<PAGE> 1
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 August 28, 1999 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.
23,979,770 common shares outstanding
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Page 1 of 15
<PAGE> 2
Part I - Item 1
CLARCOR Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
--------
<TABLE>
<CAPTION>
August 28, November 30,
ASSETS 1999 1998
------------------- -------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and short-term cash investments $ 39,361 $ 33,321
Accounts receivable, less allowance for losses
of $3,019 for 1999 and $2,711 for 1998 69,378 67,557
Inventories:
Raw materials 20,938 19,827
Work in process 9,577 8,628
Finished products 31,276 30,159
------------------- -------------------
Total inventories 61,791 58,614
------------------- -------------------
Prepaid expenses 1,169 2,444
Other current assets 6,253 6,237
------------------- -------------------
Total current assets 177,952 168,173
------------------- -------------------
Plant assets, at cost 205,872 193,672
less accumulated depreciation (116,398) (107,283)
------------------- -------------------
89,474 86,389
------------------- -------------------
Excess of cost over fair value of assets acquired,
less accumulated amortization 21,100 21,665
Pension assets 18,034 15,907
Other noncurrent assets 13,699 13,632
------------------- -------------------
$ 320,259 $ 305,766
=================== ===================
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 5,435 $ 470
Accounts payable 25,293 26,528
Income taxes 3,671 6,188
Accrued and other liabilities 28,151 27,997
------------------- -------------------
Total current liabilities 62,550 61,183
------------------- -------------------
Long-term debt, less current portion 31,504 36,419
Long-term pension liabilities 10,622 8,896
Other long-term liabilities 12,360 12,172
Minority interests 362 289
Contingencies
SHAREHOLDERS' EQUITY
Capital stock 23,980 23,949
Capital in excess of par value 591 156
Accumulated other comprehensive earnings (3,544) (2,993)
Retained earnings 181,834 165,695
------------------- -------------------
202,861 186,807
------------------- -------------------
$ 320,259 $ 305,766
=================== ===================
</TABLE>
See Notes to Consolidated Condensed Financial Statements
Page 2 of 15
<PAGE> 3
CLARCOR Inc.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Dollars in thousands except per share data)
(Unaudited)
---------
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
----------------------------- -------------------------------
August 28, August 29, August 28, August 29,
1999 1998 1999 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net sales $ 112,090 $ 110,058 $ 321,739 $ 315,110
Cost of sales 77,900 75,360 221,187 216,788
------------ ------------ ------------ -------------
Gross profit 34,190 34,698 100,552 98,322
Selling and administrative expenses 20,530 21,680 62,988 62,999
------------ ------------ ------------ -------------
Operating profit 13,660 13,018 37,564 35,323
------------ ------------ ------------ -------------
Other income (expense):
Interest expense (561) (588) (1,632) (1,766)
Interest income 375 348 1,061 981
Other, net 1,751 1,112 1,699 698
------------ ------------ ------------ -------------
1,565 872 1,128 (87)
------------ ------------ ------------ -------------
Earnings before income taxes and
minority interests 15,225 13,890 38,692 35,236
Provision for income taxes 5,473 5,154 14,062 13,112
------------ ------------ ------------ -------------
Earnings before minority interests 9,752 8,736 24,630 22,124
Minority interests in (earnings) loss
of subsidiaries (16) 33 (34) 12
------------ ------------ ------------ -------------
Net earnings $ 9,736 $ 8,769 $ 24,596 $ 22,136
============ ============ ============ =============
Net earnings per common share:
Basic $ 0.41 $ 0.36 $ 1.03 $ 0.91
============ ============ ============ =============
Diluted $ 0.40 $ 0.35 $ 1.01 $ 0.89
============ ============ ============ =============
Average number of common shares outstanding:
Basic 23,967,916 24,435,749 23,958,282 24,366,254
============ ============ ============ =============
Diluted 24,321,391 24,937,391 24,315,706 24,917,298
============ ============ ============ =============
Dividends paid per share $ 0.1125 $ 0.1100 $ 0.3375 $ 0.3300
============ ============ ============ =============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
Page 3 of 15
<PAGE> 4
CLARCOR Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
--------
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
August 28, August 29,
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 24,596 $ 22,136
Depreciation and amortization 10,433 9,600
Changes in assets and liabilities (6,709) (5,886)
Net gain on dispositions of plant assets (1,774) (1,298)
Other, net 34 (12)
-------------- --------------
Net cash provided by operating activities 26,580 24,540
-------------- --------------
Cash flows from investing activities:
Additions to plant assets (14,782) (10,447)
Business acquisitions, net of cash acquired (375) (7,984)
Investment in affiliate
- (523)
Proceeds from note receivable - 2,500
Dispositions of plant assets 3,596 2,160
-------------- --------------
Net cash used in investing activities (11,561) (14,294)
-------------- --------------
Cash flows from financing activities:
Reduction of long-term debt (300) (2,241)
Purchases of treasury stock (897) (1,135)
Cash dividends paid (8,065) (8,023)
Other, net 331 1,758
-------------- --------------
Net cash used in financing activities (8,931) (9,641)
-------------- --------------
Net effect of exchange rate changes on cash (48) (43)
-------------- --------------
Net change in cash and short-term cash investments 6,040 562
Cash and short-term cash investments,
beginning of period 33,321 30,324
-------------- --------------
Cash and short-term cash investments,
end of period $ 39,361 $ 30,886
============== ==============
Cash paid during the period for:
Interest $ 2,011 $ 1,972
============== ==============
Income taxes $ 15,203 $ 11,044
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
Page 4 of 15
<PAGE> 5
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The November 30, 1998 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 August 28, 1999, the
consolidated condensed statements of earnings and the consolidated
condensed statements of cash flows for the periods ended August 28, 1999,
and August 29, 1998, 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, 1998 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 August 28, 1999 are not necessarily indicative of the
operating results for the full year.
2. TREASURY STOCK TRANSACTIONS, STOCK SPLIT AND EARNINGS PER SHARE
During the nine months ended August 28, 1999, the Company purchased and
retired 50,000 shares of common stock held in treasury. All such shares
resumed the status of authorized and unissued shares of common stock of the
Company.
On March 24, 1998, the Company declared a three-for-two stock split in the
form of a 50% stock dividend distributable April 24, 1998 to shareholders
of record April 10, 1998. In connection therewith, the Company transferred
$8,145 from retained earnings to common stock, representing the par value
of additional shares issued. All share and per share amounts for all
periods presented have been adjusted to reflect the stock split.
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 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 5 of 15
<PAGE> 6
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands,Except Per Share Data)
(Unaudited) Continued
2. TREASURY STOCK TRANSACTIONS, STOCK SPLIT AND EARNINGS PER SHARE (Continued)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
-------------------------------- --------------------------------
August 28, August 29, August 28, August 29,
1999 1998 1999 1998
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Net Earnings (numerator) $ 9,736 $ 8,769 $ 24,596 $ 22,136
Basic EPS:
Weighted average number of common
shares outstanding (denominator) 23,967,916 24,435,749 23,958,282 24,366,254
Basic per share amount $0.41 $0.36 $1.03 $0.91
Diluted EPS:
Weighted average number of common
shares outstanding 23,967,916 24,435,749 23,958,282 24,366,254
Dilutive effect of stock options 353,475 501,642 357,424 551,044
--------------- --------------- --------------- ---------------
Diluted weighted average number
of common shares outstanding
(denominator) 24,321,391 24,937,391 24,315,706 24,917,298
Diluted per share amount $0.40 $0.35 $1.01 $0.89
</TABLE>
The following options were not included in the computation of diluted
earnings per share as the options' exercise prices were greater than the
average market price of the common shares during the respective quarter and
year-to-date periods:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
---------------------------- ----------------------------
August 28, August 29, August 28, August 29,
1999 1998 1999 1998
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Options 507,531 508,864 507,531 74,239
Weighted Average Exercise Price $ 19.86 $ 19.86 $ 19.86 $ 21.49
</TABLE>
3. COMPREHENSIVE EARNINGS
Effective December 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130) "Reporting Comprehensive Income,"
which establishes standards for reporting and displaying comprehensive
income and its components. Foreign currency translation adjustments, which
the Company previously reported separately in shareholders' equity, are now
included in other comprehensive earnings. The adoption of this Statement
has no impact on the Company's net earnings or shareholders' equity. Prior
year financial statements have been reclassified to conform to the
requirements of SFAS 130.
Page 6 of 15
<PAGE> 7
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data)
(Unaudited) Continued
3. COMPREHENSIVE EARNINGS (Continued)
The Company's total comprehensive earnings and its components are as
follows:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
----------------------------- -----------------------------
August 28, August 29, August 28, August 29,
1999 1998 1999 1998
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net earnings $ 9,736 $ 8,769 $ 24,596 $ 22,136
Other comprehensive earnings, net of tax:
Foreign currency translation adjustments 131 (33) (551) (386)
----------------------------- -----------------------------
Total comprehensive earnings $ 9,867 $ 8,736 $ 24,045 $ 21,750
============================= =============================
</TABLE>
4. SEGMENT DATA
The Company operates in three principal product segments: Engine/Mobile
Filtration, Industrial/Environmental Filtration, and Packaging. The segment
data for the quarter and nine-month periods ended August 28, 1999 and
August 29, 1998, 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.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
------------------------------- -------------------------------
August 28, August 29, August 28, August 29,
1999 1998 1999 1998
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Net sales by segment:
Engine/Mobile Filtration $ 60,833 $ 56,936 $ 175,816 $ 166,477
Industrial/Environmental Filtration 34,991 35,202 101,734 99,265
Packaging 16,266 17,920 44,189 49,368
------------------------------- -------------------------------
$ 112,090 $ 110,058 $ 321,739 $ 315,110
=============================== ===============================
Operating profit by segment:
Engine/Mobile Filtration $ 11,299 $ 9,990 $ 31,594 $ 27,618
Industrial/Environmental Filtration 841 1,996 2,581 3,866
Packaging 1,520 1,032 3,389 3,839
------------------------------- -------------------------------
$ 13,660 $ 13,018 $ 37,564 $ 35,323
=============================== ===============================
</TABLE>
5. RECLASSIFICATIONS
Certain reclassifications have been made to conform prior years' data to
the current presentation. These reclassifications had no effect on
reported earnings.
Page 7 of 15
<PAGE> 8
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in Thousands,
Except Per Share Data)
(Unaudited) Continued
6. SUBSEQUENT EVENT
On September 10, 1999, the Company completed its acquisitions of Purolator
Products Air Filtration Company (PPAFC), Facet International (Facet), and
Purolator-Facet Filter Products (PFFP), manufacturers of air and liquid
filtration products, for approximately $140,000, net of cash received. The
purchase price was paid in cash with proceeds from additional long-term
borrowing of approximately $120,000,000. This borrowing was from a
$185,000,000 multicurrency revolving credit facility put in place in
September 1999 with several financial institutions. Borrowings under the
credit facility are unsecured but are guaranteed by certain of the
Company's subsidiaries. The agreement related to this borrowing includes
certain restrictive covenants that include maintaining minimum consolidated
net worth, limiting new borrowings and maintaining a minimum interest
coverage.
As a result of the acquisitions, PPAFC, Facet, and PFFP became subsidiaries
of the Company. The transaction will be accounted for under the purchase
method of accounting and the operating results will be included in the
Company's consolidated results of operations from September 1, 1999, the
effective date of the acquisitions.
Page 8 of 15
<PAGE> 9
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: THIRD QUARTER 1999 COMPARED WITH THIRD QUARTER OF 1998.
Net sales of $112,090,000 increased 1.8% over the 1998 third quarter. The
Engine/Mobile Filtration segment recorded increased sales of 6.8% over the 1998
quarter as a result of increased sales of heavy-duty, light-duty and railroad
filtration products. The Industrial/Environmental Filtration segment recorded a
0.6% decrease in sales from the 1998 quarter as a 3.0% increase in Airguard
sales was offset by lower UAS sales. Net sales for the Packaging segment were
9.2% lower primarily as a result of reduced sales of promotional products.
Operating profit for the third quarter 1999 increased 4.9% from the 1998 third
quarter. The Engine/Mobile Filtration segment's operating profit increased 13.1%
due to increased sales, cost reductions and productivity improvements which more
than offset continued competitive pricing pressures and costs related to closing
a facility. The segment's operating margin of 18.6% for the third quarter 1999
compared to 17.5% recorded in the same quarter of 1998. Operating profit for the
Industrial/Environmental Filtration segment was lower than in the 1998 quarter
due to lower than expected sales levels, competitive pricing, increased
manufacturing labor turnover, and manufacturing inefficiencies. The Packaging
segment recorded operating profit of $1,520,000, or 9.3% of sales. The segment's
third quarter profit was lower than expected due to the delay in replacing
promotional packaging sales with sales of flat sheet lithography. The 1999
profit compares to $1,032,000 recorded in the third quarter of 1998 which was
negatively impacted by a $1,600,000 charge due to a customer bankruptcy.
Net other income of $1,565,000 included a $1,760,000 gain on the third quarter
1999 sale of a warehouse. The third quarter 1998 net other income of $872,000
included a $1,300,000 gain on the sale of a building that formerly housed the
Packaging segment's Tube Division, which was sold in 1997. The 1999 third
quarter also included reduced interest expense, higher interest income and
reduced currency losses compared to the third quarter 1998.
Earnings before income taxes and minority interests increased to $15,225,000
from $13,890,000 recorded in the 1998 quarter primarily as a result of the
$642,000 increase in operating profit and the $693,000 increase in net other
income.
The provision for income taxes increased to $5,473,000 in 1999. The effective
tax rate of 35.9% compares to 37.1% recorded in the 1998 quarter. The reduction
in the effective tax rate was principally due to lower state income taxes.
Net earnings for the quarter of $9,736,000 resulted in basic earnings per share
of $0.41 compared to $0.36 in 1998, an increase of 13.9%. Diluted earnings per
share increased 14.3% to $0.40 compared to $0.35 in the 1998 quarter. The
increase in earnings per share for the quarter resulted from the increased
operating profit and other income combined with a lower tax
Page 9 of 15
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
rate and fewer outstanding shares. The reduction in shares outstanding was
principally due to the repurchase of 578,691 shares of CLARCOR common stock in
1999 and 1998.
NINE MONTHS 1999 COMPARED TO NINE MONTHS OF 1998.
Net sales of $321,739,000 increased 2.1% from $315,110,000 reported for the
first nine months of fiscal 1998. The Engine/Mobile Filtration segment reported
increased sales of 5.6% to $175,816,000 from $166,477,000 recorded in 1998. This
increase resulted from growth in heavy-duty and light-duty aftermarket filter
sales and increased sales of filtration products for the railroad industry.
The Company's Industrial/Environmental Filtration segment recorded increased
sales of 2.5% for 1999 over 1998. Lower sales from UAS for the nine-month period
were more than offset by an increase from Airguard that included sales from
several 1998 acquisitions. Both Airguard and UAS have been affected by slow
growth in the air filtration industry.
The Packaging segment reported a 10.5% decrease in sales for the 1999 nine-month
period primarily as a result of reduced sales of promotional packaging. A new
strategy that focuses on recurring metal lithography business instead of
seasonal promotional container sales continues to be implemented. As a result of
increased lithography business, the backlog at the end of the third quarter was
more than $5,000,000 higher than at the end of the same quarter in 1998.
Operating profit for the 1999 nine-month period was $37,564,000 compared to
$35,323,000 in 1998. Operating profit was 11.7% of net sales in 1999 compared to
11.2% in 1998.
The Engine/Mobile Filtration segment recorded an operating profit increase of
14.4% in the 1999 nine-month period as a result of continued productivity
improvements, cost reductions and higher sales volumes that offset competitive
pricing pressures. The Industrial/Environmental Filtration segment reported a
decrease of $1,285,000, or 33.2%, in operating profit in 1999 due to lower sales
volumes than expected and the resulting manufacturing inefficiencies. The
Packaging segment's operating profit of $3,389,000 also reflected lower sales
than expected. The segment's 1998 operating profit of $3,839,000 reflected
higher promotional packaging sales but also included a charge of approximately
$2,100,000 due to a customer bankruptcy.
Net other income of $1,128,000 in 1999 included the third quarter gain of
$1,760,000 from the sale of a warehouse facility. The third quarter of 1998 also
included a $1,300,000 gain from the sale of a building. Reduced interest expense
and higher interest income was recorded in 1999 as a result of lower debt and
higher cash balances during the 1999 nine-month period. Net currency losses were
recorded in the nine-month 1998 period whereas net currency gains were recorded
in the 1999 period.
Earnings before income taxes and minority interests for the first nine months of
1999 totaled $38,692,000, up from $35,236,000 in the comparable period last
year.
The provision for income taxes in 1999 was $14,062,000, or an effective rate of
36.3% compared to an effective rate in 1998 of 37.2%. The reduction in the
effective tax rate is due principally to lower state income taxes.
Page 10 of 15
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
Net earnings in the 1999 period were $24,596,000, or $1.03 basic earnings per
share and $1.01 per share on a diluted basis. The 1998 net earnings for the
nine-month period were $22,136,000, or $0.91 basic and $0.89 diluted earnings
per share.
Average shares outstanding were 23,958,282 and diluted average shares
outstanding were 24,315,706 at the end of nine months of 1999. The reduction in
outstanding shares is principally due to the repurchase of CLARCOR common stock
in the first quarter of 1999 and the third and fourth quarters of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the nine months 1999 totaled
$26,580,000 and included increased net earnings, depreciation and amortization
partially offset by increased investment in assets, net of liabilities, compared
to the first nine months of 1998. Cash flows used in investing activities
totaled $11,561,000 compared to $14,294,000 in the 1998 nine-month period. Plant
asset additions increased to $14,782,000 compared to $10,447,000 in the 1998
nine-month period. Cash from the disposition of plant assets totaled $3,596,000
and $2,160,000 in 1999 and 1998, respectively. The 1998 nine-month period
included $7,984,000 used primarily to acquire Air Technologies, Inc. on February
20, 1998 and an Airguard distributor during the 1998 third quarter. The 1998
period also included $2,500,000 received as payment on a note receivable. Cash
flows used by financing activities of $8,931,000 in 1999 included payments on
long-term debt of $300,000, cash dividend payments of $8,065,000, and $897,000
for stock repurchases. For 1998, debt payments were $2,241,000, dividend
payments were $8,023,000 and $1,135,000 was used for stock repurchases.
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. Due to the acquisition of three filtration companies as
discussed in Note 6, Subsequent Event, to the consolidated condensed financial
statements, additional long-term debt of approximately $120,000,000 was borrowed
during the fourth quarter of 1999. This borrowing was from a $185,000,000
multicurrency revolving credit facility put in place in September 1999 with
several financial institutions. Sufficient lines of credit remain available to
fund current operating needs. Anticipated capital expenditures will total
approximately $21,000,000 for fiscal year 1999 and compare to $15,825,000 in
1998. The 1999 amounts will be used to increase production capacity, reduce
manufacturing costs and produce new filtration products. The 1999 amounts also
include costs to complete the expansion to the Kearney, Nebraska facility.
The Company's financial position at the end of the third quarter reflected
increased assets of $14,493,000 to $320,259,000 from fiscal year-end 1998. Cash
and short-term investments totaled $39,361,000 at the end of the quarter, an
increase of $6,040,000 from year-end. Cash and short-term securities were
reduced during the fourth quarter of 1999 due to the use of cash for the fourth
quarter acquisitions. Current liabilities at August 28, 1999, includes the first
payment of $5,000,000 due in July 2000 on a promissory note. The current ratio
at the end of the third quarter was 2.8:1, compared to 2.7:1 at the end of
fiscal 1998. The third quarter 1999 ratio of long-term debt to total
capitalization was 13.4% compared to 16.3%, the level at year-end 1998. The
Company's ratio of long-term debt to total capitalization will increase to
approximately
Page 11 of 15
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
40% during the fourth quarter due to the borrowing for the acquisitions. The
agreement related to this borrowing includes certain restrictive covenants that
include maintaining minimum consolidated net worth, limiting new borrowings and
maintaining a minimum interest coverage. The Company is currently in compliance
with all such covenants.
At the end of the third quarter, CLARCOR had 23,979,770 shares of common stock
outstanding.
YEAR 2000
For several years the Company has been reviewing Year 2000 issues related to the
impact on its computer systems and operating facilities. Management has assigned
internal project teams to review all computer-operated machinery and related
software to assure that key financial, information and operating systems have
been assessed. Key suppliers and outside parties that may also have Year 2000
issues which could impact the Company have been contacted and have been asked to
verify their Year 2000 readiness. The Company is testing interaction with such
outside party systems where appropriate. In addition, the Company has assessed
products sold by the Company and believes that there is no material exposure to
contingencies related to the Year 2000 issue; however, additional testing of
date-sensitive components will continue throughout 1999. Management believes
that all key areas that may be impacted by the Year 2000 date have been assessed
and remediation plans have been developed. As of the end of the third quarter of
1999, no significant issues have been identified and the Company has not
incurred any material costs related to the assessment of its Year 2000 issues.
Remediation plans have been developed to address systems modifications. During
1998 the Company set a target date for the end of the second quarter of 1999 as
a date for assuring that all information processing and operating systems were
fully tested and remediation plans implemented. The Company believes that, in
all material respects, all information processing and operating systems were
fully tested and where necessary, changes and modifications were made by that
date. For certain outside suppliers that were not able to verify their readiness
by that date, backup suppliers have been identified to the extent possible. The
Company continues to develop contingency plans that will address the Company's
exposure to any material failure as a result of noncompliance by third parties;
however, with respect to certain vendors, particularly utility vendors,
alternative suppliers may not be readily available. Management believes that the
Company is devoting the necessary resources to identify and resolve significant
Year 2000 issues and to minimize the risk of noncompliance in a timely manner.
Based on the assessment and remediation plans implemented at this time, the
total cost of addressing compliance is less than $1,500,000, most of which was
spent prior to fiscal 1999. The Company also believes that in all material
respects, the businesses acquired in fourth quarter 1999 have also fully tested
and where necessary, made changes and modifications to their information
processing and operating systems. Any additional costs are not expected to have
a material adverse impact on the Company's financial position, results of
operations or cash flows in the future. However, the Year 2000 problem is
pervasive and complex as virtually every computer operation may be affected in
some way. Consequently, no assurance can be given that Year 2000 compliance can
be achieved without costs that might have a material adverse effect upon the
Company's business, financial condition, results of operation, and business
prospects.
Page 12 of 15
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
OUTLOOK
The Company expects to report a record year in both sales and profits in 1999.
Continued strong performance for the remainder of the year from the
Engine/Mobile Filtration segment is expected based on current sales activity.
Management is more wary about the sales activity for the
Industrial/Environmental businesses for the remainder of the year. However, if
sales growth remains below expectations in the fourth quarter, discretionary
spending reductions implemented earlier this year should allow the Company to
meet its diluted earnings per share forecast of $1.45, before inclusion of the
fourth quarter acquisitions. The fourth quarter acquisitions are expected to
dilute earnings per share in the fourth quarter by approximately $0.01. In
fiscal 2000 the acquisitions are expected to be $0.01-$0.02 dilutive to diluted
earnings per share and then accretive thereafter.
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
Certain statements quoted in the body of this report, the Year 2000 discussion
above, 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, raw
material costs, 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 expansions and
conversions and productivity improvement programs, third-party compliance with
Year 2000 readiness, the Company's internal Year 2000 readiness, extraordinary
events, such as litigation costs, acquisition costs and performance of the
acquisitions, 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 13 of 15
<PAGE> 14
Part II - Other Information
Item 6a - Exhibit 27 Financial Data Schedule.
Item 6b - On September 17, 1999, subsequent to the end of the third
quarter, a Form 8-K was filed to announce the acquisitions of
Purolator Products Air Filtration Company, Facet
International, and Purolator-Facet Filter Products, Inc.
Page 14 of 15
<PAGE> 15
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)
October 1, 1999 By /s/ Bruce A. Klein
- ------------------------ -------------------------------------
(Date) Bruce A. Klein, Vice President - Finance
and Chief Financial Officer
Page 15 of 15
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