-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JSplm1Pft0OMEhOgll7YDWak9rg5+a5eUU2ahSMg96p3Ioo2mB1iDXC69vBiOjKe hQSru6wgr8L+BePFNLbSEg== 0000950124-99-001287.txt : 19990219 0000950124-99-001287.hdr.sgml : 19990219 ACCESSION NUMBER: 0000950124-99-001287 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19981128 FILED AS OF DATE: 19990218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLARCOR INC CENTRAL INDEX KEY: 0000020740 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 360922490 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-11024 FILM NUMBER: 99545097 BUSINESS ADDRESS: STREET 1: 2323 SIXTH ST STREET 2: PO BOX 7007 CITY: ROCKFORD STATE: IL ZIP: 61125 BUSINESS PHONE: 8159628867 MAIL ADDRESS: STREET 1: 2323 SIXTH STREET CITY: ROCKFORD STATE: IL ZIP: 61125 FORMER COMPANY: FORMER CONFORMED NAME: CLARK J L MANUFACTURING CO /DE/ DATE OF NAME CHANGE: 19871001 10-K405 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K
(MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1998 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
CLARCOR Inc. --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 36-0922490 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2323 Sixth Street, P.O. Box 7007, Rockford, Illinois 61125 - ---------------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 815-962-8867 ------------ Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, par value $1.00 per share New York Stock Exchange Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None ---------------------------------------------------- (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 10, 1999 as reported on the New York Stock Exchange Composite Transactions) of the voting stock held by non-affiliates of the registrant as at February 10, 1999 is $465,005,418. The number of outstanding shares of Common Stock, as of February 10, 1999 is 23,980,125 shares. Certain portions of the registrant's 1998 Annual Report to Shareholders are incorporated by reference in Parts I, II and IV. Certain portions of the registrant's Proxy Statement dated February 18, 1999 for the Annual Meeting of Shareholders to be held on March 23, 1999 are incorporated by reference in Part III. 2 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 1998, the year ended on November 28, 1998 and for fiscal year 1997, the year ended on November 29, 1997. 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. Stock Split. On March 24, 1998, the Board of Directors of the Company declared a three-for-two stock split in the form of a 50% stock dividend effective April 24, 1998 to shareholders of record April 10, 1998. All share and per share amounts for all periods presented have been adjusted to reflect the stock split. Other. During 1998 the Company purchased Air Technologies, Inc. ("ATI"), a manufacturer of air filtration products, and also purchased a small distributor of air filtration products. In addition, the Company's investment in Baldwin Filters (Aust.) Pty. Ltd. was increased to 100% from 50% and the Company's investment in Baldwin-Unifil S.A. was increased to 80% from 70%. Each of the transactions were cash transactions and the transactions did not have a significant impact on the operating results of the Company. (ii) Summary of Business Operations. During 1998, the Company conducted business in three principal industry segments: (1) Engine/ Mobile Filtration, (2) Industrial/Environmental Filtration and (3) Packaging (formerly referred to as Consumer 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 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. Packaging. Packaging products include a wide variety of custom styled containers and packaging items used primarily by the food, 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, composite containers 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 1996 through 1998 is included on pages 26 and 27 of the Company's 1998 Annual Report to Shareholders (the "Annual Report"), is incorporated herein by reference and is filed as part of Exhibit 13(a)(vi) to this 1998 Annual Report on Form 10-K ("1998 Form 10-K"). 2 3 (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 Company's filters are used in a wide variety of applications including engines and industrial equipment and in processes where filter efficiency, reliability and durability are essential. Impure air or fluid flows through semi-porous paper, cotton, synthetic, chemical or membrane filter media with high-efficiency filtration characteristics. The impurities on the media are disposed of when the filter is changed. The segment's filters are sold throughout the United States, Canada and worldwide, 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.; United Air Specialists, Inc.; and United Air Specialists (U.K.) Ltd. 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. These products are sold throughout the United States, Canada and worldwide. PACKAGING The Company's consumer and industrial packaging products business is conducted by a wholly-owned subsidiary, J. L. Clark, Inc. ("J. L. Clark"). In fiscal 1998 a wide variety of different types and sizes of containers and metal packaging specialties were manufactured for the Company's customers. Metal, plastic and paper containers, combination metal/plastic containers and plastic 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). Metal packaging specialties 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 metal 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 over 3,300 independent distributors and dealers for original equipment manufacturers. 3 4 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 and Southeast Asia. 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. The branches are located throughout the United States and in Germany, and the segment's subsidiaries are located in Singapore, Malaysia and England. Packaging salespersons call directly on customers and prospective customers for containers and packaging specialties. Each salesperson is trained in all aspects of the Company'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 purchase commitments. The Company did not experience shortages in the supply of raw materials during 1998. PATENTS 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. CUSTOMERS The largest 10 customers of the Engine/Mobile Filtration segment accounted for 16.2% of the $223,761,000 of fiscal year 1998 sales of such segment. The largest 10 customers of the Industrial/Environmental Filtration segment accounted for 16.9% of the $135,828,000 of fiscal year 1998 sales of such segment. The largest 10 customers of the Packaging segment accounted for 52.6% of the $67,184,000 of fiscal year 1998 sales of such segment. No single customer accounted for 10% or more of the Company's consolidated 1998 sales. BACKLOG At November 30, 1998, the Company had a backlog of firm orders for products amounting to approximately $36,100,000. The comparable backlog figure for 1997 was approximately $43,400,000 4 5 and included orders for promotional packaging products and a $2,800,000 order for gas turbine filtration equipment which did not recur in 1998. All of the orders on hand at November 30, 1998 are expected to be filled during fiscal 1999. 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 the replacement market for industrial and environmental filtration products, 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. In the Packaging segment, its principal competitors are approximately 10 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 filters, containers, filter components, paints, inks, varnishes, adhesives and sealing compounds to insure high quality manufacturing results, aid suppliers in the development of special finishes and conduct controlled tests of finishes and newly designed filters, air cleaning systems and containers being perfected for particular uses. Product development departments are concerned with the improvement of existing filters, air cleaning systems, consumer and industrial packaging products and the creation of new and individualized filters, containers and consumer products, in order to broaden the uses of these items, counteract obsolescence and evaluate other products available in the marketplace. In fiscal 1998, the Company employed 57 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 $4,855,000 on such activities as compared with $3,991,000 for 1997 and $3,600,000 for 1996. 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 5 6 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, 1998, the Company had approximately 3,096 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 1998 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 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 owned and 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 office space. An expansion to the Kearney facility of approximately 106,000 square feet for distribution and manufacturing will be completed in 1999. The Kearney facility is located on a site of approximately 40 acres. 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. Hastings Filters' manufacturing and distribution facilities are located in Yankton, South Dakota and Knoxville, Tennessee. The Yankton facility has approximately 170,000 square feet of floor space on a 21 acre tract and the Knoxville facility has approximately 168,000 square feet of floor space on a 22 acre tract. Both facilities are owned by the Company. The Company leases various facilities in other countries for the manufacture and distribution of filtration products. Industrial/Environmental Filtration. The following is a description of the principal properties owned and utilized by the Company in conducting its Industrial/Environmental Filtration business: Airguard has eight 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 California, North Carolina and Wisconsin. 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 sales outlets with warehousing are located in Louisville, Kentucky; Cincinnati, Ohio; Toledo, Ohio; Nashville, Tennessee; Atlanta, Georgia; Columbus, Ohio; Birmingham, Alabama; 6 7 Commerce City, Colorado; Kansas City, Missouri; Arlington, Texas; Dallas, Texas; and Corona, California. Airguard also has distribution centers in Wallingford, Connecticut; New Albany, Indiana; Las Vegas, Nevada and Richmond, Virginia. 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. 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. Packaging. The following is a description of the principal properties owned 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. The various properties owned by the Company are considered by it to be in good repair and well maintained. Plant asset additions in 1999 are estimated at $25,000,000 for 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. Much of the Baldwin plant equipment has been built or modified by Baldwin. 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 mechanized, but require 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 industrial air and environmental markets are produced in the Airguard 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. 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 high speed 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. 7 8 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. 8 9 ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
AGE AT YEAR ELECTED NAME 11/30/98 TO OFFICE ---- -------- ------------ Lawrence E. Gloyd........................................... 66 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........................................... 50 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. Bruce A. Klein.............................................. 51 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........................................... 60 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............................................ 43 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. Michael J. Tilton 49 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. William F. Knese............................................ 50 1997 Vice President and Treasurer. Mr. Knese has been employed by the Company since 1979. He was elected Vice President, Treasurer and Controller in 1991 and Vice President and Treasurer in 1997. Peter F. Nangle............................................. 37 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.
9 10
AGE AT YEAR ELECTED NAME 11/30/98 TO OFFICE ---- -------- ------------ Marcia S. Blaylock.......................................... 42 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.
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 following 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. 10 11 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. All amounts have been adjusted to reflect a three-for-two stock split effective April 24, 1998.
MARKET PRICE ------------------- QUARTER ENDED HIGH LOW DIVIDENDS ------------- ---- --- --------- 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 ======
MARKET PRICE ------------------ QUARTER ENDED HIGH LOW DIVIDENDS ------------- ---- --- --------- March 1, 1997............................................... $17 $14 5/16 $.1084 May 31, 1997................................................ 16 9/16 13 5/16 .1083 August 30, 1997............................................. 18 3/16 15 5/8 .1083 November 29, 1997........................................... 20 3/4 17 3/8 .1100 ------ Total Dividends............................................. $.4350 ======
The approximate number of holders of record of the Company's Common Stock at February 1, 1999 is 1,750. 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 1998 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 1998 Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information required hereunder is set forth on page 12 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 1998 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, 11 12 are incorporated herein by reference and are filed as Exhibits 13(a)(ii) through 13(a)(vii) to this 1998 Form 10-K. 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 18, 1999 (the "Proxy Statement") for the Annual Meeting of Shareholders to be held on March 23, 1999 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 14 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. On September 4, 1998 the Company loaned $140,981 to Mr. Michael J. Tilton, the Company's Executive Vice President-Engine/Mobile Filtration, on an interest-free basis. The loan was repaid in full on October 26, 1998. The loan was made pursuant to the Company's Relocation Expense Policy and was used by Mr. Tilton to purchase a home in connection with his relocation from St. Louis, Missouri to the Company's headquarters in Rockford, Illinois. 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, 1998: *Consolidated Balance Sheets at November 30, 1998 and 1997 *Consolidated Statements of Earnings for the years ended November 30, 1998, 1997 and 1996 *Consolidated Statements of Shareholders' Equity for the years ended November 30, 1998, 1997 and 1996 *Consolidated Statements of Cash Flows for the years ended November 30, 1998, 1997 and 1996 *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 1998 Form 10-K 12 13 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) There were no Reports on Form 8-K filed during the fourth quarter of the fiscal year ended November 30, 1998. (c) Exhibits 3.1 The registrant's Second Restated Certificate of Incorporation. 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 to be 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. 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. 4.2 The 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. 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. 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.
13 14 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. 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. 13 (a) The following items incorporated by reference herein from the Company's 1998 Annual Report to Shareholders ("1998 Annual Report"), are filed as Exhibits to this Annual Report Form 10-K:
(i) Business segment information for the fiscal years 1996 through 1998 set forth on pages 26 and 27 of the 1998 Annual Report (included in Exhibit 13(a)(vi) -- Note O of Notes to Consolidated Financial Statements); (ii) Consolidated Balance Sheets of the Company and its Subsidiaries at November 30, 1998 and 1997 set forth on page 15 of the 1998 Annual Report; (iii) Consolidated Statements of Earnings of the Company and its Subsidiaries for the years ended November 30, 1998, 1997 and 1996 set forth on page 16 of the 1998 Annual Report; (iv) Consolidated Statements of Shareholders' Equity for the Company and its Subsidiaries for the years ended November 30, 1998, 1997 and 1996 set forth on page 17 of the 1998 Annual Report; (v) Consolidated Statements of Cash Flows of the Company and its Subsidiaries for the years ended November 30, 1998, 1997 and 1996 set forth on page 18 of the 1998 Annual Report; (vi) Notes to Consolidated Financial Statements set forth on pages 19 through 27 of the 1998 Annual Report; (vii) Report of Independent Accountants set forth on page 28 of the 1998 Annual Report; (viii) Management's Report on Responsibility for Financial Reporting set forth on page 28 of the 1998 Annual Report; (ix) Information under the caption "11-Year Financial Review" set forth on pages 30 and 31 of the 1998 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 1998 Annual Report.
21 Subsidiaries of the Registrant. 23 Consent of Independent Accountants. 27 Financial Data Schedule.
14 15 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 18, 1999 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. Date: February 18, 1999 By: /s/ LAWRENCE E. GLOYD ------------------------------------------------ Lawrence E. Gloyd Chairman of the Board & Chief Executive Officer and Director Date: February 18, 1999 By: /s/ BRUCE A. KLEIN ------------------------------------------------ Bruce A. Klein Vice President -- Finance & Chief Financial Officer Date: February 18, 1999 By /s/ MARCIA S. BLAYLOCK ------------------------------------------------ Marcia S. Blaylock Vice President, Controller, Corporate Secretary & Chief Accounting Officer Date: February 18, 1999 By /s/ J. MARC ADAM ------------------------------------------------ J. Marc Adam Director Date: February 18, 1999 By /s/ MILTON R. BROWN ------------------------------------------------ Milton R. Brown Director Date: February 18, 1999 By /s/ CARL J. DARGENE ------------------------------------------------ Carl J. Dargene Director Date: February 18, 1999 By /s/ DUDLEY J. GODFREY, JR. ------------------------------------------------ Dudley J. Godfrey, Jr. Director
15 16 Date: February 18, 1999 By /s/ NORMAN E. JOHNSON ------------------------------------------------ Norman E. Johnson Director Date: February 18, 1999 By /s/ JAMES L. PACKARD ------------------------------------------------ James L. Packard Director Date: February 18, 1999 By /s/ STANTON K. SMITH, JR. ------------------------------------------------ Stanton K. Smith, Jr. Director Date: February 18, 1999 By /s/ DON A. WOLF ------------------------------------------------ Don A. Wolf Director
16 17 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Shareholders CLARCOR Inc. Rockford, Illinois Our report on the consolidated financial statements of CLARCOR Inc. and Subsidiaries has been incorporated by reference in this Form 10-K from page 28 of the 1998 Annual Report to Shareholders of CLARCOR Inc. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed on page 13 (index of exhibits) of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. PricewaterhouseCoopers LLP Chicago, Illinois January 8, 1999 F-1 18 CLARCOR INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996 (DOLLARS IN THOUSANDS)
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 - ------------------------------------- ---------- ---------- ---------- ---------- ---------- 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 ====== ====== ==== ====== ====== 1996: Allowance for losses on accounts receivable......................... $1,846 $ 568 $ -- $ 407(B) $2,007 ====== ====== ==== ====== ======
NOTES: (A) Due to business acquisitions in 1998 and 1997. (B) Bad debts written off during year, net of recoveries. F-2 EX-3.1 2 SECOND RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 SECOND RESTATED CERTIFICATE OF INCORPORATION OF CLARCOR INC. CLARCOR Inc., a corporation organized and existing under the laws of the State of Delaware (the "corporation"), hereby certifies as follows: 1. The corporation was originally incorporated under the name of J. L. CLARK MANUFACTURING CORPORATION. The date of filing its original Certificate of Incorporation with the Secretary of State was March 3, 1969. On August 9, 1983 the corporation filed its Restated Certificate of Incorporation (the "First Restated Certificate of Incorporation") with the Secretary of State. 2. This Second Restated Certificate of Incorporation ("Certificate of Incorporation") only restates and integrates and does not further amend the provisions of the First Restated Certificate of Incorporation of this corporation as heretofore amended or supplemented and there is no discrepancy between those provisions and the provisions of this Second Restated Certificate of Incorporation. 2 3. The text of the First Restated Certificate of Incorporation as amended or supplemented heretofore is hereby restated without further amendments or changes to read as herein set forth in full: ARTICLE FIRST NAME The name of the corporation is CLARCOR Inc. ARTICLE SECOND REGISTERED OFFICE The registered office of the corporation in the State of Delaware is to be located at No. 100 West Tenth Street in the City of Wilmington, in the County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE THIRD PURPOSES The purpose of the corporation is to engage in a general mercantile and manufacturing business and to engage in any and all other lawful acts and activities for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE FOURTH AUTHORIZED CAPITAL STOCK The total number of shares of all classes of capital stock which the corporation shall have the authority to issue is 31,300,000 shares which shall be divided into two classes as follows: 1,300,000 shares of Preferred Stock (Preferred Stock) of the par value of $1.00 per share, and 30,000,000 shares of Common Stock (Common Stock) of the -2- 3 par value of $1.00 per share. The designations, voting powers, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions of the above classes of stock shall be as follows: I. PREFERRED STOCK SECTION 1. Shares of Preferred Stock may be issued in one or more series at such time or times, and for such consideration or considerations, as the Board of Directors may determine. SECTION 2. The Board of Directors is expressly authorized at any time, and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series with such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors, and as are not stated and expressed in this Certificate of Incorporation or any amendment thereto including, but not limited to, determination of any of the following: (a) the distinctive serial designation and the number of shares constituting a series; (b) the dividend rate or rates, whether dividends shall be cumulative and, if so, from what date, the payment date or dates for dividends, and the participating or other special rights, if any, with respect to dividends; (c) the voting powers, full or limited, if any, of the shares of such series; (d) whether the shares shall be redeemable and, if so, the price or prices at which, and the terms and conditions on which, the shares may be redeemed; (e) the amount or amounts payable upon the shares in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation prior to any payment or distribution of the assets of the corporation to any class or classes of stock of the corporation ranking junior to the Preferred Stock; (f) whether the shares shall be entitled to the benefit of a sinking or retirement fund to be applied to the -3- 4 purchase or redemption of shares of a series and, if so entitled, the amount of such fund and the manner of its application, including the price or prices at which the shares may be redeemed or purchased through the application of such fund; (g) whether the shares shall be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock of the corporation or any other corporation, and if so convertible or exchangeable, the conversion price or prices, or the rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; and (h) any other preferences, privileges and powers, and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of such series, as the Board of Directors may deem advisable and as shall not be inconsistent with the provisions of this Certificate of Incorporation. SECTION 3. Shares of Preferred Stock which have been issued and reacquired in any manner by the corporation (excluding, until the corporation elects to retire them, shares which are held as treasury shares but including shares redeemed, shares purchased and retired and shares which have been converted into shares of Common Stock) shall have the status of authorized but unissued shares of Preferred Stock and may be reissued. II SERIES B JUNIOR PARTICIPATING PREFERRED STOCK SECTION 1. DESIGNATION OF SERIES; NUMBER OF SHARES. The series of Preferred Stock established hereby shall be designated the "Series B Junior Participating Preferred Stock" (the "Series B Preferred Stock") and the authorized number of shares constituting the Series B Preferred Stock shall be 300,000. Such number of authorized shares may be increased or decreased, from time to time, by resolution of the Board; provided, however, that no such decrease shall reduce the number of authorized shares of the Series B Preferred Stock to a number less than the number of shares of the Series B Preferred Stock then outstanding, plus the number of shares of the Series B Preferred Stock then reserved for issuance upon the exercise of any outstanding options, warrants or rights or the exercise of any conversion or exchange privilege contained in any outstanding security issued by the corporation. -4- 5 SECTION 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the rights of the holders of shares of any other series of the Preferred Stock (or shares of any other class of capital stock of the corporation) ranking senior to the Series B Preferred Stock with respect to dividends, the holders of shares of the Series B Preferred Stock, in preference to the holders of shares of Common Stock and of any other class of capital stock of the corporation ranking junior to the Series B Preferred Stock with respect to dividends, shall be entitled to receive, when, as and if declared by the Board out of funds legally available therefor, quarterly dividends payable in cash on the last Friday of January, April, July and October in each year (each such date being a "Dividend Payment Date"), commencing on the first Dividend Payment Date after the initial issuance of a share or fractional share of the Series B Preferred Stock, in an amount per share (rounded to the nearest whole cent) equal to the greater of (a) $64 and (b) 100 times the aggregate per share amount of all cash dividends, plus 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions (other than a dividend payable in shares of Common Stock or a distribution in connection with the subdivision of the outstanding shares of Common Stock, by reclassification or otherwise), declared on the Common Stock since the immediately preceding Dividend Payment Date or, with respect to the first Dividend Payment Date, since the initial issuance of a share or fractional share of the Series B Preferred Stock. The multiple of 100 (the "Dividend Multiple") set forth in the preceding sentence shall be adjusted from time to time as hereinafter provided in this paragraph (A). In the event that the corporation shall at any time (i) declare or pay any dividend on the Common Stock payable in shares of Common Stock or (ii) effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then, in each such case, the Dividend Multiple thereafter applicable to the determination of the amount of dividends per share which the holders of shares of the Series B Preferred Stock shall be entitled to receive shall be the Dividend Multiple in effect immediately prior to such event multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately after such event and the denominator of which shall be the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Board shall declare, out of funds legally available therefor, a dividend or distribution on the Series B Preferred Stock, as provided in paragraph (A) of this Section 2, immediately after it has declared a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided, however, that, in the event that no dividend or distribution shall have been declared on the Common Stock during the period between any -5- 6 Dividend Payment Date and the next subsequent Dividend Payment Date, a dividend of $64 per share on the Series B Preferred Stock shall nevertheless be payable on such subsequent Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on the outstanding shares of the Series B Preferred Stock from the Dividend Payment Date next preceding the date of issuance of such shares, unless such date of issuance shall be prior to the record date for the first Dividend Payment Date, in which case dividends on such shares shall begin to accrue and be cumulative from the date of issuance of such shares, or unless such date of issuance shall be after the close of business on the record date with respect to any Dividend Payment Date and on or prior to such Dividend Payment Date, in which case dividends on such shares shall begin to accrue and be cumulative from such Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on shares of the Series B Preferred Stock in an amount less than the total amount of dividends then accrued shall be allocated pro rata among such shares. The Board may fix a record date for the determination of the holders of shares of the Series B Preferred Stock entitled to receive payment of any dividend or distribution declared thereon, which record date shall be not more than the number of days prior to the date fixed for such payment permitted by applicable law. SECTION 3. VOTING RIGHTS. In addition to any other voting rights required by applicable law, the holders of shares of the Series B Preferred Stock shall have the following voting rights: (A) Each share of the Series B Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the corporation. The multiple of 100 (the "Voting Multiple") set forth in the preceding sentence shall be adjusted from time to time as hereinafter provided in this paragraph (A). In the event that the corporation shall at any time (i) declare or pay any dividend on the Common Stock payable in shares of Common Stock or (ii) effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then, in each such case, the Voting Multiple thereafter applicable to the determination of the number of votes per share to which the holders of shares of the Series B Preferred Stock shall be entitled shall be the Voting Multiple in effect immediately prior to such event multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately -6- 7 after such event and the denominator of which shall be the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, in any Certificate of Designations establishing another series of the Preferred Stock (or any series of any other class of capital stock of the corporation) or by applicable law, the holders of the Series B Preferred Stock, the holders of the Common Stock and the holders of any other class of capital stock of the corporation having general voting rights shall vote together as a single class on all matters submitted to a vote of the stockholders of the corporation. (C) Except as otherwise provided herein or by applicable law, the holders of the Series B Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent provided in paragraph (B) of this Section 3) for the taking of any corporate action. SECTION 4. CERTAIN RESTRICTIONS. (A) Whenever dividends or other distributions payable on the Series B Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on outstanding shares of the Series B Preferred Stock shall have been paid in full, the corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of any class of capital stock of the corporation ranking junior (either as to dividends or upon liquidation, dissolution or winding up of the corporation) to the Series B Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of any class of capital stock of the corporation ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up of the corporation) with the Series B Preferred Stock, except dividends paid ratably on the Series B Preferred Stock and all such parity stock on which dividends are accrued and unpaid in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem, purchase or otherwise acquire for consideration any shares of any class of capital stock of the corporation ranking junior (either as to dividends or upon liquidation, dissolution or winding up of the corporation) to the Series B Preferred Stock, except that the corporation may -7- 8 at any time redeem, purchase or otherwise acquire any shares of such junior stock in exchange for other shares of any class of capital stock of the corporation ranking junior (both as to dividends and upon dissolution, liquidation or winding up of the corporation) to the Series B Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of the Series B Preferred Stock or any shares of any class of capital stock of the corporation ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up of the corporation) with the Series B Preferred Stock, or redeem any shares of such parity stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors of the corporation) to the holders of all such shares upon such terms and conditions as the Board of Directors of the corporation, after taking into consideration the respective annual dividend rates and the other relative powers, preferences and rights of the respective series and classes of such shares, shall determine in good faith will result in fair and equitable treatment among the respective holders of shares of all such series and classes. (B) The corporation shall not permit any subsidiary of the corporation to purchase or otherwise acquire for consideration any shares of any class of capital stock of the corporation unless the corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. SECTION 5. REACQUIRED SHARES. Any shares of the Series B Preferred Stock purchased or otherwise acquired by the corporation in any manner whatsoever shall be retired and cancelled promptly after such purchase or acquisition. All such cancelled shares shall thereupon become authorized and unissued shares of Preferred Stock and may be reissued as part of any new series of the Preferred Stock, subject to the conditions and restrictions on issuance set forth in this Certificate of Incorporation of the corporation, as amended from time to time, in any Certificate of Designations establishing another series of the Preferred Stock (or any series of any other class of capital stock of the corporation) or in any applicable law. SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation (whether voluntary or otherwise), dissolution or winding up of the corporation, no distribution shall be made (a) to the holders of shares of any class of capital stock of the corporation ranking junior (either as to dividends or upon liquidation, dissolution or winding up of the corporation) to the Series B Preferred Stock unless, -8- 9 prior thereto, the holder of each outstanding share of the Series B Preferred Stock shall have received an amount equal to the accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, plus an amount equal to the greater of (i) $100.00 and (ii) an aggregate amount, subject to adjustment as hereinafter provided in this Section 6, equal to 100 times the aggregate per share amount to be distributed to the holders of the Common Stock or (b) to the holders of shares of any class of capital stock of the corporation ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up of the corporation) with the Series B Preferred Stock, except distributions made ratably on the Series B Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event that the corporation shall at any time (a) declare or pay any dividend on the Common Stock payable in shares of Common Stock or (b) effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then, in each such case, the aggregate amount per share which the holders of shares of the Series B Preferred Stock shall thereafter be entitled to receive pursuant to clause (a)(ii) of the preceding sentence shall be the aggregate amount per share in effect pursuant to such clause immediately prior to such event multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately after such event and the denominator of which shall be the number of shares of Common Stock that were outstanding immediately prior to such event. SECTION 7. CONSOLIDATION, MERGER, ETC. In the event that the corporation shall be a party to any consolidation, merger, combination or other transaction in which the outstanding shares of Common Stock are converted or changed into or exchanged for other capital stock, securities, cash or other property, or any combination thereof, then, in each such case, each share of the Series B Preferred Stock shall at the same time be similarly converted or changed into or exchanged for an aggregate amount, subject to adjustment as hereinafter provided in this Section 7, equal to 100 times the aggregate amount of capital stock, securities, cash and/or other property (payable in kind), as the case may be, into which or for which each share of Common Stock is being converted or changed or exchanged. In the event that the corporation shall at any time (a) declare or pay any dividend on the Common Stock payable in shares of Common Stock or (ii) effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by -9- 10 reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then, in each such case, the aggregate amount per share which the holders of shares of the Series B Preferred Stock shall thereafter be entitled to receive pursuant to the preceding sentence shall be the aggregate amount per share in effect pursuant to such sentence immediately prior to such event multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately after such event and the denominator of which shall be the number of shares of Common Stock that were outstanding immediately prior to such event. SECTION 8. NO REDEMPTION. The shares of the Series B Preferred Stock shall not be redeemable at any time. SECTION 9. RANK. Unless otherwise provided in the Certificate of Designations establishing another series of the Preferred Stock, the Series B Preferred Stock shall rank, as to the payment of dividends and the making of any other distribution of assets of the corporation, senior to the Common Stock, but junior to all other series of the Preferred Stock. SECTION 10. AMENDMENTS. The Certificate of Incorporation of the corporation shall not be amended in any manner which would materially alter or change the powers, preferences and rights of the Series B Preferred Stock so as to adversely affect any thereof without the affirmative vote of the holders of at least two-thirds of the outstanding shares of the Series B Preferred Stock, voting separately as a single class. SECTION 11. FRACTIONAL SHARES. Fractional shares of the Series B Preferred Stock may be issued, but, unless the Board of Directors of the corporation shall otherwise determine, only in multiples of one one-hundredth of a share. The holder of any fractional share of the Series B Preferred Stock shall be entitled to receive dividends, participate in distributions, exercise voting rights and have the benefit of all other powers, preferences and rights relating to the Series B Preferred Stock in the same proportion as such fractional share bears to a whole share. III. COMMON STOCK SECTION 1. Subject to the preferential rights of the Preferred Stock, the holders of the Common Stock shall be entitled to receive, to the extent permitted by law, such -10- 11 dividends as may be declared from time to time by the Board of Directors. SECTION 2. Except as may be otherwise required by law or this Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held by him of record on the books of the corporation on all matters voted upon by the Stockholders. IV. OTHER PROVISIONS SECTION 1. Subject to the protective conditions and restrictions of any outstanding Preferred Stock, any amendment to this Certificate of Incorporation which shall increase or decrease the authorized capital stock of any class or classes may be adopted by the affirmative vote of the holders of a majority of the outstanding shares of the voting stock of the corporation. SECTION 2. No holder of Preferred or Common Stock shall have any right as such holder to purchase or subscribe for any security of the corporation now or hereafter authorized or issued. All such securities may be issued and disposed of by the Board of Directors to such persons, firms, corporations and associations for such lawful considerations, and on such terms, as the Board of Directors in its discretion may determine, without first offering the same, or any part thereof, to the holders of Preferred or Common Stock. ARTICLE FIFTH PROVISIONS RELATING TO DIRECTORS SECTION 1. NUMBER, ELECTION AND TERM. The number of directors which shall constitute the whole Board shall be not less than nine. The exact number of directors shall be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority of the entire Board of Directors. The directors shall be divided into three classes, as nearly equal in number as possible, with respect to the time for which they shall severally hold office. Directors of the First Class first chosen shall hold office for one year or until the first annual election; Directors of the Second Class first chosen shall hold office until the second annual election; and Directors of the Third Class shall hold office until the third annual election. In each annual election or adjournment thereof, the successors to the Class of Directors whose terms shall expire at that time -11- 12 shall be elected to hold office for terms of three years so that the term of office of one class of directors shall expire in each year. Each director elected shall hold office until his successor shall be elected and shall qualify. SECTION 2. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled by a majority vote of the directors then in office, and directors so chosen shall hold office for a term expiring at the Annual Meeting of Stockholders at which the term of the class to which they have been elected expires. SECTION 3. REMOVAL. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 75% of all of the shares of the corporation entitled to vote for the election of directors. SECTION 4. AMENDMENT, REPEAL, ETC. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 75% of the shares of the corporation entitled to vote for the election of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article Fifth. ARTICLE SIXTH BY-LAWS In furtherance and not in limitation of the powers conferred by statute, By-Laws may be made, altered or repealed by the Board of Directors. ARTICLE SEVENTH BALLOTS Elections of directors need not be by ballot unless By-Laws of the corporation shall so provide. -12- 13 ARTICLE EIGHTH VOTING REQUIREMENTS FOR CERTAIN SALES, LEASES OR EXCHANGES The corporation may not sell, lease or exchange all or substantially all of its property and assets, unless authorized by the affirmative vote of the holders of two-thirds (2/3) of all the outstanding shares of stock having voting power. ARTICLE NINTH INDEMNIFICATION A. LIMITATION OF CERTAIN LIABILITY OF DIRECTORS. No director of the corporation shall be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended after approval by the stockholders of the corporation of this Article Ninth to authorize corporate action further eliminating or limiting the personal liability of directors, then, the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing paragraph by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. B. INDEMNIFICATION AND INSURANCE. (1) RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a -13- 14 partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment), against all expense, liability and loss (including attorney's fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in paragraph (2) hereof, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Section B shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section B or otherwise. The corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers. (2) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under paragraph (1) of this Section B is not paid in full by the corporation within thirty days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or -14- 15 in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. (3) NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section B shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Restated Certificate of incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. (4) INSURANCE. The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. ARTICLE TENTH STOCKHOLDER ACTIONS Any action required or permitted to be taken by the Stockholders of the corporation must be effected at a duly called annual or special meeting of Stockholders of the corporation and may not be effected by any consent in writing by such Stockholders. Special meetings of Stockholders of -15- 16 the corporation may be called only by the Board of Directors pursuant to a resolution approved by a majority of the entire Board of Directors, upon not less than 10 nor more than 50 days' written notice. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 75% of all of the shares of the corporation entitled to vote for the election of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article Tenth. ARTICLE ELEVENTH BUSINESS COMBINATIONS SECTION 1. VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS. A. HIGHER VOTE FOR CERTAIN BUSINESS COMBINATIONS. In addition to any vote required by law or this Certificate of Incorporation except as otherwise expressly provided in section 2 of this Article Eleventh: (i) any merger or consolidation of the corporation or any Subsidiary (as hereinafter defined) with or into (a) any Interested Stockholder (as hereinafter defined) or (b) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the corporation or any Subsidiary having an aggregate Fair Market Value of $1,000,000 or more; or (iii) the issuance or transfer by the corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $1,000,000 or more; or (iv) the adoption of any plan or proposal for the liquidation or dissolution of the corporation proposed by or on behalf of an Interested Stockholder or any Affiliate of any Interested Stockholder; or (v) any reclassification of securities (including -16- 17 any reverse stock split), or recapitalization of the corporation, or any merger or consolidation of the corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder; shall require the affirmative vote of the holders of at least 75% of the then outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors (the "Voting Stock"), voting together as a single class (it being understood that, for the purposes of this Article Eleventh, each share of the Voting Stock shall have the number of votes granted to it pursuant to Article Fourth of this Certificate of Incorporation). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. B. DEFINITION OF "BUSINESS COMBINATION." The term "Business Combination" as used in this Article Eleventh shall mean any transaction which is referred to in any one or more of clauses (i) through (v) of paragraph A of this section 1. SECTION 2. WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of section 1 of this Article Eleventh shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of this Certificate of Incorporation, if all of the conditions specified in either of the following paragraphs A and B are met: A. APPROVAL BY CONTINUING DIRECTORS. The Business Combination shall have been approved by two-thirds of the Continuing Directors (as hereinafter defined). B. PRICE AND PROCEDURE REQUIREMENTS. All of the following conditions shall have been met: (i) The aggregate amount of the cash and the Fair Market Value (as hereinafter defined) as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the highest of the following: -17- 18 (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of Common Stock acquired by it (i) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (2) in the transaction in which it became an Interested Stockholder, whichever is higher; and (b) the Fair Market Value per share of Common Stock on the first trading date after the Announcement Date or on the first trading date after the date of the first public announcement that the Interested Stockholder became an Interested Stockholder (the "Determination Date"), whichever is higher. (ii) The aggregate amount of the cash and the Fair Market Value as of the date of consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any other class of outstanding Voting Stock (other than the Institutional Voting Stock, as hereinafter defined) shall be at least equal to the highest of the following (it being intended that the requirement of this paragraph B(ii) shall be required to be met with respect to every class of outstanding Voting Stock (other than Institutional Voting Stock), whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock): (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it (1) within the two-year period immediately prior to the Announcement Date or (2) in the transaction in which it became an Interested Stockholder, whichever is higher; (b) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the corporation; and (c) the Fair Market Value per share of such class of Voting Stock on the first trading date after the Announcement Date or on the Determination Date, whichever is higher. (iii) The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such -18- 19 class of Voting Stock. If the Interested Stockholder has paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration for such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by it. (iv) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (a) except as approved by two-thirds of the Continuing Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding Preferred Stock; (b) there shall have been (1) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by two-thirds of the Continuing Directors, and (2) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by two-thirds of the Continuing Directors; and (c) such Interested Stockholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder. (v) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a Stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (vi) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public Stockholders of the corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). SECTION 3. CERTAIN DEFINITIONS. For the purposes of this Article Eleventh: -19- 20 A. A "person" shall mean any individual, firm, corporation or other entity. B. "Interested Stockholder" shall mean any person (other than the corporation or any Subsidiary) who or which: (i) is the beneficial owner, directly or indirectly, of more than 10% of the outstanding Voting Stock; or (ii) is an Affiliate of the corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the then outstanding Voting Stock; or (iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. C. A person shall be a "beneficial owner" of any Voting Stock: (i) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or (ii) which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. D. For the purposes of determining whether a person is an Interested Stockholder pursuant to paragraph B of this section 3, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of paragraph C of this section 3 but shall not include any other shares of Voting Stock which may -20- 21 be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. E. "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on March 4, 1983. F. "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in paragraph B of this section 3, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the corporation. G. "Continuing Director" means any member of the Board of Directors of the corporation (the "Board") who is unaffiliated with the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Continuing Director who is unaffiliated with the Interested Stockholder and is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the Board. H. "Fair Market Value" means: (i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board in good faith; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by the Board in good faith. I. "Institutional Voting Stock" shall mean any class of Voting Stock which was issued to and continues to be held solely by one or more insurance companies, pension -21- 22 funds, commercial banks, savings banks or similar financial institutions or institutional investors. J. In the event of any Business Combination in which the corporation survives, the phrase "consideration other than cash to be received" as used in paragraphs B(i) and (ii) of section 2 of this Article Eleventh shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. K. A majority of the Continuing Directors shall have the power and duty to determine for the purposes of this Article Eleventh, on the basis of information known to them after reasonable inquiry, (A) whether a person is an Interested Stockholder, (B) the number of shares of Voting Stock beneficially owned by any person, (C) whether a person is an Affiliate or Associate of another, (D) whether a class of Voting Stock is Institutional Voting Stock and (E) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the corporation or any Subsidiary in any Business Combination, has, an aggregate Fair Market Value of $1,000,000 or more. SECTION 4. NO EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED STOCKHOLDERS. Nothing contained in this Article Eleventh shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. SECTION 5. AMENDMENT, REPEAL, ETC. Notwithstanding any other provisions of this Certificate of Incorporation or the By-Laws of the corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Certificate of Incorporation or the By-Laws of the corporation), the affirmative vote of the holders of 75% or more of the shares of the then outstanding Voting Stock, voting together as a single class, shall be required to amend, or repeal, or to adopt any provision inconsistent with, this Article Eleventh. 4. This Second Restated Certificate of Incorporation was duly adopted by the Board of Directors in accordance with Section 245 of the General Corporation Law of the State of Delaware. -22- 23 IN WITNESS WHEREOF, said CLARCOR Inc. has caused this certificate to be signed by Lawrence E. Gloyd, its Chairman of the Board and Chief Executive Officer, and attested by Marcia S. Blaylock, its Secretary, this 22nd day of June, 1998. CLARCOR INC. By /s/ Lawrence E. Gloyd -------------------------- Chairman of the Board and Chief Executive Officer ATTEST: By /s/ Marcia S. Blaylock ---------------------- Secretary EX-10.4(F) 3 EMPLOYMENT AGREEMENT WITH MICHAEL J. TILTON 1 EXHIBIT 10.4(f) EMPLOYMENT AGREEMENT AGREEMENT by and between CLARCOR Inc., a Delaware corporation (the "Corporation") and Michael J. Tilton (the "Executive") dated as of September 23, 1998. WHEREAS, Executive currently serves as Executive Vice President - Engine- /Mobile Filtration of the Corporation; and WHEREAS, the Corporation desires to enter into this Agreement to assure the benefits of the Executive's future services to the Corporation, and Executive is willing to commit to render such services, upon the terms and conditions set forth below. It is therefore mutually agreed as follows: 1. Employment. The Corporation agrees to employ Executive as Executive Vice President - Engine/Mobile Filtration and Executive agrees to serve the Corporation in such capacities, upon the terms and conditions and for the period of employment hereinafter set forth. Throughout the Employment Period (as defined below), subject to the supervision of the Board of Directors (the "Board"), the Chief Executive Officer and the Chief Operating Officer of the Corporation, Executive shall exercise such authority and perform such duties as are commensurate with the authority being exercised and the duties being performed by Executive immediately preceding the date of this Agreement. Throughout the Employment Period, unless otherwise agreed in writing by Executive and the Corporation, the Corporation shall neither demote Executive nor assign to Executive any duties or responsibilities that are inconsistent with his position, duties, responsibilities and status as Executive Vice President - Engine/Mobile Filtration. During the Employment Period, and excluding any periods of vacation leave to which Executive is entitled, Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Corporation and, to the extent necessary to discharge the responsibilities assigned to Executive hereunder, to use Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for Executive to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures, fulfill speaking engagements or teach at educational institutions and (iii) manage personal investments, so long as such activities do not significantly interfere with the performance of Executive's responsibilities as an employee of the Corporation in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by Executive prior to the date of this Agreement, the continued conduct of such activities (or conduct of activities similar in nature and scope thereto) subsequent to the date of this 1 2 Agreement shall not thereafter be deemed to interfere with the performance of Executive's responsibilities to the Corporation. 2. Employment Period. Except as provided in the last sentence of this Section 2 and in Section 5 (b) (iv), the term of employment under this Agreement (the "Employment Period") shall commence as of the date hereof, and shall expire, subject to earlier termination of employment as hereinafter provided, April 1, 1999; provided, however, that unless the Board shall take affirmative action to the contrary and the Corporation shall give prior written notice thereof to Executive, as of April 1, 1999, and as of the first day of April of each succeeding year, the Employment Period shall be extended automatically (for a period of one additional year) thereafter. For purposes of Change of Control (as defined in Section 8) only, the Employment Period shall begin on the date of such Change of Control and end on the third anniversary of such date. 3. Compensation, Compensation Plans, Benefits and Perquisites. During the Employment Period, Executive shall be compensated as follows: (a) He shall receive an annual salary at a monthly rate at least equal to his salary on the date of this Agreement on an annualized basis, with the opportunity for increases, from time to time thereafter, in the discretion of the Compensation and Stock Option Committee of the Board (the "Committee") in accordance with the Corporation's regular practices. The term "salary" as utilized in this Agreement shall refer to such annual salary as increased. (b) He shall be eligible to participate on a reasonable basis in the Corporation's 1994 Incentive Plan, Key Management Incentive Plan, Long Range Performance Share Plan and other bonus and incentive compensation plans (whether now or hereinafter in effect.) Except as provided below, Executive's participation in the 1994 Incentive Plan, the Key Management Incentive Plan and the Long Range Performance Share Plan shall be on the same basis and terms as in effect on the date of this Agreement and Executive's participation in any hereinafter established plans shall be on the same basis and terms as other executive officers of the Corporation. No additional compensation provided under any such plans shall be deemed to modify or otherwise affect the terms of this Agreement or any of Executive's entitlements hereunder. (c) He shall be entitled to participate in all employee benefit plans, practices and programs maintained by the Corporation and made available to employees generally, including, without limitation, all pension, retirement, savings, medical, hospitalization, disability, dental, life, or travel accident insurance benefit plans (collectively the "Benefit Plans"). 2 3 Executive's participation in such Benefit Plans shall be on the same basis and terms as are applicable to employees of the Corporation generally. Such Benefit Plans shall include, but shall not be limited to, the following: CLARCOR Inc. Pension Plan Retirement Savings Plan and Trust (401(k) Plan) Supplemental Retirement Plan Monthly Investment Plan Dental Plan Health Care Plan Life Insurance Plan/Supplemental Life Insurance Plan Disability Plan (d) Executive shall be entitled to paid vacations in accordance with the Corporation's vacation policy as in effect from time to time, and to all paid holidays given by the Corporation to its Executive officers. (e) Executive shall be entitled to all fringe benefits and perquisites made available by the Corporation to its executive officers, including but not limited to, participation in the Automobile Plan. 4. Termination. Executive's employment with the Corporation may be terminated by the Corporation or Executive only under the circumstances described in this Section 4: (a) Executive may voluntarily terminate his employment hereunder, but only upon giving at least six month's prior written notice to the Board, in which case the Employment Period shall terminate on the effective date of such notice. (b) Executive's employment hereunder will terminate upon his death. (c) If Executive is Disabled, the Corporation may terminate Executive's employment with the Corporation. For purposes of the Agreement, Executive shall be deemed to have a "Disability" (and to be "Disabled") if he has been determined by the Incumbent Board (as defined in Section 8), based on competent medical evidence, to have a physical or mental disability that renders him incapable, after reasonable accommodation by the Corporation, of performing his duties under this Agreement. 3 4 (d) The Corporation may terminate Executive's employment hereunder at any time for Cause. For purposes of this Agreement, the term "Cause" shall mean fraud, misappropriation or intentional material damage to the property or business of the Corporation or commission of a felony. (e) Executive may resign at any time for Good Reason. For purposes of this Agreement, "Good Reason" shall mean an adverse change in the nature or scope of Executive's authority, duties or responsibilities from those referred to in Section 1, a reduction in total compensation, compensation plans, benefits or perquisites from those provided in Section 3, or the breach by the Corporation of any other provision of this Agreement, Board action to prevent the automatic extension of this Agreement as provided in Section 2 hereof, or a determination by Executive that as a result of a Change of Control (as defined in Section 8) and a change in circumstances thereafter significantly affecting his position, he is unable to exercise the authorities, powers, function or duties attached to his position and contemplated by Section 1 of the Agreement. For purposes of this Section 4, a reasonable determination made by Executive in good-faith shall be conclusive. 5. Termination Payments. In the event of a termination of Executive's employment with the Corporation and subject to the provisions of Section 8 of this Agreement, the Corporation shall pay to Executive and provide him with the following: (a) If Executive's termination occurs due to death or Disability, Executive (or his estate or beneficiaries, if applicable) shall be entitled to any unpaid salary for days worked prior to his date of termination and payment for unused vacation days (determined in accordance with the policies of the Corporation as in effect at that time for Corporate officers) earned prior to the date of termination, and to all other benefits available to Executive or his estate and beneficiaries under the Corporation's Benefit Plans as in effect on the date of such termination of employment. (b) If Executive's employment is terminated by the Corporation without Cause or if Executive resigns for Good Reason, Executive shall be entitled to the following: (i) The Corporation shall pay to Executive the lump sum present value of the salary, at the rate required by Section 3(a) as in effect immediately prior to the date of such termination of employment, to which he would have been entitled had he remained in the employ of the Corporation for 4 5 the remainder of the Employment Period. The Corporation shall also pay to Executive the average amount of any incentive compensation and bonuses earned by Executive in the three years preceding Executive's termination of employment with the Corporation. (ii) During the remainder of the Employment Period, Executive shall continue to be treated as an employee under the provisions of the Corporation's plans referred to in Section 3(b). In addition, Executive shall continue to be entitled to all benefits and service credits for benefits, programs and arrangements of the Corporation described in Section 3(c) and (e) as if he were still employed during such period under this Agreement. (iii) If, despite the provisions of subparagraph (ii) above, benefits or service credits or the right to accrue further benefits or service credits under any plan referred to in Section 3(b) or (c) shall not be payable or provided under such plan to Executive, or his dependents, beneficiaries and estate because he is no longer an employee of the Corporation, the Corporation itself shall, to the extent necessary, pay or provide for payment of such benefits and service credits for such benefits to Executive, his dependents, beneficiaries and estate. (iv) For the purposes of this Section 5 (b) the "Employment Period" shall be deemed to be the 12-month period beginning on the date of such termination of employment. The amount of payments provided for in this Section 5(b) shall be determined by the Accounting Firm (as defined in Section 10) and such payments shall be made within 30 days after Executive's termination of employment with the Corporation. 6. Non-Competition and Confidentiality. Executive agrees that: (a) There shall be no obligation on the part of the Corporation to provide any further payments or benefits (other than benefits or payments already earned, accrued or paid) described in Section 5 or Section 9 if, during the Employment Period, Executive shall be employed by (or become an owner, director or officer of, or a consultant to) any business which directly competes with any business of the Corporation or any of its subsidiaries at such time; provided, however, that Executive shall not be deemed to have breached this undertaking if (i) his sole relationship with 5 6 such entity consists of his holding, directly or indirectly, an equity interest in such entity not greater than five percent of such entity's outstanding equity interest, and (ii) such employment or activity is not likely to cause serious damage to the Corporation or any of its subsidiaries at such time; and (b) During and after the Employment Period, he shall retain in confidence any confidential information known to him concerning the Corporation and its subsidiaries and their respective businesses so long as such information is not publicly disclosed. Notwithstanding the foregoing, a breach by Executive of this Section 6(b) shall not be used to set-off or delay amounts payable under this Agreement. 7. No Obligation to Mitigate Damages. Executive shall not be obligated to seek other employment in mitigating of amounts payable or arrangements made under the provisions of this Agreement and the obtaining of such other employment shall in no event effect any reduction of the Corporation's obligations under this Agreement. 8. Change of Control. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition (other than from the Corporation) by any person, entity, or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act"), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 15% or more of either the then outstanding shares of common stock or the combined voting power of the Corporation's then outstanding voting securities entitled to vote generally in the election of directors; provided, however, no Change of Control shall be deemed to have occurred for any acquisition by any corporation with respect to which, following such acquisition, more than 60% of the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, respectively, of the then outstanding shares of common stock or the combined voting power of the Corporation's then outstanding voting securities immediately prior to such acquisition in substantially the same proportions as their ownership, immediately prior to such acquisition, of the Corporation's then outstanding common stock and then outstanding voting securities, as the case may be; or (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director 6 7 subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Corporation, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (c) Approval by the stockholders of the Corporation of a reorganization, merger or consolidation, in each case, with respect to which persons who were the stockholders of the Corporation immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 60% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated corporation's then outstanding voting securities, or a liquidation or dissolution of the Corporation or of the sale of all or substantially all of the assets of the Corporation. 9. Termination of Executive Following a Change of Control. In the event the Corporation terminates Executive's employment with the Corporation or the Executive terminates such employment for Good Reason during the Employment Period pursuant to or following a Change of Control, Executive shall be entitled to the salary, compensation and benefits provided to him under Section 5(b)(i), (ii) and (iii) provided that in either such event the Employment Period shall be deemed to have begun on the date of such Change of Control and end on the third anniversary of such date. 10. Certain Additional Payments by the Corporation. The Corporation agrees that: (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Corporation to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 10) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, and hereinafter collectively referred to as the "Excise Tax"), then Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by Executive of all taxes (including, without limitation, any interest or penalties imposed with respect to such taxes), including, 7 8 without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment. (b) Subject to the provisions of Section 10(c), all determinations required to be made under this Section 10, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by PricewaterhouseCoopers, L.L.P. (the "Accounting Firm") which shall provide detailed supporting calculations both to the Corporation and Executive within 15 business days of the receipt of notice from Executive that there has been a Payment, or such earlier time as is requested by the Corporation. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant to this Section 10, shall be paid by the Corporation to Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Corporation and Executive. As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an "Overpayment") or a Gross-Up Payment (or a portion thereof) which should have been paid by the Corporation will not have been paid (an "Underpayment"). (c) An Underpayment shall be deemed to occur upon a claim by the Internal Revenue Service that the tax liability of Executive (whether in respect of the then current taxable year of Executive or in respect of any prior taxable year of Executive) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which the Corporation has failed to make a sufficient Gross-Up Payment. In the event that the Corporation exhausts its remedies pursuant to this Section 10(c) and Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Corporation to or for the benefit of Executive. Executive shall notify the Corporation in writing of any claim by the Internal 8 9 Revenue Service. Such notification shall be given as soon as practicable but no later than ten business days after Executive is informed in writing of such claim and shall apprise the Corporation of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which he gives such notice to the Corporation (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Corporation notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall: (i) give the Corporation any information reasonably requested by the Corporation relating to such claim, (ii) take such action in connection with contesting such claim as the Corporation shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Corporation, (iii) cooperate with the Corporation in good faith in order effectively to contest such claim, and (iv) permit the Corporation to participate in any proceedings relating to such claim; provided, however, that the Corporation shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 10(c), the Corporation shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Corporation shall determine; provided, however, that if the Corporation directs Executive to pay such claim and sue for a refund, the Corporation shall advance the amount of such payment to Executive, on an interest-free basis and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect 9 10 thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Futhermore, the Corporation's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder. Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by Executive of an amount advanced by the Corporation pursuant to Section 10(c), Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to the Corporation's complying with the requirement of Section 10(c)), promptly pay to the Corporation the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by the Corporation pursuant to Section 10(c), a determination is made that Executive shall not be entitled to any refund with respect to such claim and the Corporation does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. (e) An Overpayment shall be deemed to have occurred upon a "Final Determination" (as defined below) that the Excise Tax shall not be imposed upon a Payment or Payments with respect to which Executive had previously received a Gross-Up Payment. A Final Determination shall be deemed to have occurred when Executive has received from the Internal Revenue Service a refund of taxes or other reduction in his tax liability by reason of the Overpayment and upon either (i) the date a determination is made by, or an agreement is entered into with, the Internal Revenue Service which finally and conclusively binds Executive and the Internal Revenue Service, or in the event that a claim in brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved or the time for all appeals has expired or (ii) the statute of limitations with respect to Executive's applicable tax return has expired. If an Overpayment occurs, the amount of the Overpayment shall be treated as a loan by the Corporation to Executive and Executive shall, within ten business days of the occurrence of such Overpayment, pay the Corporation the amount of the Overpayment plus interest at an annual rate equal to the rate provided for in Section 10 11 7872(f)(2)(A) of the Code from the date of the Gross-Up Payment (to which the Overpayment related) was paid to Executive. (f) Notwithstanding anything contained in this Agreement to the contrary, in the event it is determined that an Excise Tax will be imposed on any Payment or Payments, the Corporation shall pay to the Internal Revenue Service as Excise Tax withholding, the amount of the Excise Tax the Corporation has actually withheld from the Payment or Payments. 11. Deferral of Payments. Notwithstanding anything herein to the contrary, the Corporation may defer any payment due under this Agreement (other than payments called for by Section 8) to the earliest date upon which the payment can be made and deducted by the Corporation in light of the provisions of Section 162(m) of the Code. 12. Expenses. During the Employment Period, the Corporation shall promptly pay or reimburse Executive for all reasonable expenses incurred by Executive in the performance of duties hereunder. 13. Full Settlement. The Corporation's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Corporation may have against Executive or others. The Corporation agrees to pay, to the full extent permitted by law, all legal fees and expenses which Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Corporation, Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. 14. Payments to Beneficiaries. Any payments due under this Agreement as a result of Executive's death shall be made to Executive's surviving spouse. If Executive is not survived by a spouse, payment shall be made to the persons or entities named by Executive as his beneficiary for payment in a written document provided to the Corporation prior to his death. In the absence of a surviving spouse or any such named beneficiary, payment shall be made to Executive's estate. 15. Notices. Any notices, requests, demands and other communication provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to Executive at 1142 Tuneberg Pkwy., Belvidere, IL 61008, or at the last address he has filed in writing with the Corporation or, in the case of the Corporation, at its principal Executive offices. 11 12 16. Non-Alienation. Executive shall not have any right to pledge, hypothecate, anticipate or in any way create a lien upon any amounts provided under this Agreement; and no benefits payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law, except by will or the laws of descent and distribution. 17. Governing Law. The provisions of this Agreement shall be construed in accordance with the laws of the State of Illinois. 18. Amendment. This Agreement may be amended or canceled by mutual agreement of the parties in writing without the consent of any other person and, so long as Executive lives, no person, other than the parties hereto, shall have any rights under or interest in this agreement or the subject matter hereof. 19. Successors. (a) This Agreement is personal to Executive and without the prior written consent of the Corporation shall not be assignable by Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Corporation and its successors and assigns. (c) The Corporation will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. As used in this Agreement, "Corporation" shall mean the Corporation as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Any failure by the Corporation to comply with and satisfy this Section 19(c) shall constitute a termination as provided in Section 4 of this Agreement, provided that such successor has received at least ten days prior written notice from the Corporation or Executive of the requirements of this Section 19(c). 20. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. 12 13 IN WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors, the Corporation has caused these presents to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary, all as of the day and year first above written, /s/ Michael J. Tilton ------------------------ Michael J. Tilton CLARCOR Inc. By /s/ Lawrence E. Gloyd ---------------------- ATTEST: /s/ Marcia S. Blaylock - ---------------------- Secretary (Seal) 13 EX-13.(A)(II) 4 CONSOLIDATED BALANCE SHEETS 1 CONSOLIDATED BALANCE SHEETS EXHIBIT 13(a)(ii) November 30, 1998 and 1997 (Dollars in thousands except per share data) ===============================================================================
ASSETS 1998 1997 - ------------------------------------------------------------------------------- Current assets: Cash and short-term cash investments.............$ 33,321 $ 30,324 Accounts receivable, less allowance for losses of $2,711 for 1998 and $2,106 for 1997......... 67,557 62,387 Inventories...................................... 58,614 58,282 Prepaid expenses and other....................... 2,444 3,917 Deferred income taxes............................ 6,237 5,617 --------------------------- Total current assets.................. 168,173 160,527 --------------------------- Investment in affiliate, at cost.................... 2,422 1,899 Plant assets, at cost less accumulated depreciation..................................... 86,389 82,905 Excess of cost over fair value of assets acquired, less accumulated amortization.................... 21,665 15,777 Pension assets...................................... 15,907 13,897 Other noncurrent assets............................. 11,210 7,514 --------------------------- Total assets..........................$ 305,766 $ 282,519 =========================== LIABILITIES - ------------------------------------------------------------------------------- Current liabilities: Current portion of long-term debt................$ 470 $ 1,140 Accounts payable and accrued liabilities......... 54,525 48,153 Income taxes..................................... 6,188 4,944 --------------------------- Total current liabilities............. 61,183 54,237 --------------------------- Long-term debt, less current portion................ 36,419 37,656 Postretirement health care benefits................. 1,821 1,941 Long-term pension liabilities....................... 8,896 7,556 Deferred income taxes............................... 9,920 9,070 Other long-term liabilities......................... 431 - Minority interests.................................. 289 897 Contingencies SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------- Capital stock: Preferred, par value $1, authorized 1,300,000 shares, none issued................. - - Common, par value $1, authorized 30,000,000 shares, issued 23,949,358 in 1998 and 24,243,603 in 1997............................ 23,949 16,162 Capital in excess of par value.................. 156 2,857 Foreign currency translation adjustments........ (2,993) (2,700) Retained earnings............................... 165,695 154,843 --------------------------- Total shareholders' equity........... 186,807 171,162 --------------------------- Total liabilities and shareholders' equity............... $ 305,766 $ 282,519 ===========================
The accompanying notes are an integral part of the consolidated financial statements. 15 EX-13.(A)(III) 5 CONSOLIDATED STATEMENTS OF EARNINGS 1 CONSOLIDATED STATEMENTS OF EARNINGS EXHIBIT 13(a)(iii) for the years ended November 30, 1998, 1997 and 1996 (Dollars in thousands except per share data) ===============================================================================
1998 1997 1996 - -------------------------------------------------------------------------------- Net sales ........................ $ 426,773 $ 394,264 $ 372,382 Cost of sales .................... 291,537 273,702 263,597 ------------------------------------------- Gross profit............... 135,236 120,562 108,785 Selling and administrative expenses....................... 83,573 73,166 66,189 Merger-related costs.............. - 2,972 - ------------------------------------------- Operating profit........... 51,663 44,424 42,596 ------------------------------------------- Other income (expense): Interest expense............... (2,336) (2,759) (3,822) Interest income................ 1,283 1,020 830 Gain on sale of marketable securities................... - 1,706 1,675 Other, net..................... 737 (199) 126 ------------------------------------------- (316) (232) (1,191) ------------------------------------------- Earnings before income taxes and minority interests .. 51,347 44,192 41,405 Provision for income taxes........ 19,262 17,164 15,315 ------------------------------------------- Earnings before minority interests................ 32,085 27,028 26,090 Minority interests in earnings of subsidiaries................ (6) (110) (145) ------------------------------------------- Net earnings .................... $ 32,079 $ 26,918 $ 25,945 =========================================== Net earnings per common share: Basic.......................... $ 1.32 $ 1.12 $ 1.09 Diluted........................ $ 1.30 $ 1.11 $ 1.07 =========================================== Average number of common shares outstanding: Basic.......................... 24,268,250 24,133,472 23,907,632 Diluted........................ 24,648,623 24,343,881 24,217,453 ===========================================
The accompanying notes are an integral part of the consolidated financial statements. 16 EX-13.(A)(IV) 6 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 1 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY EXHIBIT 13(a)(iv) for the years ended November 30, 1998, 1997 and 1996 (Dollars in thousands except per share data) ===============================================================================
Common Stock ------------------------------------------- Issued In Treasury Foreign --------------------- ------------------- Capital in Currency Unrealized Number Number Excess of Translation Holding Retained of Shares Amount of Shares Amount Par Value Adjustments Gain Earnings - ------------------------------------------------------------------------------------------------------------------------------------ Balance, November 30, 1995....... 23,853,890 $15,903 - $ - $ 1,006 $ (1,803) $ 1,285 $ 121,753 Net earnings..................... - - - - - - - 25,945 Purchase of treasury stock....... - - (32,850) (430) - - - - Retirement of treasury stock..... (32,850) (22) 32,850 430 (408) - - - Stock options exercised.......... 93,238 62 - - 336 - - 24 Issuance of stock under award plans................... 19,398 13 - - 342 - - - Cash dividends - $.4283 per common share.................. - - - - - - - (9,512) Unrealized holding gain on marketable securities......... - - - - - - 653 - Realized gain on sale of marketable securities......... - - - - - 72 (946) - Translation adjustments.......... - - - - - (22) - - - -------------------------------------------------------------------------------------------------------------------------------- Balance, November 30, 1996....... 23,933,676 15,956 - - 1,276 (1,753) 992 138,210 - -------------------------------------------------------------------------------------------------------------------------------- Net earnings..................... - - - - - - - 26,918 Stock options exercised.......... 293,965 196 - - 1,380 - - 5 Issuance of stock under award plans................... 15,962 10 - - 201 - - - Cash dividends - $.4350 per common share.................. - - - - - - - (10,290) Realized gain on sale of marketable securities......... - - - - - 180 (992) - Translation adjustments.......... - - - - - (1,127) - - - -------------------------------------------------------------------------------------------------------------------------------- Balance, November 30, 1997....... 24,243,603 16,162 - - 2,857 (2,700) - 154,843 - -------------------------------------------------------------------------------------------------------------------------------- Net earnings..................... - - - - - - - 32,079 Purchase of treasury stock....... - - (528,691) (8,447) - - - - Retirement of treasury stock..... (528,691) (529) 528,691 8,447 (5,553) - - (2,365) Stock split...................... - 8,145 - - - - - (8,145) Stock options exercised.......... 212,260 154 - - 2,391 - - - Issuance of stock under award plans .................. 22,186 17 - - 461 - - - Cash dividends - $.4425 per common share.................. - - - - - - - (10,717) Translation adjustments.......... - - - - - (293) - - - -------------------------------------------------------------------------------------------------------------------------------- Balance, November 30, 1998....... 23,949,358 $23,949 - $ - $ 156 $ (2,993) $ - $ 165,695 ================================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. 17 EX-13.(A)(V) 7 CONSOLIDATED STATEMENTS OF CASH FLOWS 1 CONSOLIDATED STATEMENTS OF CASH FLOWS EXHIBIT 13(a)(v) for the years ended November 30, 1998, 1997 and 1996 (Dollars in thousands) ================================================================================
1998 1997 1996 - -------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings.............................. $ 32,079 $ 26,918 $ 25,945 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation............................ 11,692 11,001 10,150 Amortization............................ 688 599 554 Gain on sale of marketable securities... - (1,706) (1,675) Minority interests in earnings of subsidiaries.......................... 6 110 145 Net gain on dispositions of plant assets.......................... (1,310) (512) (243) Changes in assets and liabilities, net of business acquisitions: Accounts receivable................... (3,460) (3,224) (1,591) Inventories........................... 1,046 (1,058) (6,486) Prepaid expenses...................... (912) 1,028 211 Other noncurrent assets............... (3,235) 27 (2,203) Accounts payable and accrued liabilities......................... 4,841 7,220 (1,788) Pension assets and liabilities, net... (1,463) (443) 185 Income taxes.......................... 2,065 1,771 1,411 Deferred income taxes................. 230 (99) 2,060 ------------------------------ Net cash provided by operating activities........................ 42,267 41,632 26,675 ------------------------------ Cash flows from investing activities: Additions to plant assets................. (15,825) (11,349) (22,230) Business acquisitions, net of cash acquired........................... (7,984) (1,522) (1,358) Investment in affiliate................... (523) (811) (530) Proceeds from sale of marketable securities.............................. - 3,322 3,067 Proceeds from note receivable............. 2,500 - - Dispositions of plant assets.............. 2,542 2,100 2,419 Other, net................................ - 67 (302) ------------------------------ Net cash used in investing activities........................ (19,290) (8,193) (18,934) ------------------------------ Cash flows from financing activities: Borrowings under long-term debt........... - 1,123 9,870 Reduction of long-term debt............... (2,669) (13,988) (9,147) Sales of capital stock under stock option plan............................. 1,890 1,305 445 Purchases of treasury stock............... (8,447) - (430) Cash dividends paid....................... (10,717) (10,290) (9,512) ------------------------------ Net cash used in financing activities........................ (19,943) (21,850) (8,774) ------------------------------ Net effect of exchange rate changes on cash.. (37) (92) 69 ------------------------------ Net change in cash and short-term cash investments.......................... 2,997 11,497 (964) Cash and short-term cash investments, beginning of year......................... 30,324 18,827 19,791 ------------------------------ Cash and short-term cash investments, end of year............................... $ 33,321 $ 30,324 $ 18,827 ==============================
The accompanying notes are an integral part of the consolidated financial statements. 18 EX-13.(A)(VI) 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS EXHIBIT 13(a)(vi) (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 and credited or charged directly to a separate component 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 The excess of cost over fair value of assets acquired is being amortized over a forty-year period, using the straight-line method subject to impairment write-offs determined by underlying cash flows. Accumulated amortization was $7,809 and $7,192 at November 30, 1998 and 1997, respectively. PENSIONS AND POSTRETIREMENT BENEFITS In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132 (SFAS 132), "Employers' Disclosures about Pensions and Other Postretirement Benefits." Effective for fiscal year 1998, the Company adopted SFAS 132, which requires certain disclosures related to pensions and postretirement benefits. See Note H. 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. The Company has certain non-cash transactions related to stock option and award plans that are described in Note L. CONCENTRATIONS OF CREDIT 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. At November 30, 1998 and 1997, the Company held short-term municipal securities with a total cost of $32,420 and $27,620, respectively, with an original maturity of three months or less. 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. STOCK-BASED COMPENSATION 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." SFAS 123 encourages, but does not require, companies to adopt a fair value based method for determining expense related to stock-based compensation. The disclosures are presented in Note L. The Company continues to account for stock-based compensation using the intrinsic value method as prescribed under Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. REVENUE RECOGNITION Revenue is recognized upon shipment of goods to customers. 19 2 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) =============================================================================== NET EARNINGS PER COMMON SHARE The Company adopted Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share" in the first quarter of fiscal year 1998. SFAS 128 requires presentation of basic earnings per share and diluted earnings per share, simplifies computational guidelines, and increases the comparability of earnings per share on an international basis. Basic earnings per common share is based on the weighted average number of common shares outstanding during the respective years. Diluted earnings per share is based on the weighted average number of common shares outstanding and dilutive common stock equivalents. See Note M. 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. ACCOUNTING PERIOD The Company's fiscal year ends on the Saturday closest to November 30. Each of the fiscal years ended November 28, 1998, November 29, 1997, and November 30, 1996, 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 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 part of Airguard Industries, Inc. (Airguard), a subsidiary of the Company. Also during 1998, the Company purchased the remaining 50% interest in Baldwin Australia and now owns 100% of this company. 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 (on a post-split basis) 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 L for a discussion of the additional shares to be issued.) The transaction has been structured as a statutory merger accounted for as a pooling of interests. As a result of the acquisition, UAS became a subsidiary of the Company. Under the requirements of the pooling of interests accounting treatment, the consolidated financial statements for the periods presented were restated (except for cash dividends declared per share, which represent the historical dividends declared by the Company) to include the results of operations, cash flows, and financial positions of UAS. No intercompany transactions existed between the two companies during the periods presented. 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. During fiscal 1996, Baldwin-Unifil S. A., a partnership in which the Company owned a 70% interest, was established in South Africa. Baldwin-Unifil S. A. acquired certain assets from Unifil (Pty.) Ltd. for $1,298 in cash. In 1998, the Company purchased an additional 10% interest in Baldwin-Unifil S.A. The Company also entered into a joint venture in China in 1996, called Baldwin-Weifang Filters Ltd., and accounts for this investment on a cost basis. C. INVESTMENT IN MARKETABLE SECURITIES In November 1996, the Company sold 50% of its 5% interest in G.U.D. Holdings Limited, an Australian company, recognizing a pretax gain on the sale of $1,675 in fiscal 1996. The Company sold its remaining 2.5% investment in December 1996, recognizing a pretax gain on the sale of $1,706 in fiscal 1997. The investment, with 20 3 =============================================================================== an average cost basis, had been classified as available for sale under the provisions of Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities." The quoted market value of the investment was $3,292 as of November 30, 1996, which included unrealized holding gains, net of deferred income taxes, of $992 as of November 30, 1996. Unrealized holding gains, net of deferred income taxes, were included as a component of shareholders' equity 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 60% and 61% of the Company's inventories at November 30, 1998 and 1997, 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:
1998 1997 --------------------- Raw materials........................... $ 20,657 $ 20,890 Work-in-process......................... 9,231 9,341 Finished products....................... 30,767 30,585 --------------------- Total at FIFO........................... 60,655 60,816 Less excess of FIFO over LIFO........... 2,041 2,534 --------------------- $ 58,614 $ 58,282 =====================
E. PLANT ASSETS Plant assets at November 30, 1998 and 1997 were as follows:
1998 1997 --------------------- Land.................................... $ 2,491 $ 2,566 Buildings and building fixtures......... 53,392 53,442 Machinery and equipment................. 128,467 119,644 Construction-in-process................. 9,322 4,967 --------------------- 193,672 180,619 Less accumulated depreciation........... 107,283 97,714 --------------------- $ 86,389 $ 82,905 =====================
F. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities at November 30, 1998 and 1997 were as follows:
1998 1997 --------------------- Accounts payable........................ $ 26,528 $ 22,168 Accrued salaries, wages and commissions. 8,249 8,773 Compensated absences.................... 3,967 3,742 Accrued pension liabilities............. 263 996 Other accrued liabilities............... 15,518 12,474 --------------------- $ 54,525 $ 48,153 =====================
G. LONG-TERM DEBT Long-term debt at November 30, 1998 and 1997 consists of the following:
1998 1997 --------------------- Promissory note, interest payable semi-annually at 6.69%................ $ 25,000 $ 25,000 Industrial Revenue Bonds, at 2.85% to 4.80% interest rates.................. 10,710 10,958 Other obligations, at 7% to 10% interest rates........................ 1,179 2,838 --------------------- 36,889 38,796 Less current portion.................... 470 1,140 --------------------- $ 36,419 $ 37,656 =====================
A fair value estimate of $34,631 and $36,792 for the long-term debt in 1998 and 1997, respectively, is based on the current interest rates available to the Company for debt with similar remaining maturities. 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 primary covenants include maintaining minimum consolidated net worth at $100,000, limiting new borrowings, and restricting certain changes in ownership as stipulated in the agreement. 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. In conjunction with the issuance of the Industrial Revenue Bonds, the Company holds in trust certain investments restricted and committed for the acquisition of plant equipment. At November 30, 1997, the restricted asset balance of $1,525 was included in other noncurrent assets. All of these remaining restricted funds were used to acquire plant equipment during 1998. The Company has other outstanding Industrial Revenue Bonds of $2,300 and $2,548 as of November 30, 1998 and 1997, 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. Other obligations include a 15-year capital lease for a manufacturing facility acquired in 1991 from the Community Development Authority of the City of Gothenburg, Nebraska, and debt acquired through the merger with UAS and the acquisition of Airguard. 21 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) =============================================================================== The Company has a $25,000 revolving credit facility with a financial institution, against which $10,305 and $9,995 letters of credit have been issued at November 30, 1998 and 1997, respectively. The agreement related to this obligation includes certain restrictive covenants that are similar to the 6.69% promissory note. The agreement expires in 2000. Principal maturities of long-term debt for the next five fiscal years ending November 30 approximates: $470 in 1999, $5,460 in 2000, $5,489 in 2001, $5,517 in 2002, $5,546 in 2003, and $14,407 thereafter. Interest paid totaled $2,293, $2,870, and $3,987 during 1998, 1997, and 1996, respectively. H. PENSION AND OTHER POSTRETIREMENT PLANS The Company has defined benefit pension plans and a postretirement health care plan covering certain employees and retired employees. In addition to the plan assets related to qualified plans, the Company has funded approximately $8,279 and $3,002 at November 30, 1998 and 1997, respectively, in restricted trusts for its nonqualified plans. These trusts are included in other noncurrent assets in the Company's Consolidated Balance Sheets. During 1996, the Company entered into an irrevocable agreement with the Healthcare Financing Administration (HCFA), the Federal agency that oversees Medicare, whereby certain employees and retirees of the Company's locations in Pennsylvania relinquished their rights to receive Medicare and accepted health care insurance from an insurance carrier. This agreement terminated the Company's primary responsibility to provide for the postretirement benefit obligation and eliminated significant risks related to the obligation and plan assets related to those employees and retirees. The Company recognized a pretax gain of $672 related to this curtailment in 1996. The following table shows reconciliations of the pension plans and other postretirement plan benefits as of November 30, 1998 and 1997. The pension benefits include an unfunded benefit obligation of $10,830 and $10,218 as of November 30, 1998 and 1997, respectively. The obligations have been determined with a weighted average discount rate of 6.75% and 7.25% in 1998 and 1997, 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 1998 and 1997.
Pension Postretirement Benefits Benefits -------------------------------------------- 1998 1997 1998 1997 -------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year.......................... $69,036 $62,458 $ 2,431 $ 2,318 Service cost....................... 2,248 2,029 13 7 Interest cost...................... 4,882 4,558 167 162 Amendments......................... - (399) - - Actuarial losses................... 4,065 3,926 15 211 Benefits paid...................... (4,245) (3,536) (284) (267) -------------------------------------------- Benefit obligation at end of year............................. 75,986 69,036 2,342 2,431 -------------------------------------------- Change in plan assets: Fair value of plan assets at beginning of year................ 78,046 66,857 - - Actual return on plan assets....... 5,500 14,630 - - Employer contribution.............. 41 61 - - Benefits paid...................... (3,759) (3,502) - - -------------------------------------------- Fair value of plan assets at end of year .................. 79,828 78,046 - - -------------------------------------------- Funded status...................... 3,842 9,010 (2,342) (2,431) Unrecognized net transition asset ........................... (2,112) (3,168) - - Unrecognized prior service cost............................. 272 335 - - Unrecognized net actuarial (gain)/loss...................... 5,157 (73) 226 210 -------------------------------------------- Net amount recognized.............. $ 7,159 $ 6,104 $ (2,116) $ (2,221) ============================================ Amounts recognized in the Consolidated Balance Sheets include: Prepaid benefit cost..................... $15,907 $13,897 $ - $ - Accrued benefit liability................ (9,159) (8,552) (2,116) (2,221) Intangible asset........... 411 759 - - -------------------------------------------- Net amount recognized.............. $ 7,159 $ 6,104 $(2,116) $ (2,221) ============================================
The components of net periodic benefit cost for the pensions are shown below.
Pension Benefits --------------------------------- 1998 1997 1996 --------------------------------- Components of net periodic benefit cost: Service cost............... $ 2,248 $ 2,029 $ 1,986 Interest cost.............. 4,882 4,558 4,394 Expected return on plan assets............. (6,883) (5,880) (5,503) Additional recognition amount.................. 196 488 - Amortization of unrecognized: Net transition asset.... (1,056) (1,087) (1,088) Prior service cost...... 63 342 419 Net actuarial loss...... 64 13 2 --------------------------------- Net periodic benefit (income)/cost........... $ (486) $ 463 $ 210 =================================
22 5 =============================================================================== The CLARCOR postretirement obligation is 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, likewise, 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.
Postretirement Benefits ----------------------------- 1998 1997 1996 ----------------------------- Components of net periodic benefit cost: Service cost................ $ 13 $ 7 $ 11 Interest cost............... 166 162 236 ----------------------------- Net periodic benefit cost... $ 179 $ 169 $ 247 =============================
The Company also sponsors various defined contribution plans that provide substantially all 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 $1,037, $941, and $786 in 1998, 1997, and 1996, respectively. I. INCOME TAXES The provision for income taxes consists of:
1998 1997 1996 ----------------------------- Current: Federal..................... $16,976 $15,095 $11,596 State....................... 2,784 2,356 1,432 Foreign..................... 585 446 423 Deferred......................... (1,083) (733) 1,864 ----------------------------- $19,262 $17,164 $15,315 =============================
Income taxes paid, net of refunds, totaled $16,199, $15,112, and $11,230 during 1998, 1997, and 1996, respectively. The components of the net deferred tax liability as of November 30, 1998 and 1997 were as follows:
1998 1997 ------------------- Deferred tax assets: Deferred compensation.............. $ 2,296 $ 1,984 Other postretirement benefits...... 741 777 Foreign net operating loss carryforwards.............. 422 626 Accounts receivable................ 833 1,229 Inventories........................ 1,397 985 Other.............................. 1,487 1,295 ------------------- Total gross deferred tax assets......... 7,176 6,896 ------------------- Deferred tax liabilities: Pensions........................... (2,506) (2,151) Plant assets....................... (7,981) (7,766) Other.............................. (372) (432) ------------------- Total gross deferred tax liabilities.... (10,859) (10,349) ------------------- Net deferred tax liability.............. $ (3,683) $ (3,453) ===================
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:
1998 1997 1996 ----------------------------- Domestic income.................. $49,762 $42,874 $40,224 Foreign income................... 1,585 1,318 1,181 ----------------------------- Total....................... $51,347 $44,192 $41,405 =============================
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:
Percent of Pretax Earnings ----------------------------- 1998 1997 1996 ----------------------------- Statutory U.S. tax rates......... 35.0% 35.0% 35.0% State income taxes, net of federal benefit................ 3.4 3.2 2.6 Merger-related costs............. - 0.8 - Other, net....................... (0.9) (0.2) (0.6) ----------------------------- Consolidated effective income tax rate....................... 37.5% 38.8% 37.0% =============================
J. CONTINGENCIES The Company is involved in legal actions arising in the normal course of business. Additionally, the Company is party to various proceedings relating to environmental issues. The U.S. Environmental Protection Agency (EPA) and/or other responsible state agencies have designated the Company as a potentially responsible party (PRP), along with other companies, in remedial activities for the cleanup of waste sites under the federal Superfund statute. 23 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) =============================================================================== 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 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. K. 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. L. 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, including the 1984 Stock Option Plan, the 1987 Long Range Performance Share Plan, and the 1990 Directors' Restricted Stock Compensation Plan. In addition, the Company has, in connection with the acquisition of UAS, assumed the stock option plans of UAS. The Company has reserved 191,385 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 1998, 274,831 shares were granted. The following is a description and a summary of key provisions related to this plan. STOCK OPTIONS Nonqualified stock options may, at the discretion of the Board of Directors, be granted at the fair market value at the date of grant or at an exercise price less than the fair market value at the date of grant. All options granted in 1998, 1997, and 1996 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. The following table summarizes the activity under the nonqualified stock option plans. 24 7 ================================================================================
1998 1997 1996 ------------------- --------------------- -------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------------------- --------------------- -------------------- Outstanding at beginning of year.... 1,895,086 $12.15 2,002,200 $11.44 1,879,359 $10.77 Granted................ 518,239 19.86 290,625 14.63 312,750 13.92 Exercised/ surrendered.......... (297,143) 11.10 (397,739) 10.39 (189,909) 8.98 ------------------- --------------------- -------------------- Outstanding at end of year.............. 2,116,182 $14.18 1,895,086 $12.15 2,002,200 $11.44 =================== ===================== ==================== Options exercisable at end of year....... 1,110,433 $12.12 1,106,931 $11.13 1,116,263 $10.23 =================== ===================== ====================
The following table summarizes information about the options at November 30, 1998:
Options Outstanding Options Exercisable ----------------------------------- ------------------- Weighted Weighted Weighted Range of Average Average Average Exercise Exercise Remaining Exercise Prices Number Price Life in Years Number Price - --------------- ----------------------------------- ------------------- $8.37 - $12.33 785,318 $10.96 3.56 766,568 $10.92 $12.58 - $17.00 822,000 $13.75 7.00 288,001 $13.45 $19.58 - $22.67 508,864 $19.87 8.50 55,864 $21.59
In addition, stock options outstanding and exercisable at November 30, 1998 and 1997 assumed as part of the UAS acquisition were 41,511 and 64,071, respectively. These substitute options have an exercisable price range per share of $2.40 to $7.56 at November 30, 1998 and expire between 2002 and 2005. No grants were made under these plans in 1996, 1997, or 1998 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 15,063 and 18,015 performance shares on December 1, 1997 and 1996, respectively. As of November 30, 1998, none of these shares 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 for the performance opportunity ratably during the performance cycle. Compensation expense for the plan totaled $435, $547, and $522 in 1998, 1997, and 1996, respectively. Distribution of Company common stock and cash for the performance periods ended November 30, 1998, 1997, and 1996 were $537, $341, and $291, 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 $149, $121, and $165 in 1998, 1997, and 1996, respectively. During 1998, 7,122 shares of Company common stock were issued under the plan. 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 $31,520, $26,702, and $25,782 and $1.28, $1.10, and $1.06 for 1998, 1997, and 1996, 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 1998, 1997, and 1996. Adjustments for forfeitures are made as they occur.
1998 1997 1996 ----------------------------- Risk-free interest rate........... 5.90% 5.98% 5.61% Expected dividend yield........... 2.60% 3.05% 3.04% Expected volatility factor........ 25.80% 26.10% 27.90% 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 1998, 1997, and 1996 was $5.63, $4.05, and $3.92, 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 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) =============================================================================== M. STOCK SPLIT, EARNINGS PER SHARE AND TREASURY STOCK TRANSACTIONS 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 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.
1998 1997 1996 --------------------------------------- Net Earnings (numerator)............. $ 32,079 $ 26,918 $ 25,945 Basic EPS: Weighted average number of common shares outstanding (denominator)................ 24,268,250 24,133,472 23,907,632 Basic per share amount..... $ 1.32 $ 1.12 $ 1.09 ======================================= Diluted EPS: Weighted average number of common shares outstanding.... 24,268,250 24,133,472 23,907,632 Dilutive effect of stock options................ 380,373 210,409 309,821 --------------------------------------- Diluted weighted average number of common shares outstanding (denominator)............ 24,648,623 24,343,881 24,217,453 Diluted per share amount... $ 1.30 $ 1.11 $ 1.07 =======================================
For the fiscal year ended November 30, 1998, 508,864 options with a weighted average exercise price of $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 1998, the Company purchased and retired 528,691 shares of common stock. The number of issued shares was reduced as a result of the retirement of these shares. N. UNAUDITED QUARTERLY FINANCIAL DATA The unaudited quarterly data for 1998 and 1997 are as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter Total - ------------------------------------------------------------------------------- 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 1997: Net sales............. $86,958 $ 96,684 $104,636 $105,986 $394,264 Gross profit.......... 24,508 29,866 32,111 34,077 120,562 Net earnings.......... 3,017 7,048 8,085 8,768 26,918 Net earnings per common share: Basic............ $ 0.13 $ 0.29 $ 0.33 $ 0.37 $ 1.12 Diluted.......... $ 0.12 $ 0.29 $ 0.33 $ 0.36 $ 1.11
In the first quarter of 1997, the Company incurred merger-related costs of $2,972 ($2,390 after-tax or $0.10 per share) as discussed in Note B and realized a gain from the sale of securities of $1,706 ($1,092 after-tax or $0.05 per share). The realized gain is discussed in Note C. O. SEGMENT INFORMATION The Company operates in three principal product segments: Engine/Mobile Filtration, Industrial/ Environmental Filtration and Packaging (formerly referred to as Consumer Packaging). Engine/Mobile Filtration manufactures and markets a complete line of filters used in the filtration of lubrication oils, air, fuel, coolant, hydraulic and transmission fluids in both the domestic and international markets, including Europe, Australia, Canada, Mexico, South Africa, Latin America and Asia. Industrial/Environmental Filtration manufactures and markets a complete line of filters and systems used in air filtration in commercial and industrial buildings, residences, and clean rooms in both the domestic and international markets, including Europe, Australia, Canada, Mexico, South Africa, Latin America and Asia. Packaging manufactures and markets plastic closures and custom-designed lithographed metal and metal/plastic containers in both domestic and international markets, including Canada and Germany. 26 9 =============================================================================== Net sales represent sales to unaffiliated customers, as reported in the Consolidated Statements of Earnings. Intersegment sales were not material. Assets are those assets used in each business segment. Corporate assets consist of cash and short-term cash investments, deferred income taxes, world headquarters facility, pension assets and various other assets that are not specific to an industry segment. The segment data for the years ended November 30, 1998, 1997, and 1996 are as follows:
.......................................... 1998 1997 1996 ----------------------------- Net sales: Engine/Mobile Filtration.................. $223,761 $207,640 $195,223 Industrial/Environmental Filtration....... 135,828 111,491 103,388 Packaging................................. 67,184 75,133 73,771 ----------------------------- $426,773 $394,264 $372,382 ============================= Operating profit: Engine/Mobile Filtration.................. $ 38,983 $ 34,536 $ 31,169 Industrial/Environmental Filtration....... 6,966 4,188 4,046 Packaging................................. 5,714 8,672 7,381 ----------------------------- 51,663 47,396 42,596 Merger-Related Costs...................... - (2,972) - ----------------------------- $ 51,663 $ 44,424 $ 42,596 ============================= Assets: Engine/Mobile Filtration.................. $128,618 $121,804 $120,584 Industrial/Environmental Filtration....... 72,289 60,706 56,272 Packaging................................. 30,500 36,824 41,334 Corporate................................. 74,359 63,185 48,829 ----------------------------- $305,766 $282,519 $267,019 ============================= Additions to plant assets: Engine/Mobile Filtration.................. $ 10,479 $ 7,382 $ 11,386 Industrial/Environmental Filtration....... 3,743 2,570 1,829 Packaging................................. 1,258 1,127 4,275 Corporate................................. 345 270 4,740 ----------------------------- $ 15,825 $ 11,349 $ 22,230 ============================= Depreciation: Engine/Mobile Filtration.................. $ 5,889 $ 5,262 $ 4,533 Industrial/Environmental Filtration....... 2,546 2,249 2,310 Packaging................................. 2,749 2,994 2,946 Corporate................................. 508 496 361 ----------------------------- $ 11,692 $ 11,001 $ 10,150 =============================
No class of products accounted for as much as 10% of the total sales of the Company. Financial data relating to the geographic areas in which the Company operates are shown for the years ended November 30, 1998, 1997, and 1996. Net sales by geographic area are based on sales to final customers within that segment.
1998 1997 1996 ----------------------------- Net Sales: Sales within the United States........ $355,522 $325,361 $310,611 Export Sales to Other Countries....... 43,785 43,266 37,171 Sales within Other Countries.......... 27,466 25,637 24,600 ----------------------------- $426,773 $394,264 $372,382 ============================= Operating Profit: On Sales within the United States..... $ 42,983 $ 37,730 $ 35,530 On Export Sales to Other Countries.... 6,800 8,043 5,649 On Sales within Other Countries....... 1,880 1,623 1,417 ----------------------------- 51,663 47,396 42,596 Merger-Related Costs.................. - (2,972) - ----------------------------- $ 51,663 $ 44,424 $ 42,596 ============================= Identifiable Assets: United States......................... $283,673 $262,739 $249,505 Other Countries....................... 22,093 19,780 17,514 ----------------------------- $305,766 $282,519 $267,019 =============================
27 EX-13.(A)(VII) 9 REPORT OF INDEPENDENT ACCOUNTANTS 1 REPORT OF INDEPENDENT ACCOUNTANTS EXHIBIT 13(a)(vii) =============================================================================== 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, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended November 30, 1998, 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 8, 1999 EX-13.(A)(VIII) 10 MANAGEMENT'S REPORT ON RESPONSIBILITY 1 MANAGEMENT'S REPORT EXHIBIT 13(a)(viii) 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. /s/ Lawrence E. Gloyd /s/ Bruce A. Klein /s/ Marcia S. Blaylock 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 January 8, 1999 28 EX-13.(A)(IX) 11 INFO UNDER THE CAPTION "11-YEAR FINANCIAL REVIEW" 1 11-YEAR FINANCIAL REVIEW EXHIBIT 13(a)(ix) (Restated to reflect a 3-for-2 stock split effective April 24, 1998) ===============================================================================
1998 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE Equity ......................................... $ 7.80 $ 7.06 $ 6.46 $ 5.79 $ 5.18 $ 4.63 Diluted Earnings from Continuing Operations .... 1.30 1.11 1.07 0.97 0.87 0.72 Diluted Net Earnings ........................... 1.30 1.11 1.07 0.97 0.89 0.72 Dividends ...................................... 0.4425 0.4350 0.4283 0.4217 0.4150 0.4067 Price: High .................................... 24.63 20.79 16.75 18.00 14.92 13.33 Low...................................... 14.25 13.33 12.42 12.08 10.58 10.67 - ------------------------------------------------------------------------------------------------------------------------------------ EARNINGS DATA ($000) Net Sales ...................................... $ 426,773 $ 394,264 $ 372,382 $ 330,110 $ 300,450 $ 253,211 Operating Profit ............................... 51,663 44,424 42,596 38,728 33,188 29,960 Interest Expense ............................... 2,336 2,759 3,822 3,418 3,298 3,979 Pretax Income .................................. 51,347 44,192 41,405 36,631 31,886 27,221 Income Taxes ................................... 19,262 17,164 15,315 13,060 12,057 9,944 Income from Continuing Operations .............. 32,079 26,918 25,945 23,500 20,786 17,277 Income from Discontinued Operations ............ -- -- -- -- -- -- Cumulative Effect of Accounting Changes ........ -- -- -- -- 630 -- Net Earnings ................................... 32,079 26,918 25,945 23,500 21,416 17,277 Basic Average Shares Outstanding ............... 24,268 24,133 23,908 23,850 23,804 23,831 Diluted Average Shares Outstanding ............. 24,649 24,344 24,217 24,205 24,030 24,076 - ------------------------------------------------------------------------------------------------------------------------------------ EARNINGS ANALYSIS Operating Margin ............................... 12.1% 11.3% 11.4% 11.7% 11.0% 11.8% Pretax Margin .................................. 12.0% 11.2% 11.1% 11.1% 10.6% 10.8% Effective Tax Rate ............................. 37.5% 38.8% 37.0% 35.7% 37.8% 36.5% Net Margin-Continuing Operations ............... 7.5% 6.8% 7.0% 7.1% 6.9% 6.8% Net Margin ..................................... 7.5% 6.8% 7.0% 7.1% 7.1% 6.8% Return on Beginning Assets ..................... 11.4% 10.1% 10.6% 11.4% 11.2% 9.5% Return on Beginning Shareholders' Equity ....... 18.7% 17.4% 18.8% 19.1% 19.4% 16.4% Dividend Payout to Net Earnings ................ 33.4% 38.2% 36.7% 39.7% 43.0% 52.3% - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE SHEET DATA ($000) Current Assets ................................. $ 168,173 $ 160,527 $ 140,726 $ 133,286 $ 109,992 $ 97,569 Plant Assets, Net .............................. 86,389 82,905 84,525 73,047 58,787 53,839 Total Assets ................................... 305,766 282,519 267,019 245,697 206,928 191,657 Current Liabilities ............................ 61,183 54,237 51,297 49,841 43,926 37,647 Long-Term Debt ................................. 36,419 37,656 43,449 41,860 25,090 32,650 Shareholders' Equity ........................... 186,807 171,162 154,681 138,144 122,801 110,299 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE SHEET ANALYSIS ($000) Debt to Capitalization ......................... 16.3% 18.0% 21.9% 23.3% 17.0% 22.8% Working Capital ................................ $ 106,990 $ 106,290 $ 89,429 $ 83,445 $ 66,066 $ 59,922 Current Ratio .................................. 2.7 3.0 2.7 2.7 2.5 2.6 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOW DATA ($000) From Operations ................................ 42,267 $ 41,632 $ 26,675 $ 21,092 $ 25,670 $ 20,727 For Investment ................................. (19,290) (8,193) (18,934) (29,044) (1,159) (74) From/(For) Financing ........................... (19,943) (21,850) (8,774) 7,226 (18,656) (22,772) Change in Cash & Equivalents ................... 2,997 11,497 (964) (684) 5,912 (2,197) Capital Expenditures ........................... 15,825 11,349 22,230 14,471 12,119 10,776 Depreciation ................................... 11,692 11,001 10,150 8,594 7,600 6,653 Dividends Paid ................................. 10,717 10,290 9,512 9,330 9,201 9,036 Net Interest (Income)/Expense .................. 1,053 1,739 2,991 2,560 2,750 3,104 Income Taxes Paid .............................. 16,199 15,112 11,230 11,939 10,194 10,059 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOW ANALYSIS ($000) Operating Cash Flow (1) ........................ $ 59,519 $ 58,483 $ 40,896 $ 35,591 $ 38,614 $ 33,890 Net Cash Flow (2) .............................. 43,694 47,134 18,666 21,120 26,495 23,114 Elective Cash Flow (3) ......................... 15,725 19,993 (5,067) (2,709) 4,350 915 EBITDA (4) ..................................... 64,774 57,421 54,955 48,265 43,759 37,552 - ------------------------------------------------------------------------------------------------------------------------------------ 1992 1991 1990 1989 1988 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE Equity ......................................... $ 4.39 $ 4.26 $ 3.73 $ 3.26 $ 4.57 Diluted Earnings from Continuing Operations .... 0.66 0.78 0.80 0.46 0.65 Diluted Net Earnings ........................... 0.56 0.79 0.85 0.30 0.74 Dividends ...................................... 0.4000 0.3667 0.3467 0.3200 0.3020 Price: High .................................... 15.00 15.11 11.89 12.61 9.73 Low .................................. 10.00 8.67 7.89 7.83 6.50 - ------------------------------------------------------------------------------------------------------------------------------------ EARNINGS DATA ($000) Net Sales ...................................... $ 218,172 $ 213,999 $ 197,917 $ 181,837 $ 171,354 Operating Profit ............................... 27,810 32,204 31,407 23,969 28,408 Interest Expense ............................... 4,438 4,402 4,189 1,710 415 Pretax Income .................................. 24,930 28,778 30,325 23,572 29,809 Income Taxes ................................... 8,941 10,095 11,008 11,008 10,951 Income from Continuing Operations .............. 15,989 18,683 19,317 12,564 18,858 Income from Discontinued Operations ............ -- 297 1,200 (4,493) 2,412 Cumulative Effect of Accounting Changes ........ (2,370) -- -- -- 115 Net Earnings ................................... 13,619 18,980 20,475 8,071 21,385 Basic Average Shares Outstanding ............... 24,030 23,915 23,931 27,288 28,729 Diluted Average Shares Outstanding ............. 24,346 23,988 24,145 27,330 28,872 - ------------------------------------------------------------------------------------------------------------------------------------ EARNINGS ANALYSIS Operating Margin ............................... 12.7% 15.0% 15.9% 13.2% 16.6% Pretax Margin .................................. 11.4% 13.4% 15.3% 13.0% 17.4% Effective Tax Rate ............................. 35.9% 35.1% 36.3% 46.7% 36.7% Net Margin-Continuing Operations ............... 7.3% 8.7% 9.8% 6.9% 11.0% Net Margin ..................................... 6.2% 8.9% 10.3% 4.4% 12.5% Return on Beginning Assets ..................... 7.6% 11.6% 14.0% 5.1% 14.6% Return on Beginning Shareholders' Equity ....... 13.4% 21.3% 26.0% 6.2% 17.7% Dividend Payout to Net Earnings ................ 65.8% 43.0% 37.6% 102.7% 38.0% - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE SHEET DATA ($000) Current Assets ................................. $ 105,067 $ 87,322 $ 83,988 $ 68,860 $ 79,215 Plant Assets, Net .............................. 42,324 52,324 47,498 48,231 46,026 Total Assets ................................... 181,660 179,337 164,294 145,982 157,193 Current Liabilities ............................ 30,559 25,977 25,783 26,415 17,859 Long-Term Debt ................................. 38,534 45,406 44,363 36,253 4,992 Shareholders' Equity ........................... 105,460 102,000 89,076 78,860 130,646 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE SHEET ANALYSIS ($000) Debt to Capitalization ......................... 26.8% 30.8% 33.2% 31.5% 3.7% Working Capital ................................ $ 74,508 $ 61,345 $ 58,205 $ 42,445 $ 61,356 Current Ratio .................................. 3.4 3.4 3.3 2.6 4.4 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOW DATA ($000) From Operations ................................ $ 23,456 $ 19,012 $ 25,109 $ 18,547 $ 19,463 For Investment ................................. (7,737) (15,848) (9,689) (8,918) (2,605) From/(For) Financing ........................... (9,929) (8,059) (5,577) (24,279) (10,492) Change in Cash & Equivalents ................... 5,811 (4,895) 9,843 (14,650) 6,366 Capital Expenditures ........................... 8,290 10,804 9,685 9,037 7,566 Depreciation ................................... 7,881 7,248 7,094 6,883 6,863 Dividends Paid ................................. 8,958 8,165 7,708 8,290 8,121 Net Interest (Income)/Expense .................. 4,140 3,280 3,657 436 (682) Income Taxes Paid .............................. 11,200 9,693 10,811 11,643 13,434 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOW ANALYSIS ($000) Operating Cash Flow (1) ........................ $ 38,796 $ 31,985 $ 39,577 $ 30,626 $ 32,215 Net Cash Flow (2) .............................. 30,506 21,181 29,892 21,589 24,649 Elective Cash Flow (3) ......................... 6,208 43 7,716 1,220 3,776 EBITDA (4) ..................................... 37,457 39,780 41,547 31,687 36,748 - ------------------------------------------------------------------------------------------------------------------------------------
(1) From operations before interest income/expense and taxes paid. (2) Operating Cash Flow less capital expenditures. (3) Net Cash Flow less dividends +(-) interest income/expense and less taxes paid. (4) Earnings before interest income/expense, taxes, depreciation and amortization. 30 EX-13.(A)(X) 12 MANAGEMENT'S DISCUSSION & ANALYSIS 1 FINANCIAL REVIEW (Dollars in millions except per share data) EXHIBIT 13(a)(x) =============================================================================== Record operating results were achieved by CLARCOR in 1998 and the year-end financial condition reflected a continued strong balance sheet and cash flow. All per share amounts have been restated to reflect a three-for-two stock split of the Company's common shares in the form of a 50% stock dividend effective April 24, 1998. The information presented in this financial review should be read in conjunction with other financial information provided throughout this 1998 Annual Report. OPERATING RESULTS SALES Net sales in 1998 of $426.8 million were 8.2% greater than net sales of $394.3 million in 1997. This was the 12th consecutive year of sales growth for the Company and reflected strong sales from both filtration segments, but lower sales from the Packaging segment. Domestic sales of $355.5 million increased 9.3% over the 1997 level of $325.4 million. Total international sales of $71.3 million, or 16.7% of total sales, increased from $68.9 million in 1997. The growth in international sales was 3.4% over the 1997 level as worldwide economic uncertainty and currency changes reduced the Company's anticipated growth in international sales in 1998. Total net sales in 1997 grew 5.9% over the 1996 level of $372.4 million. Each business segment recorded higher sales in 1997 than in 1996 and international sales grew at a rate of 11.5% in 1997 over the 1996 level. Comparative net sales information related to CLARCOR's operating segments is shown in the tables below.
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% =================================== 1997 vs. 1996 Change --------------- NET SALES 1997 % Total $ % - ------------------------------------------------------------------------------- Engine/Mobile Filtration................ $207.7 52.7% $12.5 6.4% Industrial/Environmental Filtration..... 111.5 28.3% 8.1 7.8% Packaging............................... 75.1 19.0% 1.3 1.8% ----------------------------------- Total................................ $394.3 100.0% $21.9 5.9% ===================================
The Engine/Mobile Filtration segment's sales increased 7.8% in 1998 over 1997 on the strength of aftermarket sales of heavy-duty and light-duty filters in both domestic and international markets. Increased sales in 1998 resulted from new product introductions, additional OEM sales, and penetration into new distribution channels, primarily sales to quick lube and truck service centers, fleets and automotive parts buying groups. Although unit volume increased in 1998, price increases were mostly offset by competitive discounts. The segment's 1997 sales increase of 6.4% over 1996 resulted from increased heavy-duty filter sales which more than offset lower light-duty filter sales in 1997. The Company's Industrial/Environmental Filtration segment recorded a 21.8% sales increase over the 1997 level. This increase came from increased demand for air quality products and from acquisitions made in 1998. The Company acquired Air Technologies, Inc. (ATI) in February 1998 and a small distributor in August. Excluding the 1998 acquisitions, net sales increased approximately 14% over fiscal 1997 sales. Sales increased 7.8% for this segment in 1997 over the 1996 level. Several small distributors were also acquired during fiscal 1997. The Industrial/Environmental Filtration segment continues to grow at a faster rate than the Company's other segments as a result of new product development, additional distribution, increased customer demand for indoor air filtration products, and acquisitions. The Packaging segment, formerly referred to as Consumer Packaging, recorded sales of $67.2 million in 1998, a reduction of $7.9 million from 1997. This reduction is due principally 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. The Packaging segment's sales increased 1.8% in 1997 over 1996 primarily as a result of higher sales of plastic closures and containers. OPERATING PROFIT On the strength of the 8.2% increase in sales, the Company's operating profit increased 16.3% in 1998 to $51.7 million, or 9.0% excluding the impact of $3.0 million in merger-related costs recorded in 1997. Operating profit grew for the sixth consecutive year and resulted in an operating margin of 12.1%. Gross margin improved to 31.7% from 30.6% in 1997 as a result of continued cost reductions and improved manufacturing productivity. Raw material price increases in 1998 were modest in all significant categories. Gross margins in 1997 increased to 30.6% from 29.2% in 1996 due to increased sales, material cost containment, and higher productivity levels. Selling and administrative expenses increased to $83.6 million in 1998, from $73.2 million in 1997, as a result of higher sales activities, new product development programs and a $2.1 million charge related to an uncollectible customer 10 2 =============================================================================== account. Operating profit was reduced by unfavorable currency translation adjustments in each year although the amounts were not material to consolidated operating profit. Comparative operating profit information related to the Company's business segments is as follows.
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% =================================== 1997* vs. 1996 Change --------------- OPERATING PROFIT 1997 % Total $ % - ------------------------------------------------------------------------------- Engine/Mobile Filtration................ $ 34.5 72.9% $ 3.3 10.8% Industrial/Environmental Filtration..... 4.2 8.8% 0.2 3.5% Packaging............................... 8.7 18.3% 1.3 17.5% ----------------------------------- Total................................ $ 47.4 100.0% $ 4.8 11.3% =================================== OPERATING PROFIT AS A PERCENT OF NET SALES 1998 1997* 1996 - ------------------------------------------------------------------------------- Engine/Mobile Filtration................ 17.4% 16.6% 16.0% Industrial/Environmental Filtration..... 5.1% 3.8% 3.9% Packaging............................... 8.5% 11.5% 10.0% ----------------------- Total................................ 12.1% 12.0% 11.4% ======================= *Excluding merger-related costs in 1997.
Operating profit for the Engine/Mobile Filtration segment improved to $39.0 million or 17.4% of sales in 1998. The segment's 1998 operating profit increase of 12.9% over the 1997 level resulted primarily from higher sales volumes, cost reductions and productivity improvements that more than offset competitive pricing discounts. In addition, the integration of the Hastings Filters light-duty filter line with Baldwin Filters continued in 1998 and favorably impacted the segment's profit. In 1997 the segment recorded a 10.8% increase in operating profit over 1996, which came from higher sales, material cost containment, manufacturing cost reductions, and improvements to manufacturing, distribution and administration of the light-duty filter line. The Industrial/Environmental Filtration segment's operating profit of $7.0 million increased 66.3% over the 1997 level. The increase resulted from improved productivity and cost reductions and from increased sales volume and capacity utilization. The 1998 acquisitions also favorably impacted operating profit. Operating profit in 1997 increased 3.5% over 1996. The segment's profit in 1997 was affected by costs related to investment in additional distribution, marketing, product development and manufacturing processes that are expected to benefit future years. Operating profit as a percent of sales increased to 5.1% in 1998 from 3.8% in 1997 and 3.9% in 1996. The Packaging segment's operating profit in 1998 was impacted by the $2.1 million charge for the write-off of a customer account and the sale of the Tube Division in 1997. As a result, operating profit of $5.7 million in 1998 was $3.0 million lower than the 1997 level. Lower promotional sales in 1998 also reduced operating profit. In 1997 operating profit increased 17.5% over the 1996 level as a result of significantly higher sales of plastics products and continued productivity improvements for the metals business. OTHER INCOME & EXPENSE Other expense totaled $0.3 million in 1998, $0.2 million in 1997 and $1.2 million in 1996. Interest expense, which totaled $2.3 million in 1998, was lower in both 1998 and 1997 as a result of a lower level of debt during each year. Interest income increased to $1.3 million in 1998 as a result of higher average cash and short-term cash investment balances during fiscal 1998 which was offset by somewhat lower interest rates. Other expense included gains on the dispositions of plant assets of $1.3 million in 1998, $0.5 million in 1997 and $0.2 million in 1996. The 1998 gains included approximately $1.3 million from the sale of a building. In both 1997 and 1996, gains of $1.7 million were recorded from the sale of securities in a former Australian joint venture partner. PROVISION FOR INCOME TAXES The provision for income taxes in 1998 of $19.3 million resulted in an effective tax rate of 37.5%. This effective rate compares to 38.8% in 1997, which was higher than the 1998 rate due to merger costs recorded in 1997 that were not fully deductible for tax purposes. The effective rate in 1996 was 37.0%. NET EARNINGS AND EARNINGS PER SHARE Net earnings of $32.1 million in 1998 set a new record for the Company and resulted in diluted earnings per share of $1.30 compared to $1.11 diluted earnings per share in 1997. Diluted average shares outstanding for fiscal 1998 were 24,648,623 compared to 24,343,881 for 1997, an increase of 1.3%. Net earnings in 1997 of $26.9 million increased from the 1996 level of $25.9 million, or $1.07 diluted earnings per share based on 24,217,453 11 3 FINANCIAL REVIEW (Dollars in millions except per share data) =============================================================================== diluted average shares outstanding. All share amounts reflect the April 1998 three-for-two stock split. EURO INTRODUCTION The Company does not expect the introduction of the Euro resulting from the European Monetary Union to have significant impact on the competitive position or operations of the Company. 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 mostly at fixed interest rates and denominated in U.S. dollars. 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. Market risk is estimated as the potential increase in fair value of the Company's long-term debt obligations resulting from a hypothetical one-percent decrease in interest rates and amounts to approximately $2.1 million over the term of the debt. 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 does not currently hold derivatives for managing these risks or for trading purposes. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components (revenue, expenses, gains, and losses) in a full set of general-purpose financial statements. The Company will adopt SFAS 130 in its fiscal year 1999. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosure about Segments of an Enterprise and Related Information," which changes the way public companies report information about operating segments. SFAS 131, which is based on the management approach to segment reporting, establishes the requirement to report selected segment information quarterly and to report entity-wide disclosures about products and services, major customers, and the material countries in which the entity holds assets and reports revenue. The Company will adopt SFAS 131 in its fiscal year 1999. Management does not expect the adoption of SFAS 131 to significantly change the way it currently reports the Company's segment information. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." 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 value currently in earnings unless it meets specific hedge accounting criteria. The Company will adopt SFAS 133 in fiscal year 2000. Management does not expect the adoption of SFAS 133 to have a material impact on the Company's consolidated financial statements. YEAR 2000 For several years the Company has been reviewing Year 2000 issues related to the impact on its computer systems and operating facilities. Management has assigned internal project teams to review all computer-operated machinery and related software to assure that key financial, information and operating systems have been assessed. Key suppliers and outside parties that may also have Year 2000 issues which could impact the Company have been contacted and have been asked to verify their Year 2000 readiness. The Company is testing interaction with such outside party systems where appropriate. In addition, the Company has assessed products sold by the Company and believes there is no material exposure to contingencies related to the Year 2000 issue; however, additional testing of date-sensitive components will continue throughout 1999. Management believes that all key areas which may be impacted by the Year 2000 date have been assessed and remediation plans have been developed. No significant issues have been identified and the Company has not incurred any material costs related to the assessment of its Year 2000 issues. Remediation plans have been developed to address systems modifications and some of these modifications have already been implemented and tested. The end of the second quarter of 1999 has been set by the Company as a target date for assuring that all information processing and operating systems have been fully tested and remediation plans implemented. Where outside suppliers are not able to verify their readiness by that date, backup suppliers will be identified to the extent possible. The Company is developing contingency plans that will address the Company's exposure to any material 12 4 =============================================================================== failure as a result of noncompliance by third parties; however, with respect to certain vendors, particularly utility vendors, alternative suppliers may not be readily available. Management believes that the Company is devoting the necessary resources to identify and resolve significant Year 2000 issues and to minimize the risk of noncompliance in a timely manner. Based on the assessment and remediation plans implemented at this time, the total cost of addressing compliance is less than $1.5 million, most of which has already been spent. The remaining costs are not expected to have a material adverse impact on the Company's financial position, results of operations or cash flows in the future. However, the Year 2000 problem is pervasive and complex as virtually every computer operation may be affected in some way. Consequently, no assurance can be given that Year 2000 compliance can be achieved without costs that might have a material adverse effect upon the Company's business, financial condition, results of operation, and business prospects. 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 increased to $33.3 million at year-end 1998 from $30.3 million at year-end 1997. Cash provided by operating activities totaled $42.3 million in 1998 compared to $41.6 million in 1997. Increased cash flow from net earnings, depreciation and amortization in 1998 was used for investment in assets, net of liabilities. The 1997 level of cash provided by operating activities was significantly higher than the 1996 level of $26.7 million and included a lower level of investment in working capital. The Company's emphasis on measuring CLARCOR Value Added (CVA), an economic value added system, has resulted in continued improvements in asset management. Net cash used in investing activities of $19.3 million increased from the 1997 level of $8.2 million. Additions to plant assets increased to $15.8 million as a result of increased plant capacity and the expansion to a manufacturing and distribution facility in Kearney, Nebraska. Cash of $8.0 million was invested in the acquisition of ATI in February and a small distributor in August. Plant asset additions were $11.3 million in 1997 and $22.2 million in 1996. The higher level of plant asset additions in 1996 resulted from an expansion to a filter facility in Yankton, South Dakota and related new equipment, an expansion to the plastics packaging facility in Rockford, Illinois, and additional capital expenditures at Corporate. 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 and 1996, $3.3 million and $3.1 million, respectively, were received from the sale of securities in a former Australian joint venture partner. Net cash used in financing activities totaled $19.9 million in 1998 and included repurchases of Company common stock, dividend payments and payments on long-term debt. During 1998 the Company purchased 528,691 shares of common stock for $8.4 million under the Board of Directors' approved plan to repurchase up to 1,500,000 shares of CLARCOR common stock. Dividend payments totaled $10.7 million, $10.3 million and $9.5 million in 1998, 1997 and 1996, respectively. Payments on long-term debt of $2.7 million in 1998 compared to higher amounts in 1997 and 1996 of $14.0 million and $9.1 million, respectively. The borrowings under long-term debt in 1996 of $9.9 million were primarily related to industrial revenue bonds for the building expansion in Yankton, South Dakota. In 1998 CLARCOR continued to generate sufficient cash 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. Sufficient lines of credit remain available to fund the Company's current operations and planned future growth. Total capital expenditures in 1999, including the completion of the expansion to the manufacturing and distribution facility in Kearney, Nebraska, will be approximately $25.0 million. Principal payments on long-term debt will be lower than in 1998 based on scheduled payments in current debt agreements. CAPITAL RESOURCES The Company's financial position at November 30, 1998 continued to be sufficiently liquid to support current operations. Total assets of $305.8 million at November 30, 1998 increased 8.2% from the prior year-end level of $282.5 million. Total current assets increased to $168.2 million from $160.5 million at year-end 1997 and total current liabilities increased to $61.2 million from $54.2 million at year-end 1997. The increases in current assets and current liabilities relate primarily to the higher level of business activity at year-end 1998 compared to year-end 1997. The current ratio was 2.7 at year-end 1998 compared to 3.0 at year-end 1997. 13 5 FINANCIAL REVIEW (Dollars in millions except per share data) =============================================================================== Long-term debt of $36.4 million at year-end 1998 compares to $37.7 million at year-end 1997 and reflects payments made during 1998. Shareholders' equity increased to $186.8 million from $171.2 million at year-end 1997. The increase in shareholders' equity resulted primarily from net earnings of $32.1 million offset by dividend payments of $10.7 million, or $0.4425 per share, and common stock repurchases of $8.4 million. Long-term debt was 16.3% of total capitalization at year-end 1998 compared to 18.0% at year-end 1997. At November 30, 1998, CLARCOR had 23,949,358 shares of common stock outstanding at $1.00 par value, compared to 24,243,603 shares outstanding at the end of 1997. These share amounts have been adjusted to reflect the three-for-two stock split effective April 24, 1998. OUTLOOK The Company's operating results and financial condition are expected to continue to improve during fiscal 1999. Each business segment is expected to increase sales and operating profit in 1999 as a result of new products and new marketing and sales programs. The Engine/Mobile Filtration segment expects further growth in sales from quick lube and service centers and from continuing product development throughout its product range. Additional growth is also expected from sales to light-duty and automotive parts buying groups and from increased emphasis on selling heavy-duty filters through the light-duty distribution channels. Expanded relationships with locomotive engine manufacturers and further development of air filter products for diesel locomotives are expected to bolster sales. The Industrial/Environmental Filtration segment expects to capitalize on investments made in 1997 and 1998 to develop new dust collector products and related specialty filters during 1999 and future years. Investments in direct sales offices and acquisitions of ATI and filter distributors in 1997 and 1998 are expected to positively impact sales and profitability in 1999 as these operations become more effectively integrated into UAS and Airguard. The Packaging segment expects to increase its flat sheet decorating business through selling its metal decorating and printing capabilities directly to other packaging and closure companies. Marketing efforts in promotional container sales will emphasize selling through specialty promotional agencies in addition to traditional sales made directly to major U.S. companies. In the plastics area, the segment expects to continue its development of plastic and combination metal and plastic containers and closures. The Company will continue to implement cost reductions and make productivity improvements, although competitive pricing pressures and international business conditions may reduce the overall profit improvement. Additional plant asset additions will be made in each segment's facilities during 1999 that are expected 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, especially in related filtration businesses. It is expected that these acquisitions would expand the Company's distribution 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, product life cycles, purchasing patterns of distributors and customers, competitive conditions in the industry, business cycles affecting the markets in which the Company's products are sold, the effectiveness of plant conversions and productivity improvement programs, the management of both growth and acquisitions, third-party compliance with Year 2000 readiness, the Company's internal Year 2000 readiness, extraordinary events, such as litigation or acquisitions, including related charges, and economic conditions generally or in various geographic areas. All of the foregoing matters are difficult to forecast. The future results of the Company may fluctuate as a result of these and the other risk factors detailed from time to time in the Company's 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 affected. 14 EX-21 13 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 CLARCOR INC. SUBSIDIARIES AS OF FEBRUARY 18, 1999
JURISDICTION OF INCORPORATION OR PERCENT OF NAME ORGANIZATION OWNERSHIP - ------------------------------------ ---------------- ---------- 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% 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% 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%*
- ------------------------------ * Direct or indirect EX-23 14 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in each Registration Statement of CLARCOR Inc. on Form S-8 (file numbers 33-5456, 33-38590, 33-39374, 33-53763 and 33-53899) of our reports dated January 8, 1999, on our audits of the consolidated financial statements of CLARCOR Inc. and Subsidiaries as of November 30, 1998 and 1997 and for the years ended November 30, 1998, 1997 and 1996, and the financial statement schedule for the years ended November 30, 1998, 1997, and 1996, which reports are included or incorporated by reference in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP Chicago, Illinois February 18, 1999 EX-27 15 FINANCIAL DATA SCHEDULE
5 1,000 YEAR NOV-28-1998 NOV-30-1997 NOV-28-1998 33,321 0 70,268 2,711 58,614 168,173 193,672 107,283 305,766 61,183 36,419 0 0 23,949 162,858 305,766 426,773 426,773 291,537 291,537 0 3,075 2,336 51,347 19,262 32,079 0 0 0 32,079 1.32 1.30
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