1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_______
FORM 10-Q
QUARTERLY REPORT
_______
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
_______
For the quarter ended February 28, 1998
_______
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 February 28, 1998 Commission File Number 1-11024
CLARCOR Inc.
------------------------------------------------------
(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
---------------
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 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.
16,182,228 common shares outstanding
- --------------------------------------------------------------------------------
(Not adjusted for the stock split declared on March 24, 1998 distributable
April 24, 1998)
Page 1 of 12
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Part I - Item 1
CLARCOR Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
________
February 28, November 30,
ASSETS 1998 1997
------------ ------------
(unaudited)
Current assets:
Cash and short-term cash investments $ 27,408 $ 30,324
Accounts receivable, less allowance for losses
of $2,241 for 1998 and $2,106 for 1997 64,449 62,387
Inventories:
Raw materials 19,175 19,980
Work in process 8,332 8,547
Finished products 31,347 29,755
---------- ----------
Total inventories 58,854 58,282
---------- ----------
Prepaid expenses 1,059 1,417
Other current assets 5,488 8,117
---------- ----------
Total current assets 157,258 160,527
---------- ----------
Plant assets, at cost 183,465 180,619
less accumulated depreciation (100,239) (97,714)
---------- ----------
83,226 82,905
---------- ----------
Excess of cost over fair value of assets acquired,
less accumulated amortization 20,009 15,777
Pension assets 14,513 13,897
Other noncurrent assets 14,201 9,413
---------- ----------
$ 289,207 $ 282,519
========== ==========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 1,069 $ 1,140
Accounts payable 27,948 22,168
Income taxes 5,635 4,944
Accrued and other liabilities 23,051 25,985
---------- ----------
Total current liabilities 57,703 54,237
---------- ----------
Long-term debt, less current portion 37,741 37,656
Long-term pension liabilities 8,080 7,556
Other long-term liabilities 10,893 11,011
Minority interests 872 897
Contingencies
SHAREHOLDERS' EQUITY
Capital stock 16,182 16,162
Retained earnings 157,521 154,843
Other shareholders' equity 215 157
---------- ----------
173,918 171,162
---------- ----------
$ 289,207 $ 282,519
========== ==========
See Notes to Consolidated Condensed Financial Statements
Page 2 of 12
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CLARCOR Inc.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Dollars in thousands except per share data)
(Unaudited)
_________
Three Months Ended
-----------------------
February 28 March 1,
1998 1997
----------- ----------
Net sales $ 97,786 $ 86,958
Cost of sales 69,011 62,450
----------- ----------
Gross profit 28,775 24,508
Selling and administrative expenses 19,885 17,166
Merger-related expenses - 2,972
----------- ----------
Operating profit 8,890 4,370
----------- ----------
Other income (expense):
Interest expense (564) (805)
Interest income 438 288
Gain on sale of marketable securities - 1,706
Other, net (231) 89
----------- ----------
(357) 1,278
----------- ----------
Earnings before income taxes and minority
interests 8,533 5,648
Provision for income taxes 3,205 2,610
----------- ----------
Earnings before minority interests 5,328 3,038
Minority interests in earnings of subsidiaries 9 (21)
----------- ----------
Net earnings $ 5,337 $ 3,017
=========== ==========
Net earnings per common share:*
Basic $ 0.22 $ 0.13
=========== ==========
Diluted $ 0.22 $ 0.12
=========== ==========
Average number of common shares outstanding:*
Basic 24,261,292 23,960,306
=========== ==========
Diluted 24,670,042 24,350,083
=========== ==========
Dividends paid per share* $ 0.1100 0.1083
=========== ==========
*Adjusted to reflect the three-for-two stock split distributable April 24, 1998.
See Notes to Consolidated Condensed Financial Statements
Page 3 of 12
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CLARCOR Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
________
Three Months Ended
---------------------
February 28, March 1,
1998 1997
--------- --------
Cash flows from operating activities:
Net earnings $ 5,337 $ 3,017
Depreciation and amortization 3,025 2,885
Gain on sale of marketable securities - (1,706)
Changes in assets and liabilities (2,722) (3,427)
Other, net 29 (57)
-------- ---------
Net cash provided by operating activities 5,669 712
-------- ---------
Cash flows from investing activities:
Additions to plant assets (2,704) (2,989)
Business acquisition, net of cash acquired (4,800) -
Investment in affiliate (260) -
Proceeds from sale of marketable securities - 3,322
Proceeds from note receivable 2,500 -
Dispositions of plant assets 58 175
-------- ---------
Net cash provided by (used in) investing activities (5,206) 508
-------- ---------
Cash flows from financing activities:
Borrowings under long-term debt - 1,000
Reduction of long-term debt (736) (3,951)
Cash dividends paid (2,659) (2,407)
Other, net 59 286
-------- ---------
Net cash used in financing activities (3,336) (5,072)
-------- ---------
Net effect of exchange rate changes on cash (43) (17)
-------- ---------
Net change in cash and short-term cash investments (2,916) (3,869)
Cash and short-term cash investments,
beginning of period 30,324 18,827
-------- ---------
Cash and short-term cash investments,
end of period $ 27,408 $ 14,958
======== =========
Cash paid during the period for:
Interest $ 1,005 $ 1,404
======== =========
Income taxes $ 2,505 $ 1,573
======== =========
See Notes to Consolidated Condensed Financial Statements
Page 4 of 12
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CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
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1. CONSOLIDATED FINANCIAL STATEMENTS
The November 30, 1997 consolidated balance sheet data was derived from
CLARCOR's year-end audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.
The consolidated condensed balance sheet as of February 28, 1998, the
consolidated condensed statements of earnings and the consolidated condensed
statements of cash flows for the periods ended February 28, 1998, and March
1, 1997, 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, 1997 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 February 28, 1998 are not necessarily indicative of the
operating results for the full year.
2. STOCK SPLIT AND EARNINGS PER SHARE
On March 24, 1998, subsequent to the end of the first quarter, the Company
declared a three-for-two stock split effected in the form of a 50% stock
dividend distributable April 24, 1998 to shareholders of record April 10,
1998. In connection therewith, the Company will transfer approximately
$8,100 from retained earnings to common stock. Earnings per share amounts
have been adjusted to reflect the stock split.
During the quarter ended February 28, 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (EPS), which
simplifies the calculation of earnings per share and requires presentation
of both basic and diluted earning per share on the Consolidated Condensed
Statements of Earnings. Diluted earnings per share reflects the impact of
outstanding stock options 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 EPS.
Page 5 of 12
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CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data)
(Unaudited) Continued
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2. STOCK SPLIT AND EARNINGS PER SHARE (Continued)
Quarter Ended
--------------------------------
February 28, 1998 March 1, 1997
----------------- -------------
Net Earnings (Numerator) $5,337 $3,017
Basic EPS:
Weighted average number of common shares
outstanding (denominator) 24,261,292 23,960,306
Basic per share amount $.22 $.13
Diluted EPS:
Weighted average number of common shares outstanding 24,261,292 23,960,306
Effect of dilutive securities due to stock options 408,750 389,777
------- -------
Diluted weighted average number of
common shares outstanding (denominator) 24,670,042 24,350,083
Diluted per share amount $.22 $.12
All of the amounts listed in the table above have been adjusted for the
stock split effected in the form of a stock dividend.
3. BUSINESS COMBINATIONS AND MERGER-RELATED COSTS
On February 20, 1998, the Company purchased Air Technologies, Inc.(ATI), an
Ottawa, Kansas manufacturer of air filtration products for cash. ATI will
become a part of Airguard Industries, a subsidiary of the Company. The
acquisition did not have a significant impact on the results of the Company.
On February 28, 1997, the Company completed its acquisition of United Air
Specialists, Inc. (UAS), a manufacturer of air quality equipment based in
Cincinnati, Ohio. The Company issued 1,081,741 shares of its common stock
in exchange for all the shares of UAS stock. Additional shares of its
common stock (approximately 127,590 shares) will be issued upon exercise of
UAS options. The transaction has been structured as a statutory merger
accounted for as a pooling of interests. As a result of the acquisition,
UAS became a subsidiary of the Company. During the three months ended March
1, 1997, the Company incurred a one-time pre-tax charge of $2,972 ($2,390
net of tax) covering the costs of the merger including legal and
professional fees, non-compete agreements, and costs to integrate the
businesses of the two companies.
Page 6 of 12
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CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data)
(Unaudited) Continued
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4. SEGMENT DATA
The Company operates in three principal product segments: Engine/Mobile
Filtration, Industrial/Environmental Filtration, and Consumer Packaging.
The segment data for the three-month periods ended February 28, 1998 and
March 1, 1997, 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.
Quarter Ended
--------------------------------------
February 28, March 1,
1998 1997
-------------- --------------
NET SALES BY SEGMENT:
Engine/Mobile Filtration $ 51,625 $ 46,353
Industrial/Environmental Filtration 31,621 26,201
Consumer Packaging 14,540 14,404
-------------- --------------
$ 97,786 $ 86,958
============== ==============
OPERATING PROFIT BY SEGMENT:
Engine/Mobile Filtration $ 7,418 $ 6,282
Industrial/Environmental Filtration 538 214
Consumer Packaging 934 846
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8,890 7,342
Merger-related expenses - (2,972)
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$ 8,890 $ 4,370
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Page 7 of 12
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Part II - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: FIRST QUARTER OF 1998 COMPARED WITH FIRST QUARTER OF
1997.
CLARCOR reported record sales, operating profit, net earnings and earnings per
share in the first quarter of 1998. On March 24, 1998, which was subsequent to
the end of the fiscal quarter, CLARCOR's Board of Directors declared a
three-for-two stock split of its common shares effected in the form of a 50%
stock dividend distributable April 24, 1998. All earnings per share amounts
have been adjusted to reflect the stock split. The effect of this stock split
has not been reflected in the February 28, 1998 consolidated balance sheet. On
February 28, 1997, the Company completed the merger of United Air Specialists,
Inc. (UAS) which was accounted for as a pooling of interests, and as a result,
all periods presented include UAS. The first quarter of 1997 included the
effect of costs related to the UAS merger of $2,972,000 ($2,390,000 or $0.10
basic earnings per share after-tax) and a gain from the sale of marketable
securities of $1,706,000 ($1,092,000 or $0.05 basic earnings per share
after-tax.)
Net sales of $97,786,000 increased 12.5% from $86,958,000 reported for the
first quarter of 1997. The Engine/Mobile Filtration segment reported increased
sales of 11.4% to $51,625,000 from $46,353,000 recorded in 1997. The strength
of sales to the heavy-duty aftermarket and increased sales of filtration
products for the railroad industry contributed to this increase. In addition,
sales of light-duty engine filters stabilized reversing a trend of lower sales
over the last two years. The Company's Industrial/Environmental Filtration
segment, which includes Airguard Industries and UAS, increased sales 20.7% for
the 1998 quarter over 1997. This sales increase included a significant sale of
gas turbine filtration equipment and filters to an overseas buyer. Excluding
this sale, the segment's Airguard Industries sales level increased over 10% for
the quarter and UAS' sales increased by over 13% compared to the first quarter
of 1997. The Consumer Packaging segment reported a 0.9% increase in sales for
the 1998 quarter; however, the 1997 quarter included $1.6 million in sales from
the segment's Tube Division which was sold in November 1997. The segment's
metal and plastics sales both increased in 1998 compared to 1997.
Operating profit for first quarter 1998 was $8,890,000 which compares to
$4,370,000 in 1997. The 1997 operating profit was reduced by merger-related
costs of $2,972,000. Excluding the merger costs recorded in 1997, operating
profit increased 21.1% to $8,890,000 in 1998 from $7,342,000 in 1997.
Operating profit was 9.1% of net sales in 1998 compared to 8.4%, excluding the
merger-related costs, in 1997.
The Engine/Mobile Filtration segment recorded an operating profit increase of
18.1% in the first quarter of 1998 as a result of higher sales volumes,
continued productivity improvements, and significantly improved operating
results for the segment's light-duty product line from the 1997 quarter. The
Industrial/Environmental Filtration segment reported a $324,000 increase in
operating profit in 1998 due to increased sales volumes and productivity
improvements from both of the segment's operating companies. The Consumer
Packaging segment's 10.4% increase in operating profit resulted from higher
sales of both metal and plastic products.
Page 8 of 12
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
Net other expense for the quarter of $357,000 included reduced interest expense
and higher interest income than recorded in 1997 as a result of lower debt and
higher cash balances during the 1998 quarter. The 1997 quarter also included a
$1,706,000 gain from the sale of shares held by the Company in G.U.D. Holdings
Ltd. (GUD).
Earnings before income taxes and minority interests for the first quarter of
1998 totaled $8,533,000, up from $5,648,000 in the comparable quarter last
year. Excluding the merger-related costs and gain on sale of securities in
1997, earnings before income taxes and minority interests increased to
$8,533,000 from $6,914,000 in 1997 and resulted from increased operating profit
of $1,548,000 and reduced other expense of $71,000.
The provision for income taxes in 1998 was $3,205,000, an effective rate of
37.6%. Certain of the merger-related costs recorded in 1997 were not fully
deductible for tax purposes which created an unusually high effective tax rate
of 46.2% of pre-tax earnings in the 1997 quarter.
Net earnings in the first quarter of the current year were $5,337,000, or, as
adjusted for the stock split, $0.22 per share on a diluted basis. The 1997 net
earnings for the quarter of $3,017,000, or $0.12 per share on a diluted basis
as adjusted for the stock split, reflect the merger-related costs and the gain
from sale of the GUD shares. Without these two unusual items, 1997 net
earnings would have been approximately $4,315,000, or $0.18 per share on a
diluted basis as adjusted for the stock split.
Adjusted for the stock split, average shares outstanding were 24,261,292 and
diluted average shares outstanding were 24,670,042 at the end of the first
quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities totaled $5,669,000 and included increased
net earnings and reduced investment in assets, net of liabilities, from the
first quarter of 1997. Cash flows used in investing activities increased in
the first quarter of 1998 primarily due to the cash used to acquire Air
Technologies, Inc. on February 20, 1998. The 1998 quarter also included
$2,500,000 received as payment on a note receivable, and the 1997 quarter
included the proceeds of $3,322,000 received from the sale of the GUD shares.
Cash flows used by financing activities of $3,336,000 in 1998 included payments
on long-term debt of $736,000 compared to $3,951,000 in 1997. The additional
borrowing of $1,000,000 in first quarter 1997 related to UAS' additional use of
a line of credit prior to the merger.
CLARCOR's current operations continue to generate adequate cash to fund
operating needs, pay dividends, and provide for the repayment of the Company's
long-term debt. Sufficient lines of credit remain available to fund current
operating needs. Capital expenditures of approximately $20,000,000 for fiscal
year 1998 will be greater than 1997 as a result of an expansion to the Kearney,
Nebraska facility.
The Company's financial position at the end of the first quarter was not
significantly different from fiscal year-end 1997. Cash and short-term
investments totaled $27,408,000 at the end of the quarter, a reduction of
$2,916,000 from year-end. On February 20, 1998, the Company
Page 9 of 12
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
completed the acquisition of Air Technologies, Inc. for cash. The current
ratio at the end of the first quarter was 2.7:1 compared to 3.0:1 at the end of
fiscal 1997. The current year ratio of long-term debt to total capitalization
was 17.8% which approximated the level at year-end.
At February 28, 1998, CLARCOR had 16,182,228 shares of common stock
outstanding, or as adjusted for the stock split, 24,273,342.
OUTLOOK
Overall the Company's domestic sales and orders remain strong in each of the
segments. While not material at current sales levels, some softening in export
sales to both Europe and Asia has occurred. Management continues to be
watchful over these events and expects to reduce operating costs if these
trends become significant to CLARCOR. The Company believes that 1998 will be
another record year of sales, operating profit and net earnings for CLARCOR.
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 quarter, the mix of changes in distribution channels
through which the Company's products are sold, the timing and acceptance of new
products and product enhancements by the Company or its competitors, changes in
pricing, product life cycles, purchasing patterns of distributors and
customers, competitive conditions in the industry, business cycles affecting
the markets in which the Company's products are sold, extraordinary events,
such as litigation or acquisitions, including related charges, 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 the CLARCOR common stock
could be materially adversely affected.
Page 10 of 12
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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, 1998, all of management's nominees for directors, as
listed in the proxy statement dated February 18, 1998, were
elected. In addition, the shareholders approved the First
Amendment to the CLARCOR Inc. 1994 Incentive Plan, as described
in the proxy statement dated February 18, 1998. Without
adjustment for the stock split distributable April 24, 1998,
the Company had 16,182,228 shares of common stock outstanding
as of the close of business on the February 11, 1998 record
date, and the holders of 14,652,820 shares of common stock were
present at the meeting, in person or by proxy.
The following amounts do not reflect the three-for-two stock
split declared on March 24, 1998 distributable on April 24,
1998.
The three nominees elected received votes as follows:
For Withheld
--- --------
Carl J. Dargene 14,489,881 162,939
Lawrence E. Gloyd 14,451,709 201,111
Norman E. Johnson 14,491,250 161,570
The proposal to approve the First Amendment to the CLARCOR Inc.
1994 Incentive Plan received votes as follows:
For Against Withheld Non-votes
--- ------- -------- ---------
8,939,312 4,612,389 105,429 995,690
Item 6a - Exhibit (11), Computations of Per Share Earnings are presented
in Note 2 to the financial statements.
Item 6b - No Form 8-K was filed for the quarter ended February 28, 1998.
Subsequent to the end of the quarter, a Form 8-K was filed to
announce the three-for-two stock split.
Page 11 of 12
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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)
April 9, 1998 By /s/ Bruce A. Klein
- ------------------- ------------------------------------------
(Date) Bruce A. Klein, Vice President - Finance
and Chief Financial Officer
Page 12 of 12