SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
QUARTERLY REPORT
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Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the quarter ended March 1, 2003
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REGISTRANT: CLARCOR Inc. (Delaware)
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 1, 2003 Commission File Number 1-11024
CLARCOR Inc.
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(Exact name of registrant as specified in its charter)
DELAWARE 36-0922490
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2323 Sixth Street, P.O. Box 7007, Rockford, Illinois 61125
- ----------------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 815-962-8867
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No Change
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
24,925,729 common shares outstanding
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Page 1 of 23
Part I - Item 1
CLARCOR Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
--------
March 1, November 30,
ASSETS 2003 2002
----------- ------------
(unaudited)
Current assets:
Cash and short-term cash investments $ 8,824 $ 13,747
Accounts receivable, less allowance for losses
of $7,377 for 2003 and $7,020 for 2002 113,460 121,482
Inventories:
Raw materials 35,687 34,313
Work in process 12,312 10,897
Finished products 60,638 56,636
--------- ---------
Total inventories 108,637 101,846
--------- ---------
Prepaid expenses and other current assets 4,584 5,576
Deferred income taxes 17,958 17,095
--------- ---------
Total current assets 253,463 259,746
--------- ---------
Plant assets at cost, 293,254 290,302
less accumulated depreciation (162,390) (157,410)
--------- ---------
130,864 132,892
--------- ---------
Goodwill 82,262 81,658
Trademarks 29,476 29,483
Other acquired intangibles, less accumulated amortization 10,837 11,388
Pension assets 21,442 21,771
Other noncurrent assets 9,187 9,181
--------- ---------
$ 537,531 $ 546,119
========= =========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 56,414 $ 68,456
Accounts payable 48,711 50,350
Income taxes 11,686 8,061
Accrued employee compensation 11,370 20,688
Other accrued liabilities 28,042 26,700
--------- ---------
Total current liabilities 156,223 174,255
--------- ---------
Long-term debt, less current portion 22,426 22,648
Long-term pension liabilities 8,272 7,823
Other long-term liabilities 26,109 25,396
Minority interests 585 536
Contingencies
SHAREHOLDERS' EQUITY
Capital stock 24,926 24,919
Capital in excess of par value 13,303 12,854
Accumulated other comprehensive earnings (4,732) (6,187)
Retained earnings 290,419 283,875
--------- ---------
323,916 315,461
--------- ---------
$ 537,531 $ 546,119
========= =========
See Notes to Consolidated Condensed Financial Statements
Page 2 of 23
CLARCOR Inc.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Dollars in thousands except per share data)
(Unaudited)
---------
Three Months Ended
------------------------------------------
March 1, March 2,
2003 2002
------------ -----------
Net sales $ 171,494 $ 158,262
Cost of sales 123,145 113,552
------------ -----------
Gross profit 48,349 44,710
Selling and administrative expenses 32,862 30,304
------------ -----------
Operating profit 15,487 14,406
------------ -----------
Other income (expense):
Interest expense (524) (1,966)
Interest income 110 194
Other, net 46 (104)
------------ -----------
(368) (1,876)
------------ -----------
Earnings before income taxes and minority interests 15,119 12,530
Provision for income taxes 5,516 4,518
------------ -----------
Earnings before minority interests 9,603 8,012
Minority interests in earnings of subsidiaries (7) (14)
------------ -----------
Net earnings $ 9,596 $ 7,998
============ ===========
Net earnings per common share:
Basic $ 0.39 $ 0.32
============ ===========
Diluted $ 0.38 $ 0.32
============ ===========
Average number of common shares outstanding:
Basic 24,920,638 24,689,170
============ ===========
Diluted 25,348,353 25,006,604
============ ===========
Dividends paid per share $ 0.1225 $ 0.1200
============ ===========
See Notes to Consolidated Condensed Financial Statements
Page 3 of 23
CLARCOR Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
--------
Three Months Ended
---------------------------------------
March 1, March 2,
2003 2002
-------- --------
Cash flows from operating activities:
Net earnings $ 9,596 $ 7,998
Depreciation 4,967 5,006
Amortization 225 182
Changes in assets and liabilities (1,570) (1,221)
Other, net -- (10)
-------- --------
Net cash provided by operating activities 13,218 11,955
-------- --------
Cash flows from investing activities:
Additions to plant assets (3,017) (3,280)
Business acquisitions, net of cash acquired -- 3,694
Other, net 7 (48)
-------- --------
Net cash provided by (used in) investing activities (3,010) 366
-------- --------
Cash flows from financing activities:
Proceeds from line of credit 6,250 5,500
Payments on line of credit (18,333) (14,500)
Payments on long-term debt (181) (197)
Cash dividends paid (3,052) (2,954)
Other, net 162 1,365
-------- --------
Net cash used in financing activities (15,154) (10,786)
-------- --------
Net effect of exchange rate changes on cash 23 (69)
-------- --------
Net change in cash and short-term cash investments (4,923) 1,466
Cash and short-term cash investments,
beginning of period 13,747 7,418
-------- --------
Cash and short-term cash investments,
end of period $ 8,824 $ 8,884
======== ========
Cash paid during the period for:
Interest $ 704 $ 2,479
======== ========
Income taxes $ 1,639 $ 1,057
======== ========
See Notes to Consolidated Condensed Financial Statements
Page 4 of 23
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The November 30, 2002 consolidated balance sheet data was derived from
CLARCOR's year-end audited financial statements, but does not include all
disclosures required by accounting principles generally accepted in the
United States of America. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America
have been condensed or omitted.
The consolidated condensed balance sheet as of March 1, 2003, the
consolidated condensed statements of earnings and the consolidated
condensed statements of cash flows for the periods ended March 1, 2003, and
March 2, 2002, have been prepared by the Company without audit. The
financial statements have been prepared on the same basis as those in the
Company's November 30, 2002 annual report to shareholders. In the opinion
of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations, and cash flows have been made. The results of operations for
the period ended March 1, 2003 are not necessarily indicative of the
operating results for the full year. Certain reclassifications have been
made to conform prior years' data to the current presentation. These
reclassifications had no effect on reported earnings.
2. ACQUISITIONS
On June 5, 2002, the Company acquired Locker Filtration Limited (Locker), a
Warrington, England manufacturer of heavy-duty air filters, diesel and gas
turbine air intake system filters and specialty filters. During the fourth
quarter 2002, the Company acquired Total Filter Technology (TFT), a process
liquid filtration manufacturer based in North Chelmsford, Massachusetts and
FilterSource, an air filtration distributor based in California. The three
acquisitions were purchased for approximately $10,371 in cash and their
results were included in the Company's consolidated results of operations
from the dates of acquisition. Locker is included in the Engine/Mobile
Filtration segment. TFT and FilterSource are included in the Industrial/
Environmental Filtration segment. An allocation of the purchase price has
been made to major categories of assets and liabilities for each
acquisition. The acquisitions are not material to the results of the
company. During the first quarter ended March 1, 2003, the appraisal and
other purchase accounting adjustments for TFT and FilterSource were
finalized resulting in an increase to goodwill of $417, a decrease to
trademarks of $7, and a decrease to other identifiable definite-lived
intangibles of $326. No additional purchase accounting entries associated
with the 2002 acquisitions are expected other than entries to finalize
deferred income taxes.
On June 4, 2001, the Company acquired the stock of several filtration
management companies. As a result of the acquisition, the companies were
combined into one company, Total Filtration Services, Inc. (TFS), and
included in the Industrial/Environmental Filtration segment from the date
of acquisition. The initial purchase price was based on the net assets of
the businesses acquired as shown on a June 4, 2001 balance sheet subject to
a final adjustment. During first quarter 2002, the purchase price was
finalized resulting in a $3,694 payment by the seller to the Company. A
decrease to goodwill of $3,954 was recorded primarily as a result of the
net settlement payment and entries associated with deferred income taxes,
the valuation of inventory acquired, and preacquisition contingencies
related to contract matters. No additional purchase accounting entries
associated with the TFS acquisition are expected other than entries to
finalize deferred income taxes.
Page 5 of 23
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited) Continued
3. RECENT ACCOUNTING PRONOUNCEMENT
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others." FIN 45 requires that certain guarantees be recognized as
liabilities at fair value at their inception date and requires certain
disclosures by the guarantor in its financial statements about its
obligations. The Company has reviewed the provisions of FIN 45 relating to
initial recognition and measurement of guarantor liabilities, which are
effective for qualifying guarantees entered into or modified after December
31, 2002, and does not expect it to have a material impact on the Company's
financial statements. The disclosure requirements which are effective for
the quarter ended March 1, 2003 are described below.
The Company has provided letters of credit totaling approximately $21,309
to various government agencies, primarily related to industrial revenue
bonds, and to insurance companies and other entities in support of its
obligations. The Company believes that no payments will be required
resulting from these accommodation obligations.
In the ordinary course of business, the Company also provides routine
indemnifications and other guarantees whose terms range in duration and
often are not explicitly defined. The Company does not believe these will
have a material impact on the results of operations or financial condition
of the Company.
The Company has certain majority ownership interests in a consolidated
affiliate in which the Company has agreed, under certain conditions, to buy
out the minority owners' interest for an amount estimated to be not more
than $500.
Warranties are recorded as a liability on the balance sheet and as charges
to current expense for estimated normal warranty costs and, if applicable,
for specific performance issues known to exist on products already sold.
The expenses estimated to be incurred are provided at the time of sale,
based primarily upon experience.
Changes in the Company's warranty accrual during the quarter are as
follows:
Balance at November 30, 2002 $ 1,771
Accruals for warranties issued during the period 96
Accruals related to pre-existing warranties 89
Settlements made during the period (92)
Other adjustments, including currency translation 76
---------
Balance at March 1, 2003, included in other current liabilities $ 1,940
=========
Page 6 of 23
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited) Continued
4. GOODWILL AND INTANGIBLES
The following table summarizes the activity for acquired intangibles by
reporting unit for the three months ended March 1, 2003. The acquisitions
are discussed in Note 2.
2003
---------------------------------------------------------------------------------
Currency
Beginning Translation End of
of Year Acquisitions Adjustments Amortization Quarter
---------------------------------------------------------------------------------
Goodwill:
Engine/Mobile Filtration $ 11,528 $ - $ 180 $ - $ 11,708
Industrial/Environmental Filtration 70,130 417 7 - 70,554
Packaging - - - - -
---------------------------------------------------------------------------------
$ 81,658 $ 417 $ 187 $ - $ 82,262
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Trademarks:
Engine/Mobile Filtration $ 603 $ - $ - $ - $ 603
Industrial/Environmental Filtration 28,880 (7) - - 28,873
Packaging - - - - -
---------------------------------------------------------------------------------
$ 29,483 $ (7) $ - $ - $ 29,476
---------------------------------------------------------------------------------
Other acquired intangibles, gross:
Engine/Mobile Filtration $ 1,040 $ - $ - $ - $ 1,040
Industrial/Environmental Filtration 13,430 (326) - - 13,104
Packaging - - - - -
---------------------------------------------------------------------------------
14,470 (326) - - 14,144
Less accumulated amortization 3,082 - - 225 3,307
---------------------------------------------------------------------------------
Other acquired intangibles, net $ 11,388 $ (326) $ - $ 225 $ 10,837
=================================================================================
Amortization expense is estimated to be $900 in 2003, $781 in 2004, $777 in
2005, $752 in 2006, and $739 in 2007.
5. EARNINGS PER SHARE
The Company calculates earnings per share according to Statement of
Financial Accounting Standards No. 128, "Earnings per Share." Diluted
earnings per share reflects the impact of outstanding stock options and
restricted stock as if exercised during the periods presented using the
treasury stock method.
The following table provides a reconciliation of the numerators and
denominators utilized in the calculation of basic and diluted earnings per
share:
Page 7 of 23
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited) Continued
5. EARNINGS PER SHARE, Continued
Three Months Ended
-------------------------------
March 1, March 2,
2003 2002
----------- -----------
Net Earnings $ 9,596 $ 7,998
Basic EPS:
Weighted average number of common
shares outstanding 24,920,638 24,689,170
Basic per share amount $ 0.39 $ 0.32
=========== ===========
Diluted EPS:
Weighted average number of common
shares outstanding 24,920,638 24,689,170
Dilutive effect of stock options and restricted stock 427,715 317,434
----------- -----------
Diluted weighted average number of
common shares outstanding 25,348,353 25,006,604
Diluted per share amount $ 0.38 $ 0.32
=========== ===========
All options were included in the computation of diluted earnings per share
as the options' exercise prices were lower than the average market price of
the common shares during the quarters ended March 1, 2003 and March 2,
2002.
For the three months ended March 1, 2003, exercises of stock options added
$194 to capital in excess of par value.
6. COMPREHENSIVE EARNINGS
The Company's total comprehensive earnings and its components are as
follows:
Three Months Ended
-------------------------
March 1, March 2,
2003 2002
--------- ---------
Net earnings $ 9,596 $ 7,998
Other comprehensive earnings, net of tax:
Cash flow hedges:
Unrealized gain on derivative instruments - 348
Foreign currency translation adjustments 1,455 (974)
------- -------
Total comprehensive earnings $11,051 $ 7,372
======= =======
Page 8 of 23
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited) Continued
7. CONTINGENCIES
The Company is involved in legal actions arising in the normal course of
business. Additionally, the Company is party to various proceedings
relating to environmental issues. The U.S. Environmental Protection Agency
(EPA) and/or other responsible state agencies have designated the Company
as a potentially responsible party (PRP), along with other companies, in
remedial activities for the cleanup of waste sites under the federal
Superfund statute.
Although it is not certain what future environmental claims, if any, may be
asserted, the Company currently believes that its potential liability for
known environmental matters does not exceed its present accrual of $50.
However, environmental and related remediation costs are difficult to
quantify for a number of reasons, including the number of parties involved,
the difficulty in determining the extent of the contamination, the length
of time remediation may require, the complexity of the environmental
regulation and the continuing advancement of remediation technology.
Applicable federal law may impose joint and several liability on each PRP
for the cleanup.
It is the opinion of management, after consultation with legal counsel that
additional liabilities, if any, resulting from these legal or environmental
issues, are not expected to have a material adverse effect on the Company's
financial condition or consolidated results of operations.
8. SEGMENT DATA
The Company operates in three principal product segments: Engine/Mobile
Filtration, Industrial/Environmental Filtration, and Packaging. The segment
data for the three months ended March 1, 2003 and March 2, 2002,
respectively, are shown below. Net sales represent sales to unaffiliated
customers as reported in the consolidated condensed statements of earnings.
Intersegment sales were not material.
Three Months Ended
----------------------------
March 1, March 2,
2003 2002
--------- ---------
Net sales:
Engine/Mobile Filtration $ 66,776 $ 57,839
Industrial/Environmental Filtration 90,369 85,950
Packaging 14,349 14,473
--------- ---------
$ 171,494 $ 158,262
========= =========
Operating profit:
Engine/Mobile Filtration $ 12,686 $ 11,258
Industrial/Environmental Filtration 2,373 2,530
Packaging 428 618
--------- ---------
$ 15,487 $ 14,406
Other income (expense) (368) (1,876)
--------- ---------
Earnings before income taxes and
minority earnings $ 15,119 $ 12,530
========= =========
Page 9 of 23
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited) Continued
8. SEGMENT DATA, Continued
Three Months Ended
--------------------------------
March 1, March 2,
2003 2002
------------ -----------
Identifiable assets:
Engine/Mobile Filtration $ 147,528 $ 135,534
Industrial/Environmental Filtration 292,779 301,003
Packaging 41,366 44,293
Corporate 55,858 44,694
------------ -----------
$ 537,531 $ 525,524
============ ===========
Page 10 of 23
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: FIRST QUARTER OF 2003 COMPARED WITH FIRST QUARTER OF
2002.
CLARCOR reported increased sales, operating profit and net earnings for the 2003
first quarter compared to the same quarter in 2002. Included in the 2003 quarter
are the results from Locker Filtration (Locker), which the Company acquired at
the beginning of the third quarter 2002. Locker added approximately $4,000,000
in Engine/Mobile Filtration segment sales for the 2003 quarter and reduced
diluted earnings per share by approximately $0.01.
Net sales of $171,494,000 increased 8.4% from $158,262,000 reported for the
first quarter of 2002. Compared to last year's first quarter, sales were
approximately 5% higher than 2002 excluding the sales from Locker for the 2003
quarter and the impact of favorable currency translation rates.
The Engine/Mobile Filtration segment reported increased sales of 15.5% to
$66,776,000 from $57,839,000 in 2002. Excluding the sales from Locker for the
2003 quarter, sales increased approximately 8% from 2002 due primarily from
growth in the heavy-duty filter aftermarket. Of the 8% sales increase, selective
price changes accounted for less than 2 points of the change in sales and
favorable currency translation due to the weaker U.S. dollar resulted in
approximately 1 point of the change.
The Company's Industrial/Environmental Filtration segment recorded a 5.1%
overall increase in sales to $90,369,000 for the 2003 first quarter. The
increased sales level was primarily due to increased customer demand for HVAC
filters, filters used in oil drilling and liquid process filters sold to the
beverage industry. These sales more than offset reduced sales of air quality
equipment, filtration systems and filters used in the aerospace industry.
Approximately 1 point of the sales increase was related to favorable currency
translation during the 2003 quarter.
The Packaging segment reported sales of $14,349,000 compared to $14,473,000 in
2002. This small decrease resulted primarily from lower sales of plastic
products. Sales of metal products increased slightly for the quarter as a result
of the segment's focus on recurring metal lithography business.
Operating profit for first quarter 2003 was $15,487,000 compared to $14,406,000
in 2002, a 7.5% increase. This increase came primarily from the Engine/Mobile
segment. The operating profit increase resulted from sales growth, selective
price increases and favorable currency fluctuations and more than offset
significant cost increases for pensions, health care and insurance in the
quarter. In addition, cost reduction programs and productivity improvement plans
continue to be implemented throughout each of the business segments.
The Engine/Mobile Filtration segment recorded an operating profit increase in
2003 of 12.7% compared to 2002. This increase resulted primarily from sales
growth and productivity improvements that offset higher insurance and pension
costs. Favorable currency translation fluctuations increased operating profit
approximately $100,000. The segment's operating margin was 19.0% compared to
19.5% recorded in the first quarter of 2002. Excluding the impact of Locker, the
comparative operating margin would have been approximately 20.3% for the 2003
quarter.
Page 11 of 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
The Industrial/Environmental Filtration segment reported operating profit of
$2,373,000 in 2003 compared to $2,530,000 in 2002. This reduction in profit
resulted from low sales levels of filtration systems and aerospace filters and
the related reduced absorption of fixed manufacturing and administrative costs.
In addition, costs were incurred during the 2003 quarter related to
rationalizing product lines and reorganizing certain manufacturing facilities
that are expected to improve margins in future periods. Cost increases related
to pensions, health care and insurance also negatively impacted operating profit
for the 2003 quarter.
The Packaging segment's operating profit in the 2003 quarter was $428,000
compared to $618,000 in 2002. The decrease resulted primarily from reduced
plastic product sales and reduced utilization of facilities related to plastic
packaging products in the 2003 quarter. The segment also incurred higher costs
for pensions, health care and insurance.
Net other expense for the quarter of $368,000 was significantly lower than
$1,876,000 in the 2002 quarter primarily due to reduced interest expense.
Interest expense was lower due to reduced interest rates and significantly lower
debt balances during the 2003 quarter.
Earnings before income taxes and minority interests for the first quarter of
2003 totaled $15,119,000, compared to $12,530,000 in the comparable quarter last
year. The provision for income taxes in 2003 was $5,516,000 compared to
$4,518,000 in 2002. The effective rate was 36.5% in 2003 and 36.1% in 2002. The
Company expects the overall effective tax rate for fiscal 2003 will be
approximately 36.5%.
Net earnings in the first quarter of the current year were $9,596,000, or $0.38
per share on a diluted basis. Net earnings in the first quarter of 2002 were
$7,998,000, or $0.32 per share on a diluted basis. Diluted average shares
outstanding were 25,348,353 at the end of the first quarter of 2003, an increase
of 1.4% from the average of 25,006,604 for the 2002 quarter.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased to $13,218,000 in first quarter
2003 compared to $11,955,000 in 2002, primarily due to increased net earnings.
In the first quarter of 2003, cash flows for investing activities totaled
$3,010,000 and was primarily for additions to plant assets. Cash flows from
investing activities in the 2002 quarter included $3,694,000 received from the
sellers of an acquisition in settlement of adjustments required by the purchase
agreement. In the 2002 quarter, $3,280,000 was used for additions to plant
assets. Cash flows used in financing activities of $15,154,000 in 2003 included
net repayments on debt agreements of $12,264,000 and dividend payments of
$3,052,000. Cash flows used in financing activities were $10,786,000 in 2002 and
included net repayments on debt agreements of $9,197,000 and dividend payments
of $2,954,000.
CLARCOR's current operations continue to generate cash and sufficient lines of
credit remain available to fund current operating needs, pay dividends, fund
planned capital expenditures, and provide for interest payments and required
principal payments related to the Company's debt agreements. At the end of the
first quarter of 2003, $50,752,000 was the outstanding balance on a $185 million
multicurrency revolving credit facility. At the end of the first quarter of
2003, $122,239,000 remained available to the Company for future borrowings under
this agreement which expires in September 2003. The Company is currently
negotiating a $165 million replacement credit facility that is expected to be
finalized in the second quarter 2003. The
Page 12 of 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
Company expects to continue to use additional free cash flow in fiscal 2003 to
further reduce outstanding borrowings. Principal payments on other long-term
debt will be approximately $5,600,000 in fiscal 2003. The Company is in
compliance with all covenants related to debt agreements. Capital expenditures
in fiscal year 2003 are expected to be approximately $21,000,000 compared to a
total of $12,204,000 in 2002. The 2003 expenditures will be used primarily for
normal facility improvements, productivity improvements, health and safety
measures, and to support new products. The Company's off-balance sheet
arrangements relate to various operating leases. Commitments for noncancelable
leases in 2003 total approximately $8,500,000. The Company had no derivative,
swap, hedge or special purpose entity agreements at the end of the 2003 first
quarter.
While changes in customer demand for the Company's products will affect
operating cash flow, the Company is not aware of any known trends, demands or
reasonably likely events, other than the possibilities of an economic recession
or disruption caused by war in the Middle East, which would materially affect
cash flow from operations in the future. It is possible that business
acquisitions or dispositions could be made in the future that may affect
operating cash flows and may require changes in the Company's debt and
capitalization.
The Company's financial position at the end of the first quarter reflected
reduced cash as a result of payments made on outstanding debt agreements. Cash
and short-term investments totaled $8,824,000 at the end of the quarter, a
reduction from $13,747,000 at year-end 2002. At the end of the first quarter
2003 compared to year-end 2002, accounts receivable were reduced by $8,022,000
primarily due to lower sales in the first quarter of 2003 compared to the fourth
quarter of 2002. Inventories increased $6,791,000 from the year-end level due to
inventory requirements for increased shipments expected for the remainder of
2003. The changes in accounts receivable and inventories at the end of the first
quarter were consistent with the normal seasonality changes between fiscal
quarters. Current liabilities include the $50,752,000 outstanding balance on a
revolving credit agreement that expires in 2003. The current ratio at the end of
the first quarter was 1.6 compared to 1.5 at the end of fiscal 2002. During the
first quarter of 2003, $12,264,000 was repaid on debt agreements that reduced
total debt to $78,840,000 from $91,104,000 at year-end 2002. The ratio of total
debt to total capitalization was 19.6% at the end of the 2003 first quarter
compared to the year-end 2002 level of 22.4%. At the end of the first quarter
2003, CLARCOR had 24,925,729 shares of common stock outstanding.
OTHER MATTERS
Market Risk
The Company's interest expense on long-term debt is sensitive to changes in
interest rates. In addition, changes in foreign currency exchange rates may
affect assets, liabilities and commitments that are to be settled in cash and
are denominated in foreign currencies. Market risks are also discussed in the
Company's Annual Report and Form 10-K for the year ended November 30, 2002 (the
"Annual Report") in the Financial Review on page 10.
Critical Accounting Policies
The Company's critical accounting policies, including the assumptions and
judgments underlying them, are disclosed in the Company's Annual Report in the
Financial Review on pages 10-11 and in the Notes to the Consolidated Financial
Statements on pages 16-24 and in the Notes to the
Page 13 of 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
consolidated condensed financial statements included herein. These policies have
been consistently applied in all material respects and address such matters as
revenue recognition, depreciation methods, inventory valuation, asset impairment
recognition, business combination accounting and pension and postretirement
benefits. While the estimates and judgments associated with the application of
these policies may be affected by different assumptions or conditions, the
Company believes the estimates and judgments associated with the reported
amounts are appropriate in the circumstances.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) recently issued Statement of
Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement
Obligations," SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," and SFAS No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities." These standards will be applied as appropriate for the
Company beginning in fiscal 2003 and they are not expected to have a material
impact on the Company's results of operations or financial condition.
In November 2002, the FASB issued Interpretation No. 45 (FIN 45), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN 45 requires disclosure in periodic
financial statements of certain guarantee arrangements. The implementation of
this interpretation requires certain disclosures regarding guarantees as
provided in Note 3 to the consolidated condensed financial statements. The
requirements of FIN 45 did not have a significant impact on the Company's
results of operations or financial condition.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS 148 provides alternative methods
of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation and amends certain requirements
of SFAS No. 123. The transition provisions are effective for the Company in
fiscal 2003 and the disclosure requirements are effective for the Company
beginning with its second quarter 2003 consolidated financial statements. The
Company currently plans to continue to apply the intrinsic value method to
account for stock-based employee compensation. Diluted earnings per share for
the 2003 quarter would have been reduced by approximately $0.02 for the quarter
based on the fair value calculation used previously as described in Note M in
the Company's Annual Report.
Outlook
The Company remains optimistic regarding CLARCOR's future. The impact of the
Total Filtration Program is expected to become more evident as it is introduced
to additional current and new customers. The Total Filtration Program combined
with the efforts of each of the filtration businesses to build their individual
sales through new products and new customer relationships will continue to drive
the overall sales growth for the year. In addition, because the Company's
filtration sales are primarily in the aftermarket, revenues tend to be more
stable in difficult economic times than sales into the OEM markets. However,
sales of air quality equipment and filtration systems and sales to the aerospace
market are not expected to improve in the near term. Sales growth is expected
for the Packaging segment for 2003.
As a result of the anticipated overall sales growth for the Company combined
with continued cost control efforts for the remainder of the year, it is
expected that diluted earnings per share for 2003
Page 14 of 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
will be in the $1.92 to $2.02 range. Even though the Company's revenues tend to
be more stable in difficult economic times, an economic recession or
international conflicts would likely impact the Company's business activities
and results of operations.
Continued emphasis on cost reductions within each business unit is expected to
offset cost increases for energy, health care, insurance and pensions. Due to
significantly reduced pension asset valuations and lower discount and asset
return rates, pension expense is expected to increase by approximately
$2,000,000 in fiscal 2003 from 2002. Costs for energy, property and liability
insurance and pensions are particularly impacted by economic conditions and by
interest rates, stock market valuations and reinsurance availability. These
costs for the Company may change significantly based on future changes in the
U.S. and world economies. Capital investments will continue to be made in each
segment's facilities to improve productivity and to support the Total Filtration
Program and new products. While the Company fully anticipates that sales and
profits will improve as a result of sales initiatives and cost reductions, the
Company has developed contingency plans to reduce discretionary spending if
recessionary economic conditions persist.
CLARCOR continues to assess acquisition opportunities, primarily in related
filtration businesses. It is expected that these acquisitions would expand the
Company's market base, distribution coverage and product offerings.
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
Certain statements quoted in the body of this report, and statements in the
"Outlook" section of this report are forward-looking. These statements involve
risk and uncertainty. Actual future results and trends may differ materially
depending on a variety of factors including: the volume and timing of orders
received during the period; the mix of changes in distribution channels through
which the Company's products are sold; the success of the Company's Total
Filtration Program; the timing and acceptance of new products and product
enhancements by the Company or its competitors; changes in pricing, labor
availability and related costs, product life cycles, raw material costs,
insurance, pension, energy costs, and purchasing patterns of distributors and
customers; competitive conditions in the industry; business cycles affecting the
markets in which the Company's products are sold; the effectiveness of plant
conversions, plant expansions and productivity improvement programs; the
management of both growth and acquisitions; the fluctuation in interest rates,
primarily LIBOR, which affect the cost of borrowing under its revolving credit
facility; the fluctuation in foreign and U.S. currency exchange rates;
extraordinary events such as litigation, acquisitions or divestitures including
related charges; market disruptions caused by domestic or international
conflicts; and economic conditions generally or in various geographic areas. All
of the foregoing matters are difficult to forecast. The future results of the
Company may fluctuate as a result of these and the other risk factors detailed
from time to time in the Company's Securities and Exchange Commission reports.
Due to the foregoing items it is possible that in some future quarters the
Company's operating results will be below the expectation of some stock market
analysts and investors. In such event, the price of CLARCOR common stock could
be materially adversely affected.
Page 15 of 23
Part I - Item 3. Quantitative and Qualitative Disclosure About Market Risk.
The information required hereunder is set forth on Page 13 of the
Quarterly Report under the captions "Management's Discussion and
Analysis -- Other Matters -- Market Risk."
Part I - Item 4. Controls and Procedures.
The Company has established disclosure controls and procedures which
are designed to ensure that information required to be disclosed in
reports filed or submitted under the Securities Exchange Act of 1934
are recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commission's rules and
forms. Norman E. Johnson, Chairman of the Board, President, and Chief
Executive Officer and Bruce A. Klein, Vice President - Finance and
Chief Financial Officer, evaluated the effectiveness of the Company's
disclosure controls and procedures as of March 1, 2003. Based on their
evaluation, they concluded that the Company's disclosure controls and
procedures were effective in achieving the objectives for which they
were designed. Since their evaluation, there have been no significant
changes in the Company's internal controls or in other factors that
could significantly affect these controls, including any corrective
actions with regard to significant deficient and material weaknesses.
Page 16 of 23
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders of CLARCOR Inc. held on
March 24, 2003, all of management's nominees for directors, as
listed in the proxy statement dated February 20, 2003, were
elected. The Company had 24,924,304 shares of common stock
outstanding as of the close of business on the February 7,
2003 record date, and the holders of 22,119,008 shares of common
stock were present at the meeting, in person or by proxy.
The three nominees elected received votes as follows:
For Withheld
J. Marc Adam 21,960,839 158,169
James L. Packard 21,498,866 620,142
Keith E. Wandell 21,886,414 232,594
Also at the annual meeting, the shareholders approved the
CLARCOR Inc. 2004 Incentive Plan with a vote of 16,122,716
in favor, 2,932,597 against and 259,366 withheld.
Item 6 Exhibits and Reports on Form 8-K
a. Exhibit 99
Certifications Pursuant to Section 1350 of Chapter 63 of Title
18 of the United States Code
b. The Company did not file a Form 8-K during the first quarter ended
March 1, 2003.
Page 17 of 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLARCOR INC.
(Registrant)
March 25, 2003 By /s/ Bruce A. Klein
------------------- ---------------------------------
(Date) Bruce A. Klein, Vice President
- Finance and Chief Financial Officer
Page 18 of 23
CERTIFICATIONS
I, Norman E. Johnson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CLARCOR Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 25, 2003 /s/ Norman E. Johnson
----------------------------------------------------
Norman E. Johnson
Chairman of the Board, President and Chief
Executive Officer
Page 19 of 23
CERTIFICATIONS
I, Bruce A. Klein, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CLARCOR Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 25, 2003
/s/ Bruce A. Klein
----------------------------------------------------
Bruce A. Klein
Vice President - Finance and Chief Financial Officer
Page 20 of 23
EXHIBIT INDEX
Page No.
Exhibit 99
Certification Pursuant to Section 1350 of Chapter
63 of Title 18 of the United States Code of:
99.1 Norman E. Johnson 22
99.2 Bruce A. Klein 23
Page 21 of 23