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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(MARK ONE)
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 27, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________________________
COMMISSION FILE NUMBER 1-11024
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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
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $1.00 per share New York Stock Exchange
Preferred Stock Purchase Rights
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value (based on the closing price of registrant's Common
Stock on February 11, 2000 as reported on the New York Stock Exchange Composite
Transactions) of the voting stock held by non-affiliates of the registrant as at
February 11, 2000 is $419,648,074.
The number of outstanding shares of Common Stock, as of February 11, 2000 is
24,255,740 shares.
Certain portions of the registrant's 1999 Annual Report to Shareholders are
incorporated by reference in Parts I, II and IV. Certain portions of the
registrant's Proxy Statement dated February 23, 2000 for the Annual Meeting of
Shareholders to be held on March 25, 2000 are incorporated by reference in Part
III.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) General Development of Business
CLARCOR Inc. ("CLARCOR") was organized in 1904 as an Illinois corporation
and in 1969 was reincorporated in the State of Delaware. As used herein, the
"Company" refers to CLARCOR and its subsidiaries unless the context otherwise
requires.
The Company's fiscal year ends on the Saturday closest to November 30. For
fiscal year 1999 the year ended on November 27, 1999 and for fiscal year 1998
the year ended on November 28, 1998. In this Form 10-K, all references to fiscal
years are shown to begin on December 1 and end on November 30 for clarity of
presentation.
(i) Certain Significant Developments.
Acquisition of Industrial Filtration Businesses. On September 10, 1999,
CLARCOR acquired from Mark IV Industries, Inc. substantially all of the assets
(the "Industrial Filtration Acquisitions") used in the design, manufacture,
marketing and distribution of specialty filters and filtration products
primarily for residential, commercial and industrial use in a wide range of
market segments which include original equipment manufacturers, aftermarket
distributors, retail distributors, contractors and aerospace, marine and
military markets. The three businesses acquired, Purolator Air Filtration
("Purolator"), Facet International ("Facet") and Purolator Facet, Inc. ("PFI")
were added into the Company's Industrial/Environmental Filtration segment.
For financial and accounting purposes the acquisition was deemed to have
occurred on September 1, 1999. The purchase price for the assets including
acquisition expenses was approximately $142,400,000, net of cash acquired, based
on the net assets of the businesses acquired as shown on a February 28, 1999
balance sheet and is subject to a final adjustment per the purchase agreement.
The purchase price was paid in cash with available funds and $115,000,000 in
proceeds from a $185,000,000 multicurrency credit agreement entered into with
several financial institutions. Borrowings under the revolving credit agreement
are uncollateralized, but are guaranteed by certain of the Company's
subsidiaries. Reference is made to Report on Form 8-K filed by the Company on
September 17, 1999 with the Securities and Exchange Commission for a copy of the
purchase agreement and the multicurrency credit agreement. The acquisition is
also described in Note B to the Company's Consolidated Financial Statements.
Other Acquisitions. Subsequent to the end of fiscal 1999, the Company
acquired in December 1999 two distributors of air filtration products. The cost
of the acquisitions was paid for primarily with cash, but in connection with one
of the transactions the Company issued approximately 160,704 shares of Common
Stock. These acquisitions were accounted for under the purchase method of
accounting and will be included in the Company's Industrial/Environmental
Filtration segment. These acquisitions will not have a significant impact on the
results of the Company.
(ii) Summary of Business Operations.
During 1999, the Company conducted business in three principal industry
segments: (1) Engine/ Mobile Filtration, (2) Industrial/Environmental Filtration
and (3) Packaging.
Engine/Mobile Filtration. Engine/Mobile Filtration includes filters for
oil, air, fuel, coolants and hydraulic fluids for trucks, automobiles,
construction and industrial equipment, locomotives, marine and agricultural
equipment.
Industrial/Environmental Filtration. Industrial/Environmental Filtration
products are used primarily for commercial, residential and industrial
applications. The segment's industrial and environmental products include air
and antimicrobial treated filters and high efficiency electronic air cleaners
for commercial buildings, factories, residential buildings, paint spray booths,
gas turbine systems, medical facilities, motor vehicle cabins, clean rooms,
compressors and dust collector systems.
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Additional products related to the Industrial Filtration Acquisitions in 1999
include specialty filters, industrial process liquid filters, filtration systems
for aircraft refueling, anti-pollution and water recycling, and bilge
separators.
Packaging. Packaging products include a wide variety of custom styled
containers and packaging items used primarily by the food, confectionery, spice,
drug, toiletries and chemical specialties industries. The segment's products
include lithographed metal containers, flat sheet decorated metal, combination
metal and plastic containers, plastic closures and various specialties, such as
spools for wire and cable, dispensers for razor blades and outer shells for dry
cell batteries and film canisters.
(b) Financial Information About Industry Segments
Business segment information for the fiscal years 1997 through 1999 is
included on pages 26 and 27 of the Company's 1999 Annual Report to Shareholders
(the "Annual Report"), is incorporated herein by reference and is filed as part
of Exhibit 13(a)(vi) to this 1999 Annual Report on Form 10-K ("1999 Form 10-K").
(c) Narrative Description of the Business
ENGINE/MOBILE FILTRATION
The Company's engine/mobile filtration products business is conducted by
the following wholly-owned subsidiaries: Baldwin Filters, Inc.; Clark Filter,
Inc.; Hastings Filters, Inc.; Baldwin Filters (Aust.) Pty. Ltd.; Baldwin Filters
N.V.; and Baldwin Filters Limited. In addition, the Company owns (i) 90% of
Filtros Baldwin de Mexico ("FIBAMEX"), (ii) 70% of Baldwin-Weifang Filters Ltd.,
and (iii) 80% of Baldwin-Unifil S.A.
The companies market a full line of oil, air, fuel, coolant and hydraulic
fluid filters. The filters are used in a wide variety of applications and in
processes where filter efficiency, reliability and durability are essential.
Impure air or fluid flow through semi-porous paper, cotton, synthetic, chemical
or membrane filter media with varying efficiency filtration characteristics. The
impurities on the media are disposed of when the filter is changed. The
segment's filters are sold throughout the world, primarily in the replacement
market for trucks, automobiles, locomotives, marine, construction, industrial
and agricultural equipment. In addition, some first-fit filters are sold to the
original equipment market.
INDUSTRIAL/ENVIRONMENTAL FILTRATION
The Company's industrial/environmental filtration products business is
conducted by the following wholly-owned subsidiaries: Airguard Industries, Inc.
("Airguard"); Airklean Engineering Pte. Ltd.; Airguard Asia Sdn. Bhd.; Facet
International and related subsidiaries ("Facet"); Purolator Facet, Inc. ("PFI");
Purolator Products Air Filtration Company ("Purolator"); United Air Specialists,
Inc.; and United Air Specialists (U.K.) Ltd. The segment's products are sold
throughout the world.
The companies market commercial and industrial air filters and systems,
electrostatic contamination control equipment and electrostatic high precision
spraying equipment. The air filters and systems remove contaminants from
recirculated indoor air and from process air which is exhausted outdoors. The
products represent a complete line of air cleaners with a wide range of uses for
maintaining high quality standards in interior air and exterior pollution
control.
Additional products include specialty filters, filtration systems for
aircraft refueling, anti-pollution and water recycling, and bilge separators.
These products are used in a wide range of applications including commercial,
military and general aviation, marine, oil and gas drilling and refining,
chemical and pharmaceutical processes, utilities, paper mills and general
industry. The filters are used for the process filtration of liquids using a
variety of porous and sintered metal media filters, strainers, separators,
coalescers and absorbent media. Many of these filter products and systems
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require special technical approvals and product certification in order to meet
commercial and military requirements.
PACKAGING
The Company's consumer and industrial packaging products business is
conducted by a wholly-owned subsidiary, J. L. Clark, Inc. ("J. L. Clark").
J.L. Clark manufactures a wide variety of different types and sizes of
containers and packaging specialties. Metal, plastic and combination
metal/plastic containers and closures manufactured by the Company are used in
packaging a wide variety of dry and paste form products, such as food
specialties (tea, spices, dry bakery products, potato chips, pretzels, candy and
other confections); beverages and juices; cosmetics and toiletries; drugs and
pharmaceuticals; and chemical specialties (hand cleaners, soaps and special
cleaning compounds). Other packaging products include shells for dry batteries,
film canisters, dispensers for razor blades, candles, spools for insulated and
fine wire, and custom decorated flat steel sheets.
Containers and packaging specialties are manufactured only upon orders
received from customers, and individualized containers and packaging specialties
are designed and manufactured, usually with distinctive decoration, to meet each
customer's marketing and packaging requirements and specifications.
DISTRIBUTION
Engine/Mobile Filtration and Industrial/Environmental Filtration products
are sold primarily through a combination of independent distributors and dealers
for original equipment manufacturers.
The engine/mobile segment also distributes filtration products worldwide
through each of its subsidiaries. Baldwin Filters N.V. and Baldwin Filters
Limited primarily serve the European markets. Baldwin Filters (Aust.) Pty. Ltd.,
markets heavy duty liquid and air filters in Australia and New Zealand. FIBAMEX
manufactures filters in Mexico with distribution in Mexico and Central and South
America. Through the Company's investment in Baldwin-Weifang Filters Ltd., heavy
duty filters are manufactured in China for distribution in China. Additionally,
through Baldwin-Unifil S.A., air filtration products are manufactured in South
Africa with distribution throughout Africa, Great Britain, Europe and the Middle
East.
The industrial/environmental segment also distributes and services
filtration products through company-owned branches and wholly-owned subsidiaries
located throughout the United States and Europe and in Singapore and Malaysia.
Packaging salespersons call directly on customers and prospective customers
for containers and packaging specialties. Each salesperson is trained in all
aspects of J.L. Clark's manufacturing processes with respect to the products
sold and is qualified to consult with customers and prospective customers
concerning the details of their particular requirements. In addition,
salespersons with expertise in specific areas, such as flat-sheet decorating,
are focused on specific customers and markets.
CLASS OF PRODUCTS
No class of products accounted for as much as 10% of the total sales of the
Company.
RAW MATERIAL
Steel, filter media, cartons, aluminum sheet and coil, stainless steel,
chrome vanadium, chrome silicon, resins, roll paper, bulk and roll plastic
materials and cotton, wood and synthetic fibers and adhesives are the most
important raw materials used in the manufacture of the Company's products. All
of these are purchased or are available from a variety of sources. The Company
has no long-term
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purchase commitments. The Company did not experience shortages in the supply of
raw materials during 1999.
PATENTS, TRADEMARKS AND TRADENAMES
Certain features of some of the Company's products are covered by domestic
and, in some cases, foreign patents or patent applications. While these patents
are valuable and important for certain products, the Company does not believe
that its competitive position is dependent upon patent protection. The Company
believes, however, that its trademarks and tradenames used in connection with
certain products may be significant to its business.
CUSTOMERS
The largest 10 customers of the Engine/Mobile Filtration segment accounted
for 17.1% of the $238,680,000 of fiscal year 1999 sales of such segment.
The largest 10 customers of the Industrial/Environmental Filtration segment
accounted for 14.6% of the $174,889,000 of fiscal year 1999 sales of such
segment.
The largest 10 customers of the Packaging segment accounted for 53.2% of
the $64,300,000 of fiscal year 1999 sales of such segment.
No single customer accounted for 10% or more of the Company's consolidated
1999 sales.
BACKLOG
At November 30, 1999, the Company had a backlog of firm orders for products
amounting to approximately $72,100,000 including backlog of $25,800,000 from the
Industrial Filtration Acquisitions. The backlog figure for 1998 was
approximately $36,100,000, excluding the Industrial Filtration Acquisitions.
Substantially all of the orders on hand at November 30, 1999 are expected to be
filled during fiscal 2000.
COMPETITION
The Company encounters strong competition in the sale of all of its
products. The Company competes in a number of filtration markets against a
variety of competitors. The Company is unable to state its relative competitive
position in all of these markets due to a lack of reliable industry-wide data.
However, in the replacement market for heavy duty liquid and air filters used in
internal combustion engines, the Company believes that it is among the top five
measured by annual sales. In addition, the Company believes that it is a leading
manufacturer of liquid and air filters for diesel locomotives. The Company
believes that for industrial and environmental filtration products, it is among
the top five measured by annual sales.
In the Packaging segment, its principal competitors include several
manufacturers whose specialty packaging segments are smaller than the Company's
and who often compete on a regional basis only. Strong competition is also
presented by manufacturers of paper, plastic and glass containers. The Company's
competitors generally manufacture and sell a wide variety of products in
addition to packaging products of the type produced by the Company and do not
publish separate sales figures relative to these competitive products.
Consequently, the Company is unable to state its relative competitive position
in those markets.
The Company believes that it is able to maintain its competitive position
because of the quality and breadth of its products and services.
PRODUCT DEVELOPMENT
The Company's Technical Centers and laboratories test product components
and completed products to insure high quality manufacturing results, aid
suppliers in the development of product
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components, and conduct controlled tests of newly designed filters, filtration
systems and containers for particular uses. Product development departments are
concerned with the improvement and creation of new filters, filtration systems,
containers and packaging products in order to broaden the uses of these items,
counteract obsolescence and evaluate other products available in the
marketplace.
In fiscal 1999, the Company employed 65 professional employees on a
full-time basis on research activities relating to the development of new
products or the improvement or redesign of its existing products. During this
period the Company spent approximately $5,562,000 on such activities as compared
with $4,855,000 for 1998 and $3,991,000 for 1997.
ENVIRONMENTAL FACTORS
The Company is not aware of any facts which would cause it to believe that
it is in material violation of existing applicable standards respecting
emissions to the atmosphere, discharges to waters, or treatment, storage and
disposal of solid or hazardous wastes.
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.
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 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 matters are not expected to have a material adverse
effect on the Company's financial condition or consolidated results of
operations.
The Company does anticipate, however, that it may be required to install
additional pollution control equipment to augment existing equipment in the
future in order to meet applicable environmental standards. The Company is
presently unable to predict the timing or the cost of such equipment and cannot
give any assurance that the cost of such equipment may not have an adverse
effect on earnings. However, the Company is not aware, at this time, of any
current or pending requirement to install such equipment at any of its
facilities.
EMPLOYEES
As of November 30, 1999, the Company had approximately 4,278 employees.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Financial information relating to export sales and the Company's operations
in the United States and other countries is set forth on pages 26 and 27 of the
Annual Report and is incorporated herein by reference and filed as Exhibit
13(a)(vi) to this 1999 Form 10-K. The Company is not aware of any unusual risks
attendant to the conduct of its operations in other countries.
ITEM 2. PROPERTIES.
(i) Location
An office building owned by the Company located in Rockford, Illinois
houses the Corporate offices and the Packaging segment headquarters offices in
22,000 square feet of office space.
Engine/Mobile Filtration. The following is a description of the principal
properties utilized by the Company in conducting its Engine/Mobile Filtration
business:
The Baldwin Filters' Kearney, Nebraska plant contains 410,000 square feet
of manufacturing and warehousing space, 25,000 square feet of research and
development space, and 40,000 square feet of
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office space. An expansion to the Kearney facility of approximately 106,000
square feet for distribution and manufacturing was completed in 1999. The
Kearney facility is located on a site of approximately 40 acres. A manufacturing
facility located in Yankton, South Dakota has approximately 170,000 square feet
of floor space on a 21 acre tract. Both facilities are owned by the Company. In
addition, Baldwin has a capital lease for a 100,000 square foot manufacturing
facility on a site of 20 acres in Gothenburg, Nebraska.
The Company also manufactures filters in Lancaster, Pennsylvania at its
Clark Filter plant. The building, constructed about 1968 on an 11.4 acre tract
of land, contains 168,000 square feet of manufacturing and office space and is
owned by the Company.
The Company leases various facilities in Australia, Belgium, Mexico, South
Africa and the United Kingdom for the manufacture and distribution of filtration
products.
Industrial/Environmental Filtration. The following is a description of the
principal properties utilized by the Company in conducting its
Industrial/Environmental Filtration business:
Airguard has seven manufacturing and warehousing locations. It leases
318,000 square feet in New Albany, Indiana, 84,000 square feet in Corona,
California and 44,500 square feet in Dallas, Texas. Smaller facilities are also
leased in North Carolina and Wisconsin. The Company owns the following two
facilities. The Airguard High Efficiency Filter plant, located in Jeffersontown,
Kentucky on a 7.5 acre tract of land, contains 100,000 square feet of
manufacturing and office facilities. Airguard's ATI manufacturing and office
facility in Ottawa, Kansas, contains 31,000 square feet.
Airguard administrative and sales offices and distribution facilities are
located in Louisville, Kentucky; Cincinnati, Ohio; Toledo, Ohio; Nashville,
Tennessee; Atlanta, Georgia; Columbus, Ohio; Birmingham, Alabama; Portland,
Oregon; Commerce City, Colorado; Kansas City, Missouri; Arlington, Texas;
Dallas, Texas; Corona, California; Wallingford, Connecticut; New Albany,
Indiana; Las Vegas, Nevada and Richmond, Virginia. Airguard also leases
facilities in Malaysia and Singapore.
Facet owns manufacturing and distribution facilities in Tulsa, Oklahoma and
La Coruna, Spain. The Tulsa facilities contain approximately 142,000 square feet
on a 16 acre site. The La Coruna facility is on an approximately 17,000 square
meter site and the building contains 5,700 square meters. Facet also leases
facilities in Stillwell, Oklahoma; Tulsa, Oklahoma; Miami, Florida; Australia;
Canada; Italy; Germany; France; United Kingdom; The Netherlands and Switzerland.
Purolator owns a 228,500 square-foot manufacturing and office facility in
Henderson, North Carolina on a site of approximately 25 acres. Purolator also
leases sales, manufacturing and distribution facilities in Fresno, California;
Hayward, California; La Mirada, California; Sacramento, California; Davenport,
Iowa; Wichita, Kansas; Metuchen, New Jersey; Henderson, North Carolina; Kenly,
North Carolina; Sparks, Nevada; Fairfax, Virginia and Auburn, Washington.
Purolator Facet, Inc. ("PFI") owns a manufacturing and distribution
facility in Greensboro, North Carolina. This facility contains approximately
88,000 square feet on a 21 acre site. PFI also leases facilities in Greensboro,
North Carolina; Hebron, Connecticut and Middletown, Rhode Island.
United Air Specialists ("UAS") has three owned facilities. The offices and
primary manufacturing facility is located in Blue Ash, Ohio (a suburb of
Cincinnati), on approximately 17 acres of land. This facility was built in 1978
and was expanded in 1991 and 1993 to a total of approximately 157,000 square
feet. UAS also has sales offices and a manufacturing facility in Warwick,
England which total approximately 13,200 square feet. In addition, UAS leases
sales and service facilities in Bad Camberg, Germany; Phoenix, Arizona; Fremont,
California; Anaheim, California; Louisville, Kentucky; Troy, Michigan; Jackson,
Mississippi, and Houston, Texas.
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Packaging. The following is a description of the principal properties
utilized by the Company in conducting its Packaging business:
The Company's J. L. Clark, Rockford, Illinois plant, located on 34 acres,
consists of one-story manufacturing buildings, the first of which was
constructed in 1910. Since then a number of major additions have been
constructed and an injection molding plant was constructed in 1972.
Approximately 450,000 square feet of floor area are devoted to manufacturing,
warehouse and office use. Of the 34 acres, approximately 12 are vacant.
A J. L. Clark plant is located in Lancaster, Pennsylvania on approximately
11 acres. It consists of a two-story office building containing approximately
7,500 square feet of floor space and a manufacturing plant and warehouse
containing 236,000 square feet of floor space, most of which is on one level.
These buildings were constructed between 1924 and 1964.
J. L. Clark also leases a manufacturing facility in San Leandro,
California.
The various properties owned by the Company are considered by it to be in
good repair and well maintained. Plant asset additions in 2000 are estimated at
$30,000,000 for equipment and machinery, capacity additions and cost reduction
projects.
(ii) Function
Engine/Mobile Filtration. Oil, air, fuel, hydraulic fluid and coolant
filters are produced at the Baldwin and Hastings facilities in Kearney, and
Gothenburg, Nebraska and Yankton, South Dakota. The various processes of
pleating paper, winding cotton and synthetic fibers, placing the filter element
in a metal or fiber container and painting the containers are highly mechanized,
but require some manual assistance. The plants also maintain an inventory of
special dies and molds for filter manufacture.
Oil, air and fuel filters, primarily for use in the railroad industry, are
produced at Clark Filter in Lancaster, Pennsylvania.
Industrial/Environmental Filtration. Air filters for the commercial,
residential and industrial markets are produced in the Airguard and Purolator
facilities. Dust collection systems, high efficiency electronic air cleaning
systems and electrostatic precision spraying systems are designed and
manufactured at the UAS facility in Cincinnati, Ohio.
Specialty filter products for aviation, oil drilling, military, marine and
paper and chemical processes are manufactured and assembled at the PFI
facilities in Greensboro, North Carolina. The manufacturing processes include
bonding and sintered metal, tungsten inert gas and electron beam welding and
diffusion-bonded wire. Facet designs, manufactures and assembles filters and
filtration systems for aircraft refueling, power generation, water treatment and
general industrial applications at its United States and European facilities.
The company also uses outside contractors for assembly and manufacturing of some
of its products. Many of these products require special commercial or military
technical approvals or product certification.
Packaging. The Company's metal and combination metal and plastic packaging
products are produced at J. L. Clark plants located in Rockford, Illinois, and
Lancaster, Pennsylvania. The Rockford and Lancaster plants are completely
integrated facilities which include creative and mechanical art departments and
photographic facilities for color separation, preparation of multiple-design
negatives and lithographing plates. Metal sheets are decorated on coating
machines and lithographing presses connected with conveyor ovens. Decorated
sheets are then cut to working sizes on shearing equipment, following which
fabrication is completed by punch presses, can-forming and can-closing equipment
and other specialized machinery for supplementary operations. Most tooling for
fabricating equipment is designed and engineered by the Company's engineering
staffs, and much of it is produced in the Company's tool rooms.
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Plastic packaging capabilities include printing and molding of irregular
shaped plastic containers and customized plastic closures which have
tamper-evidence as well as convenience features. J. L. Clark's distinctive
plastic closures include the combiTop(R) and the SST Series(TM) products.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in legal actions arising in the normal course of
business. After taking into consideration legal counsel's evaluation of such
actions, management is of the opinion that their outcome will not have a
material adverse effect on the Company's consolidated results of operations or
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
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AGE AT YEAR ELECTED
NAME 11/30/99 TO OFFICE
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*Lawrence E. Gloyd.......................................... 67 1995
Chairman of the Board and Chief Executive Officer. Mr.
Gloyd was elected President and Chief Operating Officer in
1986, President and Chief Executive Officer in 1988,
Chairman, President and Chief Executive Officer in 1991, and
Chairman of the Board and Chief Executive Officer in 1995.
*Norman E. Johnson.......................................... 51 1995
President and Chief Operating Officer. Mr. Johnson has
been employed by the Company since 1990. He was elected
President-Baldwin Filters, Inc. in 1990, Vice
President-CLARCOR in 1992, Group Vice President-Filtration
Products Group in 1993, and President and Chief Operating
Officer in 1995. Mr. Johnson has been a Director of the
Company since June 1996.
Michael J. Tilton........................................... 50 1998
Executive Vice President-Engine/Mobile Filtration. Mr.
Tilton was employed by the Company and elected Executive
Vice President-Engine/Mobile Filtration on June 22, 1998.
Mr. Tilton has over 25 years of experience in operations and
finance and was formerly with Pinnacle Automation and
Donaldson Company.
William B. Walker........................................... 59 1999
Executive Vice President-Industrial/Environmental
Filtration. Mr. Walker has been employed by Airguard, a
subsidiary of the Company since 1966. He was elected
President of Airguard in 1994 and Executive Vice
President-Industrial/Environmental Filtration in 1999.
Bruce A. Klein.............................................. 52 1995
Vice President-Finance and Chief Financial Officer. Mr.
Klein was employed by the Company and elected Vice
President-Finance and Chief Financial Officer on January 3,
1995.
David J. Anderson........................................... 61 1999
Vice President-Corporate Development. Mr. Anderson has
been employed by the Company since 1990. He was elected Vice
President Marketing & Business Development for the CLARCOR
Filtration Products subsidiary in 1991, Vice
President-Corporate Development in 1993, Vice
President-International/Corporate Development in 1994 and
Vice President-Corporate Development in 1999.
David J. Lindsay............................................ 44 1995
Vice President-Administration and Chief Administrative
Officer. Mr. Lindsay has been employed by the Company in
various administrative positions since 1987. He was elected
Vice President-Group Services in 1991, Vice
President-Administration in 1994 and Vice President-
Administration and Chief Administrative Officer in 1995.
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<TABLE>
<CAPTION>
AGE AT YEAR ELECTED
NAME 11/30/99 TO OFFICE
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Peter F. Nangle............................................. 38 1999
Vice President-Information Services and Chief Information
Officer. Mr. Nangle has been employed by the Company since
1993. He was elected Vice President-Information Services in
1994, Vice President-Information Services and Operations
Analysis, Chief Information Officer in 1997 and Vice
President-Information Services and Chief Information Officer
in 1999. Mr. Nangle was also elected President of United Air
Specialists, Inc., one of the Company's subsidiaries, in
June 1999.
Marcia S. Blaylock.......................................... 43 1997
Vice President, Controller and Corporate Secretary. Ms.
Blaylock has been an employee of the Company since 1974. She
was elected Assistant Secretary in 1994, Corporate Secretary
in 1995, Vice President and Corporate Secretary in 1996 and
Vice President, Controller and Corporate Secretary in 1997.
</TABLE>
Each executive officer of the Company is elected for a term of one year
which begins at the Board of Directors Meeting at which he or she is elected,
held at the time of the Annual Meeting of Shareholders, and ends on the date of
the next Annual Meeting of Shareholders or upon the due election and
qualification of his or her successor.
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*It is expected that following the Company's March 25, 2000 Annual Meeting, Mr.
Gloyd will retire as Chairman and Chief Executive Officer and Mr. Johnson will
become Chairman, President and Chief Executive Officer of the Company. Mr.
Gloyd will continue to serve as a Director of the Company.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.
The Company's Common Stock is listed on the New York Stock Exchange; it is
traded under the symbol CLC. The following table sets forth the high and low
market prices as quoted during the relevant periods on the New York Stock
Exchange and dividends paid for each quarter of the last two fiscal years.
<TABLE>
<CAPTION>
MARKET PRICE
------------------
QUARTER ENDED HIGH LOW DIVIDENDS
------------- ---- --- ---------
<S> <C> <C> <C> <C> <C>
February 27, 1999........................................... $20 13/16 $16 11/16 $.1125
May 29, 1999................................................ 19 1/4 16 7/16 .1125
August 28, 1999............................................. 21 3/8 18 1/8 .1125
November 27, 1999........................................... 18 9/16 14 1/4 .1150
------
Total Dividends............................................. $.4525
======
</TABLE>
<TABLE>
<CAPTION>
MARKET PRICE
-------------------
QUARTER ENDED HIGH LOW DIVIDENDS
------------- ---- --- ---------
<S> <C> <C> <C> <C> <C>
February 28, 1998........................................... $20 13/16 $17 3/16 $.1100
May 30, 1998................................................ 24 5/8 20 1/4 .1100
August 29, 1998............................................. 23 1/2 15 1/4 .1100
November 28, 1998........................................... 18 9/16 14 1/4 .1125
------
Total Dividends............................................. $.4425
======
</TABLE>
The approximate number of holders of record of the Company's Common Stock
at February 1, 2000 is 1,650. In addition, the Company believes that there are
approximately 6,000 beneficial owners whose shares are held in street names.
ITEM 6. SELECTED FINANCIAL DATA.
The information required hereunder is set forth on pages 30 and 31 of the
Annual Report under the caption "11-Year Financial Review," is incorporated
herein by reference and is filed as Exhibit 13(a)(ix) to this 1999 Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
The information required hereunder is set forth on pages 10 through 14 of
the Annual Report under the caption "Financial Review," is incorporated herein
by reference and is filed as Exhibit 13(a)(x) to this 1999 Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required hereunder is set forth on page 13 of the Annual
Report under the caption "Financial Review -- Market Risk," is incorporated
herein by reference and is filed as Exhibit 13(a)(x) to this 1999 Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements, the Notes thereto and the report
thereon of PricewaterhouseCoopers LLP, independent accountants, required
hereunder with respect to the Company and its consolidated subsidiaries are set
forth on pages 15 through 28, inclusive, of the Annual Report, are incorporated
herein by reference and are filed as Exhibits 13(a)(ii) through 13(a)(vii) to
this 1999 Form 10-K.
12
<PAGE> 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information required hereunder is set forth on pages 1 and 2 of the
Company's Proxy Statement dated February 23, 2000 (the "Proxy Statement") for
the Annual Meeting of Shareholders to be held on March 25, 2000 under the
caption "Election of Directors -- Nominees for Election to the Board" and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required hereunder is set forth on pages 6 through 15
inclusive, of the Proxy Statement under the caption "Compensation of Executive
Officers and Other Information" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required hereunder is set forth on pages 4 and 5 of the
Proxy Statement under the caption "Beneficial Ownership of the Company's Common
Stock" and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required hereunder is set forth on page 4 of the Proxy
Statement under the caption "Certain Relationships and Related Transactions" and
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements
The following financial information is incorporated herein by reference to
the Company's Annual Report to Shareholders for the fiscal year ended November
30, 1999:
*Consolidated Balance Sheets at November 30, 1999 and 1998
*Consolidated Statements of Earnings for the years ended November 30, 1999,
1998 and 1997
*Consolidated Statements of Shareholders' Equity for the years ended
November 30, 1999, 1998 and 1997
*Consolidated Statements of Cash Flows for the years ended November 30,
1999, 1998 and 1997
*Notes to Consolidated Financial Statements
*Report of Independent Accountants
*Management's Report on Responsibility for Financial Reporting
- ------------------------------
*Filed herewith as part of Exhibit 13(a) to this 1999 Form 10-K
13
<PAGE> 14
The following items are set forth herein on the pages indicated:
Report of Independent Accountants.......................................... F-1
Financial Statement Schedules:
II. Valuation and Qualifying Accounts................................. F-2
Financial statements and schedules other than those listed above are
omitted for the reason that they are not applicable, are not required, or the
information is included in the financial statements or the footnotes therein.
(b) Related to the Industrial Filtration Acquisitions, the Company filed a
Report on Form 8-K on September 17, 1999 and on November 23, 1999 filed a Report
on Form 8-K/A.
(c) Exhibits
<TABLE>
<S> <C>
3.1 The registrant's Second Restated Certificate of
Incorporation. Incorporated by reference to Exhibit 3.1 to
the Company's Annual Report on Form 10-K for the fiscal year
ended November 30, 1998 (the "1998 10-K").
3.1(a) Amendment to ARTICLE FOURTH of the Second Restated
Certificate of Incorporation. Incorporated by reference to
the Company's Proxy Statement dated February 18, 1999 for
the Annual Meeting of Shareholders held on March 23, 1999.
3.2 The registrant's By-laws, as amended. Incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1995.
3.3 Certificate of Designation of Series B Junior Participating
Preferred Stock of CLARCOR as filed with the Secretary of
State of the State of Delaware on April 2, 1996.
Incorporated by reference to Exhibit 4.5 to the Registration
Statement on Form 8-A filed April 3, 1996.
4.1 Stockholder Rights Agreement dated as of March 28, 1996
between the registrant and the First Chicago Trust Company
of New York. Incorporated by reference to Exhibit 4 to the
Company's Current Report on Form 8-K filed April 3, 1996.
4.1(a) First Amendment to Stockholders Rights Agreement dated as of
March 23, 1999. Incorporated by reference to Exhibit 4 to
the Company's Form 8-A/A filed March 29, 1999.
4.2 Certain instruments defining the rights of holders of
long-term debt securities of CLARCOR and its subsidiaries
are omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation
S-K. CLARCOR hereby agrees to furnish copies of these
instruments to the SEC upon request.
4.2(a) Multicurrency Credit Agreement dated as of September 9,
1999. Incorporated by reference to Exhibit 4 to the
Company's Current Report on Form 8-K filed September 17,
1999.
10.1 The registrant's Deferred Compensation Plan for Directors.
Incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended
November 30, 1984 (the "1984 10-K").
10.2 The registrant's Supplemental Retirement Plan. Incorporated
by reference to Exhibit 10.2 to the 1984 10-K.
10.2(a) The registrant's 1994 Executive Retirement Plan.
Incorporated by reference to Exhibit 10.2(a) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 3, 1994 ("1994 10-K").
10.2(b) The registrant's 1994 Supplemental Pension Plan.
Incorporated by reference to Exhibit 10.2(b) to the 1994
10-K.
10.2(c) The registrant's Supplemental Retirement Plan (as amended
and restated effective December 1, 1994). Incorporated by
reference to Exhibit 10.2(c) to the 1994 10-K.
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C>
10.3 The registrant's 1984 Stock Option Plan. Incorporated by
reference to Exhibit A to the Company's Proxy Statement
dated March 2, 1984 for the Annual Meeting of Shareholders
held on March 31, 1984.
10.4 Employment Agreements with certain officers. Incorporated by
reference to Exhibit 5 to the Company's Current Report on
Form 8-K filed July 25, 1989.
10.4(a) Form of Employment Agreement with each of David J. Anderson,
Marcia S. Blaylock, Bruce A. Klein and Peter F. Nangle.
Incorporated by reference to Exhibit 10.4(a) to the
Company's Annual Report on Form 10-K for the fiscal year
ended November 30, 1996.
10.4(b) Employment Agreement with Lawrence E. Gloyd dated July 1,
1997. Incorporated by reference to Exhibit 10.4(b) to the
Company's Annual Report on Form 10-K for the fiscal year
ended November 30, 1997 ("1997 10-K").
10.4(c) Employment Agreement with Norman E. Johnson dated July 1,
1997. Incorporated by reference to Exhibit 10.4(c) to the
1997 10-K.
10.4(d) Trust Agreement dated December 1, 1997. Incorporated by
reference to Exhibit 10.4(d) to the 1997 10-K.
10.4(e) Executive Benefit Trust Agreement dated December 22, 1997.
Incorporated by reference to Exhibit 10.4(e) to the 1997
10-K.
10.4(f) Employment Agreement with Michael J. Tilton dated September
23, 1998. Incorporated by reference to Exhibit 10.4(f) to
the 1998 10-K.
10.5 The registrant's 1994 Incentive Plan. Incorporated by
reference to Exhibit A to the Company's Proxy Statement
dated February 24, 1994 for the Annual Meeting of
Shareholders held on March 31, 1994.
10.5(a) The registrant's First Amendment to the 1994 Incentive Plan.
Incorporated by reference to Exhibit A to the Company's
Proxy Statement dated February 18, 1998 for the Annual
Meeting of Shareholders held on March 24, 1998.
10.5(b) The registrant's Amendments to the 1994 Incentive Plan as
approved by the Company's Board of Directors on September
20, 1999 and December 20, 1999.
10.6 Purchase Agreement dated September 10, 1999 related to the
Industrial Filtration Acquisitions. Incorporated by
reference to Exhibit 2 to the Company's Current Report on
Form 8-K filed September 17, 1999.
13 (a) The following items incorporated by reference herein from
the Company's 1999 Annual Report to Shareholders ("1999
Annual Report"), are filed as Exhibits to this Annual Report
Form 10-K:
</TABLE>
<TABLE>
<C> <S>
(i) Business segment information for the fiscal years 1997
through 1999 set forth on pages 26 and 27 of the 1999
Annual Report (included in Exhibit 13(a)(vi) -- Note Q
of Notes to Consolidated Financial Statements);
(ii) Consolidated Balance Sheets of the Company and its
Subsidiaries at November 30, 1999 and 1998 set forth on
page 15 of the 1999 Annual Report;
(iii) Consolidated Statements of Earnings of the Company and
its Subsidiaries for the years ended November 30, 1999,
1998 and 1997 set forth on page 16 of the 1999 Annual
Report;
(iv) Consolidated Statements of Shareholders' Equity for the
Company and its Subsidiaries for the years ended
November 30, 1999, 1998 and 1997 set forth on page 17
of the 1999 Annual Report;
(v) Consolidated Statements of Cash Flows of the Company
and its Subsidiaries for the years ended November 30,
1999, 1998 and 1997 set forth on page 18 of the 1999
Annual Report;
</TABLE>
15
<PAGE> 16
<TABLE>
<C> <S>
(vi) Notes to Consolidated Financial Statements set forth on
pages 19 through 27 of the 1999 Annual Report;
(vii) Report of Independent Accountants set forth on page 28
of the 1999 Annual Report;
(viii) Management's Report on Responsibility for Financial
Reporting set forth on page 28 of the 1999 Annual
Report;
(ix) Information under the caption "11-Year Financial
Review" set forth on pages 30 and 31 of the 1999 Annual
Report; and
(x) Management's Discussion and Analysis of Financial
Condition and Results of Operation set forth under the
caption "Financial Review" on pages 10 through 14 of
the 1999 Annual Report.
</TABLE>
<TABLE>
<S> <C>
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
27 Financial Data Schedule.
</TABLE>
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: February 23, 2000 CLARCOR Inc.
(Registrant)
By: /s/ LAWRENCE E. GLOYD
--------------------------------------
Lawrence E. Gloyd
Chairman of the Board
& Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Date: February 23, 2000 By: /s/ LAWRENCE E. GLOYD
------------------------------------------------
Lawrence E. Gloyd
Chairman of the Board &
Chief Executive Officer and Director
Date: February 23, 2000 By: /s/ BRUCE A. KLEIN
------------------------------------------------
Bruce A. Klein
Vice President -- Finance &
Chief Financial Officer
Date: February 23, 2000 By /s/ MARCIA S. BLAYLOCK
------------------------------------------------
Marcia S. Blaylock
Vice President, Controller, Corporate Secretary
& Chief Accounting Officer
Date: February 23, 2000 By /s/ J. MARC ADAM
------------------------------------------------
J. Marc Adam
Director
Date: February 23, 2000 By /s/ MILTON R. BROWN
------------------------------------------------
Milton R. Brown
Director
Date: February 23, 2000 By /s/ CARL J. DARGENE
------------------------------------------------
Carl J. Dargene
Director
Date: February 23, 2000 By /s/ ROBERT H. JENKINS
------------------------------------------------
Robert H. Jenkins
Director
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C>
Date: February 23, 2000 By /s/ NORMAN E. JOHNSON
------------------------------------------------
Norman E. Johnson
Director
Date: February 23, 2000 By /s/ PHILIP R. LOCHNER, JR.
------------------------------------------------
Philip R. Lochner, Jr.
Director
Date: February 23, 2000 By /s/ JAMES L. PACKARD
------------------------------------------------
James L. Packard
Director
Date: February 23, 2000 By /s/ STANTON K. SMITH, JR.
------------------------------------------------
Stanton K. Smith, Jr.
Director
Date: February 23, 2000 By /s/ DON A. WOLF
------------------------------------------------
Don A. Wolf
Director
</TABLE>
18
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
CLARCOR Inc.
Rockford, Illinois
Our audits of the consolidated financial statements referred to in our report
dated January 7, 2000 appearing on page 28 in the 1999 Annual Report to
Shareholders of CLARCOR Inc. and Subsidiaries (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the financial statement schedule listed in Item
14(a) of this Form 10-K (page 13, index of exhibits). In our opinion, the
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
January 7, 2000
F-1
<PAGE> 20
CLARCOR INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------- ---------- ----------------------- ---------- ----------
ADDITIONS
-----------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1999:
Allowance for losses on accounts
receivable......................... $2,711 $ 975 $2,255(A) $ 786(B) $5,155
====== ====== ====== ====== ======
1998:
Allowance for losses on accounts
receivable......................... $2,106 $3,075 $ 46(A) $2,516(B) $2,711
====== ====== ====== ====== ======
1997:
Allowance for losses on accounts
receivable......................... $2,007 $ 696 $ 58(A) $ 655(B) $2,106
====== ====== ====== ====== ======
</TABLE>
NOTES:
(A) Due to business acquisitions.
(B) Bad debts written off during year, net of recoveries.
F-2
<PAGE> 1
EXHIBIT 10.5(B)
CLARCOR INC.
RESOLUTIONS
OF THE
BOARD OF DIRECTORS
AMENDING THE 1994 INCENTIVE PLAN
Pursuant to Article IX, Section 2 of the Company's 1994 Incentive Plan
(the "Plan"), the Board of Directors of CLARCOR Inc. adopted and approved the
following amendments to the Plan.
RESOLVED, that on September 20, 1999, Article II, Section 3a of the Plan
be amended to read in its entirety as follows:
"(a) Retirement. Subject to paragraph (e) below and unless
otherwise determined by the Committee, if the employment by
the Company of the holder of an option or SAR terminates by
reason of retirement on or after age 65 (or prior to such age
with the consent of the Committee), each option and SAR held
by such holder shall become fully exercisable and may
thereafter by exercised by such holder (or such holders
guardian, legal representative or similar person) for a period
specified at any time or from time to time by the Committee
prior to the date on which such retirement begins; provided
that such period shall not extend beyond the expiration date
of the term of such option or SAR specified in the Agreement
relating thereto."
RESOLVED, that on December 20, 1999, Article IX, Section 5 Tax
Withholding be, and it is hereby amended by the deletion therefrom of the
sentence reading "An Agreement may provide for shares of Common Stock to be
delivered or withheld having an aggregate Fair Market Value in excess of the
minimum amount required to be withheld, but not in excess of the amount
determined by applying the holder's maximum marginal tax rate." and substituting
therefor the following sentence: "Shares of Common Stock to be delivered or
withheld may not have an aggregate Fair Market Value in excess of the amount
determined by applying the minimum statutory withholding rate."
RESOLVED, FURTHER, that Article II, Section 1(c) Method of Exercise,
shall be amended by deleting clause (C) therefrom so that such provision reads
in its entirety as follows:
"(c) Method of Exercise. An option may be exercised (i) by
giving written notice to the Company specifying the number of
whole shares
<PAGE> 2
of Common Stock to be purchased and accompanied by payment
therefor in full (or arrangement made for such payment to the
Committee's satisfaction) either (A) in cash, (B) in
previously owned whole shares of Common Stock (which the
optionee has held for at least six months prior to delivery of
such shares and for which the optionee has good title free and
clear of all liens and encumbrances) having a Fair Market
Value, determined as of the date of exercise, equal to the
aggregate purchase price payable pursuant to such option by
reason of such exercise, (C) in cash by a broker-dealer
acceptable to the Company to whom the optionee has submitted
an irrevocable notice of exercise or (D) a combination of (A)
and (B), in each case to the extent determined by the
Committee at the time of grant of the option, (ii) if
applicable, by surrendering to the Company any Tandem SARs
which are canceled by reason of the exercise of the option and
(iii) by executing such documents as the Company may
reasonably request. The Committee shall have sole discretion
to disapprove of an election pursuant to any of clauses (B)
through (D) above. No shares of Common Stock shall be issued
until the full purchase price has been paid."
RESOLVED, FURTHER, that Article II, Section 3(c) Other Termination shall
be amended to read in its entirety as follows:
"(c) Other Termination. Subject to paragraph (e) below and
unless otherwise determined by the Committee at the time of
grant of an option or SAR, as the case may be, if the
employment by the Company of the holder of an option or SAR
terminates for any reason other than retirement on or after
age 65 (or prior to such age with the consent of the
Committee), Disability or death, each option and SAR held by
such holder shall terminate 90 days (or such shorter period as
may be determined by the Committee) after the date of such
termination of employment or upon the expiration of the term
of such option or SAR, whichever period is shorter. Such
option or SAR shall be exercisable only to the extent such
option or SAR was exercisable the date of such holder's
termination of employment."
<PAGE> 1
EXHIBIT 13(a)ii
CONSOLIDATED BALANCE SHEETS
November 30, 1999 and 1998 (Dollars in thousands except per share data)
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and short-term cash investments...................... $ 14,745 $ 33,321
Accounts receivable, less allowance for losses of $5,155
for 1999 and $2,711 for 1998........................... 103,986 67,557
Inventories .............................................. 89,850 58,614
Prepaid expenses and other current assets................. 11,830 2,444
Deferred income taxes..................................... 7,259 6,237
-------------------------
Total current assets............................ 227,670 168,173
-------------------------
Plant assets, at cost less accumulated depreciation........... 126,026 86,389
Acquired intangibles, less accumulated amortization........... 91,151 21,665
Pension assets................................................ 17,879 15,907
Other noncurrent assets....................................... 10,265 13,632
-------------------------
Total assets.................................... $ 472,991 $ 305,766
=========================
LIABILITIES
- -----------------------------------------------------------------------------------------
Current liabilities:
Current portion of long-term debt......................... $ 5,440 $ 470
Accounts payable and accrued liabilities.................. 87,593 54,525
Income taxes.............................................. 4,442 6,188
-------------------------
Total current liabilities....................... 97,475 61,183
-------------------------
Long-term debt, less current portion.......................... 145,981 36,419
Postretirement health care benefits........................... 3,342 1,821
Long-term pension liabilities................................. 3,577 8,896
Deferred income taxes......................................... 10,238 9,920
Other long-term liabilities................................... 1,265 431
Minority interests............................................ 395 289
Contingencies
SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------
Capital stock:
Preferred, par value $1, authorized 5,000,000 shares,
none issued .......................................... -- --
Common, par value $1, authorized 60,000,000 shares,
issued 24,019,722 in 1999 and 23,949,358 in 1998........ 24,020 23,949
Capital in excess of par value............................ 948 156
Accumulated other comprehensive earnings:
Foreign currency translation adjustments............... (4,151) (2,993)
Retained earnings......................................... 189,901 165,695
-------------------------
Total shareholders' equity...................... 210,718 186,807
-------------------------
Total liabilities and shareholders' equity...... $ 472,991 $ 305,766
=========================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE> 1
EXHIBIT 13(a)iii
CONSOLIDATED STATEMENTS OF EARNINGS
For the years ended November 30, 1999, 1998 and 1997
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales............................................... $ 477,869 $ 426,773 $ 394,264
Cost of sales........................................... 329,282 291,537 273,702
------------------------------------------------
Gross profit..................................... 148,587 135,236 120,562
Selling and administrative expenses..................... 92,510 83,573 73,166
Merger-related costs.................................... -- -- 2,972
------------------------------------------------
Operating profit................................. 56,077 51,663 44,424
------------------------------------------------
Other income (expense):
Interest expense.................................... (3,733) (2,336) (2,759)
Interest income..................................... 1,451 1,283 1,020
Gain on sale of marketable securities............... -- -- 1,706
Gain on sale of plant assets........................ 1,660 1,310 512
Other, net.......................................... 160 (573) (711)
------------------------------------------------
(462) (316) (232)
------------------------------------------------
Earnings before income taxes and minority interests 55,615 51,347 44,192
Provision for income taxes.............................. 20,137 19,262 17,164
------------------------------------------------
Earnings before minority interests............... 35,478 32,085 27,028
Minority interests in earnings of subsidiaries.......... (66) (6) (110)
------------------------------------------------
Net earnings............................................ $ 35,412 $ 32,079 $ 26,918
================================================
Net earnings per common share:
Basic............................................... $ 1.48 $ 1.32 $ 1.12
Diluted............................................. $ 1.46 $ 1.30 $ 1.11
================================================
Average number of common shares outstanding:
Basic............................................... 23,970,011 24,268,250 24,133,472
Diluted............................................. 24,313,607 24,648,623 24,343,881
================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE> 1
EXHIBIT 13(a)iv
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended November 30, 1999, 1998 and 1997 (Dollars in thousands
except per share data)
<TABLE>
<CAPTION>
Common Stock
--------------------------------------------
Number of Shares Amount Accumulated
--------------------- ------------------ Capital in Other
In In Excess of Comprehensive Retained
Issued Treasury Issued Treasury Par Value Earnings Earnings Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1996 ..... 23,933,676 - $ 15,956 $ - $ 1,276 $ (761) $138,210 $ 154,681
Net earnings ................... - - - - - - 26,918 26,918
Other comprehensive earnings:
Translation adjustments ...... - - - - - (947) - (947)
Reclassification adjustment
for realized gain on sale
of marketable securities ... - - - - - (992) - (992)
-------
Total comprehensive earnings . 24,979
-------
Stock options exercised ........ 293,965 - 196 - 1,380 - 5 1,581
Issuance of stock under
award plans ................ 15,962 - 10 - 201 - - 211
Cash dividends - $0.4350
per common share ........... - - - - - - (10,290) (10,290)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1997 ..... 24,243,603 - 16,162 - 2,857 (2,700) 154,843 171,162
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings ................... - - - - - - 32,079 32,079
Other comprehensive earnings:
Translation adjustments ...... - - - - - (293) - (293)
-------
Total comprehensive earnings . 31,786
-------
Purchase of treasury stock ..... - (528,691) - (8,447) - - - (8,447)
Retirement of treasury stock ... (528,691) 528,691 (529) 8,447 (5,553) - (2,365) -
Stock split .................... - - 8,145 - -- - (8,145) -
Stock options exercised ........ 212,260 - 154 - 2,391 - - 2,545
Issuance of stock under
award plans ................ 22,186 - 17 - 461 - - 478
Cash dividends - $0.4425
per common share ........... - - - - - - (10,717) (10,717)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1998 ..... 23,949,358 - 23,949 - 156 (2,993) 165,695 186,807
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings ................... - - - - - - 35,412 35,412
Other comprehensive earnings:
Translation adjustments ...... - - - - - (1,158) - (1,158)
-------
Total comprehensive earnings . 34,254
-------
Purchase of treasury stock ..... - (50,000) - (897) - - - (897)
Retirement of treasury stock ... (50,000) 50,000 (50) 897 (455) - (392) -
Stock options exercised ........ 82,344 - 83 - 740 - - 823
Issuance of stock under
award plans ................ 38,020 - 38 - 507 - - 545
Cash dividends - $0.4525
per common share ........... - - - - - - (10,814) (10,814)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, November 30, 1999 ..... 24,019,722 - $ 24,020 $ - $ 948 $(4,151) $ 189,901 $ 210,718
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE> 1
EXHIBIT 13(a)v
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997 (Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings................................................ $ 35,412 $ 32,079 $ 26,918
Adjustments to reconcile net earnings to
net cash provided by operations:
Depreciation............................................. 13,729 11,692 11,001
Amortization............................................. 1,643 688 599
Gain on sale of marketable securities.................... - - (1,706)
Minority interests in earnings of subsidiaries........... 66 6 110
Net gain on dispositions of plant assets................. (1,660) (1,310) (512)
Changes in assets and liabilities, net of
business acquisitions:
Accounts receivable................................... (6,062) (3,460) (3,224)
Inventories........................................... (4,585) 1,046 (1,058)
Prepaid expenses and other current assets............. (1,369) (912) 1,028
Other noncurrent assets............................... (18) (3,235) 27
Accounts payable and accrued liabilities.............. 4,790 4,841 7,220
Pension assets and liabilities, net................... (583) (1,463) (443)
Income taxes.......................................... (2,366) 2,065 1,771
Deferred income taxes................................. (355) 230 (99)
-------------------------------------------------
Net cash provided by operating activities......... 38,642 42,267 41,632
-------------------------------------------------
Cash flows from investing activities:
Additions to plant assets................................... (21,822) (15,825) (11,349)
Business acquisitions, net of cash acquired................. (142,709) (7,984) (1,522)
Proceeds from sale of marketable securities................. - - 3,322
Proceeds from note receivable............................... - 2,500 -
Dispositions of plant assets................................ 3,873 2,542 2,100
Other, net.................................................. - (523) (744)
-------------------------------------------------
Net cash used in investing activities............. (160,658) (19,290) (8,193)
-------------------------------------------------
Cash flows from financing activities:
Borrowings under long-term debt............................. 115,000 - 1,123
Reduction of long-term debt................................. (468) (2,669) (13,988)
Sales of capital stock under stock option plan.............. 680 1,890 1,305
Purchases of treasury stock................................. (897) (8,447) -
Cash dividends paid......................................... (10,814) (10,717) (10,290)
-------------------------------------------------
Net cash provided by (used in) financing activities 103,501 (19,943) (21,850)
-------------------------------------------------
Net effect of exchange rate changes on cash..................... (61) (37) (92)
-------------------------------------------------
Net change in cash and short-term
cash investments........................................ (18,576) 2,997 11,497
Cash and short-term cash investments,
beginning of year....................................... 33,321 30,324 18,827
-------------------------------------------------
Cash and short-term cash investments, end of year............... $ 14,745 $ 33,321 $ 30,324
=================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE> 1
EXHIBIT 13(a)vi
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
A. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include all domestic and foreign
subsidiaries that are more than 50% owned and controlled. CLARCOR Inc. and its
subsidiaries are hereinafter collectively referred to as the "Company" or
CLARCOR.
Minority interests represent an outside shareholder's 10% ownership of the
common stock of Filtros Baldwin de Mexico (FIBAMEX) and outside shareholders'
20% ownership of Baldwin-Unifil S.A.
FOREIGN CURRENCY TRANSLATION
Financial statements of foreign subsidiaries are translated into U.S.
dollars at current rates, except that revenues, costs and expenses are
translated at average current rates during each reporting period. Net exchange
gains or losses resulting from the translation of foreign financial statements
and the effect of exchange rate changes on intercompany transactions of a
long-term investment nature are accumulated with other comprehensive earnings as
a separate component of shareholders' equity and are presented, net of tax, in
the Consolidated Statements of Shareholders' Equity.
PLANT ASSETS
Depreciation is provided by the straight-line and accelerated methods for
financial statement purposes and by the accelerated method for tax purposes. The
provision for depreciation is based on the estimated useful lives of the assets
(15 to 40 years for buildings and improvements and 3 to 15 years for machinery
and equipment). It is the policy of the Company to capitalize renewals and
betterments and to charge to expense the cost of current maintenance and
repairs.
EXCESS OF COST OVER FAIR VALUE OF ASSETS
ACQUIRED AND OTHER INTANGIBLE ASSETS
The excess of cost over fair value of assets acquired is being amortized
over a forty-year period using the straight-line method. Other acquired
intangible assets are being amortized over the estimated periods to be benefited
using the straight-line method. These intangibles include trademarks (40 year
life), patents (average 14 year life), and other identifiable intangible assets
with lives ranging from one to thirty years.
Impairment losses, as determined by underlying cash flows related to
specific groups of plant assets, identifiable intangibles and excess cost over
fair value of assets acquired, are applied first to related goodwill.
STATEMENTS OF CASH FLOWS
All highly liquid investments that are readily saleable are considered to
be short-term cash investments. The carrying amount approximates fair value.
CONCENTRATIONS OF CREDIT AND
FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of short-term cash investments
and trade receivables. The Company places its short-term cash investments in
high-grade municipal securities and classifies them as trading securities. At
November 30, 1999 and 1998, the Company held short-term municipal securities
with a total cost of $12,720 and $32,420, respectively, with original maturities
through October 2005. Cost approximates market for these securities.
Concentrations of credit risk with respect to trade receivables are limited due
to the Company's large number of customers and their dispersion across many
different industries and locations.
INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." SFAS 109 requires the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between the
financial statement carrying amounts and the tax basis of assets and
liabilities.
REVENUE RECOGNITION
Revenue is recognized upon shipment of goods to customers.
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 and unrealized holding
gains, 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.
USE OF MANAGEMENT'S ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
19
<PAGE> 2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
ACCOUNTING PERIOD
The Company's fiscal year ends on the Saturday closest to November 30.
Each of the fiscal years ended November 27, 1999, November 28, 1998 and November
29, 1997, was comprised of fifty-two weeks. In the consolidated financial
statements, all fiscal years are shown to begin as of December 1 and end as of
November 30 for clarity of presentation.
RECLASSIFICATIONS
Certain reclassifications have been made to conform prior years' data to
the current presentation. These reclassifications had no effect on reported
earnings.
B. BUSINESS COMBINATIONS, INVESTMENTS IN AFFILIATES, AND DIVESTITURE
On September 10, 1999, the Company completed its acquisitions of Purolator
Air Filtration (Purolator), Facet International (Facet), and Purolator Facet,
Inc. (PFI), manufacturers of air and liquid filtration products, for
approximately $142,400, net of cash received, including acquisition expenses.
The purchase price was paid in cash with available funds and proceeds from
long-term borrowings of approximately $115,000 from a revolving credit facility.
(See Note H.) As a result of the acquisitions, Purolator, Facet, and PFI became
subsidiaries of the Company and are included in the Company's Industrial/
Environmental Filtration segment. The Company's non-cash investing and financing
activities related to this acquisition included assumed liabilities of $25,783.
The transaction was accounted for under the purchase method of accounting
with the excess of the initial purchase price over the preliminary estimated
fair value of the net tangible and identifiable intangible assets acquired
recorded as goodwill and amortized over 40 years by the straight-line method.
Other acquired intangible assets are being amortized as discussed in Note A. The
initial purchase price was based on the net assets of the businesses acquired as
shown on a February 28, 1999 balance sheet and is subject to a final adjustment
based on the net assets of the businesses. A preliminary allocation of the
initial purchase price has been made to major categories of assets and
liabilities. The allocation will be completed when the Company finalizes a
closing balance sheet in accordance with the purchase agreement, completes the
estimates of liabilities assumed, and finalizes the estimates associated with
exit and other costs of the acquisitions. The Company expects to finalize its
plans for integrating the acquired businesses with its existing operations by
the end of the third quarter of fiscal 2000 and any resulting changes to the
estimated $285 accrued for severance and exit costs will be reflected as an
adjustment to the allocation of the purchase price. The operating results are
included in the Company's consolidated results of operations from September 1,
1999, the effective date of the acquisitions.
The following unaudited pro forma information summarizes the results of
operations for the periods indicated as if the acquisitions had been completed
as of the beginning of the periods presented. The pro forma information gives
effect to actual operating results prior to the acquisitions, adjusted to
include the pro forma effect of interest expense, depreciation, amortization of
intangibles and income taxes. These pro forma amounts do not purport to be
indicative of the results that would have actually been obtained if the
acquisitions had occurred as of the beginning of the periods presented or that
may be obtained in the future.
<TABLE>
<CAPTION>
Years Ended November
----------------------
1999 1998
---------------------
<S> <C> <C>
Net sales............................... $ 591,869 $ 576,973
Net earnings............................ 36,625 32,277
Basic earnings per share................ 1.53 1.33
Diluted earnings per share.............. 1.51 1.31
</TABLE>
During 1998, the Company purchased Air Technologies, Inc. (ATI), an
Ottawa, Kansas manufacturer of air filtration products, and a small filter
distributor. Each acquisition was made for cash and accounted for under the
purchase method of accounting. Both of these companies became wholly-owned
subsidiaries of the Company. Also during 1998, the Company purchased the
remaining 50% interest in Baldwin Australia and an additional 10% interest in
Baldwin-Unifil S.A. These acquisitions 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 1,622,612 shares of its common stock in
exchange for all the shares of UAS stock. Additional shares of the Company's
common stock will be issued upon exercise of UAS options. (See Note N for a
discussion of the additional shares to be issued.) The transaction was
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. A one-time,
pre-tax charge of $2,972 ($2,390 net of tax) covering the costs of the merger
includes legal and professional fees, non-compete agreements, and costs to
integrate the businesses of the two companies.
Other business acquisitions in fiscal 1997 included Airklean Engineering
Pte. Ltd., an Airguard distributor in Singapore; a filter distributor in Toledo,
Ohio; and The Filtair Company in Arlington, Texas. Each company was purchased
for cash. None of these acquisitions had a significant impact on the results of
the Company.
Also during 1997, the Company sold the assets of its Tube division located
in Downers Grove, Illinois. The divestiture did not have a significant impact on
the results of the Company.
20
<PAGE> 3
C. INVESTMENT IN MARKETABLE SECURITIES
In December 1996, the Company sold its remaining 2.5% investment interest
in G.U.D. Holdings Limited, an Australian company, recognizing a pretax gain on
the sale of $1,706 in fiscal 1997. The unrealized holding gains, net of deferred
income taxes of $992, were included as a component of accumulated other
comprehensive earnings at November 30, 1996.
D. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
by the last-in, first-out (LIFO) method for approximately 52% and 60% of the
Company's inventories at November 30, 1999 and 1998, respectively, and by the
first-in, first-out (FIFO) method for all other inventories. The FIFO method
approximates current cost. Inventories are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------
<S> <C> <C>
Raw materials........................... $ 33,274 $ 20,657
Work-in-process......................... 15,203 9,231
Finished products....................... 42,978 30,767
--------------------
Total at FIFO........................... 91,455 60,655
Less excess of FIFO over LIFO........... 1,605 2,041
--------------------
$ 89,850 $ 58,614
====================
</TABLE>
E. PLANT ASSETS
Plant assets at November 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------
<S> <C> <C>
Land.................................... $ 3,853 $ 2,491
Buildings and building fixtures......... 65,845 53,392
Machinery and equipment................. 163,481 128,467
Construction-in-process................. 11,108 9,322
--------------------
244,287 193,672
Less accumulated depreciation........... 118,261 107,283
--------------------
$ 126,026 $ 86,389
====================
</TABLE>
F. ACQUIRED INTANGIBLES
Acquired intangibles, net of accumulated amortization at November 30, 1999
and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------------------
<S> <C> <C>
Excess of cost over fair value of assets acquired .... $49,784 $21,665
Trademarks ........................................... 30,140 --
Other acquired intangibles ........................... 11,227 --
-----------------
$91,151 $21,665
=================
</TABLE>
Accumulated amortization was $9,890 and $8,306 at November 30, 1999 and
1998, respectively.
G. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at November 30, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
1999 1998
-----------------
<S> <C> <C>
Accounts payable ............................ $42,477 $26,528
Accrued salaries, wages and commissions ..... 10,875 8,249
Compensated absences ........................ 6,224 3,967
Accrued pension liabilities ................. 6,711 263
Other accrued liabilities ................... 21,306 15,518
-----------------
$87,593 $54,525
=================
</TABLE>
H. LONG-TERM DEBT
Long-term debt at November 30, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
-------------------
<S> <C> <C>
Multicurrency revolving credit agreement,
interest payable at the end of each
funding period at an adjusted LIBOR .... $115,000 $ --
Promissory note, interest payable
semi-annually at 6.69% ................. 25,000 25,000
Industrial Revenue Bonds, at 2.20% to
4.55% interest rates ................... 10,438 10,710
Other obligations, at 7% to 10%
interest rates ......................... 983 1,179
-------------------
151,421 36,889
Less current portion ......................... 5,440 470
-------------------
$145,981 $ 36,419
===================
</TABLE>
A fair value estimate of $143,867 and $34,631 for the long-term debt in
1999 and 1998, respectively, is based on the current interest rates available to
the Company for debt with similar remaining maturities.
In September 1999, the Company entered into a three-year, multicurrency
revolving credit agreement with a group of participating financial institutions
under which it may borrow up to $185,000. The agreement provides that loans may
be made under a selection of currencies and rate formulas. The interest rate is
based upon either a defined Base Rate or the London Interbank Offered Rate
(LIBOR) plus applicable margins. Facility fees and other fees on the entire loan
commitment are payable for the duration of this facility. At November 30, 1999,
$115,000 was outstanding under this agreement and the interest rate was 6.51%.
Borrowings under the credit facility are uncollateralized 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 of $160,000, limiting new borrowings, maintaining
a minimum interest coverage, and restricting certain changes in ownership as
stipulated in the agreement. This agreement also includes a letter of credit
facility,
21
<PAGE> 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
against which $11,405 in letters of credit had been issued at November 30, 1999,
that replaced a $25,000 revolving credit facility with a financial institution,
against which $10,305 letters of credit had been issued at November 30, 1998.
Subsequent to the end of the fiscal year, the Company entered into an
interest swap agreement to manage its interest exposure under the multicurrency
credit revolver. The agreement provides for the Company to pay a 6.04% fixed
interest rate on a notional amount of $115,000 and to receive interest at
floating rates based on LIBOR. The agreement matures in March 2000.
The 6.69% promissory note matures July 25, 2004, but the Company is
required to prepay, without premium, certain principal amounts as stated in the
agreement. Under the note agreements, the Company must meet certain restrictive
covenants. The covenants were amended during 1999 to be similar to those
contained in the multicurrency revolving credit facility.
On February 1, 1996, the Company, in cooperation with the South Dakota
Economic Development Finance Authority, issued $8,410 of Industrial Revenue
Bonds. The bonds are due February 1, 2016, with a variable rate of interest that
is reset weekly. The Company has other outstanding Industrial Revenue Bonds of
$2,028 and $2,300 as of November 30, 1999 and 1998, respectively. These mature
in 2005 and are backed by a letter of credit that requires an annual fee of
1.25% of the outstanding balance. This letter of credit expires in May 2001.
Exclusive of the multicurrency revolving credit facility, principal
maturities of long-term debt for the next five fiscal years ending November 30
approximates: $5,440 in 2000, $5,462 in 2001, $5,488 in 2002, $5,515 in 2003,
$5,570 in 2004 and $8,946 thereafter. The borrowings under the revolving credit
facility that matures in 2002 have been classified as long-term as the Company
has both the intent and ability to refinance this amount on a long-term basis.
Interest paid totaled $2,228, $2,293 and $2,870 during 1999, 1998 and
1997, respectively.
I. LEASES
The Company has various lease agreements for offices, warehouses,
manufacturing plants and equipment that expire on various dates through June
2007 and contain renewal options. Some of these leases provide for payment of
property taxes, utilities and certain other expenses. Commitments for minimum
rentals under noncancelable leases at November 30, 1999 for the next five years
are: $4,826 in 2000, $3,225 in 2001, $2,286 in 2002, $918 in 2003 and $419 in
2004. Rent expense totaled $6,063, $5,189 and $4,130 for the years ended
November 30, 1999, 1998 and 1997, respectively.
J. PENSION AND OTHER POSTRETIREMENT PLANS
The Company has defined benefit pension plans and postretirement health
care plans covering certain employees and retired employees. In addition to the
plan assets related to qualified plans, the Company has funded approximately
$8,550 and $8,279 at November 30, 1999 and 1998, respectively, in restricted
trusts for its nonqualified plans. These trusts are included in other current
and other noncurrent assets in the Company's Consolidated Balance Sheets.
The following table shows reconciliations of the pension plans and other
postretirement plan benefits as of November 30, 1999 and 1998. The accrued
pension benefit liability includes an unfunded benefit obligation of $11,445 and
$10,830 as of November 30, 1999 and 1998, respectively. The obligations have
been determined with a weighted average discount rate of 7.50% and 6.75% in 1999
and 1998, respectively, and a rate of increase in future compensation of
primarily 5.0% in both years. The expected weighted average long-term rate of
return was 9.0% in both 1999 and 1998.
<TABLE>
<CAPTION>
Pension Postretirement
Benefits Benefits
--------------------------------------------
1999 1998 1999 1998
--------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning
of year ............................................................. $ 75,986 $ 69,036 $ 2,342 $ 2,431
Service cost ............................................................... 2,364 2,248 13 13
Interest cost .............................................................. 5,251 4,882 149 167
Actuarial (gains)/losses ................................................... (6,378) 4,065 18 15
Acquisitions ............................................................... -- -- 1,606 --
Benefits paid .............................................................. (3,867) (4,245) (262) (284)
--------------------------------------------
Benefit obligation at end of year .......................................... 73,356 75,986 3,866 2,342
--------------------------------------------
Change in plan assets:
Fair value of plan assets at
beginning of year................................................... 79,828 78,046 -- --
Actual return on plan assets............................................... 11,076 5,500 -- --
Employer contribution ..................................................... -- 41 -- --
Benefits paid ............................................................. (3,690) (3,759) -- --
--------------------------------------------
Fair value of plan assets at end of year .................................. 87,214 79,828 -- --
--------------------------------------------
Funded status.............................................................. 13,858 3,842 (3,866) (2,342)
Unrecognized net transition asset ......................................... (1,056) (2,112) -- --
Unrecognized prior service cost ........................................... 210 272 -- --
Unrecognized net actuarial
(gain)/loss ......................................................... (5,421) 5,157 244 226
--------------------------------------------
Net amount recognized ..................................................... $ 7,591 $ 7,159 $ (3,622) $ (2,116)
============================================
Amounts recognized in the
Consolidated Balance Sheets include:
Prepaid benefit cost .......................................... $ 17,879 $ 15,907 $ -- $ --
Accrued benefit liability ..................................... (10,288) (9,159) (3,622) (2,116)
Intangible asset .............................................. -- 411 -- --
--------------------------------------------
Net amount recognized ..................................................... $ 7,591 $ 7,159 $ (3,622) $ (2,116)
============================================
</TABLE>
22
<PAGE> 5
The components of net periodic benefit cost for the pensions are shown
below.
<TABLE>
<CAPTION>
Pension Benefits
------------------------------
1999 1998 1997
------------------------------
<S> <C> <C> <C>
Components of net periodic benefit cost:
Service cost ............................. $ 2,364 $ 2,248 $ 2,029
Interest cost ............................ 5,251 4,882 4,558
Expected return on plan assets ........... (7,041) (6,883) (5,880)
Additional recognition amount ............ 196 196 488
Amortization of unrecognized:
Net transition asset ................ (1,056) (1,056) (1,087)
Prior service cost .................. 62 63 342
Net actuarial loss .................. 54 64 13
------------------------------
Net periodic benefit (income)/cost ....... $ (170) $ (486) $ 463
=============================
</TABLE>
The postretirement obligations represent a fixed dollar amount per
retiree. The Company has the right to modify or terminate these benefits. The
participants will assume substantially all future health care benefit cost
increases, and therefore, future increases in health care costs will not
increase the postretirement benefit obligation or cost to the Company.
Therefore, the Company has not assumed any annual rate of increase in the per
capita cost of covered health care benefits for future years and, therefore, a
one percentage point change in the assumed health care cost trend rate would not
have an effect. The components of net periodic benefit cost for the
postretirement health care are shown below.
<TABLE>
<CAPTION>
Postretirement Benefits
-----------------------
1999 1998 1997
-----------------------
<S> <C> <C> <C>
Components of net periodic benefit cost:
Service cost ................................. $ 13 $ 13 $ 7
Interest cost ................................ 149 166 162
------------------
Net periodic benefit cost .................... $162 $179 $169
==================
</TABLE>
The Company also sponsors various defined contribution plans that provide
employees with an opportunity to accumulate funds for their retirement. The
Company matches the contributions of participating employees based on the
percentages specified in the respective plans. The Company recognized expense
related to these plans of $1,211, $1,037 and $941 in 1999, 1998 and 1997,
respectively.
K. INCOME TAXES
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------
<S> <C> <C> <C>
Current:
Federal.................... $17,909 $16,976 $15,095
State...................... 2,177 2,784 2,356
Foreign.................... 1,036 585 446
Deferred........................ (985) (1,083) (733)
-----------------------------
$20,137 $19,262 $17,164
=============================
</TABLE>
Income taxes paid, net of refunds, totaled $22,234, $16,199 and $15,112
during 1999, 1998 and 1997, respectively.
The components of the net deferred tax liability as of November 30, 1999
and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Deferred compensation ....................... $ 2,792 $ 2,296
Other postretirement benefits ............... 719 741
Foreign net operating loss carryforwards .... 203 422
Accounts receivable ......................... 1,538 833
Inventories ................................. 1,975 1,397
Other ....................................... 751 1,487
-------- --------
Total gross deferred tax assets .................. 7,978 7,176
-------- --------
Deferred tax liabilities:
Pensions .................................... (2,656) (2,506)
Plant assets ................................ (7,911) (7,981)
Other ....................................... (390) (372)
-------- --------
Total gross deferred tax liabilities ............. (10,957) (10,859)
-------- --------
Net deferred tax liability ....................... $ (2,979) $ (3,683)
======== ========
</TABLE>
The Company expects to realize the deferred tax assets, including foreign
net operating loss carryforwards, through the reversal of taxable temporary
differences and future earnings.
Earnings before income taxes and minority interests included the following
components:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------
<S> <C> <C> <C>
Domestic income .... $53,467 $49,762 $42,874
Foreign income ..... 2,148 1,585 1,318
---------------------------
Total ......... $55,615 $51,347 $44,192
===========================
</TABLE>
The provision for income taxes resulted in effective tax rates that differ
from the statutory federal income tax rates. The reasons for these differences
are as follows:
<TABLE>
<CAPTION>
Percent of Pretax Earnings
----------------------------
1999 1998 1997
----------------------------
<S> <C> <C> <C>
Statutory U.S. tax rates .......................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit ........ 2.6 3.4 3.2
Foreign sales ..................................... (0.8) (0.7) (0.8)
Merger-related costs .............................. -- -- 0.8
Other, net ........................................ (0.6) (0.2) 0.6
--------------------------
Consolidated effective income tax rate ............ 36.2% 37.5% 38.8%
==========================
</TABLE>
L. 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
23
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
party (PRP), along with other companies, in remedial activities for the cleanup
of waste sites under the federal Superfund statute.
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.
M. PREFERRED STOCK PURCHASE RIGHTS
In March 1996, the Board of Directors of CLARCOR adopted a Shareholder
Rights Plan to replace an existing plan that expired on April 25, 1996. Under
the terms of the Plan, each shareholder received rights to purchase shares of
CLARCOR Series B Junior Participating Preferred Stock. The rights become
exercisable only after the earlier to occur of (i) 10 business days after the
first public announcement that a person or group (other than a CLARCOR related
entity) has become the beneficial owner of 15% or more of the outstanding shares
of CLARCOR Common Stock; or (ii) 10 business days (unless extended by the
CLARCOR Board in accordance with the Rights Agreement) after the commencement
of, or the intention to make, a tender or exchange offer, the consummation of
which would result in any person or group (other than a CLARCOR related entity)
becoming such a 15% beneficial owner. Each right entitles the holder to buy
one-hundredth of a share of such preferred stock at an exercise price of $80
subject to certain adjustments.
Once the rights become exercisable, each right will entitle the holder,
other than the acquiring individual or group, to purchase a number of CLARCOR
common shares at a 50% discount to the then-market price of CLARCOR Common
Stock. In addition, under certain circumstances, if the rights become
exercisable, the holder will be entitled to purchase the stock of the acquiring
individual or group at a 50% discount. The Board may also elect to redeem the
rights at $.01 per right. The rights expire on April 25, 2006.
The authorized preferred stock includes 300,000 shares designated as
Series B Junior Participating Preferred Stock.
N. INCENTIVE PLAN
In 1994, the shareholders of CLARCOR adopted the 1994 Incentive Plan,
which allows the Company to grant stock options, restricted stock and
performance awards to officers, directors and key employees. The 1994 Incentive
Plan incorporates the various incentive plans in existence prior to March 1994.
In addition, the Company has, in connection with the acquisition of UAS, assumed
the stock option plans of UAS and has reserved 29,005 shares of the Company's
common stock for issuance under the assumed UAS stock option plans.
At the inception of the 1994 Incentive Plan, there were 1,500,000 shares
authorized for future grants. In 1998, the shareholders approved an amendment to
the 1994 Incentive Plan to allow grants and awards of up to 1.5% of the
outstanding common stock as of January 1 of each calendar year. Any portion of
the 1.5% that is not granted in a given year is available for future grants. In
addition, the Compensation and Stock Option Committee of the Company's Board of
Directors may approve an additional 1% of outstanding common stock to be awarded
during any calendar year. After the close of fiscal year 1999, 391,708 shares
were granted.
The following is a description and a summary of key provisions related to
this plan.
STOCK OPTIONS
On November 30, 1997, the Company adopted the disclosure-only provisions
of Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting
for Stock-Based Compensation." The Company continues to account for stock-based
compensation using the intrinsic value method as prescribed under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations.
Nonqualified stock options may, at the discretion of the Board of
Directors, be granted at the fair market value at the date of grant or at an
exercise price less than the fair market value at the date of grant. All options
granted in 1999, 1998 and 1997 were at the fair market value at the dates of the
grants. Options granted to key employees vest 25% per year beginning at the end
of the third year; therefore, they become fully exercisable at the end of six
years. Options granted to non-employee directors vest immediately. All options
expire ten years from the date of grant unless otherwise terminated.
24
<PAGE> 7
The following table summarizes the activity under the nonqualified stock
option plans.
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year... 2,116,182 $14.18 1,895,086 $12.15 2,002,200 $11.44
Granted............... 287,982 18.00 518,239 19.86 290,625 14.63
Exercised/
surrendered......... (165,002) 12.93 (297,143) 11.10 (397,739) 10.39
--------------------------------------------------------------------------
Outstanding at
end of year......... 2,239,162 $14.83 2,116,182 $14.18 1,895,086 $12.15
==========================================================================
Options exercisable
at end of year...... 1,159,462 $12.62 1,110,433 $12.12 1,106,931 $11.13
==========================================================================
</TABLE>
The following table summarizes information about the options at November
30, 1999:
Options Outstanding Options Exercisable
------------------------------------ -------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Exercise Remaining Exercise
Prices Number Price Life in Years Number Price
- --------------- ----------------------------------- -------------------
$8.45 - $12.33 707,259 $11.15 2.73 688,509 $11.12
$12.58 - $17.94 779,347 $13.75 5.95 380,722 $13.45
$18.50 - $22.67 752,556 $19.42 8.00 90,231 $20.61
In addition, stock options outstanding and exercisable at November 30,
1999 and 1998 assumed as part of the UAS acquisition were 29,005 and 41,511,
respectively. These substitute options have an exercisable price range per share
of $2.40 to $5.94 at November 30, 1999 and expire between 2002 and 2005. No
grants were made under these plans in 1997, 1998 or 1999 and no future
additional awards will be granted.
LONG RANGE PERFORMANCE AWARDS
Officers and key employees may be granted target awards of Company shares
of common stock and performance units, which represent the right to a cash
payment. The awards are earned and shares are issued only to the extent that the
Company achieves performance goals determined by the Board of Directors during a
three-year performance period. The Company granted 26,656 and 15,063 performance
shares on December 1, 1998 and 1997, respectively. As of November 30, 1999,
2,515 shares of the 1999 grant and 802 shares of the 1998 grant have been
cancelled. The shares vest at the end of three years.
During the performance period, officers and key employees are permitted to
vote the restricted stock and receive compensation equal to dividends declared
on common shares. The Company accrues compensation expense assuming attainment
of the performance goals ratably during the performance cycle. Compensation
expense for the plan totaled $534, $435 and $547 in 1999, 1998 and 1997,
respectively. Distribution of Company common stock and cash for the performance
periods ended November 30, 1999, 1998 and 1997 were $485, $537 and $341,
respectively.
DIRECTORS' RESTRICTED STOCK COMPENSATION
The 1994 Incentive Plan grants all non-employee directors, in lieu of
cash, shares of common stock equal to five years of directors' annual retainers.
The directors' rights to the shares vest 20% on date of grant and 20% annually
during the next four years. The directors are entitled to receive dividends and
exercise voting rights with respect to all shares prior to vesting. Any unvested
shares are forfeited if the director ceases to be a non-employee director for
any reason.
Compensation expense for the plan totaled $191, $149 and $121 in 1999,
1998 and 1997, respectively. During 1999 and 1998, respectively, 16,002 and
7,122 shares of Company common stock were issued under the plan. As of November
30, 1999, 1,321 shares from a prior year grant were forfeited.
FAIR VALUE ACCOUNTING (SFAS 123)
Had compensation expense for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates consistent with the
method of SFAS 123, the Company's pro forma net earnings and diluted earnings
per share would have been $34,848, $31,520 and $26,702 and $1.43, $1.28 and
$1.10 for 1999, 1998 and 1997, respectively.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for 1999, 1998 and 1997. Adjustments for forfeitures are made as
they occur.
1999 1998 1997
-------------------------------
Risk-free interest rate........... 4.87% 5.90% 5.98%
Expected dividend yield........... 2.35% 2.60% 3.05%
Expected volatility factor........ 24.50% 25.80% 26.10%
Expected option term (in years)... 7.0 7.0 7.0
The weighted average fair value per option at the date of grant for
options granted in 1999, 1998 and 1997 was $4.88, $5.63 and $4.05, respectively.
The above pro forma disclosures may not be representative of the effects
on reported net income and earnings per share for future years because
compensation cost under SFAS 123 is amortized over the options' vesting period
and compensation cost for options granted prior to fiscal year 1996 is not
considered.
25
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
O. STOCK SPLIT, TREASURY STOCK TRANSACTIONS AND EARNINGS PER SHARE
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.
During 1999 and 1998, the Company purchased and retired 50,000 and 528,691
shares of common stock, respectively. The number of issued shares was reduced as
a result of the retirement of these shares.
During the quarter ended February 28, 1998, the Company adopted Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share,"
which simplifies the calculation of earnings per share and requires presentation
of both basic and diluted earnings per share on the Consolidated 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 earnings per
share.
1999 1998 1997
--------------------------------------
Net Earnings (numerator)................ $35,412 $32,079 $26,918
Basic EPS:
Weighted average number of
common shares outstanding
(denominator)..................... 23,970,011 24,268,250 24,133,472
Basic per share amount............ $1.48 $1.32 $1.12
======================================
Diluted EPS:
Weighted average number
of common shares
outstanding...................... 23,970,011 24,268,250 24,133,472
Dilutive effect of stock options... 343,596 380,373 210,409
--------------------------------------
Diluted weighted average
number of common
shares outstanding
(denominator)................ 24,313,607 24,648,623 24,343,881
Diluted per share amount....... $1.46 $1.30 $1.11
======================================
For the fiscal years ended November 30, 1999 and 1998, respectively,
525,156 and 508,864 options with a weighted average exercise price of $19.81 and
$19.86 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 periods.
P. UNAUDITED QUARTERLY FINANCIAL DATA
The unaudited quarterly data for 1999 and 1998 were as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- --------------------------------------------------------------------------------
1999:
Net sales.......... $99,166 $110,483 $112,090 $156,130 $477,869
Gross profit....... 31,379 34,983 34,190 48,035 148,587
Net earnings....... 6,210 8,650 9,736 10,816 35,412
Net earnings per
common share:
Basic......... $0.26 $0.36 $0.41 $0.45 $1.48
Diluted....... $0.25 $0.36 $0.40 $0.45 $1.46
1998:
Net sales.......... $97,786 $107,266 $110,058 $111,663 $426,773
Gross profit....... 28,775 34,849 34,698 36,914 135,236
Net earnings....... 5,337 8,030 8,769 9,943 32,079
Net earnings per
common share:
Basic......... $0.22 $0.33 $0.36 $0.41 $1.32
Diluted....... $0.22 $0.32 $0.35 $0.41 $1.30
Fourth quarter 1999 includes the acquisition of three industrial
filtration businesses as discussed in Note B.
Q. SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131
(SFAS 131), "Disclosures About Segments of an Enterprise and Related
Information," effective with year-end 1999. This standard requires that
companies disclose selected information by operating segment. SFAS 131 defines
an operating segment as a component of a company which engages in business
activities from which it may earn revenues and incur expenses; has its operating
results regularly reviewed by the entity's chief operating decision makers to
make decisions about the allocation of resources and the assessment of
performance; and has discrete financial information available. Based on the
economic characteristics of the Company's business activities, the nature of
products, customers and markets served, and the performance evaluation by
management and the Company's Board of Directors, the Company has identified
three reportable segments: Engine/Mobile Filtration, Industrial/ Environmental
Filtration and Packaging. The adoption of SFAS 131 did not change the Company's
identification of segments as reported in prior years.
26
<PAGE> 9
The Engine/Mobile Filtration segment manufactures and markets a complete
line of filters used in the filtration of oil, air, fuel, coolant, hydraulic and
transmission fluids in both domestic and international markets. The
Engine/Mobile Filtration segment provides filters for certain types of
transportation equipment including automobiles, heavy-duty and light trucks,
buses and locomotives, marine and mining equipment, and heavy-duty construction
and agricultural equipment. The products are sold to aftermarket distributors,
original equipment manufacturers and dealer networks, private label accounts and
directly to truck service centers and large national accounts.
The Industrial/Environmental Filtration segment manufactures and markets a
complete line of filters, cartridges, dust collectors and filtration systems
used in the filtration of air and industrial fluid processes in both domestic
and international markets. The filters and filter systems are used in commercial
and industrial buildings, hospitals, manufacturing processes, clean rooms,
airports, shipyards, refineries, power generation plants and residences. The
products are sold to commercial and industrial distributors, original equipment
manufacturers and dealer networks, private label accounts, retailers and
directly to large national accounts.
The Packaging segment manufactures and markets consumer and industrial
packaging products including custom-designed plastic and metal containers and
closures and lithographed metal sheets in both domestic and international
markets. The products are sold directly to consumer and industrial packaging
customers.
Net sales represent sales to unaffiliated customers. No single customer or
class of product accounted for 10% or more of the Company's consolidated 1999
sales. Intersegment sales are not material. Assets are those assets used in each
business segment. Corporate assets consist of cash and short-term cash
investments, deferred income taxes, headquarters facility and equipment, pension
assets and various other assets that are not specific to an operating segment.
Unallocated amounts include interest income and expense and other non-operating
income and expense items.
The segment data for the years ended November 30, 1999, 1998 and 1997 were
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------
<S> <C> <C> <C>
Net sales:
Engine/Mobile Filtration ............................... $ 238,680 $ 223,761 $ 207,640
Industrial/Environmental Filtration .................... 174,889 135,828 111,491
Packaging .............................................. 64,300 67,184 75,133
-----------------------------------
$ 477,869 $ 426,773 $ 394,264
===================================
Operating profit:
Engine/Mobile Filtration ............................... $ 43,591 $ 38,983 34,536
Industrial/Environmental Filtration .................... 5,120 6,966 4,188
Packaging .............................................. 7,366 5,714 8,672
-----------------------------------
56,077 51,663 47,396
Merger-related costs ................................... -- -- (2,972)
Other income (expense) ................................. (462) (316) (232)
-----------------------------------
Earnings before income taxes and minority interests .... $ 55,615 $ 51,347 $ 44,192
===================================
Identifiable assets:
Engine/Mobile Filtration ............................... $ 137,351 $ 128,618 $ 121,804
Industrial/Environmental Filtration .................... 241,471 72,289 60,706
Packaging .............................................. 36,173 30,500 36,824
Corporate .............................................. 57,996 74,359 63,185
-----------------------------------
$ 472,991 $ 305,766 $ 282,519
===================================
Additions to plant assets:
Engine/Mobile Filtration ............................... $ 13,115 $ 10,479 $ 7,382
Industrial/Environmental Filtration .................... 4,824 3,743 2,570
Packaging .............................................. 3,217 1,258 1,127
Corporate .............................................. 666 345 270
-----------------------------------
$ 21,822 $ 15,825 11,349
===================================
Depreciation and amortization:
Engine/Mobile Filtration ............................... $ 6,944 $ 6,320 $ 5,724
Industrial/Environmental Filtration .................... 5,132 2,803 2,386
Packaging .............................................. 2,742 2,749 2,994
Corporate .............................................. 554 508 496
-----------------------------------
$ 15,372 $ 12,380 11,600
===================================
</TABLE>
Financial data relating to the geographic areas in which the Company
operates are shown for the years ended November 30, 1999, 1998 and 1997. Net
sales by geographic area are based on sales to final customers within that
segment.
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------
<S> <C> <C> <C>
Net Sales:
United States ........................................... $399,717 $355,522 $325,361
Europe .................................................. 35,984 29,505 28,201
Other international ..................................... 42,168 41,746 40,702
------------------------------
$477,869 $426,773 $394,264
==============================
Plant assets, at cost less accumulated depreciation:
United States ........................................... $119,196 $ 83,621 $ 80,223
Europe .................................................. 5,650 1,704 1,709
Other international ..................................... 1,180 1,064 973
------------------------------
$126,026 $ 86,389 $ 82,905
==============================
</TABLE>
27
<PAGE> 1
EXHIBIT 13(a)vii
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
CLARCOR Inc.
Rockford, Illinois
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of earnings, shareholders' equity and cash flows
present fairly, in all material respects, the consolidated financial position of
CLARCOR Inc. and its subsidiaries at November 30, 1999 and 1998 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended November 30, 1999, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
January 7, 2000
28
<PAGE> 1
EXHIBIT 13(a)viii
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of CLARCOR is responsible for the preparation, integrity
and objectivity of the Company's financial statements and the other financial
information in this report. The financial statements were prepared in conformity
with generally accepted accounting principles and reflect, in all material
respects, the results of operations and the Company's financial position for the
periods shown. The financial statements are presented on the accrual basis of
accounting and, where appropriate, reflect estimates based upon judgments of
management.
In addition, management maintains a system of internal controls designed
to assure that Company assets are safeguarded from loss or unauthorized use or
disposition. Also, the controls system provides assurance that transactions are
authorized according to the intent of management and are accurately recorded to
permit the preparation of financial statements in accordance with generally
accepted accounting principles. For the periods covered by the financial
statements in this report, management believes this system of internal controls
was effective concerning all material matters. The effectiveness of the
controls system is supported by the selection and training of qualified
personnel, an organizational structure that provides an appropriate division of
responsibility, a strong budgetary system of control and a comprehensive
internal audit program.
The Audit Committee of the Board of Directors, which is composed of three
outside directors, serves in an oversight role to assure the integrity and
objectivity of the Company's financial reporting process. The Committee meets
periodically with representatives of management and the independent and internal
auditors to review matters of a material nature related to financial reporting
and the planning, results and recommendations of audits. The independent and
internal auditors have free access to the Audit Committee. The Committee is also
responsible for making recommendations to the Board of Directors concerning the
selection of the independent auditors.
<TABLE>
<CAPTION>
/s/ LAWRENCE E. GLOYD /s/ BRUCE A. KLEIN /s/ MARCIA S. BLAYLOCK
- ------------------------- -------------------------- ----------------------------
<S> <C> <C>
Lawrence E. Gloyd Bruce A. Klein Marcia S. Blaylock
Chairman of the Board & Vice President-Finance & Vice President, Controller &
Chief Executive Officer Chief Financial Officer Corporate Secretary
</TABLE>
January 7, 2000
29
<PAGE> 1
11-YEAR FINANCIAL REVIEW EXHIBIT 13(a)ix
<TABLE>
<CAPTION>
1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE
Equity ......................................... $ 8.77 $ 7.80 $ 7.06 $ 6.46
Diluted Earnings from Continuing Operations .... 1.46 1.30 1.11 1.07
Diluted Net Earnings ........................... 1.46 1.30 1.11 1.07
Dividends ...................................... 0.4525 0.4425 0.4350 0.4283
Price: High .................................... 21.38 24.63 20.79 16.75
Low ................................... 14.25 14.25 13.33 12.42
- -----------------------------------------------------------------------------------------------
EARNINGS DATA ($000)
Net Sales ...................................... $477,869 $426,773 $394,264 $372,382
Operating Profit ............................... 56,077 51,663 44,424 42,596
Interest Expense ............................... 3,733 2,336 2,759 3,822
Pretax Income .................................. 55,615 51,347 44,192 41,405
Income Taxes ................................... 20,137 19,262 17,164 15,315
Income from Continuing Operations .............. 35,412 32,079 26,918 25,945
Income from Discontinued Operations ............ -- -- -- --
Cumulative Effect of Accounting Changes ........ -- -- -- --
Net Earnings ................................... 35,412 32,079 26,918 25,945
Basic Average Shares Outstanding ............... 23,970 24,268 24,133 23,908
Diluted Average Shares Outstanding ............. 24,314 24,649 24,344 24,217
- -----------------------------------------------------------------------------------------------
EARNINGS ANALYSIS
Operating Margin ............................... 11.7% 12.1% 11.3% 11.4%
Pretax Margin .................................. 11.6% 12.0% 11.2% 11.1%
Effective Tax Rate ............................. 36.2% 37.5% 38.8% 37.0%
Net Margin-Continuing Operations ............... 7.4% 7.5% 6.8% 7.0%
Net Margin ..................................... 7.4% 7.5% 6.8% 7.0%
Return on Beginning Assets ..................... 11.6% 11.4% 10.1% 10.6%
Return on Beginning Shareholders' Equity ....... 19.0% 18.7% 17.4% 18.8%
Dividend Payout to Net Earnings ................ 30.5% 33.4% 38.2% 36.7%
- -----------------------------------------------------------------------------------------------
BALANCE SHEET DATA ($000)
Current Assets ................................. $227,670 $168,173 $160,527 $140,726
Plant Assets, Net .............................. 126,026 86,389 82,905 84,525
Total Assets ................................... 472,991 305,766 282,519 267,019
Current Liabilities ............................ 97,475 61,183 54,237 51,297
Long-Term Debt ................................. 145,981 36,419 37,656 43,449
Shareholders' Equity ........................... 210,718 186,807 171,162 154,681
- -----------------------------------------------------------------------------------------------
BALANCE SHEET ANALYSIS ($000)
Debt to Capitalization ......................... 40.9% 16.3% 18.0% 21.9%
Working Capital ................................ $130,195 $106,990 $106,290 $ 89,429
Current Ratio .................................. 2.3 2.7 3.0 2.7
- -----------------------------------------------------------------------------------------------
CASH FLOW DATA ($000)
From Operations ................................ $ 38,642 $ 42,267 $ 41,632 $ 26,675
For Investment ................................. (160,658) (19,290) (8,193) (18,934)
From/(For) Financing ........................... 103,501 (19,943) (21,850) (8,774)
Change in Cash & Equivalents ................... (18,576) 2,997 11,497 (964)
Capital Expenditures ........................... 21,822 15,825 11,349 22,230
Depreciation & Amortization .................... 15,372 12,380 11,600 10,704
Dividends Paid ................................. 10,814 10,717 10,290 9,512
Net Interest Expense ........................... 2,282 1,053 1,739 2,991
Income Taxes Paid .............................. 22,234 16,199 15,112 11,230
EBITDA* ........................................ 73,203 64,774 57,421 54,955
- -----------------------------------------------------------------------------------------------
</TABLE>
* Earnings before net interest expense, taxes, depreciation and amortization.
30
<PAGE> 2
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE
Equity ......................................... $ 5.79 $ 5.18 $ 4.63 $ 4.39 $ 4.26 $ 3.73 $ 3.26
Diluted Earnings from Continuing Operations .... 0.97 0.87 0.72 0.66 0.78 0.80 0.46
Diluted Net Earnings ........................... 0.97 0.89 0.72 0.56 0.79 0.85 0.30
Dividends ...................................... 0.4217 0.4150 0.4067 0.4000 0.3667 0.3467 0.3200
Price: High .................................... 18.00 14.92 13.33 15.00 15.11 11.89 12.61
Low ................................... 12.08 10.58 10.67 10.00 8.67 7.89 7.83
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS DATA ($000)
Net Sales ...................................... $330,110 $300,450 $253,211 $218,172 $213,999 $197,917 $181,837
Operating Profit ............................... 38,728 33,188 29,960 27,810 32,204 31,407 23,969
Interest Expense ............................... 3,418 3,298 3,979 4,438 4,402 4,189 1,710
Pretax Income .................................. 36,631 31,886 27,221 24,930 28,778 30,325 23,572
Income Taxes ................................... 13,060 12,057 9,944 8,941 10,095 11,008 11,008
Income from Continuing Operations .............. 23,500 20,786 17,277 15,989 18,683 19,317 12,564
Income from Discontinued Operations ............ -- -- -- -- 297 1,200 (4,493)
Cumulative Effect of Accounting Changes ........ -- 630 -- (2,370) -- -- --
Net Earnings ................................... 23,500 21,416 17,277 13,619 18,980 20,475 8,071
Basic Average Shares Outstanding ............... 23,850 23,804 23,831 24,030 23,915 23,931 27,288
Diluted Average Shares Outstanding ............. 24,205 24,030 24,076 24,346 23,988 24,145 27,330
- ------------------------------------------------------------------------------------------------------------------------------------
EARNINGS ANALYSIS
Operating Margin ............................... 11.7% 11.0% 11.8% 12.7% 15.0% 15.9% 13.2%
Pretax Margin .................................. 11.1% 10.6% 10.8% 11.4% 13.4% 15.3% 13.0%
Effective Tax Rate ............................. 35.7% 37.8% 36.5% 35.9% 35.1% 36.3% 46.7%
Net Margin-Continuing Operations ............... 7.1% 6.9% 6.8% 7.3% 8.7% 9.8% 6.9%
Net Margin ..................................... 7.1% 7.1% 6.8% 6.2% 8.9% 10.3% 4.4%
Return on Beginning Assets ..................... 11.4% 11.2% 9.5% 7.6% 11.6% 14.0% 5.1%
Return on Beginning Shareholders' Equity ....... 19.1% 19.4% 16.4% 13.4% 21.3% 26.0% 6.2%
Dividend Payout to Net Earnings ................ 39.7% 43.0% 52.3% 65.8% 43.0% 37.6% 102.7%
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA ($000)
Current Assets ................................. $133,286 $109,992 $ 97,569 $105,067 $ 87,322 $ 83,988 $ 68,860
Plant Assets, Net .............................. 73,047 58,787 53,839 42,324 52,324 47,498 48,231
Total Assets ................................... 245,697 206,928 191,657 181,660 179,337 164,294 145,982
Current Liabilities ............................ 49,841 43,926 37,647 30,559 25,977 25,783 26,415
Long-Term Debt ................................. 41,860 25,090 32,650 38,534 45,406 44,363 36,253
Shareholders' Equity ........................... 138,144 122,801 110,299 105,460 102,000 89,076 78,860
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET ANALYSIS ($000)
Debt to Capitalization ......................... 23.3% 17.0% 22.8% 26.8% 30.8% 33.2% 31.5%
Working Capital ................................ $ 83,445 $ 66,066 $ 59,922 $ 74,508 $ 61,345 $ 58,205 $ 42,445
Current Ratio .................................. 2.7 2.5 2.6 3.4 3.4 3.3 2.6
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOW DATA ($000)
From Operations ................................ $ 21,092 $ 25,670 $ 20,727 $ 23,456 $ 19,012 $ 25,109 $ 18,547
For Investment ................................. (29,044) (1,159) (74) (7,737) (15,848) (9,689) (8,918)
From/(For) Financing ........................... 7,226 (18,656) (22,772) (9,929) (8,059) (5,577) (24,279)
Change in Cash & Equivalents ................... (684) 5,912 (2,197) 5,811 (4,895) 9,843 (14,650)
Capital Expenditures ........................... 14,471 12,119 10,776 8,290 10,804 9,685 9,037
Depreciation & Amortization .................... 9,145 8,166 7,227 8,387 7,722 7,565 7,679
Dividends Paid ................................. 9,330 9,201 9,036 8,958 8,165 7,708 8,290
Net Interest Expense ........................... 2,560 2,750 3,104 4,140 3,280 3,657 436
Income Taxes Paid .............................. 11,939 10,194 10,059 11,200 9,693 10,811 11,643
EBITDA* ........................................ 48,265 43,759 37,552 37,457 39,780 41,547 31,687
- ------------------------------------------------------------------------------------------------------------------------------------
* Earnings before net interest expense, taxes, depreciation and amortization.
</TABLE>
31
<PAGE> 1
FINANCIAL REVIEW EXHIBIT 13(a)x
(Dollars in millions except per share data)
CLARCOR's operating results for 1999 were at record levels and include the
acquisition of three industrial filtration companies in the fourth quarter of
1999. Excluding the effect of the fourth quarter acquisitions, sales increased
approximately 3% for the year and operating profit 6%. The fourth quarter
acquisitions will increase CLARCOR's total sales approximately 35% on an annual
basis and are included in the Industrial/ Environmental Filtration segment.
Including the acquisitions, in 1999 the Company's sales increased 12.0% and
operating profit rose 8.5% over the prior year. The Company's fiscal 1999 cash
flows and year-end balance sheet also included the effect of the fourth quarter
1999 acquisitions. Final balance sheet adjustments for the acquisitions will be
determined by the end of the third quarter of fiscal 2000 as described in Note B
to the Consolidated Financial Statements.
The information presented in this financial review should be read in
conjunction with other financial information provided throughout this 1999
Annual Report. The following discussion of operating results focuses on the
Company's three reportable business segments: Engine/Mobile Filtration,
Industrial/ Environmental Filtration and Packaging.
OPERATING RESULTS
Sales
Net sales in 1999 of $477.9 million included $38.5 million from the 1999
fourth quarter acquisitions. The Company's sales increase of 12.0% for the year,
or 3.0% excluding the acquisitions, resulted from higher Engine/ Mobile
Filtration and Industrial/Environmental Filtration sales offset partially by
reduced sales from Packaging. The 1999 overall sales increase was the 13th
consecutive year of sales growth for the Company. Total net sales grew 8.2% in
1998 over the 1997 level of $394.3 million. The filtration segments recorded
higher sales in 1998 than in 1997 and the Packaging segment recorded a 10.6%
decrease.
Comparative net sales information related to CLARCOR's operating segments
is shown in the tables below.
1999 vs. 1998
Change
---------------
NET SALES 1999 % Total $ %
- -------------------------------------------------------------------------
Engine/Mobile Filtration.............. $238.7 49.9% $14.9 6.7%
Industrial/Environmental Filtration... 174.9 36.6% 39.1 28.8%
Packaging............................. 64.3 13.5% (2.9) -4.3%
---------------------------------
Total.............................. $477.9 100.0% $51.1 12.0%
=================================
1998 vs. 1997
Change
-------------
NET SALES 1998 % Total $ %
- --------------------------------------------------------------------------
Engine/Mobile Filtration.............. $223.8 52.4% $16.1 7.8%
Industrial/Environmental Filtration... 135.8 31.8% 24.3 21.8%
Packaging............................. 67.2 15.8% (7.9) -10.6%
-----------------------------------
Total.............................. $426.8 100.0% $32.5 8.2%
===================================
The Engine/Mobile Filtration sales increase of 6.7% in 1999 included
increases for heavy-duty, light-duty and railroad filter products from both the
domestic and international markets. Sales of the Hastings Filters brand of
light-duty filters was particularly strong at 9.2% over the 1998 level. The
Engine/Mobile Filtration segment's sales rose 7.8% in 1998 over the 1997 level
on the strength of aftermarket sales of heavy-duty and light-duty filters. Sales
increases in 1999 and 1998 resulted from new product introductions, additional
OEM sales, and penetration into new distribution channels, primarily through
sales to quick lube and truck service centers, fleets and automotive parts
buying groups. Unit volumes increased in 1999 and 1998, and price increases were
mostly offset by competitive discounts.
The Company's Industrial/Environmental Filtration segment recorded a 28.8%
increase in sales over 1998 including the effect of the fourth quarter
acquisition of three industrial filtration companies. Excluding the
acquisitions, 1999 sales increased 0.4% over 1998. Sales increased for the
segment's Airguard business unit as a result of higher volumes and from several
small acquisitions made in 1998. The segment's sales were lower than expected
due primarily to reduced sales from United Air Specialists (UAS). The segment
recorded a 21.8% increase in sales in 1998 over 1997. Excluding the sales impact
of the 1998 acquisitions, the 1998 sales increase over 1997 was approximately
14% and resulted primarily from increased demand for air quality products.
Although industry conditions reduced the expected increase in sales for 1999,
the Company expects additional growth for this segment as a result of customer
demand for industrial and indoor air filtration products and from additional
acquisitions, including the acquisition of two distributors in the first quarter
2000.
The Packaging segment's sales decrease of 4.3% in 1999 was principally the
result of lower promotional container sales. However, a 12.9% increase in sales
for the fourth quarter of 1999 over 1998 resulted from a strategic decision to
meet customer demand for quality metal decorating for packaging products that
are not promotional items. The segment's focus on non-promotional packaging
products includes metal closures for food and beverage containers, wire spools,
and film and battery cartridges. Sales of plastic closures and containers
increased in 1999 over the prior year. The segment's sales were lower in 1998
from 1997 principally
10
<PAGE> 2
due to the 1997 sale of the Tube Division, which contributed approximately $7.0
million in sales in 1997, and due to lower promotional container sales in fiscal
1998 than in 1997.
OPERATING PROFIT
The Company's operating profit increased 8.5% in 1999 over 1998 and it was
the seventh consecutive year of growth in operating profit. Excluding the 1999
fourth quarter acquisitions, operating profit increased approximately 6%.
Operating margin of 11.7% of sales was lower than the 1998 level of 12.1%
primarily as a result of lower margins from the Industrial/Environmental
segment, due in part to the 1999 acquisitions. In 1998, on the strength of an
8.2% increase in sales, the Company's operating profit increased 16.3%, or 9.0%
excluding the impact of the $3.0 million merger-related costs recorded in 1997.
Gross margin in 1999 of 31.1% of sales was lower than 31.7% recorded in
1998 primarily as a result of the fourth quarter acquisitions. In both 1999 and
1998, cost reductions, improved manufacturing productivity and modest changes
overall in raw material prices helped offset competitive pricing pressures and
positively impacted gross margin. Selling and administrative expenses increased
to $92.5 million from $83.6 million in 1998 as a result of the 1999 acquisitions
and the related amortization charges, higher sales activities, new product
development programs and legal expenses. Selling and administrative expenses in
1998 included a $2.1 million charge related to an uncollectible customer
account. Foreign currency adjustments did not have a material impact on
consolidated operating profit in 1999, 1998 or 1997.
Comparative operating profit information related to the Company's business
segments is as follows.
1999 vs. 1998
Change
--------------
OPERATING PROFIT 1999 % Total $ %
- ------------------------------------------------------------------------
Engine/Mobile Filtration.............. $43.6 77.7% $4.6 11.8%
Industrial/Environmental Filtration... 5.1 9.1% (1.9) -26.5%
Packaging............................. 7.4 13.2% 1.7 28.9%
----------------------------------
Total.............................. $56.1 100.0% $4.4 8.5%
==================================
1998 vs. 1997*
Change
--------------
OPERATING PROFIT 1998 % Total $ %
- ------------------------------------------------------------------------
Engine/Mobile Filtration.............. $39.0 75.4% $4.5 12.9%
Industrial/Environmental Filtration... 7.0 13.5% 2.8 66.3%
Packaging............................. 5.7 11.1% (3.0) -34.1%
----------------------------------
Total.............................. $51.7 100.0% $4.3 9.0%
==================================
* Excludes merger-related costs in 1997.
OPERATING PROFIT
AS A PERCENT OF NET SALES 1999 1998 1997*
- -------------------------------------------------------------------------
Engine/Mobile Filtration.............. 18.3% 17.4% 16.6%
Industrial/Environmental Filtration... 2.9% 5.1% 3.8%
Packaging............................. 11.5% 8.5% 11.5%
----------------------------------
Total.............................. 11.7% 12.1% 12.0%
==================================
* Excludes merger-related costs in 1997.
Operating profit for the Engine/Mobile Filtration segment improved to
$43.6 million or 18.3% of sales in 1999. The segment's increase in operating
profit margin in both 1999 and 1998 resulted primarily from higher sales
volumes, cost reductions and productivity improvements that more than offset
competitive pricing discounts. In addition, the light-duty filter manufacturing
facility has continued to improve each year and in 1999 operated at its highest
level of productivity since it was acquired in 1995.
The Industrial/Environmental Filtration segment's operating profit of $5.1
million decreased in 1999 from the prior year level of $7.0 million. The 1999
operating profit included the fourth quarter 1999 acquisitions, but that
increase was more than offset by lower profit from both Airguard and UAS.
Airguard's profitability was reduced in 1999 primarily due to manufacturing
inefficiencies resulting from labor shortages in the Louisville, Kentucky area
and competitive pricing discounts. During the year Airguard moved some of its
production from its Louisville area plants to several other plants which
resulted in productivity improvements during the fourth quarter of 1999. In
1999, UAS also initiated changes in marketing plans, manufacturing cost
reduction programs and administrative expense levels in order to offset reduced
capacity utilization resulting from lower sales levels. These changes are
expected to improve operating results for UAS in the second half of fiscal 2000
and in 2001. The segment's increase in profit in 1998 over the 1997 level was
due principally to improved productivity and cost reductions and from increased
sales volume and capacity utilization. Several small acquisitions in 1998 also
favorably impacted the segment's operating profit for fiscal 1998 and 1999.
The Packaging segment's 1999 operating profit of $7.4 million improved
from $5.7 million in 1998. Fiscal 1998 included a $2.1 million charge in the
second and third quarters for the write-off of a customer account. The segment's
operating margin in 1999 of 11.5% of sales compares to 8.5% in 1999 and 11.5% in
1997. The 1998 level was reduced principally due to the $2.1 million account
write-off.
OTHER INCOME & EXPENSE
Net other expense totaled $0.5 million in 1999, $0.3 million in 1998 and
$0.2 million in 1997. Interest expense, which totaled $3.7 million in 1999,
increased
11
<PAGE> 3
FINANCIAL REVIEW
(Dollars in millions except per share data)
due to the additional borrowings in the fourth quarter of 1999 for the
acquisitions discussed above. Interest income increased to $1.5 million in 1999
as a result of higher average cash and short-term cash investment balances
during fiscal 1999. Due to the 1999 fourth quarter acquisitions, in fiscal year
2000 interest expense will increase due to the inclusion of interest expense on
the higher level of debt for a full year and interest income is expected to be
lower due to the use of cash balances. Gains on the dispositions of plant assets
were $1.7 million in 1999, $1.3 million in 1998 and $0.5 million in 1997. A gain
of $1.7 million was recorded in 1997 from the sale of securities in a former
Australian joint venture partner.
PROVISION FOR INCOME TAXES
The provision for income taxes in 1999 of $20.1 million resulted in an
effective tax rate of 36.2%. The 1999 effective tax rate was lower than the rate
of 37.5% in 1998 principally due to reduced state income taxes. The effective
rate of 38.8% in 1997 included the impact of merger costs that were not fully
deductible for tax purposes. As a result of lower state income taxes and other
income tax changes, the effective tax rate is expected to be lower in fiscal
2000 than the rate recorded in 1999.
NET EARNINGS AND EARNINGS PER SHARE
Net earnings of $35.4 million in 1999 set a new record for the Company and
resulted in diluted earnings per share of $1.46 compared to $1.30 diluted
earnings per share in 1998. Diluted average shares outstanding for fiscal 1999
were 24,313,607 compared to 24,648,623 for 1998, a decrease of 1.4%. Net
earnings in 1998 of $32.1 million increased from the 1997 level of $26.9
million, or $1.11 diluted earnings per share based on 24,343,881 diluted average
shares outstanding.
FINANCIAL CONDITION
Corporate Liquidity
The Consolidated Statements of Cash Flows are shown on page 18, and the
discussion of corporate liquidity should be read in conjunction with information
presented in those statements.
Cash and short-term cash investments decreased to $14.7 million at
year-end 1999 from $33.3 million at year-end 1998 primarily due to the cash used
for the acquisitions in September 1999. Cash provided by operating activities
totaled $38.6 million in 1999 compared to $42.3 million in 1998 and $41.6
million in 1997. Increased cash flow from net earnings, depreciation and
amortization in 1999 was used for investment in assets, net of liabilities,
which totaled $10.5 million and also included $6.0 million more in tax payments
in 1999 than in 1998. Depreciation and amortization increased in the fourth
quarter of 1999 due to the acquisitions and will increase for fiscal year 2000.
Net cash used in investing activities of $160.7 million increased from the
1998 level of $19.3 million. In September 1999, $142.4 million, net of cash
acquired, was used for the acquisition of three industrial filtration companies.
In 1998, cash of $8.0 million was invested in acquisitions of a filter company
and a distributor. Additions to plant assets in 1999 increased to $21.8 million
as a result of adding plant capacity and the completion of an expansion to a
manufacturing and distribution facility in Kearney, Nebraska. Plant asset
additions were $15.8 million in 1998 and $11.3 million in 1997. Cash of $3.9
million was received in 1999 from the disposition of plant assets, primarily
from the sale of a building. In 1998, cash of $2.5 million was received as
payment on a note receivable and $2.5 million was received from the disposition
of plant assets. In 1997, $3.3 million was received from the sale of securities
in a former Australian joint venture partner.
Net cash provided by financing activities totaled $103.5 million in 1999
and included $115.0 million in borrowings used for the September 1999
acquisitions. During 1999, the Company purchased 50,000 shares of common stock
for $0.9 million under the December 1997 Board of Directors' approved plan to
repurchase up to 1,500,000 shares of CLARCOR common stock. The Company
purchased 528,691 shares of CLARCOR common stock for $8.4 million in 1998.
Dividend payments totaled $10.8 million, $10.7 million and $10.3 million in
1999, 1998 and 1997, respectively. Payments on long-term debt of $0.5 million in
1999 compared to higher amounts in 1998 and 1997 of $2.7 million and $14.0
million, respectively.
CLARCOR continued to generate sufficient cash in 1999 to maintain current
operating levels, to pay dividends, to provide for additions and the replacement
of necessary plant facilities, and to service and repay long-term debt. Due to
the September 1999 acquisition of three filtration companies, a $185.0 million
multicurrency revolving credit facility was established with several financial
institutions. A total of $115.0 million of the credit facility was used and
sufficient lines of credit remain available to fund the Company's current
operations and planned future growth. Total capital expenditures will be
approximately $30.0 million in fiscal 2000 and principal payments on long-term
debt will be approximately $5.4 million based on scheduled payments per current
debt agreements. No payments are required in fiscal 2000 on the multicurrency
revolving credit facility. The Company is in compliance with restrictive
covenants, as described in Note H to the Consolidated Financial Statements,
related to the credit facility. It is possible that business acquisitions or
dispositions could be made in the future that may require changes in the
Company's debt and capitalization.
12
<PAGE> 4
CAPITAL RESOURCES
The Company's financial position at November 30, 1999 continued to be
sufficiently liquid to support current operations. There were significant
increases in assets and liabilities at year-end 1999 as a result of the fourth
quarter acquisitions and also due to an increased level of business activity
compared to year-end 1998. Total assets of $473.0 million at November 30, 1999
increased 54.7% from the prior year-end level of $305.8 million. Total current
assets increased to $227.7 million from $168.2 million at year-end 1998 and
total current liabilities increased to $97.5 million from $61.2 million at
year-end 1998. The current ratio was 2.3 at year-end 1999 compared to 2.7 at
year-end 1998. Plant assets, acquired intangibles, and excess of cost over fair
value of assets acquired also increased significantly as a result of the 1999
acquisitions. Current liabilities include accruals for costs related to
litigation matters arising in the normal course of business. See Note L in the
Notes to Consolidated Financial Statements for further information on these
matters.
Long-term debt of $146.0 million at year-end 1999 included the borrowing
against the revolving credit facility in 1999 for the acquisitions.
Shareholders' equity increased to $210.7 million from $186.8 million at year-end
1998. The increase in shareholders' equity resulted from net earnings of $35.4
million offset by dividend payments of $10.8 million, or $0.4525 per share, and
common stock repurchases of $0.9 million. As a result of the additional
long-term debt at year-end 1999, long-term debt increased to 40.9% of total
capitalization at year-end 1999, compared to 16.3% at year-end 1998.
At November 30, 1999, CLARCOR had 24,019,722 shares of common stock
outstanding at $1.00 par value, compared to 23,949,358 shares outstanding at the
end of 1998. These share amounts reflect the three-for-two stock split effective
April 24, 1998.
OTHER MATTERS
Year 2000
The Company's assessment and remediation plans related to Year 2000 issues
were implemented over several years. Compliance activities resulted in total
costs of less than $1.5 million. Contingency plans were also made to address the
Company's exposure to any material failure as a result of noncompliance by third
parties. Management believes that the Company devoted the necessary resources to
resolve significant Year 2000 issues. Through February 1, 2000, the Company is
not aware of any significant business interruption as a result of a Year 2000
issue. In addition, no significant additional costs or remediation activities
are expected with respect to Year 2000 issues. However, the Year 2000 problem is
complex as virtually every computer operation may be affected in some way.
Consequently, no assurance can be given that Year 2000 compliance can be fully
achieved without additional costs that might have a material adverse effect on
the Company's financial condition or consolidated results of operations.
MARKET RISK
The Company's market risk is the potential loss arising from adverse
changes in interest rates. The Company's long-term debt obligations are
primarily at variable LIBOR associated rates and fixed interest rates and
denominated in U.S. dollars. In order to minimize the long-term costs of
borrowing, the Company manages its interest rate risk by monitoring trends in
rates as a basis for determining whether to enter into fixed rate or variable
rate agreements. In addition, subsequent to year-end 1999, the Company entered
into a three-month interest rate swap agreement related to the revolving credit
agreement. Market risk is estimated as the potential increase in fair value of
the Company's long-term debt obligations resulting from a hypothetical 1%
increase in interest rates. A hypothetical 1% increase in interest rates would
adversely affect fiscal 2000 net earnings and cash flows by approximately $1.0
million and reduce the fair value of long-term debt, as measured at November 30,
1999, by approximately $4.0 million. Last year, a hypothetical 1% increase in
interest rates would have adversely affected fiscal 1999's net earnings and cash
flows by approximately $0.3 million and reduced the fair value of long-term debt
by approximately $2.1 million.
The Company places its short-term cash investments in high grade,
primarily tax-exempt municipal securities. For the most part, the interest rates
on these investments are reset weekly and consequently, the cost of these
securities approximates market value.
Although the Company continues to evaluate derivative financial
instruments, including forwards, swaps and purchased options, to manage foreign
currency exchange rate changes, the Company did not hold derivatives for
managing these risks or for trading purposes during 1999 or 1998. As a result of
increased foreign sales and business activities from the fourth quarter 1999
acquisitions, the Company will continue to evaluate the use of derivative
financial instruments to manage foreign currency exchange rate changes in the
future.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities." Subsequently the original
implementation date for SFAS 133 was deferred. SFAS 133 requires a company to
recognize all derivatives on the balance sheet as either an asset or a liability
measured at fair value. The statement also requires a company to recognize
changes in the derivative's fair
13
<PAGE> 5
FINANCIAL REVIEW
(Dollars in millions except per share data)
value currently in earnings unless it meets specific hedge accounting criteria.
The Company currently expects to adopt SFAS 133 in fiscal year 2001. Management
does not expect the adoption of SFAS 133 to have a material impact on the
Company's consolidated financial statements.
OUTLOOK
The Company's long-term objective continues to be to increase earnings per
share by 10% to 15% annually. This objective was achieved in fiscal 1999 and
remains the objective for fiscal 2000. The Engine/Mobile Filtration segment is
expected to continue to increase sales and profit through providing outstanding
customer service, introducing new products and expanding marketing programs. The
Industrial/Environmental Filtration segment is expected to grow sales and
profits as a result of the 1999 acquisitions, achieving synergies and cost
savings from integrating production facilities and processes, and expanding
sales programs throughout the various distribution channels. The Packaging
segment's focus on metal decorating and reduced emphasis on seasonal promotional
packaging sales is expected to increase utilization of current capacity
throughout fiscal 2000. As a result, sales are expected to increase by more than
10% in 2000 and operating margins should improve as well.
Although the 1999 acquisitions are expected to increase the Company's
fiscal 2000 operating profit, due to the additional interest expense and reduced
interest income, net earnings and diluted earnings per share may be diluted by
$0.01 to $0.02 per share in 2000. The Company will continue to review these
expectations throughout 2000, and is optimistic that synergies, net of
integration costs, may be realized sooner than originally expected. EBITDA
(earnings before net interest expense, taxes, depreciation and amortization) is
expected to exceed $90 million in fiscal 2000, compared to $73 million in 1999.
Additionally, even though debt was significantly increased in 1999 due to the
acquisitions, interest coverage is expected to be greater than six times in
2000.
The Company will continue to implement cost reductions and productivity
improvements, although competitive pricing pressures, foreign currency exchange
rate changes and worldwide business conditions may reduce the overall profit
improvement. Additional plant asset additions will be made in each segment's
facilities during 2000 to improve productivity and support new product
introductions. While the Company fully expects that sales and profits will
improve as a result of these efforts, contingency plans are in place to reduce
costs depending on industry and economic conditions.
The Company continues to look at 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.
The Company has established financial standards that will continue to be
vigorously applied in the review of all acquisition opportunities.
FORWARD-LOOKING STATEMENTS
Certain statements quoted in this Annual 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 year; 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, labor availability, product life cycles, 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, productivity improvement
programs and Year 2000 readiness; the management of both growth and
acquisitions; the fluctuation in foreign and U.S. currency exchange rates; the
fluctuation in interest rates, primarily LIBOR, which affect the cost of
borrowing under the revolving credit facility; extraordinary events such as
litigation, acquisitions or divestitures 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 filings with the Securities and Exchange Commission.
Due to the foregoing items, it is possible that, in the future, the
Company's operating results will be below the expectations of stock market
analysts and investors. In such event, the price of CLARCOR common stock could
be materially adversely effected.
14
<PAGE> 1
EXHIBIT 21
CLARCOR INC. SUBSIDIARIES
AS OF FEBRUARY 23, 2000
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION OR PERCENT OF
NAME ORGANIZATION OWNERSHIP*
- ----------------------------------- ---------------- ----------
<S> <C> <C>
CLARCOR Consumer Products, Inc. Delaware 100%
J.L. Clark, Inc. Delaware 100%
Clark Europe, Inc. Delaware 100%
CLARCOR Filtration Products, Inc. Delaware 100%
Airguard Industries, Inc. Kentucky 100%
Airklean Engineering Pte. Ltd. Singapore 100%
Airguard Asia Sdn. Bhd. Malaysia 100%
Purolator Products Air Filtration
Company Delaware 100%
Baldwin Filters, Inc. Delaware 100%
Baldwin Filters N.V. Belgium 100%
Baldwin Filters Limited United Kingdom 100%
Baldwin South Africa, Inc. Delaware 100%
Baldwin-Unifil S.A. South Africa 80%
Hastings Filters, Inc. Delaware 100%
Hastings Filters Ltd. Canada Canada 100%
Baldwin Filters (Aust.) Pty.
Limited Australia 100%
Clark Filter, Inc. Delaware 100%
Filtros Baldwin de Mexico Mexico 90%
Purolator Facet, Inc. Delaware 100%
Facet FCE S.A.R.L. France 100%
Facet Iberica S.A. Spain 100%
Facet Industrial B.V. Netherlands 100%
Facet Industrial U.K. Limited United Kingdom 100%
Facet International S.A. Switzerland 100%
Facet Italiana, S.p.A. Italy 100%
Facet USA Inc. Delaware 100%
GS Costa Mesa, Inc. Delaware 100%
Purolator Filter GmbH Germany 100%
United Air Specialists, Inc. Ohio 100%
United Air Specialists (U.K.) Ltd. United Kingdom 100%
CLARCOR International, Inc. Delaware 100%
Baldwin-Weifang Filters Ltd. China 70%
CLARCOR Foreign Sales Corporation Barbados 100%
CLARCOR Trading Company Delaware 100%
</TABLE>
- ------------------------------
* Direct or indirect
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in each Registration
Statement on Form S-8 (file numbers 33-5456, 33-38590, 33-39374, 33-53763 and
33-53899) of CLARCOR Inc. and Subsidiaries of our report dated January 7, 2000
relating to the consolidated financial statements, which appears in the Annual
Report to Shareholders, which is incorporated in this Annual Report on Form
10-K. We also consent to the incorporation by reference of our report dated
January 7, 2000 relating to the financial statement schedule, which appears in
this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 23, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-27-1999
<PERIOD-START> NOV-29-1998
<PERIOD-END> NOV-27-1999
<CASH> 14,745
<SECURITIES> 0
<RECEIVABLES> 109,141
<ALLOWANCES> 5,155
<INVENTORY> 89,850
<CURRENT-ASSETS> 227,670
<PP&E> 244,287
<DEPRECIATION> 118,261
<TOTAL-ASSETS> 472,991
<CURRENT-LIABILITIES> 97,475
<BONDS> 145,981
0
0
<COMMON> 24,020
<OTHER-SE> 186,698
<TOTAL-LIABILITY-AND-EQUITY> 472,991
<SALES> 477,869
<TOTAL-REVENUES> 477,869
<CGS> 329,282
<TOTAL-COSTS> 329,282
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 975
<INTEREST-EXPENSE> 3,733
<INCOME-PRETAX> 55,615
<INCOME-TAX> 20,137
<INCOME-CONTINUING> 35,412
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,412
<EPS-BASIC> 1.48
<EPS-DILUTED> 1.46
</TABLE>
