Crompton & Knowles Corporation
1998 Annual Report

(C&K logo) 

Service
Technology
Performance



contents

Mission statement  1
Letter to shareholders  2
Business review  6
MD&A  18
Consolidated financial statements  22
Notes to consolidated financial statements  26
Responsibility for financial statements  34
Independent auditors' report  34
Seven year selected financial data  35
Corporate Management  36

Board of Directors and corporate data (inside back cover)



financial highlights

(4 bar charts)

sales
in billions of dollars

                    $2.0


                     1.0


                     0
94   95   96   97   98

return on average total capital
before special items

                    20%

                    15%

                    10%

                     5%

                     0
94   95   96   97   98 

return on sales
before special items

                     7%

                     6%

                     5%

                     4%

                     3%

                     2%

                     1%

                     0
94   95   96   97   98

debt
in billions of dollars

                   $1.2

                     .8

                     .4

                     0
94   95   96   97   98 

in thousands of dollars, except per share amounts         1998          1997
Net sales                                         $  1,796,119  $  1,851,180
Operating profit                                  $    218,298  $    224,278
Interest expense                                  $     78,520  $    103,349
Net earnings                                      $    161,755  $     86,829
Basic earnings per share                          $       2.20  $       1.18
Diluted earnings per share                        $       2.14  $       1.15
Total assets                                      $  1,408,893  $  1,548,820
Long-term debt                                    $    646,857  $    896,291
Cash flow from operations                         $    169,522  $    215,787
Operating profit and net earnings before
special items (refer to page 35) are as follows:
Adjusted operating profit                         $    259,858  $    252,278
Adjusted net earnings                             $    117,270  $     92,071

about the company

Crompton & Knowles is a global producer and marketer of specialty chemicals,
polymers and polymer processing equipment.  The company has 5,400 employees in
research, manufacturing, sales, and administrative facilities around the
world, and our products are sold in 120 countries.

Crompton & Knowles has secured leading positions in scores of markets by
providing quality products, a high level of technical service and performance
know-how that solves customer problems and adds value to customers' products.

The company's 69.4 million shares of common stock outstanding are traded on
the New York Stock Exchange under the symbol CNK. Up-to-date information on
the company is available at www.crompton-knowles.com.

The company has two business groups which consist of five primary reporting
segments:
specialty chemicals      polymers & polymer processing equipment
performance chemicals    polymers
crop protection          polymer processing equipment
colors

percentage of sales by business
total sales: $1.80 billion
(pie chart)
Performance Chemicals  25%
Crop Protection  19%
Colors  13%
Polymers  19%
Polymer Processing Equipment  19%
Other* 5%
*Includes specialty ingredients business sold effective the first day of
fiscal 1999.

Crompton & Knowles is a member of the Chemical Manufacturers Association and a
signatory of the Association's Responsible Care(r) Program. The company is
committed to a continuous good faith effort to improve performance in health,
safety and environmental quality.

performance chemicals

A leading worldwide producer of rubber chemicals and additives for plastics
and lubricants.
key products
Rubber chemicals include antioxidants, antiozonants, accelerators, foaming
agents, and miscellaneous specialty products. Additives include
antioxidants, chemical foaming agents, polymer modifiers, petroleum additives,
synthetic fluids, chemical intermediates, polymerization inhibitors,
curatives, and dispersants.
markets served
Rubber chemicals are sold to processors and manufacturers of rubber including
tire makers and industrial makers of hoses, belts, rubber sponge, and a
variety of natural and synthetic rubber products.  Plastic additives are sold
to manufacturers of petrochemicals and plastics processors. These customers
manufacture materials used in a wide range of end use markets including
automotive, aerospace, construction, electronics, packaging, flooring, and
wire and cable.  Lubricant additives are used in automotive and industrial
oils and lubricants.

crop protection
Producer of products for use on high value crops to improve crop quality and
increase yields. A leading international seed treatment company providing
products to assure germination and healthy seedlings.
key products
Fungicides, miticides, insecticides,  growth regulants, herbicides, and seed
treatment equipment.
markets served
Both food and non-food crops with an emphasis on high value crops such as
nuts, citrus, tree and vine fruits, tobacco, cotton, and ornamental plants.

colors
The largest producer of dyes in the U.S.
key products
Textile and industrial dyes and auxiliary chemicals for the dyeing process.
markets served
About one-half of sales are to the apparel market.  Other textile markets
include carpeting and other home and automotive furnishings.  Industrial dyes
markets are primarily paper, leather and ink.

polymers
The number one supplier of EPDM in  North America. The number one worldwide
supplier of castable urethanes. Building the world's largest dedicated nitrile
rubber manufacturing facility.
key products
EPDM heat, sunlight and ozone resistant rubber, abrasion-resistant castable
urethane prepolymers and oil resistant nitrile rubber.
markets served
EPDM is primarily used in automotive applications as well as in roofing, hose,
and wire and cable insulation. Urethane end products include industrial and
printing rollers, mining machinery and equipment, mechanical goods, solid
industrial tires, and sporting goods.  Nitrile rubber is used in automotive
hoses, seals and o-rings and other consumer and industrial applications.

polymer processing equipment
The number one worldwide producer of plastics extrusion systems.
key products
Integrated single screw and twin screw extrusion systems with advanced
electronic controls. Industrial blow  molding equipment and controls.
markets served
Makers of extruded products for the packaging, automotive, appliance,
construction, medical, and power and communications cable markets.

crompton & knowles corporation 

Crompton & Knowles' mission is to  create value for our shareholders by
providing value to our customers.
Value creation is the result of steady, sustainable, profitable growth. The
entrepreneurial spirit  of our people combined with the efficient allocation
of capital ensures our success in all business environments.
We respond to our customers' needs, providing them with quality products and
services to solve their problems and add value to their products. This
customer focus  places us in leadership positions in our markets.
By doing well for our customers, we will do well for our shareholders. Our
businesses will generate attractive returns,  and the confidence of our
investors will be rewarded.

to our shareholders

Crompton & Knowles made considerable gains in 1998 to position our company for
future growth and value creation. We strengthened the individual businesses by
introducing new products, entering new markets and increasing production
capacity. We strengthened the business portfolio by entering into joint
ventures in two businesses and divesting the specialty ingredients business.
We strengthened the capital structure of the company by paying down debt,
refinancing high cost debt and buying back stock. We continued to grow
earnings despite difficult market conditions.

Because of the entrepreneurial values and customer-first focus of the business
units, we were able to respond quickly to changes in the marketplace enabling
us to continue our earnings growth record. For the year, we reported a 27
percent increase in earnings before special items to $117.3 million, or $1.55
a share diluted.

We are focused on accelerating the growth of our individual businesses.

-- Our research and development expertise is being leveraged across all our
business lines, and we are bringing to market our most promising products
faster than ever before. We expect a number of new products to make
significant market penetration in 1999. These include: a new friction
modifier for lubricant additives, a new stabilizer used in polyurethane
production, a new generation of EPDM polymers for the wire and cable market,
new urethane prepolymers for golf balls, and a new agricultural miticide based
on our unique chemistry.

-- We are expanding participation in our present markets and seeking new ones
in order to increase the sales of existing products. We have an international
infrastructure that we are leveraging across all our product lines. In
particular, there are new markets in Europe and South America for polymer
processing equipment and the high population, agrarian countries of China,
India and Brazil for crop protection chemicals.

-- We have increased production capacity for a number of high-demand products
including Royalene(r) EPDM, Synton(r) PAO synthetic lubricants and 
Adiprene(r)/ Vibrathane(r) castable urethanes, that will support continued
growth in these businesses.

-- We are evaluating a number of acquisition candidates that have the 
potential to add new technologies, new products and improve market access. We
are evaluating options that would add production capacity for EPDM, rubber
chemicals in Europe and Asia and polymer processing equipment in Europe. Also,
plastics additives and crop protection chemicals represent product lines we
have targeted for growth around the world. In Europe, we are adding
substantial capacity for castable urethanes which is scheduled to come on line
in early 2000. In 1998, we acquired Betol Machinery in England to advance our
market penetration of polymer processing equipment in Europe.

(photo of Vincent A. Calarco)

/s/Vincent A. Calarco
   Vincent A. Calarco
   Chairman, President and
   Chief Executive Officer

We completed several initiatives in 1998 that will improve the long-term
strategic position of the businesses and improve returns on our invested
capital.

We created a joint venture with our Gustafson seed treatment business and
Bayer A.G. of Germany to further strengthen the technologies of the business.
By partnering Gustafson's strong market presence with one of the world's
leading developers of active ingredients for seed treatment, we made a
substantial contribution to the future of this successful North American
enterprise. Our crop protection business continues to expand its seed
treatment presence in international markets.

We substantially improved the competitive position of our nitrile rubber
business by completing an agreement for a 50/50 joint venture with DESC, S.A.
de C.V. of Mexico (NYSE: DES). We combined our Paracril(r) oil-resistant
nitrile rubber technology and business with DESC's process and manufacturing
capability. Building a 40,000 metric ton plant in Mexico, the largest
dedicated nitrile rubber plant in the world, will enable us to close a high-
cost facility in Ohio.

Both Gustafson seed treatment and Paracril nitrile rubber have leading
positions in their respective markets, and we believe that these new
partnerships have positioned them well for growth through expansion of their
products and services.

Also, in January 1999, we divested our specialty ingredients business to Chr.
Hansen Holding A/S of Denmark for $103 million in cash.

Since the Uniroyal Chemical merger, our financial strategy has been focused on
debt reduction. In the past two years, we have reduced debt by $400 million,
and annual interest expense has been cut by more than $36 million. Debt
reduction in 1998 was $234 million, and at year-end, total debt was $664
million. In addition, we refinanced $460 million of 9 to 12 percent high cost
bonds, and our average cost of debt is now approximately 8 percent.

Despite our solid earnings performance and excellent business prospects, the
market for our stock, along with the entire specialty chemical industry, was
weak for much of 1998. With our stock selling at a discount to its 12 month
high, we initiated a 6.8 million share repurchase program early in 1999 after
completing the 7.5 million share program authorized in September 1998. At the
depressed market prices of 1998 and early 1999, this is an accretive
investment that will benefit shareholders. While we view share repurchase as
an attractive use of cash generated from one-time events, we continue to use
cash flow from operations to pay down debt.

To provide us with more flexibility to pursue our strategy, we are continuing
to improve our balance sheet and moving to upgrade our status with the credit
rating agencies.

As shareholders you know that we focus on long-term value appreciation by
running the company in the best way possible to execute our business plan and
deliver on our objectives. We are continuing to make considerable progress in
strengthening our financial position.

-- Our return on average capital before special items of 18.6 percent,
increased from 16.5 percent last year, placing us in a leading position among
specialty chemical companies.

-- Our shareholder equity turned positive in 1998 and at year-end was $67
million, a $163 million improvement over the past two years.

-- Our net earnings before special items as a percent of sales increased to
6.5 percent from 5.0 percent in 1997.

-- The combination of debt reduction and refinancing, share buyback and tax
savings should contribute approximately 20 cents a share to 1999 earnings.

Looking ahead, we see a number of trends that should benefit our business in
1999. There are early indications that the Asian economies may have bottomed
out,  and we may see a modest increase in international economic activity that
would contribute to top line growth. In addition, indications are that
petrochemical prices will remain depressed and our businesses will benefit
from lower raw material costs. We are hopeful that the negative weather
patterns that impacted 1998 crop protection sales will not recur in 1999, and
we can resume the outstanding growth record of this business.

We are confident that we will be able to meet the new challenges ahead. Our
culture, based on small business values, will enable our businesses to respond
to their customers' needs with speed and flexibility.

The dedication of our employees to the job at hand has ensured the
profitability of each of our businesses as we seek to expand markets, grow
sales, improve productivity, and satisfy the needs of our customers.

We will continue to maintain our focus on our customers, our operations and
our balance sheet in order to accelerate our growth and to build value.

Thank you for your confidence and support.

Respectfully yours,

Vincent A. Calarco
Chairman, President and
Chief Executive Officer
March 18, 1999



review of businesses

At Crompton & Knowles, we rely on entrepreneurial values that permit each of
our business units to respond to customers with the speed and flexibility of a
small business.

We listen closely to our customers and work hard to understand their
businesses and markets as well as they do. We strive to anticipate their needs
and to identify and solve their problems. This approach enables both of us to
be more competitive, and our shared successes help to build long-term
relationships.

Our customer relationships are built on service, technology and performance.

Service starts with our specialized sales force of trained scientists and
engineers who have in-depth knowledge of our specific products, their market
applications and our customers' markets. Whether we are providing a new
urethane product for an entrepreneur/inventor in California or a multi-million
dollar polymer extrusion system for a European auto company, our job is to add
value to our customers' products.

Technology is founded on a disciplined, customer-first approach to research
and development, focusing on projects with the greatest opportunity for
success in the marketplace. Manufacturing, marketing and sales have input at
every step in the process which keeps R&D activities closely aligned with our
business objectives and our customers' needs.

Performance is based on delivering quality products that solve customers'
problems and add value to their business. We are listening to our customers
and working diligently to lower their costs of doing business and to
decrease the impact of their products on the environment. This effort has
produced breakthrough  products and innovative services as discussed in the
following sections covering our businesses.

We are a global company with an effective international production and
marketing infrastructure. This global presence allows us to capitalize on new
markets whenever and wherever they emerge, in areas as diverse as insecticides
to protect the crops of half-acre farms in China and rubber chemicals that
extend the life of tires produced by giant international corporations.

In 120 countries around the world, we back our products and services with
advanced technology to ensure the highest level of product performance and
market acceptance for our customers' products, thus assuring our own market
leadership and corporate profitability.

(photo of fire truck)
Caption:
performance
Modern high-performance engines and transmissions require lubricants that
perform under a wide range of operating conditions. Synthetic lubricants such
as our Synton(r) PAO and Trilene(r) liquid polymers provide stability under a
wide temperature range from arctic to tropical for extended operating periods.
The result is maximum performance and extended operating life in the most
demanding environments.
Technological advancements in engine and machine design are continually
calling for higher-performing products for both automotive and industrial
lubricant applications. From our position as a world leader in amine
antioxidant lubricant additives, we are increasing our R&D focus on new
Naugalube(r) products including friction modifiers and anti-wear agents. The
goal is to improve engine life and performance in the next generation of
passenger cars while increasing fuel efficiency.

Our Performance Chemicals units, Rubber Chemicals and Specialty Additives,
have a long history of anticipating market needs and responding with
innovation. Technologically, we capitalize on our 100-year-old heritage in
rubber chemicals with our proprietary catalysts, specialty equipment and
multi-step processing.

We are a world leader in rubber chemicals with a comprehensive line of more
than 100 different products used in rubber processing. Our Flexzone(r)
antiozonants, Naugard(r) antioxidants and other chemicals are recognized 
around the world for their ability to protect rubber from ozone, oxygen, heat,
and light, dramatically extending product life and lowering costs. While we
provide these products to a broad range of rubber producers including makers
of hose, sponge, belts, weather stripping and wire and cable, over 50 percent
of sales are to tire manufacturers, with much of their sales going to the
replacement tire market.

We are positioning our bonding agents and liquid polymers, as well as
silicone-modified EPDM and solid polyurethanes, for accelerated growth in
rubber applications over the next five years. They will be at the center of a
thrust to acquire core and synergistic products and technologies and to expand
markets and introduce newly developed products.

Our experience in and dedication to the rubber industry has enabled us to
develop  multifunctional teams trained and equipped to help customers
determine and design the most cost-effective and innovative uses for our
products. For instance, we assist customers in the use of advanced microwave
technology to cure rubber products for weather stripping.

We share with our customers our proprietary techniques for compounding rubber
in an annual one-week, multi-lingual training session for rubber compounders
from the footwear, tire, wire and cable, weather-stripping and other
industries. Sharing  of our technical expertise gives our products added value
because it directly benefits the bottom line of our customers. That, in turn,
assures brand loyalty.

technology
(photo) Bottled beverages
Caption: To protect the carbonation and freshness of billions of glass-bottled
drinks, the beverage industry uses bottle cap liners made with our Celogen(r)
foaming agents.

We are making strategic investments to expand our presence in key worldwide
rubber chemical markets. Asia is projected to be the strongest growth area for
rubber production over the next decade, and we are expanding our presence
there by buying out our joint venture partners in Korea and Thailand. We are
also looking at opportunities to increase our presence elsewhere in Asia and
Europe.

Our specialty additives product line is one of the broadest lines in the
specialty chemical industry. Makers of plastics around the world depend on us
to specify the appropriate products to meet their production needs and ensure
the performance of their end products.

Our Naugard(r) antioxidants may make up less than two percent of the
formulation of a plastic material in products such as wire and cable, but they
are critical in extending product life which opens scores of new markets and
applications. Our additives enhance the performance and durability of plastics
that enable automobile manufacturers to reduce the weight of vehicles and
improve gas mileage.

Our polymer modifiers, Royaltuf(r) modified EPDM, used to toughen engineered
thermoplastics, and Polybond(r) compatibilizers, critical to the production of
advanced composite materials, are among the fastest growing segments of the
specialty chemicals industry.  We see growing opportunities in cutting-edge
technologies such as nanocomposites, which offer the automotive industry and
other plastics users products with dramatic improvements in mechanical,
thermal and flame-retardant properties.

Our Naugard(r) polymerization inhibitors, which prevent the formation of
polymer during the production of various monomers, are market leaders, and our
new SFR styrene monomer polymerization inhibitor has successfully completed
testing with a number of major customers and is expected to achieve
significant market acceptance in 1999. We are continuing to develop new grades
of inhibitors, polymer modifiers and antioxidants to serve expanding
international plastics markets.

photo: Foot prosthetic
Caption: Technology.
Glen Garrison of Eschen Prosthetic Labs, Hospital for Special Surgery, New
York City, explains the fitting of a prosthesis to a patient following
surgery. The artificial foot is made by Kingsley Manufacturing of Costa Mesa,
California. It was developed from Adiprene(r)/Vibrathane(r) castable urethane
To provide performance advantages of toughness and durability for extended
wear and ease of molding to replicate individual foot characteristics.
Our Adiprene/Vibrathane business is built on close relationships with
customers like Kingsley. We solve their problems by providing customized,
high-performance products that are uniquely suited to their needs. With over
three decades of experience in castable urethanes, we continue to advance our
lead market position by pursuing technological advances.

For automotive and industrial lubricants makers, our Synton(r) PAO synthetic
fluids can lower life-cycle costs by extending drain intervals and enhancing
high-temperature performance in industrial machinery and gear-boxes. PAO-based
lubricants have excellent thermal and oxidative stability in automotive uses.
Last year, we completed a second plant expansion for Synton PAO, doubling
capacity while improving the manufacturing process, in order to serve a
growing number of  customers. We expect this new capacity to be sold out in
1999, and we will continue to invest in new capacity to support the
rapidly increasing demand for these high-performance products.

Responding to the demands of the transportation industry, we are working on
new friction modifiers to enable engines to generate more horsepower per unit
of fuel and improve mileage for larger vehicles, as well as new dispersants to
keep diesel engines running more cleanly.


Our Crop Protection business focuses on improved crop quality and increased
yields for farmers around the world. Our primary product and marketing focus
is on high-value crops such as nuts, citrus, tobacco, cotton, tree and vine
fruits, and ornamental plants. We are a world leader in products and
applications to treat seeds before planting to assure germination and healthy
seedlings.

Our specialized product lines include fungicides, miticides, insecticides,
herbicides and growth regulants formulated for specific crops and geographic
regions. We have built customer loyalty with our superior service based on
formulation expertise and application advice. Our high-value market niches
that reflect our knowledge of the crops and growing conditions of specific
geographic areas generate higher sales margins.

Also, when we serve larger commodity markets, it is with targeted, value-added
products. Our Harvade(r) defoliant makes the harvesting of cotton, corn,
canola, and sunflowers more efficient, and tobacco growers depend on our Royal
MH-30 plant growth regulant to reduce field labor by preventing the growth of
undesirable sucker leaves.

We are constantly expanding our already extensive product offerings in the
agricultural chemical industry by acquiring new insecticide and fungicide
labels and developing new products in our laboratories.

We believe our newly developed miticide, D-2341, has the potential to capture
a significant share of the annual $525 million worldwide miticide market. We
plan to initially market our unique chemistry in the U.S. for greenhouse use
as Floramite(r) beginning in mid-1999. The product, which was granted fast-
track registration status as a "reduced risk pesticide" by the Environmental
Protection Agency, also is being developed in Japan for use on food crops
including apples, citrus and tea.

Geographic expansion is integral to our growth program. In Brazil, the world's
fourth-largest agricultural economy, consumption of agricultural chemicals is
growing at double-digit rates and we are aggressively marketing products in
all our major categories for crop application and seed treatment.

New product registrations have been obtained in Italy, China and Korea for
tobacco plant growth regulants. We have recently obtained registration for our
Pantera(r) herbicide to control grass weeds in Bolivia, Colombia, Peru, and
Ecuador, and we have also introduced it into Russia, Ukraine, Belarus,
Moldova, and China, paving the way for significant future sales growth.

We expect the vast agrarian economies of China and India to provide major
growth for Omite(r) and Comite(r) miticides, Vitavax(r) seed treatments,
growth regulants and other products. Sales have been expanding in China, where
we opened an office two years ago, and in India, where we have increased the
sales staff.

Photo: Greenhouse with flowers
Caption: Service.
Crop Protection product development specialist Dave Barcel, right, examines
the growth characteristics of Accent impatiens with Patrick Steppuhn,
production  manager of Kawahara Nursery in Morgan Hill, California. We have
been working closely with Kawahara in the use of Bonzi(r) plant growth
regulator on flowering plants in order to produce uniform, compact and well-
proportioned plants. Bonzi helped the nursery increase impatiens production
five-fold to 5 million plants.
Kawahara, a 50-acre family-owned business, is one of the largest growers of
high-quality bedding plants in the country and has been a key partner in
helping us develop new uses for plant growth regulators.
Dave Barcel has built a strong relationship with Kawahara that is typical of
our field operations. The combination of his extensive background in
horticulture and the experience of Patrick Steppuhn in the nursery's
"laboratory" environment has enabled us to refine our products and discover
new applications.

The market for seed treatment systems promises substantial growth as
genetically altered seed production increases, and seed companies and farmers
seek to protect their growing seed investment from disease and pests prior to
germination. With less than 30 percent of soybean and wheat seed currently
being treated in North America, hybridization and genetic alteration of these
crops promise to create large market opportunities for Gustafson.

For those farmers who do not want to invest in genetically altered seed, seed
treatment represents an option to enhance the genetic potential of the seed
and assure germination. We anticipate accelerating growth in seed treatment
because of the enhanced environmental attractiveness of the localized use of
chemicals at very low application rates.

Our Vitavax(r) seed treatment is one of the world's best-selling seed 
treatment products, and about half of our crop protection business, including
the Gustafson joint venture, is related to seed treatment products and 
application systems. Our Gustafson joint venture with Bayer is the largest
seed treatment company in North America. The partnership is a powerful 
combination of agricultural chemical strengths: we are a leader in formulating
and delivering seed treatment products and Bayer is a leading developer of 
active ingredients for seed treatment.

In Australia, our Hannaford Seedmaster Services subsidiary holds a major share
of the seed treatment market and is using that market position to expand its
product offerings to crop application chemicals.

Our Colors business, the largest domestic producer of dyes, has been seriously
affected by low-cost imported apparel and dyes from Asia. U.S. apparel imports
grew substantially in 1998 and now account for more than 60 percent of the
retail market. Our European market is also facing difficulty due to increasing
Asian imports of fiber, textiles, apparel, and dyes.

To compensate for these dramatic changes in the company's primary dye markets,
we have reduced our fixed costs and increased productivity. The lower price of
chemical intermediates has somewhat mitigated lower dye selling prices. We are
renewing our customer focus with an emphasis on zero defects and enhanced
service. We will continue to improve our quick response time, comprehensive
catalogue of quality dyes, and extensive technical support capabilities.

We have countered some of the Asian competition in the U.S. by building a
solid foundation for growth in Latin America, especially Mexico and Brazil,
which promises to be competitive in apparel production.

We are focusing on markets including carpeting, paper and ink, where Asian
imports have not caused the dislocation that they have brought to the apparel
industry. Around the world, we are growing sales in niche industrial and
specialized textile areas where our product range, quality and production
expertise can provide a clear benefit to the customer.

The domestic carpet industry had a good year in 1998, and by diligent and
quick response to long-term customers we were able to increase our market
share. We are continuing to help these high-volume producers of nylon and wool
carpeting to improve their quality and increase productivity.

During the year, we generated substantial sales of high purity dyes for film
printing, and we anticipate growth as the motion picture industry responds to
obvious improvements in image brightness and color quality.

Despite an extremely competitive worldwide paper business, we increased sales
of direct dyes to the North American paper industry including deep-dyed
specialty paper markets.  Part of this success was due to customer acceptance
of new marketing efforts including new packaging. The use of premeasured dyes
in pulpable paper bags enhances the ease of use and minimizes waste and
environmental impact by eliminating direct handling and measurement by the
customer.

(photo) 2 C&K technicians at computer workstation
Caption: Technology.
C&K Colors technical personnel work with our proprietary Dyebath Monitoring
System (DMS) at the company's technical center in Charlotte, North Carolina.
This computerized monitoring system permits users to optimize the dyeing
process through continuous sampling of the dyebath.
Measuring the color in the bath spectroscopically, the system permits a
detailed understanding of the variables in the dyeing process including time,
temperature, pH, and the dyes themselves. This advanced system answers our
textile customers' needs to produce quality products with consistent color and
minimal dye waste at reduced cost.

Our efforts in developing new dye application methods have enabled us to offer
innovative reactive dye combinations for applying difficult-to-dye cotton
shades. We created new combinations of products that provide customers with
more consistency in their dyeing processes while delivering shorter
dyeing cycles, more batches per week, lower dye usage, and less effluent.

We have strengthened our presence in Europe by better integrating our
production, marketing and sales efforts. Our European development group has
improved  production processes for a group of our Neutrilan(tm) dyes that
allows the delivery of more concentrated colors. We are showing increased 
growth for industrial colors to a wide range of user industries including 
glass fiber insulation and paper as a result of these efforts.

Photo: mechanic working on car
Caption: Performance.
A typical new car contains 20 pounds of EPDM rubber, used to make parts
ranging from weather stripping to brake parts. Our Royalene(r) EPDM is used by
most  car manufacturers in the world. The worldwide automobile industry
built 53 million cars in 1998.

Our Polymers business was led by strong sales of EPDM in 1998.

We are the largest North American supplier of EPDM which is commonly known as
"crackless rubber" because of its ability to withstand heat, sunlight and
ozone without deteriorating. With three production lines devoted to 
Royalene(r) EPDM, we have significant production flexibility and high-volume 
production capability with consistent, reliable quality to meet a full range 
of market demands.

We produce over 30 different variations of this polymer primarily for
applications in automotive parts including hoses, belts, weather stripping,
brake components, and seals and gaskets, and in roofing, industrial hose and
wire and cable. We are enjoying considerable success with RoyalEdge(r), a
generation of EPDM  introduced two years ago for the weather seal and wire and
cable markets. EPDM production has been sold out for the past two years, and
demand continues to be strong. Late in 1998, we completed the low-cost
debottlenecking of our Geismar, Louisiana plant and we expect to see the full
increase in capacity this year.

We are confident that we will maintain our leadership position and retain the
loyalty of our customers with aggressive marketing efforts and new product
innovations in EPDM. In addition, we expect that our profitability will
continue to benefit from depressed petrochemical raw material costs and
improved production efficiencies.

We are the world's largest supplier of castable urethane prepolymers. Golf
balls are one of the newest product uses for Adiprene(r)/Vibrathane(r) adding 
to our sporting goods applications that include in-line skates and skateboard
wheels.  The unique abrasion resistance and durability characteristics of
these products  continue to open new markets. Our customer service, technical
support and ability to customize products ensure our leadership position in
the market.

A number of new urethane prepolymers achieved market success last year.
Adiprene LFI (low-free isocyanate) prepolymers offer strong growth potential
in transportation and industrial markets by providing improved processability
and workplace safety for the user and higher performance in end-use
applications.

Adiprene PPDI (para-phenylene diisocyanate) urethane prepolymers are
responding to growing market demand for ultra-high-performance products such
as wheels for "People Mover" transit systems, amusement park rides and bearing
seals for steel mill rolls. We have developed a proprietary process to produce
these PPDI-based polymers in more environmentally friendly forms.

Our Ribbon Flow System(r) is a moldless casting alternative to traditional hot
casting and is making substantial inroads into new applications. This economic
combination of rotational casting and room temperature curing provides a more
cost-effective system to produce high-performance rolls for the paper and
steel industries.

Photo: 2 men at Davis-Standard extruder
Caption: Service.
Florent Rocklin of Davis-Standard (left) introduces Andreas Jung of Move
Automotive to the latest  technologies incorporated into the DS multi-layer
reinforced rubber hose extrusion system. Move, a Mulhausen, Germany maker of
automotive parts, will use the Davis-Standard system to produce extruded brake
hoses for the  European automotive industry.
Davis-Standard has made impressive inroads into the European market for
polymer processing equipment with acquisitions in Germany, the United Kingdom
and France and the introduction of sophisticated new products.
With our state-of-the-art equipment and attentive customer service and
training, we  help manufacturers of plastic and rubber components synchronize
their production process and increase their productivity and profitability.

Our production capacity for oil-resistant Paracril(r) nitrile rubber will
double in 1999 as the result of a new joint venture with DESC, a diversified
Mexican chemical company. We will close a high-cost facility in Ohio and move
production to a state-of-the-art facility near Tampico, Mexico. The new 40,000
metric-ton facility will be the largest dedicated nitrile rubber plant in the
world and will support growth opportunities worldwide. Existing and new
customers will benefit from our product innovation and our partner's
manufacturing expertise. We have sold out existing production capacity for a
number of years, and we expect that this new capacity will allow us to supply
new automotive and industrial customers worldwide. In addition, this year we
will introduce a new product line to meet the demanding needs of today's high-
speed injection molding machines.

Polymer processing equipment customers rely on our Davis-Standard subsidiary
for the most technically innovative, efficient and productive systems
available for polymer processing. With backlog at a record $118 million at
year-end, 1999 should be another good year as we continue to emphasize
service, technology and performance.

Our integrated systems, which combine extruders with advanced computer-based
controls and other equipment, produce plastic and rubber extruded forms for
appliances, automobiles, home construction products, medical tubing, power and
communication cables and a wide range of other uses. Davis-Standard is also a
leading producer of industrial blow molding equipment used for making non-
disposable plastic consumer products such as beverage coolers and outdoor
furniture.

The business has attained a strong 15 percent compounded growth rate over the
past five years through technological innovation, geographic expansion and
acquisitions.

Photo: Retired Extruder
Caption: Service.
In 1998, the first Davis-Standard plastic extruder was retired after 50 years
of continuous service. The Gavitt Wire and Cable Co. machine processed tons of
polymers for custom wire and cable products since 1948. The Brookfield,
Massachusetts customer is still operating six of our machines, two of which
were built before 1950.

Our impetus for technological product innovation is the continual efficiency
and productivity improvements anticipated by our customers. By combining
several state-of-the-art products, we produce sophisticated systems which
allow our customers to reduce manufacturing steps and increase the return on
their investment. Our twin-screw, in-line compounding machines produce process
engineered  plastics, which are fed into our single-screw extrusion machines
to produce products. These multi-machine production processes are monitored
and controlled by our proprietary data acquisition and process control system
integrated into a plant-wide MIS network.

Recycled plastic lumber using wood fillers has received considerable
acceptance in the construction industry recently. One of the reasons for this
market success has been our ability to provide extrusion systems that can
produce the product at economical rates and with consistent quality.

We have expanded into Europe through acquisitions in Germany, France and the
United Kingdom, and into Asia and Latin America with aggressive marketing and
sales efforts. In June of 1998, we acquired Betol Machinery of Luton, England
adding to our European presence. Our business plan is to expand our U.S.
position as the leading full-line supplier of extrusion equipment to worldwide
markets.

For Davis-Standard, product quality, timely delivery and responsive technical
service are critical. We are continuing to build sales on our ability to get
our customers into production quickly so they gain a competitive edge
producing quality products, using advanced technology ahead of their
competition. In pursuit of the goals of zero defects and timely delivery, we
have opened a 40,000-square foot testing area, adjacent to our Connecticut
production plant, where we set up, wire and test complete systems prior to
shipping. The benefit is dramatic reductions in the time spent on the final
installation at the customer's facility.

Photo: 2 men conducting a fish survey in creek
Caption:  environmental stewardship
Aquatic biologists, Rick Baldwin, left, and Ron Beirnes, conduct a juvenile
fish survey in Canagagigue Creek, adjacent to the company's Elmira, Ontario,
facility. They recently found 23 species of fish flourishing in a well-
balanced ecosystem that 30 years ago was devoid of aquatic life.
Since 1990, our Elmira operation has reduced water use and wastewater
generation by 80 percent and air emissions by more than 40 percent.
Accomplishments at this Canadian plant are typical of Crompton & Knowles'
worldwide commitment to cleaner air and water, reduced water use, and the
reuse and recycling of materials.
Active membership in the Chemical Manufacturers Association in the U.S. and
similar industry organizations, such as the Canadian Chemical Producers
Association, assures our dedication to Responsible Care(r) principles that
call for "continuous progress toward the vision of no accidents, injuries or
harm to the environment."
During the year, our Latina, Italy, and Kaohsiung, Taiwan, facilities were
certified to the exacting requirements of ISO 14001 environmental management
standards. Our goal is for all of our facilities to receive ISO 14001
certification.
We are honored to have been recognized by the Chemical Education Foundation as
a finalist for its 1998 and 1999 Chemical Product Stewardship Manufacturing
Award.





Financial Section


Management's Discussion and Analysis of Financial Condition and Results of
Operations

Financial Condition and Liquidity

Liquidity and Capital Resources

The December 26, 1998 working capital balance of $203.4 million decreased
$148.6 million from the December 27, 1997, balance of $352 million while the
current ratio decreased to 1.5 from 2.0 in 1997. The decreases were primarily
a result of the Company selling $80 million of accounts receivable to an agent
bank in December 1998 and higher income taxes payable relating to the
Gustafson joint venture gain. Days sales in receivables averaged 54 days,
unchanged from 1997. Inventory turnover averaged 3.1 in 1998 compared to 3.3
in 1997.

Net cash flow provided by operations of $169.5 million decreased $46.3 million
from the very strong $215.8 million in 1997. The cash flow was primarily used,
together with the proceeds from the Gustafson joint venture, additional credit
agreement borrowings and proceeds from the sale of accounts receivable, to
fund capital expenditures, reduce debt including the 11% Senior Subordinated
Notes and the 12% Subordinated Discount Notes, repurchase approximately 7% of
the Company's then outstanding common shares and pay cash dividends. The
Company's debt to total capital percentage decreased to 91% from 102% in 1997.
The Company's liquidity needs, including debt service, are expected to be
financed from operations. The Company has available a revolving credit
agreement providing for borrowings of $545 million through September 2003.
Borrowings under the agreement amounted to $286.3 million at December 26,
1998, and carried a weighted average interest rate of 6.1%. Also, in December
1998, the Company entered into a five year agreement to sell up to $82 million
of domestic accounts receivable to an agent bank. The program reduces
financing costs versus borrowings under the revolving credit agreement and
diversifies the Company's sources of financing. At December 26, 1998, $80
million of domestic accounts receivable had been sold under this agreement at
a cost of approximately 5.85%.

In May 1998, the Company redeemed its outstanding 11% Senior Subordinated
Notes and the 12% Subordinated Discount Notes. The payment for the redemption
including premium and accrued interest amounted to $366.2 million and was
funded by drawing on the Company's revolving credit agreement.

In September 1998, the Company announced a share repurchase program to buy
back 7.5 million shares or approximately 10% of the common shares then
outstanding. The program was completed in early 1999 and in January the
Company announced another share repurchase program for 6.8 million shares, or
approximately 10% of the common shares then outstanding.

In November 1998, the Company announced the formation of a joint 
venture with GIRSA, a subsidiary of DESC, S.A. de C.V., to produce nitrile
rubber products in Mexico. The joint venture will result in the closure of the
Company's existing nitrile rubber facility in Painesville, Ohio, resulting in
a fourth quarter pre-tax charge of $33.6 million.

Also in November, 1998, the Company formed a joint venture with Bayer
Corporation to serve the seed treatment markets in North America. The basis of
the joint venture was the Company's Gustafson seed treatment business. The
Company received cash proceeds of $180 million in the transaction which
resulted in a fourth quarter pre-tax gain of $153.4 million.

In January 1999, the Company announced that its specialty ingredients business
was sold to Chr. Hansen Holding A/S of Denmark for $103 million, resulting in
a pre-tax gain in the first quarter of 1999 of approximately $44 million.

Capital expenditures of $66.6 million increased $16.4 million from $50.2 in
1997. Capital expenditures are expected to approximate $70 million in 1999,
primarily for replacement needs and improvement of domestic and foreign
operating facilities.

Year 2000 Issues

The Company has assessed and continues to assess its Information Technology
("IT") infrastructures including those systems that are typically viewed as
non-IT systems to determine and address any potential problems that may result
from Year 2000 compliance issues. As generally known, Year 2000 compliance
issues pertain to the ability of computerized systems to recognize and process
date sensitive information beginning January 1, 2000. The Company has
performed this assessment over the last two years and has been implementing
appropriate steps to be Year 2000 compliant in both its IT and non-IT systems.

Under the Company's current environment, IT systems include mission critical
applications that directly support the Company's operations. These IT systems
also include networked personal computers running desktop applications.
Typical non-IT systems within the Company's environment include process
controls and other microcontrollers containing imbedded computer chips. The
Company has completed its assessment of its non-IT systems and is aggressively
undertaking measures to remedy such systems. The Company expects to complete
this remediation by October 1999.

The Company employs a number of major mission critical IT systems in its
Specialty Chemicals and Polymers businesses. These systems are currently being
upgraded to address Year 2000 compliance issues and the Company expects this
to be completed by mid-1999.

The Company's Polymer Processing Equipment business is supported by a legacy
system that runs on a mid-range computer system. This system has been reworked
and tested, and the Company believes that it is now Year 2000 compliant. The
Company has assessed all other IT systems including non-IT systems in this
business segment and has undertaken necessary steps to address any Year 2000
compliance issues. This business currently sells equipment controls containing
programs and microchips. The Company believes that these products which are
used in the operation of extrusion machinery are Year 2000 compliant.

The Company has operations in Europe, Asia Pacific, and Latin America
supported by IT systems operating on mid-range computers. The Company is
presently upgrading these IT systems to address Year 2000 compliance and
expects to complete this upgrade by mid-1999.

The Company is actively looking into the overall Year 2000 readiness of its
major business partners including vendors, suppliers, and service providers in
order to determine that the Company's operations will not be disrupted in the
event that any such third party failed to have Year 2000 compliant systems.
The Company has received assurances from nearly all of the major business
entities that it conducts business with that these entities will be able to
conduct business beyond January 1, 2000, without any disruption. The Company
continues to provide status information of its Year 2000 compliance effort to
its customers and assures its customers that the Company's IT infrastructure
will continue to function properly beyond January 1, 2000.

The Company has spent approximately $4.8 million to assess and correct Year
2000 compliance issues in its IT infrastructure through December 26, 1998. The
Company estimates that it will spend an additional $1.6 million to complete
the remediation of Year 2000 compliance issues in its IT infrastructure. The
Company is committed to allocate funds to remediate any other Year 2000
compliance issues in the course of its ongoing assessment of its IT
infrastructure. Year 2000 compliance costs are not expected to have a material
effect on the Company's results of operations.

The Company does not expect to have any material risk exposure emanating from
its internal IT infrastructure. While it is not expected to occur, failure of
the Company's suppliers and key customers to address Year 2000 compliance
could have a material adverse impact on the Company's operations. In
particular, failure of the Company's energy and telecommunication suppliers to
address Year 2000 compliance could have a material adverse impact on the
Company's operations. The Company is continuing to assess its efforts to
mitigate any potential risk associated with Year 2000 compliance including
development of contingency plans.

New Accounting Standards

In June, 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 130 "Reporting Comprehensive Income" and Statement No. 131
"Disclosure about Segments of an Enterprise and Related Information." The
Company has adopted these standards in 1998.

In February, 1998, the FASB issued Statement No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits" and in June 1998 issued
Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities." The Company has adopted Statement No. 132 in 1998 and will adopt
Statement No. 133 in the first quarter of 2000.

International Operations

The lower U.S. dollar exchange rate versus the international currencies in
which the Company operates accounted for a favorable adjustment of $5.4
million in the accumulated other comprehensive income account since year-end
1997. Changes in this account relating to foreign currency translation are
primarily a function of fluctuations in exchange rates and do not necessarily
reflect either enhancement or impairment of the net asset values or the
earnings potential of the Company's foreign operations. The net asset value of
foreign operations amounting to $229 million is not currently being hedged
with respect to translation in U.S. dollars.

The Company operates on a worldwide basis and exchange rate disruptions
between the United States and foreign currencies are not expected to have
a material effect on year-to-year comparisons of the Company's results of
operations. Cash deposits, borrowings and forward exchange contracts are used
periodically to hedge fluctuations between the U.S. and foreign currencies if
such fluctuations are earnings related. Such hedging activities are not
significant in total.

Environmental Matters

The Company is involved in claims, litigation, administrative proceedings and
investigations of various types in a number of jurisdictions. A number of such
matters involve claims for a material amount of damages and relate to or
allege environmental liabilities, including clean-up costs associated with
hazardous waste disposal sites, natural resource damages, property damage and
personal injury. The Company and some of its subsidiaries have been identified
by federal, state or local governmental agencies, and by other potentially
responsible parties (each a "PRP") under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or comparable
state statutes, as a PRP with respect to costs associated with waste disposal
sites at various locations in the United States. In addition, the Company is
involved with environmental remediation and compliance activities at some of
its current and former sites in the United States and abroad.

Each quarter, the Company evaluates and reviews estimates for future
remediation and other costs to determine appropriate environmental reserve
amounts. For each site a determination is made of the specific measures that
are believed to be required to remediate the site, the estimated total cost to
carry out the remediation plan, the portion of the total remediation costs to
be borne by the Company and the anticipated time frame over which payments
toward the remediation plan will occur. As of December 26, 1998, the Company's
reserves for environmental remediation activities totaled $94 million. It is
reasonably possible that the Company's estimates for environmental remediation
liabilities may change in the future should additional sites be identified,
further remediation measures be required or undertaken, the interpretation of
current laws and regulations be modified or additional environmental laws and
regulations be enacted.

The Company intends to assert all meritorious legal defenses and all other
equitable factors which are available to it with respect to the above matters.
The Company believes that the resolution of these environmental matters will
not have a material adverse effect on the consolidated financial position of
the Company. While the Company believes it is unlikely, the resolution of
these environmental matters could have a material adverse effect on the
Company's consolidated results of operations in any given year if a
significant number of these matters are resolved unfavorably.

Market Risk

The Company is exposed to potential losses arising from adverse changes in
foreign exchange and interest rates and, therefore, selectively uses
derivative instruments to manage its exposure to such market risks. The
Company does not enter into derivatives or other financial investments for
trading or speculative purposes. The Company enters into foreign exchange
contracts periodically to hedge currency fluctuations if such fluctuations are
earnings related. Gains and losses on foreign exchange contracts are reflected
in the statements of operations, and are offset by changes in the underlying
value of the hedged transactions. Such hedging activities are not significant
in total.

At December 26, 1998, the Company had an interest rate lock contract
("Interest Hedge") outstanding with a major financial institution for $230
million at a rate of 6.04%. The Interest Hedge expires on September 1, 2000.
The settlement amount will be based on the difference between the
rate of 6.04% and the 10 year Treasury rate at the expiration date. A
settlement of the fair market value of the Interest Hedge as of December 26,
1998, would require a payment of approximately $17 million.

The fair market value of long-term debt is subject to interest rate risk. The
Company's long-term debt amounted to $646.9 million at December 26, 1998. The
fair market value of such debt was $685.9 million, and with respect to notes,
has been determined based on quoted market prices.

Forward-Looking Statements

Certain statements made in this annual report are forward-looking statements
that involve risks and uncertainties. These statements are based on currently
available information and the Company's actual results may differ
significantly from the results discussed. Investors are cautioned that there
can be no assurance that the actual results will not differ materially from
those suggested in such forward-looking statements.

Operating Results - 1998 compared to 1997

Overview

Consolidated net sales decreased 3% to $1.80 billion from $1.85 billion in
1997. The decrease was primarily attributable to lower volume of 2% and lower
foreign currency translation of 1%. International sales, including U.S.
exports, increased slightly as a percentage of total sales to 40% from 39% in
1997.

Net earnings for 1998 were $161.8 million, or $2.20 per share basic and $2.14
per share diluted, compared to earnings of $86.8 million, or $1.18 per share
basic and $1.15 per share diluted, in 1997. Before after-tax special items (as
detailed on page 35), net earnings were $117.3 million, or $1.59 per share
basic and $1.55 per share diluted, compared with $92.1 million, or $1.25 per
share basic and $1.22 per share diluted, in 1997.

Gross margins as a percentage of net sales increased to 36.2% from 35.4% in
the prior year. The increase was primarily attributable to lower raw material
costs, improved pricing and product mix. Consolidated operating profit of
$218.3 million declined 3% from the prior year; however, excluding the impact
of special items, operating profit increased 3% to $259.9 million from $252.3
million in the prior year. Operating profit for the specialty chemicals
business declined 14% and for the polymers and polymer processing equipment
business increased 35%.

Specialty Chemicals

Specialty chemicals sales of $1.11 billion represent a decrease of 7% from
1997. Operating profit for specialty chemicals was $150.1 million compared to
$183 million in 1997. An analysis of sales and operating profit by reporting
segment follows.

Performance chemicals sales of $441.8 million decreased 6% versus 1997
primarily attributable to lower volume of 3%, lower pricing of 2% and lower
foreign currency translation of 1%. Rubber chemicals sales were 9% lower than
1997 primarily due to lower volume and pricing. Specialty additives sales
decreased 1% primarily due to lower pricing and foreign currency translation.
Performance chemicals operating profit of $50 million decreased 26% from 1997.
The decrease was primarily attributable to lower volume, unfavorable
manufacturing variances and an unfavorable product mix.

Crop protection sales of $348 million decreased 6% versus 1997 primarily due
equally to the deconsolidation of the Gustafson seed treatment business in
December 1998 and lower volume, particularly in the insecticide business.
Operating profit of $78.7 million increased 2% from 1997 primarily due to
lower operating costs and improved pricing and product mix.

Colors sales of $229.7 million decreased 11% versus 1997. The decrease was
primarily attributable to lower volume of 9% and lower pricing and foreign
currency translation of 1% each. The decrease in volume was primarily in
apparel dyes, which accounts for approximately 50% of the business. Operating
profit of $13.5 million decreased from $30.1 million in 1997. Excluding the
impact of special items, operating profit of $21.5 million decreased 29%
versus 1997. The decrease in operating profit was primarily due to lower
volume.

Other represents the specialty ingredients business which was sold effective
the first day of fiscal 1999. Sales of $89.6 million decreased 11% from 1997
while operating profit of $7.9 million increased 1%.

Polymers & Polymer Processing Equipment

Polymers & polymer processing equipment sales of $687 million represent an
increase of 5% from 1997. Operating profit of $123 million increased 35% from
1997. An analysis of sales and operating profit by reporting segment follows.

Polymers sales of $342.5 million were essentially unchanged from 1997 as
improved pricing of 4% was offset primarily by lower volume. EPDM sales
increased 6% from 1997 primarily due to improved pricing. Urethane and nitrile
rubber sales were lower by 3% and 9%, respectively, due primarily to lower
volume. Polymers operating profit of $77.4 million increased 40% from 1997
primarily attributable to improved pricing and lower raw material costs in the
EPDM business.

Polymer processing equipment sales of $344.5 million increased 11% from 1997
primarily due to higher volume. Operating profit of $45.6 million increased
27% from 1997 primarily due to increased volume and improved product mix. The
equipment order backlog totaled $118 million at the end of 1998 compared to
$106 million at the end of 1997.

Other

Selling, general and administrative expenses of $264.7 million decreased 2%
versus 1997, but as a percentage of sales remained essentially unchanged at
14.7%. Depreciation and amortization of $80.5 million increased 1% from 1997
primarily as a result of a higher fixed asset base. Research and development
costs of $52.8 million decreased 2% from 1997, but as a percentage of sales
remained constant at 2.9%.

Facility closure costs of $33.6 million represent primarily the write-off of
plant and equipment, severance and other costs related to the closure of the
Company's nitrile rubber facility in Painesville, Ohio.

Interest expense of $78.5 million decreased 24% from 1997 primarily due to
lower levels of indebtedness and lower interest cost on borrowings used to
redeem high cost debt in 1998. Other income of $158.9 million in 1998 includes
a gain in the amount of $153.4 million resulting from the sale of a 50%
interest in the Gustafson seed treatment business. Other income of $27.8
million in 1997 includes a gain of $28 million relating to a settlement with
the U.S. Department of the Army. The effective tax rate excluding the impact
of special items was 37.2% compared to 38.1% in 1997.

Operating Results - 1997 Compared to 1996

Overview

Consolidated net sales increased 3% to $1.85 billion from $1.80 billion in
1996. The increase was primarily attributable to increased volume of 5% offset
by lower foreign currency translation of 1% and lower pricing of 1%.
International sales, including U.S. exports, decreased slightly as a
percentage of total sales to 39% from 40% in 1996.

Net earnings before extraordinary losses on early extinguishment of debt
increased 43% to $92.1 million, or $1.25 per share basic and $1.22 per share
diluted, compared with $64.6 million, or $.90 per share basic and diluted, in
1996 before after-tax merger and special environmental costs. Net earnings
were $86.8 million, or $1.18 per share basic and $1.15 per share diluted,
compared to a net loss of $22.5 million, or $.31 per share basic and diluted,
in the prior year.

Gross margins as a percentage of net sales increased slightly to 35.4% from
35.1% in the prior year. Consolidated operating profit, before special charges
of $28 million in 1997 and $115 million in 1996, increased 15% to $252.3
million from $218.6 million in the prior year. Both segments contributed to
the increase in operating profit as specialty chemicals rose 8% and polymers &
polymer processing equipment increased 30%.

Specialty Chemicals

Specialty chemicals sales of $1.20 billion decreased 1% from 1996. Operating
profit for specialty chemicals of $183 million increased 8% from 1996. An
analysis of sales and operating profit by reporting segment follows.

Performance chemicals sales of $469.4 million decreased 2% versus 1996
primarily due to lower foreign currency translation of 2% and lower pricing of
4%, offset in part by higher volume of 4%. Rubber chemical sales were 5% lower
than the prior year primarily due to lower pricing. Specialty additives sales
increased 4% versus 1996 primarily attributable to higher volume. Performance
chemicals operating profit of $67.7 million increased 3% from 1996 primarily
as a result of lower operating costs and improved product mix.

Crop protection sales of $370.1 million increased 5% from 1996 primarily due
to higher volume particularly in the herbicides, insecticide and fungicide
businesses. Operating profit of $77.4 million increased 15% from 1996
primarily as a result of higher volume and improved pricing and product mix.

Colors sales of $257.6 million decreased 5% versus 1996. The decrease was
primarily attributable to lower foreign currency translation of 3% and lower
pricing of 2%. Colors operating profit of $30.1 million decreased 2% from
1996, primarily due to lower pricing.

Other represents the specialty ingredients business which was sold effective
the first day of fiscal 1999. Sales of $100.2 million decreased 4% from 1996,
while operating profit of $7.8 million increased 30%.

Polymers & Polymer Processing Equipment

Polymers & polymer processing equipment sales of $653.8 million represent an
increase of 9% from 1996. Operating profit of $91.4 million increased 30%
compared to 1996. An analysis of sales and operating profit by reporting 
segment follows.

Polymers sales of $342.1 million increased 9% from 1996 primarily due to
higher volume in the EPDM, urethane and nitrile rubber businesses. Polymers
operating profit of $55.5 million increased 19% from 1996 primarily
attributable to volume growth and improved product mix.

Polymers processing equipment sales of $311.7 million increased 9% from 1996.
The increase was due primarily to increased volume of 12% offset primarily by
lower foreign currency translation of 3%. Operating profit of $35.9 million
increased 54% from 1996 primarily as a result of volume growth, cost
reductions and improved product mix. The equipment order backlog totaled $106
million at the end of 1997 compared to $92 million at the end of 1996.

Other

Selling, general and administrative expenses of $269.4 million decreased 4%
versus 1996 primarily due to planned cost reductions and lower foreign
currency translation. Depreciation and amortization of $79.9 million decreased
3% from 1996 as a result of certain assets becoming fully depreciated and
amortized. Research and development costs of $53.6 million increased 2% from
1996, but as a percentage of sales remained constant at 2.9%.

Severance and other costs of $13 million includes severance costs relating to
planned workforce reductions and other costs relating primarily to certain
product liability claims and costs associated with the implementation of SAP
software. The special environmental charge of $15 million reflects the
Company's current estimate of additional requirements for future remediation
costs.

Interest expense of $103.3 million decreased 10% from 1996 primarily due to
lower levels of indebtedness. Other income of $27.8 million includes a gain in
the amount of $28 million relating to a settlement with the U.S. Department of
the Army. The effective tax rate of 38.1% compares to 38.9% in the prior year
after adjusting for the after-tax impact of merger and special environmental
costs in 1996.



Consolidated Statements of Operations

Fiscal years ended 1998, 1997 and 1996

(In thousands of dollars, except per share data)  1998       1997       1996

Net Sales                                    $1,796,119 $1,851,180 $1,803,969

Costs and Expenses
Cost of products sold                         1,146,200  1,196,030  1,170,586
Selling, general and administrative             264,710    269,405    279,812
Depreciation and amortization                    80,536     79,856     82,597
Research and development                         52,775     53,611     52,359
Facility closure costs                           33,600          -          -
Severance and other costs                             -     13,000          -
Special environmental charge                          -     15,000     30,000
Merger and related costs                              -          -     85,000

Operating Profit                                218,298    224,278    103,615
Interest expense                                 78,520    103,349    114,244
Other income                                   (158,938)   (27,817)    (1,285)

Earnings
Earnings (loss) before income taxes and
extraordinary loss                              298,716    148,746     (9,344)
Income taxes                                    115,493     56,675     12,710
Earnings (loss) before extraordinary loss       183,223     92,071    (22,054)
Extraordinary loss on early extinguishment
  of debt                                       (21,468)    (5,242)      (441)
Net earnings (loss)                          $  161,755  $  86,829 $  (22,495)

Basic Earnings (Loss) Per Common Share
Earnings (loss) before extraordinary loss    $     2.48  $    1.25 $     (.31)
Extraordinary loss                                 (.28)      (.07)         -
Net earnings (loss)                          $     2.20  $    1.18 $     (.31)

Diluted Earnings (Loss) Per Common Share
Earnings (loss) before extraordinary loss    $     2.42  $    1.22 $     (.31)
Extraordinary loss                                 (.28)      (.07)         -
Net earnings (loss)                          $     2.14  $    1.15 $     (.31)

See accompanying notes to consolidated financial statements . Crompton &
Knowles Corporation and Subsidiaries  


Consolidated Balance Sheets

Fiscal years ended 1998 and 1997

(In thousands of dollars, except per share data)              1998        1997

Assets

Current Assets

Cash                                                    $   12,104  $   10,607
Accounts receivable                                        173,668     262,412
Inventories                                                334,562     356,716
Other current assets                                        77,422      85,314
  Total current assets                                     597,756     715,049

Non-Current Assets

Property, plant and equipment                              473,403     474,892
Cost in excess of acquired net assets                      166,184     181,025
Other assets                                               171,550     177,854

                                                        $1,408,893  $1,548,820

Liabilities and Stockholders' Equity (Deficit)

Current Liabilities

Notes payable                                           $   17,305  $    1,770
Accounts payable                                           117,338     145,405
Accrued expenses                                           139,401     149,910
Income taxes payable                                       103,179      38,909
Other current liabilities                                   17,149      27,094
  Total current liabilities                                394,372     363,088

Non-Current Liabilities

Long-term debt                                             646,857     896,291
Postretirement health care liabiliy                        142,727     149,344
Other liabilities                                          158,234     160,187

Stockholders' Equity (Deficit)

Common stock, $.10 par value - issued 77,332,751 shares      7,733       7,733
Additional paid-in capital                                 238,615     232,213
Accumulated deficit                                        (15,985)  (174,019)
Accumulated other comprehensive income                     (37,571)   (44,805)
Treasury stock at cost                                    (125,246)   (40,228)
Deferred compensation                                         (843)      (984)
  Total stockholders' equity (deficit)                      66,703    (20,090)

                                                        $1,408,893  $1,548,820

See accompanying notes to consolidated financial statements . Crompton &
Knowles Corporation and Subsidiaries  


Consolidated Statements of Cash Flows

Fiscal years ended 1998, 1997 and 1996

Increase (decrease) to cash (in thousands of dollars)
                                                   1998       1997       1996

Cash Flows from Operating Activities

  Net earnings (loss)                        $  161,755  $  86,829 $  (22,495)
  Adjustments to reconcile net earnings (loss)
  to net cash provided by operations:
    Gustafson joint venture gain               (153,429)         -          -
    Facility closure costs                       33,600          -          -
    Extraordinary loss on early debt
      extinguishment                             21,468      5,242        441
    Depreciation and amortization                80,536     79,856     82,597
    Noncash interest                              4,819     14,289     16,082
    Deferred taxes                               (5,366)    18,184    (16,383)
    Changes in assets and liabilities:
    Accounts receivable                             497     (2,997)    (9,675)
    Inventories                                   7,314     (3,960)    (7,033)
    Other current assets                        (11,508)     5,688       (614)
    Other assets                                  3,358      2,165       (169)
    Accounts payable and accrued expenses       (32,188)     8,573     22,548
    Income taxes payable                         79,568     13,055      3,249
    Other current liabilities                   (10,562)     7,244      2,066
    Postretirement health care liability         (3,727)   (32,460)    (2,653)
    Other liabilities                            (7,161)    12,306     27,106
    Other                                           548      1,773        286
  Net cash provided by operations               169,522    215,787     95,353

Cash Flows from Investing Activities

  Proceeds from Gustafson joint venture         180,000          -          -
  Capital expenditures                          (66,628)   (50,176)   (39,204)
  Acquisitions                                   (5,927)         -    (15,713)
  Other investing activities                     (3,790)     5,569      2,689
  Net cash provided (used) by investing
    activities                                  103,655    (44,607)   (52,228)

Cash Flows from Financing Activities

  Payments on long-term notes                  (460,034)   (76,860)   (19,417)
  Proceeds (payments) on credit agreement
     borrowings                                 199,894    (91,529)    75,740
  Proceeds (payments) on short-term borrowings   15,535     (5,903)  (100,434)
  Proceeds from sale of accounts receivable      80,000          -          -
  Premium paid on early extinguishment of debt  (22,984)    (7,065)      (338)
  Treasury stock acquired                       (94,974)         -          -
  Dividends paid                                 (3,721)    (3,671)   (12,967)
  Proceeds from sale of common stock                  -          -     14,150
  Other financing activities                     14,425      4,240      4,873
  Net cash used by financing activities        (271,859)  (180,788)   (38,393)

Cash

  Effect of exchange rates on cash                  179       (905)      (573)
  Change in cash                                  1,497    (10,513)     4,159
  Cash adjustment to conform fiscal year of Uniroyal  -          -    (13,476)
  Cash at beginning of period                    10,607     21,120     30,437
  Cash at end of period                      $   12,104  $  10,607  $  21,120

See accompanying notes to consolidated financial statements . Crompton &
Knowles Corporation and Subsidiaries  



Consolidated Statements of Stockholders' Equity (Deficit)

Fiscal years ended 1998, 1997 and 1996

                                       Accumulated
                  Additional           Other
          Common  Paid-in  Accumulated Comprehensive Treasury   Deferred
          Stock   Capital  Deficit     Income        Stock  Compensation Total

(In thousands of dollars, except per share data) 

Balance, December 30, 1995
          $7,676  $227,433 $(213,347)  $(15,785)  $(62,972) $(2,190) $(59,185)

Comprehensive income:
 Net loss                    (22,495)                                 (22,495)
 Equity adjustment for 
   translation of foreign currencies    (13,424)                      (13,424)
 Equity adjustment for 
   pension liability (tax of $57)           (96)                          (96)
 Total comprehensive income                                           (36,015)
Adjustment to conform 
  fiscal year of Uniroyal                (8,368)                       (8,368)
Cash dividends ($.27 per share)         (12,967)                      (12,967)
Stock options, warrants and other 
  issuances (535,892 shares) 
              48     5,062                             254              5,364
Sale of 1,000,000 common shares 
                      (485)                         14,635             14,150

Amortization of deferred compensation                  603                603

Balance, December 28, 1996
           7,724   232,010  (257,177)   (29,305)   (48,083)  (1,587)  (96,418)

Comprehensive income:
 Net earnings                 86,829                                   86,829
 Equity adjustment for 
   translation of foreign currencies    (16,453)                      (16,453)
 Equity adjustment for 
   pension liability (tax of ($566))        953                           953
 Total comprehensive income                                            71,329
Cash dividends ($.05 per share)          (3,671)                       (3,671)
Stock options, warrants and other
  issuances (668,552 shares)
               9       203                           7,855              8,067
Amortization of deferred compensation                           603       603
Balance, December 27, 1997
           7,733   232,213  (174,019)   (44,805)   (40,228)    (984)  (20,090)
Comprehensive income:
 Net earnings                161,755                                  161,755
 Equity adjustment for translation
   of foreign currencies                             5,427              5,427
 Equity adjustment for 
   pension liability (tax of ($1,073))               1,807              1,807
  Total comprehensive income                                          168,989
Cash dividends ($.05 per share)
                              (3,721)                                  (3,721)
Stock options, warrants
   and other issuances (1,130,258 shares)
                     6,402                           9,956             16,358
Treasury stock acquired (5,368,600 shares)         (94,974)           (94,974)
Amortization of deferred compensation                  141                141
Balance, December 26, 1998
          $7,733  $238,615  $(15,985)  $(37,571) $(125,246)  $ (843) $ 66,703


See accompanying notes to consolidated financial statements . Crompton &
Knowles Corporation and Subsidiaries  


Notes to Consolidated Financial Statements

Accounting Policies

Business Combination

On August 21, 1996, the Company merged (the "Merger") with Uniroyal Chemical
Corporation ("UCC") in a common stock transaction that was accounted for on a
pooling-of-interests basis with UCC becoming a wholly-owned subsidiary of the
Company. In December 1998, UCC was merged into its wholly-owned subsidiary,
Uniroyal Chemical Company, Inc. ("Uniroyal") with Uniroyal being the surviving
corporation. All information has been restated to reflect the combined
operations of both companies. The consolidated financial statements reflect
results for the twelve month periods ended December 26, 1998, December 27,
1997 and December 28, 1996, respectively.

In connection with the merger with Uniroyal, the Company incurred $85 million
of merger and related costs. The components of these costs comprise
principally severance and other personnel costs of $37.6 million, investment
banking fees of $12.5 million, legal fees of $9.7 million, debt related fees
of $8.3 million, facility  consolidation costs of $6.4 million and other costs
of $10.5 million. As of December 26, 1998 these accruals were fully realized.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of all
majority-owned subsidiaries. Other affiliates in which the Company has a 20%
to 50% ownership are accounted for in accordance with the equity method. All
significant intercompany balances and transactions have been eliminated in
consolidation. The Company's fiscal year ends on the last Saturday in
December.

The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles which requires the Company to make
estimates and assumptions that affect the amounts and disclosures reported in
the financial statements and accompanying notes. Actual results could differ
from these estimates.

Inventory Valuation

Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) basis.

Property, Plant and Equipment

Property, plant and equipment are carried at cost, less accumulated
depreciation. Depreciation expense ($59.4 million in 1998, $58.7 million in
1997 and $59.2 million in 1996) is computed generally on the straight-line
method using the following ranges of asset lives: buildings and improvements:
10 to 40 years, machinery and equipment: 3 to 25 years, and furniture and
fixtures: 3 to 10 years.

Renewals and improvements which extend the useful lives of the assets are 
capitalized. Capitalized leased assets and leasehold improvements are
depreciated over their useful lives or the remaining lease term, whichever is
shorter. Expenditures for maintenance and repairs are charged to expense as
incurred.

Long-Lived Assets

The Company evaluates the recoverability of the carrying value of long-lived
assets of each of its businesses by assessing whether the projected cash flows
of each of its businesses is sufficient to recover the existing unamortized
cost of these assets. On this basis, if the Company determines that any assets
have been permanently impaired, the amount of the impaired assets is written-
off against earnings in the quarter in which the impairment is determined.

Intangible Assets

The excess cost over the fair value of net assets of businesses acquired is
being amortized on a straight-line basis over 20 to 40 years. Accumulated
amortization was $44.6 million and $42.2 million in 1998 and 1997,
respectively.

Patents, unpatented technology, trademarks and other intangibles of $59
million in 1998 and $79.1 million in 1997, included in other assets, are being
amortized principally on a straight-line basis over their estimated useful
lives ranging from 6 to 20 years. Accumulated amortization was $120.9 million
and $123.3 million in 1998 and 1997, respectively.

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.

Translation of Foreign Currencies

Balance sheet accounts denominated in foreign currencies are translated
generally at the current rate of exchange as of the balance sheet date, while
revenues and expenses are translated at average rates of exchange during the
periods presented. The cumulative foreign currency adjustments resulting from
such translation are included in the accumulated other comprehensive income
account in the stockholders' equity (deficit) section of the consolidated
balance sheets. For foreign subsidiaries operating in highly inflationary
economies, monetary balance sheet accounts and related revenue and expenses
are translated at current rates of exchange while non-monetary balance sheet
accounts and related revenues and expenses are translated at historical
exchange rates. The resulting translation gains and losses related to those
countries are reflected in operations and are not significant in any of the
years presented.

Research and Development

Research and development costs are expensed as incurred.

Income Taxes

A provision has not been made for U.S. income taxes which would be payable if
undistributed earnings of foreign subsidiaries of approximately $230 million
at December 26, 1998, were distributed to the Company in the form of
dividends, since certain foreign countries limit the extent of repatriation of
earnings, while for others, the Company's intention is to permanently
reinvest such foreign earnings. The determination of the amount of the
unrecognized deferred tax liability related to undistributed earnings is not
practicable.

Earnings Per Common Share

Effective in 1997, the Company adopted FASB Statement No. 128 "Earnings per
Share." Further information is provided in the footnote on earnings per common
share.

Comprehensive Income

Effective in the first quarter of 1998, the Company adopted FASB Statement No.
130 "Reporting Comprehensive Income." The Statement establishes standards for
reporting "Comprehensive Income" and its components in the consolidated
financial statements. The adoption of this statement had no impact on the
Company's net earnings (loss) or stockholders' equity (deficit). Statement No.
130 requires unrealized foreign currency translation adjustments and the
minimum pension liability adjustment, which prior to adoption were reported
separately in stockholders' equity (deficit), to be included in "Accumulated
Other Comprehensive Income." The balance of accumulated other comprehensive
income includes accumulated translation adjustments and minimum pension
liability in the amounts of $36,618 and $953 and $42,045 and $2,760 at
December 26, 1998 and December 27, 1997, respectively.

Stock-Based Compensation

Effective in 1996, the Company adopted FASB Statement No. 123 "Accounting and
Disclosure of Stock-Based Compensation." As permitted, the Company elected to
continue to follow the provisions of Accounting Principles Board No. 25
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for stock-based compensation plans. Further information is provided
in the footnote on Stock Incentive Plans.

Statements of Cash Flows


Cash includes bank term deposits of three months or less. Cash payments during
the fiscal years ended 1998, 1997 and 1996 included interest payments of
$79.5 million, $90.8 million and $100.1 million and income tax payments of
$33.5 million, $28.3 million and $28.7 million, respectively.

Other Disclosures

Included in accounts receivable are allowances for doubtful accounts in the
amount of $9.8 million in 1998 and $8.7 million in 1997. Included in other
current liabilities are customer deposits in the amount of $15.7 million
in 1998 and $25.1 million in 1997. Included in other liabilities are
environmental liabilities in the amount of $75.6 million in 1998 and $84.7
million in 1997.

In 1997, the Company incurred a $13 million charge related to severance ($6.9
million) and other non-recurring costs ($6.1 million). As of December 26,
1998, the balance to be realized in 1999 was not significant.

Joint Ventures, Acquisitions and Divestitures

In November 1998, the Company and Bayer Corporation formed a joint venture to
serve the agricultural seed treatment markets in North America. The basis of
the joint venture is the Company's Gustafson seed treatment business. The
Company received cash proceeds of $180 million in the transaction which
resulted in a fourth quarter pre-tax gain of $153.4 million. Also, in November
1998, the Company announced the formation of a joint venture with GIRSA, a
subsidiary of DESC, S.A. de C.V. to produce nitrile rubber products in Mexico.
The joint venture will result in the closure of the Company's existing nitrile
rubber facility in Painesville, Ohio. In connection with the facility closure,
the Company incurred a charge of $33.6 million summarized as follows:

(In thousands)                           Charge Realized    Balance
Write-off of long lived assets          $13,811  $13,811    $     -
Facility closure and maintenance costs   12,239        -     12,239
Severance and other costs                 7,550      778      6,772
                                        $33,600  $14,589    $19,011

During 1998, the Company acquired the extrusion business of Betol Machinery
for $5.9 million. During 1996, the Company acquired the extrusion business of
Klockner ER-WE-PA GmbH and the Hartig line of industrial blow molding systems
at an aggregate cost of $15.7 million. The acquisitions have been accounted
for using the purchase method and, accordingly, the acquired assets and
liabilities have been recorded at their fair values at the dates of
acquisition. The excess cost of purchase price over fair value of net assets
acquired, in the amount of $13.6 million, is being amortized from 20 to 40
years. The operating results of each acquisition are included in the
consolidated statement of operations from the dates of acquisition.

In January, 1999, the Company sold its specialty ingredients business to Chr.
Hansen Holding A/S of Denmark for $103 million. The pre-tax gain of
approximately $44 million will be recorded in the first quarter of 1999.

Accounts Receivable Program

In December 1998, the Company entered into a five year agreement to sell up to
$82 million of domestic accounts receivable to an agent bank. The program
reduces financing costs versus borrowings under the revolving credit agreement
and diversifies the Company's sources of financing. At December 26, 1998, $80
million of domestic accounts receivable had been sold under this agreement at
a cost of approximately 5.85%.

Inventories
(In thousands)                    1998     1997

Finished goods                $226,663 $226,730
Work in process                 45,237   47,029
Raw materials and supplies      62,662   82,957
                              $334,562 $356,716

Property, Plant and Equipment
(In thousands)                    1998     1997

Land and improvements         $ 30,380 $ 29,295
Buildings and improvements     155,578  159,734
Machinery and equipment        634,136  637,538
Furniture and fixtures          37,989   28,051
Construction in progress        50,000   36,892
                               908,083  891,510
Less accumulated depreciation  434,680  416,618
                              $473,403 $474,892

Leases

The future minimum rental payments under operating leases having initial or
remaining non-cancelable lease terms in excess of one year (as of December 26,
1998) total $100 million as follows: $11.3 million in 1999, $10.2 million in
2000, $8.6 million in 2001, $7.8 million in 2002, $6.4 million in 2003, and
$55.7 million in later years. Total rental expense for all operating leases
was $15.8 million in 1998, $16.8 million in 1997 and $16.6 million in 1996.

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.

Long-term Debt
(In thousands)                       1998     1997

9% Senior Notes Due 2000         $182,261 $226,623
10.5% Senior Notes Due 2002       173,128  235,998
11% Senior Subordinated Notes           -  228,675
12% Subordinated Discount Notes         -  113,586
Credit Agreement                  286,280   88,328
Other                               5,188    3,081
                                 $646,857 $896,291

9% Senior Notes

The 9% Senior Notes Due September 2000 are an obligation of Uniroyal and are
unsecured. Interest is payable semi-annually. The 9% Senior Notes are not
redeemable prior to maturity, except upon a change in control (as defined in
the related indenture) whereupon an offer shall be made to purchase the 9%
Senior Notes then outstanding at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest.

10.5% Senior Notes

The 10.5% Senior Notes Due February 2002 are an obligation of Uniroyal and are
unsecured. Interest is payable semi-annually. The 10.5% Senior Notes require
that upon a change in control (as defined in the related indentures), an offer
shall be made to purchase all of the notes at a purchase price equal to 101%
of the principal amount thereof, plus accrued and unpaid interest.

Debt Redemptions and Repurchases

During 1998, the Company redeemed the outstanding 11% Senior Subordinated
Notes at a price of 105.5% of the principal amount thereof and the 12%
Subordinated Discount Notes at a price of 100% of the principal amount
thereof. In addition, the Company repurchased in the open market $44.4 million
of 9% Senior Notes and $62.8 million of 10.5% Senior Notes. As a result of the
redemptions and repurchases, the Company recognized an extraordinary loss of
$21.5 million, net of tax benefit of $13.1 million.

During 1997, the Company repurchased in the open market $24 million of 9%
Senior Notes, $47.1 million of 10.5% Senior Notes, $3.5 million of 11% Senior
Subordinated Notes, and $2.5 million of 12% Subordinated Discount Notes. As a
result of the repurchases, the Company recognized an extraordinary loss of
$5.3 million, net of tax benefit of $3.5 million.

During 1996, the Company repurchased $17.2 million of 9% Senior Notes in the
open market and redeemed $2.2 million in connection with the Merger. As a
result of the repurchase, the Company recognized an extraordinary loss of $441
thousand, net of tax benefit of $293 thousand.

Credit Agreement

In 1998, the Company amended its revolving credit agreement with a syndicate
of banks. The termination date was extended to September 2003 from August
2001. Borrowings under the credit agreement are divided into three tranches
and were amended as follows: Tranche I provides a maximum of $329 million
available to the Company for working capital and general corporate purposes.
Tranche II provides a maximum of $66 million available to Uniroyal for working
capital and general corporate purposes. Tranche III provides up to $150
million of borrowings by the European and Canadian subsidiaries of the
Company. Borrowings may be denominated in U.S. dollars or the subsidiary's
local currency. As a result of the Accounts Receivable Program, the Company
was required to permanently reduce its available borrowings under the credit
agreement from $600 million to $545 million.

The credit agreement calls for interest based upon various options including a
spread (currently .5%) over LIBOR that varies according to certain debt ratios
for the trailing four fiscal quarters. In addition, the Company must pay a
commitment fee (currently .15%) on the total unused portion of the credit
agreement based upon certain debt ratios for the trailing four fiscal
quarters. At December 26, 1998, borrowings under the credit agreement
of $286.3 million bore a weighted average interest rate of 6.1%.

Debt Covenants

The Company's various debt agreements contain covenants which limit the
ability to incur additional debt, transfer funds between affiliated companies,
pay cash dividends or make certain other payments. In addition, the credit
agreement requires the Company to maintain certain financial ratios.

Maturities

In 1998, the scheduled maturities of long-term debt during the next five
fiscal years are:  1999 - none; 2000 - $185.6 million; 2001 - $0.5 million;
2002 - $173.6 million; and 2003 - $287.1 million.

Financial Instruments

At December 26, 1998, the Company had an interest rate lock contract
("Interest Hedge") outstanding with a major financial institution for $230
million at a rate of 6.04%. The Interest Hedge expires on September 1, 2000.
The settlement amount will be based  on the difference between the rate of
6.04% and the 10 year U.S. Treasury rate at the expiration date. A settlement
of the fair market value of the Interest Hedge as of December 26, 1998 would
require payment of approximately $17 million.

The carrying amounts for cash, accounts receivable, notes payable, accounts
payable and other current liabilities approximate their fair value because of
the short maturities of these instruments. The fair market values of
long-term debt were $685.9 million and $972.2 million in 1998 and 1997,
respectively, and with respect to the notes have been determined based on
quoted market prices.

Income Taxes

The components of earnings (loss) before income taxes and extraordinary loss,
and the provision for income taxes are as follows:

(In thousands)           1998      1997      1996

Pretax Earnings (Loss):
  Domestic           $207,595  $104,886  $(32,875)
  Foreign              91,121    43,860    23,531
                      298,716   148,746    (9,344)
Income Taxes:
  Domestic
    Current            95,386    22,506    15,576
    Deferred           (7,381)   16,989    (9,566)
                       88,005    39,495     6,010
  Foreign
    Current            25,473    15,985    13,517
    Deferred            2,015     1,195    (6,817)
                       27,488    17,180     6,700
  Total
    Current           120,859    38,491    29,093
    Deferred           (5,366)   18,184   (16,383)
                    $ 115,493  $ 56,675  $ 12,710

The provision (benefit) for income taxes differs from the Federal statutory
rate for the following reasons:

(In thousands)                             1998     1997     1996

Provision (benefit) at statutory rate  $104,551  $52,061  $(3,270)
Nondeductible merger and related costs       -        -    14,709
Impact of valuation allowance             3,598   (3,616)  (2,904)
Foreign dividends impact                      -      524    3,744
Goodwill amortization                     4,395    1,619    2,214
Foreign income tax rate differential     (5,686)     674   (2,168)
State income taxes, net of federal
  benefit                                 7,629    5,141     (601)
Other, net                                1,006      272      986
Actual provision for income taxes      $115,493  $56,675  $12,710


Provisions have been made for deferred taxes based on differences between
financial statement and tax bases of assets and liabilities using currently
enacted tax rates and regulations. The components of the net deferred tax
assets and liabilities are as follows

(In thousands)                                       1998      1997

Deferred tax assets:
  Pension and other postretirement               $ 81,398  $ 78,348
  Accruals for environmental remediation           28,992    31,886
  Other accruals                                   45,860    41,722
  NOL carryforwards                                15,774    22,363
  Inventories and other                            17,147    12,487
Deferred tax liabilities:
  Property, plant and equipment                   (65,771)  (71,557)
  Intangibles                                      (5,862)  (10,055)
  Other                                            (5,769)   (2,389)
Net deferred tax asset before valuation
  allowance                                       111,769  $102,805
Valuation allowance                               (16,064)  (12,466)

Net deferred tax asset after valuation allowance $ 95,705  $ 90,339

Net deferred taxes (in thousands) include $46,905 and $47,967 in current
assets and $48,800 and $42,372 in long-term assets in 1998 and 1997,
respectively.

As of December 26, 1998, the Company's foreign subsidiaries had aggregate NOL
carryforwards of $34 million which can be used to reduce future taxable income
in those countries. During 1998, the Company utilized its remaining $35
million of domestic NOL carryforwards.

Earnings Per Common Share

Effective in 1997, the Company adopted FASB Statement No. 128 "Earnings per
Share". The computation of basic earnings (loss) per common share is based on
the weighted average number of common shares outstanding. Diluted earnings per
share is based on the weighted average number of common and common equivalent
shares outstanding. The computation of diluted loss per share for fiscal year
1996 follows the basic calculation since common stock equivalents were
antidilutive.

(In thousands, except per share amounts)          1998     1997       1996

Earnings (loss) before extraordinary loss     $183,223  $ 92,071  $(22,054)
Net earnings (loss)                           $161,755  $ 86,829  $(22,495)

Basic

Weighted average shares outstanding             73,696    73,373    72,026
Earnings (loss) before extraordinary loss     $   2.48  $   1.25  $   (.31)
Net earnings (loss)                           $   2.20  $   1.18  $   (.31)

Diluted

Weighted average shares outstanding             73,696    73,373    72,026
Stock options, warrants and other equivalents    2,004     1,985         -
Weighted average shares adjusted for dilution   75,700    75,358    72,026
Earnings (loss) before extraordinary loss     $   2.42  $   1.22  $   (.31)
Net earnings (loss)                           $   2.14  $   1.15  $   (.31)

Capital Stock

The Company is authorized to issue 250,000,000 shares of common stock at a par
value of $.10. There were 77,332,751 shares issued in 1998 and 1997, of which
7,962,736 and 3,724,394 shares were held in the treasury in 1998 and 1997,
respectively.

In September 1998, the Board of Directors authorized a plan to repurchase 7.5
million shares of the Company's then outstanding common stock. As of December
26, 1998, the Company repurchased 5.4 million shares at a cost of $95 million.
In January 1999, the Board of Directors authorized an additional repurchase of
6.8 million shares.

The Company is authorized to issue 250,000 shares of preferred stock without
par value, none of which are outstanding. Preferred share purchase rights
("Rights") outstanding with respect to each share of the Company's common
stock entitle the holder to purchase one one-hundredth of a share of Series A
Junior Participating Preferred Stock at an exercise price of $800. The Rights
cannot become exercisable until ten days following a public announcement that
a person or group has acquired 20% or more of the common shares of the Company
or intends to make a tender or exchange offer which would result in their
ownership of 20% or more of the Company's common shares. The Rights also
entitle the holder under certain circumstances to receive shares in another
company which acquires the Company or merges with it.

Warrants

In connection with the Merger, the Company assumed warrants that had been
issued by Uniroyal to purchase up to 107,195 converted shares at an adjusted
exercise price of $1.04 per share. In 1998, the remaining 107,195 warrants
were exercised.

Stock Incentive Plans

The 1988 Long-Term Incentive Plan ("1988 Plan") authorized 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 through October 1998. Non-qualified and incentive stock
options were granted under the 1988 plan at prices not less than 100% of the
market value on the date of the grant. All outstanding options will expire not
more than ten years and one month from the date of grant. In conjunction with
shareholder approval of the Merger, the number of common shares covered under
the 1988 Plan was increased from 4 million to 10 million shares. The Company
will be seeking shareholder approval for an additional 3,000,000 shares under
a new Long-Term Incentive Plan similar to the 1988 Plan at the annual meeting
of shareholders on April 27, 1999.

The 1993 Stock Option Plan for Non-Employee Directors as amended in 1996
authorizes 200,000 shares to be optioned to non-employee directors at the rate
of twice their annual retainer divided by the stock price on the date of
grant. The options will vest over a two year period and be exercisable over a
ten year period from the date of grant, at a price equal to the fair market
value on the date of grant.

Under the 1988 Plan, 1,261,000 common shares have been transferred to an
independent trustee to administer restricted stock awards for the Company's
long-term incentive program. At December 26, 1998 deferred compensation
relating to such shares in the amount of $843 thousand is being amortized over
an estimated service period of six to fifteen years. In 1996, the Company
granted long-term incentive awards in the amount of 824,250 shares which were
earned at the end of 1998 based upon the achievement of certain financial
criteria. In 1999, the Company granted long-term incentive awards (contingent
upon shareholder approval of the new Long-Term Incentive Plan) in the amount
of 1,181,250 shares to be earned at the end of 2001 if certain financial
criteria are met. The 1998 earned shares and the 2001 shares, if earned, will
vest ratably at 25% per year with the final installment at retirement.
Compensation expense related to such shares is accrued over a six year period
based upon the level of incentive achievement.

Effective in 1996, the Company adopted the provisions of FASB Statement No.
123 "Accounting and Disclosure of Stock-Based Compensation." As permitted, the
Company elected to continue its present method of accounting for stock-based
compensation. Accordingly, compensation expense has not been recognized for
stock based compensation plans other than restricted stock awards under the
Company's long-term incentive programs. Had compensation cost for the
Company's stock option and long-term incentive awards been determined under
the fair value method, net earnings (loss) (in thousands) would have been
$158,641, $84,660, and $(24,098) for the years 1998, 1997 and 1996,
respectively. Net earnings (loss) per common share (basic) would have been
$2.15, $1.15, and $(.33) and net earnings (loss) per common share (diluted)
would have been $2.06, $1.11, and $(.33) for the years 1998, 1997 and 1996,
respectively. The fair value per share of long-term incentive awards granted
in 1996 was $13.88 and the average fair value per share of options granted was
$5.46 in 1998, $10.53 in 1997, and  $5.72 in 1996. The fair value of options
granted was estimated using the Black-Scholes option pricing model with the
following assumptions for 1998, 1997 and 1996, respectively: dividend yield
 .35%, .19%, and .34%, expected volatility 31%, 28%, and 30%, risk-free
interest rate 4.6%, 6.1%, and 6.5%, and expected life 6 years, 6 years and 5
years.

Changes during 1998, 1997 and 1996 in shares under option are summarized as
follows:    

                                 Price Per Share
                                  Range  Average      Shares
Outstanding at 12/30/95   $  2.47-23.75   $10.91   4,633,759
Granted                      9.14-16.88    15.11   2,178,022
Exercised                    4.01-18.19    10.19    (419,287)
Lapsed                       3.13-23.75     8.14    (120,519)
Outstanding at 12/28/96      2.47-23.75    12.47   6,271,975
Granted                     19.31-26.41    26.39     613,251
Exercised                    2.47-19.31     6.69    (667,733)
Lapsed                       9.31-19.31    14.62     (86,917)
Outstanding at 12/27/97      3.13-26.41    14.46   6,130,576
Granted                           14.34    14.34   1,077,112
Exercised                    3.13-19.31     9.74    (966,664)
Lapsed                      13.00-26.41    19.06     (34,543)
Outstanding at 12/26/98   $  3.13-26.41   $15.15   6,206,481
Exercisable at 12/28/96   $  2.47-23.75   $10.87   3,851,369
Exercisable at 12/27/97   $  3.13-23.75   $12.32   3,866,992
Exercisable at 12/26/98   $  3.13-26.41   $14.16   3,650,289

Shares available for grant at year-end 1998 and 1997 were 2,552,948 and
3,595,467, respectively.

The following table summarizes information concerning currently outstanding
and exercisable options:

                  Number  Weighted Avg. Weighted      Number   Weighted
Range of     Outstanding     Remaining   Average Exercisable    Average
Exercise       at end of   Contractual  Exercise   at end of   Exercise
Prices              1998          Life     Price        1998      Price

$  3.13-9.31     472,428      2.45       $ 6.43      472,428     $ 6.43
$11.75-13.57   1,264,576      4.85       $12.21    1,246,057     $12.20
$14.34-14.50   2,569,940      8.50       $14.43      610,828     $14.50
$14.63-22.78   1,292,969      5.81       $17.35    1,143,590     $17.41
$23.75-26.41     606,568      8.79       $26.39      177,386     $26.34
               6,206,481      6.76       $15.15    3,650,289     $14.16

The Company has an Employee Stock Ownership Plan that is offered to eligible
employees of the Company and certain of its subsidiaries. The Company makes
contributions equivalent to a stated percentage of employee contributions. The
Company's contributions were $2 million in 1998, 1997 and 1996.

Pension and Postretirement Health Care Liabilities

The Company has several defined benefit and defined contribution pension plans
which cover substantially all employees in the United States and Canada.
Pension  benefits for retired employees of the Company in other countries are
generally covered by government-sponsored plans. The defined benefit
plans provide retirement benefits based on the employees' years of service and
compensation during employment. The Company will make contributions to the
defined benefit plans at least equal to the minimum amounts required by law,
while contributions to the defined contribution plans are determined as a
percentage of each covered employees' salary.

The Company also provides health and life insurance benefits for certain
retired and active employees and their beneficiaries and covered dependents in
the U.S. and Canada. Postretirement benefits for retired employees in other
countries are generally covered by government-sponsored plans.

Effective in 1998, the Company adopted FASB Statement No. 132, "Employers'
Disclosures about Pension and Other Postretirement Benefits."

Pension cost-defined benefit
(In thousands)                         1998      1997      1996

Service cost                       $  7,635   $ 6,599  $  5,974
Interest cost                        16,044    15,171    13,135
Expected return on plan assets      (15,610)  (14,328)   (8,837)
Amortization of prior service cost      410       577      (843)
Amortization of unrecognized
   transition obligation                 58      (131)      (32)
Recognized actuarial gain                74       136       126
Curtailments                          2,570         -         -
Net cost                           $ 11,181   $ 8,024  $  9,523

Postretirement health care cost
(In thousands)                         1998      1997      1996
Service cost                        $ 1,256   $ 1,174  $  1,292
Interest cost                         9,958    10,298    10,134
Expected return on plan assets       (3,271)     (910)       10
Amortization of prior service cost   (6,196)   (6,148)   (5,483)
Recognized actuarial loss            (1,367)     (671)   (1,972)
Net cost                            $   380   $ 3,743  $  3,981

Benefit obligation         Pension (defined benefit)     Postretirement
(In thousands)                        1998     1997      1998     1997

Benefit obligation at 
  beginning of year               $244,364 $195,519  $154,829 $142,998
Service cost                         7,635    6,599     1,256    1,174
Interest cost                       16,044   15,171     9,958   10,298
Foreign currency exchange impact    (1,724)  (3,693)     (432)     368
Plan participants contributions        122      105        91      103
Amendments                               -    2,319      (238)       -
Curtailments                         1,526        -         -        -
Plan mergers                             -   15,414         -   10,875
Actuarial (gain)/loss               (2,649)  28,901    (5,374)    (446)
Benefits paid                      (13,520) (15,971)   (8,650) (10,541)
Benefit obligation at end of year $251,798 $244,364  $151,440 $154,829

Plan assets

Fair value of plan assets at
  beginning of year               $197,229 $140,272  $ 40,002 $  5,601
Actual return on plan assets        17,004   33,638     3,271      910
Government contributions                 -        -         -   31,371
Plan mergers                             -   28,015         -    4,761
Employer contributions               4,361   11,746     6,239    7,797
Foreign currency exchange impact    (1,949)    (576)        -        -
Plan participants contributions        122      105        91      103
Benefits paid                      (13,520) (15,971)   (8,650) (10,541)
Fair value of plan assets at
  end of year                     $203,247 $197,229  $ 40,953 $ 40,002
Unfunded status                   $ 48,551 $ 47,135  $110,487 $114,827

Components of unfunded status
                            Pension (defined benefit)      Postretirement
(In thousands)                        1998      1997      1998      1997

Unrecognized net (gain) loss      $  4,017  $  5,596  $ (2,379)  $ 2,253
Unrecognized prior service cost     (2,339)      891   (29,861)  (36,770)
Unrecognized net transition asset    1,257     1,315         -         -
Prepaid benefit cost                (1,597)   (1,872)        -         -
Accrued benefit liability           51,603    47,750   142,727   149,344
Intangible asset                    (3,437)   (3,785)        -         -
Equity adjustment to minimum
  Liability                           (953)   (2,760)        -         -
Net amount recognized             $ 48,551  $ 47,135  $110,487  $114,827

Postretirement health care costs are generally not pre-funded (except for
certain government-related plans) and are paid by the Company as incurred.

For plans with benefit obligations in excess of plan assets, the aggregate
benefit obligation was $229.2 million in 1998 and $218.7 million in 1997, and
the aggregate fair value of plan assets was $178.6 million in 1998 and $168.7
million in 1997.

The weighted-average discount rate used to calculate the projected benefit
obligation ranged from 5.75%-7% in 1998 and 6%-8% in 1997. The expected long-
term rate of return on plan assets ranged from 7.75%-9% in 1998 and from 7%-9%
in 1997. The assumed rate of compensation increase ranged from 2%-4% in 1998
and 2%-5.5% in 1997.

The assumed health care cost trend rate ranged from 9.31%-7.4% and is assumed
to decrease gradually to a range of 6.07%-5.5% in 2020 and remain level
thereafter. An increase in the assumed health care cost trend rate of 1% in
each year would increase the accumulated postretirement benefit obligation by
$7.8 million and $8.7 million, and would increase the service and interest
cost by $570 thousand and $604 thousand in 1998 and 1997, respectively. A
decrease in the assumed health care cost trend rate of 1% in each year would
decrease the accumulated postretirement benefit obligation by $8.7 million and
$9.9 million, and would decrease the service and interest cost by $662
thousand and $773 thousand in 1998 and 1997, respectively.

The Company's net cost for all pension plans, including defined contribution
plans, was $19 million, $15 million, and $17 million in 1998, 1997, and 1996,
respectively.

Contingencies

The Company is involved in claims, litigation, administrative proceedings and
investigations of various types in several jurisdictions.  A number of such
matters involve claims for a material amount of damages and relate to or
allege environmental liabilities, including clean-up costs associated with
hazardous waste disposal sites, natural resource damages, property damage and
personal injury. The Company and some of its subsidiaries have been identified
by federal, state or local governmental agencies, and by other potentially
responsible parties (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. The total amount accrued for such
environmental liabilities at December 26, 1998 was $94 million. The
Company estimates its potential environmental liability to range from $70
million to $129 million at December 26, 1998. It is reasonably possible that
the Company's estimates for environmental remediation liabilities may change
in the future should additional sites be identified, further remediation
measures be required or undertaken, the interpretation of current laws and
regulations be modified or additional environmental laws and regulations be
enacted.

On May 21, 1997, the United States District Court, Eastern District of
Arkansas, entered an order finding that Uniroyal Chemical Co./Cie. is jointly
and severally liable to the United States and Hercules and Uniroyal Chemical
Co./Cie. are liable to each other in contribution with respect to the
remediation of the Vertac Chemical Corporation site in Jacksonville, Arkansas.
On October 23, 1998, the Court entered an order granting the United States's
motion for summary judgment against Uniroyal Chemical Co./Cie and Hercules for
removal and remediation costs of $102.9 million at the Vertac site. Trial on
the allocation of these costs as between Uniroyal Chemical Co./Cie. and
Hercules has concluded and a decision is expected during the second quarter of
1999.

The Company intends to assert all meritorious legal defenses and all other
equitable factors which are available to it with respect to the above matters.
The Company believes that the resolution of these environmental matters will
not have a material adverse effect on its consolidated financial position.
While the Company believes it is unlikely, the resolution of these
environmental matters could have a material adverse effect on its consolidated
results of operations in any given year if a significant number of these
matters are resolved unfavorably.

Business Segment Data

Effective in 1998, the Company adopted FASB Statement No. 131 "Disclosures
about Segments of an Enterprise and Related Information" which established
revised standards for reporting information about operating segments. Pursuant
to Statement No. 131, the Company redefined its reporting segments into two
major business categories, "Specialty Chemicals" and "Polymers and Polymer
Processing Equipment." Specialty Chemicals includes reporting segments of
Performance Chemicals (rubber chemicals and specialty additives), Crop
Protection, Colors and Other (specialty ingredients). Polymers and Polymer
Processing Equipment includes reporting segments of Polymers (EPDM,
urethanes and nitrile rubber) and Polymer Processing Equipment (specialty
process equipment and controls).

The accounting policies of the operating segments are the same as those
described in the summary of accounting policies. The Company evaluates a
segment's performance based on several factors, of which a primary financial
measure is operating profit. In computing operating profit, the following
items have not been deducted: interest expense, other income and income taxes.
Corporate assets are principally cash and other assets maintained for general
corporate purposes. Inter-segment sales are not significant. The Company has
investments in unconsolidated affiliates in the Performance Chemicals segment
in the amount of $31.1 million, $20.9 million and $20.7 million in 1998, 1997
and 1996, respectively, and the Crop Protection segment in the amount of $11.9
million in 1998. A summary of business data for the Company's reportable
segments for the years 1998, 1997 and 1996 follows.

Information by Business Segment
(In thousands)                     1998        1997        1996

Sales

Specialty Chemicals
  Performance Chemicals      $  441,800  $  469,434  $  477,480
  Crop Protection               348,000     370,091     353,288
  Colors                        229,723     257,638     271,105
  Other                          89,589     100,190     104,384
                              1,109,112   1,197,353   1,206,257

Polymers & Polymer Processing Equipment
  Polymers                      342,527     342,154     312,836
  Polymer Processing Equipment  344,480     311,673     284,876
                                687,007     653,827     597,712
                             $1,796,119  $1,851,180  $1,803,969

Operating Profit

Specialty Chemicals
  Performance Chemicals      $   50,010  $   67,730  $   65,569
  Crop Protection                78,747      77,343      67,130
  Colors                         13,504      30,121      30,842
  Other                           7,863       7,798       5,997
                                150,124     182,992     169,538

Polymers & Polymer Processing Equipment
  Polymers                       77,414      55,485      46,811
  Polymer Processing Equipment   45,591      35,921      23,372
                                123,005      91,406      70,183
General corporate expenses      (21,231)    (22,120)    (21,106)
Special items                   (33,600)    (28,000)   (115,000)
                             $  218,298  $  224,278  $  103,615

Depreciation and Amortization

Specialty Chemicals
  Performance Chemicals      $   26,437  $   26,116  $   28,678
  Crop Protection                20,844      20,478      22,483
  Colors                          8,865       8,943       8,645
  Other                           2,574       2,782       2,651
                                 58,720      58,319      62,457

Polymers & Polymer Processing Equipment

  Polymers                       16,887      17,186      15,613
  Polymer Processing Equipment    4,739       4,163       4,342
                                 21,626      21,349      19,955
  Corporate                         190         188         185
                             $   80,536  $   79,856  $   82,597

 (In thousands)                    1998        1997        1996
Segment Assets

Specialty Chemicals
  Performance Chemicals      $  434,095  $  455,231  $  473,576
  Crop Protection               293,334     343,497     374,442
  Colors                        216,969     230,691     235,069
  Other                          64,966      67,176      68,175
                              1,009,364   1,096,595   1,151,262

Polymers & Polymer Processing Equipment
  Polymers                      215,476     244,562     264,274
  Polymer Processing Equipment  165,009     188,694     196,372
                                380,485     433,256     460,646
Corporate                        19,044      18,969      45,282
                             $1,408,893  $1,548,820  $1,657,190

Capital Expenditures

Specialty Chemicals
  Performance Chemicals      $   23,243  $   18,867  $   15,610
  Crop Protection                10,234       8,696       4,291
  Colors                          9,873       9,384       8,368
  Other                           2,180       1,722       1,282
                                 45,530      38,669      29,551

Polymers & Polymer Processing Equipment
  Polymers                       15,937       8,708       7,811
  Polymer Processing Equipment    4,733       2,676       1,807
                                 20,670      11,384       9,618

Corporate                           428         123          35
                             $   66,628  $   50,176  $   39,204

Geographic Information

Sales are attributed based on location of customer.
(In thousands)                     1998        1997        1996

Sales

United States                $1,077,190  $1,125,121  $1,077,968
Canada                          106,230     107,386     100,379
Latin America                   133,870     116,734     106,795
Europe/Africa                   359,760     348,294     355,549
Asia/Pacific                    119,069     153,645     163,278
                             $1,796,119  $1,851,180  $1,803,969

Property, plant and equipment
United States                $  360,241  $  374,395  $  386,023
Canada                           22,158      21,040      22,775
Latin America                     7,213       6,016       4,918
Europe/Africa                    71,168      62,180      71,215
Asia/Pacific                     12,623      11,261      13,048
                             $  473,403  $  474,892  $  497,979

Summarized Unaudited Quarterly Financial Data
(In thousands, except per share data)                   1998

                                        First    Second     Third    Fourth
Net sales                            $477,219  $474,337  $442,768  $401,795
Gross profit                          174,754   182,246   163,168   129,751
Earnings before extraordinary loss     31,943    39,795    30,592    80,893
Net earnings                           29,992    25,952    24,918    80,893
Earnings per common share
   before extraordinary loss:   
    Basic                                 .43       .53       .41      1.13
    Diluted                               .42       .52       .40      1.11
Net earnings per common share:
    Basic                                 .40       .35       .34      1.13
    Diluted                               .39       .34       .33      1.11
Common dividends per share                  -       .05         -         -
Market price per common share:
    High                              31 1/16  32 13/16    26 7/8   21 9/16
    Low                               25 7/16        23    13 3/8    13 1/4

The sum of earnings per common share for the four quarters do not equal the
total earnings per common share for 1998 due to changes in the average number
of shares outstanding.

(In thousands, except per share data)                   1997

                                        First    Second     Third    Fourth

Net sales                            $473,873  $494,142  $455,076  $428,089
Gross profit                          169,501   181,504   167,450   136,695
Earnings before extraordinary loss     26,611    31,768    24,822     8,870
Net earnings                           26,611    30,541    22,940     6,737
Earnings per common share
 before extraordinary loss:   
    Basic                                 .36       .44       .33       .12
    Diluted                               .35       .43       .32       .12
Net earnings per common share:
    Basic                                 .36       .42       .31       .09
    Diluted                               .35       .41       .30       .09
Common dividends per share                  -       .05         -         -
Market price per common share:
    High                               23 1/4    24 3/4    27 1/8    27 3/8
    Low                                17 7/8    18 1/2    22 1/8    23 3/8



Responsibility for Financial Statements

The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles and have been audited by KPMG 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 LLP.

Independent Auditors' Report

The Board of Directors and Stockholders
Crompton & Knowles Corporation

We have audited the accompanying consolidated balance sheets of Crompton &
Knowles Corporation and subsidiaries (the Company) as of December 26, 1998 and
December 27, 1997, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the years in the
three-year period ended December 26, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as of December 26, 1998 and December 27, 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 26, 1998, in conformity with generally accepted
accounting principles.


/s/KPMG LLP


Stamford, Connecticut
January 27, 1999



Seven Year Selected Financial Data
(In millions of dollars, except per share data)

                       1998     1997    1996    1995    1994    1993    1992

Summary of Operations

Net sales             $1,796.1 1,851.2 1,804.0 1,744.8 1,536.2 1,466.2 1,374.3
Cost of products sold $1,146.2 1,196.0 1,170.6 1,126.2   972.9   926.3   859.1
Selling, general and 
  administrative      $  264.7   269.4   279.8   270.3   240.1   220.5   207.3
Depreciation and 
  amortization        $   80.5    79.9    82.6    80.1    86.1    89.9    89.2
Research and 
  development         $   52.8    53.6    52.4    50.1    44.7    42.1    41.1
Facility closure costs $  33.6       -       -       -       -       -       -
Severance and other 
  costs               $      -    13.0       -       -       -       -       -
Special environmental 
  charge              $      -    15.0    30.0       -       -       -       -
Merger and related 
  costs               $      -       -    85.0       -       -       -       -
Write-off of 
  intangibles         $      -       -       -       -   191.0       -       -
Operating profit      $   218.3  224.3   103.6   218.1     1.4   187.4   177.6
Interest expense      $    78.5  103.3   114.2   122.4   130.7   121.7   132.4
Other expense (income) $ (158.9) (27.8)   (1.3)   (2.7)   (4.4)    1.5     6.7
Earnings (loss) before income 
  taxes, extraordinary loss and 
  cumulative effect of accounting
  changes             $   298.7  148.8    (9.3)   98.4  (124.9)   64.2    38.5
Provision (benefit) for 
  income taxes        $   115.4   56.7    12.7   (41.5)   38.0    37.0    23.0
Earnings (loss) before 
  extraordinary loss and
  cumulative effect of 
  accounting changes  $   183.3   92.1   (22.0)  139.9  (162.9)   27.2    15.5
Extraordinary loss    $   (21.5)  (5.3)    (.5)   (8.3)      -  (100.1)  (3.0)
Cumulative effect of 
  accounting changes  $       -      -       -       -       -  (111.9)  (5.8)
Net earnings (loss)   $   161.8   86.8   (22.5)  131.6  (162.9) (184.8)    6.7
Special items, net of tax (included above):
  Seed treatment gain  $   92.1      -       -       -       -       -       -
  Facility closure 
    costs             $   (21.1)     -       -       -       -       -       -
  Severance and other 
    costs             $       -   (7.8)      -       -       -       -       -
  Special environmental 
    charge            $       -   (9.0)  (18.5)      -       -       -       -
  Postretirement settlement 
    gain              $       -   16.8       -       -       -       -       -
  Merger and related 
    costs             $       -      -   (68.1)      -       -       -       -
  Early extinguishment of 
    debt              $   (21.5)  (5.3)    (.5)   (8.3)      -  (100.1)  (3.0)
  Change in deferred tax 
    valuation allowance $     -      -       -    78.9   (34.9)      -       -
  Write-off of 
    intangibles       $       -      -       -       -  (162.5)      -       -
  Cumulative effect of 
    accounting changes $      -      -       -       -       -  (111.9)  (5.8)
  Other               $    (5.0)     -       -     4.4       -       -       -
Total special items   $    44.5   (5.3)  (87.1)   75.0  (197.4) (212.0)  (8.8)

Per Share Statistics

Basic
  Earnings (loss) before 
    extraordinary loss and 
    cumulative effect of 
    accounting changes $   2.48    1.25   (.31)   2.13   (2.67)    .44     .26
  Net earnings (loss)  $   2.20    1.18   (.31)   2.01   (2.67)  (2.98)    .11
Diluted
  Earnings (loss) before 
    extraordinary loss and 
    cumulative effect of 
    accounting changes $   2.42    1.22   (.31)   2.11   (2.67)    .44     .25
  Net earnings (loss)  $   2.14    1.15   (.31)   1.99   (2.67)  (2.98)    .11
Dividends              $    .05     .05    .27     .52     .46     .38     .31
Book value             $    .32    (.27) (1.32)   (.83)  (5.15)  (1.17)   2.37
Common stock trading range:
    High               32 13/16  27 3/8 20 1/8      20  24 1/8  27 1/4  23 7/8
    Low                  13 1/4  17 7/8     13      12  13 7/8  17 5/8      16
Average shares outstanding (thousands) 
    - Basic              73,696  73,373 72,026  65,572  60,908  61,941  59,430
Average shares outstanding (thousands) 
    - Diluted            75,700  75,358 72,026  66,269  60,908  61,941  61,067

Financial Position

Current assets        $  597.8   715.0   742.2   697.0   696.9   582.7   537.5
Non-current assets    $  811.1   833.8   915.0   958.8   791.4 1,006.0 1,021.3
Total assets          $1,408.9 1,548.8 1,657.2 1,655.8 1,488.3 1,588.7 1,558.8
Current liabilities   $  394.4   363.1   357.5   420.6   361.6   285.4   285.0
Long-term debt        $  646.9   896.3 1,055.0   974.2 1,102.2 1,048.8   904.3
Other liabilities     $  300.9   309.5   341.1   320.2   327.8   326.4   223.1
Stockholders' equity 
  (deficit)           $   66.7   (20.1)  (96.4)  (59.2) (303.3)  (71.9)  146.4
Current ratio              1.5     2.0     2.1     1.7     1.9     2.0     1.9
Total capital         $  730.9   878.0   967.9 1,020.1   866.1   994.1 1,057.8
Total debt-to-capital %   90.9   102.3   110.0   105.8   135.0   107.2    86.2

Profitability Statistics (Before Special Items)

% Operating profit on 
  sales                   14.5    13.6    12.1    12.2    12.5    12.8    12.9
% Earnings on sales        6.5     5.0     3.6     3.2     2.2     1.9     1.1
% Earnings on average total 
  capital                 18.6    16.5    12.8    14.2    11.2     8.3     8.8

Other Statistics

Net cash provided by 
  operations          $  169.5   215.8    95.4   106.3    96.7    97.3   112.1
Capital spending      $   66.6    50.2    39.2    87.7    52.1    60.4    47.3
Depreciation          $   59.4    58.7    59.2    57.4    56.3    53.0    52.3
Sales per employee    $   .324    .332    .315    .309    .293    .289    .277



corporate management

(Photos of each)

Vincent A. Calarco  
Chairman, President and Chief Executive Officer

Robert W. Ackley
Vice President
Polymer Processing Equipment

James J. Conway
Vice President
Colors

Joseph B. Eisenberg
Vice President
Rubber Chemicals, EPDM and Nitrile Rubber

Alfred F. Ingulli
Vice President
Crop Protection

Walter K. Ruck
Vice President
Uniroyal Operations

William A. Stephenson
Vice President
Specialty Additives and Urethanes

Charles J. Marsden
Senior Vice President and Chief Financial Officer

Peter Barna
Vice President 
Finance

John T. Ferguson II
Vice President
General Counsel and Secretary

Marvin H. Happel
Vice President
Organization and Administration

Other corporate officers:
(not pictured)

John R. Jepsen
Treasurer

Michael F. Vagnini
Controller



board of directors

James A. Bitonti  (2,3)
Chairman and Chief Executive Officer
BITCO International, Inc.

Vincent A. Calarco  (4)
Chairman of the Board
President and Chief Executive Officer

Robert A. Fox  (2,3)
President and Chief Executive Officer
Foster Farms

Roger L. Headrick  (3,4)
Managing General Partner
HMCH Ventures

Leo I. Higdon, Jr.  (1,4)
President
Babson College

Charles J. Marsden
Senior Vice President and Chief Financial Officer

C.A. Piccolo  (1,2)
President and Chief Executive Officer
HealthPic Consultants, Inc.

Patricia K. Woolf Ph.D.  (1,2)
Private Investor and Lecturer
Department of Molecular Biology
Princeton University


1  Member of Audit Committee
2  Member of Nominating Committee
3  Member of Committee on Executive Compensation
4  Member of Finance Committee



corporate data

corporate headquarters

One Station Place, Metro Center
Stamford, CT 06902
(203) 353-5400
www.crompton-knowles.com

auditors

KPMG LLP
Stamford Square
3001 Summer Street
Stamford, CT 06905

transfer agent and registrar

ChaseMellon Shareholder Services L.L.C.
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 288-9541
www.chasemellon.com

annual meeting

The annual meeting of stockholders will be held at 11:15 a.m. on Tuesday,
April 27, 1999, at the Sheraton Stamford Hotel, 2701 Summer Street, Stamford,
Connecticut 06905

form 10-K

A copy of the Company's report on Form 10-K for 1998, as filed with the
Securities and Exchange Commission, may be obtained free of charge by writing
to the Secretary of the Corporation, Benson Road, Middlebury, CT 06749

investor relations

Robert P. Harwood
Benson Road, Middlebury, CT 06749
(203) 573-2000
e-mail: robert_harwood@uniroyalchemical.com

(c) 1999 Crompton & Knowles Corporation.    
All rights reserved.
(C&K logo)  is a registered trademark of Crompton & Knowles Corporation.
(r) and (tm) indicate registered and unregistered trade and service marks.

back cover
(C&K logo) Crompton & Knowles Corporation
           One Station Place, Metro Center, Stamford, CT 06902
           www.crompton-knowles.com