-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CUFd1i9z+TJKBeHDfHH7OqrHgfbzc3Cw7jrW6vMQWoaeoNPQnA5ROUfZzrk7JUoN fODjZ4OHwzWGBF3Fm3luGQ== 0000025757-96-000047.txt : 19960813 0000025757-96-000047.hdr.sgml : 19960813 ACCESSION NUMBER: 0000025757-96-000047 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960629 FILED AS OF DATE: 19960812 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROMPTON & KNOWLES CORP CENTRAL INDEX KEY: 0000025757 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 041218720 STATE OF INCORPORATION: MA FISCAL YEAR END: 1225 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04663 FILM NUMBER: 96608650 BUSINESS ADDRESS: STREET 1: ONE STATION PL STREET 2: METRO CTR CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2033535400 MAIL ADDRESS: STREET 1: ONE STATION PLACE STREET 2: METRO CENTER CITY: STAMFORD STATE: CT ZIP: 06902 10-Q 1 CROMPTON & KNOWLES CORPORATION FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended June 29, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to Commission File No. 1-4663 Crompton & Knowles Corporation (exact name of registrant as specified in its charter) Massachusetts 04-1218720 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Station Place, Metro Center Stamford, Connecticut 06902 (address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203)353-5400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at July 17, 1996 Common Stock, $.10 par value 48,039,309 shares CROMPTON & KNOWLES CORPORATION FORM 10-Q FOR QUARTER ENDED JUNE 29, 1996 INDEX PART I. FINANCIAL INFORMATION: Item 1. Condensed Financial Statements and Accompanying Notes . Consolidated Statements of Earnings (unaudited) - Quarters and six months ended June 29, 1996 and July 1, 1995 . Consolidated Balance Sheets - June 29, 1996 (unaudited) and December 30, 1995 . Consolidated Statements of Cash Flows (unaudited) - Six months ended June 29, 1996 and July 1, 1995 . Notes to the Consolidated Financial Statements - Quarter ended June 29, 1996 (unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION: Item 1. Legal Proceedings Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K Signatures Exhibit 11 Statement Re Computation of Per Share Earnings *Exhibit 27 Financial Data Schedule * A copy of this Exhibit is annexed to this report on Form 10-Q provided to the Securities and Exchange Commission and the New York Stock Exchange. UNAUDITED CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES Consolidated Statements of Earnings Quarters and six months ended June 29, 1996 and July 1, 1995 (In thousands, except per share data) Quarters ended Six months ended June 29, July 1, June 29, July 1, 1996 1995 1996 1995 Net sales $ 167,570 $ 175,617 $ 332,410 $ 343,810 Cost of products sold 118,854 123,799 235,802 240,358 Selling, general and administrative 27,564 26,736 54,658 52,158 Depreciation and amortization 4,117 3,769 8,126 7,494 Interest 2,293 2,034 4,330 3,602 Other income (199) (13) (451) (241) Total costs and expenses 152,629 156,325 302,465 303,371 Earnings before income taxes 14,941 19,292 29,945 40,439 Income taxes 5,229 7,234 10,765 15,185 Net earnings $ 9,712 $ 12,058 $ 19,180 $ 25,254 Net earnings per common share $ .20 $ .25 $ .40 $ .52 Dividends per common share $ .135 $ .135 $ .27 $ .255 Average shares outstanding 48,499 48,577 48,499 48,569 See accompanying notes to consolidated financial statements. June 29, 1996 UNAUDITED CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets June 29, 1996 and December 30, 1995 (In thousands of dollars) June 29, December 30, 1996 1995 ASSETS CURRENT ASSETS Cash $ 3,869 $ 918 Accounts receivable 128,173 112,693 Inventories 170,147 154,846 Other current assets 29,070 23,038 Total current assets 331,259 291,495 NON-CURRENT ASSETS Property, plant and equipment 134,204 129,991 Cost in excess of acquired net assets 60,594 51,922 Other assets 11,312 10,730 $ 537,369 $ 484,138 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 75,358 $ 60,439 Accounts payable 58,913 49,415 Accrued expenses 39,212 35,136 Income taxes payable 6,050 3,747 Other current liabilities 21,089 16,578 Total current liabilities 200,622 165,315 NON-CURRENT LIABILITIES Long-term debt 79,000 64,000 Accrued postretirement liability 7,768 7,559 Deferred income taxes 7,170 7,217 STOCKHOLDERS' EQUITY Common stock 5,336 5,336 Additional paid-in capital 59,567 59,440 Retained earnings 240,326 234,113 Accumulated translation adjustment 2,301 6,320 Treasury stock at cost (62,831) (62,972) Deferred compensation (1,890) (2,190) Total stockholders' equity 242,809 240,047 $ 537,369 $ 484,138 See accompanying notes to consolidated financial statements. UNAUDITED CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Six months ended June 29, 1996 and July 1, 1995 (In thousands of dollars) June 29, July 1, Increase (decrease) to cash 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 19,180 $ 25,254 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation and amortization 8,126 7,494 Deferred compensation 300 383 Changes in assets and liabilities, net (18,638) (29,845) Net cash provided by operations 8,968 3,286 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions (15,713) (8,633) Capital expenditures (6,209) (10,037) Other investing activities (954) (584) Net cash used by investing activities (22,876) (19,254) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term borrowings 15,000 - Change in notes payable 15,074 33,329 Net treasury stock activity 104 (3,395) Dividends paid (12,967) (12,361) Net cash provided by financing activities 17,211 17,573 CASH Effect of exchange rates on cash (352) 110 Change in cash 2,951 1,715 Cash at beginning of period 918 1,832 Cash at end of period $ 3,869 $ 3,547 See accompanying notes to consolidated financial statements. CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES Notes to the Consolidated Financial Statements Quarter ended June 29, 1996 (Unaudited) (In thousands) PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS The information included in the foregoing consolidated financial statements is unaudited but reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Included in accounts receivable are allowances for doubtful accounts of $3,017 in 1996 and $3,269 at December 30, 1995. Accumulated depreciation amounted to $105,527 in 1996 and $99,292 at December 30, 1995. Accumulated amortization of cost in excess of acquired net assets amounted to $9,044 in 1996 and $8,281 at December 30, 1995. Other current liabilities primarily include customer deposits. It is suggested that the interim consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in the Company's 1995 Annual Report on Form 10-K. CAPITAL STOCK There are 53,361,072 common shares issued at $.10 par value, of which 5,321,763 shares and 5,351,962 shares were held in the treasury at June 29, 1996 and December 30, 1995, respectively. INVENTORIES Components of inventories are as follows: June 29, Dec. 30, 1996 1995 Finished goods $ 96,213 $ 89,177 Work in process 37,993 30,316 Raw materials and supplies 35,941 35,353 $170,147 $154,846 EARNINGS PER COMMON SHARE The computation of earnings per common share is based on the weighted average number of common and common equivalent shares outstanding. A dual presentation of earnings per common share has not been made since there is no significant difference in earnings per share calculated on a primary or fully diluted basis. ACQUISITIONS In January 1996, the Company acquired ER-WE-PA, GMBH at a cost of $10,025 subject to audit adjustment. In April 1996, the Company acquired the Hartig line of industrial blow molding systems at a cost of $5,688. The acquisitions have been accounted for using the purchase method and, accordingly, the acquired assets and liabilities have been recorded at their fair values at the dates of acquisition. The excess cost of the purchase price over fair value of net assets acquired in the amount of $9,142 is being amortized over forty years. The operating results of each acquisition are included in the consolidated statements of earnings since the date of acquisition. BUSINESS SEGMENT DATA Quarter Ended June 29, July 1, 1996 1995 SALES Specialty chemicals $ 96,935 $101,229 Specialty process equipment and controls 70,635 74,388 $167,570 $175,617 OPERATING PROFIT Specialty chemicals $ 13,039 $ 13,133 Specialty process equipment and controls 6,395 11,043 General corporate expense ( 2,399) ( 2,863) Operating profit 17,035 21,313 Interest expense ( 2,293) ( 2,034) Other income 199 13 Earnings before income taxes $ 14,941 $ 19,292 Six Months Ended June 29, July 1, 1996 1995 SALES Specialty chemicals $193,018 $203,771 Specialty process equipment and controls 139,392 140,039 $332,410 $343,810 OPERATING PROFIT Specialty chemicals $ 25,830 $ 28,724 Specialty process equipment and controls 13,501 21,100 General corporate expense ( 5,507) ( 6,024) Operating profit 33,824 43,800 Interest expense ( 4,330) ( 3,602) Other income 451 241 Earnings before income taxes $ 29,945 $ 40,439 Recent Event Pursuant to an Agreement and Plan of Merger, dated as of April 30, 1996 (the "Merger Agreement"), Crompton has agreed to the merger (the "Merger") of Tiger Merger Corp., a Delaware corporation and a wholly owned subsidiary of Crompton ("Subcorp"), with and into Uniroyal Chemical Corporation, a Delaware corporation ("Uniroyal"), subject to the approval of the transaction by the stockholders of each of Uniroyal and Crompton at special meetings thereof currently scheduled to be held on August 21, 1996. The Board of Directors of Crompton has fixed the close of business on July 9, 1996, as the record date for determination of holders of Crompton Common Stock entitled to notice of and to vote at such meeting of Crompton stockholders. The Merger will be accounted for on a pooling-of-interests basis and will be consummated on the terms and subject to the conditions set forth in the Merger Agreement (which was filed by Crompton with the Commission as an exhibit to Crompton's Quarterly Report on Form 10-Q for the quarter ended March 30, 1996), pursuant to which, among other things, (i) Subcorp will be merged with and into Uniroyal as a result of which Uniroyal will become a wholly owned subsidiary of Crompton, (ii) each issued and outstanding share (other than shares, if any, held in the treasury of Uniroyal or held by Crompton or any of its subsidiaries, which will be canceled) of common stock, $0.01 par value per share (together with the attached preferred stock purchase rights, "Uniroyal Common Stock"), of Uniroyal will be converted into 0.9577 shares of Crompton Common Stock (with cash in lieu of fractional shares), and (iii) each issued and outstanding share (other than shares, if any, held in the treasury of Uniroyal or held by Crompton or any of its subsidiaries, which will be canceled, and other than shares as to which dissenters' appraisal rights have been perfected) of Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share ("Series A Preferred Stock"), of Uniroyal and of Series B Preferred Stock, par value $0.01 per share ("Series B Preferred Stock," and together with the Series A Preferred Stock, "Uniroyal Preferred Stock"), of Uniroyal will be converted into 6.3850 shares of Crompton Common Stock (with cash in lieu of fractional shares). It is currently anticipated that the Merger will be consummated shortly after the special meetings of Crompton and Uniroyal stockholders, assuming the Merger Agreement and the Merger are approved at such meetings and all other conditions of the Merger have been satisfied or waived. Crompton, Uniroyal and the Directors of Uniroyal were named as defendants in a purported class action lawsuit (the "Stockholder Action") filed in connection with the proposed Merger in the Court of Chancery, County of New Castle, State of Delaware. Fassbender v. Mazaika, C.A. No. 14980. The Stockholder Action alleged, among other things, that defendant directors breached their fiduciary duties by pursuing the Merger at an allegedly unfair and inadequate price; by agreeing to the proposed Merger without having conducted an "auction process or active market check" or a full and thorough investigation; and by agreeing to the allegedly unfair terms of the Merger. The Stockholder Action was brought on behalf of a purported class of persons consisting of the stockholders of Uniroyal other than defendants. Counsel for Uniroyal, Crompton and Subcorp and the counsel for plaintiff entered into a memorandum of understanding (the "Memorandum of Understanding") dated August 5, 1996 in connection with the settlement of the Stockholder Action. Among other things, the Memorandum of Understanding provides that, in full settlement of the claims asserted, (i) the Merger Agreement be amended so as to reduce the fee payable to Crompton upon termination of the Merger Agreement under certain circumstances from $50 million to $35 million, (ii) Uniroyal promptly disseminate to Uniroyal stockholders its third quarter results, (iii) the defendants publicly disclose the proposed settlement by a filing with the Commission and (iv) the plaintiff withdraw his request for a preliminary injunction enjoining consummation of the Merger. The Merger Agreement was amended as of August 7, 1996 to reduce the termination fee as contemplated in the Memorandum of Understanding. The consummation of the proposed settlement is subject to (i) completion by the plaintiff of discovery, (ii) execution of definitive settlement documents, (iii) notice to members of the plaintiff class and (iv) approval by the Delaware Court of Chancery. In connection with the proposed settlement, the defendants have agreed that they will not oppose plaintiff's counsel's application for an award of fees and expenses not to exceed $350,000 in the aggregate, to be paid by Crompton and/or Uniroyal. Uniroyal and its directors have denied, and continue to deny, that any of them have committed any violations of law or breaches of duty to plaintiff or any member of the plaintiff class, Uniroyal or its stockholders, or anyone else. The defendants entered into the Memorandum of Understanding in order to eliminate the distraction and expense of further litigation. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER RESULTS Overview Consolidated net sales of $167.6 million for the second quarter of 1996 declined 5% from the comparable 1995 period. Net earnings of $9.7 million declined 19% versus the second quarter of 1995. Net earnings per common share of $.20 were 20% lower than the $.25 reported last year. Gross margin as a percentage of net sales decreased to 29.1% from 29.5% in the second quarter of 1995 primarily as a result of lower margins in the specialty process equipment and controls segment. Consolidated operating profit of $17.0 million declined 20% from the second quarter of 1995 as the specialty chemicals segment approximated the prior years quarter and the specialty process equipment and controls segment decreased 42%. Specialty Chemicals The Company's specialty chemicals segment reported sales of $96.9 million which represents a decline of 4% from the second quarter of 1995. The decrease was attributable to the impact of lower selling prices (-3%) and lower unit volume (-1%). Domestic dyes sales of $46.9 million declined 5% from the comparable 1995 quarter due to lower selling prices (-4%) and lower unit volume (-1%). International dyes sales of $23.6 million declined 12% versus the second quarter of 1995 primarily as a result of lower selling prices (-4%) and the balance primarily from lower unit volume under a long-term supply agreement. Specialty ingredients sales of $26.5 million rose 7% primarily as a result of increased unit volume. The percentage of sales outside the United States was 26%, versus 28% in the comparable 1995 period. Operating profit of $13.0 million approximated the $13.1 million reported in the second quarter of 1995. The percentage of operating profit outside the United States increased to 20% from 15% in the comparable quarter in 1995. Specialty Process Equipment and Controls The Company's specialty process equipment and controls segment reported sales of $70.7 million, which represents a decrease of 5% from the second quarter of 1995. The decrease was attributable primarily to lower unit volume in the domestic business (as lower demand for U.S. extrusion equipment continued) more than offsetting a 23% increase from acquisitions (primarily ER-WE-PA). Export sales shipped from the U.S. accounted for 16% of total segment sales versus 19% in the comparable period in 1995. International sales increased as a result of the ER-WE-PA acquisition and accounted for 24% of total segment sales versus 6% in the second quarter 1995. Operating profit for the second quarter of 1996 declined 42% to $6.4 million primarily attributable to lower unit volume in the higher margin domestic business. International operating profit was not significant in either the second quarter of 1996 or 1995. The order backlog for extruders and related equipment at the end of the second quarter of 1996 amounted to $89 million (including ER-WE-PA backlog of $16 million) compared to $72 million at December 30, 1995. Other Selling, general and administrative expenses of $27.6 million increased 3% versus the comparable period in 1995 primarily due to the impact of acquisitions. Depreciation and amortization of $4.1 million increased 9% versus 1995 primarily as a result of a higher fixed asset base including acquisitions. Interest expense increased $259 thousand primarily as a result of increased borrowings. Other income increased $186 thousand versus the second quarter of 1995. The effective tax rate of 35.0% decreased from the 37.5% in the comparable 1995 period. YEAR-TO-DATE RESULTS Overview Consolidated net sales of $332.4 million for the first six months of 1996 decreased 3% from the comparable period in 1995. Net earnings of $19.2 million decreased 24% versus the $25.3 million earned in the first half of 1995. Net earnings per common share of $.40 decreased 23% from the $.52 reported last year. Gross margin as a percentage of net sales decreased to 29.1% from 30.1% in the comparable 1995 period primarily as a result of lower margins in the specialty process equipment and controls segment. Consolidated operating profit of $33.8 million declined 23% from $43.8 million in the first half of 1995 as specialty chemicals decreased 10% and specialty process equipment and controls decreased 36%. Specialty Chemicals The Company's specialty chemicals segment reported sales of $193.0 million representing a 5% decrease from $203.8 million in the first six months of 1995. The decrease was primarily attributable to the impact of lower unit volume (-3%) and lower selling prices (-2%). Domestic dyes sales of $93.5 million were 8% lower than the first six months of 1995 primarily due to lower unit volume (-5%) and lower selling prices (-3%). International dyes sales of $47.0 million decreased by 9% versus 1995 primarily as an equal result of lower selling prices and lower unit volume. Specialty ingredients sales rose 4% to $52.5 million reflecting primarily increased unit volume. The percentage of sales outside the United States decreased slightly to 26% from 27% for the comparable period in 1995. Operating profit of $25.8 million for the first six months of 1996 decreased 10% from 1995. The decrease was attributable primarily to the impact of lower pricing in the domestic dyes business. The percentage of operating profit outside the United States remained the same at 16% from year to year. Specialty Process Equipment and Controls The Company's specialty process equipment and controls segment reported sales of $139.4 million versus $140.0 million for the first six months of 1995. The slight decline was comprised of a 22% increase attributable to the incremental impact of acquisitions offset primarily by lower unit volume in the domestic business. Export sales shipped from the U.S. accounted for 22% of total segment sales versus 19% in the comparable period in 1995. International sales of $28.2 million increased from $4.7 million in 1995 primarily as a result of the ER-WE-PA acquisition and accounted for 20% of total segment sales versus 3% in the first six months of 1995. Operating profit of $13.5 million decreased 36% versus the comparable 1995 period due primarily to the decline in unit volume in the higher margin domestic business. International operating profit was not significant in either the first half of 1996 or 1995. Other Selling, general and administrative expenses of $54.7 million increased 5% versus the first six months of 1995 primarily due to the impact of acquisitions. Depreciation and amortization of $8.1 million increased 8% versus the 1995 period primarily as a result of a higher fixed capital base including acquisitions. Interest expense of $4.3 million increased $728 thousand primarily as a result of increased borrowings. Other income of $451 thousand increased $210 thousand versus 1995. The effective tax rate of 36.0% decreased from the 37.6% in the comparable 1995 period. LIQUIDITY AND CAPITAL RESOURCES The June 29, 1996 working capital balance of $130.6 million increased $4.4 million from $126.2 million at year-end 1995. The current ratio declined slightly to 1.7 from 1.8 at the end of 1995. Days sales in receivables averaged 63 days in the first half of 1996, versus 55 days for all of 1995, primarily as a result of longer collection periods in the specialty process equipment and controls business. Inventory turnover averaged 2.8 for the first half of 1996 unchanged from year-end 1995. Cash flows from operating activities of $9.0 million increased $5.7 million from the first half of 1995 primarily attributable to decreases in working capital requirements partially offset by lower earnings. Cash provided by operations and increased borrowings were used to finance acquisitions, fund capital expenditures and pay cash dividends. The Company's debt to total capital ratio increased to 39% from 34% at year-end 1995. Capital expenditures are expected to approximate $16 million in 1996 primarily for expansion and improvement of operating facilities in the United States and Europe. The Company's long-term liquidity needs including such items as capital expenditures and dividends are expected to be financed from operations. INTERNATIONAL OPERATIONS The stronger U.S. dollar exchange rate versus the Belgian Franc and French Franc accounted primarily for the reduction of $4.0 million in the accumulated translation adjustment account since year-end 1995. Changes in the balance of this account are primarily a function of fluctuations in exchange rates and do not necessarily reflect either enhancement or impairment of the net asset values or the earnings potential of the Company's foreign operations. The Company operates manufacturing facilities in Europe which serve primarily the European market. Exchange rate disruptions between the United States and European currencies, and among European currencies, are not expected to have a material effect on year-to-year comparisons of the Company's earnings. RESEARCH AND DEVELOPMENT The Company employs about 285 engineers, draftsmen, chemists, and technicians responsible for developing new and improved chemical products and process equipment systems for the industries served by the Company. Often, new products are developed in response to specific customer needs. The Company's process of developing and commercializing new products and product improvements is ongoing and involves many products, no one of which is large enough to significantly impact the Company's results of operations from year-to-year. Research and development expenditures totaled $6.9 million for the first half of 1996 compared to $7.2 million in the comparable 1995 period. ENVIRONMENTAL MATTERS The Company's manufacturing facilities are subject to various federal, state and local requirements with respect to the discharge of materials into the environment or otherwise relating to the protection of the environment. The Company has been designated, along with others, as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, or comparable state statutes, at two waste disposal sites; and an inactive subsidiary has been designated, along with others, as a potentially responsible party at two other sites. While the cost of compliance with existing environmental requirements is expected to increase, based on the facts currently known to the Company, management expects that those costs, including the cost to the Company of remedial actions at the waste disposal sites where it has been named a potentially responsible party, will not be material to the results of the Company's operations in any given year. PART II. OTHER INFORMATION: Item 1. Legal Proceedings Crompton, Uniroyal and the Directors of Uniroyal were named as defendants in a purported class action lawsuit (the "Stockholder Action") filed in connection with the proposed Merger in the Court of Chancery, County of New Castle, State of Delaware. Fassbender v. Mazaika, C.A. No. 14980. The Stockholder Action alleged, among other things, that defendant directors breached their fiduciary duties by pursuing the Merger at an allegedly unfair and inadequate price; by agreeing to the proposed Merger without having conducted an "auction process or active market check" or a full and thorough investigation; and by agreeing to the allegedly unfair terms of the Merger. The Stockholder Action was brought on behalf of a purported class of persons consisting of the stockholders of Uniroyal other than defendants. Counsel for Uniroyal, Crompton and Subcorp and the counsel for plaintiff entered into a memorandum of understanding (the "Memorandum of Understanding") dated August 5, 1996 in connection with the settlement of the Stockholder Action. Among other things, the Memorandum of Understanding provides that, in full settlement of the claims asserted, (i) the Merger Agreement be amended so as to reduce the fee payable to Crompton upon termination of the Merger Agreement under certain circumstances from $50 million to $35 million, (ii) Uniroyal promptly disseminate to Uniroyal stockholders its third quarter results, (iii) the defendants publicly disclose the proposed settlement by a filing with the Commission and (iv) the plaintiff withdraw his request for a preliminary injunction enjoining consummation of the Merger. The Merger Agreement was amended as of August 7, 1996 to reduce the termination fee as contemplated in the Memorandum of Understanding. The consummation of the proposed settlement is subject to (i) completion by the plaintiff of discovery, (ii) execution of definitive settlement documents, (iii) notice to members of the plaintiff class and (iv) approval by the Delaware Court of Chancery. In connection with the proposed settlement, the defendants have agreed that they will not oppose plaintiff's counsel's application for an award of fees and expenses not to exceed $350,000 in the aggregate, to be paid by Crompton and/or Uniroyal. Uniroyal and its directors have denied, and continue to deny, that any of them have committed any violations of law or breaches of duty to plaintiff or any member of the plaintiff class, Uniroyal or its stockholders, or anyone else. The defendants entered into the Memorandum of Understanding in order to eliminate the distraction and expense of further litigation. Item 5. Other Information Pursuant to an Agreement and Plan of Merger, dated as of April 30, 1996 (the "Merger Agreement"), Crompton has agreed to the merger (the "Merger") of Tiger Merger Corp., a Delaware corporation and a wholly owned subsidiary of Crompton ("Subcorp"), with and into Uniroyal Chemical Corporation, a Delaware corporation ("Uniroyal"), subject to the approval of the transaction by the stockholders of each of Uniroyal and Crompton at special meetings thereof currently scheduled to be held on August 21, 1996. The Board of Directors of Crompton has fixed the close of business on July 9, 1996, as the record date for determination of holders of Crompton Common Stock entitled to notice of and to vote at such meeting of Crompton stockholders. The Merger will be accounted for on a pooling-of-interests basis and will be consummated on the terms and subject to the conditions set forth in the Merger Agreement (which was filed by Crompton with the Commission as an exhibit to Crompton's Quarterly Report on Form 10-Q for the quarter ended March 30, 1996), pursuant to which, among other things, (i) Subcorp will be merged with and into Uniroyal as a result of which Uniroyal will become a wholly owned subsidiary of Crompton, (ii) each issued and outstanding share (other than shares, if any, held in the treasury of Uniroyal or held by Crompton or any of its subsidiaries, which will be canceled) of common stock, $0.01 par value per share (together with the attached preferred stock purchase rights, "Uniroyal Common Stock"), of Uniroyal will be converted into 0.9577 shares of Crompton Common Stock (with cash in lieu of fractional shares), and (iii) each issued and outstanding share (other than shares, if any, held in the treasury of Uniroyal or held by Crompton or any of its subsidiaries, which will be canceled, and other than shares as to which dissenters' appraisal rights have been perfected) of Series A Cumulative Redeemable Preferred Stock, par value $0.01 per share ("Series A Preferred Stock"), of Uniroyal and of Series B Preferred Stock, par value $0.01 per share ("Series B Preferred Stock," and together with the Series A Preferred Stock, "Uniroyal Preferred Stock"), of Uniroyal will be converted into 6.3850 shares of Crompton Common Stock (with cash in lieu of fractional shares). It is currently anticipated that the Merger will be consummated shortly after the special meetings of Crompton and Uniroyal stockholders, assuming the Merger Agreement and the Merger are approved at such meetings and all other conditions of the Merger have been satisfied or waived. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Number Description (11) Statement Re Computation of Per Share Earnings (27)* Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter for which this report is filed. * A copy of this Exhibit is annexed to this report on Form 10-Q provided to the Securities and Exchange Commission and the New York Stock Exchange. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CROMPTON & KNOWLES CORPORATION (Registrant) August 12, 1996 By: /s/ Charles J. Marsden Charles J. Marsden Vice President-Finance and Chief Financial Officer August 12, 1996 By: /s/ John T. Ferguson II John T. Ferguson II General Counsel and Secretary EX-11 2 EXHIBIT 11 CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (In thousands, except per share data) PRIMARY Quarter Ended Six Months Ended June 29, July 1, June 29, July 1, 1996 1995 1996 1995 Earnings Net earnings $ 9,712 $ 12,058 $ 19,180 $ 25,254 Shares Weighted average shares outstanding 48,033 48,034 48,026 48,031 Common stock equivalents 424 530 281 504 Average shares outstanding 48,457 48,564 48,307 48,535 Per share Net earnings $ 0.20 $ 0.25 $ 0.40 $ 0.52 FULLY DILUTED Quarter Ended Six Months Ended June 29, July 1, June 29, July 1, 1996 1995 1996 1995 Earnings Net earnings $ 9,712 $ 12,058 $ 19,180 $ 25,254 Shares Weighted average shares outstanding 48,033 48,034 48,026 48,031 Common stock equivalents 466 543 473 538 Average shares outstanding 48,499 48,577 48,499 48,569 Per share Net earnings $ 0.20 $ 0.25 $ 0.40 $ 0.52 EX-27 3 EXHIBIT 27
5 6-MOS DEC-28-1996 JUN-29-1996 3,869 0 128,173 3,017 170,147 331,259 134,204 105,527 537,369 200,622 0 0 0 5,336 237,473 537,369 332,410 332,410 235,802 298,586 (451) (374) 4,330 29,945 10,765 19,180 0 0 0 19,180 0.40 0.40
-----END PRIVACY-ENHANCED MESSAGE-----