-----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, LoXlTdP9NC8dpoqtBI/j7DW7gsTWOmQY/V+HPCnEJwCAQyY1fBKQHi1QnuKQ38KE A1wRkPjACk12IlHGMU1BDQ== 0000025757-96-000039.txt : 19960710 0000025757-96-000039.hdr.sgml : 19960710 ACCESSION NUMBER: 0000025757-96-000039 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19960709 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-04663 FILM NUMBER: 96592441 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-K/A 1 FORM 10K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (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 31, 1994 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 incorporation or organization) (I.R.S. Employer 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 10, 1995, was $797,619,379. The number of shares of Common Stock of the registrant outstanding as of February 10, 1995 was 48,450,207. DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Stockholders for fiscal year ended December 31, 1994..... Parts I, II and IV Proxy Statement for Annual Meeting of Stockholders on April 11, 1995 ..... Part III CROMPTON & KNOWLES CORPORATION FORM 10-K/A For the Fiscal Year Ended December 31, 1994 PART I Item 1. Business General The Registrant, Crompton & Knowles Corporation (together with its consolidated subsidiaries, sometimes hereinafter referred to as 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 calendar year 1990, acquiring the business and certain assets and liabilities of Atlantic Industries, Inc., a domestic dye manufacturer, and 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. Effective January 1, 1995, the Corporation's 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 early 1995, the Corporation acquired the plastics and rubber extrusion business of McNeil Akron Repiquet SARL, including a manufacturing facility located in Dannemarie, France, and also acquired Killion Extruders, Inc., a producer of precision laboratory and small scale extrusion systems. 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 26 of the Corporation's 1994 Annual Report to Stockholders, and such information is incorporated herein by reference. Products and Services The principal products and services offered by the Corporation are described below. SPECIALTY CHEMICALS Textile dyes manufactured and sold by the Corporation 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. Sales of this class of products accounted for 50%, 57%, and 59% of the total revenues of the Corporation in 1994, 1993, and 1992, respectively. 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. Sales of this class of products accounted for 17%, 16%, and 17% of the total revenues of the Corporation in 1994, 1993, and 1992, respectively. SPECIALTY PROCESS EQUIPMENT AND CONTROLS The 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. Sales of this class of products accounted for 33%, 27%, and 24% of the total revenues of the Corporation in 1994, 1993, and 1992, respectively. Integrated extrusion systems, which include extruders in combination with controls and other accessory 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 parts such as tool cases and beverage coolers. The Corporation's HES unit produces electrical and electronic controls primarily for use with extrusion systems. The Corporation is a major user of such controls. Sources of Raw Materials Chemicals, steel, castings, parts, machine components, edible molasses, spices, and other raw materials required in the manufacture of Crompton & Knowles' products are generally available from a number of sources, some of which are foreign. Significant sales of the dyes and auxiliary chemicals business consist of dyes manufactured from intermediates purchased from foreign sources. Patents and Licenses Crompton & Knowles owns patents, trade names, and trademarks and uses know-how, trade secrets, formulae, and manufacturing techniques which assist in maintaining the competitive position of certain of its products. Patents, formulae, and know-how are of particular importance in the manufacture of a number of the dyes and flavor ingredients sold in the Corporation's specialty chemicals business, and patents and know-how are also significant in the manufacture of certain wire insulating and plastics processing machinery product lines. 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. The Corporation is also licensed to use certain patents and technology owned by 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 dyes and plastics machinery. Seasonal Business 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 an 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 December 31, 1994, totalled approximately $66 million compared with $38 million at December 25, 1993. It is expected that most of the December 31, 1994, backlog will be shipped during 1995. Orders for specialty chemicals and equipment repair parts are filled primarily from inventory stocks and thus are excluded from backlog. Competitive Conditions Crompton & Knowles is among the largest suppliers of dyes in the United States and is a leading domestic producer of specialty dyes for nylon, polyester, acrylics, and cotton. The Corporation is less of a factor in other segments of the domestic dyes industry and in the European market. The Corporation is also a major United States and Canadian supplier of edible molasses, a major United States supplier of malt extracts, and a significant supplier of other sugar-based specialty products. As a supplier of flavors and seasonings, the Corporation has many competitors in the United States and abroad. Crompton & Knowles 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. Product performance, service, and competitive prices are all important factors in competing in the specialty chemicals and specialty process equipment and controls product lines. No one competitor or small number of competitors is believed to be dominant in any of the Corporation's major markets. Research and Development Crompton & Knowles employs about 270 engineers, draftsmen, chemists, and technicians responsible for developing new and improved chemical products and process equipment systems for the industries served by the Corporation. Often, new products are developed in response to specific customer needs. The Corporation'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 Corporation's results of operations from year to year. Research and development expenditures totalled $12.1 million for the year 1994, $11.2 million for the year 1993, and $10.1 million for the year 1992. Environmental Matters The Corporation'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. Although precise amounts are difficult to define, in 1994, the Corporation incurred costs of approximately $20.7 million to comply with those requirements, including approximately $7.2 million in capital expenditures. The Corporation has been designated, along with others, as a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or comparable state statutes, at two waste disposal sites; and two inactive subsidiaries have been designated, along with others, as potentially responsible parties at a total of four other sites. While the cost of compliance with existing environmental requirements is expected to increase, based on the facts currently known to the Corporation, management expects that those costs, including the cost to the Corporation of remedial actions at the waste disposal sites where it has been named a potentially responsible party, will not have a material effect on the Corporation's liquidity and financial condition and that the cost to the Corporation of any remedial actions will not be material to the results of the Corporation's operations in any given year. Employees The Corporation had 2,652 employees on December 31, 1994. 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 26 of the Corporation's 1994 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: Ownership Business Segment Dates or Lease and Location Products Built Expiration Specialty Chemicals: Carrollton, TX Seasonings 1982 1997 office and plant Des Plaines, IL Flavors 1968 Owned office and plant Elyria, OH Seasonings 1978 2001 office and plant Gibraltar, PA Textile and other 1964- Owned office, laboratory dyes 1980 and chemical plant Lowell, NC Textile dyes, chemical plant organic chemicals 1961 Owned Mahwah, NJ Seasonings, 1984- 1999 office, laboratory flavors, and 1989 and plant color dispersions Newark, NJ Textile dyes, 1949- Owned chemical plant organic chemicals 1985 Nutley, NJ Textile and 1949- Owned office, laboratory other dyes 1977 and chemical plant Oissel, France Textile and 1946- Owned office, laboratory other dyes 1992 and chemical plant Reading, PA Textile dyes, 1910- Owned chemical plant organic chemicals 1979 and food colors Tertre, Belgium Textile and 1970 Owned office, laboratory other dyes and chemical plant Ownership Business Segment Dates or Lease and Location Products Built Expiration Vineland, NJ Food and 1995 Owned office and plant pharmaceutical ingredients Specialty Process Equipment and Controls: Dannemarie, France Extrusion systems 1967- Owned office and 1980 machine shop Edison, NJ Blow molding and 1974- 2000 office and extrusion 1979 machine shop equipment Pawcatuck, CT Plastics and rubber 1965- Owned office and extrusion and 1985 machine shop electronic control equipment and systems Pawcatuck, CT Extrusion systems 1968 1996 office and machine shop Somerville, NJ Extrusion systems 1966- Owned office and 1994 machine shop All plants are built of brick, tile, concrete, or sheet metal materials and are of one-floor construction except parts of the plants located in Reading and Gibraltar, Pennsylvania, Nutley and Somerville, New Jersey, Oissel and Dannemarie, France and Tertre, Belgium. All are considered to be in good operating condition, well maintained, and suitable for the Corporation's requirements. Item 3. Legal Proceedings Kem Manufacturing Corporation ("Kem"), a wholly-owned subsidiary of the Corporation acquired in 1976, has been named, along with others, a potentially responsible party under the New Jersey Spill Compensation and Control Act by the New Jersey Department of Environmental Protection and Energy with respect to the Evor Phillips waste disposal site located in central New Jersey. It appears that Kem held title to the site between 1970 and 1974, prior to the acquisition of Kem by the Corporation, but that Kem did not own or operate any facility at the site. Based on the facts currently known to the Corporation, the Corporation does not believe that the cost to the Corporation of any remedial actions at the site will have a material effect on the Corporation's liquidity and financial condition or the results of the Corporation's operations in any given year. 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 25 of the Corporation's 1994 Annual Report to Stockholders, is incorporated herein by reference. The number of registered holders of Common Stock of the Corporation on December 31, 1994, was 4,770. Item 6. Selected Financial Data The selected financial data for the Corporation for each of its last five fiscal years, set forth under the heading "Eleven Year Selected Financial Data" on pages 28 and 29 of the Corporation's 1994 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" on pages 13 through 15 of the Corporation's 1994 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 16 through 27 of the Corporation's 1994 Annual Report to Stockholders, are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 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 11, 1995, which has been filed with the Commission pursuant to Regulation 14A, and such information is incorporated herein by reference. The executive officers of the Corporation are as follows: Vincent A. Calarco, age 52, has served as President and Chief Executive Officer of the Registrant since 1985 and Chairman of the Board since 1986. He is former Vice President for Strategy and Development, Uniroyal, Inc. (1984-1985), and former President of Uniroyal Chemical Company (1979-1984). Mr. Calarco has been a member of the Board of Directors of the Registrant since 1985. Mr. Calarco also serves as a director of Caremark International Inc. and J.M. Huber Corporation. Robert W. Ackley, age 53, has served as a Vice President of the Registrant since 1986 and as President of Davis-Standard Corporation (formerly the Davis-Standard Division) since 1983. Peter Barna, age 51, has served as Treasurer of the Registrant since 1980 and as Principal Accounting Officer since 1986. John T. Ferguson, II, age 48, has served as General Counsel and Secretary of the Registrant since 1989. Nicholas Fern, Ph.D., age 51, has served as President, Dyes and Chemicals - Asia, for the Registrant since 1994, as President of the Registrant's International Dyes and Chemicals Division from 1992 to 1994, and as Managing Director of Crompton & Knowles Europe, S.A. (formerly Crompton & Knowles Tertre) from 1978 to 1994. Gerald H. Fickenscher, Ph.D., age 51, has served as President, Dyes and Chemicals - Europe, for the Registrant and as Managing Director of Crompton & Knowles Europe, S.A. since 1994. He is the former Chief Financial Officer of Uniroyal Chemical Corporation (1986-1994). Edmund H. Fording, Jr., age 58, has served as Vice President of the Registrant since 1991 and as President, Dyes and Chemicals - Americas since 1989. He is the former General Manager of the Dyes Division of Hilton Davis Co. (1988-1989) and Director of the Organic Department of Mobay Corporation (1980-1988). Marvin H. Happel, age 55, has served as Vice President - Organization of the Registrant since 1986. He is the former Director of Human Resources of Uniroyal Chemical Company (1979-1986). Charles J. Marsden, age 54, has served as Vice President - Finance and Chief Financial Officer and as a member of the Board of Directors of the Registrant since 1985. Frank H. Schoonyoung, age 52, has served as President of Ingredient Technology Corporation since 1992. He is the former Vice President and General Manager of Universal Flavors - U.S.A., Inc. (1990-1992) and Senior Vice President and Director, Flavor Division, Fritzsche Dodge & Olcott, a unit of BASF K&F Corporation (1965-1990). 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 11, 1995, 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 11, 1995, 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 11, 1995, 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. The following financial statements and Independent Auditors' Report, as required by Item 8 of this form, which appear at pages 16 through 27 of the Corporation's 1994 Annual Report to Stockholders and are incorporated herein by reference: (i) Consolidated Statements of Earnings for the fiscal years ended December 31, 1994, December 25, 1993, and December 26, 1992; (ii) Consolidated Balance Sheets as at December 31, 1994, and December 25, 1993; (iii) Consolidated Statements of Cash Flows for the fiscal years ended December 31, 1994, December 25, 1993, and December 26, 1992; (iv) Consolidated Statements of Stockholders' Equity for the fiscal years ended December 31, 1994, December 25, 1993, and December 26, 1992; (v) Notes to Consolidated Financial Statements; and (vi) Independent Auditors' Report. 2. Financial statement schedule VIII, Valuation and Qualifying Accounts, required by Regulation S-X, and the Independent Auditors' Report on Financial Statement Schedule (Exhibit 30 hereto). 3. The Exhibits listed in the Exhibit Index appearing at pages 13 through 15 of this report on Form 10-K are either filed herewith or incorporated herein by reference to the respective reports and registration statements of the Registrant identified in the parenthetical clause following the description of the Exhibit in the Exhibit Index. (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 31, 1995 By: /s/ Charles J. Marsden Charles J. Marsden Vice President-Finance 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* Vice President-Finance and Director (Principal Financial Officer) Peter Barna* Treasurer (Principal Accounting Officer) James A. Bitonti* Director Robert A. Fox* Director Roger L. Headrick* Director Leo I. Higdon, Jr.* Director Michael W. Huber* Director Warren A. Law* Director C. A. Piccolo* Director Patricia K. Woolf* Director Date: March 31, 1995 *By: /s/ Charles J. Marsden Charles J. Marsden as attorney-in-fact EXHIBIT INDEX Exhibit Description No. of Exhibit 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. (Exhibit 3(b) to Form 10-K for the fiscal year ended December 30, 1989.) 4(a)(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(a)(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(b)(1) Credit Agreement dated as of September 28, 1992, among the Registrant, five banks, and Bankers Trust Company as Agent. (Exhibit 10.1 to Registration Statement No. 33-52642 on Form S-3.) *4(b)(2) First Amendment to Credit Agreement dated as of September 1, 1994, among the Registrant, five banks, and Bankers Trust Company as Agent. **10(a) 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(b) 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(c) Amended Annual Incentive Compensation Plan for "A" Group of Senior Executives dated January 24, 1994. (Exhibit 10(d) to Form 10-K for the fiscal year ended December 25, 1993.) **10(d) 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(e) Supplemental Medical Reimbursement Plan. (Exhibit 10(n) to Form 10-K for the fiscal year ended December 27, 1980.) **10(f) Supplemental Dental Reimbursement Plan. (Exhibit 10(o) to Form 10-K for the fiscal year ended December 27, 1980.) **10(g) 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(h) Form of Employment Agreement entered into in 1988, 1989, 1992 and 1994 between the Registrant and eight of its executive officers. (Exhibit 10(k) to Form 10-K for the fiscal year ended December 26, 1987.) **10(i) Amended Supplemental Retirement Agreement dated October 20, 1993 between the Registrant and Vincent A. Calarco. (Exhibit 10(j) to Form 10-K for the fiscal year ended December 25, 1993.) **10(j) Form of Amended Supplemental Retirement Agreement dated October 20, 1993 between the Registrant and three of its executive officers. (Exhibit 10(k) to Form 10-K for the fiscal year ended December 25, 1993.) **10(k) 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(l) Amended Benefit Equalization Plan dated October 20, 1993. (Exhibit 10(m) to Form 10-K for the fiscal year ended December 25, 1993.) **10(m) 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(n) Amended 1988 Long Term Incentive Plan. (Exhibit 10(o) to Form 10-K for the fiscal year ended December 25, 1993.) 10(o) 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(p) 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(q) 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(r) 1993 Stock Option Plan for Non-Employee Directors. (Exhibit 10(u) to Form 10-K for the fiscal year ended December 25, 1993.) *11 Statement re computation of per share earnings. *13 1994 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. *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 31, 1994. *29 Annual Report on Form 11-K of Crompton & Knowles Corporation Employee Stock Ownership Plan for the fiscal year ended December 31, 1994. *30 Financial Statement Schedule and Independent Auditors' Report on Financial Statement Schedule. * 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. EX-4 2 EXHIBIT #4(B)(2) FIRST AMENDMENT TO CREDIT AGREEMENT Exhibit 4(b)(2) FIRST AMENDMENT TO CREDIT AGREEMENT FIRST AMENDMENT (the Amendment) dated as of September 1, 1994 among Crompton & Knowles Corporation, a Massachusetts corporation (the Company), the financial institutions listed on the signature pages hereto and Bankers Trust Company, as Agent under the Credit Agreement referred to below. All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement referred to below. W I T N E S S E T H : WHEREAS, the Company, various lending institutions (the Banks), and Bankers Trust Company, as Agent, are parties to a Credit Agreement dated as of September 28, 1992 (the Credit Agreement); and WHEREAS, the parties hereto wish to further amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: 1. The definition of Maturity Date in Section 1.1 of the Credit Agreement is hereby amended by deleting the phrase September 28, 1996" and inserting the phrase September 28, 1998" in lieu thereof. 2. Section 2.7(a) of the Credit Agreement is hereby amended by deleting from line 6 thereof the phrase 5/16 of 1% and inserting the phrase 0.15% in lieu thereof. Commitment Fees shall be payable pursuant to Section 2.7(a) of the Credit Agreement to but excluding the Amendment Effective Date at the rate of 5/16 of 1% per annum and thereafter as set forth in he preceding sentence. 3. Section 7.3 of the Credit Agreement is hereby amended by deleting the same in its entirety and inserting the following new Section 7.3: 7.3 INTENTIONALLY DELETED. 4. In order to induce the Banks to enter into this Amendment, the Company hereby (I) makes each of the representations, warranties and agreements contained in the Credit Agreement and (ii) represents and warrants that there exists no Default or Event of Default, in each case on the Amendment Effective Date (as hereinafter defined), after giving effect to this Amendment. 5. This Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement. 6. This Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Company and the Agent. 7. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 8. This Amendment shall become effective on the date (the Amendment Effective Date) when (a) each of the parties hereto shall have signed a copy hereof (whether the same or different copies) and shall have delivered the same to the Agent at its New York Office and (b) the Company shall have delivered to the Agent (I) an opinion of counsel in form and substance satisfactory to the Agent and (ii) an officers certificate in form and substance satisfactory to the Agent (which officers certificate shall in any event have attached thereto a true and correct copy of resolutions of the Board of Directors of the Company authorizing the extension of the Maturity Date under the Credit Agreement, as set forth herein). 9. From and after the Amendment Effective Date, all references in the Credit Agreement and the Notes to the Credit Agreement shall be deemed to be references to the Credit Agreement as modified hereby. IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed and delivered as of the date first above written. CROMPTON & KNOWLES CORPORATION By Charles J. Marsden Title: Vice President-Finance By Peter Barna Title: Treasurer BANKERS TRUST COMPANY, Individually and as Agent By Virginia M. Sermier Title: Managing Director THE BANK OF NEW YORK By Maria C. Mamilovich Title: Vice President FIRST FIDELITY BANK, NATIONAL ASSOCIATION By Susan E. Scott Title: Sr. Vice President ABN AMRO BANK N.V. NEW YORK BRANCH By David A. Mandell Title: Vice President By David W. Stack Title: Corporate Banking Officer SHAWMUT BANK CONNECTICUT, N.A. (Formerly CONNECTICUT NATIONAL BANK) By Robert Surdam, Jr. Title: Director J:\LEGAL\WP\EDGAR\CREDAG94.AMD EX-11 3 EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (In thousands of dollars except per share data) PRIMARY 1994 1993 1992 Earnings Earnings before cumulative effect of accounting changes & extraordinary loss $ 50,916 $ 51,958 $ 43,265 Cumulative effect of accounting changes & extraordinary l - - (8,800) Net earnings $ 50,916 $ 51,958 $ 34,465 Shares Weighted average shares outstanding 50,545 51,287 48,571 Common stock equivalents 600 649 1,149 Average shares outstanding 51,145 51,936 49,720 Per share Earnings before cumulative effect of accounting changes & extraordinary loss $ 1.00 $ 1.00 $ 0.87 Cumulative effect of accounting changes & extraordinary l - - (0.18) Net earnings $ 1.00 $ 1.00 $ 0.69 FULLY DILUTED 1994 1993 1992 Earnings Earnings before cumulative effect of accounting changes & extraordinary loss $ 50,916 $ 51,958 $ 43,265 Cumulative effect of accounting changes & extraordinary l - - (8,800) Net earnings $ 50,916 $ 51,958 $ 34,465 Shares Weighted average shares outstanding 50,545 51,287 48,571 Common stock equivalents 607 889 1,396 Average shares outstanding 51,152 52,176 49,967 Per share Earnings before cumulative effect of accounting changes & extraordinary loss $ 1.00 $ 1.00 $ 0.87 Cumulative effect of accounting changes & extraordinary l - - (0.18) Net earnings $ 1.00 $ 1.00 $ 0.69 EX-13 4 1994 ANNUAL REPORT TO STOCKHOLDERS [TYPE] EX-13 Crompton & Knowles Corporation Exhibit 13 1994 Annual Report Service Technology Performance Crompton & Knowles Corporation Crompton & Knowles is a worldwide producer and marketer of specialty chemicals and equipment. The company's 49 million shares of common stock outstanding are traded on the New York Stock Exchange under the symbol CNK. Dividends on the stock have been paid for 248 consecutive quarters and have increased in each of the last 18 years. Crompton & Knowles has gained leadership positions in its chosen markets by providing quality products, technical service and performance know-how to solve problems and add value to customers' products. The company's businesses are grouped into two segments: Specialty Chemicals Crompton & Knowles is a major producer and marketer of dyes worldwide and a major producer and marketer of specialty food and pharmaceutical ingredients in North America. Specialty Process Equipment and Controls The company is a recognized world leader in extrusion systems, industrial blow molding equipment and related electronic controls for the plastics industry. (pie charts) Sales By Business Segment Specialty Chemicals - $393.6 Specialty Process Equipment and Controls - $196.2 Operating Profit By Business Segment Specialty Chemicals - $60.8 Specialty Process Equipment and Controls - $31.2 Crompton & Knowles is a member of the Chemical Manufacturers Association and a signatory of the Associaton's Responsible Care@ Program. The company is committed to a continuous good faith effort to improve performance in health, saftey and enviromental quality. Financial Highlights (In thousands of dollars, except per share data) 1994 1993 % Change [S] [C] [C] [C] Net sales $ 589,757 $ 558,348 6 Earnings before income taxes $ 79,969 $82,473 (3) Income taxes 29,053 30,515 (5) Net earnings $ 50,916 $51,958 (2) Per common share: Net earnings $ 1.00 $ 1.00 - Dividends $ .46 $ .38 21 Book value *$ 4.60 $ 4.68 (2) Return on average common equity 21.1% 23.1% Common stock trading range: High 24 1/8 27 1/4 Low 13 7/8 17 5/8 Average shares outstanding (in thousands) 51,152 52,176 Shareholders of record 4,800 4,000 Sales Continuing Operations (in millions of dollars) (bar graph referencing Eleven Year Selected Financial Data) Earnings Per Share Continuing Operations (bar graph referencing Eleven Year Selected Financial Data) Return on Average Common Equity Continuing Operations (bar graph referencing Eleven Year Selected Financial Data) Fellow Shareholders: The Year In Highlights - -Sales increased 6% to $589.8 million - -Maintained earnings per share at prior-year record level of $1.00 with net earnings of $50.9 million - -21.1% return on average common equity - -Dividend increased 18th consecutive year, up 20% to 48 cents annualized - -Acquired Egan Machinery, McNeil & NRM, Inc. and Repiquet extrusion businesses, broadening product and geographical base of specialty equipment business - -Repurchased 3.0 million shares of common stock Our company's 1994 sales increased to record levels while earnings per share remained at the record levels of the prior year. Return on average common equity was 21.1 percent. It was a year of continued progress for Crompton & Knowles despite the fact that results did not meet our expectations. The economy, while generally robust in 1994, had several weak spots, one of which was apparel. That weakness negatively impacted the domestic dyes business despite gains in most non-apparel segments. We had considerable success in continuing to grow our specialty equipment business, both in North America and internationally, and in positioning the corporation for continued long-term growth. In 1994, sales increased six percent from the prior year to $589.8 million. Earnings per common share remained unchanged at $1.00 per share, while net earnings declined two percent to $50.9 million. When assessed in light of the market environment in which these results were achieved, we can state with confidence that Crompton & Knowles did not lose focus on delivering superior service, technology and performance to our customers. In fact, we used the past year to reinforce our business philosophy of understanding our customers' businesses and working with them to solve their problems. As a result, we look forward to the future with enthusiasm. Specialty chemical segment sales of $393.6 million were three percent below the prior year's record level. Operating profit declined 11 percent to $60.8 million. The lower sales and operating profit were due primarily to weak demand for apparel dyes. Our increased sales of dyes to the carpet sector and for automotive textiles, paper and leather, were unable to overcome the persistent weakness of the apparel market. To reinforce our niche-driven strategy in the dyes business, we realigned our sales organization to target key market segments. We also expanded our computer systems capabilities and streamlined operations to respond more quickly and accurately to the needs of our customers. Overseas, our base European dyes business increased. However, these gains were more than offset by the impact of lower demand under a long-term supply agreement with another company. The international dyes business was restructured to position us to reach our objectives and to realize the potential in Asia, our fastest growing market. Nicholas Fern, Ph.D., formerly responsible for our European dyes operations, has been assigned to lead this growth program. In addition, Gerald H.Fickenscher, Ph.D., has been assigned responsibility for our dyes business in Europe, Africa, the Middle East and Latin America with the objective of expanding our business in those regions. Specialty ingredients sales grew by more than five percent during 1994, gaining increased momentum in the second half of the year. As the year ended, we began shipping commercial quantities of a proprietary no-fat, low water activity, heat stable filling ingredient, initially targeted to the bakery and snack industries. This and other new product developments, such as savory flavor specialties for convenience foods, dairy flavors, and sauteed vegetable flavors, demonstrate our technical capability of producing fully integrated ingredient systems for the food industry, which is our primary thrust in this business. We strengthened our marketing focus on selected food industry segments by adding specialists with the technical and marketing experience needed to capitalize on our technology and our growing pipeline of high quality products. Significant efforts are also underway to consolidate manufacturing facilities and reduce costs, thereby improving productivity and efficiencies within the ingredients operations. Our specialty process equipment and controls segment had another excellent year. Sales increased 30 percent to $196.2 million and operating profit grew 20 percent to $31.2 million with strong demand for plastics extrusion systems and industrial blow molding equipment. We identified new growth opportunities and took action to deliver on them. The acquisition of Egan Machinery in May 1994 broadens our business base into market segments where Egan has established leadership positions - consistent with the position we enjoy with our existing extrusion business. At mid-year we acquired the business of McNeil & NRM, Inc., a small North American-based supplier of extruder parts and aftermarket services to the plastics extrusion equipment market. After the close of the year, in January 1995, we also acquired the extrusion business of McNeil Akron Repiquet S.a.r.l. in France, giving us our first European production facility for extrusion systems, which fulfills a long-standing strategic objective of establishing a manufacturing platform in Europe to better enable us to continue growing our business there. Over the years we have been consistent in our focus on managing the corporation for the long term while delivering short-term results. While 1994 was an interruption in our record of year-to-year earnings gains, and was personally disappointing, I can confidently say that Crompton & Knowles is stronger and more vibrant than ever, with a customer focus geared to our mutual success. Throughout the year, as always, our efforts have been aimed at a closer understanding of our customers' needs, accelerating our product development efforts, enhancing our customer service capabilities and reducing our costs through increased productivity and improved operating efficiencies. There are several changes on our Board of Directors that I wish to note. We welcome the addition of Patricia K. Woolf, Ph. D., a private investor and lecturer in the Department of Molecular Biology at Princeton University. Dr. Woolf brings broad business and technical expertise to our Board. Retired from the Board since our last annual report are Harry W. Buchanan and Howard B. Wentz, Jr. They both have been valued participants in the growth of Crompton & Knowles over the years and we thank them for their service. Their considerable knowledge and wise counsel will be missed. For the eighteenth consecutive year, we increased the dividend paid to shareholders and in 1994 the increase was 20 percent to 48 cents per share annualized. In the final analysis, our fundamental objectives have not changed. We remain committed to managing the corporation for the enhancement of shareholder value. We have accomplished a great deal this year to assure above-average growth for the future. Our confidence is supported by the continuing commitment of our employees to deliver superior service, technology and performance to our customers. The challenges we've met and the many opportunities before us make for a powerful combination. We thank you for your continued support and look forward to 1995. We will keep you informed of our progress. Respectfully yours, Vincent A. Calarco Chairman, President, and Chief Executive Officer March 2, 1995 Specialty Chemicals Segment Highlights - -Segment sales of $393.6 million - -Operating profit of $60.8 million Dyes Highlights - -Domestic dyes sales off 6% due to weak apparel sales - -Industrial dyes continued strong growth - -European dyes sales increase offset by lower demand under supply agreement - -Asia dyes sales increased "Our goal is to ship every order to customer specifications. Sales is more than pushing products out the door. Sales is flexibility, trust, problem solving and a commitment to our customers' success. I constantly remind everyone in our organization that our customers' demands for quick delivery and more technical service merely reflect market forces at work all along the production chain. We have to participate in all of it - understand trends, forecast needs, produce, deliver and assure our product's performance on our customer's production line. We'll get our on-time delivery close to 100 percent, but our ultimate objective is to raise customer confidence to the level that when they think dyes, they press auto-dial for Crompton & Knowles." Jack Humble vice president - sales "Customer requirements and expectations keep increasing and our job is to exceed or, even better, to anticipate those changes. Centralized order entry is a part of our ongoing program to make our business seamless with that of our customers. We've grown to become the largest dyes company in the United States not by producing the most widely-used products, but by focusing on niche markets where our products meet specific performance specifications and can't be effectively marketed without technical service support. Investing in people, facilities and management tools to have the right product in the right place at the right time is more than good business - its the only way to do business." Louis Lopez vice president - marketing Specialty chemical segment sales of $393.6 million in 1994 were three percent below 1993's record sales of $407.3 million. Operating profit was $60.8 million, or 11 percent lower than operating profit of $68.0 million in the prior year. The primary reasons for the segment's lower sales and operating profit were slow demand and weaker pricing in certain sectors of the company's domestic and international dyes operations. Worldwide dyes sales were off six percent from the prior year to $296.8 million. In the United States, significant consumer spending on housing and durable goods such as automobiles, appliances and electronics resulted in delayed purchases of apparel during 1994. The weak apparel sales in turn reduced demand for textile dyes, resulting in some price competition in certain products. Most affected were reactive and direct dyes for cotton. In addition to lower spending by consumers on apparel and non-durables during 1994, industry analysts cite other temporary factors which have affected the apparel dyes industry. These included a consumer preference, during the Spring 1994 season, for lighter colored garments, which use significantly less volume of dyes than do darker or brighter-colored textiles and the lack of a strong fashion trend which would attract the interest of consumers, especially women, to update their wardrobes. History has shown that fashion trends are difficult to predict, but the industry's penchant for change has been well documented. Crompton & Knowles expects these changes to create new opportunities for growth. Throughout this period Crompton & Knowles undertook more aggressive sales and marketing efforts in niche markets where it holds leadership positions. By stressing its value-added product performance, technical service and problem-solving capabilities, the company was able to increase sales of dyes used in home furnishings, carpeting and automotive textiles. Some apparel sectors, such as nylon athletic wear, swimwear and wool apparel, where the company offers specialized dyes products, achieved increased sales. Another area of strength for the company's domestic dyes business was the eight percent increase in dyes for industrial applications such as paper, leather and plastics. Crompton & Knowles is the only industry supplier offering a complete range of both liquid and powder dyes to this marketplace. In 1994 it broadened its product range with new blue, orange and yellow dyes meeting specific customer needs. To reinforce its major position in the carpet industry, the company introduced new colors with less sensitivity to shade change during conditioning, resulting in better production efficiencies for customers. The company offers the broadest range of dyes for carpet available in powder, liquid and cold water soluble forms. As the various markets served by the company - apparel, carpet, home furnishings, industrial and automotive - have become increasingly responsive to their customer needs, Crompton & Knowles has responded in turn. To improve product quality, assure quicker response times and to improve technical service levels, the company launched a new centralized order entry and material and production management system. Many customers have already realized the benefits of the new system, but the full value of the system will become more apparent in 1995. Ongoing company programs to improve production efficiencies and reduce costs during the year included the debottlenecking of its Gibraltar, Pennsylvania and Newark, New Jersey production facilities. The company manufactures dyes at five facilities in the United States. "Just this last year we witnessed a perfect example of how valuable a company's history of performance, a broad product line, proven technical capability and responsive customer service is in the marketplace. Ossfloor, a European industry leader in printed carpets, and a long-time user of our dyes, decided to convert to acid dyes for resist printed carpet production. Naturally, every major dyes competitor in Europe made a pitch for the business, but after the trial runs at Ossfloor's facility in Oss, Netherlands, Crompton & Knowles prevailed. Ossfloor met their objective of producing more environmentally friendly carpets, and we satisfied their need. We've also gained additional business and we're now Ossfloor's largest dyes supplier. But we're more than that - we're partners." Kenneth Dunkerley industry manager - carpet & auto International dyes sales gains in 1994 from the core business were offset by reduced sales under a multi-year supply agreement. Sales, excluding this supply agreement, increased four percent on a local currency basis. Product rationalization between the company's two European production facilities, in Belgium and France, reduced costs and improved output. Named president of the European dyes operations was Gerald H. Fickenscher, Ph.D., who joined the company last year. Sales of dyes increased 17 percent in Asia, where Crompton & Knowles is a joint venture partner in a production facility in Bangkok and markets dyes through a sales and warehouse facility in Hong Kong. To accelerate the growth of the company's business in the region, Nicholas Fern, Ph.D., was assigned to Hong Kong from his prior position of president of the European business. His focus is to expand the company's dyes business in countries such as Taiwan, Hong Kong, China, Korea, Japan and Indonesia. An expanded sales team and technical service laboratory will support these growth plans. photo captions: (Right) Computerized formulation of dyes responds to customer needs for exact color matching. As Tammy Alexander, technician (left), accesses dyes formulas for a particular color, Chris Dehn, junior technician, prepares stock solutions of dyes for the automated dispensing system which responds to the computer's dye recipe instructions. The customer receives a dyed swatch with a recipe, or, when time is critical is sent a TELEMATCH within minutes, with the dyes recipe alone. (Left) Careful checking of shipping documents ensures accurate and timely shipments to customers. Cecil Powers, Charlotte warehouse supervisor, spot checks a rush order as it leaves the loading dock. (Left) Customer service is the guiding principle for Barbara Bunker, supervisor - order services (foreground), and Janey Thompson, senior customer service representative, as they study inventory availability with new on-line centralized order entry software in the company's dyes marketing and sales headquarters in Charlotte, North Carolina. Joy Robinson, customer service representative, (background) advises a customer of the nearest shipping location and time as the order is taken. (Below) Customer needs and industry trends can only be anticipated by regular contact and close working relationships. T.A. Blackburn, commercial director (right), and J. Provoost, business group manager (left), for Crompton & Knowles' dyes business in Europe, review carpet production with H. Fehr, technical director of Ossfloor, a leading European producer of printed carpets. (Above) Close inspection of finished resist printed carpet assures satisfaction by Ossfloor's customers. Nylanthrene acid dyes made by Crompton & Knowles produce consistent high quality results, enabling the company to become Ossfloor's largest dyes supplier. (Right) New designs and color combinations are developed on Ossfloor's laboratory carpet printing machine using Crompton & Knowles' Nylanthrene dyes. In-depth technical knowledge of dyes and carpet filament chemistry enables Crompton & Knowles to support Ossfloor's position as a major carpet producer in Europe. Specialty Chemicals Specialty Ingredients Highlights - -Sales of specialty ingredients increased 5% - -Began commercial shipments of Miracle Middles, a new proprietary no-fat filling ingredient with low water activity and heat stability for bakery, cereal, candy and snack products - -Upgraded production facilities in Carrollton, Texas and Elyria, Ohio, eliminating a third facility - -Reciprocal agreement signed with DMV Pharma of the Netherlands to market each other's pharmaceuticals ingredients in North America, Europe and Asia - -Initiated consolidation of three production facilities at Vineland, New Jersey Sales for the company's specialty ingredients operations improved five percent in 1994, rising to $96.8 million. This increase came from both the food and pharmaceutical ingredients sectors. The food ingredients sales gains resulted from the company's ability to integrate flavors, seasonings, colors and sweeteners into ingredient systems which respond to the complex needs of major food producers in North America. The new food labels prescribed by the Federal government's Nutritional Labeling and Education Act of 1990 became mandatory in 1994. The Act's standardization of terms such as "lite," "reduced fat," and "low salt," has hastened the food industry's interest in suppliers who can help them produce flavorful products which appeal to the consumer and meet these new industry standards. The clearer labeling has also placed greater demand on food ingredients suppliers to produce in-depth technical analysis of the ingredients they supply, again increasing food companies' dependence on suppliers with broad state-of-the-art technical expertise in all aspects of ingredient production and supply. During the past year Crompton & Knowles developed and introduced numerous products to meet specific food ingredients needs of individual food companies. Having recognized some years ago the potential effect of the new product labeling requirements, as well as consumers' demand for healthy, good tasting low- or no-fat products, the company undertook independent development of a food filling with those characteristics. Late in 1994 the company began producing and shipping commercial quantities of a new patented filling product. Called Miracle Middles, it can be used in bakery, cereal, snack food, candy and other applications. The product is unique for combining three key attributes - no-fat, low water activity and heat stability - and demonstrates the company's capabilities in producing complex multi-functional products that can include flavors, seasonings and colors. Problem solving capabilities have also enabled the company to expand its offerings of savory specialties and reaction flavors for convenience foods which can be prepared quickly by the consumer, using traditional ovens or microwaves. These include dairy flavors such as sour cream and butter, sauteed vegetable flavors and rotisserie flavors which enable food producers to utilize efficient high-speed processing while delivering home-style goodness to the consumer. Streamlining of food ingredient production facilities resulted in the modernization of operations at Carrollton, Texas and Elyria, Ohio and the closing of a facility in City of Industry, California. Late in the year the company also broke ground for a new manufacturing plant in Vineland, New Jersey. This facility will result in the closing of two existing plants and achieve cost savings in operations transferred from a total of four plants. Pharmaceutical ingredients operations had a good year in 1994, increasing sales of excipients, color dispersions and tablet coating systems in North America. Late in the year a reciprocal marketing agreement was signed with DMV International Pharma, of the Netherlands, for Crompton & Knowles to market and sell DMV International's pharmaceutical grade lactose in North America while DMV distributes the company's full pharmaceutical product line in Europe and Asia. "Integrated food systems is considered our industry's leading edge technology today, but its been guiding our strategy for years. Miracle Middles is the direct result of our effort to combine flavors, seasonings, sweeteners and colors in a single multifunctional food ingredient system. Our customers get really excited when they see the possibilities - a no-fat filling which has low water activity and can be customized to meet their specific needs. We're doing similar work in our laboratories on other multifunctional systems and we think this approach will gives us, and our customers, an extra edge in the marketplace." Rudy Phillips vice president - flavored ingredients photo captions: (Above) Successful integrated ingredient systems result from a focused team approach using all disciplines within the organization. Michael DeLuca, vice president, food systems (center), is updated on customer-specific requirements for Miracle Middles, the company's new low-fat filling with low water activity. Jean Gallagher, technical group leader and senior food technologist (foreground), works on applications; Tom Damiano is product manager guiding the market introduction of Miracle Middles (left); and Kevin Ramsey is food technologist responsible for producing the new filling in the pilot plant. (Below) New ingredient systems are regularly subjected to "blind" sensory evaluation testing and must meet or exceed critical attributes as identified by consumers in each step of the development process. Here a panelist tastes a sport beverage with isotonic properties including Crompton & Knowles' flavors, colors and other ingredients. (Right) Whether its sweet flavors for bakery products, cereal or confections...or meaty savory flavors for convenience foods, snacks and side dishes, Crompton & Knowles has the ingredient system technology to satisfy the need. Eileen Simons, manager of applications technology (foreground), and Susan Vodzik, senior food technologist, study flavored pasta components of a side dish product. Specialty Process Equipment and Controls Segment Highlights - -Sales rose 30% to record $196.2 million - -Operating profit increased 20% to record $31.2 million - -Egan Machinery and McNeil & NRM, Inc. acquisitions completed, broadening plastics extrusion business and aftermarket services - -Order backlog at $66 million at year-end - -Strong profile, wire and cable, elastomer and industrial blow molding growth - -French extruder business acquired in January 1995 The specialty process equipment and controls segment had an excellent year as sales increased 30 percent to a record $196.2 million compared with $151 million in the prior year. Operating profit was $31.2 million, or 20 percent above the $26 million reported in 1993. Contributing to the strong growth were profile extrusion systems for building and automotive markets, wire and cable insulating lines for telecommunications and automotive, industrial blow molding systems, plastics recycling extrusion systems and compounding extruders for the production of engineered plastics. Medical, elastomer and blown film extrusion systems had improved performance as well. Strong demand for wire and cable systems in Latin American and Asian markets increased international sales, which accounted for 24 percent of the segment's sales during the year. The business was reinforced and broadened with the May 1994 acquisition of Egan Machinery, a producer of plastics extrusion, precision coating and cast film equipment. Egan systems are produced primarily at a facility in Somerville, New Jersey. The business of McNeil & NRM, Inc., a supplier of extruder parts and aftermarket services to the plastics extrusion equipment market in North America, was acquired in June 1994. In addition, completed in January 1995, was the acquisition of the extrusion business of McNeil Akron Repiquet S.a.r.l., a French producer and marketer of plastics and rubber process equipment. The acquisition includes a facility in Dannemarie, France, giving the company a local sales, customer service and manufacturing location from which to increase its participation in the European extrusion systems market. As a leading worldwide innovator of extrusion systems for the plastics and rubber industries, Crompton & Knowles introduced a broad range of new equipment during the year, including grooved feed extruders for processing high-density polyethylene pipe, winders for cast film and plastic film, cold feed extruders for rubber, precision dies for extruding medical tubing, compact co-extruded blown film systems, a new system for injecting liquid color into plastic during the extrusion process and fully integrated process controls for monitoring and controlling the complete extrusion process. To support this new technology introduction program the company maintains one of the largest technical service staffs in the industry, offering its customers individual design, engineering and installation services as well as extensive training seminars for maintenance and operating personnel. In addition, with a large worldwide base of installed equipment, maintenance and system upgrade services continue to be a significant area of growth. The segment's equipment order backlog at the end of 1994 was $66 million. "Exports have been an important contributor to our growth over the years, but we've now reached the point where having a regionally based manufacturing, sales and service facility is a must. Extrusion equipment and systems with the Davis-Standard mark are becoming more recognized and used the world over. The acquisition of Egan Machinery in 1994, broadened even further our European customer base. The January 1995 acquisition of the extrusion operations of Repiquet S.a.r.l. gives us our first regional off-shore platform in Dannemarie, France. This platform, together with our sales and service centers in the United Kingdom and Hong Kong, positions us to accelerate our international sales growth and can serve as a model for other strategic international locations." Alfred Bartkiewicz director - international marketing photo captions: (Above right) Egan Davis-Standard has earned a reputation for dependability and consistency of its extrusion and blown film systems, but quality control dictates that UCB Transpac employees inspect each roll of film prior to shipment. (Below right) Technical service and customer support is a cornerstone of Davis-Standard's reputation as a leader in the extrusion and blown film industry. Karol Braun, product manager, blown film systems (right), based in the United Kingdom, calls on Josef Verplaetse, general manager of UCB Transpac(center), and Guido Haudenhuyse, responsible for UCB Transpac's development, to determine their satisfaction and discuss future needs. (Left) Growing demand for plastic packaging with specific properties that can only be achieved with multiple polymer layers, has resulted in strong sales of the company's Davis-Standard systems in Europe. An important Egan Davis-Standard customer is UCB Transpac, which operates this three-layer blown film co-extrusion system at its facility in Ghent, Belgium. Financial Contents Management's Discussion & Analysis of Financial Condition and Results of Operations 13 Consolidated Financial Statements 16 Notes To Consolidated Financial Statements 20 Responsibility For Financial Statments 27 Independent Auditors' Report 27 Eleven Year Selected Financial Data 28 Corporate Data 30 Corporate Officers and Operating Management - Inside Back Cover Management's Discussion & Analysis of Financial Condition and Results of Operations Financial Condition and Liquidity Acquisitions In May 1994, the Company acquired the business and certain assets of Egan Machinery Division of John Brown Plastics Machinery. In June 1994, the Company acquired the business and certain assets of McNeil & NRM, Inc. The cost of these acquisitions were accounted for based on the purchase method and, accordingly, the results of operations of these businesses have been included in the Consolidated Statements of Earnings since their dates of acquisition. Liquidity and Captial Resources The December 31, 1994 working capital balance of $121.6 million decreased $3.4 million from the December 25, 1993 balance of $125 million, while the current ratio declined to 1.9 from 2.3 at the end of 1993. The decline in the current ratio is primarily attributable to the increase in notes payable. Days sales in receivables increased to 54 days in 1994 from 52 days in 1993. Inventory turnover averaged 2.8 compared to 2.9 in 1993. Cash flow from operating activities of $21.8 million decreased $30.6 million for $52.4 million in 1993 primarliy as a result of increased inventory levels, particularly in the dyes business. Cash provided by operating activities, cash reserves and increased borrowings were used to finance acquisitions, fund capital expenditures, pay cash dividends and repurchase approximately 6% of the Company's outstanding common shares. Dividends paid in 1994 of $23.3 million represent a payout ration of 46% of earnings. The Company's debt- to-capital ratio increased to 29% from 7% at year-end 1993 primarily due to increased borrowings and share repurchases. Capital expenditures increased to $21.7 million from $14.3 million in 1993. Capital expenditures are expected to approximate $20 million in 1995 primarily for expansion and improvement of operating facilities in the United States and Europe. The Company's long-term liquidity needs including such items as capital expenditures and dividends are expected to be financed through operations. The Company has available numerous uncommitted short-term lines of credit, and a revolving credit agreement providing for borrowings up to $70 million through September 1998. At year-end, there were $39.7 million of short-term borrowings outstanding and $50 million outstanding under the revolving credit agreement. Inflation During the last three years, inflation has not been a significant factor in the net earnings of the Company. The LIFO method of accounting is used for a major portion of the Company's inventories. Under this method, the cost of products sold approximates current costs and thus reduces possible distortion of reported earnings due to rising costs. The Company continually emphasizes cost controls and efficient management of resources to mitigate the influence of inflation. International Operations The lower U.S. dollar exchange rate versus primarily the Belgian Franc and the French Franc accounted for the favorable adjustment of $2.4 million in the accumulated translation adjustment account since year-end 1993. Changes in the balance of this account are primarily a function of fluctuations in exchange rates and do not necessarily reflect either enchancement 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 comparisions of the Company's earnings. Research and Development The Company employs about 270 engineers, draftsmen, chemists, and technicians responsible for developing new and improved chemical products and process equipment systems for the industries served by the Company. Often, new products are developed in response to specific customer needs. The Company's process of developing and commercializing new products and product improvements is ongoing and involves many products, no one of which is large enough to significantly impact the Company's results of operations from year to year. Research and development expenditures totalled $12.1 million, $11.2 million and $10.1 million in the fiscal years 1994, 1993, and 1992, respectively. Management's Discussion & Analysis of Financial Condition and Results of Operations continued 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. Although precise amounts are difficult to define, the Company incurred approximately $20.7 million in 1994 to comply with those requirements, including approximately $7.2 million in capital expenditures. 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 statues, at two waste disposal sites; and two inactive subsidiaries have been designated, along with others, as potentially responsible parties at a total of four other sites. While the cost of compliance with exisiting environmental requirements is expected to increase, based on the facts currently known to the Company, management expects that those costs, including the cost to the Company of remedial actions will not be material to the results of the Company's operations in any given year. Operating Results - 1994 as Compared to 1993 Overview Consolidated net sales of $589.8 million increased 6% from $558.3 million in 1993. Net earnings of $50.9 million declined 2% from $52 million in 1993. Earnings per common share of $1.00 were unchanged from the prior year. Average shares outstanding decreased 1 million to 51.2 million primarily as a result of the Company's share repurchase program. The gross margin percentage of 31.5% decreased slightly from 31.8% in 1993. Operating profit of $92 million was 2% lower than 1993 as the specialty process equipment and controls segment increased 20% while the specialty chemicals segment decreased 11%. Specialty Chemicals The Company's specialty chemicals segment reported sales of $393.6 million representing a decline of 3% from 1993. The decrease was primarily attributable to lower selling prices (-2%) and unit volume (-1%). The proportion of sales outside the United States was 25% in 1994, unchanged from 1993. Domestic dyes sales declined 6% reflecting lower selling prices (-4%) and lower unit volume (-2%) as demand for apparel dyes remained weak. International dyes sales were 5% lower than 1993 due primarily to lower unit volume under a long-term supply agreement. Specialty ingredients sales increased 5% reflecting increased unit volume in all major product groups. Operating profit declined 11% to $60.8 million from $68 million in 1993 due primarily to lower pricing and unit volume offset in part by lower dye intermediate costs. The percentage of operating profit outside the United States was 21% in 1994, unchanged from 1993. Specialty Process Equipment and Controls The Company's specialty process equipment and controls segment reported sales of $196.2 million representing an increase of 30% from $151 million in 1993. Approximately 21% was attributable to the acquisition of Egan Machinery with the balance attributable equally between pricing and unit volume. Export sales of $48 million increased 18% from 1993 and accounted for 24% of total segment sales versus 27% in 1993. Operating profit increased 20% to $31.2 million from $26 million in 1993. Approximately 7% was attributable primarily to unit volume and improved pricing offset in part by higher manufacturing costs. The equipment order backlog totalled $66 million at the end of 1994 compared to $38 million at the end of 1993. Other Selling general and administrative expenses increased 10% primarily due to the acquisition of Egan Machinery and the impact of inflation. Depreciation and amortization increased 10% over 1993 primarily as a result of the Egan Machinery acquisition and a higher fixed asset base. Interest expense of $2.2 million was double the amount in 1993 reflecting the increased level of borrowings in 1994. Other income declined $163 thousand versus 1993. The Company's effective tax rate of 36.3% was slightly lower than the prior year level of 37%. Operating Results - 1993 as Compared to 1992 Overview Consolidated net sales of $558.3 million increased 8% from $517.7 million in 1992. Net earnings increased 20% to $52 million compared with 1992 operating earnings of 43.3 million. Operating earnings in 1992 excluded charges relating to the adoption of two new accounting standards ($5.8 million) and the penalty for early exinguishment of debt ($3 million). Earnings per common share of $1.00 increased 15% compared with operating earnings per share of $.87 in 1992. Average shares outstanding increased 2.2 million to 52.2 million primarily as a result of the stock offering in December 1992. The gross margin percentage increased to 31.8% from 31.0% in 1992 primarily due to lower raw material costs and improved product mix in the specialty chemicals segment. Operating profit of $94 million increased $10.6 million, or 13%, from $83.4 million in 1992 due to gains in both business segments. Specialty Chemicals The Company's specialty chemicals segment reported a sales increase of $12.1 million, or 3%, to $407.3 million from $395.2 million in 1992. Approximately 3% was attributable to incremental sales from the pre-metallized dyes acquisition in May 1992, 2% to unit volume growth and minus 2% to foreign currency translation. The proportion of sales outside the United States decreased slightly to 25% from 26% in 1992. Domestic dyes sales improved 5% reflecting higher unit volume in certain key markets and new product introductions. International dyes sales approximated the level in 1992 as incremental sales from the pre-metallized dyes acquisition were offset by foreign currency translation and the recessionary environment in Europe. Sales of specialty ingredients increased 3% reflecting increased unit volume product mix. Operating profit increased $4.7 million, or 7%, to $68 million from $63.4 million in 1992. Approximately 2% was attributable to the pre-metallized dyes acquisition with the balance of 5% attributable primarily to the unit volume growth, lower raw materials costs and improved product mix. The proportion of operating profit outside the United States was 21% versus 23% in 1992. Specialty Process Equipment and Controls Sales of $151 million reported by the Company's specialty process equipment and controls segment rose $28.5 million, or 23%, from $122.5 million in 1992. The sales increase was attributable primarily to higher unit volume (21%) and pricing in the second half of the year (2%). Domestic sales increased 19% over 1992 while exports, particularly to the Far East, increased 37%. Export sales accounted for 27% of total segment sales versus 24% in 1992. Operating profit increased $6 million, or 30%, to $26 million from $20 million in 1992, primarily as a result of higher unit volume and improved pricing. The equipment order backlog of $38 million at the end of 1993 increased over the prior year-end level of $34 million. Other Selling, general and administrative expenses increased 9% primarily due to the pre-metallized dyes acquisition and the increased level of business. Depreciation and amortization increased 4% over 1992 primarily as a result of a higher fixed capital base including the pre-metallized dyes acquisition. Interest expense of $1.1 million was 84% lower than 1992 primarily as a result of the long-term debt repayment in December 1992. Other income of $1.2 million was $1.4 million below 1992 primarily due to lower foreign exchange gains and lower interest income. The Company's effective tax rate 37% was up slightly from 36.7% in 1992 reflecting primarily the higher U.S. tax rate in 1993. Consolidated Statements of Earnings Fiscal years ended December 31, 1994, December 25, 1993, and December 26, 1992 (In thousands of dollars, except per share data) 1994 1993 1992 Sales Net sales $589,757 $558,348 $517,718 Costs and Expenses Cost of products sold 403,784 380,941 357,089 Selling, general and administrative 91,581 82,970 76,251 Depreciation and amortization 13,298 12,076 11,635 Interest 2,167 1,093 6,984 Other income (1,042) (1,205) (2,578) Total costs and expenses 509,788 475,875 449,381 Earnings Earnings before income taxes, cumulative effect of accounting changes and extraordinary loss 79,969 82,473 68,337 Income taxes 29,053 30,515 25,072 Earnings before cumulative effect of accounting changes and extraordinary loss 50,916 51,958 43,265 Cumulative effect of accounting changes - - (5,800) Extraordinary loss on early extinguishment of debt - - (3,000) Net earnings $50,916 $51,958 $34,465 Earnings per common share Earnings before cumulative effect of accounting changes and extraordinary loss $ 1.00 $ 1.00 $ .87 Cumulative effect of accounting changes - - (.12) Extraordinary loss on early extinguishment of debt - - (.06) Net earnings $ 1.00 $ 1.00 $ .69 Consolidated Balance Sheets Fiscal Years Ended December 31, 1994 and December 25, 1993
(In thousands of dollars, except per share data) 1994 1993 Assets Current Assets Cash $ 1,832 $ 9,284 Accounts receivable 81,859 84,482 Inventories 157,356 113,932 Other current assets 19,610 12,698 Total current assets 260,657 220,396 Non-Current Assets Property, plant and equipment 117,105 99,925 Cost in excess of acquired net assets 43,429 33,275 Other assets 11,137 9,650 $ 432,328 $ 363,246 Liabilities and Stockholders' Equity Current Liabilities Notes payable $ 39,670 $ 5,100 Accounts payable 47,000 44,905 Accrued expenses 33,369 25,574 Income taxes payable 4,138 12,935 Other current liabilities 14,865 6,925 Total current liabilities 139,042 95,439 Non-Current Liabilities Long-term debt 54,000 14,000 Accrued postretirement liability 8,698 9,084 Deferred income taxes 6,681 4,727 Stockholders' Equity Common stock, $.10 par value - issued 53,361,072 shares 5,336 5,336 Additional paid-in capital 62,241 61,783 Retained earnings 218,837 191,230 Accumulated translation adjustment 1,858 (557) Treasury stock at cost (54,213) (11,278) Deferred compensation (10,152) (6,518) Total stockholders' equity 223,907 239,996 $ 432,328 $ 363,246 Consolidated Statements of Cash Flows Fiscal Years Ended December 31, 1994, December 25, 1993, and December 26, 1992 Increase (decrease) to cash (in thousands of dollars) 1994 1993 1992 Cash flows from operating activities Earnings from operations $ 50,916 $ 51,958 $ 43,265 Adjustments to reconcile earnings from operations to net cash provided by operations: Depreciation and amortization 13,298 12,076 11,635 Deferred income taxes 2,389 340 1,280 Deferred compensation (332) 1,611 1,850 Cumulative effect of accounting changes and extraordinary loss - - (8,800) Changes in assets and liabilities: Accounts receivable 5,815 (11,798) (16,943) Inventories (34,695) (253) 5,939 Other current assets (2,735) 722 (5,833) Other assets (943) 2 (373) Accounts payable and accrued expenses (8,186) (4,937) 4,830 Income taxes payable (7,986) 3,918 279 Other current liabilities 4,777 (1,435) 2,792 Accrued postretirement liability (386) 310 8,774 Other (175) (109) (197) Net cash provided by operations 21,757 52,405 48,498 Cash Flows From Investing Activities Acquisitions (13,734) - (21,817) Capital expenditures (21,710) (14,299) (12,835) Other investing activities 590 1,972 (626) Net cash used by investing activities (34,854) (12,327) (35,278) Cash Flows From Financing Activities Proceeds from sale of common stock - - 45,743 Proceeds from (payments on) long-term borrowings 40,000 (10,000) (56,331) Change in notes payable 34,533 (282) 5,421 Treasury stock acquired (47,647) (5,103) - Treasury stock issued under stock options and other plans 1,756 1,905 830 Dividends paid (23,309) (19,482) (14,807) Net cash provided (used) by financing activities 5,333 (32,962) (19,144) Cash Effect of exchange rates on cash 312 (273) (118) Change in cash (7,452) 6,843 (6,042) Cash at beginning of year 9,284 2,441 8,483 Cash at end of year $1,832 $9,284 $ 2,441
Consolidated Statements of Stockholders' Equity Fiscal Years Ended December 31, 1994, December 25, 1993, and December 26, 1992 (In thousands of dollars, except per share data) 1994 1993 1992 Common stock Balance at beginning of year $ 5,336 $ 5,336 $ 2,668 Stock split - - 2,668 Balance at end of year 5,336 5,336 5,336 Additional paid-in capital Balance at beginning of year 61,783 59,644 16,982 Sale of common stock - - 38,236 Stock split - - (2,858) Stock options and other issuances 1,592 2,139 1,376 Issuance under long-term incentive plan (613) - 5,908 Revaluation of long-term incentive plan shares (521) - - Balance at end of year 62,241 61,783 59,644 Retained earnings Balance at beginning of year 191,230 158,754 139,096 Net earnings 50,916 51,958 34,465 Cash dividends declared on common stock ($.46 per share in 1994, $.38 in 1993 and $.305 in 1992) (23,309) (19,482) (14,807) Balance at end of year 218,837 191,230 158,754 Accumulated translation adjustment Balance at beginning of year (557) 3,803 3,365 Equity adjustment for translation of foreign currencies 2,415 (4,360) 438 Balance at end of year 1,858 (557) 3,803 Treasury Stock Balance at beginning of year (11,278) (7,956) (18,029) Sale of 2,225,680 common shares - - 7,507 Issued, primarily under stock options (58,957 shares in 1994, 489,976 in 1993 and 578,431 in 1992) 276 1,781 1,814 Common stock acquired (2,954,700 shares in 1994 and 280,000 in 1993) (47,647) (5,103) - Issuance under long-term incentive plan (261,399 shares in 1994 and 369,950 in 1992) 4,436 - 752 Balance at end of year (54,213) (11,278) (7,956) Deferred Compensation Balance at beginning of year (6,518) (8,129) (3,319) Issuance under long-term incentive plan (3,823) - (6,660) Amortization (332) 1,611 1,850 Revaluation of long-term incentive plan shares 521 - - Balance at end of year (10,152) (6,518) (8,129) Total stockholders' equity $223,907 $239,996 $211,452
Notes to Consolidated Financial Statements (In thousands of dollars, except per share data) Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of all subsidiaries. Intercompany balances and transactions are eliminated in consolidation. The Company's fiscal year ends on the last Saturday in December for domestic operations and a week earlier for most foreign operations. Translation of Foreign Currencies Foreign currency accounts are translated into U.S. dollars as follows: exchange rates at the end of the period are used to translate all assets and liabilities; average exchange rates during the year are used to translate income and expense accounts. Gains and losses resulting from the translation of foreign currency balance sheet accounts into U.S. dollars and related hedging transactions are included in a separate caption, "Accumulated translation adjustment," in the stockholders' equity section of the consolidated balance sheets. Property, Plant and Equipment Property, plant and equipment are carried at cost, less accumulated depreciation. Depreciation expense ($11,935 in 1994, $10,828 in 1993 and $10,394 in 1992) 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 - 5 to 15 years, and furniture and fixtures - 5 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 using the last-in, first-out (LIFO) method for a significant portion of chemicals inventories and the first-in, first-out (FIFO) method for the remaining inventories. Cost In Excess of Acquired Net Assets The cost of acquisitions in excess of tangible and identifiable intangible assets in the amount of $43,429 has, in the opinion of management, incurred no permanent impairment in value. This cost is being amortized using the straight-line method over periods from twenty to forty years. Accumulated amortization amounted to $6,622 in 1994 and $5,456 in 1993. Income Taxes Effective in 1992, the Company adopted the provisions of FASB Statement No.109 "Accounting for Income Taxes." Further information is provided in the note on 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 $60,800 at December 31, 1994, were distributed to the Company in the form of dividends, since it is management's intention to permanently invest such earnings in the related foreign operations. If distributed, such earnings would incur income tax expense at substantially less than the U.S. income tax rate, primarily because of the offset of foreign tax credits. Research and Development Expenditures for research and development costs are charged to operations as incurred ($12,106 in 1994, $11,184 in 1993 and $10,114 in 1992). Statements of Cash Flows Cash includes bank term deposits of three months or less. Cash payments during the years ended 1994, 1993 and 1992 included interest of $2,005, $1,556 and $7,248 and income taxes of $35,319, $24,347 and $19,786, respectively. Postretirement Health Care Benefits Effective in 1992, the Company adopted the provisions of FASB Statement No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions." Further information is provided in the note on postretirement healthcare benefits. 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 amounting to 51,151,525 in 1994, 52,175,691 in 1993 and 49,967,453 in 1992. 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. 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. The fair value of the Company's financial instruments approximate carrying value. Other Disclosures Included in accounts receivable are allowances for doubtful accounts in the amount of $3,829 in 1994 and $4,072 in 1993. Included in other current liabilities are customer deposits in the amount of $11,183 in 1994 and $5,757 in 1993. Acquisitions On May 8, 1992, the Company acquired a pre-metallized dyes business and facility located in Oissel, France at a cost of $21,817. On May 18, 1994, the Company acquired the business and certain assets of the Egan Machinery Division of John Brown Plastics Machinery at a cost of $10,718. On June 27, 1994, the Company acquired the business and certain assets of McNeil & NRM, Inc. at a cost of $3,016. 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 $13,572 is being amortized over forty years. The operating results of each acquisition are included in the Consolidated Statements of Earnings since the date of the acquisition. Inventories 1994 1993 Finished goods $ 90,386 $ 57,987 Work in process 32,640 25,748 Raw materials and supplies 34,330 30,197 $157,356 $113,932 At December 31, 1994, inventories valued using the last-in, first-out (LIFO) method amounted to $75,958 ($60,983 at December 25, 1993). The LIFO reserve was not significant in 1994 and 1993. Property, Plant and Equipment 1994 1993 Land $ 7,292 $ 5,494 Buildings and improvements 61,926 55,537 Machinery and equipment 113,296 101,285 Furniture and fixtures 3,662 3,470 Construction in progress 16,620 7,526 202,796 173,312 Less accumulated depreciation 85,691 73,387 $117,105 $ 99,925 Leases The future minimum rental payments under operating leases having initial or remaining non-cancellable lease terms in excess of one year (as of December 31, 1994) total $23,795 as follows: $5,662 in 1995, $4,801 in 1996, $3,574 in 1997, $3,131 in 1998, $2,746 in 1999 and $3,881 in later years. Total rental expense for all operating leases was $7,305 in 1994, $6,509 in 1993, and $6,379 in 1992. All long-term leases expire prior to 2013. 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. Debt Long-term debt is summarized as follows: 1994 1993 Revolving credit loans $ 50,000 $ 10,000 Industrial revenue bonds 4,000 4,000 Total long-term debt $ 54,000 $ 14,000 The industrial revenue bonds mature in 1997 and carry an interest rate that fluctuates within the tax exempt market. The average interest rate incurred in 1994 was 2.8%. The bonds are secured by a bank letter of credit. The Company has a credit agreement with a group of five banks providing for up to $70,000 of revolving credit loans through September 28, 1998. The agreement calls for interest at the prime rate on revolving loans, but offers pricing options based on certificate of deposit and Eurodollar rates which generally are more favorable than the prime rate option. The Company must pay an annual fee of .15% of the total unused commitment. The covenants of the revolving credit agreement impose restrictions on the Company with respect to debt and tangible net worth levels. These restrictions are not expected to adversely affect the Company's operations. At December 31, 1994, the $50,000 borrowed under the revolving credit agreement bore an interest rate of 6.4%. At December 31, 1994, notes payable outstanding of $39,670 bore an interest rate of 5.8%. The aggregate annual maturities of long-term debt are $4,000 in 1997 and $50,000 in 1998. Capital Stock The Company is authorized to issue 250,000,000 shares of common stock at a par value of $.10. There are 53,361,072 common shares issued, of which 4,703,891 shares and 2,069,547 shares were held in the treasury at December 31, 1994 and December 25, 1993, respectively. In December 1992, the Company sold 2,225,680 shares of common stock through a public offering. The net proceeds were used to repay certain long-term debt. 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 eight-hundredth of a share of Series A Junior Participating Preferred Stock at an exercise price of $18.75. 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. Contingencies In the normal course of its business, the Company is subject to investigations, claims and legal proceedings, some of which concern environmental matters, involving both private and governmental parties. In some cases, the remedies sought or damages claimed may be substantial. While each of these matters is subject to various uncertainties as to outcome, and some of them may be decided unfavorably to the Company, based on the facts known to the Company and on consultation with legal counsel, management believes that there are no such matters pending or threatened which will have a material effect on the financial position of the Company or the results of the Company's operations in any given year. Income Taxes The components of earnings from operations before income taxes and taxes are as follows: 1994 1993 1992 PreTax Earnings: Domestic $67,555 $68,498 $53,732 Foreign 12,414 13,975 14,605 Total $79,969 $82,473 $68,337 Taxes: Domestic Current taxes $23,361 $27,857 $18,104 Deferred taxes 2,057 (587) 2,237 $25,418 $27,270 $20,341 Foreign Current taxes $ 3,303 $ 2,318 $ 5,688 Deferred taxes 332 927 (957) $ 3,635 $ 3,245 $ 4,731 Total Current taxes $26,664 $30,175 $23,792 Deferred taxes 2,389 340 1,280 $29,053 $30,515 $25,072 The following is a percentage reconciliation of computed "expected" tax expense: 1994 1993 1992 Computed "expected" tax expense 35.0% 35.0% 34.0% State taxes (net of U.S. tax benefit) 3.6 3.6 3.4 Foreign tax differential (0.9) (2.0) (.3) Other, net (1.4) .4 (.4) 36.3% 37.0% 36.7% Deferred income taxes are comprised of temporary differences between financial and taxable income. The components of the net deferred tax asset as of December 31, 1994 and December 25, 1993, are as follows: 1994 1993 Deferred tax asset Inventory obsolescence reserve and overhead capitalization $ 3,239 $ 2,431 Bad debt reserves 232 480 Deferred compensation liability 638 879 Various expense accruals 4,475 1,782 Accrued postretirement liability 3,598 3,738 Total deferred tax assets 12,182 9,310 Deferred tax liability - depreciation (10,279) (8,806) Net deferred tax asset $ 1,903 $ 504 Total deferred tax assets for 1994 and 1993 include current assets of $8,584 and $5,231, respectively. The deferred tax liability is non-current for 1994 and 1993. Effective in 1992, the Company adopted the provisions of FASB Statement No. 109 "Accounting for Income Taxes" resulting in a cumulative charge of $300. Total income tax expense for 1992 amounted to $19,579 and was allocated as follows: earnings from operations $25,072, cumulative effect of accounting changes ($3,424) and extraordinary loss on early extinguishment of debt ($2,069). Pensions The Company maintains a defined contribution pension plan for eligible employees under provisions of section 401(k) of the Internal Revenue Code. The plan provides for Company contributions at a certain percentage of each participant's salary and allows voluntary tax-deferred employee contributions up to a stated percentage of salary. Other foreign and domestic pension plans are not significant. Total pension expense aggregated $4,251 in 1994, $4,036 in 1993 and $3,853 in 1992. Stock Incentive Plans The 1988 Long Term Incentive Plan (the 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. There were 4,000,000 shares of common stock reserved for awards under the 1988 Plan. The 1993 Stock Option Plan for Non-Employee Directors authorizes 100,000 shares to be optioned to non-employee directors at the rate of their annual retainer divided by the stock price on the date of grant. The option will vest over a two year period and be exercisable over a ten year period from the date of grant, at a price equaling the fair market value on the date of grant. Since 1989, 1,703,149 common shares have been transferred to an independent trustee to administer restricted stock awards under the Company's long-term incentive program. At December 31, 1994, deferred compensation relating to such shares in the amount of $10,152 is being amortized over an estimated service period of six to fifteen years. The unearned portion of such deferred compensation fluctuates with the market value of the underlying shares and amounted to $7,280 (448,000 shares) at December 31, 1994. To hedge the fluctuation on an after tax basis, the Company has purchased, at a net cost of $638, cash-settlement call options at a strike price of $14 5/8 covering 270,000 of its common shares, financed in part by the sale of a like amount of cash-settlement put options at a strike price of $13 3/4. At December 31, 1994, the net value of such options, which mature on December 26, 1997 and are included in "Other assets" in the accompanying balance sheet, amounted to $1,077. Changes during 1994, 1993 and 1992 in shares under option are summarized as follows: Price Per Share Range Average Shares Outstanding at 12/28/91 $ 1.29-18.32 $ 5.75 2,198,938 Granted 18.19-22.78 19.16 224,250 Exercised 1.29-9.31 3.40 (483,954) Lapsed 4.01-9.31 8.18 (9,334) Outstanding at 12/26/92 1.29-22.78 7.88 1,929,900 Granted 19.31-23.75 19.45 218,736 Exercised 1.29-18.31 2.87 (424,419) Lapsed 4.01-19.19 14.01 (6,667) Outstanding at 12/25/93 2.15-23.75 10.57 1,717,550 Granted 14.63-21.44 14.83 282,647 Exercised 2.15-9.31 5.59 (57,473) Lapsed 9.31-19.31 18.12 (27,001) Outstanding at 12/31/94 $ 2.47-23.75 $11.24 1,915,723 Exercisable at 12/31/94 $ 2.47-23.75 $ 9.46 1,441,270 Shares available for grant at December 31, 1994, and December 25, 1993, were 842,992 and 1,360,037, respectively. 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 $1,677, $1,617 and $1,276 in 1994, 1993 and 1992, respectively. Foreign Operations Financial data applicable to the Company's foreign operations are as follows: 1994 1993 1992 Net sales $97,848 $103,356 $104,307 Net earnings $ 8,779 $ 10,730 $ 9,874 Assets $90,508 $ 82,789 $ 81,733 Postretirement Health Care Benefits Effective January 1, 1992, the Company adopted the provisions of FASB Statement No.106 "Employees' Accounting for Postretirement Benefits Other Than Pensions." The Company elected to record immediately the transition obligation, resulting in a one-time aftertax charge to earnings of $5,500 or $.11 per share. The charge represents the aftertax present value of postretirement health benefits attributable to past service of eligible retired and active employees under the Company's postretirement health care benefit plans. In 1994, the Company adopted several changes to its postretirement health care benefit plans including an annual cap for medical premiums paid by the Company, higher deductible amounts and out-of-pocket limits on medical payments. The plan amendments resulted in a prior service gain of $3,254 which is being amortized over the average remaining employee service period of 15 years. Postretirement health care benefit expense did not have a material effect on net earnings for the years 1994, 1993 and 1992. The financial status of the accrued postretirement liability is as follows: 1994 1993 Retirees $ 2,812 $ 4,056 Fully eligible active participants 608 1,956 Other active participants 1,240 3,277 Total accumulated postretirement liability 4,660 9,289 Unrecognized actuarial gain (loss) 784 (205) Unrecognized prior service gain 3,254 - $ 8,698 $ 9,084 For measurement purposes, a 12.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1994. The rate is assumed to decrease 1% per year to 6.5% in 2000 and remain at that level thereafter. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.0%. An increase in the assumed health care cost rate of 1% in each year would increase the accumulated postretirement benefit obligation by approximately $970. Summarized Unaudited Quarterly Financial Data 1994 First Second Third Fourth Net sales $133,594 $154,452 $142,821 $158,890 Gross profit 42,684 50,952 44,025 48,312 Net earnings 12,758 16,107 10,224 11,827 Net earnings per common share .25 .31 .20 .24 Common dividends per share .10 .12 .12 .12 Market price per common share: High 24 1/8 23 5/8 18 1/2 16 5/8 Low 19 5/8 17 3/8 15 7/8 13 7/8 1993 First Second Third Fourth Net sales $133,743 $147,677 $134,031 $142,897 Gross profit 42,681 48,853 42,783 43,090 Net earnings 12,295 15,653 11,506 12,504 Net earnings per common share .24 .30 .22 .24 Common dividends per share .08 .10 .10 .10 Market price per common share: High 24 3/4 27 1/4 23 1/4 23 7/8 Low 21 3/8 21 19 17 5/8 Business Segment Data Sales by segment represent sales to unaffiliated customers only. Intersegment sales and transfers between geographic areas are nominal and have not been disclosed separately. Operating profit is defined as total revenue less operating expenses. In computing operating profit, the following items have not been deducted: net corporate expenses, interest expense 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 1994 1993 1992 Sales Specialty chemicals $ 393,544 $407,280 $ 395,192 Specialty process equipment and controls 196,213 151,068 122,526 $ 589,757 $ 558,348 $ 517,718 Operating profit Specialty chemicals $ 60,783 $ 68,067 $ 63,407 Specialty process equipment and controls 31,195 25,967 20,009 91,978 94,034 83,416 General corporate expenses, net (9,842) (10,468) (8,095) Interest expense (2,167) (1,093) (6,984) Earnings before income taxes $ 79,969 $ 82,473 $ 68,337 Identifiable Assets Specialty chemicals $ 313,457 $ 281,804 $278,931 Specialty process equipment and controls 103,151 69,279 58,099 416,608 351,083 337,030 Corporate 15,720 12,163 13,685 $ 432,328 $ 363,246 $ 350,715 Depreciation and Amortization Specialty chemicals $ 11,141 $ 10,628 $ 10,332 Specialty process equipment and controls 1,995 1,324 1,186 13,136 11,952 11,518 Corporate 162 124 117 $ 13,298 $ 12,076 $ 11,635 Capital Expenditures Specialty chemicals $ 18,891 $ 12,057 $ 11,669 Specialty process equipment and controls 2,756 2,131 1,125 21,647 14,188 12,794 Corporate 63 111 41 $ 21,710 $ 14,299 $ 12,835 Information by Major Geographic Segment 1994 1993 1992 Sales United States $ 491,909 $ 454,992 $ 413,411 Europe 88,693 93,808 94,791 Canada 9,155 9,548 9,516 $ 589,757 $ 558,348 $ 517,718 Exports to Unaffiliated Customers Included in United States sales: Far East $ 19,858 $ 26,244 $ 19,177 Latin America 15,027 10,183 7,681 Europe 9,381 7,251 4,318 Canada 7,076 3,500 3,263 Other 3,102 838 785 Total 54,444 48,016 35,224 Included in European sales: Far East 10,117 8,649 7,413 Latin America 4,631 4,261 2,768 Other 6,362 3,756 5,355 Total 21,110 16,666 15,536 $ 75,554 $ 64,682 $ 50,760 Operating Profit United States $ 79,148 $79,536 $ 68,617 Europe 12,038 13,736 13,108 Canada 792 762 1,691 $ 91,978 $94,034 $ 83,416 Identifiable Assets United States $ 341,820 $280,457 $ 268,982 Europe 85,578 77,203 76,439 Canada 4,930 5,586 5,294 $ 432,328 $363,246 $ 350,715 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 consolidated balance sheets of Crompton & Knowles Corporation and subsidiaries as of December 31, 1994 and December 25, 1993 and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the fiscal years in the three-year period ended December 31, 1994. 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 Crompton & Knowles Corporation and subsidiaries at December 31, 1994 and December 25, 1993 and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended December 31, 1994 in conformity with generally accepted accounting principles. In 1992, as discussed in the notes to consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statement No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions," and Statement No. 109, "Accounting for Income Taxes." KPMG Peat Marwick LLP Stamford, Connecticut January 25, 1995 Eleven Year Selected Financial Data (In thousands of dollars except per share data) 1994 1993 1992 Summary Of Operations Net sales $589,757 558,348 517,718 Interest expense $ 2,167 1,093 6,984 Pretax earnings $ 79,969 82,473 68,337 Income taxes $ 29,053 30,515 25,072 Earnings from continuing operations $ 50,916 51,958 43,265 Cumulative effect of accounting changes $ - - (5,800) Extraordinary loss on early extinguishment of debt $ - - (3,000) Earnings (loss) from discontinued operations $ - - - Loss on disposal of discontinued operations $ - - - Net earnings $ 50,916 51,958 34,465 Per Share Statistics Earnings from continuing operations before cumulative effect of accounting changes and extraordinary loss $1.00 1.00 .87 Net earnings $1.00 1.00 .69 Dividends $ .46 .38 .31 Book value $4.60 4.68 4.14 Common stock trading range: High 24 1/8 27 1/4 23 7/8 Low 13 7/8 17 5/8 16 Average shares outstanding (thousands) 51,152 52,176 49,967 Financial Position Current assets $ 260,657 220,396 207,383 PP&E, net $ 117,105 99,925 98,827 Other assets $ 54,566 42,925 44,505 Total assets $ 432,328 363,246 350,715 Current liabilities $ 139,042 95,439 102,593 Long-term debt $ 54,000 14,000 24,000 Accrued postretirement liability $ 8,698 9,084 8,774 Deferred income taxes $ 6,681 4,727 3,896 Stockholders' equity $ 223,907 239,996 211,452 Current ratio 1.9 2.3 2.0 Total debt-to-equity % 41.8 8.0 13.9 Total debt-to-capital % 29.5 7.4 12.2 Profitability Statistics (Continuing Operations) % Effective tax rate 36.3 37.0 36.7 % Return on sales 8.6 9.3 8.4 % Return on average total capital 18.3 21.0 19.3 % Return on average common equity 21.1 23.1 27.1 Other Statistics (Continuing Operations) Capital spending $21,710 14,299 12,835 Depreciation $11,935 10,828 10,394 Sales per employee $ 234 240 237 Eleven Year Selected Financial Data (In thousands of dollars except per share data) 1991 1990 1989 Summary Of Operations Net sales $450,228 390,032 355,817 Interest expense $ 7,419 5,842 6,006 Pretax earnings $ 56,600 47,260 38,588 Income taxes $ 20,659 17,250 14,087 Earnings from continuing operations $ 35,941 30,010 24,501 Cumulative effect of accounting changes $ - - - Extraordinary loss on early extinguishment of debt $ - - - Earnings (loss) from discontinued operations $ - - - Loss on disposal of discontinued operations $ - - - Net earnings $ 35,941 30,010 24,501 Per Share Statistics Earnings from continuing operations before cumulative effect of accounting changes and extraordinary loss $ .73 .61 .50 Net earnings $ .73 .61 .50 Dividends $ .25 .20 .15 Book value $ 2.94 2.47 2.08 Common stock trading range: High 20 1/4 11 5/8 7 7/8 Low 8 3/8 6 3/4 3 3/4 Average shares outstanding (thousands) 49,317 49,270 49,064 Financial Position Current assets $185,235 164,442 127,216 PP&E, net $ 80,154 76,709 50,847 Other assets $ 43,173 41,493 39,787 Total assets $308,562 282,644 217,850 Current liabilities $ 85,712 88,340 71,068 Long-term debt $ 76,118 70,330 41,213 Accrued postretirement liability $ - - - Deferred income taxes $ 5,969 6,409 6,668 Stockholders' equity $140,763 117,565 98,901 Current ratio 2.2 1.9 1.8 Total debt-to-equity % 57.1 77.6 52.4 Total debt-to-capital % 36.3 43.7 34.4 Profitability Statistics (Continuing Operations) % Effective tax rate 36.5 36.5 36.5 % Return on sales 8.0 7.7 6.9 % Return on average total capital 18.9 19.8 19.3 % Return on average common equity 28.4 28.1 27.6 Other Statistics (Continuing Operations) Capital spending $ 11,434 16,374 13,407 Depreciation $ 8,813 7,156 5,666 Sales per employee $ 222 218 215 Eleven Year Selected Financial Data (In thousands of dollars except per share data) 1988 1987 1986 Summary Of Operations Net sales $289,787 199,394 178,256 Interest expense $ 3,606 2,042 789 Pretax earnings $ 26,943 20,353 16,800 Income taxes $ 10,098 8,341 7,421 Earnings from continuing operations $ 16,845 12,012 9,379 Cumulative effect of accounting changes $ - - - Extraordinary loss on early extinguishment of debt $ - - - Earnings (loss) from discontinued operations $ (597) (262) (678) Loss on disposal of discontinued operations $ (920) - (7,700) Net earnings $ 15,328 11,750 1,001 Per Share Statistics Earnings from continuing operations before cumulative effect of accounting changes and extraordinary loss $ .36 .25 .17 Net earnings $ .32 .24 .01 Dividends $ .11 .08 .08 Book value $ 1.75 1.59 1.42 Common stock trading range: High 4 1/2 3 7/8 2 1/2 Low 2 1/2 2 1/4 1 5/8 Average shares outstanding (thousands) 47,239 48,168 50,974 Financial Position Current assets $120,584 94,069 95,931 PP&E, net $ 43,685 29,085 28,511 Other assets $ 41,373 12,075 10,349 Total assets $205,642 135,229 134,791 Current liabilities $ 72,352 40,922 41,687 Long-term debt $ 44,594 12,927 19,455 Accrued postretirement liability $ - - - Deferred income taxes $ 6,775 5,575 5,174 Stockholders' equity $ 81,921 75,805 68,475 Current ratio 1.7 2.3 2.3 Total debt-to-equity % 72.1 25.1 47.0 Total debt-to-capital % 41.9 20.1 32.0 Profitability Statistics (Continuing Operations) % Effective tax rate 37.5 41.0 44.2 % Return on sales 5.8 6.0 5.3 % Return on average total capital 17.2 14.8 13.6 % Return on average common equity 22.7 17.7 15.0 Other Statistics (Continuing Operations) Capital spending $ 6,798 3,523 2,967 Depreciation $ 4,658 3,468 3,101 Sales per employee $ 190 168 146 Eleven Year Selected Financial Data (In thousands of dollars except per share data) 1985 1984 Summary Of Operations Net sales $ 163,287 155,435 Interest expense $ 571 1,011 Pretax earnings $ 15,443 14,255 Income taxes $ 7,122 6,368 Earnings from continuing operations $ 8,321 7,887 Cumulative effect of accounting changes $ - - Extraordinary loss on early extinguishment of debt $ - - Earnings (loss) from discontinued operations $ (746) 4 Loss on disposal of discontinued operations $ - - Net earnings $ 7,575 7,891 Per Share Statistics Earnings from continuing operations before cumulative effect of accounting changes and extraordinary loss $ .15 .14 Net earnings $ .14 .14 Dividends $ .08 .07 Book value $ 1.34 1.26 Common stock trading range: High 1 3/4 1 1/2 Low 1 1/4 1 1/4 Average shares outstanding (thousands)51,694 51,418 Financial Position Current assets $ 87,400 82,125 PP&E, net $ 30,376 30,809 Other assets $ 12,146 11,964 Total assets $ 129,922 124,898 Current liabilities $ 32,366 31,149 Long-term debt $ 19,093 20,322 Accrued postretirement liability $ - - Deferred income taxes $ 4,708 4,031 Stockholders' equity $ 73,755 69,396 Current ratio 2.7 2.6 Total debt-to-equity % 30.5 35.3 Total debt-to-capital % 23.4 26.1 Profitability Statistics (Continuing Operations) % Effective tax rate 46.1 44.7 % Return on sales 5.1 5.1 % Return on average total capital 13.2 12.8 % Return on average common equity 14.3 14.4 Other Statistics (Continuing Operations) Capital spending $ 2,888 3,185 Depreciation $ 3,061 2,973 Sales per employee $ 128 123 Return on Sales Continuing Operations (bar graph referencing Eleven Year Selected Financial Data) Return on Average Total Capital Continuing Operations (bar graph referencing Eleven Year Selected Financial Data) Sales Per Employee Continuing Operations (bar graph referencing Eleven Year Selected Financial Data) Corporate Data Directors 3 James A. Bitonti President and Chief Executive Officer TCOM, L.P. Vincent A. Calarco Chairman of the Board President and Chief Executive Officer 2,3 Robert A. Fox President and Chief Executive Officer Foster Farms 2,3 Roger L. Headrick President and Chief Executive Officer Minnesota Vikings Football Club 1,2 Leo I. Higdon Dean The Darden Graduate School of Business Administration University of Virginia 1,3 Michael W. Huber Retired Chairman of the Board J.M. Huber Corporation 1,3 Warren A. Law, Ph.D. Retired Professor Graduate School of Business Administration Harvard University Charles J.Marsden Vice President-Finance and Chief Financial Officer 1,2 C.A. Piccolo Chairman and Chief Executive Officer Caremark International Inc. 1 Patricia K. Woolf, Ph.D. 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 Corporate Headquarters One Station Place, Metro Center Stamford, CT 06902 (203) 353-5400 Auditors KPMG Peat Markwick LLP Stamford, CT Transfer Agent and Registrar Mellon Securities Transfer Services Pittsburgh, PA (800) 288-9541 Annual Meeting The annual meeting of stockholders will be held at 11:15 a.m. on Tuesday, April 11, 1995, at the Metropolitan Club, 1 East 60th Street, New York New York Form 10-K A copy of the Company's report on Form 10-K for 1994, 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 Corporate Officers and Operating Management (photo caption) Vincent A. Calarco Chairman, President and Chief Executive Officer Robert W. Ackley Vice President President - Davis-Standard Nicholas Fern, Ph.D. President - Dyes and Chemicals - Asia Gerald H. Fickenscher, Ph.D. President - Dyes & Chemicals - Europe Edmund H. Fording Vice President President - Dyes and Chemicals - Americas Marvin H. Happel Vice President - Organization Charles J. Marsden Vice President - Finance and Chief Financial Officer Frank H. Schoonyoung President - Ingredient Technology Peter Barna Treasurer and Principal Accounting Officer John T. Ferguson, II General Counsel and Secretary Robert A. Marchitello Assistant Treasurer Corporate Management Committee of Crompton & Knowles (from left to right): John T. Ferguson, II Gerald H. Fickenscher, Marvin H. Happel, Peter Barna, Edmund H. Fording, Vincent A. Calarco, Nicholas Fern, Robert W. Ackley, Frank H. Schoonyoung, and Charles J. Marsden. Copyright 1995 Crompton & Knowles Corporation. All rights reserved. (C&K logo) CROMPTON & KNOWLES CORPORATION One Station Place, Metro Center, Stamford, CT 06902 EX-21 5 SUBSIDIARIES OF THE REGISTRANT Subsidiaries The following are subsidiaries of Crompton & Knowles Corporation: Name Place of Organization CK Holding Corporation Delaware Crompton & Knowles Overseas Corporation Delaware Crompton & Knowles of Canada Limited Canada Crompton & Knowles Europe S.A. Belgium Crompton & Knowles (France) S.A. France Crompton & Knowles (Hong Kong) Ltd. Hong Kong Crompton & Knowles (Korea) Ltd. Korea Davis-Standard Corporation Delaware Davis-Standard (France) SARL France Dyes & Chemicals Corporation Delaware Ingredient Technology Corporation Delaware Grandma Food Products, Ltd. Canada The names of other subsidiaries of the Corporation which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary, are omitted from the foregoing list. EX-23 6 CONSENT OF INDEPENDENT AUDITOR EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT Board of Directors Crompton & Knowles Corporation: We consent to incorporation by reference in the Registration Statements (No.'s 33-21246, 33-42280 and 33-67600) on Form S-8 of Crompton & Knowles Corporation of our reports dated January 25, 1995, relating to the consolidated balance sheets of Crompton & Knowles Corporation and subsidiaries as of December 31, 1994 and December 25, 1993, and the related consolidated statements of earnings, stockholders' equity and cash flows and the related schedule for each of the fiscal years in the three-year period ended December 31, 1994, which reports appear or are incorporated by reference in the December 31, 1994 Annual Report on Form 10-K of Crompton & Knowles Corporation. Our reports refer to changes in accounting for postretirement benefits other than pensions and income taxes. We also consent to incorporation by reference in the Registration Statement (No. 33-21246) on Form S-8 of Crompton & Knowles Corporation of our report dated March 10, 1995 relating to the statements of financial condition of Crompton & Knowles Corporation Employee Stock Ownership Plan as of December 31, 1994 and 1993, and the related statements of income and changes in plan equity for each of the years in the three-year period ended December 31, 1994, as included in Exhibit 29 of said Form 10-K. /s/ KPMG Peat Marwick LLP Stamford, Connecticut March 23, 1995 EX-24 7 POWER OF ATTORNEY EXHIBIT 24 POWER OF ATTORNEY We, the undersigned officers and directors of Crompton & Knowles Corporation, hereby severally 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 31, 1994, and any and all amendments thereto. IN WITNESS WHEREOF, we have signed this Power of Attorney in the capacities indicated on January 24, 1995. Signature Title Signature Title Principal Executive Officer: Chairman of the Board, President, CEO and Director Vincent A. Calarco Director Roger L. Headrick Principal Financial Officer: Vice President Director Finance and Director Leo I. Higdon Charles J. Marsden Principal Accounting Director Officer: Michael W. Huber Treasurer Director Peter Barna Warren A. Law Director Director James A. Bitonti C. A. Piccolo Director Director Robert A. Fox Patricia K. Woolf EX-27 8 FINANCIAL DATA SCHEDULE
5 1000 12-MOS DEC-31-1994 DEC-31-1994 1,832 0 81,859 3,829 157,356 260,657 117,105 85,691 432,328 139,042 0 5,336 0 0 218,571 432,328 589,757 589,757 403,784 508,663 (1,042) 484 2,167 79,969 29,053 50,916 0 0 0 50,916 1.00 1.00
EX-99 9 FORM 11K Exhibit 29 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K (Mark One) X Annual report pursuant to Section 15 (d) of the Securities Exchange Act of 1934 (Fee Required) For the fiscal year ended December 31, 1994 OR Transition report pursuant to Section 15 (d) of the Securities Exchange Act of 1934 (No Fee Required) For the transition period from to Commission file number 1-4663 A. Full title of the Plan and the address of the Plan, if different from that of the issuer named below: CROMPTON & KNOWLES CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN B. Name of issuer of the securities held pursuant to the Plan and the address of its principal executive office: Crompton & Knowles Corporation One Station Place - Metro Center Stamford, Connecticut 06902 Exhibit 29 CROMPTON & KNOWLES CORPORATION Employee Stock Ownership Plan EXHIBIT INDEX Form 11-K for the Fiscal Year Ended December 31, 1994 Exhibit Description No. of Exhibit 1. Consent of KPMG Peat Marwick, independent certified public accountants. CROMPTON & KNOWLES CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 1994 AND 1993 PLAN ASSETS AND EQUITY 1994 Fixed C&K Equity Advisers Mortgage Income Fund Stock Fund Fund Fund Fund Total Investments: Common stock of Crompton & Knowles Corporation - 1,978,585 shares at market value (cost $ 12,378,799) in 1994 and 1,919,290 shares at market value (cost $ 10,417,226) in 1993 $ - $ 32,152,006 $ - $ - $ - $ 32,152,006 Hartford Life Insurance Company group annuity contract 15,009,184 - 2,387,815 648,256 237,916 18,283,171 Cash and short-term investments at cost, which approximates market 0 35,644 0 0 0 35,644 Contribution receivable from Crompton & Knowles Corporation 55,080 288,372 23,920 9,869 1,619 378,860 Plan Assets and Equity $ 15,064,264 $ 32,476,022 $ 2,411,735 $658,125 $239,535 $50,849,681 1993 Fixed C&K Equity Advisers Mortgage Income Fund Stock Fund Fund Fund Fund Total Investments: Common stock of Crompton & Knowles Corporation - 1,978,585 shares at market value (cost $ 12,378,799) in 1994 and 1,919,290 shares at market value (cost $ 10,417,226) in 1993 $ - $ 42,224,380 $ - $ - $ - $ 42,224,380 Hartford Life Insurance Company group annuity contract 13,290,019 - 1,760,745 466,213 194,925 15,711,902 Cash and short-term investments at cost, which approximates market 133,705 314,546 55,918 9,121 6,888 520,178 Contribution receivable from Crompton & Knowles Corporation 205,991 142,674 983 7,258 7,166 364,072 Plan Assets and Equity $ 13,629,715 $ 42,681,600 $ 1,817,646 $ 482,592 $ 208,979 $ 58,820,532 See accompanying notes to financial statements CROMPTON & KNOWLES CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN STATEMENTS OF INCOME AND CHANGES IN PLAN EQUITY FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 1994 Fixed C&K Equity Advisers Mortgage Income Fund Stock Fund Fund Fund Fund Total Investment income: Cash dividends on investment in common stock of Crompton & Knowles Corporation and interest on short-term investments $ 4,357 $ 879,230 $ 4,847 $ 1,583 $ 652 $ 890,669 Realized gain on sale of investments and withdrawals - 1,242,744 - - - 1,242,744 Interest earned - John Hancock Mutual Life Insurance Company group annuity contract - - - - - - Interest earned - Hartford Life Insurance Company group annuity contract 949,787 - - - - 949,787 Net investment income 954,144 2,121,974 4,847 1,583 652 3,083,200 Increase (decrease) in unrealized appreciation of investments - (12,033,946) 25,662 (14,931) (4,103) (12,027,318) Contributions: Employee Rollovers 1,039 - 221 - - 1,260 Employees 701,355 1,548,111 268,877 94,419 53,431 2,666,193 Employer - Net of forfeitures - 1,676,755 - - - 1,676,755 Withdrawals and Distributions (972,580) (2,231,903) (122,309) (28,957) (15,192) (3,370,941) Employee interfund transfers 750,591 (1,286,569) 416,791 123,419 (4,232) - Net increase/(decrease) in Plan Equity for the year 1,434,549 (10,205,578) 594,089 175,533 30,556 (7,970,851) Plan Equity at beginning of year 13,629,715 42,681,600 1,817,646 482,592 208,979 58,820,532 Plan Equity at end of year $ 15,064,264 $ 32,476,022 $ 2,411,735 $ 658,125 $ 239,535 $ 50,849,681 1993 Fixed C&K Equity Advisers Mortgage Income Fund Stock Fund Fund Fund Fund Total Investment income: Cash dividends on investment in common stock of Crompton & Knowles Corporation and interest on short-term investments $ 1,755 $ 755,945 $ 1,371 $ 352 $ 288 $ 759,711 Realized gain on sale of investments and withdrawals - 4,614,837 - - - 4,614,837 Interest earned - John Hancock Mutual Life Insurance Company group annuity contract - - - - - - Interest earned - Hartford Life Insurance Company group annuity contract 865,918 - - - - 865,918 Net investment income 867,673 5,370,782 1,371 352 288 6,240,466 Increase (decrease) in unrealized appreciation of investments - (5,181,885) 206,916 42,937 8,885 (4,923,147) Contributions: Employee Rollovers 13,566 - - - - 13,566 Employees 860,790 1,435,118 207,199 67,839 56,070 2,627,016 Employer - Net of forfeitures- 1,617,481 - - - 1,617,481 Withdrawals and Distributions(1,684,871) (5,012,089) (67,674) (42,839) (3,371) (6,810,844) Employee interfund transfers 1,448,397 (1,605,768) 112,091 48,780 (3,500) - Net increase/(decrease) in Plan Equity for the year 1,505,555 (3,376,361) 459,903 117,069 58,372 (1,235,462) Plan Equity at beginning of year 12,124,160 46,057,961 1,357,743 365,523 150,607 60,055,994 Plan Equity at end of year $ 13,629,715 $ 42,681,600 $ 1,817,646 $ 482,592 $ 208,979 $ 58,820,532 1992 Fixed C&K Equity Advisers Mortgage Income Fund Stock Fund Fund Fund Fund Total Investment income: Cash dividends on investment in common stock of Crompton & Knowles Corporation and interest on short-term investments$ 2,822 $ 623,066 $ 1,391 $ 98 $ 14 $ 627,391 Realized gain on sale of investments and withdrawals - 1,609,135 - - - 1,609,135 Interest earned - John Hancock Mutual Life Insurance Company group annuity contract 639,652 - - - - 639,652 Interest earned - Hartford Life Insurance Company group annuity contract 357,397 - - - - 357,397 Net investment income 999,871 2,232,201 1,391 98 14 3,233,575 Increase (decrease) in unrealized appreciation of investments - (247,893) 112,809 16,268 50 (118,766) Contributions: Employee Rollovers 73,660 - - - - 73,660 Employees 844,818 1,274,968 137,469 20,158 18,867 2,296,280 Employer - Net of forfeitures - 1,276,023 - - - 1,276,023 Withdrawals and Distributions (1,259,484) (1,771,906) (32,334) (2,781) (324) (3,066,829) Employee interfund transfers (446,172) (394,098) 376,490 331,780 132,000 - Net increase/(decrease) in Plan Equity for the year 212,693 2,369,295 595,825 365,523 150,607 3,693,943 Plan Equity at beginning of year 11,911,467 43,688,666 761,918 - - 56,362,051 Plan Equity at end of year $ 12,124,160 $ 46,057,961 $ 1,357,743 $ 365,523 $ 150,607 $ 60,055,994 See accompanying notes to financial statements CROMPTON & KNOWLES CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1994 and 1993 1. Basis of Presentation The accompanying financial statements have been prepared on an accrual basis. Securities transactions are recorded on the trade date, and dividend income is recorded on the ex-dividend date. 2. Plan Description The Employee Stock Purchase and Savings Plan was adopted by the Board of Directors of Crompton & Knowles Corporation (the "Corporation") on January 27, 1976. Effective July 1, 1989 the Board of Directors amended the Plan to convert it into an Employee Stock Ownership Plan (the "Plan"). The Plan permits an eligible employee to elect to participate by authorizing a withholding of an amount equal to 1%, 2%, 3%, 4%, 5% or 6% of compensation as the basic contribution to the Plan. Contributions by the Corporation to the Plan were made at an amount equal to 66 2/3% of each participating employee's basic employee contribution to the Plan. Funds contributed under the Plan are held in a trust fund (the "Trust") and were invested in five investment funds, the Crompton & Knowles Stock Fund ("C&K Stock Fund"), the Fixed Income Fund, the Equity Fund, the Advisers Fund, and the Mortgage Fund. The C&K Stock Fund is a fund invested entirely in common stock of Crompton & Knowles Corporation, and contributions by the Corporation to the Plan are invested in this fund. The market value of the common stock is based on quotations from the New York Stock Exchange. The Fixed Income Fund is a fund invested under an agreement with Hartford Life Insurance Company (the "Hartford") pursuant to which the Hartford guarantees the repayment of principal and the payment of interest on all amounts on deposit at an effective annual rate of interest of 6.885% on, and after January 1, 1994, (7.25% for the period January 1, 1993 through December 31, 1993, and 7.50% for the period August 1, 1992 through December 31, 1992). Prior to August 1, 1992 the Fund was invested under an agreement with John Hancock Mutual Life Insurance Company ("John Hancock") pursuant to which John Hancock guaranteed repayment of principal and the payment of interest on all amounts on deposit at an effective annual rate of 11.00% for the period August 1, 1989 to July 31, 1990, and 9.75% for the period August 1, 1990 to July 31, 1992.Employee Stock Ownership Plan - Notes To Financial Statements The value of the Fixed Income Fund is based on contributions invested and reinvested, interest earned, less withdrawals and distributions. The Equity Fund is a fund invested under the terms of a group annuity contract with the Hartford in the Separate Account A, which is a pooled separate account maintained by the Hartford with respect to a portion of its assets, in connection with the contract and other similar contracts issued by the Hartford. This fund invests primarily in equity securities such as common stocks and securities convertible into common stock. The Equity Fund is valued based on a unit value as determined by the fund manager as follows: 12/31/94 12/31/93 Unit Value $91.101 $90.358 Total Units Held 26,210.454 19,486.327 The related cost of the Equity Fund at December 31, 1994 was $2,060,686, and $1,459,278 at December 31, 1993. Prior to October 31, 1992 the Equity Fund was invested under the terms of a group annuity contract with John Hancock in the Pooled Common Stock Class 1L Account of Independence Investment Associates, Inc., an affiliate of John Hancock. This fund invested in equity securities such as common stock and securities convertible into common stock. The Advisers Fund is a fund invested under the terms of a group annuity contract with the Hartford in the Separate Account V which is a pooled separate account maintained by the Hartford with respect to a portion of its assets, in connection with the contract and other similar contracts issued by the Hartford. Assets in the Separate Account V are invested in the HVA Advisers Fund, Inc. The Hartford Investment Management Company is an investment advisor to the fund, and Wellington Management is sub-advisor to the fund. This fund invests in common stocks, debt securities, and money market instruments. The Advisers Fund is valued based on a unit of value as determined by the fund manager as follows: 12/31/94 12/31/93 Unit Value $1.338 $1.383 Total Units Held 484,397.471 337,151.770 The related cost of the Advisers Fund at December 31, 1994 was $603,983, and $407,010 at December 31, 1993. Employee Stock Ownership Plan - Notes To Financial Statements The Mortgage Fund is a fund invested under the terms of a group annuity contract with the Hartford in the Separate Account G which is a pooled separate account maintained by the Hartford with respect to a portion of its assets, in connection with the contract and other similar contracts issued by the Hartford. The assets in the Separate Account G are invested solely in the Hartford GNMA/Mortgage Securities Fund. Inc. The Hartford Investment Management Company is an investment advisor to the fund. This fund invests in mortgage related securities, including securities issued by the Government National Mortgage Association. The Mortgage Fund is valued based on a unit value as determined by the fund manager as follows: 12/31/94 12/31/93 Unit Value $26.623 $27.201 Total Units Held 8,936.394 7,166.071 The related cost of the Mortgage Fund at December 31, 1994 was $233,084, and $185,990 at December 31, 1993. Assets in any of the five funds may be invested in short term government or other securities pending permanent investment. Earnings on each fund will be reinvested in that fund. Each participant is permitted to elect to have his basic contribution invested in any of the five funds in 10% increments. As of December 31, 1994 and 1993 the number of participants by fund were as follows: 1994 1993 C&K Stock Fund 1,293 1,240 Fixed Income Fund 867 867 Equity Fund 360 312 Advisers Fund 128 102 Mortgage Fund 104 98 As of the first day of any month, but not more frequently than once in any six-month period, a participant may elect to transfer any part of the value of his basic employee account or his supplemental employee account, which is invested in one of the funds, to any of the other funds except the Fixed Income Fund and the Mortgage Fund. Any such transfer must be in increments of 5% of the amount invested in the fund from which the transfer is being made. 3. Income Taxes The Internal Revenue Service has issued a determination letter to the effect that the Plan as amended through 1994 is a qualified plan under Section 401(a) of the Internal Revenue Code of 1954 (the Code), as amended. Employee Stock Ownership Plan - Notes To Financial Statements The Board of Directors of the Corporation amended the Plan, effective as of July 1, 1989, to convert it to an employee stock ownership plan. The amendments to the Plan included both changes to convert the Plan to an employee stock ownership plan and other changes required or permitted by the Code. Management and counsel believe that these amendments will not effect the qualified status of the Plan. It is believed that, in general, the federal income tax consequences of participation in the Plan under present law will be as follows: Participants are not subject to federal income tax on employer contributions made under the Plan or on income earned by the Trust until amounts are withdrawn or distributed. Any withdrawal from the Plan will be tax free to the extent of the participant's contributions to the Plan prior to 1987. If the amount exceeds such pre-1987 contributions of the participant, the excess will be treated as being in part a tax free return of the participant's contribution made to the Plan after 1986 and in part as a taxable distribution subject to federal income tax at ordinary rates based on the ratio at the time of withdrawal of the participant's total contributions after 1986 to the total value of the participant's accounts. If the withdrawal or distribution qualifies as a lump sum distribution, amounts attributable to participation in a predecessor plan prior to 1974 may qualify for capital gains treatment (phased out over the years 1987-1991), and the ordinary income portion attributable to post-1973 participation may be taxed under a special five-year income averaging provision if the participant is over age 59 1/2 (or a special ten-year income averaging provision if the participant turned 50 before January 1, 1986). If a distribution includes shares of common stock of Crompton & Knowles Corporation, taxation of any appreciation in the value of such shares over their cost to the Trust will be deferred until the later sale or exchange of such shares. Taxable withdrawals or distributions after January 1, 1987, in addition to being taxed as ordinary income will be subject to an additional 10% income tax unless the withdrawal or distribution is on account of the death or disability of the participant, is made after he turns age 59 1/2 or retires after age 55, or is used for certain deductible medical expenses. A participant who receives total distributions from all retirement plans in a single year in excess of $150,000 ($144,551 in some cases) may be subject to an excise tax of 15% of the excess amount. Employee Stock Ownership Plan - Notes To Financial Statements The foregoing is only a brief summary of the tax consequences of participation in the Plan. Each participant should consult his own personal advisor to review the tax consequences of making any elections under the Plan and to determine his own tax liability. 4. Participant Vesting A participant in the Plan is fully vested in all of his accounts under the Plan upon his death, retirement, disability, or attainment of age 65 or upon change in control of the Corporation. A participant whose employment terminates for any reason before his death or retirement is entitled to receive l00% of his own contributions plus earnings thereon and will receive his employer contribution account plus earnings thereon based upon a schedule under which the account is 100% vested after five years of participation in the Plan, or after completion of five years of service with the Corporation. The non-vested portion of the employer contribution account will be forfeited under certain circumstances and held to reduce future contributions to be made by the Corporation to the Plan. 5. Investments A. Unrealized appreciation in Crompton & Knowles Corporation common stock: 12/31/94 12/31/93 12/31/92 Unrealized apprec. at the beginning of the year $31,807,154 $36,989,039 $37,236,932 Unrealized apprec. at the end of the year 19,773,207 31,807,154 36,989,039 Increase/(decrease) in unrealized appreciation $(12,033,946) $(5,181,885) $( 247,893) Employee Stock Ownership Plan - Notes To Financial Statements B. Net purchases (sales) of shares of Crompton & Knowles Corporation common stock consist of the following: Contributions Net And Sales and Purchases Purchases Withdrawals (Sales) 1994 No. of shares 145,724 86,429 59,295 Cost amount $2,446,717 485,144 $1,961,573 1993 No. of shares 131,841 269,060 (137,219) Cost amount $2,924,833 $1,275,893 $1,648,940 1992 No. of shares 156,816 105,023 51,793 Cost amount $3,062,632 $ 409,398 $2,653,234 C. Gain on sale of investments and withdrawals of Crompton & Knowles Common Stock: 1994 1993 1992 Aggregate proceeds $1,727,888 $5,890,730 $2,018,533 Aggregate cost (FIFO) 485,144 1,275,893 409,398 Net gain $1,242,744 $4,614,837 $1,609,135 6. Plan Expenses Significant costs of Plan administration, which are payable from the Trust or by the Corporation, are generally paid by the Corporation. Independent Auditors' Report The Board of Directors Crompton & Knowles Corporation: We have audited the accompanying statements of financial condition of Crompton & Knowles Corporation Employee Stock Ownership Plan (the Plan) as of December 31, 1994 and 1993, and the related statements of income and changes in plan equity for each of the years in the three-year period ended December 31, 1994. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the financial position of the Plan as of December 31, 1994 and 1993, and the results of its operations for each of the years in the three-year period ended December 31, 1994 in conformity with generally accepted accounting principles. Stamford, Connecticut March 10, 1995 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULE Board of Directors Crompton & Knowles Corporation: Under date of January 25, 1995, we reported on the consolidated balance sheets of Crompton & Knowles Corporation and subsidiaries as of December 31, 1994 and December 25, 1993, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the fiscal years in the three-period ended December 31, 1994, as contained in the 1994 Annual Report to Stockholders. Our report refers to changes in accounting for postretirement benefits other than pensions and income taxes. These consolidated financial statements and our report thereon are incorporated by reference in the Annual Report on Form 10-K of Crompton & Knowles Corporation for the fiscal year 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. 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 audits. 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 information set forth therein. Stamford, Connecticut January 25, 1995 Schedule VIII 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 31, 1994: Allowance for doubtful acct$ 4,072 $ 84 $ (349)(1) $ 22 (4) $ 3,829 Accumulated amortization of cost in excess of acq'd net asset 5,456 1,097 101 (2) (32)(5) 6,622 Accumulated amortization of other intangible assets 1,239 266 - - 1,505 Fiscal Year ended December 25, 1993: Allowance for doubtful acct$ 3,736 $ 483 $ (147)(1) $ - $ 4,072 Accumulated amortization of cost in excess of acq'd net asset 4,510 963 (17)(2) - 5,456 Accumulated amortization of other intangible assets 996 285 (42)(2) - 1,239 Fiscal Year ended December 26, 1992: Allowance for doubtful acct$ 4,659 $ - $ (318)(1) $ (605)(3) $ 3,736 Accumulated amortization of cost in excess of acq'd net asset 3,577 949 (16)(2) - 4,510 Accumulated amortization of other intangible assets 686 292 18 (2) - 996 (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 reduction in allowance for doubtful accounts requirements. (4)Represents allowance related to the acquisition of Egan Machinery in 1994. (5)Represents intangible asset retirements. -----END PRIVACY-ENHANCED MESSAGE-----