-----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, Jg3yVrFhxv0i91zb8FMRrRDr9Gq4TfGRfwy8/rwcQx8clSpSxK7EZBgtsF5XS9Lt zhbL156pesGxI71MzV5YEQ== 0000025757-98-000021.txt : 19980513 0000025757-98-000021.hdr.sgml : 19980513 ACCESSION NUMBER: 0000025757-98-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980328 FILED AS OF DATE: 19980512 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROMPTON & KNOWLES CORP CENTRAL INDEX KEY: 0000025757 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL ORGANIC CHEMICALS [2860] IRS NUMBER: 041218720 STATE OF INCORPORATION: MA FISCAL YEAR END: 1225 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04663 FILM NUMBER: 98616714 BUSINESS ADDRESS: STREET 1: ONE STATION PL STREET 2: METRO CTR CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2033535400 MAIL ADDRESS: STREET 1: ONE STATION PLACE STREET 2: METRO CENTER CITY: STAMFORD STATE: CT ZIP: 06902 10-Q 1 CROMPTON & KNOWLES CORP. FIRST QUARTER REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended March 28, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from to Commission File No. 1-4663 Crompton & Knowles Corporation (exact name of registrant as specified in its charter) Massachusetts 04-1218720 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Station Place, Metro Center Stamford, Connecticut 06902 (address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203)353-5400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 15, 1998 Common Stock, $.10 par value 74,424,702 shares CROMPTON & KNOWLES CORPORATION FORM 10-Q FOR QUARTER ENDED MARCH 28, 1998 INDEX PART I. FINANCIAL INFORMATION: Item 1. Condensed Financial Statements and Accompanying Notes . Consolidated Statements of Earnings (unaudited) - Quarters ended March 28, 1998 and March 29, 1997 . Consolidated Balance Sheets - March 28, 1998 (unaudited) and December 27, 1997 . Consolidated Statements of Cash Flows (unaudited) - Quarters ended March 28, 1998 and March 29, 1997 . Notes to Consolidated Financial Statements - Quarter ended March 28, 1998 (unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION: Item 4. Submission of Matter to a Vote of Security Holders Item 6. Exhibits and Reports on Form 8-K Signatures Exhibit 11 Statement Re Computation of Per Share Earnings *Exhibit 27 Financial Data Schedule * A copy of this Exhibit is annexed to this report on Form 10-Q provided to the Securities and Exchange Commission and the New York Stock Exchange. -1- UNAUDITED CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES Consolidated Statements of Earnings Quarters ended March 28, 1998 and March 29, 1997 (In thousands, except per share data) March 28, March 29, 1998 1997 Net sales $ 477,219 $ 473,873 Cost of products sold 302,465 304,372 Selling, general and administrative 67,273 66,672 Depreciation and amortization 20,093 19,853 Research and development 13,163 12,884 Operating profit 74,225 70,092 Interest 23,613 26,953 Other (income) expense (289) 198 Earnings before income taxes and extraordinary loss 50,901 42,941 Provision for income taxes 18,958 16,330 Earnings before extraordinary loss 31,943 26,611 Extraordinary loss on early extinguishment of debt (1,951) - Net earnings $ 29,992 $ 26,611 Basic Earnings per common share: Earnings before extraordinary loss $ .43 $ .36 Extraordinary loss (.03) - Net earnings $ .40 $ .36 Diluted Earnings per common share: Earnings before extraordinary loss $ .42 $ .35 Extraordinary loss (.03) - Net earnings $ .39 $ .35 See accompanying notes to consolidated financial statements. - 2 - March 28, 1998 UNAUDITED CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets March 28, 1998 and December 27, 1997 (In thousands of dollars) March 28, December 27, 1998 1997 ASSETS CURRENT ASSETS Cash $ 9,985 $ 10,607 Accounts receivable 286,708 262,412 Inventories 374,450 356,716 Other current assets 63,872 85,314 Total current assets 735,015 715,049 NON-CURRENT ASSETS Property, plant and equipment 466,999 474,892 Cost in excess of acquired net assets 178,858 181,025 Other assets 185,977 177,854 $ 1,566,849 $ 1,548,820 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 3,324 $ 1,770 Accounts payable 142,473 145,405 Accrued expenses 154,026 149,910 Income taxes payable 40,774 38,909 Other current liabilities 24,684 27,094 Total current liabilities 365,281 363,088 NON-CURRENT LIABILITIES Long-term debt 878,442 896,291 Accrued postretirement liability 148,786 149,344 Other liabilities 154,884 160,187 STOCKHOLDERS' EQUITY (DEFICIT) Common stock 7,733 7,733 Additional paid-in capital 237,796 232,213 Accumulated deficit (144,027) (174,019) Accumulated translation adjustment (45,241) (42,045) Treasury stock at cost (33,211) (40,228) Deferred compensation (834) (984) Pension liability adjustment (2,760) (2,760) Total stockholders' equity (deficit) 19,456 (20,090) $ 1,566,849 $ 1,548,820 See accompanying notes to consolidated financial statements. - 3 - UNAUDITED CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Quarters ended March 28, 1998 and March 29, 1997 (In thousands of dollars) March 28, March 29, Increase (decrease) to cash 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 29,992 $ 26,611 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation and amortization 20,093 19,853 Noncash interest 3,764 3,424 Deferred taxes 5,053 4,220 Changes in assets and liabilities, net (34,830) (21,348) Net cash provided by operations 24,072 32,760 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (8,662) (6,176) Other investing activities 298 33 Net cash used by investing activities (8,364) (6,143) CASH FLOWS FROM FINANCING ACTIVITIES Payments on long-term borrowings (24,016) (33,164) Proceeds from short-term borrowings 1,639 1,140 Other financing activities 6,266 1,489 Net cash used by financing activities (16,111) (30,535) CASH Effect of exchange rates on cash (219) 1,034 Change in cash (622) (2,884) Cash at beginning of period 10,607 21,120 Cash at end of period $ 9,985 $ 18,236 See accompanying notes to consolidated financial statements. -4- CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements Quarter ended March 28, 1998 PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS The information included in the foregoing consolidated financial statements is unaudited but reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Included in accounts receivable are allowances for doubtful accounts of $9.7 million in 1998 and $8.7 million at December 27, 1997. Accumulated depreciation amounted to $430.1 million in 1998 and $416.6 million at December 27, 1997. Accumulated amortization of cost in excess of acquired net assets amounted to $43.2 million in 1998 and $42.2 million at December 27, 1997. Accumulated amortization of patents, unpatented technology and other intangibles included in other assets amounted to $127.0 million in 1998 and $123.3 million at December 27, 1997. Cash payments during the quarters ended March 28, 1998 and March 29, 1997 included interest of $13.8 million and $16.3 million, respectively, and income taxes of $6.5 million and $5.6 million, respectively. It is suggested that the interim consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in the Company's 1997 Annual Report on Form 10-K. CAPITAL STOCK As of March 28, 1998, there were 77,332,751 common shares issued at $.10 par value, of which 2,929,198 shares were held in the treasury. INVENTORIES Components of inventories are as follows: March 28, Dec. 27, (In thousands) 1998 1997 Finished goods $258,100 $226,730 Work in process 41,215 47,029 Raw materials and supplies 75,135 82,957 $374,450 $356,716 EARNINGS(LOSS)PER COMMON SHARE The computation of basic earnings per common share is based on the weighted average number of common shares outstanding. The computation of diluted earnings per common share is based on the weighted average number of common and common equivalent shares outstanding. The following is a reconciliation of the shares used in both computations: (In thousands) 1998 1997 Weighted average common shares outstanding 74,103 73,078 Stock options, warrants and other equivalents 2,311 1,611 Weighted average common and common equivalent shares outstanding 76,414 74,689 COMPREHENSIVE INCOME Effective in the first quarter of 1998, the Company adopted Financial Accounting Standards Board Statement No. 130 "Reporting Comprehensive Income". The statement establishes standards for reporting "comprehensive income" and its components in financial statements and notes thereto. The Company's comprehensive income consists of net earnings, minimum pension liability adjustment and foreign currency translation adjustment. Comprehensive income for the quarters ended March 28, 1998 and March 29, 1997 was $26.8 million and $20.6 million, respectively. The tax effect for the minimum pension liability adjustment was $0.6 million in the first quarter of 1997. The Company does not provide for U.S. income taxes on foreign currency translation adjustments since a tax provision has not been made for undistributed earnings of foreign subsidiaries. BUSINESS SEGMENT DATA Quarter Ended March 28, March 29, (In thousands) 1998 1997 SALES Specialty Chemicals $ 393,610 $ 398,706 Specialty Equipment and Controls 83,609 75,167 Total net sales $ 477,219 $ 473,873 OPERATING PROFIT Specialty Chemicals $ 70,218 $ 68,558 Specialty Equipment and Controls 10,366 7,626 General corporate expense ( 6,359) ( 6,092) Total operating profit $ 74,225 $ 70,092 SUBSEQUENT EVENTS On March 31, 1998, the Company amended its $600 million revolving credit agreement with a syndicate of banks. The termination date was extended to September 2003 from August 2001. Borrowings under the credit agreement were amended as follows: Tranche I provides a maximum of $375 million (up from $300 million) available to the Company for working capital and general corporate purposes. Tranche II provides a maximum of $75 million (down from $150 million) available to Uniroyal Chemical Company, Inc. for working capital and general corporate purposes. Tranche III continues to provide up to $150 million available to the European and Canadian subsidiaries of the Company. On April 8, 1998, the Company's outstanding 11% Senior Subordinated Notes and the 12% Subordinated Discount Notes were called for redemption as of May 8, 1998. The 11% Senior Subordinated Notes will be redeemed at a price of 105.5% of the principal amount thereof plus accrued and unpaid interest. The 12% Subordinated Discount Notes will be redeemed at a price of 100% of the principal amount thereof plus accrued and unpaid interest. The payment for the redemption including accrued interest will approximate $366.2 million and be funded by drawing on the Company's $600 million revolving credit agreement, under which borrowings totaled $82.6 million at March 28, 1998. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST QUARTER RESULTS Overview Consolidated net sales of $477.2 million for the first quarter of 1998 increased 1% from the comparable 1997 period. The increase was primarily attributable to higher unit volume of 3% offset by the impact of lower foreign currency translation and lower pricing. International sales, including U.S. exports, were 39% of total sales compared to 38% in the first quarter of 1997. Net earnings before extraordinary losses on early extinguishment of debt increased 20% to $31.9 million, or $.43 per common share basic and $.42 per common share diluted compared to $26.6 million, or $.36 per common share basic and $.35 per common share diluted, in the prior year. Net earnings were $30.0 million, or $.40 per common share basic and $.39 per common share diluted, compared to $26.6 million, or $.36 per common share basic and $.35 per common share diluted, in 1997. Gross margin as a percentage of net sales increased to 36.6% from 35.8% in the first quarter of 1997. The increase was attributable primarily to lower manufacturing costs and improved product mix. Consolidated operating profit increased 6% to $74.2 million from $70.1 million in the prior year. Both segments contributed to the increase as specialty chemicals rose 2% and specialty process equipment and controls increased 36%. Specialty Chemicals The Company's specialty chemicals segment sales of $393.6 million decreased 1% from the comparable 1997 period. The decrease was primarily due to the impact of lower foreign currency translation and reduced pricing of approximately 1% each, partially offset by higher unit volume of 1%. An analysis of sales by major product class within the specialty chemicals segment follows. Chemicals and polymers sales of $120.8 million decreased 5% from the first quarter of 1997 primarily attributable to the impact of lower foreign currency translation of 2% and lower pricing of 3%. Sales of rubber chemicals were lower than 1997 primarily due to lower pricing and the impact of lower foreign currency translation. EPDM sales increased primarily due to higher unit volume and improved pricing. Nitrile rubber sales decreased primarily as a result of lower unit volume. Crop protection sales of $107.9 million were 3% higher than the first quarter of 1997. The increase was primarily attributable to higher unit volume in fungicides and herbicides. Specialty sales of $79.0 million increased 5% from the first quarter of 1997. The increase resulted primarily from higher unit volume in lubricant additives and specialty intermediates. Colors sales of $61.1 million decreased 6% from the comparable 1997 quarter primarily due to lower foreign currency translation of 3%, lower pricing of 1% and lower unit volume, principally in apparel dyes, of 2%. Specialty ingredients sales of $24.8 million were 5% lower than the first quarter of 1997 primarily attributable to lower unit volume as a result of product line rationalization. Operating profit of $70.2 million increased 2% versus the first quarter of 1997 primarily as a result of lower manufacturing costs and improved product mix. Specialty Process Equipment and Controls The Company's specialty process equipment and controls segment sales of $83.6 million increased 11% from the first quarter of 1997, primarily attributable to higher unit volume. Sales gains were achieved in most of the segments major markets. Operating profit of $10.4 million increased 36% from the prior year primarily as a result of increased sales and improved product mix. The order backlog for extruders and related equipment at the end of the first quarter of 1998 amounted to $109 million compared to $106 million at the end of 1997. Other Selling, general and administrative expenses of $67.3 million increased 1% versus the first quarter of 1997 as the impact of inflation was partially offset by cost containment programs. Depreciation and amortization of $20.1 million increased 1% from the comparable 1997 period primarily as a result of a higher fixed asset base. Research and development cost of $13.2 million increased 2% from the first quarter of 1997, but as a percentage of sales remained constant at 3%. Interest expense of $23.6 million decreased 12% from the comparable period of 1997 primarily due to lower levels of indebtedness. Other income of $289,000 compared to $198,000 of other expense in the first quarter of 1997. The effective tax rate of 37.2% decreased versus 38.0% in the comparable 1997 quarter. LIQUIDITY AND CAPITAL RESOURCES The March 28, 1998 working capital balance of $369.7 million increased $17.8 million from year-end 1997. The current ratio of 2.0 remained unchanged from the end of 1997. Days sales in receivables averaged 54 days in the first quarter of 1998 unchanged from 1997. Inventory turnover averaged 3.3 unchanged from 1997. Net cash provided by operations of $24.1 million decreased $8.7 million compared to the first three months of 1997 primarily as a result of increased working capital. Cash provided by operations was used to reduce indebtedness and fund capital expenditures. The Company's debt to total capital percentage decreased to 98% from 102% at year-end 1997. The Company's liquidity needs, including debt servicing, are expected to be financed from operations. On March 31, 1998 the Company amended its $600 million revolving credit agreement with a syndicate of banks. The termination date was extended to September 2003 from August 2001. Borrowings under the credit agreement were amended as follows: Tranche I provides a maximum of $375 million (up from $300 million) available to the Company for working capital and general corporate purposes. Tranche II provides a maximum of $75 million (down from $150 million) available to Uniroyal Chemical Company, Inc. for working capital and general corporate purposes. Tranche III continues to provide up to $150 million available to the European and Canadian subsidiaries of the Company. On April 8, 1998 the Company's outstanding 11% Senior Subordinated Notes and the 12% Subordinated Discount Notes were called for redemption as of May 8, 1998. The 11% Senior Subordinated Notes will be redeemed at a price of 105.5% of the principal amount thereof plus accrued and unpaid interest. The 12% Subordinated Discount Notes will be redeemed at a price of 100% of the principal amount thereof plus accrued and unpaid interest. The payment for the redemption including accrued interest will approximate $366.2 million and be funded by drawing on the Company's $600 million revolving credit agreement, under which borrowings totaled $82.6 million at March 28, 1998. Capital expenditures are expected to approximate $60 million in 1998 primarily for replacement needs and improvement of domestic and foreign facilities. ACCOUNTING STANDARD CHANGE In June 1997 the Financial Accounting Standards Board issued Statement No. 131 "Disclosures about Segments of an Enterprise and Related Information", which is effective for years beginning after 1997. The Company plans to adopt statement No. 131 in the fourth quarter of 1998. ENVIRONMENTAL MATTERS The Company is involved in claims, litigation, administrative proceedings and investigations of various types in a number of jurisdictions. A number of such matters involve claims for a material amount of damages and relate to or allege environmental liabilities, including clean-up costs associated with hazardous waste disposal sites, natural resource damages, property damage and personal injury. The Company and some of its subsidiaries have been identified by federal, state or local governmental agencies, and by other potentially responsible parties (each a "PRP") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or comparable state statutes, as a PRP with respect to costs associated with waste disposal sites at various locations in the United States. In addition, the Company is involved with environmental remediation and compliance activities at some of its current and former sites in the United States and abroad. Each quarter, the Company evaluates and reviews estimates for future remediation and other costs to determine appropriate environmental reserve amounts. For each site a determination is made of the specific measures that are believed to be required to remediate the site, the estimated total cost to carry out the remediation plan, the portion of the total remediation costs to be borne by the Company and the anticipated time frame over which payments toward the remediation plan will occur. As of March 28,1998, the Company's reserves for environmental remediation activities totaled $102.8 million. These estimates may change in the future should additional sites be identified, circumstances change with respect to any site, the interpretation of current laws and regulations be modified or additional environmental laws and regulations be enacted. The Company intends to assert all meritorious legal defenses and all other equitable factors which are available to it with respect to the above matters. The Company believes that the resolution of these environmental matters will not have a material adverse effect on the consolidated financial position of the Company. While the Company believes it is unlikely, the resolution of these environmental matters could have a material adverse effect on the Company's consolidated results of operation in any given year if a significant number of these matters are resolved unfavorably. FORWARD-LOOKING STATEMENTS The information in this Form 10-Q contains forward-looking statements and estimates which are based on currently available information. The Company's actual results may differ significantly from the results discussed. Investors are cautioned that there can be no assurance that the actual results will not differ materially from those suggested in such forward- looking statements and estimates. PART II. OTHER INFORMATION: Item 4. Submission of Matter to a Vote of Security Holders (a) The Annual Meeting of the Stockholders was held on April 28, 1998 (b) Proxies for the Annual Meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, there was no solicitation in opposition to the nominees for the Board of Directors as listed in the Proxy Statement, and all of such nominees were elected. (c) A brief description of each matter voted upon at the Annual Meeting, and the results of voting, are as follows: 1. Election of two (2) Directors to serve for a term expiring in 2001: FOR WITHHELD James A. Bitonti 65,140,179 shares 795,810 shares Patricia K. Woolf, Ph.D. 65,170,118 shares 765,871 shares 2. Approval of the selection by the Board of Directors of an independent auditor for 1998. FOR AGAINST ABSTAINED 65,318,452 shares 474,478 shares 143,059 shares Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Number Description (11) Statement Re Computation of Per Share Earnings (27)* Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter For which this report is filed. * A copy of this Exhibit is annexed to this report on Form 10-Q provided to the Securities and Exchange Commission and the New York Stock Exchange. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CROMPTON & KNOWLES CORPORATION (Registrant) May 12, 1998 By:/s/ Charles J. Marsden Charles J. Marsden Senior Vice President & Chief Financial Officer May 12, 1998 By:/s/ John T. Ferguson II John T. Ferguson II Vice President, General Counsel and Secretary CROMPTON & KNOWLES CORPORATION AND SUBSIDIARIES EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (In thousands, except per share data) BASIC QUARTER ENDED March 27, March 29, 1998 1997 Earnings Earnings before extraordinary charge $ 31,943 $ 26,611 Extraordinary loss on early extinguishment of debt (1,951) - Net earnings $ 29,992 $ 26,611 Shares Weighted average shares outstanding 74,103 73,078 Per share Earnings before extraordinary charge $ .43 $ .36 Extraordinary loss on early extinguishment of debt (.03) - Net earnings $ .40 $ .36 DILUTED QUARTER ENDED March 27, March 29, 1998 1997 Earnings Earnings before extraordinary charge $ 31,943 $ 26,611 Extraordinary loss on early extinguishment of debt (1,951) - Net earnings $ 29,992 $ 26,611 Shares Weighted average shares outstanding 74,103 73,078 Common stock equivalents 2,311 1,611 Average shares outstanding 76,414 74,689 Per share Earnings before extraordinary charge $ .42 $ .35 Extraordinary loss on early extinguishment of debt (.03) - Net earnings $ .39 $ .35 EX-27 2
5 0000025757 CROMPTON & KNOWLES CORPORATION 1,000 3-MOS DEC-26-1998 MAR-28-1998 9,985 0 286,708 9,692 374,450 735,015 466,999 430,072 1,566,849 365,281 878,442 0 0 7,733 11,723 1,566,849 477,219 477,219 302,465 402,994 (289) 565 23,613 50,901 18,958 31,943 0 (1,951) 0 29,992 .40 .39
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