10-Q 1 e10-q.txt FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ------- FORM 10-Q QUARTERLY REPORT ------- Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ------- For the quarter ended May 27, 2000 ------- REGISTRANT: CLARCOR Inc. (Delaware) ------- 2 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended May 27, 2000 Commission File Number 1-11024 CLARCOR Inc. ------------------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 36-0922490 -------------------------------------- ----------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2323 Sixth Street, P.O. Box 7007, Rockford, Illinois 61125 ---------------------------------------------------- --------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 815-962-8867 -------------------- No Change -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. 24,245,572 common shares outstanding ------------------------------------------ Page 1 of 16 3 CLARCOR Inc. CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in thousands) --------
May 27, November 30, ASSETS 2000 1999 --------- --------- (unaudited) Current assets: Cash and short-term cash investments $ 7,574 $ 14,745 Accounts receivable, less allowance for losses of $5,504 for 2000 and $5,155 for 1999 110,238 103,986 Inventories: Raw materials 35,008 32,731 Work in process 15,527 14,643 Finished products 50,088 42,476 --------- --------- Total inventories 100,623 89,850 --------- --------- Prepaid expenses and other current assets 2,786 11,830 Deferred income taxes 6,121 7,259 --------- --------- Total current assets 227,342 227,670 --------- --------- Plant assets at cost, 257,722 244,287 less accumulated depreciation (126,503) (118,261) --------- --------- 131,219 126,026 --------- --------- Excess of cost over fair value of assets acquired, less accumulated amortization 62,903 49,784 Other acquired intangibles, less accumulated amortization 40,410 41,367 Pension assets 19,473 17,879 Other noncurrent assets 10,697 10,265 --------- --------- $ 492,044 $ 472,991 ========= ========= LIABILITIES Current liabilities: Current portion of long-term debt $ 5,437 $ 5,440 Accounts payable 41,146 42,477 Income taxes 4,527 4,442 Accrued and other liabilities 40,492 45,116 --------- --------- Total current liabilities 91,602 97,475 --------- --------- Long-term debt, less current portion 157,379 145,981 Long-term pension liabilities 5,206 3,577 Other long-term liabilities 13,413 14,845 Minority interests 374 395 Contingencies SHAREHOLDERS' EQUITY Capital stock 24,246 24,020 Capital in excess of par value 4,290 948 Accumulated other comprehensive earnings (5,960) (4,151) Retained earnings 201,494 189,901 --------- --------- 224,070 210,718 --------- --------- $ 492,044 $ 472,991 ========= =========
See Notes to Consolidated Financial Statements Page 2 of 16 4 CLARCOR Inc. CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Dollars in thousands except per share data) (Unaudited) -----------
Quarter Ended Six Months Ended ---------------------------- ---------------------------- May 27, May 29, May 27, May 29, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net sales $ 162,205 $ 110,483 $ 312,902 $ 209,649 Cost of sales 112,220 75,500 218,634 143,287 ------------ ------------ ------------ ------------ Gross profit 49,985 34,983 94,268 66,362 Selling and administrative expenses 30,795 21,117 61,608 42,458 ------------ ------------ ------------ ------------ Operating profit 19,190 13,866 32,660 23,904 ------------ ------------ ------------ ------------ Other income (expense): Interest expense (2,795) (545) (5,355) (1,071) Interest income 82 326 284 686 Other, net (565) 17 (646) (52) ------------ ------------ ------------ ------------ (3,278) (202) (5,717) (437) ------------ ------------ ------------ ------------ Earnings before income taxes and minority interests 15,912 13,664 26,943 23,467 Provision for income taxes 5,800 4,987 9,774 8,589 ------------ ------------ ------------ ------------ Earnings before minority interests 10,112 8,677 17,169 14,878 Minority interests in earnings of subsidiaries (22) (27) (16) (18) ------------ ------------ ------------ ------------ Net earnings $ 10,090 $ 8,650 $ 17,153 $ 14,860 ============ ============ ============ ============ Net earnings per common share: Basic $ 0.42 $ 0.36 $ 0.71 $ 0.62 ============ ============ ============ ============ Diluted $ 0.41 $ 0.36 $ 0.70 $ 0.61 ============ ============ ============ ============ Average number of common shares outstanding: Basic 24,252,425 23,936,137 24,210,788 23,950,007 ============ ============ ============ ============ Diluted 24,516,307 24,264,276 24,462,017 24,319,667 ============ ============ ============ ============ Dividends paid per share $ 0.1150 $ 0.1125 $ 0.2300 $ 0.2250 ============ ============ ============ ============
See Notes to Consolidated Financial Statements Page 3 of 16 5
CLARCOR Inc. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) ----------- Six Months Ended -------------------- May 27, May 29, 2000 1999 -------- -------- Cash flows from operating activities: Net earnings $ 17,153 $ 14,860 Depreciation and amortization 11,151 6,960 Changes in assets and liabilities (15,276) (7,512) Other, net 133 70 -------- -------- Net cash provided by operating activities 13,161 14,378 -------- -------- Cash flows from investing activities: Additions to plant assets (12,166) (11,131) Business acquisitions, net of cash acquired (12,972) (375) Dispositions of plant assets 148 25 Other, net (50) -- -------- -------- Net cash used in investing activities (25,040) (11,481) -------- -------- Cash flows from financing activities: Proceeds from line of credit 20,000 -- Payments on line of credit (8,500) -- Reduction of long-term debt (1,686) (227) Purchases of treasury stock -- (897) Cash dividends paid (5,560) (5,376) Other, net 518 45 -------- -------- Net cash provided by (used in) financing activities 4,772 (6,455) -------- -------- Net effect of exchange rate changes on cash (64) (59) -------- -------- Net change in cash and short-term cash investments (7,171) (3,617) Cash and short-term cash investments, beginning of period 14,745 33,321 -------- -------- Cash and short-term cash investments, end of period $ 7,574 $ 29,704 ======== ======== Cash paid during the period for: Interest $ 5,128 $ 1,060 ======== ======== Income taxes $ 8,648 $ 10,647 ======== ========
See Notes to Consolidated Financial Statements Page 4 of 16 6 CLARCOR Inc. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (Unaudited) -------------------------------------------------------------------------------- 1. CONSOLIDATED FINANCIAL STATEMENTS The November 30, 1999 consolidated balance sheet data was derived from CLARCOR's year-end audited financial statements, but does not include all disclosures required by generally accepted accounting principles. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The consolidated condensed balance sheet as of May 27, 2000, the consolidated condensed statements of earnings and the consolidated condensed statements of cash flows for the periods ended May 27, 2000, and May 29, 1999, have been prepared by the Company without audit. The financial statements have been prepared on the same basis as those in the Company's November 30, 1999 annual report to shareholders. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows have been made. The results of operations for the period ended May 27, 2000 are not necessarily indicative of the operating results for the full year. 2. BUSINESS COMBINATIONS During the six months ended May 27, 2000, the Company purchased two air filtration distributors and one liquid process filtration manufacturer accounted for under the purchase method. Two of the acquisitions were paid for in cash. The purchase price of the other was paid in cash and stock. The Company issued 160,704 shares of its common stock (or $2,895) in connection with the acquisition. These acquisitions did not have a significant impact on the results of the Company. On September 10, 1999, the Company acquired three industrial filtration businesses, Purolator Air Filtration (Purolator), Facet International (Facet), and Purolator Facet, Inc. (PFI). 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. The initial purchase price is subject to a final adjustment based on the net assets of the businesses. A preliminary allocation of the initial purchase price was 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 at November 30, 1999 for severance and exit costs will be reflected as an adjustment to the allocation of the purchase price. No adjustments were made to the initial allocation during the six months ended May 27, 2000. Page 5 of 16 7 CLARCOR Inc. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (Unaudited)Continued -------------------------------------------------------------------------------- 3. EARNINGS PER SHARE AND TREASURY STOCK TRANSACTIONS The Company calculates earnings per share according to Statement of Financial Accounting Standards No. 128, "Earnings per Share." Diluted earnings per share reflects the impact of outstanding stock options as 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.
Quarter Ended Six Months Ended ------------------------- -------------------------- May 27, May 29, May 27, May 29, 2000 1999 2000 1999 ------------------------- -------------------------- Net Earnings (numerator) $ 10,090 $ 8,650 $ 17,153 $ 14,860 Basic EPS: Weighted average number of common shares outstanding (denominator) 24,252,425 23,936,137 24,210,788 23,950,007 Basic per share amount $ 0.42 $ 0.36 $ 0.71 $ 0.62 Diluted EPS: Weighted average number of common shares outstanding 24,252,425 23,936,137 24,210,788 23,950,007 Dilutive effect of stock options 263,882 328,139 251,229 369,660 ----------- ----------- ----------- ----------- Diluted weighted average number of common shares outstanding (denominator) 24,516,307 24,264,276 24,462,017 24,319,667 Diluted per share amount $ 0.41 $ 0.36 $ 0.70 $ 0.61
The following options were not included in the computation of diluted earnings per share as the options' exercise prices were greater than the average market price of the common shares during the respective quarter and year-to-date periods:
Quarter Ended Six Months Ended -------------------------- ------------------------- May 27, May 29, May 27, May 29, 2000 1999 2000 1999 -------------------------- ------------------------- Options 1,144,239 771,789 1,144,239 745,539 Weighted Average Exercise Price $ 18.92 $ 19.40 $ 18.92 $ 19.42
During the six months ended May 29, 1999, the Company purchased and retired 50,000 shares of common stock held in treasury. All such shares resumed the status of authorized and unissued shares of common stock of the Company. Page 6 of 16 8 CLARCOR Inc. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (Unaudited) Continued -------------------------------------------------------------------------------- 4. COMPREHENSIVE EARNINGS The Company's total comprehensive earnings and its components are as follows:
Quarter Ended Six Months Ended ------------------------- ------------------------- May 27, May 29, May 27, May 29, 2000 1999 2000 1999 ------------------------- ------------------------- Net earnings $ 10,090 $ 8,650 $ 17,153 $ 14,860 Other comprehensive earnings, net of tax: Foreign currency translation adjustments (732) (232) (1,809) (682) ------------------------- ------------------------- Total comprehensive earnings $ 9,358 $ 8,418 $ 15,344 $ 14,178 ========================= =========================
5. SEGMENT DATA The Company operates in three principal product segments: Engine/Mobile Filtration, Industrial/Environmental Filtration, and Packaging. The segment data for the quarter and six-month periods ended May 27, 2000 and May 29, 1999, respectively, are shown below. Net sales represent sales to unaffiliated customers as reported in the consolidated condensed statements of earnings. Intersegment sales were not material.
Quarter Ended Six Months Ended -------------------------- -------------------------- May 27, May 29, May 27, May 29, 2000 1999 2000 1999 -------------------------- -------------------------- Net sales: Engine/Mobile Filtration $ 65,362 $ 61,407 $ 125,213 $ 114,983 Industrial/Environmental Filtration 78,770 34,045 153,815 66,743 Packaging 18,073 15,031 33,874 27,923 -------------------------- -------------------------- $ 162,205 $ 110,483 $ 312,902 $ 209,649 ========================== ========================== Operating profit: Engine/Mobile Filtration $ 12,910 $ 11,441 $ 22,465 $ 20,295 Industrial/Environmental Filtration 4,403 1,114 6,738 1,740 Packaging 1,877 1,311 3,457 1,869 -------------------------- -------------------------- 19,190 13,866 32,660 23,904 Other income (expense) (3,278) (202) (5,717) (437) -------------------------- -------------------------- Earnings before income taxes and minority interests $ 15,912 $ 13,664 $ 26,943 $ 23,467 ========================== ========================== Identifiable assets: Engine/Mobile Filtration $ 146,868 $ 135,908 Industrial/Environmental Filtration 260,484 70,167 Packaging 39,397 33,118 Corporate 45,295 70,837 -------------------------- $ 492,044 $ 310,030 ==========================
Page 7 of 16 9 CLARCOR Inc. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (Unaudited) Continued -------------------------------------------------------------------------------- 5. SEGMENT DATA (Continued) The first six months of fiscal 2000 include the results of three industrial filtration businesses acquired during the fourth quarter of 1999 as discussed in Note 2. 6. MULTICURRENCY AGREEMENT During the six months ended May 27, 2000, the Company entered into interest swap agreements to manage its interest exposure on the outstanding amounts under the multicurrency credit revolver. The agreement in place at May 27, 2000, covering a portion of the outstanding amount on the multicurrency credit revolver, provides for the Company to pay a 6.565% fixed interest rate on a notional amount of $60,000 and to receive interest at floating rates based on LIBOR. The agreement matured in June 2000. Page 8 of 16 10 Part I - Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS CLARCOR reported record sales, operating profit, net earnings and earnings per share for the second quarter and first six months of fiscal 2000. Fiscal 2000 includes the results of operations from three industrial filtration businesses that were acquired in the fourth quarter of 1999. These businesses (the "Industrial Filtration Acquisitions") are included in the Industrial/Environmental Filtration segment. Final balance sheet adjustments for the acquisitions will be determined by the end of the third quarter of fiscal 2000. No adjustments were made to the initial allocation during the six months ended May 27, 2000. In addition, several smaller acquisitions were made during fiscal 2000 as discussed below. SECOND QUARTER OF 2000 COMPARED WITH SECOND QUARTER OF 1999. Net sales of $162,205,000 increased 46.8% from $110,483,000 reported for the second quarter of 1999, or an increase of approximately 9% excluding the effect of acquisitions. Each of the Company's business segments reported increased sales for the quarter compared to the prior year quarter. The Engine/Mobile Filtration segment reported increased sales of 6.4% to $65,362,000 from $61,407,000 recorded in 1999. The segment's domestic and international sales were strong for the quarter and included increased sales volume for heavy-duty, light-duty and railroad filters. The Company's Industrial/Environmental Filtration segment recorded a 131.4% increase in sales for the 2000 second quarter including the Industrial Filtration Acquisitions and several small acquisitions made in fiscal 2000. The first of the acquisitions in 2000 occurred early in the first quarter and is a distributor of air filtration products and in the second quarter of 2000, the Company acquired a liquid process filtration manufacturing company. The Industrial/Environmental segment's sales increased approximately 8% for the second quarter, excluding the acquisitions, and included strong sales of environmental air filters and slightly increased sales of air quality equipment and systems. The Packaging segment reported a 20.2% increase in sales for the 2000 quarter primarily as a result of increased sales of lithographed metal containers and sheets. This sales increase was anticipated as a result of a refocus that began in 1998 on non-promotional packaging products for food and other consumer and industrial products. Operating profit for the second quarter 2000 was $19,190,000 compared to $13,866,000 in 1999, an increase of 38.4%, or approximately 21% excluding the results from acquisitions. Operating profit was 11.8% of net sales in 2000 compared to 12.6% in 1999. The reduction in operating profit margin compared to 1999 resulted primarily from the acquired companies and includes the effect of increased amortization and depreciation from the acquisitions. The Engine/Mobile Filtration segment recorded an operating profit increase in second quarter 2000 of 12.8% compared to 1999 and resulted in an operating margin of 19.8% compared to 18.6% recorded in 1999. The increased profit for the 2000 quarter resulted primarily from higher sales volumes, reduced legal costs from the settlement of several outstanding matters, and continued productivity improvements that were partially offset by competitive pricing discounts and temporary costs related to combining two distribution facilities. The Industrial/Environmental Filtration segment Page 9 of 16 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued reported an increase in operating profit in 2000 to $4,403,000 from $1,114,000 recorded in 1999. Excluding the effect of acquisitions, operating profit increased approximately $900,000 primarily due to increased sales volume of air filtration products and reduced overhead and administrative costs related to the segment's air quality equipment business. The Packaging segment's increase in operating profit to $1,877,000 from $1,311,000 recorded in the 1999 quarter resulted from significantly higher sales volume and improved capacity utilization. For the quarter, the segment's operating margin improved to 10.4% compared to 8.7% for the 1999 quarter. Net other expense for the quarter of $3,278,000 included higher interest expense and reduced interest income as a result of higher debt and lower cash balances due primarily to the Industrial Filtration Acquisitions. Interest expense increased to $2,795,000 in 2000 compared to $545,000 in 1999. In addition, currency exchange losses of approximately $360,000 were recorded during the 2000 quarter. Net other expense for second quarter 1999 totaled $202,000. Earnings before income taxes and minority interests for second quarter of 2000 totaled $15,912,000, up from $13,664,000 in the comparable quarter last year. The increase resulted from improved results of operations from the Company's businesses and the operating results from the Industrial Filtration Acquisitions offset by increased interest expense on the debt related to the acquisitions. The provision for income taxes in 2000 was $5,800,000, an effective rate of 36.5%, and compares to an effective tax rate of 36.5% of pre-tax earnings in the 1999 quarter. Net earnings in the second quarter of the current year were $10,090,000, or $0.41 per share on a diluted basis. The 1999 net earnings for the quarter of $8,650,000 resulted in diluted earnings per share of $0.36. Basic average shares outstanding were 24,252,425 and diluted average shares outstanding were 24,516,307 at the end of the second quarter of 2000. SIX MONTHS 2000 COMPARED TO SIX MONTHS OF 1999. Net sales for the six-month 2000 period totaled $312,902,000, an increase of 49.3% over 1999, and include the Industrial Filtration Acquisitions and several small acquisitions in 2000. Excluding these acquisitions, sales increased approximately 10.5% over the 1999 six-month period. As a result of strong domestic and international sales of filtration products, the Engine/Mobile Filtration segment recorded an increase of 8.9% over the 1999 period and the Industrial/Environmental segment, excluding acquisitions, also recorded an increase of 8.9% over 1999. Including the sales from the acquisitions, the Industrial/Environmental Filtration sales for the 2000 six-month period were $153,815,000 compared to $66,743,000 in 1999, or an increase of 130.5%. The Packaging segment's sales were 21.3% higher than in 1999 as a result of increased sales of metal and plastic packaging products and metal lithographed sheets. Operating profit for the 2000 six-month period was $32,660,000, which compares to $23,904,000 in 1999. Operating profit was 10.4% of sales in 2000 compared to 11.4% in 1999. The reduction in operating margin from 1999 was primarily due to the Industrial Filtration Acquisitions and related additional depreciation and amortization. The Engine/Mobile Filtration segment recorded an increase in operating profit of 10.7% compared to 1999 primarily due to the strong sales for the Page 10 of 16 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued period. In addition, cost reduction initiatives, reduced legal costs and improved capacity utilization offset increased costs related to the start-up of the new distribution center in Kearney, Nebraska. Legal costs and further start-up costs related to the distribution center are not expected to have a material impact on the remainder of fiscal 2000. The Industrial/Environmental Filtration segment's operating profit increased to $6,738,000 compared to $1,740,000 in 1999. The increase is primarily due to the acquisitions and an increase in operating margin, excluding the acquisitions, to 4.8% in 2000 from 2.6% recorded in 1999. This increase in operating margin resulted primarily from higher capacity utilization and cost reduction initiatives. The Packaging segment's operating margin improved to 10.2% for the 2000 period from 6.7% of sales in 1999 due primarily to significantly increased sales and capacity utilization. Net other expense of $5,717,000 for the 2000 six-month period was higher than the $437,000 recorded in the 1999 period due primarily to additional interest expense and lower interest income. Net interest expense increased primarily due to higher debt and lower cash balances related to the Industrial Filtration Acquisitions. Currency exchange losses of approximately $400,000 also were higher in the 2000 six-month period. Earnings before income taxes and minority interests for the six-month 2000 period totaled $26,943,000 compared to $23,467,000 in 1999. This increase reflects improved operating results and operating results from the acquisitions in fiscal 1999 and 2000 offset by increased interest expense. The effective tax rate of 36.3% for the six-month 2000 period compares to 36.6% in 1999. Net earnings of $17,153,000 in 2000, or diluted earnings per share of $0.70, compare to $14,860,000, or $0.61 per diluted share in 1999. Basic average shares outstanding were 24,210,788 and diluted average shares outstanding were 24,462,017 at the end of the six months of 2000. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities totaled $13,161,000 for the six-month 2000 period and included increased net earnings, depreciation and amortization. The increase in depreciation and amortization was primarily due to the effect of the 1999 acquisitions. The net increase in assets and liabilities was $15,276,000 for six months 2000 compared to $7,512,000 recorded in the 1999 period. Accounts receivable and inventories were increased during the 2000 six-month period due to a higher level of business activity throughout the Company. Other current assets and accrued current liabilities were reduced during the second quarter of 2000 due to the use of restricted trust assets for payment of nonqualified pension liabilities. Cash flows used in investing activities increased in 2000 primarily due to the cash used for several acquisitions totaling $12,972,000. In addition, the Company issued 160,704 common shares related to one of the acquisitions. Additions to plant assets totaled $12,166,000 compared to $11,131,000 in 1999. Cash provided by financing activities in 2000 included additional net borrowing of $11,500,000 from a revolving credit agreement established in September 1999. Payments on long-term debt in the 2000 six-month period were $1,686,000 compared to $227,000 in 1999. Dividends paid totaled $5,560,000 during the 2000 six-month period. In the 1999 six-month period, the Company repurchased 50,000 shares of common stock for $897,000 and paid dividends of $5,376,000. Page 11 of 16 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued CLARCOR's current operations continue to generate cash and sufficient lines of credit remain available to fund current operating needs, pay dividends, and provide for interest payments and required principal payments related to the Company's long-term debt. In fiscal 1999, the Company entered into a $185,000,000 multicurrency revolving credit facility against which $126,500,000 has been used primarily for the Industrial Filtration Acquisitions and the acquisitions in fiscal 2000. Principal payments on long-term debt will be approximately $6,700,000 in fiscal 2000; however, no payments are required in fiscal 2000 on the multicurrency revolving credit facility. The Company is in compliance with restrictive covenants related to the facility. EBITDA, or operating profit before depreciation and amortization, increased to $43,811,000 compared to $30,864,000 in 1999. Capital expenditures in fiscal year 2000 are expected to be approximately $29,000,000 compared to the total of $21,822,000 in 1999. The 2000 amounts will be used to increase production capacity, reduce manufacturing costs, integrate and improve the businesses acquired in 1999, and develop new products. The Company's financial position at the end of the second quarter reflected additional investments in working capital to support the level of business activity for fiscal 2000 and the acquisitions made in 1999 and 2000. Cash and short-term investments totaled $7,574,000 at the end of the quarter, a decrease from $14,745,000 at year-end 1999. Accounts receivable increased to $110,238,000 and inventory increased to $100,623,000 at the end of the second quarter 2000 due to higher sales activities. The inventory increase also reflects anticipated sales levels for the remainder of fiscal 2000. The current ratio at the end of the second quarter was 2.5:1 compared to 2.3:1 at the end of fiscal 1999. The current year ratio of long-term debt to total capitalization was 41.3% compared to the level at year-end of 40.9%. At May 27, 2000, CLARCOR had 24,245,572 shares of common stock outstanding including 160,704 shares issued related to an acquisition in December 1999. OTHER MATTERS Market Risk The Company's interest expense on long-term debt is sensitive to changes in interest rates. In addition, changes in foreign currency exchange rates may affect assets, liabilities and commitments that are to be settled in cash and are denominated in foreign currencies. During second quarter 2000, the Company entered into a three-month interest rate swap agreement at a fixed interest rate of 6.565% on a notional amount of $60,000,000 and the Company will receive interest at floating rates based on LIBOR. Similar interest rate swap agreements may be entered into depending on market conditions. These market risks are similar to those discussed in the Company's Annual Report and Form 10-K for the year ended November 30, 1999 (the "Annual Report") in the Financial Review on page 13. Recent Accounting Pronouncements The Company currently expects to adopt Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," in fiscal year 2001 as discussed in the Financial Review on page 13 of the Annual Report. Page 12 of 16 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements," relating to revenue recognition under generally accepted accounting principles in financial statements. SAB 101 will be effective for the Company in the first quarter of fiscal 2001 and the Company expects to fully review the guidance provided in SAB 101 during fiscal 2000. Outlook Since the end of the first quarter of 2000, there has been no significant change in the business outlook for CLARCOR for the remainder of fiscal 2000. The order rate in each of the Company's business segments continues to be good, and as a result, sales and operating profit are expected to continue to increase compared to the prior year levels. New product introductions and additional distribution of the Company's product lines are expected to increase sales during fiscal 2000. Several product lines from the Industrial Filtration Acquisitions, including aerospace filters and sand control filters for oil drilling, have higher sales growth than previously expected. In addition, the Company's emphasis on cost control and productivity improvements will continue throughout fiscal 2000. Overall, operating margins are expected to be lower in 2000 than in 1999 due to the Industrial Filtration Acquisitions and related depreciation and amortization. On an EBITDA basis, the new acquisitions generate higher margins than the historical results from the Industrial/Environmental segment, but are generally lower than the Company's other business segments. Without the additional depreciation and amortization arising from those acquisitions, operating margins would have improved significantly for the Industrial/Environmental segment. For the remainder of fiscal 2000, the Engine/Mobile segment's sales and operating profit are expected to increase compared to the 1999 periods. The Industrial Filtration Acquisitions will continue to be integrated into the Industrial/Environmental Filtration segment and additional cost savings and synergies are expected to be recognized, net of integration costs. In the first six months of fiscal 2000, these businesses achieved many of the operating goals originally set at the acquisition date, and the integration activities are on schedule and will continue throughout 2000 and 2001. The Packaging segment will continue with its transition to a business model focused on growth in its core strength of flat sheet metal lithography, and this repositioning is expected to result in improved sales overall for 2000 compared to fiscal 1999. As in past years due to higher third and fourth quarter sales levels, the Packaging segment's operating margin for the remainder of the year is expected to increase from the 10.4% recorded for the first six months of fiscal 2000. Although higher energy prices, foreign currency fluctuations and higher interest rates may affect the economy as the year progresses, the Company remains enthusiastic and confident about the remainder of fiscal 2000. As product demand remains good overall, the Company expects to continue to perform during the rest of the year as it has in the first half with record sales and profits. CLARCOR continues to produce a very strong, stable cash flow. EBITDA should exceed $90 million, a 25% increase over 1999. Capital expenditure spending is expected to continue at the planned rate, as these investments remain important for the Company's future growth. FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY Certain statements quoted in the body of this report, and statements in the "Outlook" section of this report are forward-looking. These statements involve risk and uncertainty. Actual future results and Page 13 of 16 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued trends may differ materially depending on a variety of factors including: the volume and timing of orders received during the quarter; the mix of changes in distribution channels through which the Company's products are sold; the timing and acceptance of new products and product enhancements by the Company or its competitors; changes in pricing, labor availability, product life cycles, raw material costs, energy costs, 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, plant expansions and productivity improvement programs; 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 or 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 Securities and Exchange Commission reports. Due to the foregoing items it is possible that in some future quarters the Company's operating results will be below the expectation of some stock market analysts and investors. In such event, the price of CLARCOR common stock could be materially adversely affected. Page 14 of 16 16 Part II - Other Information Item 4 - Submission of Matters to a Vote of Security Holders --------------------------------------------------- At the annual meeting of shareholders of CLARCOR Inc. held on March 25, 2000, all of management's nominees for directors, as listed in the proxy statement dated February 23, 2000, were elected. The Company had 24,255,740 shares of common stock outstanding as of the close of business on the February 11, 2000 record date, and the holders of 21,316,924 shares of common stock were present at the meeting, in person or by proxy. The three nominees elected received votes as follows: For Withheld J. Marc Adam 21,187,166 129,758 James L. Packard 21,187,206 129,718 Stanton K. Smith, Jr. 21,184,535 132,389 Item 6a - Exhibit 27 Financial Data Schedule. Item 6b - On March 29, 2000, the Company filed a Form 8-K announcing that the Board of Directors appointed Norman E. Johnson as Chairman, President, and Chief Executive Officer of the Company. Page 15 of 16 17 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CLARCOR INC. (Registrant) June 26, 2000 By /s/ Bruce A. Klein ------------------------- ------------------------------------------- (Date) Bruce A. Klein, Vice President - Finance and Chief Financial Officer Page 16 of 16