - - -
Special environmental
charge $ (9.0) (18.5) - - - -
Postretirement
settlement gain $16.8 - - - - -
Merger and
related costs $ - (68.1) - - - -
Early extinguishment
of debt $ (5.3) (.5) (8.3) - (100.1) (3.0)
Change in deferred
tax valuation
allowance $ - - 78.9 (34.9) - -
Write-off of
intangibles $ - - - (162.5) - -
Cumulative effect of
accounting
changes $ - - - - (111.9) (5.8)
Other $ - - 4.4 - - -
Total special
items $ (5.3) (87.1) 75.0 (197.4) (212.0) (8.8)
Per Share Statistics
Basic
Earnings (loss) before extraordinary
charge and cumulative effect of accounting changes
$ 1.25 (.31) 2.13 (2.67) .44 .26
Net earnings
(loss) $ 1.18 (.31) 2.01 (2.67) (2.98) .11
Diluted
Earnings (loss) before extraordinary
charge and cumulative effect of accounting changes
$ 1.22 (.31) 2.11 (2.67) .44 .25
Net earnings
(loss) $ 1.15 (.31) 1.99 (2.67) (2.98) .11
Dividends $ .05 .27 .52 .46 .38 .31
Book value $ (.27) (1.32) (.83) (5.15) (1.17) 2.37
Common stock trading range:
High 27 3/8 20 1/8 20 24 1/8 27 1/4 23 7/8
Low 17 7/8 13 12 13 7/8 17 5/8 16
Average shares outstanding (thousands)
- Basic 73,373 72,026 65,572 60,908 61,941 59,430
Average shares outstanding (thousands)
- Diluted 75,358 72,026 66,269 60,908 61,941 61,067
Financial Position
Current assets $ 715.0 742.2 697.0 696.9 582.7 537.5
Non-current
assets $ 833.8 915.0 958.8 791.4 1,006.0 1,021.3
Total assets $1,548.8 1,657.2 1,655.8 1,488.3 1,588.7 1,558.8
Current
liabilities $ 363.1 357.5 420.6 361.6 285.4 285.0
Long-term debt $ 896.3 1,055.0 974.2 1,102.2 1,048.8 904.3
Other
liabilities $ 309.5 341.1 320.2 327.8 326.4 223.1
Stockholders' equity
(deficit) $ (20.1) (96.4) (59.2) (303.3) (71.9) 146.4
Current ratio 2.0 2.1 1.7 1.9 2.0 1.9
Total capital $ 878.0 967.9 1,020.1 866.1 994.1 1,057.8
Total
debt-to-capital % 102.3 110.0 105.8 135.0 107.2 86.2
Profitability Statistics (Before Special Items)
% Operating profit
on sales 13.6 12.1 12.2 12.5 12.8 12.9
% Earnings
on sales 5.0 3.6 3.2 2.2 1.9 1.1
% Earnings on average
total capital 16.5 12.8 14.2 11.2 8.3 8.8
Other Statistics
Net cash provided
by operations $ 215.8 95.4 106.3 96.7 97.3 112.1
Capital spending $ 50.2 39.2 87.7 52.1 60.4 47.3
Depreciation $ 58.7 59.2 57.4 56.3 53.0 52.3
Sales per employee$.332 .315 .309 .293 .289 .277
Corporate Management
(photo of management group)
Left to right: Peter Barna, John T. Ferguson II, Charles J.
Marsden, James J. Conway, Robert W. Ackley, Vincent A. Calarco,
Walter K. Ruck, Rudy M. Phillips, Joseph B. Eisenberg, William A.
Stephenson, Marvin H. Happel, and Alfred F. Ingulli
Corporate Officers and Operating Management
Vincent A. Calarco
Chairman, President and
Chief Executive Officer
Robert W. Ackley
Vice President
President,
Davis-Standard Corporation
James J. Conway
Vice President
President,
Crompton & Knowles Colors Incorporated
Joseph B. Eisenberg
Executive Vice President,
Chemicals and Polymers
Uniroyal Chemical Company, Inc.
Alfred F. Ingulli
Executive Vice President,
Crop Protection
Uniroyal Chemical Company, Inc.
Rudy M. Phillips
President,
Ingredient Technology Corporation
Walter K. Ruck
Vice President, Operations
Uniroyal Chemical Company, Inc.
William A. Stephenson
Executive Vice President,
Specialties
Uniroyal Chemical Company, Inc.
Charles J. Marsden
Senior Vice President and
Chief Financial Officer
Peter Barna
Vice President, Finance
John T. Ferguson II
Vice President,
General Counsel and Secretary
Marvin H. Happel
Vice President,
Organization and Administration
Frank Manganella
Treasurer
Michael F. Vagnini
Controller
Corporate Data
Board of Directors
James A. Bitonti (2,3)
Chairman and Chief Executive Officer
Bitco International, Inc.
Vincent A. Calarco (4)
Chairman of the Board
President and Chief Executive Officer
Robert A. Fox (2,3)
President and Chief Executive Officer
Foster Farms
Roger L. Headrick (3,4)
President and Chief Executive Officer
Minnesota Vikings Football Club
Leo I. Higdon, Jr. (1,4)
President
Babson College
Michael W. Huber (1,3)
Retired Chairman of the Board
J.M. Huber Corporation
Charles J. Marsden
Senior Vice President and Chief Financial Officer
C.A. Piccolo (1,2)
President and Chief Executive Officer
HealthPic Consultants, Inc.
Patricia K. Woolf, Ph.D. (1,2)
Private Investor and Lecturer
Department of Molecular Biology
Princeton University
1 Member of Audit Committee
2 Member of Nominating Committee
3 Member of Committee on Executive Compensation
4 Member of Finance Committee
Corporate Headquarters
One Station Place, Metro Center
Stamford, CT 06902
(203) 353-5400
www.crompton-knowles.com
Auditors
KPMG Peat Marwick LLP
Stamford Square
3001 Summer Street
Stamford, CT 06905
Transfer Agent and Registrar
ChaseMellon Shareholder Services L.L.C.
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 288-9541
www.chasemellon.com
Annual Meeting
The annual meeting of stockholders will be held at 11:15 a.m. on
Tuesday, April 28, 1998, at the Tara Stamford Hotel, 2701 Summer
Street, Stamford, Connecticut 06905
Form 10-K
A copy of the Company's report on Form 10-K for 1997, as filed
with the Securities and Exchange Commission, may be obtained
free of charge by writing to the Secretary of the Corporation,
One Station Place, Metro Center, Stamford, CT 06902
(C)1998 Crompton & Knowles Corporation. All rights reserved.
(C&K logo) is a registered trademark of Crompton & Knowles
Corporation; (R) and (TM) indicate registered and unregistered
trade and service marks. Bonzi is a registered Trademark of a
Zeneca Group Company.
Raxil and Gaucho are registered Trademarks of Bayer A.G. Centrex
and Lustran are registered trademarks of Bayer Corporation.
CROMPTON & KNOWLES CORPORATION
One Station Place, Metro Center, Stamford, CT 06902
EXHIBIT 21
Subsidiaries of the Registrant
The following are subsidiaries of Crompton & Knowles Corporation:
Name Place of Organization
CK Holding Corporation Delaware
Crompton & Knowles Canada Ltd. Canada
Crompton & Knowles Colors Incorporated Delaware
Crompton & Knowles Europe S.P.R.L. Belgium
Crompton & Knowles (France) S.A. France
Crompton & Knowles (Hong Kong) Ltd. Hong Kong
Crompton & Knowles (Korea) Ltd. Korea
Crompton & Knowles Services S.P.R.L. Belgium
Crompton & Knowles (United Kingdom) Ltd. United Kingdom
Davis-Standard Corporation Delaware
Davis-Standard (France) SARL France
ER-WE-PA Davis-Standard GmbH Germany
Gustafson, Inc. Minnesota
Gustafson International Company Texas
Hannaford Seedmaster Services (Australia)
Pty. Ltd. Australia
Industrias Gustafson S.A. de C.V. Mexico
Ingredient Technology Corporation Delaware
Inmobiliaria Huilquimex, S.A. de C.V. Mexico
Interbel Trading, Inc. Florida
Lokar Enterprises, Inc. Delaware
Naugatuck Treatment Company Connecticut
Novaquim Holding S.A. de C.V. Mexico
Novaquim S.A. de C.V. Mexico
Rubicon Inc. Louisiana
TOA Uni Chemicals Ltd. Thailand
TOA Uni Chemical Manufacturing Ltd. Thailand
Trace Chemicals Inc. Nevada
Unicorb Limited England
Unikor Chemical Inc. Korea
Uniroyal Chemical Asia, Ltd. Delaware
Uniroyal Chemical Asia Pte. Ltd. Singapore
Uniroyal Chemical B.V. The Netherlands
Uniroyal Chemical Brazil Holding, Inc. Delaware
Uniroyal Chemical Co./Cie. Canada
Uniroyal Chemical Company, Inc. New Jersey
Uniroyal Chemical Company Limited Bahamas/Delaware
Uniroyal Chemical Corporation Delaware
Uniroyal Chemical European Holdings B.V. The Netherlands
(Continued)
The following are subsidiaries of Crompton & Knowles Corporation:
Uniroyal Chemical Export Limited Delaware
Uniroyal Chemical Holdings B.V. The Netherlands
Uniroyal Chemical International Company Texas
Uniroyal Chemical International Sales Corp. Barbados
Uniroyal Chemical Investments Ltd. Canada
Uniroyal Chemical Leasing Company, Inc. Delaware
Uniroyal Chemical Limited Bahamas/Delaware
Uniroyal Chemical Limited Scotland
Uniroyal Chemical Netherlands B.V. The Netherlands
Uniroyal Chemical Overseas B.V. The Netherlands
Uniroyal Chemical Partipacoes Ltda. Brazil
Uniroyal Chemical (Proprietary) Limited South Africa
Uniroyal Chemical Pty. Ltd. Australia
Uniroyal Chemical S.A. Spain
Uniroyal Chemical S.A.R.L. Switzerland
Uniroyal Chemical Taiwan Ltd. Taiwan
Uniroyal Chemical Technology B.V. The Netherlands
Uniroyal Chimica Srl Italy
Uniroyal Quimica S.A. Brazil
Uniroyal Quimica Sociedad Anonima Comerciale
Industrial Argentina
9056-0921 Quebec Inc. Canada
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned officers and directors of Crompton &
Knowles Corporation, hereby constitute and appoint Vincent A.
Calarco, Charles J. Marsden and John T. Ferguson II, and each of
them severally, our true and lawful attorneys or attorney, with full
power to them and each of them to execute for us, and in our names
in the capacities indicated below, and to file with the Securities
and Exchange Commission the Annual Report on Form 10-K of Crompton &
Knowles Corporation for the fiscal year ended December 27, 1997, and
any and all amendments thereto.
IN WITNESS WHEREOF, we have signed this Power of Attorney in
the capacities indicated on January 20, 1998.
Signature Title Signature Title
Principal Executive
Officer:
Chairman of the
/s/Vincent A. Calarco Board, President, /s/Robert A. Fox
Vincent A. Calarco CEO and Director Robert A. Fox Director
Principal Financial /s/Roger L. Headrick
Officer: Roger L. Headrick Director
Sr. Vice President
Chief Financial
/s/Charles J. Marsden Officer and /s/Leo I. Higdon, Jr.
Charles J. Marsden Director Leo I. Higdon, Jr. Director
Principal Accounting /s/Michael W. Huber
Officer: Michael W. Huber Director
/s/Peter Barna Vice President- /s/C.A.Piccolo
Peter Barna Finance C.A. Piccolo Director
/s/James A. Bitonti /s/Patricia K. Woolf
James A. Bitonti Director Patricia K. Woolf Director
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> DEC-27-1997
<CASH> 10,607
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<RECEIVABLES> 262,412
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0
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