EXHIBIT 13(a)(ii)
CONSOLIDATED BALANCE SHEETS
November 30, 1994 and 1993 (DOLLARS IN THOUSANDS)
================================================================================
ASSETS 1994 1993
- ------------------------------------------------------------------------------------------------------------
Current assets:
Cash and short-term cash investments............................................ $ 19,567 $ 13,838
Accounts receivable, less allowance for losses
of $1,580 for 1994 and $1,544 for 1993........................................ 42,545 40,911
Inventories..................................................................... 30,258 26,996
Prepaid expenses................................................................ 2,926 1,175
Deferred income taxes........................................................... 3,154 3,241
----------------------
Total current assets................................ 98,450 86,161
----------------------
Marketable equity securities, at fair value....................................... 3,655 --
Investment in affiliates.......................................................... 248 8,002
Plant assets, at cost less accumulated depreciation............................... 52,615 47,636
Excess of cost over fair value of assets acquired,
less accumulated amortization................................................... 15,191 15,701
Pension assets.................................................................... 10,237 9,056
Other assets...................................................................... 8,052 7,011
----------------------
Total assets........................................ $188,448 $173,567
----------------------
----------------------
LIABILITIES
- ------------------------------------------------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt............................................... $ 7,579 $ 7,921
Accounts payable and accrued liabilities........................................ 29,831 23,775
Income taxes.................................................................... 2,051 1,592
----------------------
Total current liabilities........................... 39,461 33,288
----------------------
Long-term debt, less current portion.............................................. 17,013 24,617
Postretirement health care benefits............................................... 3,039 3,111
Long-term pension liabilities..................................................... 5,616 3,671
Deferred income taxes............................................................. 5,686 4,239
Minority interest................................................................. 171 --
Contingencies
SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------
Capital stock:
Preferred, par value $1, authorized 1,300,000
shares, issuable in series, none issued....................................... -- --
Common, par value $1, authorized 30,000,000
shares, issued 14,803,788 in 1994 and
14,819,199 in 1993............................................................ 14,804 14,819
Capital in excess of par value.................................................... 183 328
Foreign currency translation adjustments.......................................... (609) (1,465)
Unrealized holding gain on marketable equity securities, net of taxes............. 911 --
Retained earnings................................................................. 103,013 90,959
----------------------
118,302 104,641
Common stock in treasury at cost; 42,900 shares in 1994 (840) --
----------------------
Total shareholders' equity.......................... 117,462 104,641
----------------------
Total liabilities and shareholders' equity.......... $188,448 $173,567
----------------------
----------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
EXHIBIT 13(a)(iii)
CONSOLIDATED STATEMENTS OF EARNINGS
for the years ended November 30, 1994, 1993 and 1992
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
================================================================================
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
Net sales............................................................. $270,123 $225,319 $188,625
Cost of sales......................................................... 192,456 155,615 129,287
----------------------------------
Gross profit................................................ 77,667 69,704 59,338
Selling and administrative expenses................................... 45,301 40,637 31,708
----------------------------------
Operating profit............................................ 32,366 29,067 27,630
----------------------------------
Other income (expense):
Interest expense.................................................... (2,788) (3,525) (3,803)
Interest income..................................................... 548 875 298
Equity in net earnings of affiliates................................ 959 745 873
Gain on sale of investment in affiliate............................. 4,166 -- --
Minority interest in earnings of subsidiary......................... (2) -- --
Other, net.......................................................... (2,689) (84) 307
----------------------------------
194 (1,989) (2,325)
----------------------------------
Earnings from continuing operations
before income taxes and cumulative
effect of change in accounting method..................... 32,560 27,078 25,305
Provision for income taxes............................................ 11,935 9,827 8,796
----------------------------------
Earnings from continuing operations
before cumulative effect of
change in accounting method............................... 20,625 17,251 16,509
Discontinued operations:
Gain on disposition, net of income
taxes of $1,342 in 1992........................................... -- -- --
Cumulative effect of changes in accounting
methods, net of income tax benefit
of $1,477 in 1992................................................... 630 -- (2,370)
----------------------------------
Net earnings.......................................................... $ 21,255 $ 17,251 $ 14,139
----------------------------------
----------------------------------
Net earnings (loss) per common share:
Continuing operations............................................... $1.39 $1.16 $1.10
Discontinued operations............................................. -- -- --
Cumulative effect of accounting changes............................. 0.04 -- (0.16)
----------------------------------
$1.43 $1.16 $ .94
----------------------------------
----------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
EXHIBIT 13(a)(iv)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended November 30, 1994, 1993 and 1992 (DOLLARS IN THOUSANDS
EXCEPT SHARE DATA)
================================================================================
Common Stock
----------------------------------------------
Issued In Treasury Foreign
---------------------- ---------------------- Capital in Currency Unrealized
Number Number Excess of Translation Holding Retained
of Shares Amount of Shares Amount Par Value Adjustments Gain Earnings
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1991...... 22,379,030 $14,920 7,471,748 $ 72,260 $ 4,323 $ -- $ -- $148,679
Net earnings.................... -- -- -- -- -- -- -- 14,139
Retirement of
treasury stock................ (7,413,671) (7,414) (7,413,671) (72,974) (4,986) -- -- (60,574)
Stock split..................... -- 7,459 -- -- -- -- -- (7,459)
Stock options exercised......... 25,678 26 (18,145) 785 635 -- -- --
Issuance of stock under
award plans................... (5,206) (5) (39,932) (71) 300 -- -- --
Cash dividends-$.60
per common share.............. -- -- -- -- -- -- -- (8,958)
Translation adjustments......... -- -- -- -- -- (1,534) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1992...... 14,985,831 14,986 -- -- 272 (1,534) -- 85,827
Net earnings.................... -- -- -- -- -- -- -- 17,251
Purchase of
treasury stock................ -- -- 202,359 3,369 -- -- -- --
Retirement of
treasury stock................ (202,359) (202) (202,359) ( 3,369) (84) -- -- (3,083)
Stock options exercised......... 27,223 27 -- -- 66 -- -- --
Issuance of stock under
award plans................... 8,504 8 -- -- 74 -- -- --
Cash dividends-$.61
per common share.............. -- -- -- -- -- -- -- (9,036)
Translation adjustments......... -- -- -- -- -- 69 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1993...... 14,819,199 14,819 -- -- 328 (1,465) -- 90,959
Net earnings.................... -- -- -- -- -- -- -- 21,255
Purchase of
treasury stock................ -- -- 72,900 1,327 -- -- -- --
Retirement of
treasury stock................ (30,000) (30) (30,000) (487) (457) -- -- --
Stock options exercised......... 5,775 6 -- -- 78 -- -- --
Issuance of stock under
award plans................... 8,814 9 -- -- 234 -- -- --
Cash dividends-$.6225
per common share.............. -- -- -- -- -- -- -- (9,201)
Unrealized holding gain on
marketable equity securities.. -- -- -- -- -- -- 911 --
Translation adjustments......... -- -- -- -- -- 856 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1994...... 14,803,788 $14,804 42,900 $ 840 $ 183 $ (609) $ 911 $103,013
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
EXHIBIT 13(a)(v)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended November 30, 1994, 1993 and 1992 (DOLLARS IN THOUSANDS)
================================================================================
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
Cash flows from continuing operations:
Net earnings and cumulative effect of accounting change............. $ 21,255 $ 17,251 $ 14,139
Adjustments to reconcile net earnings to net
cash provided by continuing operations:
Depreciation.................................................... 6,778 5,816 4,952
Amortization.................................................... 514 479 428
Equity in net earnings of affiliates............................ (959) (745) (873)
Gain on sale of investment in affiliate......................... (4,166) -- --
Minority interest in earnings of subsidiary..................... 2 -- --
Net loss (gain) on disposition of plant assets.................. 1,862 168 (1)
Cumulative effect of accounting changes, net.................... (630) -- 2,370
Changes in assets and liabilities:
Accounts receivable........................................... (1,981) (3,357) (513)
Inventories................................................... (2,863) 2,992 (694)
Prepaid expenses.............................................. (1,786) 707 (718)
Accounts payable and accrued liabilities...................... 4,021 (2,319) 2,032
Pension assets and liabilities, net........................... 681 (1,248) (822)
Income taxes.................................................. (137) (605) 23
Deferred income taxes......................................... 2,012 853 (590)
----------------------------------
Cash provided by continuing operations...................... 24,603 19,992 19,733
Cash provided by discontinued operations.................... -- -- 3,074
----------------------------------
Net cash provided by operating activities................... 24,603 19,992 22,807
----------------------------------
Cash flows from investing activities:
Proceeds from sale of investment in affiliate....................... 10,731) -- --
Business accquisitions, net of cash acquired........................ (1,512) (12,824) --
Dividends from affiliates, net of reinvestments..................... 363 439 92
Additions to plant assets........................................... (11,416) (10,218) (6,557)
Proceeds from sale of Precision Products Group...................... -- 20,700 --
Disposition of plant assets......................................... 331 2 232
Other, net.......................................................... 1,034 708 (118)
Cash used by discontinued operations, principally for
plant assets...................................................... -- -- (834)
----------------------------------
Net cash used in investing activities....................... (469) (1,193) (7,185)
----------------------------------
Cash flows from financing activities:
Reduction of long-term debt......................................... (7,946) (7,614) (1,357)
Sale of capital stock, stock option plan............................ 69 7 115
Purchase of treasury stock.......................................... (1,327) (3,369) --
Cash dividends paid................................................. (9,201) (9,036) (8,958)
----------------------------------
Net cash used in financing activities....................... (18,405) (20,012) (10,200)
----------------------------------
Net change in cash and short-term cash investments.................... 5,729 (1,213) 5,422
Cash and short-term cash investments, beginning of year............... 13,838 15,051 9,629
----------------------------------
Cash and short-term cash investments, end of year..................... $ 19,567 $ 13,838 $ 15,051
----------------------------------
----------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
EXHIBIT 13(a)(vi)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
================================================================================
At November 30, 1994, the Company has two principal product segments: Filtration
Products and Consumer Products. During 1993, the Company acquired Airguard
Industries and Guardian/U.E.L. to be part of Filtration Products. Effective
November 30, 1992, the Company sold its Precision Products Group, which had been
previously reported as Discontinued Operations.
A. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all domestic and foreign
subsidiaries which are more than 50% owned and controlled. Investments in
nonconsolidated companies which are at least 20% owned are carried at cost plus
equity in undistributed earnings since acquisition.
Minority interest represents a minority shareholder's 10% ownership of the
common stock of Filtros Baldwin de Mexico (FIBAMEX).
FOREIGN CURRENCY TRANSLATION
Financial statements of foreign subsidiaries are translated into U.S.
dollars at current rates, except that revenues, costs and expenses are
translated at average current rates during each reporting period. Net exchange
gains or losses resulting from the translation of foreign financial statements
and the effect of exchange rate changes on intercompany transactions of a long-
term investment nature are accumulated and credited or charged directly to a
separate component of shareholders' equity.
INVESTMENTS IN MARKETABLE SECURITIES
The Company adopted Statement of Financial Accounting Standards No. 115,
(SFAS 115) "Accounting for Certain Investments in Debt and Equity Securities".
As permitted, the Company implemented this Standard on November 30, 1994. The
Company's marketable equity securities have been classified as available-for-
sale.
PLANT ASSETS
Depreciation is provided by the straight-line and accelerated methods for
financial statement purposes and by the accelerated method for tax purposes.
Provision for depreciation is made over the estimated useful lives of the
assets. It is the policy of the Company to capitalize renewals and betterments,
and to charge to expense the cost of current maintenance and repairs.
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED
Excess of cost over fair value of assets acquired is being amortized over a
forty-year period, using the straight-line method. Accumulated amortization was
$5,405 and $4,891 at November 30, 1994 and 1993, respectively.
STATEMENTS OF CASH FLOWS
All highly liquid investments purchased with an original maturity of three
months or less are considered to be short-term cash investments. The carrying
amount approximates fair value. The Company has certain noncash transactions
related to stock option and award plans, and the disposition of certain assets
and businesses, which are described in Footnotes L. and M.
CONCENTRATIONS OF CREDIT
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its temporary cash investments with
high credit quality financial institutions and in high grade municipal
securities. At November 30, 1994 and 1993, the Company held short-term
securities of municipal government agencies with a total cost of $13,471 and
$7,680, respectively. Concentrations of credit risk with
================================================================================
respect to trade receivables are limited due to the Company's large number of
customers and their dispersion across many different industries.
INCOME TAXES
As of December 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes" which
changes the Company's method of accounting for income taxes from the deferred
method to an asset and liability approach. SFAS 109 requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and the
tax basis of assets and liabilities. Previously, the Company deferred the past
tax effects of timing differences between financial reporting and taxable
income.
NET EARNINGS PER COMMON SHARE
Net earnings per common share is based on the weighted average number of
common shares outstanding during the respective years.
ACCOUNTING PERIOD
The Company's fiscal year ends on the Saturday closest to November 30. The
fiscal years ended December 3, 1994, November 27, 1993 and November 28, 1992,
were comprised of fifty-three, fifty-two, and fifty-two weeks, respectively. In
the consolidated financial statements, all fiscal years are shown to begin as of
December 1 and end as of November 30 for clarity of presentation.
RECLASSIFICATION
The 1993 consolidated balance sheet includes a reclassification of certain
assets and liabilities to be consistent with the 1994 balance sheet.
B. ACQUISITIONS AND INVESTMENT IN AFFILIATES
ACQUISITIONS
During 1994, FIBAMEX was incorporated in Mexico, in which the Company owns
a 90% equity interest. FIBAMEX acquired certain assets from Filtros Continental,
S.A. de C.V. for $1,512 in cash. The acquisition did not have a significant
impact on the results of the Company.
The Company purchased all of the shares of Airguard Industries, Inc. on
April 30, 1993 and the assets of Guardian/U.E.L. effective June 1, 1993, for
$13,504 in cash, including acquisition expenses. Airguard is a manufacturer of
environmental and industrial air filtration products. Guardian/U.E.L.
manufactures air and liquid filtration products. The acquisitions have been
accounted for by the purchase method of accounting and the operating results of
Airguard and Guardian/U.E.L. are included in the Company's consolidated results
of operations from the date of the acquisitions. The excess of cost over fair
value of assets acquired is being amortized over a forty year period, using the
straight-line method.
The following unaudited pro forma amounts are presented as if the 1993
acquisitions had occurred at the beginning of the periods presented and does not
purport to be indicative of what would have occurred had the acquisitions been
made as of those dates or of results which may occur in the future. Unaudited
pro forma net sales for the Company would have been $248,171 and $237,575 for
the years ended November 30, 1993 and 1992, respectively. Net earnings and
earnings per share for each of these periods would not have been significantly
affected.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
================================================================================
INVESTMENT IN AFFILIATES
In July 1991, the Company acquired for cash a 20% interest in the
outstanding common stock of G.U.D. Holdings Limited, an Australian filter
manufacturer. The acquisition cost exceeded the underlying equity in net assets
by $2,107 and was being amortized over an original period of 40 years. The
carrying value of this investment was $7,716 at November 30, 1993. The quoted
market value of the Company's investment in G.U.D. was $15,300 at November 30,
1993.
In October 1994, the Company sold 75% of its 20% interest in G.U.D.
Holdings Limited, recognizing a gain on the sale of $4,166. The remaining 5%
interest has been classified as available-for-sale under the provisions of SFAS
115 and has been recorded at the quoted market value of $3,655 as of November
30, 1994. The 1994 quoted market value includes an unrealized holding gain of
$911, net of deferred income taxes, which has been included as a component of
shareholders' equity at November 30, 1994.
The Company has a standstill agreement which limits the Company's ability
to own greater than a 20% interest and governs the manner in which the stock can
be disposed.
C. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
by the last-in, first-out (LIFO) method for approximately 65% and 59% of the
Company's inventories at November 30, 1994 and 1993, respectively, and by the
first-in, first-out (FIFO) method for all other inventories. The FIFO method
would approximate the current cost. The inventories are summarized as follows:
1994 1993
----------------------
Raw materials................................... $12,836 $10,471
Work-in-process................................. 4,624 4,947
Finished products............................... 15,552 14,977
----------------------
Total at FIFO............................... 33,012 30,395
Less excess of FIFO
cost over LIFO values......................... 2,754 3,399
----------------------
$30,258 $26,996
----------------------
----------------------
During 1994, 1993 and 1992, inventory quantities were reduced resulting in
a partial liquidation of the LIFO bases, the effect of which increased net
earnings by approximately $480, $650 and $400, respectively.
D. PLANT ASSETS
Plant assets at November 30, 1994 and 1993 were as follows:
1994 1993
-----------------------
Land............................................ $ 2,015 $ 1,931
Buildings and building fixtures................. 39,095 37,964
Machinery and equipment......................... 74,364 67,666
Construction-in-process......................... 6,185 4,693
-----------------------
121,659 112,254
Less accumulated depreciation................... 69,044 64,618
-----------------------
$ 52,615 $ 47,636
-----------------------
-----------------------
E. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at November 30, 1994 and 1993 were
as follows:
1994 1993
----------------------
Accounts payable $13,769 $ 9,777
Accrued salaries, wages
and commissions 3,874 3,575
Compensated absences 2,628 2,433
Accrued pension liabilities 2,414 1,318
Other accrued liabilities 7,146 6,672
----------------------
$29,831 $23,775
----------------------
----------------------
================================================================================
F. LONG-TERM DEBT
Long-term debt at November 30, 1994 and 1993 consists of the following:
1994 1993
----------------------
Promissory note $20,416 $27,416
Other obligations, at 6% -
10% interest 4,176 5,122
----------------------
24,592 32,538
Less current portion 7,579 7,921
----------------------
$17,013 $24,617
----------------------
----------------------
The promissory note matures March 31, 1997, but the Company is required to
prepay, without premium, certain principal amounts as stated in the agreement.
Interest at 9.71% per annum is payable quarterly. A fair value estimate of
$24,400 and $34,500 for the long-term debt, in 1994 and 1993, respectively, is
based on the current interest rates offered to the Company for debt with similar
remaining maturities. Under the note agreement, the Company must meet certain
restrictive covenants. The primary covenants include maintaining minimum
consolidated working capital at $25,000, a minimum consolidated current ratio of
1.5 to 1, and limiting dividends and new borrowings as stipulated in the
agreement. The dividend limitation includes a base amount, reductions for
treasury stock acquisitions, and increases for one-half of net earnings. As of
November 30, 1994, $2,990 of retained earnings was available to the Company
under this covenant for future cash dividends and future treasury stock
acquisitions.
Other obligations include a 15 year capital lease for a manufacturing
facility acquired in 1991 from the Community Development Authority of the City
of Gothenburg, Nebraska, and debt acquired in the acquisitions of Airguard
Industries and Guardian/U.E.L., including an industrial revenue bond due in
2003.
Additionally, the Company had unused bank lines of credit at November 30,
1994 which permitted borrowings of $9,000. The agreements related to these
obligations include certain restrictive covenants for the Company or certain
subsidiaries that are similar to the promissory note.
Principal maturities of long-term debt for the next five fiscal years
ending November 30, approximates: $7,579 in 1995, $7,600 in 1996, $6,986 in
1997, $448 in 1998, $256 in 1999 and $1,723 thereafter.
Interest paid totaled $2,916, $3,560 and $3,878 during 1994, 1993 and 1992,
respectively.
G. RETIREMENT PLANS
The Company has defined benefit pension plans covering most of its
employees and directors. Plan benefits are principally based upon years of
service, compensation, and social security benefits. The Company's funding
policy is to contribute annually the maximum amount that can be deducted for
federal income tax purposes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
================================================================================
The following table sets forth the plans' funded status and amounts recognized
in the Com-pany's consolidated balance sheet at November 30:
1994 1993
-----------------------------------------------
Assets Accumulated Assets Accumulated
exceed benefits exceed benefits
accumulated exceed accumulated exceed
benefits assets benefits assets
-----------------------------------------------
Accumulated benefit
obligation, including
vested benefits of
$47,080 and $48,020,
in 1994 and 1993,
respectively.............. $41,841 $ 8,051 $44,259 $ 6,284
--------------------------------------------
--------------------------------------------
Plan assets at
fair value................ $56,848 $ -- $59,237 $ --
Less projected benefit
obligation for service
rendered to date.......... 46,380 9,137 49,345 6,327
--------------------------------------------
Plan assets in excess of
(less than) projected
benefit obligation........ 10,468 (9,137) 9,892 (6,327)
Unrecognized net loss
from past experience
different from that
assumed................... 6,297 2,286 6,779 1,338
Unrecognized net asset
being recognized over
approximately 15 years.... (6,528) -- (7,615) --
Recognition of additional
minimum liability......... -- (1,179) -- --
--------------------------------------------
Accrued pension
asset (liability) for
defined benefit plans..... $10,237 $(8,030) $9,056 $(4,989)
--------------------------------------------
--------------------------------------------
In addition to the plan assets related to qualified plans of $56,848, the
Company has funded approximately $3,000 at November 30, 1994 in a restricted
trust for its nonqualified plans. This trust is included in other long-term
assets in the Company's consolidated balance sheets.
The net pension expense includes the following components for the three
years ended November 30:
1994 1993 1992
----------------------------------
Service cost-benefits
earned during
the period........................... $ 1,979 $ 2,127 $ 2,379
Interest cost on
projected benefit
obligation........................... 4,046 3,644 3,760
Actual return on assets.............. (298) (6,581) (4,506)
Net amortization
and deferral......................... (4,646) 918 (1,382)
----------------------------------
Net pension expense.................. $ 1,081 $ 108 $ 251
----------------------------------
----------------------------------
The projected benefit obligation has been determined with a weighted
average discount rate of 8.0% and 7.0% in 1994 and 1993, respectively and a rate
of increase in future compensation of 5.0% for both years. The expected weighted
average long-term rate of return was 9.0% and 8.5% in 1994 and 1993,
respectively. Plan assets consist of group annuity insurance contracts,
corporate stocks, bonds and notes, certificates of deposit and U.S. Government
securities.
The Company also has various defined contribution plans. The Company
recognized expense related to these plans of $499, $400 and $322 in 1994, 1993
and 1992, respectively.
H. POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides certain health care benefits for certain of the
Company's retired employees. These employees become eligible for these benefits
if they meet minimum age and service requirements, are eligible for retirement
benefits and contribute a portion of the cost. The Company has the right to
modify or terminate these benefits.
During 1992, the provisions of Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
================================================================================
Pensions" were adopted. The Statement requires companies to accrue the expected
cost of providing postretirement benefits other than pensions over the years
that the employees render service rather than the cash basis previously used.
The projected benefit obligation of $2,370, net of income taxes of $1,477,
relating to prior service cost was a noncash transaction recognized as a
cumulative effect of a change in accounting method, effective December 1, 1991.
The following table sets forth the plan's obligation and cost at November
30, 1994 and 1993:
1994 1993
----------------------
Accumulated postretirement
benefit obligation:
Retirees....................................... $2,398 $3,184
Fully eligible active plan participants........ 13 --
Other active plan participants................. 506 545
----------------------
Accumulated postretirement
benefit obligation............................. 2,917 3,729
Unrecognized gain/(loss)......................... 419 (320)
----------------------
Accrued postretirement benefit liability......... 3,336 3,409
Less current portion, included in
accrued liabilities........................ 297 298
----------------------
$3,039 $3,111
----------------------
----------------------
The net periodic postretirement benefit cost includes the following
components for the three years ended November 30:
1994 1993 1992
--------------------------------
Service cost-benefits attributed
to service during the period........... $ 28 $ 23 $ 26
Interest cost on accumulated
postretirement benefit obligations..... 216 275 286
--------------------------------
Net periodic postretirement
benefit cost........................... $244 $298 $312
--------------------------------
--------------------------------
Substantially all health care benefit cost increases will be assumed by the
participants, and therefore future increases in the health care costs will not
increase the postretirement benefit obligation or cost to the Company. The
weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8% in 1994 and 7% in 1993.
I. INCOME TAXES
The provision for income taxes for continuing operations consists of:
1994 1993 1992
----------------------------------
Current:
Federal............................. $ 8,886 $ 7,573 $ 7,032
State............................... 1,577 1,342 1,454
Foreign............................. 84 59 --
Deferred.............................. 1,388 853 310
----------------------------------
$11,935 $ 9,827 $ 8,796
----------------------------------
----------------------------------
The cumulative effect of adopting SFAS 109 in the first quarter of 1994 was
a favorable adjustment of $630.
Total income taxes paid, net of refunds, totaled $10,087, $9,860 and
$10,982 during 1994, 1993 and 1992, respectively.
The components of the net deferred tax liability as of November 30, 1994
were as follows:
1994
----------
Deferred tax assets:
Deferred compensation...................................... $ 1,591
Other postretirement benefits.............................. 1,335
Other reserves............................................. 1,213
----------
Total gross deferred tax assets.............................. 4,139
----------
Deferred tax liabilities:
Pensions................................................... (2,026)
Plant assets............................................... (4,645)
----------
Total gross deferred tax liabilities......................... (6,671)
----------
Net deferred tax liability................................... $(2,532)
----------
----------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
================================================================================
For 1993 and 1992, deferred income taxes for continuing operations resulted
principally from timing differences in the recognition of depreciation, accrued
pension liabilities and compensation expenses. The deferred income tax
provisions for continuing operations in 1993 and 1992 include $487 and $315,
respectively, resulting from the excess of tax over book depreciation; $2 and
$93, respectively, resulting from differences in the recognition of accrued
pension liabilities; and $305 and ($107), respectively, resulting from
differences in recognizing compensation expenses.
Income (loss) before income taxes included the following components:
1994 1993 1992
----------------------------------
Domestic income...................... $33,511 $28,950 $25,139
Foreign income (loss)................ (951) (1,872) 166
----------------------------------
Total................................ $32,560 $27,078 $25,305
----------------------------------
----------------------------------
The provision for income taxes for continuing operations resulted in
effective tax rates which differ from the statutory federal income tax rates.
The reasons for these differences are as follows:
Percent of
Pretax Earnings
--------------------------------
1994 1993 1992
--------------------------------
Statutory U. S. tax rates............... 35.0% 34.9% 34.0%
State income taxes,
net of federal benefit................ 3.2 3.2 3.8
Reduction of previously
established accruals.................. (1.4) (2.6) --
Capital loss utilization................ (1.3) -- --
Foreign tax credit utilization.......... -- (1.7) (1.5)
Foreign net operating losses............ 1.3 2.6 --
Other, net.............................. (0.1) (0.1) (1.5)
--------------------------------
Consolidated effective income tax rates 36.7% 36.3% 34.8%
--------------------------------
--------------------------------
J. CONTINGENCIES
In December 1992, a trial jury in Texas entered a judgment against Baldwin
Filters, Inc., a subsidiary of the Company, in the amount of $4,900 that
resulted from the termination of a sales representative. In November 1993, the
district court in Texas ordered that a joint motion filed by the two parties to
dismiss the judgment be granted, that the judgment of the trial court be
vacated, and that the cause be remanded to the trial court for entry of a take-
nothing judgment pursuant to a settlement agreement by the two parties.
The Company is involved in other legal actions arising in the normal course
of business. After taking into consideration legal counsel's evaluation of such
actions, management is of the opinion that their outcome will not have a
material adverse effect on the Company's consolidated results of operations or
financial position.
K. PREFERRED STOCK PURCHASE RIGHTS
In April 1986, the Board of Directors of CLARCOR Inc. adopted a Shareholder
Rights Plan (which was amended by the Board of Directors in June 1989) and
declared a dividend of one preferred stock purchase right (a "right") for each
outstanding share of CLARCOR common stock held as of April 25, 1986. Each full
right entitles shareholders of record to purchase from the Company, until the
earlier of April 25, 1996 or the redemption of the rights, one one-hundredth of
a share of Series A Junior Participating Preferred Stock at an exercise price of
$75, subject to certain adjustments or, under certain circumstances, to obtain
additional shares of common stock of the Company (or of a corporation acquiring
the Company) in exchange for the rights. The rights will not be exercisable or
transferable apart from the CLARCOR common stock
================================================================================
until the earlier of (1) 10 days following the public announcement that a person
or affiliated group has acquired or obtained the right to acquire 15% or more of
CLARCOR's common stock, or (2) 10 days following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the ownership by a person or group of 30%
or more of the Company's outstanding common stock. The Board of Directors may
redeem the rights at a price of $.05 per right at any time prior to the
acquisition by a person of 15% or more of the outstanding CLARCOR common stock.
The authorized preferred stock includes 300,000 shares designated as Series
A Junior Participating Preferred Stock.
L. INCENTIVE PLAN
In 1994, the shareholders of CLARCOR Inc. adopted the 1994 Incentive Plan,
which allows the Company to grant stock options, restricted stock and
performance awards to officers, directors and key employees. The 1994 Incentive
Plan incorporates the various incentive plans in existence prior to March 1994,
including the 1984 Stock Option Plan, the 1987 Long Range Performance Share
Plan, and the 1990 Directors' Restricted Stock Compensation Plan.
At the inception of the 1994 Incentive Plan there were 1,000,000 shares
authorized for future grants. At November 30, 1994 there were 930,000 shares
reserved for future grants, of which 189,531 shares were granted in December
1994. The remaining ungranted shares expire in December 2003.
The following is a description and a summary of key provisions related to
this plan.
STOCK OPTIONS
Nonqualified stock options may, at the discretion of the Board of
Directors, be granted at the fair market value at the date of grant or an
exercise price less than the fair market value at the date of grant.
Shares under nonqualified stock options are as follows:
1994 1993 1992
-----------------------------------
Outstanding at beginning of year..... 862,206 852,609 755,109
Granted (prices ranging from
$17.33 to $19.625 per share)..... 261,500 158,000 219,000
Exercised/surrendered................ (11,437) (148,403) (121,500)
-----------------------------------
Outstanding at end of year
(prices ranging from $9.33
to $19.625 per share)............ 1,112,269 862,206 852,609
-----------------------------------
-----------------------------------
Exercisable at end of year........... 572,033 431,891 390,182
-----------------------------------
-----------------------------------
LONG RANGE PERFORMANCE AWARDS
Officers and key employees may be granted target awards of Company shares
of common stock and performance units which represent the right to a cash
payment. The awards are earned and shares are issued only to the extent that the
Company achieves performance goals determined by the Board of Directors, during
a three-year performance period.
During the performance period, officers and key employees are permitted to
vote the restricted stock and receive compensation equal to dividends declared
on common shares. The Company accrues compensation expense for the performance
opportunity ratably during the performance cycle. Compensation expense for the
plan totaled $284, $364 and $196 in 1994, 1993 and 1992, respectively.
Distribution of Company common stock and cash for the performance periods ended
November 30, 1994, 1993 and 1992 were $237, $432 and $268, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
================================================================================
DIRECTORS' RESTRICTED STOCK COMPENSATION
The 1994 Incentive Plan grants all nonemployee directors, in lieu of cash,
shares of common stock equal to five years directors' annual retainer. The
directors' rights to the shares vest 20% on date of grant and 20% annually
during the next four years. The directors are entitled to receive dividends and
exercise voting rights with respect to all shares prior to vesting. Any unvested
shares are forfeited if the director ceases to be a nonemployee director for any
reason. Compensation expense for the plan totaled $125, $131 and $135 in 1994,
1993 and 1992, respectively. During 1992, $43 of Company common stock were
issued, net of forfeitures, under the plan.
M. DISCONTINUED OPERATIONS
In June 1991, the Company adopted a plan to dispose of its Precision
Products Group (Group). Effective November 30, 1992 the Company sold the Group
for $20,700 in cash, with settlement on December 31, 1992, and a $2,500 note
receivable, included in other assets. The 8% note receivable, due December 30,
1997, has certain collateral pledged from the buyer, a highly leveraged entity.
The sale was recorded as of November 30, 1992 and resulted in a pretax gain of
$1,342 after considering estimated costs to be incurred in connection with the
sale, operating results through the date of disposition, and including a $686
curtailment gain of certain pension benefits related to the Group. The income
tax effects, net of $1,342, which offsets the gain, exceeds the normal statutory
tax rate due principally to nontax deductible costs.
Revenues applicable to the Group were $40,698 for the year ended November
30, 1992.
N. UNAUDITED QUARTERLY FINANCIAL DATA
The unaudited quarterly data for 1994 and 1993 are as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- --------------------------------------------------------------------------------
1994:
Net sales................. $55,890 $65,131 $67,724 $81,378 $270,123
Gross profit.............. 16,184 18,919 20,000 22,564 77,667
Earnings before
cumulative effect
of accounting
change.................. 3,415 4,175 5,879 7,156 20,625
Cumulative effect
of accounting
change.................. 630 -- -- -- 630
--------------------------------------------------
Net earnings.............. $ 4,045 $ 4,175 $ 5,879 $ 7,156 $ 21,255
--------------------------------------------------
--------------------------------------------------
Net earnings per
common share:
Continuing
operations.............. $0.23 $0.28 $0.40 $0.48 $1.39
Cumulative effect
of accounting
change.................. .04 -- -- -- .04
--------------------------------------------------
$0.27 $0.28 $0.40 $0.48 $1.43
--------------------------------------------------
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- --------------------------------------------------------------------------------
1993:
Net sales................. $41,913 $49,732 $64,634 $69,040 $225,319
Gross profit.............. 13,075 15,085 19,384 22,160 69,704
Net earnings.............. 3,091 2,781 5,060 6,319 17,251
Net earnings
per common share........ $0.21 $0.19 $0.34 $0.42 $1.16
NOTES TO QUARTERLY FINANCIAL DATA
In the fourth quarter of 1994, the Company recorded a nonoperating gain of
$4,166 related to the sale of an investment in an affiliate and nonoperating
expenses of approximately $1,900 related to the disposal of certain assets.
During the fourth quarters of 1994 and 1993, LIFO inventory reductions increased
net earnings by approximately $480 and $650, respectively.
================================================================================
The second quarter of 1993 includes a charge to net earnings of
approximately $1,200 related to the Company's subsidiary in Belgium.
O. SEGMENT INFORMATION
The Company operates in two principal product segments: Filtration Products
and Consumer Products. The Filtration Products Group manufactures and markets a
complete line of filters used in the filtration of internal combustion engines,
clean rooms, sterile air and gases, and lubrication oils, air, fuel, coolant,
hydraulic and transmission fluids. The Consumer Products Group manufactures and
markets plastic closures, custom designed lithographed metal and metal-plastic
containers, spiral and convolute-wound composite containers and collapsible
metal tubes.
Net sales represent sales to unaffiliated customers, as reported in the
consolidated statements of earnings. Intersegment sales were not material.
Assets are those assets used in each business segment. Corporate assets consist
of cash and short-term cash investments, receivable from sale of Precision
Products Group in 1992, deferred income taxes, world headquarters facility,
pension assets and various other assets which are not specific to an industry
segment.
The segment data for the years ended November 30, 1994, 1993 and 1992 are
as follows:
1994 1993 1992
- --------------------------------------------------------------------------
Net sales:
Filtration Products.............. $199,793 $156,165 $118,215
Consumer Products................ 70,330 69,154 70,410
-----------------------------------
Total...................... $270,123 $225,319 $188,625
-----------------------------------
-----------------------------------
Operating profit:
Filtration Products.............. $ 26,597 $ 19,661 $ 18,666
Consumer Products................ 5,769 9,406 8,964
-----------------------------------
Total...................... $ 32,366 $ 29,067 $ 27,630
-----------------------------------
-----------------------------------
- --------------------------------------------------------------------------
Assets:
Filtration Products.............. $114,501 $105,278 $ 74,364
Consumer Products................ 32,386 30,377 28,588
Corporate........................ 41,561 37,912 58,303
-----------------------------------
Total...................... $188,448 $173,567 $161,255
-----------------------------------
-----------------------------------
- --------------------------------------------------------------------------
Additions to plant assets:
Filtration Products.............. $ 6,715 $ 6,339 $ 3,861
Consumer Products................ 4,157 3,816 2,652
Corporate........................ 544 63 44
Discontinued Operations.......... -- -- 893
-----------------------------------
Total...................... $ 11,416 $ 10,218 $ 7,450
-----------------------------------
-----------------------------------
- --------------------------------------------------------------------------
Depreciation:
Filtration Products.............. $ 3,840 $ 2,758 $ 2,063
Consumer Products................ 2,763 2,912 2,738
Corporate........................ 175 146 151
Discontinued operations.......... -- -- 2,092
-----------------------------------
Total...................... $ 6,778 $ 5,816 $ 7,044
-----------------------------------
-----------------------------------
EXHIBIT 13(a)(vii)
REPORT OF INDEPENDENT ACCOUNTANTS
================================================================================
The Board of Directors and Shareholders
CLARCOR Inc.
Rockford, Illinois
We have audited the accompanying consolidated balance sheets of CLARCOR
Inc. and Subsidiaries as of November 30, 1994 and 1993, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended November 30, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CLARCOR Inc.
and Subsidiaries as of November 30, 1994 and 1993, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended November 30, 1994, in conformity with generally accepted accounting
principles.
As discussed in Notes A and H to the consolidated financial statements, the
Company changed its method of accounting for postretirement benefits other than
pensions, effective December 1, 1991; changed its method of accounting for
income taxes, effective December 1, 1993; and changed its method of accounting
for certain investments in debt and equity securities, effective November 30,
1994.
/s/ Coopers & Lybrand L.L.P.
Rockford, Illinois
January 6, 1995
EXHIBIT 13(a)(viii)
MANAGEMENT'S REPORT ON RESPONSIBILITY
FOR FINANCIAL REPORTING
================================================================================
The management of CLARCOR is responsible for the preparation, integrity and
objectivity of the Company's financial statements and the other financial
information in this report. The financial statements were prepared in conformity
with generally accepted accounting principles and reflect in all material
respects the results of operations and the Company's financial position for the
periods shown. The financial statements are presented on the accrual basis of
accounting and, where appropriate, reflect estimates based upon judgments of
management.
In addition, management maintains a system of internal controls designed to
assure that Company assets are safeguarded from loss or unauthorized use or
disposition. Also, the controls system provides assurance that transactions are
authorized according to the intent of management and are accurately recorded to
permit the preparation of financial statements in accordance with generally
accepted accounting principles. For the periods covered by the financial
statements in this report, management believes this system of internal controls
was effective concerning all material matters. The effectiveness of the controls
system is supported by the selection and training of qualified personnel, an
organizational structure that provides an appropriate division of
responsibility, a strong budgetary system of control and a comprehensive
internal audit program.
The Audit Committee of the Board of Directors, which is composed of four
outside directors, serves in an oversight role to assure the integrity and
objectivity of the Company's financial reporting process. The Committee meets
periodically with representatives of management and the independent and internal
auditors to review matters of a material nature related to financial reporting
and the planning, results and recommendations of audits. The independent and
internal auditors have free access to the Audit Committee. The Committee is also
responsible for making recommendations to the Board of Directors concerning the
selection of the independent auditors.
/s/ Lawrence E. Gloyd /s/ William F. Knese
Lawrence E. Gloyd William F. Knese
Chairman, President and Vice President,
Chief Executive Officer Treasurer and Controller
January 6, 1995
EXHIBIT 13(a)(ix)
CLARCOR
13-YEAR FINANCIAL SUMMARY
================================================================================
1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------
PER SHARE
Equity.............................. $ 7.96 $ 7.06 $ 6.64 $ 6.42 $ 5.57
Earnings from Continuing
Operations........................ 1.39 1.16 1.10 1.24 1.29
Net Earnings........................ 1.43 1.16 0.94 1.26 1.37
Dividends........................... 0.6225 0.610 0.600 0.550 0.520
Price: High......................... 22.38 20.00 22.50 22.67 17.83
Low.......................... 15.88 16.00 15.00 13.00 11.83
- ------------------------------------------------------------------------------------------------
EARNINGS DATA ($000)
Net Sales........................... $270,123 $225,319 $188,625 $179,538 $170,279
Operating Profit.................... 32,366 29,067 27,630 30,853 30,832
Interest Expense.................... 2,788 3,525 3,803 3,682 3,675
Pretax Income....................... 32,560 27,078 25,305 28,543 30,204
Income Taxes........................ 11,935 9,827 8,796 10,068 10,999
Earnings from Continuing
Operations........................ 20,625 17,251 16,509 18,475 19,205
Earnings from Discontinued
Operations........................ -- -- -- 297 1,200
Net Earnings........................ 21,255 17,251 14,139 18,772 20,405
Average Shares Outstanding.......... 14,814 14,838 14,973 14,873 14,843
- ------------------------------------------------------------------------------------------------
EARNINGS ANALYSIS
Operating Margin.................... 12.0% 12.9% 14.6% 17.2% 18.1%
Pretax Margin....................... 12.1% 12.0% 13.4% 15.9% 17.7%
Effective Tax Rate.................. 36.7% 36.3% 34.8% 35.3% 36.4%
Net Margin-Continuing Operations.... 7.6% 7.7% 8.8% 10.3% 11.3%
Net Margin.......................... 7.9% 7.7% 7.5% 10.5% 12.0%
Asset Turnover...................... 1.56x 1.40x 1.19x 1.25x 1.30x
Return on Assets.................... 12.2% 10.7% 8.9% 13.0% 15.6%
Financial Leverage.................. 1.66x 1.62x 1.66x 1.74x 1.80x
Return on Equity.................... 20.3% 17.3% 14.8% 22.7% 28.1%
Dividend Payout to Net Earnings..... 43.3% 52.4% 63.4% 43.5% 37.8%
- ------------------------------------------------------------------------------------------------
BALANCE SHEET ($000)
Current Assets...................... $ 98,450 $ 86,161 $ 93,627 $ 75,207 $ 72,623
Plant Assets, net................... 52,615 47,636 35,584 45,712 42,748
Total Assets........................ 188,448 173,567 161,255 157,999 144,127
Current Liabilities................. 39,461 33,288 25,272 20,570 20,758
Long-Term Debt...................... 17,013 24,617 29,325 35,834 35,810
Shareholders' Equity................ 117,462 104,641 99,551 95,662 82,689
- ------------------------------------------------------------------------------------------------
BALANCE SHEET ANALYSIS ($000)
Debt to Capitalization.............. 12.7% 19.0% 22.8% 27.3% 30.2%
Working Capital..................... 58,989 52,873 68,355 54,637 51,865
Quick Ratio......................... 1.6:1 1.6:1 2.5:1 2.1:1 2.1:1
- ------------------------------------------------------------------------------------------------
CASH FLOW DATA ($000)
From Operations..................... $ 24,603 $ 19,992 $ 22,807 $ 18,343 $ 25,284
Used for Investment................. (469) (1,193) (7,185) (14,719) (4,973)
Used for Financing.................. (18,405) (20,012) (10,200) (8,805) (10,316)
Change in Cash & Equivalents........ 5,729 (1,213) 5,422 (5,181) 9,995
Capital Expenditures................ 11,416 10,218 7,450 8,128 8,638
Depreciation........................ 6,778 5,816 7,044 6,707 6,619
Dividends Paid...................... 9,201 9,036 8,958 8,165 7,708
Interest (Income)/Expense........... 2,240 2,650 3,505 2,560 3,143
Taxes Paid.......................... 10,087 9,860 10,982 9,474 10,068
- ------------------------------------------------------------------------------------------------
CASH FLOW ANALYSIS ($000)
Operating Cash Flow (1)............. $ 36,930 $ 32,502 $ 37,294 $ 30,377 $ 38,495
Net Cash Flow (2)................... 25,514 22,284 29,844 22,249 29,857
Elective Cash Flow (3).............. 3,986 738 6,399 2,050 8,938
- ------------------------------------------------------------------------------------------------
<FN>
(1) From operations before interest income/expense and taxes paid. (2) Operating cash flow less
capital expenditures before interest income/expense and taxes paid. (3) Net cash flow less
dividends +(-) interest income/expense and less taxes paid.
CLARCOR
================================================================================
1989 1988 1987 1986 1985 1984 1983 1982
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE
Equity.............................. $ 4.83 $ 6.99 $ 6.36 $ 5.76 $ 5.22 $ 4.68 $ 4.13 $ 3.69
Earnings from Continuing
Operations........................ 0.69 1.02 0.95 0.90 0.86 0.82 0.73 0.69
Net Earnings........................ 0.42 1.15 1.04 0.96 0.93 0.91 0.79 0.73
Dividends........................... 0.480 0.453 0.431 0.418 0.391 0.365 0.338 0.338
Price: High......................... 18.92 14.59 16.89 14.17 12.78 12.89 15.33 8.00
Low.......................... 11.75 9.75 9.25 10.09 10.00 9.56 7.61 5.28
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS DATA ($000)
Net Sales........................... $156,530 $149,468 $146,225 $135,319 $143,716 $163,059 $150,840 $148,604
Operating Profit.................... 22,128 27,287 29,045 25,032 27,222 27,816 25,551 25,177
Interest Expense.................... 1,327 151 176 192 216 766 1,503 3,503
Pretax Income....................... 22,084 28,833 30,378 29,769 30,139 29,167 25,730 24,411
Income Taxes........................ 10,474 10,647 13,270 13,566 14,492 14,439 12,600 11,983
Earnings from Continuing
Operations........................ 11,610 18,186 17,108 16,203 15,647 14,728 13,130 12,428
Earnings from Discontinued
Operations........................ (4,493) 2,412 1,672 1,165 1,250 1,634 1,039 728
Net Earnings........................ 7,117 20,598 18,780 17,368 16,897 16,362 14,169 13,156
Average Shares Outstanding.......... 17,040 17,926 18,121 18,094 18,074 18,062 18,050 18,025
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS ANALYSIS
Operating Margin.................... 14.1% 18.3% 19.9% 18.5% 18.9% 17.1% 16.9% 16.9%
Pretax Margin....................... 14.1% 19.3% 20.8% 22.0% 21.0% 17.9% 17.1% 16.4%
Effective Tax Rate.................. 47.4% 36.9% 43.7% 45.6% 48.1% 49.5% 49.0% 49.1%
Net Margin-Continuing Operations.... 7.4% 12.2% 11.7% 12.0% 10.9% 9.0% 8.7% 8.4%
Net Margin.......................... 4.5% 13.8% 12.8% 12.8% 11.8% 10.0% 9.4% 8.9%
Asset Turnover...................... 1.09x 1.11x 1.19x 1.16x 1.34x 1.58x 1.45x 1.38x
Return on Assets.................... 4.9% 15.3% 15.3% 14.9% 15.7% 15.8% 13.7% 12.2%
Financial Leverage.................. 1.16x 1.17x 1.18x 1.23x 1.27x 1.38x 1.56x 1.81x
Return on Equity.................... 5.7% 17.9% 18.0% 18.4% 20.0% 21.9% 21.3% 22.2%
Dividend Payout to Net Earnings..... 116.5% 39.4% 41.6% 43.5% 41.8% 40.2% 43.0% 46.3%
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET ($000)
Current Assets...................... $ 58,019 $ 70,028 $ 67,523 $ 75,457 $ 72,837 $ 61,806 $ 56,345 $ 53,932
Plant Assets, net................... 44,223 42,063 39,828 32,431 27,934 27,482 30,742 31,818
Total Assets........................ 131,009 143,842 134,877 122,779 116,184 107,423 103,381 103,707
Current Liabilities................. 21,405 14,244 15,899 13,153 15,815 16,805 17,424 18,455
Long-Term Debt...................... 32,634 1,116 1,507 1,634 1,875 2,197 8,508 16,902
Shareholders' Equity................ 72,662 125,012 115,015 104,186 94,372 84,466 74,663 66,412
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET ANALYSIS ($000)
Debt to Capitalization.............. 31.0% 0.9% 1.3% 1.5% 1.9% 2.5% 10.2% 20.3%
Working Capital..................... 36,614 55,784 51,624 62,304 57,022 45,001 38,921 35,477
Quick Ratio......................... 1.4:1 3.3:1 2.9:1 4.2:1 3.4:1 2.4:1 2.0:1 1.9:1
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOW DATA ($000)
From Operations..................... $ 17,791 $ 18,545 $ 22,015 $ 16,330 $ 22,752 $ 22,423 $ 13,871 $ 24,023
Used for Investment................. (8,251) (1,374) (16,231) (7,923) (22,511) (3,057) (2,499) (2,181)
Used for Financing.................. (23,915) (11,105) (8,374) (7,767) (7,306) (12,870) (14,312) (16,501)
Change in Cash & Equivalents........ (14,375) 6,066 (2,590) 640 (7,065) 6,496 (2,940) 5,341
Capital Expenditures................ 8,334 6,137 5,086 9,720 4,187 2,574 3,387 3,239
Depreciation........................ 6,321 6,287 6,008 4,384 3,676 4,231 4,347 4,079
Dividends Paid...................... 8,290 8,121 7,814 7,560 7,069 6,583 6,098 6,088
Interest (Income)/Expense........... 53 (946) (911) (1,876) (1,819) (1,214) (49) 1,261
Taxes Paid.......................... 11,234 13,313 14,502 13,117 16,871 14,751 15,238 12,877
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOW ANALYSIS ($000)
Operating Cash Flow (1)............. $ 29,078 $ 30,912 $ 35,606 $ 27,571 $ 37,804 $ 35,960 $ 29,060 $ 38,161
Net Cash Flow (2)................... 20,744 24,775 30,520 17,851 33,617 33,386 25,673 34,922
Elective Cash Flow (3).............. 1,167 4,287 9,115 (950) 11,496 13,266 4,386 14,696
EXHIBIT 13(a)(x)
CLARCOR
FINANCIAL REVIEW
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
================================================================================
In 1994, CLARCOR generated new records in sales, operating profit, net earnings
and earnings per share. Operating profit improved as a result of strong
Filtration Products Group gains. Net earnings and earnings per share benefited
from a nonrecurring gain recorded in non-operating income. This 1994 financial
review should be read in conjunction with other financial information presented
in this report.
The Company's Group Information is shown herein under the caption "Group
Information", and this review should be read in conjunction with that
information. Comparative operating results are shown in the table below.
OPERATING RESULTS
1994 vs. 1993 1993 vs. 1992
Change Change
--------------- ---------------
$ 1994 % Sales $ % $ 1993 % Sales $ %
------------------------------------ ------------------------------------
Continuing Operations:
Net Sales................................... $270.1 100.0% $44.8 19.9% $225.3 100.0% $36.7 19.5%
Cost of Sales............................... 192.4 71.2% 36.8 23.7% 155.6 69.1% 26.3 20.4%
Selling & Administrative Expenses........... 45.3 16.8% 4.7 11.5% 40.6 18.0% 8.9 28.2%
Operating Profit............................ 32.4 12.0% 3.3 11.3% 29.1 12.9% 1.5 5.2%
Other Income (Expense)...................... 0.2 0.1% 2.2 -- (2.0) (0.9%) 0.3 14.5%
Earnings Before Taxes....................... 32.6 12.1% 5.5 20.2% 27.1 12.0% 1.8 7.0%
Income Taxes................................ 11.9 4.5% 2.1 21.5% 9.8 4.3% 1.0 11.7%
Earnings.................................... 20.7 7.6% 3.4 19.6% 17.3 7.7% 0.8 4.5%
Cumulative Effect of Accounting Changes....... 0.6 0.3% 0.6 -- -- -- 2.4 --
Net Earnings.................................. $ 21.3 7.9% $ 4.0 23.2% $ 17.3 7.7% $ 3.2 22.0%
------------------------------------ ------------------------------------
------------------------------------ ------------------------------------
Earnings Per Share:
Continuing Operations......................... $1.39 $0.23 19.8% $1.16 $0.06 5.5%
Cumulative Effect of Accounting Changes....... $0.04 $0.04 -- -- $0.16 --
Total....................................... $1.43 $0.27 23.3% $1.16 $0.22 23.4%
Average Shares Outstanding.................... 14.8 14.8
==================================================================================================================================
SALES
CLARCOR's net sales for 1994 reached a new high. Record net sales of $270.1
were 19.9% higher than sales of $225.3 reported for 1993. Increased sales were
recorded in both the Filtration Products and Consumer Products Groups. A total
of $188.6 was reported for 1992. Consolidated 1993 net sales were 19.5% higher
than the 1992 sales.
Comparative information related to the net sales of CLARCOR's operating
groups is shown in the tables below.
Filtration Products Group 1994 net sales of $199.8 increased 27.9% over
sales of $156.2 in the previous year. The increase was principally the result of
the inclusion in the current year of a full year of sales from the 1993 Airguard
Industries and Guardian/UEL acquisitions, and strong sales increases in the
group's Baldwin heavy duty and Clark Filter railroad locomotive units. Airguard
Industries also reported strong sales growth on a full year basis from 1993 to
1994. The group's 1993 sales were 32.1% higher than sales in fiscal 1992 due
principally to the mid-year acquisitions of Airguard and Guardian.
1994 vs. 1993
NET SALES $ % Total Change
- ------------------------------------------------------------------------
Filtration Products................ $199.8 74.0% 27.9%
Consumer Products.................. 70.3 26.0% 1.7%
---------------------------------
Total............................ $270.1 100.0% 19.9%
---------------------------------
---------------------------------
1993 vs. 1992
NET SALES $ % Total Change
- ------------------------------------------------------------------------
Filtration Products................ $156.2 69.3% 32.1%
Consumer Products.................. 69.1 30.7% (1.8%)
---------------------------------
Total............................ $225.3 100.0% 19.5%
---------------------------------
---------------------------------
FINANCIAL REVIEW
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
================================================================================
Sales recorded in the Consumer Products Group increased to $70.3 in 1994
from $69.1 in 1993, an increase of 1.7%. This increase was due principally to
higher shipment levels of plastic parts and flat sheet decorating business.
Sales in 1993 declined 1.8% from the year-earlier level of $70.4, due chiefly to
greater reductions in promotional business than increases in plastic closure
sales.
EARNINGS
CLARCOR operating units earned record consolidated operating profit of
$32.4 in 1994. The 1994 operating profit increased 11.3% over the level recorded
the year before. Operating profit increased in the Filtration Products Group,
but declined in the Consumer Products Group. Prior year operating profit
increased 5.2% over the level of $27.6 in 1992. Tables which reflect comparative
operating profit information related to the Company's groups are shown below.
1994 vs. 1993
OPERATING PROFIT $ % Total Change
- ------------------------------------------------------------------------
Filtration Products................ $26.6 82.2% 35.3%
Consumer Products.................. 5.8 17.8% (38.7%)
---------------------------------
Total............................ $32.4 100.0% 11.3%
---------------------------------
---------------------------------
1993 vs. 1992
OPERATING PROFIT $ % Total Change
- ------------------------------------------------------------------------
Filtration Products................ $19.7 67.6% 5.3%
Consumer Products.................. 9.4 32.4% 4.9%
---------------------------------
Total............................ $29.1 100.0% 5.2%
---------------------------------
---------------------------------
OPERATING PROFIT AS A
PERCENT OF NET SALES 1994 1993 1992
- ------------------------------------------------------------------------
Filtration Products................ 13.3% 12.6% 15.8%
Consumer Products.................. 8.2% 13.6% 12.7%
---------------------------------
Total............................ 12.0% 12.9% 14.6%
---------------------------------
---------------------------------
Operating profit recorded in the Filtration Products Group totaled $26.6 in
1994. This was 35.3% higher than $19.7 reported in the prior year. The increased
operating profit principally reflected strong market share gains in all of the
group's businesses. In addition, the 1994 profits include a full year of profits
from the 1993 acquisitions of Airguard and Guardian/UEL. The 1993 operating
profit was negatively impacted by $1.5 of charges related to the Baldwin N.V.
operation and the settlement of a litigation contingency. The 1994 profit as a
percent of sales was 13.3%, and compares to 12.6% in 1993. The 1993 operating
profit of $19.7 was 5.3% higher than profit of $18.7 reported in 1992, due
chiefly to profits from acquisitions and gains recorded in the Baldwin heavy
duty and Clark Filter railroad locomotive business. Current year Filtration
operating profit represented 82.2% of total consolidated profit, compared to
67.6% for both 1993 and 1992.
Consumer Products Group operating profit declined by 38.7% in the current
year, to $5.8. Operating profit declined from the 1993 level due to the sale in
1993 of high margin engineering services which did not repeat in the current
year and current year consulting expenses which will improve productivity in
future years. The 1993 operating profit was 4.9% higher than that of the
previous year, reflecting the benefit of the sale of the high margin engineering
services. Operating profit as a percent of sales declined in 1994 to 8.2% from
the level of 13.6% in 1993. The 1994 profit was 17.8% of the consolidated total,
compared to 32.4% in both the prior year and 1992.
Net other income totaled $.2 in 1994. Of this total, income items included
a $4.2 gain from the sale of the Company's investment in stock of G.U.D.
Holdings Limited. Expense items included interest of $2.8, chiefly related to
CLARCOR's long-term debt. In the prior year, nonoperating items netted to $2.0
of expense, and included $3.5 of interest expense related to the Company's debt.
Nonoperating items in 1992 totaled a net of $2.3, principally the result of $3.8
of interest expense.
Earnings from continuing operations before income taxes and the cumulative
effect of a change in accounting method in 1994 totaled $32.6. This is an
increase of 20.2% over earnings in 1993 of $27.1. The increase in current year
earnings reflects strong Filtration operations and an increase in current year
other income to $.2 from an expense of
================================================================================
$2.0 in 1993. Continuing operations generated earnings of $25.3 before taxes and
the accounting change in 1992 for the adoption of the postretirement benefits
accounting standard.
CLARCOR's provision for income taxes in the current year totaled $11.9.
This was an increase from the level of $9.8 recorded in 1993. This increase over
the prior year was attributable to higher earnings from operations. The
effective tax rate in the current year was 36.7%, a slight increase from 1993's
36.3% rate. Income taxes in 1992 were $8.8, and the effective rate was 34.8%.
More information related to income taxes can be found in Footnote I. in the
consolidated financial statements.
Earnings from continuing operations before the cumulative effect of a
change in accounting method in the current year were $20.7, compared to $17.3 in
1993 and $16.5 in 1992. In 1994, CLARCOR adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The adoption of
this new standard contributed $.6 to earnings in the first quarter of 1994.
During 1992, the Company adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions".
The adoption of this accounting standard resulted in a $2.4 after-tax charge
against earnings that year.
Total net earnings in 1994 were $21.3, 23.2% higher than net earnings of
$17.3 in 1993. Total 1993 net earnings increased 22.0% over 1992 net earnings
which totaled $14.1.
Earnings per share from continuing operations increased to $1.39 in 1994, a
19.8% increase over per share earnings of $1.16 in 1993. The cumulative effect
of the income tax accounting change contributed an additional $.04 per share,
resulting in 1994 total earnings per share of $1.43. In the prior year, earnings
were increased by $.06 per share from the 1992 earnings. Earnings per share from
continuing operations in 1992 were $1.10, and were reduced $.16 by the
cumulative effect of adopting the postretirement benefits accounting standard.
FINANCIAL CONDITION
CORPORATE LIQUIDITY
The discussion of corporate liquidity should be read in conjunction with
information presented in the Consolidated Statements of Cash Flows included in
Exhibit 13(a)(v).
SUMMARY OF CASH FLOWS 1994 1993 1992
- ------------------------------------------------------------------------
From Operations......................... $24.6 $20.0 $22.8
Interest Payments..................... 2.9 3.6 3.9
For Investing........................... 0.5 1.2 7.2
Capital Expenditures.................. 11.4 10.2 6.5
For Financing........................... 18.4 20.0 10.2
Dividends............................. 9.2 9.0 8.9
Change in Cash & Equivalents............ 5.7 (1.2) 5.4
CLARCOR generated strong cash flows in the current year. Cash flows from
1994 operating activities totaled $24.6, a 23.1% increase over cash flows of
$20.0 from operating activities in 1993. Current year operating cash flow
included a total of $27.9 from higher operating earnings and increased noncash
charges, compared to a total of $23.5 from these items in 1993. Changes in the
assets and liabilities in the current year were a mix of increases and decreases
which mostly offset each other. Changes in assets and liabilities in 1993
resulted in a $3.0 use of cash. Operating cash flows from continuing operations
generated $19.7 of cash in 1992. Discontinued operations generated cash of $3.1,
providing a total of $22.8 from operating activities in that year.
Cash flows used in investing activities in the current year decreased to
$.5 from $1.2 in 1993. Cash of $10.7 was collected from the sale of G.U.D.
shares, and cash of $1.7 was received from other sources. Cash used included
$11.4 for plant additions, and $1.5 for the acquisition of a business. Of the
1993 total, $20.7 of cash proceeds originated from the sale of the Precision
Products Group, and other investing activities generated a net $1.1. In 1993,
cash of $12.8, net of cash acquired, was invested in business acquisitions and
$10.2 was spent on asset additions. Investing activities in 1992 used net cash
of $7.2, representing mostly additions to plant assets.
FINANCIAL REVIEW
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
================================================================================
Cash used in financing activities totaled $18.4 in the current year. This
compares to a total of $20.0 used in fiscal 1993. The decrease is principally
due to treasury share purchases of $1.3 in the current year compared to $3.4 in
1993. In 1992, the total of $10.2 used in financing activities was principally
composed of $1.4 of long-term debt reductions and $8.9 of dividend payments.
The Company's operations continue to generate the cash levels required to
maintain planned operating levels, to provide for capital replacement, and to
service and liquidate the long-term debt. Additionally, CLARCOR has access to
lines of credit sufficient for its current operations.
CAPITAL RESOURCES
CLARCOR continued to maintain a strong and liquid balance sheet in support
of its operations throughout 1994.
1994 1993
SUMMARY BALANCE ------------------------------------
SHEET $ % Change $ % Change
- ------------------------------------------------------------------------
Current Assets.................. $ 98.5 14.3% $ 86.2 (8.0%)
Plant Assets, net............... 52.6 10.5% 47.6 33.9%
Excess Cost over
Fair Value, net............... 15.2 (3.2%) 15.7 23.0%
Pension & Other Assets.......... 22.1 (7.8%) 24.1 24.9%
Total Assets.................... 188.4 8.6% 173.6 7.6%
Current Liabilities............. 39.5 18.5% 33.3 31.7%
Long-Term Debt.................. 17.0 (30.9%) 24.6 (16.1%)
Pension & Other Liabilities..... 14.4 31.7% 11.1 55.1%
Shareholders' Equity............ 117.5 12.3% 104.6 5.1%
Total Liabilities &
Shareholders' Equity.......... 188.4 8.6% 173.6 7.6%
Total assets at year-end 1994 were $188.4, an increase of 8.6% over total
assets of $173.6 at the end of 1993. Working capital reached $59.0 at year-end
1994, compared to $52.9 in 1993. The 1994 current ratio was 2.5:1, compared to
2.6:1 in 1993. The Company continued to generate the cash needed to support a
higher level of business and increased investment in plant and equipment. Cash
and short-term investments totaled $19.6 in the current year, compared to $13.8
in 1993. Due to increased business, net accounts receivable reached $42.5 at the
end of the current year. This compares to $40.9 at the end of the prior year. In
1994
1994 1993
--------------------
Current Ratio..................................... 2.5:1 2.6:1
Quick Ratio....................................... 1.6:1 1.6:1
Debt/Equity....................................... 14.5% 23.5%
inventories, to support a higher level of sales, increased to $30.3 from $27.0
in 1993. Year-end net plant assets rose to $52.6 from $47.6 in 1993, reflecting
a higher level of asset additions. In 1994, marketable equity securities of $3.7
reflected the Company's remaining 5% interest in G.U.D. Holdings Limited,
classified as available-for-sale under the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," at year-end. In 1993, the investment in affiliates of $8.0
represented CLARCOR's 20% investment in G.U.D. Holdings Limited, and the related
joint venture.
Current liabilities of $39.5 at year-end increased over the 1993 level of
$33.3. This was principally the result of increased accounts payable and accrued
liabilities, in line with the increase in the Company's business in 1994. Long-
term debt, reflecting continued principal payments, decreased to $17.0 from
$24.6 last year. At November 30, 1994, long-term debt represented 12.7% of total
capitalization, compared to a level of 19.0% in 1993. Net 1994 shareholders'
equity was increased $12.9 to $117.5 from $104.6 in 1993. The 1994 shareholders'
equity represented 87.3% of total capitalization. Last year, shareholders'
equity represented 81.0% of total capitalization.
At year-end 1994, the Company had outstanding 14,760,888 shares of common
stock at $1.00 par value. This compares to 14,819,199 shares outstanding at the
prior year-end.
================================================================================
THE FUTURE
In 1994, CLARCOR continued its upward trend in operating results. Sales,
profits and earnings increased and future operations are expected to continue
this trend. The Company plans to continue the expansion of the Filtration
Products Group while maintaining a positive presence in the Consumer Products
markets.
The expansion of the Filtration Products Group is expected to continue with
growth from existing businesses through the introduction of new filtration
products, the broadening of existing businesses, and the expansion of
international sales. In addition, the group plans to grow through the
acquisition of other filtration companies. In the Consumer Products Group,
future revenue growth is anticipated to come from increased plastic closure
sales, increased international sales, and the development and introduction of
new products.
The Company's plan for internal growth, coupled with anticipated future
acquisitions and expected strategic alliances, will further the realization of
CLARCOR's sales, profits, and earnings objectives. The realization of these
objectives will provide the liquidity and financial strength necessary for
growth and, the Company believes, an increase in shareholder value.
GROUP INFORMATION
Financial data relating to the principal groups of the business are shown
in the following table for the years ended November 30, 1994 through 1992.
Net sales represent sales to unaffiliated customers as reported in the
Consolidated Statements of Earnings. Intergroup sales were not material. Assets
are those assets used in each business group.
(Dollars in Thousands) 1994 1993 1992
- ------------------------------------------------------------------------
FILTRATION
Net Sales........................... $199,793 $156,165 $118,215
Operating Profit.................... 26,597 19,661 18,666
Assets.............................. 114,501 105,278 74,364
Invested Capital.................... 87,009 79,865 61,231
Operating Margin.................... 13.3% 12.6% 15.8%
Capital Turnover.................... 2.5x 2.6x 2.1x
Operating Profit ROA................ 25.3% 26.4% 26.0%
Operating Profit ROIC............... 33.3% 32.1% 32.5%
Operating Cash Flow*................ $ 27,186 $ 22,038 $ 19,710
Capital Expenditures................ 6,715 6,339 3,861
Net Cash Flow....................... 20,471 15,699 15,849
Percent of Sales.................. 10.2% 10.1% 13.4%
Percent of Capital................ 25.6% 25.6% 27.6%
Total Employees..................... 1,614 1,419 878
CONSUMER
Net Sales........................... $ 70,330 $ 69,154 $ 70,410
Operating Profit.................... 5,769 9,406 8,964
Assets.............................. 32,386 30,377 28,588
Invested Capital.................... 26,711 26,068 23,901
Operating Margin.................... 8.2% 13.6% 12.7%
Capital Turnover.................... 2.7x 2.9x 2.8x
Operating Profit ROA................ 19.0% 32.9% 30.7%
Operating Profit ROIC............... 22.1% 39.4% 35.2%
Operating Cash Flow*................ $ 8,120 $ 11,120 $ 12,286
Capital Expenditures................ 4,157 3,816 2,652
Net Cash Flow....................... 3,963 7,304 9,634
Percent of Sales.................. 5.6% 10.6% 13.7%
Percent of Capital................ 15.2% 30.6% 37.8%
Total Employees..................... 565 612 642
<FN>
*Before interest income/expense and taxes paid.
========================================================================
Sales volume by class of product for Consumer Products Group*
1994 1993 1992
-----------------------------
Containers.......................... 20% 24% 24%
<FN>
*Includes only those classes of products which contributed 10% or more to
Corporate revenue, including discontinued operations. No class of products
within the Company's Filtration Products Group accounted for as much as 10% of
the total sales of the Company.