-----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, Mnr0wym9lqOVJNCLO7wQaoOQ8P/le+n/r8PXSpMvcAb0/82YzoEBSi7M8/PmxX1y fw66TfnbUPJlM9EyOuNi5w== 0000950137-00-000609.txt : 20000224 0000950137-00-000609.hdr.sgml : 20000224 ACCESSION NUMBER: 0000950137-00-000609 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19991127 FILED AS OF DATE: 20000223 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: 551078 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-K405 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 27, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________________________ COMMISSION FILE NUMBER 1-11024
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 11, 2000 as reported on the New York Stock Exchange Composite Transactions) of the voting stock held by non-affiliates of the registrant as at February 11, 2000 is $419,648,074. The number of outstanding shares of Common Stock, as of February 11, 2000 is 24,255,740 shares. Certain portions of the registrant's 1999 Annual Report to Shareholders are incorporated by reference in Parts I, II and IV. Certain portions of the registrant's Proxy Statement dated February 23, 2000 for the Annual Meeting of Shareholders to be held on March 25, 2000 are incorporated by reference in Part III. 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 1999 the year ended on November 27, 1999 and for fiscal year 1998 the year ended on November 28, 1998. In this Form 10-K, all references to fiscal years are shown to begin on December 1 and end on November 30 for clarity of presentation. (i) Certain Significant Developments. Acquisition of Industrial Filtration Businesses. On September 10, 1999, CLARCOR acquired from Mark IV Industries, Inc. substantially all of the assets (the "Industrial Filtration Acquisitions") used in the design, manufacture, marketing and distribution of specialty filters and filtration products primarily for residential, commercial and industrial use in a wide range of market segments which include original equipment manufacturers, aftermarket distributors, retail distributors, contractors and aerospace, marine and military markets. The three businesses acquired, Purolator Air Filtration ("Purolator"), Facet International ("Facet") and Purolator Facet, Inc. ("PFI") were added into the Company's Industrial/Environmental Filtration segment. For financial and accounting purposes the acquisition was deemed to have occurred on September 1, 1999. The purchase price for the assets including acquisition expenses was approximately $142,400,000, net of cash acquired, based on the net assets of the businesses acquired as shown on a February 28, 1999 balance sheet and is subject to a final adjustment per the purchase agreement. The purchase price was paid in cash with available funds and $115,000,000 in proceeds from a $185,000,000 multicurrency credit agreement entered into with several financial institutions. Borrowings under the revolving credit agreement are uncollateralized, but are guaranteed by certain of the Company's subsidiaries. Reference is made to Report on Form 8-K filed by the Company on September 17, 1999 with the Securities and Exchange Commission for a copy of the purchase agreement and the multicurrency credit agreement. The acquisition is also described in Note B to the Company's Consolidated Financial Statements. Other Acquisitions. Subsequent to the end of fiscal 1999, the Company acquired in December 1999 two distributors of air filtration products. The cost of the acquisitions was paid for primarily with cash, but in connection with one of the transactions the Company issued approximately 160,704 shares of Common Stock. These acquisitions were accounted for under the purchase method of accounting and will be included in the Company's Industrial/Environmental Filtration segment. These acquisitions will not have a significant impact on the results of the Company. (ii) Summary of Business Operations. During 1999, the Company conducted business in three principal industry segments: (1) Engine/ Mobile Filtration, (2) Industrial/Environmental Filtration and (3) Packaging. Engine/Mobile Filtration. Engine/Mobile Filtration includes filters for oil, air, fuel, coolants and hydraulic fluids for trucks, automobiles, construction and industrial equipment, locomotives, marine and agricultural equipment. Industrial/Environmental Filtration. Industrial/Environmental Filtration products are used primarily for commercial, residential and industrial applications. The segment's industrial and environmental products include air and antimicrobial treated filters and high efficiency electronic air cleaners for commercial buildings, factories, residential buildings, paint spray booths, gas turbine systems, medical facilities, motor vehicle cabins, clean rooms, compressors and dust collector systems. 2 3 Additional products related to the Industrial Filtration Acquisitions in 1999 include specialty filters, industrial process liquid filters, filtration systems for aircraft refueling, anti-pollution and water recycling, and bilge separators. Packaging. Packaging products include a wide variety of custom styled containers and packaging items used primarily by the food, confectionery, spice, drug, toiletries and chemical specialties industries. The segment's products include lithographed metal containers, flat sheet decorated metal, combination metal and plastic containers, plastic closures and various specialties, such as spools for wire and cable, dispensers for razor blades and outer shells for dry cell batteries and film canisters. (b) Financial Information About Industry Segments Business segment information for the fiscal years 1997 through 1999 is included on pages 26 and 27 of the Company's 1999 Annual Report to Shareholders (the "Annual Report"), is incorporated herein by reference and is filed as part of Exhibit 13(a)(vi) to this 1999 Annual Report on Form 10-K ("1999 Form 10-K"). (c) Narrative Description of the Business ENGINE/MOBILE FILTRATION The Company's engine/mobile filtration products business is conducted by the following wholly-owned subsidiaries: Baldwin Filters, Inc.; Clark Filter, Inc.; Hastings Filters, Inc.; Baldwin Filters (Aust.) Pty. Ltd.; Baldwin Filters N.V.; and Baldwin Filters Limited. In addition, the Company owns (i) 90% of Filtros Baldwin de Mexico ("FIBAMEX"), (ii) 70% of Baldwin-Weifang Filters Ltd., and (iii) 80% of Baldwin-Unifil S.A. The companies market a full line of oil, air, fuel, coolant and hydraulic fluid filters. The filters are used in a wide variety of applications and in processes where filter efficiency, reliability and durability are essential. Impure air or fluid flow through semi-porous paper, cotton, synthetic, chemical or membrane filter media with varying efficiency filtration characteristics. The impurities on the media are disposed of when the filter is changed. The segment's filters are sold throughout the world, primarily in the replacement market for trucks, automobiles, locomotives, marine, construction, industrial and agricultural equipment. In addition, some first-fit filters are sold to the original equipment market. INDUSTRIAL/ENVIRONMENTAL FILTRATION The Company's industrial/environmental filtration products business is conducted by the following wholly-owned subsidiaries: Airguard Industries, Inc. ("Airguard"); Airklean Engineering Pte. Ltd.; Airguard Asia Sdn. Bhd.; Facet International and related subsidiaries ("Facet"); Purolator Facet, Inc. ("PFI"); Purolator Products Air Filtration Company ("Purolator"); United Air Specialists, Inc.; and United Air Specialists (U.K.) Ltd. The segment's products are sold throughout the world. The companies market commercial and industrial air filters and systems, electrostatic contamination control equipment and electrostatic high precision spraying equipment. The air filters and systems remove contaminants from recirculated indoor air and from process air which is exhausted outdoors. The products represent a complete line of air cleaners with a wide range of uses for maintaining high quality standards in interior air and exterior pollution control. Additional products include specialty filters, filtration systems for aircraft refueling, anti-pollution and water recycling, and bilge separators. These products are used in a wide range of applications including commercial, military and general aviation, marine, oil and gas drilling and refining, chemical and pharmaceutical processes, utilities, paper mills and general industry. The filters are used for the process filtration of liquids using a variety of porous and sintered metal media filters, strainers, separators, coalescers and absorbent media. Many of these filter products and systems 3 4 require special technical approvals and product certification in order to meet commercial and military requirements. PACKAGING The Company's consumer and industrial packaging products business is conducted by a wholly-owned subsidiary, J. L. Clark, Inc. ("J. L. Clark"). J.L. Clark manufactures a wide variety of different types and sizes of containers and packaging specialties. Metal, plastic and combination metal/plastic containers and closures manufactured by the Company are used in packaging a wide variety of dry and paste form products, such as food specialties (tea, spices, dry bakery products, potato chips, pretzels, candy and other confections); beverages and juices; cosmetics and toiletries; drugs and pharmaceuticals; and chemical specialties (hand cleaners, soaps and special cleaning compounds). Other packaging products include shells for dry batteries, film canisters, dispensers for razor blades, candles, spools for insulated and fine wire, and custom decorated flat steel sheets. Containers and packaging specialties are manufactured only upon orders received from customers, and individualized containers and packaging specialties are designed and manufactured, usually with distinctive decoration, to meet each customer's marketing and packaging requirements and specifications. DISTRIBUTION Engine/Mobile Filtration and Industrial/Environmental Filtration products are sold primarily through a combination of independent distributors and dealers for original equipment manufacturers. The engine/mobile segment also distributes filtration products worldwide through each of its subsidiaries. Baldwin Filters N.V. and Baldwin Filters Limited primarily serve the European markets. Baldwin Filters (Aust.) Pty. Ltd., markets heavy duty liquid and air filters in Australia and New Zealand. FIBAMEX manufactures filters in Mexico with distribution in Mexico and Central and South America. Through the Company's investment in Baldwin-Weifang Filters Ltd., heavy duty filters are manufactured in China for distribution in China. Additionally, through Baldwin-Unifil S.A., air filtration products are manufactured in South Africa with distribution throughout Africa, Great Britain, Europe and the Middle East. The industrial/environmental segment also distributes and services filtration products through company-owned branches and wholly-owned subsidiaries located throughout the United States and Europe and in Singapore and Malaysia. Packaging salespersons call directly on customers and prospective customers for containers and packaging specialties. Each salesperson is trained in all aspects of J.L. Clark's manufacturing processes with respect to the products sold and is qualified to consult with customers and prospective customers concerning the details of their particular requirements. In addition, salespersons with expertise in specific areas, such as flat-sheet decorating, are focused on specific customers and markets. CLASS OF PRODUCTS No class of products accounted for as much as 10% of the total sales of the Company. RAW MATERIAL Steel, filter media, cartons, aluminum sheet and coil, stainless steel, chrome vanadium, chrome silicon, resins, roll paper, bulk and roll plastic materials and cotton, wood and synthetic fibers and adhesives are the most important raw materials used in the manufacture of the Company's products. All of these are purchased or are available from a variety of sources. The Company has no long-term 4 5 purchase commitments. The Company did not experience shortages in the supply of raw materials during 1999. PATENTS, TRADEMARKS AND TRADENAMES Certain features of some of the Company's products are covered by domestic and, in some cases, foreign patents or patent applications. While these patents are valuable and important for certain products, the Company does not believe that its competitive position is dependent upon patent protection. The Company believes, however, that its trademarks and tradenames used in connection with certain products may be significant to its business. CUSTOMERS The largest 10 customers of the Engine/Mobile Filtration segment accounted for 17.1% of the $238,680,000 of fiscal year 1999 sales of such segment. The largest 10 customers of the Industrial/Environmental Filtration segment accounted for 14.6% of the $174,889,000 of fiscal year 1999 sales of such segment. The largest 10 customers of the Packaging segment accounted for 53.2% of the $64,300,000 of fiscal year 1999 sales of such segment. No single customer accounted for 10% or more of the Company's consolidated 1999 sales. BACKLOG At November 30, 1999, the Company had a backlog of firm orders for products amounting to approximately $72,100,000 including backlog of $25,800,000 from the Industrial Filtration Acquisitions. The backlog figure for 1998 was approximately $36,100,000, excluding the Industrial Filtration Acquisitions. Substantially all of the orders on hand at November 30, 1999 are expected to be filled during fiscal 2000. COMPETITION The Company encounters strong competition in the sale of all of its products. The Company competes in a number of filtration markets against a variety of competitors. The Company is unable to state its relative competitive position in all of these markets due to a lack of reliable industry-wide data. However, in the replacement market for heavy duty liquid and air filters used in internal combustion engines, the Company believes that it is among the top five measured by annual sales. In addition, the Company believes that it is a leading manufacturer of liquid and air filters for diesel locomotives. The Company believes that for industrial and environmental filtration products, it is among the top five measured by annual sales. In the Packaging segment, its principal competitors include several manufacturers whose specialty packaging segments are smaller than the Company's and who often compete on a regional basis only. Strong competition is also presented by manufacturers of paper, plastic and glass containers. The Company's competitors generally manufacture and sell a wide variety of products in addition to packaging products of the type produced by the Company and do not publish separate sales figures relative to these competitive products. Consequently, the Company is unable to state its relative competitive position in those markets. The Company believes that it is able to maintain its competitive position because of the quality and breadth of its products and services. PRODUCT DEVELOPMENT The Company's Technical Centers and laboratories test product components and completed products to insure high quality manufacturing results, aid suppliers in the development of product 5 6 components, and conduct controlled tests of newly designed filters, filtration systems and containers for particular uses. Product development departments are concerned with the improvement and creation of new filters, filtration systems, containers and packaging products in order to broaden the uses of these items, counteract obsolescence and evaluate other products available in the marketplace. In fiscal 1999, the Company employed 65 professional employees on a full-time basis on research activities relating to the development of new products or the improvement or redesign of its existing products. During this period the Company spent approximately $5,562,000 on such activities as compared with $4,855,000 for 1998 and $3,991,000 for 1997. ENVIRONMENTAL FACTORS The Company is not aware of any facts which would cause it to believe that it is in material violation of existing applicable standards respecting emissions to the atmosphere, discharges to waters, or treatment, storage and disposal of solid or hazardous wastes. The Company is party to various proceedings relating to environmental issues. The U.S. Environmental Protection Agency (EPA) and/or other responsible state agencies have designated the Company as a potentially responsible party (PRP), along with other companies, in remedial activities for the cleanup of waste sites under the federal Superfund statute. Environmental and related remediation costs are difficult to quantify for a number of reasons including the number of parties involved, the difficulty in determining the extent of the contamination, the length of time remediation may require, the complexity of environmental regulation and the continuing advancement of remediation technology. Applicable federal law may impose joint and several liability on each PRP for the cleanup. It is the opinion of management, after consultation with legal counsel, that additional liabilities, if any, resulting from these matters are not expected to have a material adverse effect on the Company's financial condition or consolidated results of operations. The Company does anticipate, however, that it may be required to install additional pollution control equipment to augment existing equipment in the future in order to meet applicable environmental standards. The Company is presently unable to predict the timing or the cost of such equipment and cannot give any assurance that the cost of such equipment may not have an adverse effect on earnings. However, the Company is not aware, at this time, of any current or pending requirement to install such equipment at any of its facilities. EMPLOYEES As of November 30, 1999, the Company had approximately 4,278 employees. (d) Financial Information About Foreign and Domestic Operations and Export Sales Financial information relating to export sales and the Company's operations in the United States and other countries is set forth on pages 26 and 27 of the Annual Report and is incorporated herein by reference and filed as Exhibit 13(a)(vi) to this 1999 Form 10-K. The Company is not aware of any unusual risks attendant to the conduct of its operations in other countries. ITEM 2. PROPERTIES. (i) Location An office building owned by the Company located in Rockford, Illinois houses the Corporate offices and the Packaging segment headquarters offices in 22,000 square feet of office space. Engine/Mobile Filtration. The following is a description of the principal properties utilized by the Company in conducting its Engine/Mobile Filtration business: The Baldwin Filters' Kearney, Nebraska plant contains 410,000 square feet of manufacturing and warehousing space, 25,000 square feet of research and development space, and 40,000 square feet of 6 7 office space. An expansion to the Kearney facility of approximately 106,000 square feet for distribution and manufacturing was completed in 1999. The Kearney facility is located on a site of approximately 40 acres. A manufacturing facility located in Yankton, South Dakota has approximately 170,000 square feet of floor space on a 21 acre tract. Both facilities are owned by the Company. In addition, Baldwin has a capital lease for a 100,000 square foot manufacturing facility on a site of 20 acres in Gothenburg, Nebraska. The Company also manufactures filters in Lancaster, Pennsylvania at its Clark Filter plant. The building, constructed about 1968 on an 11.4 acre tract of land, contains 168,000 square feet of manufacturing and office space and is owned by the Company. The Company leases various facilities in Australia, Belgium, Mexico, South Africa and the United Kingdom for the manufacture and distribution of filtration products. Industrial/Environmental Filtration. The following is a description of the principal properties utilized by the Company in conducting its Industrial/Environmental Filtration business: Airguard has seven manufacturing and warehousing locations. It leases 318,000 square feet in New Albany, Indiana, 84,000 square feet in Corona, California and 44,500 square feet in Dallas, Texas. Smaller facilities are also leased in North Carolina and Wisconsin. The Company owns the following two facilities. The Airguard High Efficiency Filter plant, located in Jeffersontown, Kentucky on a 7.5 acre tract of land, contains 100,000 square feet of manufacturing and office facilities. Airguard's ATI manufacturing and office facility in Ottawa, Kansas, contains 31,000 square feet. Airguard administrative and sales offices and distribution facilities are located in Louisville, Kentucky; Cincinnati, Ohio; Toledo, Ohio; Nashville, Tennessee; Atlanta, Georgia; Columbus, Ohio; Birmingham, Alabama; Portland, Oregon; Commerce City, Colorado; Kansas City, Missouri; Arlington, Texas; Dallas, Texas; Corona, California; Wallingford, Connecticut; New Albany, Indiana; Las Vegas, Nevada and Richmond, Virginia. Airguard also leases facilities in Malaysia and Singapore. Facet owns manufacturing and distribution facilities in Tulsa, Oklahoma and La Coruna, Spain. The Tulsa facilities contain approximately 142,000 square feet on a 16 acre site. The La Coruna facility is on an approximately 17,000 square meter site and the building contains 5,700 square meters. Facet also leases facilities in Stillwell, Oklahoma; Tulsa, Oklahoma; Miami, Florida; Australia; Canada; Italy; Germany; France; United Kingdom; The Netherlands and Switzerland. Purolator owns a 228,500 square-foot manufacturing and office facility in Henderson, North Carolina on a site of approximately 25 acres. Purolator also leases sales, manufacturing and distribution facilities in Fresno, California; Hayward, California; La Mirada, California; Sacramento, California; Davenport, Iowa; Wichita, Kansas; Metuchen, New Jersey; Henderson, North Carolina; Kenly, North Carolina; Sparks, Nevada; Fairfax, Virginia and Auburn, Washington. Purolator Facet, Inc. ("PFI") owns a manufacturing and distribution facility in Greensboro, North Carolina. This facility contains approximately 88,000 square feet on a 21 acre site. PFI also leases facilities in Greensboro, North Carolina; Hebron, Connecticut and Middletown, Rhode Island. United Air Specialists ("UAS") has three owned facilities. The offices and primary manufacturing facility is located in Blue Ash, Ohio (a suburb of Cincinnati), on approximately 17 acres of land. This facility was built in 1978 and was expanded in 1991 and 1993 to a total of approximately 157,000 square feet. UAS also has sales offices and a manufacturing facility in Warwick, England which total approximately 13,200 square feet. In addition, UAS leases sales and service facilities in Bad Camberg, Germany; Phoenix, Arizona; Fremont, California; Anaheim, California; Louisville, Kentucky; Troy, Michigan; Jackson, Mississippi, and Houston, Texas. 7 8 Packaging. The following is a description of the principal properties utilized by the Company in conducting its Packaging business: The Company's J. L. Clark, Rockford, Illinois plant, located on 34 acres, consists of one-story manufacturing buildings, the first of which was constructed in 1910. Since then a number of major additions have been constructed and an injection molding plant was constructed in 1972. Approximately 450,000 square feet of floor area are devoted to manufacturing, warehouse and office use. Of the 34 acres, approximately 12 are vacant. A J. L. Clark plant is located in Lancaster, Pennsylvania on approximately 11 acres. It consists of a two-story office building containing approximately 7,500 square feet of floor space and a manufacturing plant and warehouse containing 236,000 square feet of floor space, most of which is on one level. These buildings were constructed between 1924 and 1964. J. L. Clark also leases a manufacturing facility in San Leandro, California. The various properties owned by the Company are considered by it to be in good repair and well maintained. Plant asset additions in 2000 are estimated at $30,000,000 for equipment and machinery, capacity additions and cost reduction projects. (ii) Function Engine/Mobile Filtration. Oil, air, fuel, hydraulic fluid and coolant filters are produced at the Baldwin and Hastings facilities in Kearney, and Gothenburg, Nebraska and Yankton, South Dakota. The various processes of pleating paper, winding cotton and synthetic fibers, placing the filter element in a metal or fiber container and painting the containers are highly mechanized, but require some manual assistance. The plants also maintain an inventory of special dies and molds for filter manufacture. Oil, air and fuel filters, primarily for use in the railroad industry, are produced at Clark Filter in Lancaster, Pennsylvania. Industrial/Environmental Filtration. Air filters for the commercial, residential and industrial markets are produced in the Airguard and Purolator facilities. Dust collection systems, high efficiency electronic air cleaning systems and electrostatic precision spraying systems are designed and manufactured at the UAS facility in Cincinnati, Ohio. Specialty filter products for aviation, oil drilling, military, marine and paper and chemical processes are manufactured and assembled at the PFI facilities in Greensboro, North Carolina. The manufacturing processes include bonding and sintered metal, tungsten inert gas and electron beam welding and diffusion-bonded wire. Facet designs, manufactures and assembles filters and filtration systems for aircraft refueling, power generation, water treatment and general industrial applications at its United States and European facilities. The company also uses outside contractors for assembly and manufacturing of some of its products. Many of these products require special commercial or military technical approvals or product certification. Packaging. The Company's metal and combination metal and plastic packaging products are produced at J. L. Clark plants located in Rockford, Illinois, and Lancaster, Pennsylvania. The Rockford and Lancaster plants are completely integrated facilities which include creative and mechanical art departments and photographic facilities for color separation, preparation of multiple-design negatives and lithographing plates. Metal sheets are decorated on coating machines and lithographing presses connected with conveyor ovens. Decorated sheets are then cut to working sizes on shearing equipment, following which fabrication is completed by punch presses, can-forming and can-closing equipment and other specialized machinery for supplementary operations. Most tooling for fabricating equipment is designed and engineered by the Company's engineering staffs, and much of it is produced in the Company's tool rooms. 8 9 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. 9 10 ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
AGE AT YEAR ELECTED NAME 11/30/99 TO OFFICE ---- -------- ------------ *Lawrence E. Gloyd.......................................... 67 1995 Chairman of the Board and Chief Executive Officer. Mr. Gloyd was elected President and Chief Operating Officer in 1986, President and Chief Executive Officer in 1988, Chairman, President and Chief Executive Officer in 1991, and Chairman of the Board and Chief Executive Officer in 1995. *Norman E. Johnson.......................................... 51 1995 President and Chief Operating Officer. Mr. Johnson has been employed by the Company since 1990. He was elected President-Baldwin Filters, Inc. in 1990, Vice President-CLARCOR in 1992, Group Vice President-Filtration Products Group in 1993, and President and Chief Operating Officer in 1995. Mr. Johnson has been a Director of the Company since June 1996. Michael J. Tilton........................................... 50 1998 Executive Vice President-Engine/Mobile Filtration. Mr. Tilton was employed by the Company and elected Executive Vice President-Engine/Mobile Filtration on June 22, 1998. Mr. Tilton has over 25 years of experience in operations and finance and was formerly with Pinnacle Automation and Donaldson Company. William B. Walker........................................... 59 1999 Executive Vice President-Industrial/Environmental Filtration. Mr. Walker has been employed by Airguard, a subsidiary of the Company since 1966. He was elected President of Airguard in 1994 and Executive Vice President-Industrial/Environmental Filtration in 1999. Bruce A. Klein.............................................. 52 1995 Vice President-Finance and Chief Financial Officer. Mr. Klein was employed by the Company and elected Vice President-Finance and Chief Financial Officer on January 3, 1995. David J. Anderson........................................... 61 1999 Vice President-Corporate Development. Mr. Anderson has been employed by the Company since 1990. He was elected Vice President Marketing & Business Development for the CLARCOR Filtration Products subsidiary in 1991, Vice President-Corporate Development in 1993, Vice President-International/Corporate Development in 1994 and Vice President-Corporate Development in 1999. David J. Lindsay............................................ 44 1995 Vice President-Administration and Chief Administrative Officer. Mr. Lindsay has been employed by the Company in various administrative positions since 1987. He was elected Vice President-Group Services in 1991, Vice President-Administration in 1994 and Vice President- Administration and Chief Administrative Officer in 1995.
10 11
AGE AT YEAR ELECTED NAME 11/30/99 TO OFFICE ---- -------- ------------ Peter F. Nangle............................................. 38 1999 Vice President-Information Services and Chief Information Officer. Mr. Nangle has been employed by the Company since 1993. He was elected Vice President-Information Services in 1994, Vice President-Information Services and Operations Analysis, Chief Information Officer in 1997 and Vice President-Information Services and Chief Information Officer in 1999. Mr. Nangle was also elected President of United Air Specialists, Inc., one of the Company's subsidiaries, in June 1999. Marcia S. Blaylock.......................................... 43 1997 Vice President, Controller and Corporate Secretary. Ms. Blaylock has been an employee of the Company since 1974. She was elected Assistant Secretary in 1994, Corporate Secretary in 1995, Vice President and Corporate Secretary in 1996 and Vice President, Controller and Corporate Secretary in 1997.
Each executive officer of the Company is elected for a term of one year which begins at the Board of Directors Meeting at which he or she is elected, held at the time of the Annual Meeting of Shareholders, and ends on the date of the next Annual Meeting of Shareholders or upon the due election and qualification of his or her successor. - --------------- *It is expected that following the Company's March 25, 2000 Annual Meeting, Mr. Gloyd will retire as Chairman and Chief Executive Officer and Mr. Johnson will become Chairman, President and Chief Executive Officer of the Company. Mr. Gloyd will continue to serve as a Director of the Company. 11 12 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.
MARKET PRICE ------------------ QUARTER ENDED HIGH LOW DIVIDENDS ------------- ---- --- --------- February 27, 1999........................................... $20 13/16 $16 11/16 $.1125 May 29, 1999................................................ 19 1/4 16 7/16 .1125 August 28, 1999............................................. 21 3/8 18 1/8 .1125 November 27, 1999........................................... 18 9/16 14 1/4 .1150 ------ Total Dividends............................................. $.4525 ======
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 ======
The approximate number of holders of record of the Company's Common Stock at February 1, 2000 is 1,650. In addition, the Company believes that there are approximately 6,000 beneficial owners whose shares are held in street names. ITEM 6. SELECTED FINANCIAL DATA. The information required hereunder is set forth on pages 30 and 31 of the Annual Report under the caption "11-Year Financial Review," is incorporated herein by reference and is filed as Exhibit 13(a)(ix) to this 1999 Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The information required hereunder is set forth on pages 10 through 14 of the Annual Report under the caption "Financial Review," is incorporated herein by reference and is filed as Exhibit 13(a)(x) to this 1999 Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information required hereunder is set forth on page 13 of the Annual Report under the caption "Financial Review -- Market Risk," is incorporated herein by reference and is filed as Exhibit 13(a)(x) to this 1999 Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Consolidated Financial Statements, the Notes thereto and the report thereon of PricewaterhouseCoopers LLP, independent accountants, required hereunder with respect to the Company and its consolidated subsidiaries are set forth on pages 15 through 28, inclusive, of the Annual Report, are incorporated herein by reference and are filed as Exhibits 13(a)(ii) through 13(a)(vii) to this 1999 Form 10-K. 12 13 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Certain information required hereunder is set forth on pages 1 and 2 of the Company's Proxy Statement dated February 23, 2000 (the "Proxy Statement") for the Annual Meeting of Shareholders to be held on March 25, 2000 under the caption "Election of Directors -- Nominees for Election to the Board" and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information required hereunder is set forth on pages 6 through 15 inclusive, of the Proxy Statement under the caption "Compensation of Executive Officers and Other Information" and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required hereunder is set forth on pages 4 and 5 of the Proxy Statement under the caption "Beneficial Ownership of the Company's Common Stock" and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required hereunder is set forth on page 4 of the Proxy Statement under the caption "Certain Relationships and Related Transactions" and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K. (a) Financial Statements The following financial information is incorporated herein by reference to the Company's Annual Report to Shareholders for the fiscal year ended November 30, 1999: *Consolidated Balance Sheets at November 30, 1999 and 1998 *Consolidated Statements of Earnings for the years ended November 30, 1999, 1998 and 1997 *Consolidated Statements of Shareholders' Equity for the years ended November 30, 1999, 1998 and 1997 *Consolidated Statements of Cash Flows for the years ended November 30, 1999, 1998 and 1997 *Notes to Consolidated Financial Statements *Report of Independent Accountants *Management's Report on Responsibility for Financial Reporting - ------------------------------ *Filed herewith as part of Exhibit 13(a) to this 1999 Form 10-K 13 14 The following items are set forth herein on the pages indicated: Report of Independent Accountants.......................................... F-1 Financial Statement Schedules: II. Valuation and Qualifying Accounts................................. F-2 Financial statements and schedules other than those listed above are omitted for the reason that they are not applicable, are not required, or the information is included in the financial statements or the footnotes therein. (b) Related to the Industrial Filtration Acquisitions, the Company filed a Report on Form 8-K on September 17, 1999 and on November 23, 1999 filed a Report on Form 8-K/A. (c) Exhibits 3.1 The registrant's Second Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1998 (the "1998 10-K"). 3.1(a) Amendment to ARTICLE FOURTH of the Second Restated Certificate of Incorporation. Incorporated by reference to the Company's Proxy Statement dated February 18, 1999 for the Annual Meeting of Shareholders held on March 23, 1999. 3.2 The registrant's By-laws, as amended. Incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995. 3.3 Certificate of Designation of Series B Junior Participating Preferred Stock of CLARCOR as filed with the Secretary of State of the State of Delaware on April 2, 1996. Incorporated by reference to Exhibit 4.5 to the Registration Statement on Form 8-A filed April 3, 1996. 4.1 Stockholder Rights Agreement dated as of March 28, 1996 between the registrant and the First Chicago Trust Company of New York. Incorporated by reference to Exhibit 4 to the Company's Current Report on Form 8-K filed April 3, 1996. 4.1(a) First Amendment to Stockholders Rights Agreement dated as of March 23, 1999. Incorporated by reference to Exhibit 4 to the Company's Form 8-A/A filed March 29, 1999. 4.2 Certain instruments defining the rights of holders of long-term debt securities of CLARCOR and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. CLARCOR hereby agrees to furnish copies of these instruments to the SEC upon request. 4.2(a) Multicurrency Credit Agreement dated as of September 9, 1999. Incorporated by reference to Exhibit 4 to the Company's Current Report on Form 8-K filed September 17, 1999. 10.1 The registrant's Deferred Compensation Plan for Directors. Incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1984 (the "1984 10-K"). 10.2 The registrant's Supplemental Retirement Plan. Incorporated by reference to Exhibit 10.2 to the 1984 10-K. 10.2(a) The registrant's 1994 Executive Retirement Plan. Incorporated by reference to Exhibit 10.2(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 3, 1994 ("1994 10-K"). 10.2(b) The registrant's 1994 Supplemental Pension Plan. Incorporated by reference to Exhibit 10.2(b) to the 1994 10-K. 10.2(c) The registrant's Supplemental Retirement Plan (as amended and restated effective December 1, 1994). Incorporated by reference to Exhibit 10.2(c) to the 1994 10-K.
14 15 10.3 The registrant's 1984 Stock Option Plan. Incorporated by reference to Exhibit A to the Company's Proxy Statement dated March 2, 1984 for the Annual Meeting of Shareholders held on March 31, 1984. 10.4 Employment Agreements with certain officers. Incorporated by reference to Exhibit 5 to the Company's Current Report on Form 8-K filed July 25, 1989. 10.4(a) Form of Employment Agreement with each of David J. Anderson, Marcia S. Blaylock, Bruce A. Klein and Peter F. Nangle. Incorporated by reference to Exhibit 10.4(a) to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996. 10.4(b) Employment Agreement with Lawrence E. Gloyd dated July 1, 1997. Incorporated by reference to Exhibit 10.4(b) to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1997 ("1997 10-K"). 10.4(c) Employment Agreement with Norman E. Johnson dated July 1, 1997. Incorporated by reference to Exhibit 10.4(c) to the 1997 10-K. 10.4(d) Trust Agreement dated December 1, 1997. Incorporated by reference to Exhibit 10.4(d) to the 1997 10-K. 10.4(e) Executive Benefit Trust Agreement dated December 22, 1997. Incorporated by reference to Exhibit 10.4(e) to the 1997 10-K. 10.4(f) Employment Agreement with Michael J. Tilton dated September 23, 1998. Incorporated by reference to Exhibit 10.4(f) to the 1998 10-K. 10.5 The registrant's 1994 Incentive Plan. Incorporated by reference to Exhibit A to the Company's Proxy Statement dated February 24, 1994 for the Annual Meeting of Shareholders held on March 31, 1994. 10.5(a) The registrant's First Amendment to the 1994 Incentive Plan. Incorporated by reference to Exhibit A to the Company's Proxy Statement dated February 18, 1998 for the Annual Meeting of Shareholders held on March 24, 1998. 10.5(b) The registrant's Amendments to the 1994 Incentive Plan as approved by the Company's Board of Directors on September 20, 1999 and December 20, 1999. 10.6 Purchase Agreement dated September 10, 1999 related to the Industrial Filtration Acquisitions. Incorporated by reference to Exhibit 2 to the Company's Current Report on Form 8-K filed September 17, 1999. 13 (a) The following items incorporated by reference herein from the Company's 1999 Annual Report to Shareholders ("1999 Annual Report"), are filed as Exhibits to this Annual Report Form 10-K:
(i) Business segment information for the fiscal years 1997 through 1999 set forth on pages 26 and 27 of the 1999 Annual Report (included in Exhibit 13(a)(vi) -- Note Q of Notes to Consolidated Financial Statements); (ii) Consolidated Balance Sheets of the Company and its Subsidiaries at November 30, 1999 and 1998 set forth on page 15 of the 1999 Annual Report; (iii) Consolidated Statements of Earnings of the Company and its Subsidiaries for the years ended November 30, 1999, 1998 and 1997 set forth on page 16 of the 1999 Annual Report; (iv) Consolidated Statements of Shareholders' Equity for the Company and its Subsidiaries for the years ended November 30, 1999, 1998 and 1997 set forth on page 17 of the 1999 Annual Report; (v) Consolidated Statements of Cash Flows of the Company and its Subsidiaries for the years ended November 30, 1999, 1998 and 1997 set forth on page 18 of the 1999 Annual Report;
15 16 (vi) Notes to Consolidated Financial Statements set forth on pages 19 through 27 of the 1999 Annual Report; (vii) Report of Independent Accountants set forth on page 28 of the 1999 Annual Report; (viii) Management's Report on Responsibility for Financial Reporting set forth on page 28 of the 1999 Annual Report; (ix) Information under the caption "11-Year Financial Review" set forth on pages 30 and 31 of the 1999 Annual Report; and (x) Management's Discussion and Analysis of Financial Condition and Results of Operation set forth under the caption "Financial Review" on pages 10 through 14 of the 1999 Annual Report.
21 Subsidiaries of the Registrant. 23 Consent of Independent Accountants. 27 Financial Data Schedule.
16 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 23, 2000 CLARCOR Inc. (Registrant) By: /s/ LAWRENCE E. GLOYD -------------------------------------- Lawrence E. Gloyd Chairman of the Board & Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: February 23, 2000 By: /s/ LAWRENCE E. GLOYD ------------------------------------------------ Lawrence E. Gloyd Chairman of the Board & Chief Executive Officer and Director Date: February 23, 2000 By: /s/ BRUCE A. KLEIN ------------------------------------------------ Bruce A. Klein Vice President -- Finance & Chief Financial Officer Date: February 23, 2000 By /s/ MARCIA S. BLAYLOCK ------------------------------------------------ Marcia S. Blaylock Vice President, Controller, Corporate Secretary & Chief Accounting Officer Date: February 23, 2000 By /s/ J. MARC ADAM ------------------------------------------------ J. Marc Adam Director Date: February 23, 2000 By /s/ MILTON R. BROWN ------------------------------------------------ Milton R. Brown Director Date: February 23, 2000 By /s/ CARL J. DARGENE ------------------------------------------------ Carl J. Dargene Director Date: February 23, 2000 By /s/ ROBERT H. JENKINS ------------------------------------------------ Robert H. Jenkins Director
17 18 Date: February 23, 2000 By /s/ NORMAN E. JOHNSON ------------------------------------------------ Norman E. Johnson Director Date: February 23, 2000 By /s/ PHILIP R. LOCHNER, JR. ------------------------------------------------ Philip R. Lochner, Jr. Director Date: February 23, 2000 By /s/ JAMES L. PACKARD ------------------------------------------------ James L. Packard Director Date: February 23, 2000 By /s/ STANTON K. SMITH, JR. ------------------------------------------------ Stanton K. Smith, Jr. Director Date: February 23, 2000 By /s/ DON A. WOLF ------------------------------------------------ Don A. Wolf Director
18 19 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders CLARCOR Inc. Rockford, Illinois Our audits of the consolidated financial statements referred to in our report dated January 7, 2000 appearing on page 28 in the 1999 Annual Report to Shareholders of CLARCOR Inc. and Subsidiaries (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a) of this Form 10-K (page 13, index of exhibits). In our opinion, the financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP Chicago, Illinois January 7, 2000 F-1 20 CLARCOR INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997 (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 - ------------------------------------- ---------- ---------- ---------- ---------- ---------- 1999: Allowance for losses on accounts receivable......................... $2,711 $ 975 $2,255(A) $ 786(B) $5,155 ====== ====== ====== ====== ====== 1998: Allowance for losses on accounts receivable......................... $2,106 $3,075 $ 46(A) $2,516(B) $2,711 ====== ====== ====== ====== ====== 1997: Allowance for losses on accounts receivable......................... $2,007 $ 696 $ 58(A) $ 655(B) $2,106 ====== ====== ====== ====== ======
NOTES: (A) Due to business acquisitions. (B) Bad debts written off during year, net of recoveries. F-2 EX-10.5(B) 2 AMENDMENTS TO THE 1994 INCENTIVE PLAN 1 EXHIBIT 10.5(B) CLARCOR INC. RESOLUTIONS OF THE BOARD OF DIRECTORS AMENDING THE 1994 INCENTIVE PLAN Pursuant to Article IX, Section 2 of the Company's 1994 Incentive Plan (the "Plan"), the Board of Directors of CLARCOR Inc. adopted and approved the following amendments to the Plan. RESOLVED, that on September 20, 1999, Article II, Section 3a of the Plan be amended to read in its entirety as follows: "(a) Retirement. Subject to paragraph (e) below and unless otherwise determined by the Committee, if the employment by the Company of the holder of an option or SAR terminates by reason of retirement on or after age 65 (or prior to such age with the consent of the Committee), each option and SAR held by such holder shall become fully exercisable and may thereafter by exercised by such holder (or such holders guardian, legal representative or similar person) for a period specified at any time or from time to time by the Committee prior to the date on which such retirement begins; provided that such period shall not extend beyond the expiration date of the term of such option or SAR specified in the Agreement relating thereto." RESOLVED, that on December 20, 1999, Article IX, Section 5 Tax Withholding be, and it is hereby amended by the deletion therefrom of the sentence reading "An Agreement may provide for shares of Common Stock to be delivered or withheld having an aggregate Fair Market Value in excess of the minimum amount required to be withheld, but not in excess of the amount determined by applying the holder's maximum marginal tax rate." and substituting therefor the following sentence: "Shares of Common Stock to be delivered or withheld may not have an aggregate Fair Market Value in excess of the amount determined by applying the minimum statutory withholding rate." RESOLVED, FURTHER, that Article II, Section 1(c) Method of Exercise, shall be amended by deleting clause (C) therefrom so that such provision reads in its entirety as follows: "(c) Method of Exercise. An option may be exercised (i) by giving written notice to the Company specifying the number of whole shares 2 of Common Stock to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Committee's satisfaction) either (A) in cash, (B) in previously owned whole shares of Common Stock (which the optionee has held for at least six months prior to delivery of such shares and for which the optionee has good title free and clear of all liens and encumbrances) having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable pursuant to such option by reason of such exercise, (C) in cash by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise or (D) a combination of (A) and (B), in each case to the extent determined by the Committee at the time of grant of the option, (ii) if applicable, by surrendering to the Company any Tandem SARs which are canceled by reason of the exercise of the option and (iii) by executing such documents as the Company may reasonably request. The Committee shall have sole discretion to disapprove of an election pursuant to any of clauses (B) through (D) above. No shares of Common Stock shall be issued until the full purchase price has been paid." RESOLVED, FURTHER, that Article II, Section 3(c) Other Termination shall be amended to read in its entirety as follows: "(c) Other Termination. Subject to paragraph (e) below and unless otherwise determined by the Committee at the time of grant of an option or SAR, as the case may be, if the employment by the Company of the holder of an option or SAR terminates for any reason other than retirement on or after age 65 (or prior to such age with the consent of the Committee), Disability or death, each option and SAR held by such holder shall terminate 90 days (or such shorter period as may be determined by the Committee) after the date of such termination of employment or upon the expiration of the term of such option or SAR, whichever period is shorter. Such option or SAR shall be exercisable only to the extent such option or SAR was exercisable the date of such holder's termination of employment." EX-13.(A)(II) 3 CONSOLIDATED BALANCE SHEETS 1 EXHIBIT 13(a)ii CONSOLIDATED BALANCE SHEETS November 30, 1999 and 1998 (Dollars in thousands except per share data)
ASSETS 1999 1998 - ------------------------------------------------------------------------------------------ Current assets: Cash and short-term cash investments...................... $ 14,745 $ 33,321 Accounts receivable, less allowance for losses of $5,155 for 1999 and $2,711 for 1998........................... 103,986 67,557 Inventories .............................................. 89,850 58,614 Prepaid expenses and other current assets................. 11,830 2,444 Deferred income taxes..................................... 7,259 6,237 ------------------------- Total current assets............................ 227,670 168,173 ------------------------- Plant assets, at cost less accumulated depreciation........... 126,026 86,389 Acquired intangibles, less accumulated amortization........... 91,151 21,665 Pension assets................................................ 17,879 15,907 Other noncurrent assets....................................... 10,265 13,632 ------------------------- Total assets.................................... $ 472,991 $ 305,766 ========================= LIABILITIES - ----------------------------------------------------------------------------------------- Current liabilities: Current portion of long-term debt......................... $ 5,440 $ 470 Accounts payable and accrued liabilities.................. 87,593 54,525 Income taxes.............................................. 4,442 6,188 ------------------------- Total current liabilities....................... 97,475 61,183 ------------------------- Long-term debt, less current portion.......................... 145,981 36,419 Postretirement health care benefits........................... 3,342 1,821 Long-term pension liabilities................................. 3,577 8,896 Deferred income taxes......................................... 10,238 9,920 Other long-term liabilities................................... 1,265 431 Minority interests............................................ 395 289 Contingencies SHAREHOLDERS' EQUITY - ----------------------------------------------------------------------------------------- Capital stock: Preferred, par value $1, authorized 5,000,000 shares, none issued .......................................... -- -- Common, par value $1, authorized 60,000,000 shares, issued 24,019,722 in 1999 and 23,949,358 in 1998........ 24,020 23,949 Capital in excess of par value............................ 948 156 Accumulated other comprehensive earnings: Foreign currency translation adjustments............... (4,151) (2,993) Retained earnings......................................... 189,901 165,695 ------------------------- Total shareholders' equity...................... 210,718 186,807 ------------------------- Total liabilities and shareholders' equity...... $ 472,991 $ 305,766 =========================
The accompanying notes are an integral part of the consolidated financial statements. 15 EX-13.(A)(III) 4 CONSOLIDATED STATEMENTS OF EARNINGS 1 EXHIBIT 13(a)iii CONSOLIDATED STATEMENTS OF EARNINGS For the years ended November 30, 1999, 1998 and 1997 (Dollars in thousands except per share data)
1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- Net sales............................................... $ 477,869 $ 426,773 $ 394,264 Cost of sales........................................... 329,282 291,537 273,702 ------------------------------------------------ Gross profit..................................... 148,587 135,236 120,562 Selling and administrative expenses..................... 92,510 83,573 73,166 Merger-related costs.................................... -- -- 2,972 ------------------------------------------------ Operating profit................................. 56,077 51,663 44,424 ------------------------------------------------ Other income (expense): Interest expense.................................... (3,733) (2,336) (2,759) Interest income..................................... 1,451 1,283 1,020 Gain on sale of marketable securities............... -- -- 1,706 Gain on sale of plant assets........................ 1,660 1,310 512 Other, net.......................................... 160 (573) (711) ------------------------------------------------ (462) (316) (232) ------------------------------------------------ Earnings before income taxes and minority interests 55,615 51,347 44,192 Provision for income taxes.............................. 20,137 19,262 17,164 ------------------------------------------------ Earnings before minority interests............... 35,478 32,085 27,028 Minority interests in earnings of subsidiaries.......... (66) (6) (110) ------------------------------------------------ Net earnings............................................ $ 35,412 $ 32,079 $ 26,918 ================================================ Net earnings per common share: Basic............................................... $ 1.48 $ 1.32 $ 1.12 Diluted............................................. $ 1.46 $ 1.30 $ 1.11 ================================================ Average number of common shares outstanding: Basic............................................... 23,970,011 24,268,250 24,133,472 Diluted............................................. 24,313,607 24,648,623 24,343,881 ================================================
The accompanying notes are an integral part of the consolidated financial statements. 16 EX-13.(A)(IV) 5 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 1 EXHIBIT 13(a)iv CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the years ended November 30, 1999, 1998 and 1997 (Dollars in thousands except per share data)
Common Stock -------------------------------------------- Number of Shares Amount Accumulated --------------------- ------------------ Capital in Other In In Excess of Comprehensive Retained Issued Treasury Issued Treasury Par Value Earnings Earnings Total - ---------------------------------------------------------------------------------------------------------------------------------- Balance, November 30, 1996 ..... 23,933,676 - $ 15,956 $ - $ 1,276 $ (761) $138,210 $ 154,681 Net earnings ................... - - - - - - 26,918 26,918 Other comprehensive earnings: Translation adjustments ...... - - - - - (947) - (947) Reclassification adjustment for realized gain on sale of marketable securities ... - - - - - (992) - (992) ------- Total comprehensive earnings . 24,979 ------- Stock options exercised ........ 293,965 - 196 - 1,380 - 5 1,581 Issuance of stock under award plans ................ 15,962 - 10 - 201 - - 211 Cash dividends - $0.4350 per common share ........... - - - - - - (10,290) (10,290) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, November 30, 1997 ..... 24,243,603 - 16,162 - 2,857 (2,700) 154,843 171,162 - ----------------------------------------------------------------------------------------------------------------------------------- Net earnings ................... - - - - - - 32,079 32,079 Other comprehensive earnings: Translation adjustments ...... - - - - - (293) - (293) ------- Total comprehensive earnings . 31,786 ------- Purchase of treasury stock ..... - (528,691) - (8,447) - - - (8,447) Retirement of treasury stock ... (528,691) 528,691 (529) 8,447 (5,553) - (2,365) - Stock split .................... - - 8,145 - -- - (8,145) - Stock options exercised ........ 212,260 - 154 - 2,391 - - 2,545 Issuance of stock under award plans ................ 22,186 - 17 - 461 - - 478 Cash dividends - $0.4425 per common share ........... - - - - - - (10,717) (10,717) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, November 30, 1998 ..... 23,949,358 - 23,949 - 156 (2,993) 165,695 186,807 - ----------------------------------------------------------------------------------------------------------------------------------- Net earnings ................... - - - - - - 35,412 35,412 Other comprehensive earnings: Translation adjustments ...... - - - - - (1,158) - (1,158) ------- Total comprehensive earnings . 34,254 ------- Purchase of treasury stock ..... - (50,000) - (897) - - - (897) Retirement of treasury stock ... (50,000) 50,000 (50) 897 (455) - (392) - Stock options exercised ........ 82,344 - 83 - 740 - - 823 Issuance of stock under award plans ................ 38,020 - 38 - 507 - - 545 Cash dividends - $0.4525 per common share ........... - - - - - - (10,814) (10,814) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, November 30, 1999 ..... 24,019,722 - $ 24,020 $ - $ 948 $(4,151) $ 189,901 $ 210,718 ===================================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. 17 EX-13.(A)(V) 6 CONSOLIDATED STATEMENTS OF CASH FLOWS 1 EXHIBIT 13(a)v CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998 AND 1997 (Dollars in thousands)
1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings................................................ $ 35,412 $ 32,079 $ 26,918 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation............................................. 13,729 11,692 11,001 Amortization............................................. 1,643 688 599 Gain on sale of marketable securities.................... - - (1,706) Minority interests in earnings of subsidiaries........... 66 6 110 Net gain on dispositions of plant assets................. (1,660) (1,310) (512) Changes in assets and liabilities, net of business acquisitions: Accounts receivable................................... (6,062) (3,460) (3,224) Inventories........................................... (4,585) 1,046 (1,058) Prepaid expenses and other current assets............. (1,369) (912) 1,028 Other noncurrent assets............................... (18) (3,235) 27 Accounts payable and accrued liabilities.............. 4,790 4,841 7,220 Pension assets and liabilities, net................... (583) (1,463) (443) Income taxes.......................................... (2,366) 2,065 1,771 Deferred income taxes................................. (355) 230 (99) ------------------------------------------------- Net cash provided by operating activities......... 38,642 42,267 41,632 ------------------------------------------------- Cash flows from investing activities: Additions to plant assets................................... (21,822) (15,825) (11,349) Business acquisitions, net of cash acquired................. (142,709) (7,984) (1,522) Proceeds from sale of marketable securities................. - - 3,322 Proceeds from note receivable............................... - 2,500 - Dispositions of plant assets................................ 3,873 2,542 2,100 Other, net.................................................. - (523) (744) ------------------------------------------------- Net cash used in investing activities............. (160,658) (19,290) (8,193) ------------------------------------------------- Cash flows from financing activities: Borrowings under long-term debt............................. 115,000 - 1,123 Reduction of long-term debt................................. (468) (2,669) (13,988) Sales of capital stock under stock option plan.............. 680 1,890 1,305 Purchases of treasury stock................................. (897) (8,447) - Cash dividends paid......................................... (10,814) (10,717) (10,290) ------------------------------------------------- Net cash provided by (used in) financing activities 103,501 (19,943) (21,850) ------------------------------------------------- Net effect of exchange rate changes on cash..................... (61) (37) (92) ------------------------------------------------- Net change in cash and short-term cash investments........................................ (18,576) 2,997 11,497 Cash and short-term cash investments, beginning of year....................................... 33,321 30,324 18,827 ------------------------------------------------- Cash and short-term cash investments, end of year............... $ 14,745 $ 33,321 $ 30,324 =================================================
The accompanying notes are an integral part of the consolidated financial statements. 18 EX-13.(A)(VI) 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 EXHIBIT 13(a)vi NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share data) A. ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include all domestic and foreign subsidiaries that are more than 50% owned and controlled. CLARCOR Inc. and its subsidiaries are hereinafter collectively referred to as the "Company" or CLARCOR. Minority interests represent an outside shareholder's 10% ownership of the common stock of Filtros Baldwin de Mexico (FIBAMEX) and outside shareholders' 20% ownership of Baldwin-Unifil S.A. FOREIGN CURRENCY TRANSLATION Financial statements of foreign subsidiaries are translated into U.S. dollars at current rates, except that revenues, costs and expenses are translated at average current rates during each reporting period. Net exchange gains or losses resulting from the translation of foreign financial statements and the effect of exchange rate changes on intercompany transactions of a long-term investment nature are accumulated with other comprehensive earnings as a separate component of shareholders' equity and are presented, net of tax, in the Consolidated Statements of Shareholders' Equity. PLANT ASSETS Depreciation is provided by the straight-line and accelerated methods for financial statement purposes and by the accelerated method for tax purposes. The provision for depreciation is based on the estimated useful lives of the assets (15 to 40 years for buildings and improvements and 3 to 15 years for machinery and equipment). It is the policy of the Company to capitalize renewals and betterments and to charge to expense the cost of current maintenance and repairs. EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED AND OTHER INTANGIBLE ASSETS The excess of cost over fair value of assets acquired is being amortized over a forty-year period using the straight-line method. Other acquired intangible assets are being amortized over the estimated periods to be benefited using the straight-line method. These intangibles include trademarks (40 year life), patents (average 14 year life), and other identifiable intangible assets with lives ranging from one to thirty years. Impairment losses, as determined by underlying cash flows related to specific groups of plant assets, identifiable intangibles and excess cost over fair value of assets acquired, are applied first to related goodwill. STATEMENTS OF CASH FLOWS All highly liquid investments that are readily saleable are considered to be short-term cash investments. The carrying amount approximates fair value. CONCENTRATIONS OF CREDIT AND FINANCIAL INSTRUMENTS Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of short-term cash investments and trade receivables. The Company places its short-term cash investments in high-grade municipal securities and classifies them as trading securities. At November 30, 1999 and 1998, the Company held short-term municipal securities with a total cost of $12,720 and $32,420, respectively, with original maturities through October 2005. Cost approximates market for these securities. Concentrations of credit risk with respect to trade receivables are limited due to the Company's large number of customers and their dispersion across many different industries and locations. INCOME TAXES The Company provides for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." SFAS 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. REVENUE RECOGNITION Revenue is recognized upon shipment of goods to customers. COMPREHENSIVE EARNINGS Effective December 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components. Foreign currency translation adjustments and unrealized holding gains, which the Company previously reported separately in shareholders' equity, are now included in other comprehensive earnings. The adoption of this Statement has no impact on the Company's net earnings or shareholders' equity. Prior year financial statements have been reclassified to conform to the requirements of SFAS 130. USE OF MANAGEMENT'S ESTIMATES The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 19 2 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share data) ACCOUNTING PERIOD The Company's fiscal year ends on the Saturday closest to November 30. Each of the fiscal years ended November 27, 1999, November 28, 1998 and November 29, 1997, was comprised of fifty-two weeks. In the consolidated financial statements, all fiscal years are shown to begin as of December 1 and end as of November 30 for clarity of presentation. RECLASSIFICATIONS Certain reclassifications have been made to conform prior years' data to the current presentation. These reclassifications had no effect on reported earnings. B. BUSINESS COMBINATIONS, INVESTMENTS IN AFFILIATES, AND DIVESTITURE On September 10, 1999, the Company completed its acquisitions of Purolator Air Filtration (Purolator), Facet International (Facet), and Purolator Facet, Inc. (PFI), manufacturers of air and liquid filtration products, for approximately $142,400, net of cash received, including acquisition expenses. The purchase price was paid in cash with available funds and proceeds from long-term borrowings of approximately $115,000 from a revolving credit facility. (See Note H.) As a result of the acquisitions, Purolator, Facet, and PFI became subsidiaries of the Company and are included in the Company's Industrial/ Environmental Filtration segment. The Company's non-cash investing and financing activities related to this acquisition included assumed liabilities of $25,783. The transaction was accounted for under the purchase method of accounting with the excess of the initial purchase price over the preliminary estimated fair value of the net tangible and identifiable intangible assets acquired recorded as goodwill and amortized over 40 years by the straight-line method. Other acquired intangible assets are being amortized as discussed in Note A. The initial purchase price was based on the net assets of the businesses acquired as shown on a February 28, 1999 balance sheet and is subject to a final adjustment based on the net assets of the businesses. A preliminary allocation of the initial purchase price has been made to major categories of assets and liabilities. The allocation will be completed when the Company finalizes a closing balance sheet in accordance with the purchase agreement, completes the estimates of liabilities assumed, and finalizes the estimates associated with exit and other costs of the acquisitions. The Company expects to finalize its plans for integrating the acquired businesses with its existing operations by the end of the third quarter of fiscal 2000 and any resulting changes to the estimated $285 accrued for severance and exit costs will be reflected as an adjustment to the allocation of the purchase price. The operating results are included in the Company's consolidated results of operations from September 1, 1999, the effective date of the acquisitions. The following unaudited pro forma information summarizes the results of operations for the periods indicated as if the acquisitions had been completed as of the beginning of the periods presented. The pro forma information gives effect to actual operating results prior to the acquisitions, adjusted to include the pro forma effect of interest expense, depreciation, amortization of intangibles and income taxes. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisitions had occurred as of the beginning of the periods presented or that may be obtained in the future.
Years Ended November ---------------------- 1999 1998 --------------------- Net sales............................... $ 591,869 $ 576,973 Net earnings............................ 36,625 32,277 Basic earnings per share................ 1.53 1.33 Diluted earnings per share.............. 1.51 1.31
During 1998, the Company purchased Air Technologies, Inc. (ATI), an Ottawa, Kansas manufacturer of air filtration products, and a small filter distributor. Each acquisition was made for cash and accounted for under the purchase method of accounting. Both of these companies became wholly-owned subsidiaries of the Company. Also during 1998, the Company purchased the remaining 50% interest in Baldwin Australia and an additional 10% interest in Baldwin-Unifil S.A. These acquisitions did not have a significant impact on the results of the Company. On February 28, 1997, the Company completed its acquisition of United Air Specialists, Inc. (UAS), a manufacturer of air quality equipment based in Cincinnati, Ohio. The Company issued 1,622,612 shares of its common stock in exchange for all the shares of UAS stock. Additional shares of the Company's common stock will be issued upon exercise of UAS options. (See Note N for a discussion of the additional shares to be issued.) The transaction was structured as a statutory merger accounted for as a pooling of interests. As a result of the acquisition, UAS became a subsidiary of the Company. A one-time, pre-tax charge of $2,972 ($2,390 net of tax) covering the costs of the merger includes legal and professional fees, non-compete agreements, and costs to integrate the businesses of the two companies. Other business acquisitions in fiscal 1997 included Airklean Engineering Pte. Ltd., an Airguard distributor in Singapore; a filter distributor in Toledo, Ohio; and The Filtair Company in Arlington, Texas. Each company was purchased for cash. None of these acquisitions had a significant impact on the results of the Company. Also during 1997, the Company sold the assets of its Tube division located in Downers Grove, Illinois. The divestiture did not have a significant impact on the results of the Company. 20 3 C. INVESTMENT IN MARKETABLE SECURITIES In December 1996, the Company sold its remaining 2.5% investment interest in G.U.D. Holdings Limited, an Australian company, recognizing a pretax gain on the sale of $1,706 in fiscal 1997. The unrealized holding gains, net of deferred income taxes of $992, were included as a component of accumulated other comprehensive earnings at November 30, 1996. D. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for approximately 52% and 60% of the Company's inventories at November 30, 1999 and 1998, respectively, and by the first-in, first-out (FIFO) method for all other inventories. The FIFO method approximates current cost. Inventories are summarized as follows:
1999 1998 --------------------- Raw materials........................... $ 33,274 $ 20,657 Work-in-process......................... 15,203 9,231 Finished products....................... 42,978 30,767 -------------------- Total at FIFO........................... 91,455 60,655 Less excess of FIFO over LIFO........... 1,605 2,041 -------------------- $ 89,850 $ 58,614 ====================
E. PLANT ASSETS Plant assets at November 30, 1999 and 1998 were as follows:
1999 1998 -------------------- Land.................................... $ 3,853 $ 2,491 Buildings and building fixtures......... 65,845 53,392 Machinery and equipment................. 163,481 128,467 Construction-in-process................. 11,108 9,322 -------------------- 244,287 193,672 Less accumulated depreciation........... 118,261 107,283 -------------------- $ 126,026 $ 86,389 ====================
F. ACQUIRED INTANGIBLES Acquired intangibles, net of accumulated amortization at November 30, 1999 and 1998 consisted of the following:
1999 1998 ------------------ Excess of cost over fair value of assets acquired .... $49,784 $21,665 Trademarks ........................................... 30,140 -- Other acquired intangibles ........................... 11,227 -- ----------------- $91,151 $21,665 =================
Accumulated amortization was $9,890 and $8,306 at November 30, 1999 and 1998, respectively. G. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities at November 30, 1999 and 1998 were as follows:
1999 1998 ----------------- Accounts payable ............................ $42,477 $26,528 Accrued salaries, wages and commissions ..... 10,875 8,249 Compensated absences ........................ 6,224 3,967 Accrued pension liabilities ................. 6,711 263 Other accrued liabilities ................... 21,306 15,518 ----------------- $87,593 $54,525 =================
H. LONG-TERM DEBT Long-term debt at November 30, 1999 and 1998 consisted of the following:
1999 1998 ------------------- Multicurrency revolving credit agreement, interest payable at the end of each funding period at an adjusted LIBOR .... $115,000 $ -- Promissory note, interest payable semi-annually at 6.69% ................. 25,000 25,000 Industrial Revenue Bonds, at 2.20% to 4.55% interest rates ................... 10,438 10,710 Other obligations, at 7% to 10% interest rates ......................... 983 1,179 ------------------- 151,421 36,889 Less current portion ......................... 5,440 470 ------------------- $145,981 $ 36,419 ===================
A fair value estimate of $143,867 and $34,631 for the long-term debt in 1999 and 1998, respectively, is based on the current interest rates available to the Company for debt with similar remaining maturities. In September 1999, the Company entered into a three-year, multicurrency revolving credit agreement with a group of participating financial institutions under which it may borrow up to $185,000. The agreement provides that loans may be made under a selection of currencies and rate formulas. The interest rate is based upon either a defined Base Rate or the London Interbank Offered Rate (LIBOR) plus applicable margins. Facility fees and other fees on the entire loan commitment are payable for the duration of this facility. At November 30, 1999, $115,000 was outstanding under this agreement and the interest rate was 6.51%. Borrowings under the credit facility are uncollateralized but are guaranteed by certain of the Company's subsidiaries. The agreement related to this borrowing includes certain restrictive covenants that include maintaining minimum consolidated net worth of $160,000, limiting new borrowings, maintaining a minimum interest coverage, and restricting certain changes in ownership as stipulated in the agreement. This agreement also includes a letter of credit facility, 21 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share data) against which $11,405 in letters of credit had been issued at November 30, 1999, that replaced a $25,000 revolving credit facility with a financial institution, against which $10,305 letters of credit had been issued at November 30, 1998. Subsequent to the end of the fiscal year, the Company entered into an interest swap agreement to manage its interest exposure under the multicurrency credit revolver. The agreement provides for the Company to pay a 6.04% fixed interest rate on a notional amount of $115,000 and to receive interest at floating rates based on LIBOR. The agreement matures in March 2000. The 6.69% promissory note matures July 25, 2004, but the Company is required to prepay, without premium, certain principal amounts as stated in the agreement. Under the note agreements, the Company must meet certain restrictive covenants. The covenants were amended during 1999 to be similar to those contained in the multicurrency revolving credit facility. On February 1, 1996, the Company, in cooperation with the South Dakota Economic Development Finance Authority, issued $8,410 of Industrial Revenue Bonds. The bonds are due February 1, 2016, with a variable rate of interest that is reset weekly. The Company has other outstanding Industrial Revenue Bonds of $2,028 and $2,300 as of November 30, 1999 and 1998, respectively. These mature in 2005 and are backed by a letter of credit that requires an annual fee of 1.25% of the outstanding balance. This letter of credit expires in May 2001. Exclusive of the multicurrency revolving credit facility, principal maturities of long-term debt for the next five fiscal years ending November 30 approximates: $5,440 in 2000, $5,462 in 2001, $5,488 in 2002, $5,515 in 2003, $5,570 in 2004 and $8,946 thereafter. The borrowings under the revolving credit facility that matures in 2002 have been classified as long-term as the Company has both the intent and ability to refinance this amount on a long-term basis. Interest paid totaled $2,228, $2,293 and $2,870 during 1999, 1998 and 1997, respectively. I. LEASES The Company has various lease agreements for offices, warehouses, manufacturing plants and equipment that expire on various dates through June 2007 and contain renewal options. Some of these leases provide for payment of property taxes, utilities and certain other expenses. Commitments for minimum rentals under noncancelable leases at November 30, 1999 for the next five years are: $4,826 in 2000, $3,225 in 2001, $2,286 in 2002, $918 in 2003 and $419 in 2004. Rent expense totaled $6,063, $5,189 and $4,130 for the years ended November 30, 1999, 1998 and 1997, respectively. J. PENSION AND OTHER POSTRETIREMENT PLANS The Company has defined benefit pension plans and postretirement health care plans covering certain employees and retired employees. In addition to the plan assets related to qualified plans, the Company has funded approximately $8,550 and $8,279 at November 30, 1999 and 1998, respectively, in restricted trusts for its nonqualified plans. These trusts are included in other current and other noncurrent assets in the Company's Consolidated Balance Sheets. The following table shows reconciliations of the pension plans and other postretirement plan benefits as of November 30, 1999 and 1998. The accrued pension benefit liability includes an unfunded benefit obligation of $11,445 and $10,830 as of November 30, 1999 and 1998, respectively. The obligations have been determined with a weighted average discount rate of 7.50% and 6.75% in 1999 and 1998, respectively, and a rate of increase in future compensation of primarily 5.0% in both years. The expected weighted average long-term rate of return was 9.0% in both 1999 and 1998.
Pension Postretirement Benefits Benefits -------------------------------------------- 1999 1998 1999 1998 -------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year ............................................................. $ 75,986 $ 69,036 $ 2,342 $ 2,431 Service cost ............................................................... 2,364 2,248 13 13 Interest cost .............................................................. 5,251 4,882 149 167 Actuarial (gains)/losses ................................................... (6,378) 4,065 18 15 Acquisitions ............................................................... -- -- 1,606 -- Benefits paid .............................................................. (3,867) (4,245) (262) (284) -------------------------------------------- Benefit obligation at end of year .......................................... 73,356 75,986 3,866 2,342 -------------------------------------------- Change in plan assets: Fair value of plan assets at beginning of year................................................... 79,828 78,046 -- -- Actual return on plan assets............................................... 11,076 5,500 -- -- Employer contribution ..................................................... -- 41 -- -- Benefits paid ............................................................. (3,690) (3,759) -- -- -------------------------------------------- Fair value of plan assets at end of year .................................. 87,214 79,828 -- -- -------------------------------------------- Funded status.............................................................. 13,858 3,842 (3,866) (2,342) Unrecognized net transition asset ......................................... (1,056) (2,112) -- -- Unrecognized prior service cost ........................................... 210 272 -- -- Unrecognized net actuarial (gain)/loss ......................................................... (5,421) 5,157 244 226 -------------------------------------------- Net amount recognized ..................................................... $ 7,591 $ 7,159 $ (3,622) $ (2,116) ============================================ Amounts recognized in the Consolidated Balance Sheets include: Prepaid benefit cost .......................................... $ 17,879 $ 15,907 $ -- $ -- Accrued benefit liability ..................................... (10,288) (9,159) (3,622) (2,116) Intangible asset .............................................. -- 411 -- -- -------------------------------------------- Net amount recognized ..................................................... $ 7,591 $ 7,159 $ (3,622) $ (2,116) ============================================
22 5 The components of net periodic benefit cost for the pensions are shown below.
Pension Benefits ------------------------------ 1999 1998 1997 ------------------------------ Components of net periodic benefit cost: Service cost ............................. $ 2,364 $ 2,248 $ 2,029 Interest cost ............................ 5,251 4,882 4,558 Expected return on plan assets ........... (7,041) (6,883) (5,880) Additional recognition amount ............ 196 196 488 Amortization of unrecognized: Net transition asset ................ (1,056) (1,056) (1,087) Prior service cost .................. 62 63 342 Net actuarial loss .................. 54 64 13 ------------------------------ Net periodic benefit (income)/cost ....... $ (170) $ (486) $ 463 =============================
The postretirement obligations represent a fixed dollar amount per retiree. The Company has the right to modify or terminate these benefits. The participants will assume substantially all future health care benefit cost increases, and therefore, future increases in health care costs will not increase the postretirement benefit obligation or cost to the Company. Therefore, the Company has not assumed any annual rate of increase in the per capita cost of covered health care benefits for future years and, therefore, a one percentage point change in the assumed health care cost trend rate would not have an effect. The components of net periodic benefit cost for the postretirement health care are shown below.
Postretirement Benefits ----------------------- 1999 1998 1997 ----------------------- Components of net periodic benefit cost: Service cost ................................. $ 13 $ 13 $ 7 Interest cost ................................ 149 166 162 ------------------ Net periodic benefit cost .................... $162 $179 $169 ==================
The Company also sponsors various defined contribution plans that provide employees with an opportunity to accumulate funds for their retirement. The Company matches the contributions of participating employees based on the percentages specified in the respective plans. The Company recognized expense related to these plans of $1,211, $1,037 and $941 in 1999, 1998 and 1997, respectively. K. INCOME TAXES The provision for income taxes consisted of:
1999 1998 1997 ----------------------------- Current: Federal.................... $17,909 $16,976 $15,095 State...................... 2,177 2,784 2,356 Foreign.................... 1,036 585 446 Deferred........................ (985) (1,083) (733) ----------------------------- $20,137 $19,262 $17,164 =============================
Income taxes paid, net of refunds, totaled $22,234, $16,199 and $15,112 during 1999, 1998 and 1997, respectively. The components of the net deferred tax liability as of November 30, 1999 and 1998 were as follows:
1999 1998 -------- -------- Deferred tax assets: Deferred compensation ....................... $ 2,792 $ 2,296 Other postretirement benefits ............... 719 741 Foreign net operating loss carryforwards .... 203 422 Accounts receivable ......................... 1,538 833 Inventories ................................. 1,975 1,397 Other ....................................... 751 1,487 -------- -------- Total gross deferred tax assets .................. 7,978 7,176 -------- -------- Deferred tax liabilities: Pensions .................................... (2,656) (2,506) Plant assets ................................ (7,911) (7,981) Other ....................................... (390) (372) -------- -------- Total gross deferred tax liabilities ............. (10,957) (10,859) -------- -------- Net deferred tax liability ....................... $ (2,979) $ (3,683) ======== ========
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:
1999 1998 1997 --------------------------- Domestic income .... $53,467 $49,762 $42,874 Foreign income ..... 2,148 1,585 1,318 --------------------------- Total ......... $55,615 $51,347 $44,192 ===========================
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 ---------------------------- 1999 1998 1997 ---------------------------- Statutory U.S. tax rates .......................... 35.0% 35.0% 35.0% State income taxes, net of federal benefit ........ 2.6 3.4 3.2 Foreign sales ..................................... (0.8) (0.7) (0.8) Merger-related costs .............................. -- -- 0.8 Other, net ........................................ (0.6) (0.2) 0.6 -------------------------- Consolidated effective income tax rate ............ 36.2% 37.5% 38.8% ==========================
L. CONTINGENCIES The Company is involved in legal actions arising in the normal course of business. Additionally, the Company is party to various proceedings relating to environmental issues. The U.S. Environmental Protection Agency (EPA) and/or other responsible state agencies have designated the Company as a potentially responsible 23 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share data) party (PRP), along with other companies, in remedial activities for the cleanup of waste sites under the federal Superfund statute. Environmental and related remediation costs are difficult to quantify for a number of reasons, including the number of parties involved, the difficulty in determining the extent of the contamination, the length of time remediation may require, the complexity of the environmental regulation and the continuing advancement of remediation technology. Applicable federal law may impose joint and several liability on each PRP for the cleanup. It is the opinion of management after consultation with legal counsel that additional liabilities, if any, resulting from these legal or environmental issues, are not expected to have a material adverse effect on the Company's financial condition or consolidated results of operations. M. PREFERRED STOCK PURCHASE RIGHTS In March 1996, the Board of Directors of CLARCOR adopted a Shareholder Rights Plan to replace an existing plan that expired on April 25, 1996. Under the terms of the Plan, each shareholder received rights to purchase shares of CLARCOR Series B Junior Participating Preferred Stock. The rights become exercisable only after the earlier to occur of (i) 10 business days after the first public announcement that a person or group (other than a CLARCOR related entity) has become the beneficial owner of 15% or more of the outstanding shares of CLARCOR Common Stock; or (ii) 10 business days (unless extended by the CLARCOR Board in accordance with the Rights Agreement) after the commencement of, or the intention to make, a tender or exchange offer, the consummation of which would result in any person or group (other than a CLARCOR related entity) becoming such a 15% beneficial owner. Each right entitles the holder to buy one-hundredth of a share of such preferred stock at an exercise price of $80 subject to certain adjustments. Once the rights become exercisable, each right will entitle the holder, other than the acquiring individual or group, to purchase a number of CLARCOR common shares at a 50% discount to the then-market price of CLARCOR Common Stock. In addition, under certain circumstances, if the rights become exercisable, the holder will be entitled to purchase the stock of the acquiring individual or group at a 50% discount. The Board may also elect to redeem the rights at $.01 per right. The rights expire on April 25, 2006. The authorized preferred stock includes 300,000 shares designated as Series B Junior Participating Preferred Stock. N. INCENTIVE PLAN In 1994, the shareholders of CLARCOR adopted the 1994 Incentive Plan, which allows the Company to grant stock options, restricted stock and performance awards to officers, directors and key employees. The 1994 Incentive Plan incorporates the various incentive plans in existence prior to March 1994. In addition, the Company has, in connection with the acquisition of UAS, assumed the stock option plans of UAS and has reserved 29,005 shares of the Company's common stock for issuance under the assumed UAS stock option plans. At the inception of the 1994 Incentive Plan, there were 1,500,000 shares authorized for future grants. In 1998, the shareholders approved an amendment to the 1994 Incentive Plan to allow grants and awards of up to 1.5% of the outstanding common stock as of January 1 of each calendar year. Any portion of the 1.5% that is not granted in a given year is available for future grants. In addition, the Compensation and Stock Option Committee of the Company's Board of Directors may approve an additional 1% of outstanding common stock to be awarded during any calendar year. After the close of fiscal year 1999, 391,708 shares were granted. The following is a description and a summary of key provisions related to this plan. STOCK OPTIONS On November 30, 1997, the Company adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." The Company continues to account for stock-based compensation using the intrinsic value method as prescribed under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Nonqualified stock options may, at the discretion of the Board of Directors, be granted at the fair market value at the date of grant or at an exercise price less than the fair market value at the date of grant. All options granted in 1999, 1998 and 1997 were at the fair market value at the dates of the grants. Options granted to key employees vest 25% per year beginning at the end of the third year; therefore, they become fully exercisable at the end of six years. Options granted to non-employee directors vest immediately. All options expire ten years from the date of grant unless otherwise terminated. 24 7 The following table summarizes the activity under the nonqualified stock option plans.
1999 1998 1997 ----------------------- ----------------------- ----------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ----------------------- ----------------------- ----------------------- Outstanding at beginning of year... 2,116,182 $14.18 1,895,086 $12.15 2,002,200 $11.44 Granted............... 287,982 18.00 518,239 19.86 290,625 14.63 Exercised/ surrendered......... (165,002) 12.93 (297,143) 11.10 (397,739) 10.39 -------------------------------------------------------------------------- Outstanding at end of year......... 2,239,162 $14.83 2,116,182 $14.18 1,895,086 $12.15 ========================================================================== Options exercisable at end of year...... 1,159,462 $12.62 1,110,433 $12.12 1,106,931 $11.13 ==========================================================================
The following table summarizes information about the options at November 30, 1999: Options Outstanding Options Exercisable ------------------------------------ ------------------- Weighted Weighted Weighted Range of Average Average Average Exercise Exercise Remaining Exercise Prices Number Price Life in Years Number Price - --------------- ----------------------------------- ------------------- $8.45 - $12.33 707,259 $11.15 2.73 688,509 $11.12 $12.58 - $17.94 779,347 $13.75 5.95 380,722 $13.45 $18.50 - $22.67 752,556 $19.42 8.00 90,231 $20.61 In addition, stock options outstanding and exercisable at November 30, 1999 and 1998 assumed as part of the UAS acquisition were 29,005 and 41,511, respectively. These substitute options have an exercisable price range per share of $2.40 to $5.94 at November 30, 1999 and expire between 2002 and 2005. No grants were made under these plans in 1997, 1998 or 1999 and no future additional awards will be granted. LONG RANGE PERFORMANCE AWARDS Officers and key employees may be granted target awards of Company shares of common stock and performance units, which represent the right to a cash payment. The awards are earned and shares are issued only to the extent that the Company achieves performance goals determined by the Board of Directors during a three-year performance period. The Company granted 26,656 and 15,063 performance shares on December 1, 1998 and 1997, respectively. As of November 30, 1999, 2,515 shares of the 1999 grant and 802 shares of the 1998 grant have been cancelled. The shares vest at the end of three years. During the performance period, officers and key employees are permitted to vote the restricted stock and receive compensation equal to dividends declared on common shares. The Company accrues compensation expense assuming attainment of the performance goals ratably during the performance cycle. Compensation expense for the plan totaled $534, $435 and $547 in 1999, 1998 and 1997, respectively. Distribution of Company common stock and cash for the performance periods ended November 30, 1999, 1998 and 1997 were $485, $537 and $341, respectively. DIRECTORS' RESTRICTED STOCK COMPENSATION The 1994 Incentive Plan grants all non-employee directors, in lieu of cash, shares of common stock equal to five years of directors' annual retainers. The directors' rights to the shares vest 20% on date of grant and 20% annually during the next four years. The directors are entitled to receive dividends and exercise voting rights with respect to all shares prior to vesting. Any unvested shares are forfeited if the director ceases to be a non-employee director for any reason. Compensation expense for the plan totaled $191, $149 and $121 in 1999, 1998 and 1997, respectively. During 1999 and 1998, respectively, 16,002 and 7,122 shares of Company common stock were issued under the plan. As of November 30, 1999, 1,321 shares from a prior year grant were forfeited. FAIR VALUE ACCOUNTING (SFAS 123) Had compensation expense for the Company's stock-based compensation plans been determined based on the fair value at the grant dates consistent with the method of SFAS 123, the Company's pro forma net earnings and diluted earnings per share would have been $34,848, $31,520 and $26,702 and $1.43, $1.28 and $1.10 for 1999, 1998 and 1997, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for 1999, 1998 and 1997. Adjustments for forfeitures are made as they occur. 1999 1998 1997 ------------------------------- Risk-free interest rate........... 4.87% 5.90% 5.98% Expected dividend yield........... 2.35% 2.60% 3.05% Expected volatility factor........ 24.50% 25.80% 26.10% Expected option term (in years)... 7.0 7.0 7.0 The weighted average fair value per option at the date of grant for options granted in 1999, 1998 and 1997 was $4.88, $5.63 and $4.05, respectively. The above pro forma disclosures may not be representative of the effects on reported net income and earnings per share for future years because compensation cost under SFAS 123 is amortized over the options' vesting period and compensation cost for options granted prior to fiscal year 1996 is not considered. 25 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share data) O. STOCK SPLIT, TREASURY STOCK TRANSACTIONS AND EARNINGS PER SHARE On March 24, 1998, the Company declared a three-for-two stock split in the form of a 50% stock dividend distributable April 24, 1998 to shareholders of record April 10, 1998. In connection therewith, the Company transferred $8,145 from retained earnings to common stock, representing the par value of additional shares issued. All share and per share amounts for all periods presented have been adjusted to reflect the stock split. During 1999 and 1998, the Company purchased and retired 50,000 and 528,691 shares of common stock, respectively. The number of issued shares was reduced as a result of the retirement of these shares. During the quarter ended February 28, 1998, the Company adopted Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share," which simplifies the calculation of earnings per share and requires presentation of both basic and diluted earnings per share on the Consolidated Statements of Earnings. Diluted earnings per share reflects the impact of outstanding stock options if exercised during the periods presented using the treasury stock method. The following table provides a reconciliation of the numerators and denominators utilized in the calculation of basic and diluted earnings per share. 1999 1998 1997 -------------------------------------- Net Earnings (numerator)................ $35,412 $32,079 $26,918 Basic EPS: Weighted average number of common shares outstanding (denominator)..................... 23,970,011 24,268,250 24,133,472 Basic per share amount............ $1.48 $1.32 $1.12 ====================================== Diluted EPS: Weighted average number of common shares outstanding...................... 23,970,011 24,268,250 24,133,472 Dilutive effect of stock options... 343,596 380,373 210,409 -------------------------------------- Diluted weighted average number of common shares outstanding (denominator)................ 24,313,607 24,648,623 24,343,881 Diluted per share amount....... $1.46 $1.30 $1.11 ====================================== For the fiscal years ended November 30, 1999 and 1998, respectively, 525,156 and 508,864 options with a weighted average exercise price of $19.81 and $19.86 were not included in the computation of diluted earnings per share as the options' exercise prices were greater than the average market price of the common shares during the respective periods. P. UNAUDITED QUARTERLY FINANCIAL DATA The unaudited quarterly data for 1999 and 1998 were as follows: First Second Third Fourth Quarter Quarter Quarter Quarter Total - -------------------------------------------------------------------------------- 1999: Net sales.......... $99,166 $110,483 $112,090 $156,130 $477,869 Gross profit....... 31,379 34,983 34,190 48,035 148,587 Net earnings....... 6,210 8,650 9,736 10,816 35,412 Net earnings per common share: Basic......... $0.26 $0.36 $0.41 $0.45 $1.48 Diluted....... $0.25 $0.36 $0.40 $0.45 $1.46 1998: Net sales.......... $97,786 $107,266 $110,058 $111,663 $426,773 Gross profit....... 28,775 34,849 34,698 36,914 135,236 Net earnings....... 5,337 8,030 8,769 9,943 32,079 Net earnings per common share: Basic......... $0.22 $0.33 $0.36 $0.41 $1.32 Diluted....... $0.22 $0.32 $0.35 $0.41 $1.30 Fourth quarter 1999 includes the acquisition of three industrial filtration businesses as discussed in Note B. Q. SEGMENT INFORMATION The Company adopted Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures About Segments of an Enterprise and Related Information," effective with year-end 1999. This standard requires that companies disclose selected information by operating segment. SFAS 131 defines an operating segment as a component of a company which engages in business activities from which it may earn revenues and incur expenses; has its operating results regularly reviewed by the entity's chief operating decision makers to make decisions about the allocation of resources and the assessment of performance; and has discrete financial information available. Based on the economic characteristics of the Company's business activities, the nature of products, customers and markets served, and the performance evaluation by management and the Company's Board of Directors, the Company has identified three reportable segments: Engine/Mobile Filtration, Industrial/ Environmental Filtration and Packaging. The adoption of SFAS 131 did not change the Company's identification of segments as reported in prior years. 26 9 The Engine/Mobile Filtration segment manufactures and markets a complete line of filters used in the filtration of oil, air, fuel, coolant, hydraulic and transmission fluids in both domestic and international markets. The Engine/Mobile Filtration segment provides filters for certain types of transportation equipment including automobiles, heavy-duty and light trucks, buses and locomotives, marine and mining equipment, and heavy-duty construction and agricultural equipment. The products are sold to aftermarket distributors, original equipment manufacturers and dealer networks, private label accounts and directly to truck service centers and large national accounts. The Industrial/Environmental Filtration segment manufactures and markets a complete line of filters, cartridges, dust collectors and filtration systems used in the filtration of air and industrial fluid processes in both domestic and international markets. The filters and filter systems are used in commercial and industrial buildings, hospitals, manufacturing processes, clean rooms, airports, shipyards, refineries, power generation plants and residences. The products are sold to commercial and industrial distributors, original equipment manufacturers and dealer networks, private label accounts, retailers and directly to large national accounts. The Packaging segment manufactures and markets consumer and industrial packaging products including custom-designed plastic and metal containers and closures and lithographed metal sheets in both domestic and international markets. The products are sold directly to consumer and industrial packaging customers. Net sales represent sales to unaffiliated customers. No single customer or class of product accounted for 10% or more of the Company's consolidated 1999 sales. Intersegment sales are not material. Assets are those assets used in each business segment. Corporate assets consist of cash and short-term cash investments, deferred income taxes, headquarters facility and equipment, pension assets and various other assets that are not specific to an operating segment. Unallocated amounts include interest income and expense and other non-operating income and expense items. The segment data for the years ended November 30, 1999, 1998 and 1997 were as follows:
1999 1998 1997 ----------------------------------- Net sales: Engine/Mobile Filtration ............................... $ 238,680 $ 223,761 $ 207,640 Industrial/Environmental Filtration .................... 174,889 135,828 111,491 Packaging .............................................. 64,300 67,184 75,133 ----------------------------------- $ 477,869 $ 426,773 $ 394,264 =================================== Operating profit: Engine/Mobile Filtration ............................... $ 43,591 $ 38,983 34,536 Industrial/Environmental Filtration .................... 5,120 6,966 4,188 Packaging .............................................. 7,366 5,714 8,672 ----------------------------------- 56,077 51,663 47,396 Merger-related costs ................................... -- -- (2,972) Other income (expense) ................................. (462) (316) (232) ----------------------------------- Earnings before income taxes and minority interests .... $ 55,615 $ 51,347 $ 44,192 =================================== Identifiable assets: Engine/Mobile Filtration ............................... $ 137,351 $ 128,618 $ 121,804 Industrial/Environmental Filtration .................... 241,471 72,289 60,706 Packaging .............................................. 36,173 30,500 36,824 Corporate .............................................. 57,996 74,359 63,185 ----------------------------------- $ 472,991 $ 305,766 $ 282,519 =================================== Additions to plant assets: Engine/Mobile Filtration ............................... $ 13,115 $ 10,479 $ 7,382 Industrial/Environmental Filtration .................... 4,824 3,743 2,570 Packaging .............................................. 3,217 1,258 1,127 Corporate .............................................. 666 345 270 ----------------------------------- $ 21,822 $ 15,825 11,349 =================================== Depreciation and amortization: Engine/Mobile Filtration ............................... $ 6,944 $ 6,320 $ 5,724 Industrial/Environmental Filtration .................... 5,132 2,803 2,386 Packaging .............................................. 2,742 2,749 2,994 Corporate .............................................. 554 508 496 ----------------------------------- $ 15,372 $ 12,380 11,600 ===================================
Financial data relating to the geographic areas in which the Company operates are shown for the years ended November 30, 1999, 1998 and 1997. Net sales by geographic area are based on sales to final customers within that segment.
1999 1998 1997 ------------------------------ Net Sales: United States ........................................... $399,717 $355,522 $325,361 Europe .................................................. 35,984 29,505 28,201 Other international ..................................... 42,168 41,746 40,702 ------------------------------ $477,869 $426,773 $394,264 ============================== Plant assets, at cost less accumulated depreciation: United States ........................................... $119,196 $ 83,621 $ 80,223 Europe .................................................. 5,650 1,704 1,709 Other international ..................................... 1,180 1,064 973 ------------------------------ $126,026 $ 86,389 $ 82,905 ==============================
27 EX-13.(A)(VII) 8 REPORT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 13(a)vii REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Shareholders CLARCOR Inc. Rockford, Illinois In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, shareholders' equity and cash flows present fairly, in all material respects, the consolidated financial position of CLARCOR Inc. and its subsidiaries at November 30, 1999 and 1998 and the consolidated results of their operations and their cash flows for each of the three years in the period ended November 30, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PRICEWATERHOUSECOOPERS LLP Chicago, Illinois January 7, 2000 28 EX-13.(A)(VIII) 9 MANAGEMENT'S REPORT ON RESPONSIBILITY 1 EXHIBIT 13(a)viii MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING The management of CLARCOR is responsible for the preparation, integrity and objectivity of the Company's financial statements and the other financial information in this report. The financial statements were prepared in conformity with generally accepted accounting principles and reflect, in all material respects, the results of operations and the Company's financial position for the periods shown. The financial statements are presented on the accrual basis of accounting and, where appropriate, reflect estimates based upon judgments of management. In addition, management maintains a system of internal controls designed to assure that Company assets are safeguarded from loss or unauthorized use or disposition. Also, the controls system provides assurance that transactions are authorized according to the intent of management and are accurately recorded to permit the preparation of financial statements in accordance with generally accepted accounting principles. For the periods covered by the financial statements in this report, management believes this system of internal controls was effective concerning all material matters. The effectiveness of the controls system is supported by the selection and training of qualified personnel, an organizational structure that provides an appropriate division of responsibility, a strong budgetary system of control and a comprehensive internal audit program. The Audit Committee of the Board of Directors, which is composed of three outside directors, serves in an oversight role to assure the integrity and objectivity of the Company's financial reporting process. The Committee meets periodically with representatives of management and the independent and internal auditors to review matters of a material nature related to financial reporting and the planning, results and recommendations of audits. The independent and internal auditors have free access to the Audit Committee. The Committee is also responsible for making recommendations to the Board of Directors concerning the selection of the independent auditors.
/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 7, 2000 29 EX-13.(A)(IX) 10 11-YEAR FINANCIAL REVIEW 1 11-YEAR FINANCIAL REVIEW EXHIBIT 13(a)ix
1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------- PER SHARE Equity ......................................... $ 8.77 $ 7.80 $ 7.06 $ 6.46 Diluted Earnings from Continuing Operations .... 1.46 1.30 1.11 1.07 Diluted Net Earnings ........................... 1.46 1.30 1.11 1.07 Dividends ...................................... 0.4525 0.4425 0.4350 0.4283 Price: High .................................... 21.38 24.63 20.79 16.75 Low ................................... 14.25 14.25 13.33 12.42 - ----------------------------------------------------------------------------------------------- EARNINGS DATA ($000) Net Sales ...................................... $477,869 $426,773 $394,264 $372,382 Operating Profit ............................... 56,077 51,663 44,424 42,596 Interest Expense ............................... 3,733 2,336 2,759 3,822 Pretax Income .................................. 55,615 51,347 44,192 41,405 Income Taxes ................................... 20,137 19,262 17,164 15,315 Income from Continuing Operations .............. 35,412 32,079 26,918 25,945 Income from Discontinued Operations ............ -- -- -- -- Cumulative Effect of Accounting Changes ........ -- -- -- -- Net Earnings ................................... 35,412 32,079 26,918 25,945 Basic Average Shares Outstanding ............... 23,970 24,268 24,133 23,908 Diluted Average Shares Outstanding ............. 24,314 24,649 24,344 24,217 - ----------------------------------------------------------------------------------------------- EARNINGS ANALYSIS Operating Margin ............................... 11.7% 12.1% 11.3% 11.4% Pretax Margin .................................. 11.6% 12.0% 11.2% 11.1% Effective Tax Rate ............................. 36.2% 37.5% 38.8% 37.0% Net Margin-Continuing Operations ............... 7.4% 7.5% 6.8% 7.0% Net Margin ..................................... 7.4% 7.5% 6.8% 7.0% Return on Beginning Assets ..................... 11.6% 11.4% 10.1% 10.6% Return on Beginning Shareholders' Equity ....... 19.0% 18.7% 17.4% 18.8% Dividend Payout to Net Earnings ................ 30.5% 33.4% 38.2% 36.7% - ----------------------------------------------------------------------------------------------- BALANCE SHEET DATA ($000) Current Assets ................................. $227,670 $168,173 $160,527 $140,726 Plant Assets, Net .............................. 126,026 86,389 82,905 84,525 Total Assets ................................... 472,991 305,766 282,519 267,019 Current Liabilities ............................ 97,475 61,183 54,237 51,297 Long-Term Debt ................................. 145,981 36,419 37,656 43,449 Shareholders' Equity ........................... 210,718 186,807 171,162 154,681 - ----------------------------------------------------------------------------------------------- BALANCE SHEET ANALYSIS ($000) Debt to Capitalization ......................... 40.9% 16.3% 18.0% 21.9% Working Capital ................................ $130,195 $106,990 $106,290 $ 89,429 Current Ratio .................................. 2.3 2.7 3.0 2.7 - ----------------------------------------------------------------------------------------------- CASH FLOW DATA ($000) From Operations ................................ $ 38,642 $ 42,267 $ 41,632 $ 26,675 For Investment ................................. (160,658) (19,290) (8,193) (18,934) From/(For) Financing ........................... 103,501 (19,943) (21,850) (8,774) Change in Cash & Equivalents ................... (18,576) 2,997 11,497 (964) Capital Expenditures ........................... 21,822 15,825 11,349 22,230 Depreciation & Amortization .................... 15,372 12,380 11,600 10,704 Dividends Paid ................................. 10,814 10,717 10,290 9,512 Net Interest Expense ........................... 2,282 1,053 1,739 2,991 Income Taxes Paid .............................. 22,234 16,199 15,112 11,230 EBITDA* ........................................ 73,203 64,774 57,421 54,955 - -----------------------------------------------------------------------------------------------
* Earnings before net interest expense, taxes, depreciation and amortization. 30 2
1995 1994 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------------------ PER SHARE Equity ......................................... $ 5.79 $ 5.18 $ 4.63 $ 4.39 $ 4.26 $ 3.73 $ 3.26 Diluted Earnings from Continuing Operations .... 0.97 0.87 0.72 0.66 0.78 0.80 0.46 Diluted Net Earnings ........................... 0.97 0.89 0.72 0.56 0.79 0.85 0.30 Dividends ...................................... 0.4217 0.4150 0.4067 0.4000 0.3667 0.3467 0.3200 Price: High .................................... 18.00 14.92 13.33 15.00 15.11 11.89 12.61 Low ................................... 12.08 10.58 10.67 10.00 8.67 7.89 7.83 - ------------------------------------------------------------------------------------------------------------------------------------ EARNINGS DATA ($000) Net Sales ...................................... $330,110 $300,450 $253,211 $218,172 $213,999 $197,917 $181,837 Operating Profit ............................... 38,728 33,188 29,960 27,810 32,204 31,407 23,969 Interest Expense ............................... 3,418 3,298 3,979 4,438 4,402 4,189 1,710 Pretax Income .................................. 36,631 31,886 27,221 24,930 28,778 30,325 23,572 Income Taxes ................................... 13,060 12,057 9,944 8,941 10,095 11,008 11,008 Income from Continuing Operations .............. 23,500 20,786 17,277 15,989 18,683 19,317 12,564 Income from Discontinued Operations ............ -- -- -- -- 297 1,200 (4,493) Cumulative Effect of Accounting Changes ........ -- 630 -- (2,370) -- -- -- Net Earnings ................................... 23,500 21,416 17,277 13,619 18,980 20,475 8,071 Basic Average Shares Outstanding ............... 23,850 23,804 23,831 24,030 23,915 23,931 27,288 Diluted Average Shares Outstanding ............. 24,205 24,030 24,076 24,346 23,988 24,145 27,330 - ------------------------------------------------------------------------------------------------------------------------------------ EARNINGS ANALYSIS Operating Margin ............................... 11.7% 11.0% 11.8% 12.7% 15.0% 15.9% 13.2% Pretax Margin .................................. 11.1% 10.6% 10.8% 11.4% 13.4% 15.3% 13.0% Effective Tax Rate ............................. 35.7% 37.8% 36.5% 35.9% 35.1% 36.3% 46.7% Net Margin-Continuing Operations ............... 7.1% 6.9% 6.8% 7.3% 8.7% 9.8% 6.9% Net Margin ..................................... 7.1% 7.1% 6.8% 6.2% 8.9% 10.3% 4.4% Return on Beginning Assets ..................... 11.4% 11.2% 9.5% 7.6% 11.6% 14.0% 5.1% Return on Beginning Shareholders' Equity ....... 19.1% 19.4% 16.4% 13.4% 21.3% 26.0% 6.2% Dividend Payout to Net Earnings ................ 39.7% 43.0% 52.3% 65.8% 43.0% 37.6% 102.7% - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE SHEET DATA ($000) Current Assets ................................. $133,286 $109,992 $ 97,569 $105,067 $ 87,322 $ 83,988 $ 68,860 Plant Assets, Net .............................. 73,047 58,787 53,839 42,324 52,324 47,498 48,231 Total Assets ................................... 245,697 206,928 191,657 181,660 179,337 164,294 145,982 Current Liabilities ............................ 49,841 43,926 37,647 30,559 25,977 25,783 26,415 Long-Term Debt ................................. 41,860 25,090 32,650 38,534 45,406 44,363 36,253 Shareholders' Equity ........................... 138,144 122,801 110,299 105,460 102,000 89,076 78,860 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE SHEET ANALYSIS ($000) Debt to Capitalization ......................... 23.3% 17.0% 22.8% 26.8% 30.8% 33.2% 31.5% Working Capital ................................ $ 83,445 $ 66,066 $ 59,922 $ 74,508 $ 61,345 $ 58,205 $ 42,445 Current Ratio .................................. 2.7 2.5 2.6 3.4 3.4 3.3 2.6 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOW DATA ($000) From Operations ................................ $ 21,092 $ 25,670 $ 20,727 $ 23,456 $ 19,012 $ 25,109 $ 18,547 For Investment ................................. (29,044) (1,159) (74) (7,737) (15,848) (9,689) (8,918) From/(For) Financing ........................... 7,226 (18,656) (22,772) (9,929) (8,059) (5,577) (24,279) Change in Cash & Equivalents ................... (684) 5,912 (2,197) 5,811 (4,895) 9,843 (14,650) Capital Expenditures ........................... 14,471 12,119 10,776 8,290 10,804 9,685 9,037 Depreciation & Amortization .................... 9,145 8,166 7,227 8,387 7,722 7,565 7,679 Dividends Paid ................................. 9,330 9,201 9,036 8,958 8,165 7,708 8,290 Net Interest Expense ........................... 2,560 2,750 3,104 4,140 3,280 3,657 436 Income Taxes Paid .............................. 11,939 10,194 10,059 11,200 9,693 10,811 11,643 EBITDA* ........................................ 48,265 43,759 37,552 37,457 39,780 41,547 31,687 - ------------------------------------------------------------------------------------------------------------------------------------ * Earnings before net interest expense, taxes, depreciation and amortization.
31 EX-13.(A)(X) 11 MANAGEMENT'S DISCUSSION & ANALYSIS 1 FINANCIAL REVIEW EXHIBIT 13(a)x (Dollars in millions except per share data) CLARCOR's operating results for 1999 were at record levels and include the acquisition of three industrial filtration companies in the fourth quarter of 1999. Excluding the effect of the fourth quarter acquisitions, sales increased approximately 3% for the year and operating profit 6%. The fourth quarter acquisitions will increase CLARCOR's total sales approximately 35% on an annual basis and are included in the Industrial/ Environmental Filtration segment. Including the acquisitions, in 1999 the Company's sales increased 12.0% and operating profit rose 8.5% over the prior year. The Company's fiscal 1999 cash flows and year-end balance sheet also included the effect of the fourth quarter 1999 acquisitions. Final balance sheet adjustments for the acquisitions will be determined by the end of the third quarter of fiscal 2000 as described in Note B to the Consolidated Financial Statements. The information presented in this financial review should be read in conjunction with other financial information provided throughout this 1999 Annual Report. The following discussion of operating results focuses on the Company's three reportable business segments: Engine/Mobile Filtration, Industrial/ Environmental Filtration and Packaging. OPERATING RESULTS Sales Net sales in 1999 of $477.9 million included $38.5 million from the 1999 fourth quarter acquisitions. The Company's sales increase of 12.0% for the year, or 3.0% excluding the acquisitions, resulted from higher Engine/ Mobile Filtration and Industrial/Environmental Filtration sales offset partially by reduced sales from Packaging. The 1999 overall sales increase was the 13th consecutive year of sales growth for the Company. Total net sales grew 8.2% in 1998 over the 1997 level of $394.3 million. The filtration segments recorded higher sales in 1998 than in 1997 and the Packaging segment recorded a 10.6% decrease. Comparative net sales information related to CLARCOR's operating segments is shown in the tables below. 1999 vs. 1998 Change --------------- NET SALES 1999 % Total $ % - ------------------------------------------------------------------------- Engine/Mobile Filtration.............. $238.7 49.9% $14.9 6.7% Industrial/Environmental Filtration... 174.9 36.6% 39.1 28.8% Packaging............................. 64.3 13.5% (2.9) -4.3% --------------------------------- Total.............................. $477.9 100.0% $51.1 12.0% ================================= 1998 vs. 1997 Change ------------- NET SALES 1998 % Total $ % - -------------------------------------------------------------------------- Engine/Mobile Filtration.............. $223.8 52.4% $16.1 7.8% Industrial/Environmental Filtration... 135.8 31.8% 24.3 21.8% Packaging............................. 67.2 15.8% (7.9) -10.6% ----------------------------------- Total.............................. $426.8 100.0% $32.5 8.2% =================================== The Engine/Mobile Filtration sales increase of 6.7% in 1999 included increases for heavy-duty, light-duty and railroad filter products from both the domestic and international markets. Sales of the Hastings Filters brand of light-duty filters was particularly strong at 9.2% over the 1998 level. The Engine/Mobile Filtration segment's sales rose 7.8% in 1998 over the 1997 level on the strength of aftermarket sales of heavy-duty and light-duty filters. Sales increases in 1999 and 1998 resulted from new product introductions, additional OEM sales, and penetration into new distribution channels, primarily through sales to quick lube and truck service centers, fleets and automotive parts buying groups. Unit volumes increased in 1999 and 1998, and price increases were mostly offset by competitive discounts. The Company's Industrial/Environmental Filtration segment recorded a 28.8% increase in sales over 1998 including the effect of the fourth quarter acquisition of three industrial filtration companies. Excluding the acquisitions, 1999 sales increased 0.4% over 1998. Sales increased for the segment's Airguard business unit as a result of higher volumes and from several small acquisitions made in 1998. The segment's sales were lower than expected due primarily to reduced sales from United Air Specialists (UAS). The segment recorded a 21.8% increase in sales in 1998 over 1997. Excluding the sales impact of the 1998 acquisitions, the 1998 sales increase over 1997 was approximately 14% and resulted primarily from increased demand for air quality products. Although industry conditions reduced the expected increase in sales for 1999, the Company expects additional growth for this segment as a result of customer demand for industrial and indoor air filtration products and from additional acquisitions, including the acquisition of two distributors in the first quarter 2000. The Packaging segment's sales decrease of 4.3% in 1999 was principally the result of lower promotional container sales. However, a 12.9% increase in sales for the fourth quarter of 1999 over 1998 resulted from a strategic decision to meet customer demand for quality metal decorating for packaging products that are not promotional items. The segment's focus on non-promotional packaging products includes metal closures for food and beverage containers, wire spools, and film and battery cartridges. Sales of plastic closures and containers increased in 1999 over the prior year. The segment's sales were lower in 1998 from 1997 principally 10 2 due to the 1997 sale of the Tube Division, which contributed approximately $7.0 million in sales in 1997, and due to lower promotional container sales in fiscal 1998 than in 1997. OPERATING PROFIT The Company's operating profit increased 8.5% in 1999 over 1998 and it was the seventh consecutive year of growth in operating profit. Excluding the 1999 fourth quarter acquisitions, operating profit increased approximately 6%. Operating margin of 11.7% of sales was lower than the 1998 level of 12.1% primarily as a result of lower margins from the Industrial/Environmental segment, due in part to the 1999 acquisitions. In 1998, on the strength of an 8.2% increase in sales, the Company's operating profit increased 16.3%, or 9.0% excluding the impact of the $3.0 million merger-related costs recorded in 1997. Gross margin in 1999 of 31.1% of sales was lower than 31.7% recorded in 1998 primarily as a result of the fourth quarter acquisitions. In both 1999 and 1998, cost reductions, improved manufacturing productivity and modest changes overall in raw material prices helped offset competitive pricing pressures and positively impacted gross margin. Selling and administrative expenses increased to $92.5 million from $83.6 million in 1998 as a result of the 1999 acquisitions and the related amortization charges, higher sales activities, new product development programs and legal expenses. Selling and administrative expenses in 1998 included a $2.1 million charge related to an uncollectible customer account. Foreign currency adjustments did not have a material impact on consolidated operating profit in 1999, 1998 or 1997. Comparative operating profit information related to the Company's business segments is as follows. 1999 vs. 1998 Change -------------- OPERATING PROFIT 1999 % Total $ % - ------------------------------------------------------------------------ Engine/Mobile Filtration.............. $43.6 77.7% $4.6 11.8% Industrial/Environmental Filtration... 5.1 9.1% (1.9) -26.5% Packaging............................. 7.4 13.2% 1.7 28.9% ---------------------------------- Total.............................. $56.1 100.0% $4.4 8.5% ================================== 1998 vs. 1997* Change -------------- OPERATING PROFIT 1998 % Total $ % - ------------------------------------------------------------------------ Engine/Mobile Filtration.............. $39.0 75.4% $4.5 12.9% Industrial/Environmental Filtration... 7.0 13.5% 2.8 66.3% Packaging............................. 5.7 11.1% (3.0) -34.1% ---------------------------------- Total.............................. $51.7 100.0% $4.3 9.0% ================================== * Excludes merger-related costs in 1997. OPERATING PROFIT AS A PERCENT OF NET SALES 1999 1998 1997* - ------------------------------------------------------------------------- Engine/Mobile Filtration.............. 18.3% 17.4% 16.6% Industrial/Environmental Filtration... 2.9% 5.1% 3.8% Packaging............................. 11.5% 8.5% 11.5% ---------------------------------- Total.............................. 11.7% 12.1% 12.0% ================================== * Excludes merger-related costs in 1997. Operating profit for the Engine/Mobile Filtration segment improved to $43.6 million or 18.3% of sales in 1999. The segment's increase in operating profit margin in both 1999 and 1998 resulted primarily from higher sales volumes, cost reductions and productivity improvements that more than offset competitive pricing discounts. In addition, the light-duty filter manufacturing facility has continued to improve each year and in 1999 operated at its highest level of productivity since it was acquired in 1995. The Industrial/Environmental Filtration segment's operating profit of $5.1 million decreased in 1999 from the prior year level of $7.0 million. The 1999 operating profit included the fourth quarter 1999 acquisitions, but that increase was more than offset by lower profit from both Airguard and UAS. Airguard's profitability was reduced in 1999 primarily due to manufacturing inefficiencies resulting from labor shortages in the Louisville, Kentucky area and competitive pricing discounts. During the year Airguard moved some of its production from its Louisville area plants to several other plants which resulted in productivity improvements during the fourth quarter of 1999. In 1999, UAS also initiated changes in marketing plans, manufacturing cost reduction programs and administrative expense levels in order to offset reduced capacity utilization resulting from lower sales levels. These changes are expected to improve operating results for UAS in the second half of fiscal 2000 and in 2001. The segment's increase in profit in 1998 over the 1997 level was due principally to improved productivity and cost reductions and from increased sales volume and capacity utilization. Several small acquisitions in 1998 also favorably impacted the segment's operating profit for fiscal 1998 and 1999. The Packaging segment's 1999 operating profit of $7.4 million improved from $5.7 million in 1998. Fiscal 1998 included a $2.1 million charge in the second and third quarters for the write-off of a customer account. The segment's operating margin in 1999 of 11.5% of sales compares to 8.5% in 1999 and 11.5% in 1997. The 1998 level was reduced principally due to the $2.1 million account write-off. OTHER INCOME & EXPENSE Net other expense totaled $0.5 million in 1999, $0.3 million in 1998 and $0.2 million in 1997. Interest expense, which totaled $3.7 million in 1999, increased 11 3 FINANCIAL REVIEW (Dollars in millions except per share data) due to the additional borrowings in the fourth quarter of 1999 for the acquisitions discussed above. Interest income increased to $1.5 million in 1999 as a result of higher average cash and short-term cash investment balances during fiscal 1999. Due to the 1999 fourth quarter acquisitions, in fiscal year 2000 interest expense will increase due to the inclusion of interest expense on the higher level of debt for a full year and interest income is expected to be lower due to the use of cash balances. Gains on the dispositions of plant assets were $1.7 million in 1999, $1.3 million in 1998 and $0.5 million in 1997. A gain of $1.7 million was recorded in 1997 from the sale of securities in a former Australian joint venture partner. PROVISION FOR INCOME TAXES The provision for income taxes in 1999 of $20.1 million resulted in an effective tax rate of 36.2%. The 1999 effective tax rate was lower than the rate of 37.5% in 1998 principally due to reduced state income taxes. The effective rate of 38.8% in 1997 included the impact of merger costs that were not fully deductible for tax purposes. As a result of lower state income taxes and other income tax changes, the effective tax rate is expected to be lower in fiscal 2000 than the rate recorded in 1999. NET EARNINGS AND EARNINGS PER SHARE Net earnings of $35.4 million in 1999 set a new record for the Company and resulted in diluted earnings per share of $1.46 compared to $1.30 diluted earnings per share in 1998. Diluted average shares outstanding for fiscal 1999 were 24,313,607 compared to 24,648,623 for 1998, a decrease of 1.4%. Net earnings in 1998 of $32.1 million increased from the 1997 level of $26.9 million, or $1.11 diluted earnings per share based on 24,343,881 diluted average shares outstanding. FINANCIAL CONDITION Corporate Liquidity The Consolidated Statements of Cash Flows are shown on page 18, and the discussion of corporate liquidity should be read in conjunction with information presented in those statements. Cash and short-term cash investments decreased to $14.7 million at year-end 1999 from $33.3 million at year-end 1998 primarily due to the cash used for the acquisitions in September 1999. Cash provided by operating activities totaled $38.6 million in 1999 compared to $42.3 million in 1998 and $41.6 million in 1997. Increased cash flow from net earnings, depreciation and amortization in 1999 was used for investment in assets, net of liabilities, which totaled $10.5 million and also included $6.0 million more in tax payments in 1999 than in 1998. Depreciation and amortization increased in the fourth quarter of 1999 due to the acquisitions and will increase for fiscal year 2000. Net cash used in investing activities of $160.7 million increased from the 1998 level of $19.3 million. In September 1999, $142.4 million, net of cash acquired, was used for the acquisition of three industrial filtration companies. In 1998, cash of $8.0 million was invested in acquisitions of a filter company and a distributor. Additions to plant assets in 1999 increased to $21.8 million as a result of adding plant capacity and the completion of an expansion to a manufacturing and distribution facility in Kearney, Nebraska. Plant asset additions were $15.8 million in 1998 and $11.3 million in 1997. Cash of $3.9 million was received in 1999 from the disposition of plant assets, primarily from the sale of a building. In 1998, cash of $2.5 million was received as payment on a note receivable and $2.5 million was received from the disposition of plant assets. In 1997, $3.3 million was received from the sale of securities in a former Australian joint venture partner. Net cash provided by financing activities totaled $103.5 million in 1999 and included $115.0 million in borrowings used for the September 1999 acquisitions. During 1999, the Company purchased 50,000 shares of common stock for $0.9 million under the December 1997 Board of Directors' approved plan to repurchase up to 1,500,000 shares of CLARCOR common stock. The Company purchased 528,691 shares of CLARCOR common stock for $8.4 million in 1998. Dividend payments totaled $10.8 million, $10.7 million and $10.3 million in 1999, 1998 and 1997, respectively. Payments on long-term debt of $0.5 million in 1999 compared to higher amounts in 1998 and 1997 of $2.7 million and $14.0 million, respectively. CLARCOR continued to generate sufficient cash in 1999 to maintain current operating levels, to pay dividends, to provide for additions and the replacement of necessary plant facilities, and to service and repay long-term debt. Due to the September 1999 acquisition of three filtration companies, a $185.0 million multicurrency revolving credit facility was established with several financial institutions. A total of $115.0 million of the credit facility was used and sufficient lines of credit remain available to fund the Company's current operations and planned future growth. Total capital expenditures will be approximately $30.0 million in fiscal 2000 and principal payments on long-term debt will be approximately $5.4 million based on scheduled payments per current debt agreements. No payments are required in fiscal 2000 on the multicurrency revolving credit facility. The Company is in compliance with restrictive covenants, as described in Note H to the Consolidated Financial Statements, related to the credit facility. It is possible that business acquisitions or dispositions could be made in the future that may require changes in the Company's debt and capitalization. 12 4 CAPITAL RESOURCES The Company's financial position at November 30, 1999 continued to be sufficiently liquid to support current operations. There were significant increases in assets and liabilities at year-end 1999 as a result of the fourth quarter acquisitions and also due to an increased level of business activity compared to year-end 1998. Total assets of $473.0 million at November 30, 1999 increased 54.7% from the prior year-end level of $305.8 million. Total current assets increased to $227.7 million from $168.2 million at year-end 1998 and total current liabilities increased to $97.5 million from $61.2 million at year-end 1998. The current ratio was 2.3 at year-end 1999 compared to 2.7 at year-end 1998. Plant assets, acquired intangibles, and excess of cost over fair value of assets acquired also increased significantly as a result of the 1999 acquisitions. Current liabilities include accruals for costs related to litigation matters arising in the normal course of business. See Note L in the Notes to Consolidated Financial Statements for further information on these matters. Long-term debt of $146.0 million at year-end 1999 included the borrowing against the revolving credit facility in 1999 for the acquisitions. Shareholders' equity increased to $210.7 million from $186.8 million at year-end 1998. The increase in shareholders' equity resulted from net earnings of $35.4 million offset by dividend payments of $10.8 million, or $0.4525 per share, and common stock repurchases of $0.9 million. As a result of the additional long-term debt at year-end 1999, long-term debt increased to 40.9% of total capitalization at year-end 1999, compared to 16.3% at year-end 1998. At November 30, 1999, CLARCOR had 24,019,722 shares of common stock outstanding at $1.00 par value, compared to 23,949,358 shares outstanding at the end of 1998. These share amounts reflect the three-for-two stock split effective April 24, 1998. OTHER MATTERS Year 2000 The Company's assessment and remediation plans related to Year 2000 issues were implemented over several years. Compliance activities resulted in total costs of less than $1.5 million. Contingency plans were also made to address the Company's exposure to any material failure as a result of noncompliance by third parties. Management believes that the Company devoted the necessary resources to resolve significant Year 2000 issues. Through February 1, 2000, the Company is not aware of any significant business interruption as a result of a Year 2000 issue. In addition, no significant additional costs or remediation activities are expected with respect to Year 2000 issues. However, the Year 2000 problem is complex as virtually every computer operation may be affected in some way. Consequently, no assurance can be given that Year 2000 compliance can be fully achieved without additional costs that might have a material adverse effect on the Company's financial condition or consolidated results of operations. MARKET RISK The Company's market risk is the potential loss arising from adverse changes in interest rates. The Company's long-term debt obligations are primarily at variable LIBOR associated rates and fixed interest rates and denominated in U.S. dollars. In order to minimize the long-term costs of borrowing, the Company manages its interest rate risk by monitoring trends in rates as a basis for determining whether to enter into fixed rate or variable rate agreements. In addition, subsequent to year-end 1999, the Company entered into a three-month interest rate swap agreement related to the revolving credit agreement. Market risk is estimated as the potential increase in fair value of the Company's long-term debt obligations resulting from a hypothetical 1% increase in interest rates. A hypothetical 1% increase in interest rates would adversely affect fiscal 2000 net earnings and cash flows by approximately $1.0 million and reduce the fair value of long-term debt, as measured at November 30, 1999, by approximately $4.0 million. Last year, a hypothetical 1% increase in interest rates would have adversely affected fiscal 1999's net earnings and cash flows by approximately $0.3 million and reduced the fair value of long-term debt by approximately $2.1 million. The Company places its short-term cash investments in high grade, primarily tax-exempt municipal securities. For the most part, the interest rates on these investments are reset weekly and consequently, the cost of these securities approximates market value. Although the Company continues to evaluate derivative financial instruments, including forwards, swaps and purchased options, to manage foreign currency exchange rate changes, the Company did not hold derivatives for managing these risks or for trading purposes during 1999 or 1998. As a result of increased foreign sales and business activities from the fourth quarter 1999 acquisitions, the Company will continue to evaluate the use of derivative financial instruments to manage foreign currency exchange rate changes in the future. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." Subsequently the original implementation date for SFAS 133 was deferred. SFAS 133 requires a company to recognize all derivatives on the balance sheet as either an asset or a liability measured at fair value. The statement also requires a company to recognize changes in the derivative's fair 13 5 FINANCIAL REVIEW (Dollars in millions except per share data) value currently in earnings unless it meets specific hedge accounting criteria. The Company currently expects to adopt SFAS 133 in fiscal year 2001. Management does not expect the adoption of SFAS 133 to have a material impact on the Company's consolidated financial statements. OUTLOOK The Company's long-term objective continues to be to increase earnings per share by 10% to 15% annually. This objective was achieved in fiscal 1999 and remains the objective for fiscal 2000. The Engine/Mobile Filtration segment is expected to continue to increase sales and profit through providing outstanding customer service, introducing new products and expanding marketing programs. The Industrial/Environmental Filtration segment is expected to grow sales and profits as a result of the 1999 acquisitions, achieving synergies and cost savings from integrating production facilities and processes, and expanding sales programs throughout the various distribution channels. The Packaging segment's focus on metal decorating and reduced emphasis on seasonal promotional packaging sales is expected to increase utilization of current capacity throughout fiscal 2000. As a result, sales are expected to increase by more than 10% in 2000 and operating margins should improve as well. Although the 1999 acquisitions are expected to increase the Company's fiscal 2000 operating profit, due to the additional interest expense and reduced interest income, net earnings and diluted earnings per share may be diluted by $0.01 to $0.02 per share in 2000. The Company will continue to review these expectations throughout 2000, and is optimistic that synergies, net of integration costs, may be realized sooner than originally expected. EBITDA (earnings before net interest expense, taxes, depreciation and amortization) is expected to exceed $90 million in fiscal 2000, compared to $73 million in 1999. Additionally, even though debt was significantly increased in 1999 due to the acquisitions, interest coverage is expected to be greater than six times in 2000. The Company will continue to implement cost reductions and productivity improvements, although competitive pricing pressures, foreign currency exchange rate changes and worldwide business conditions may reduce the overall profit improvement. Additional plant asset additions will be made in each segment's facilities during 2000 to improve productivity and support new product introductions. While the Company fully expects that sales and profits will improve as a result of these efforts, contingency plans are in place to reduce costs depending on industry and economic conditions. The Company continues to look at acquisition opportunities, primarily in related filtration businesses. It is expected that these acquisitions would expand the Company's market base, distribution coverage and product offerings. The Company has established financial standards that will continue to be vigorously applied in the review of all acquisition opportunities. FORWARD-LOOKING STATEMENTS Certain statements quoted in this Annual Report are forward-looking. These statements involve risk and uncertainty. Actual future results and trends may differ materially depending on a variety of factors including: the volume and timing of orders received during the year; the mix of changes in distribution channels through which the Company's products are sold; the timing and acceptance of new products and product enhancements by the Company or its competitors; changes in pricing, labor availability, product life cycles, and purchasing patterns of distributors and customers; competitive conditions in the industry; business cycles affecting the markets in which the Company's products are sold; the effectiveness of plant conversions, productivity improvement programs and Year 2000 readiness; the management of both growth and acquisitions; the fluctuation in foreign and U.S. currency exchange rates; the fluctuation in interest rates, primarily LIBOR, which affect the cost of borrowing under the revolving credit facility; extraordinary events such as litigation, acquisitions or divestitures including related charges; and economic conditions generally or in various geographic areas. All of the foregoing matters are difficult to forecast. The future results of the Company may fluctuate as a result of these and the other risk factors detailed from time to time in the Company's filings with the Securities and Exchange Commission. Due to the foregoing items, it is possible that, in the future, the Company's operating results will be below the expectations of stock market analysts and investors. In such event, the price of CLARCOR common stock could be materially adversely effected. 14 EX-21 12 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 CLARCOR INC. SUBSIDIARIES AS OF FEBRUARY 23, 2000
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% Purolator Products Air Filtration Company Delaware 100% Baldwin Filters, Inc. Delaware 100% Baldwin Filters N.V. Belgium 100% Baldwin Filters Limited United Kingdom 100% Baldwin South Africa, Inc. Delaware 100% Baldwin-Unifil S.A. South Africa 80% Hastings Filters, Inc. Delaware 100% Hastings Filters Ltd. Canada Canada 100% Baldwin Filters (Aust.) Pty. Limited Australia 100% Clark Filter, Inc. Delaware 100% Filtros Baldwin de Mexico Mexico 90% Purolator Facet, Inc. Delaware 100% Facet FCE S.A.R.L. France 100% Facet Iberica S.A. Spain 100% Facet Industrial B.V. Netherlands 100% Facet Industrial U.K. Limited United Kingdom 100% Facet International S.A. Switzerland 100% Facet Italiana, S.p.A. Italy 100% Facet USA Inc. Delaware 100% GS Costa Mesa, Inc. Delaware 100% Purolator Filter GmbH Germany 100% United Air Specialists, Inc. Ohio 100% United Air Specialists (U.K.) Ltd. United Kingdom 100% CLARCOR International, Inc. Delaware 100% Baldwin-Weifang Filters Ltd. China 70% CLARCOR Foreign Sales Corporation Barbados 100% CLARCOR Trading Company Delaware 100%
- ------------------------------ * Direct or indirect EX-23 13 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in each Registration Statement on Form S-8 (file numbers 33-5456, 33-38590, 33-39374, 33-53763 and 33-53899) of CLARCOR Inc. and Subsidiaries of our report dated January 7, 2000 relating to the consolidated financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated January 7, 2000 relating to the financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Chicago, Illinois February 23, 2000 EX-27 14 FINANCIAL DATA SCHEDULE
5 1,000 YEAR NOV-27-1999 NOV-29-1998 NOV-27-1999 14,745 0 109,141 5,155 89,850 227,670 244,287 118,261 472,991 97,475 145,981 0 0 24,020 186,698 472,991 477,869 477,869 329,282 329,282 0 975 3,733 55,615 20,137 35,412 0 0 0 35,412 1.48 1.46
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