-----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, Ahlxt/maKhLm/hKNRdZP8AENUbggtSGg2CSzcsm8bG3JOYZ3vjwLH2SyfA319Z51 u5D33An8G7nqW5Q2sxg44g== 0000950137-01-501985.txt : 20010622 0000950137-01-501985.hdr.sgml : 20010622 ACCESSION NUMBER: 0000950137-01-501985 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010602 FILED AS OF DATE: 20010621 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-Q SEC ACT: SEC FILE NUMBER: 001-11024 FILM NUMBER: 1664789 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-Q 1 c63395e10-q.txt QUARTERLY REPORT DATED JUNE 02, 2001 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 June 2, 2001 ------- 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 June 2, 2001 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. 24,519,905 common shares outstanding ------------------------------------------------------- Page 1 of 18 3 Part I - Item 1 CLARCOR Inc. CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in thousands) ----------
June 2, November 30, ASSETS 2001 2000 ---------- ------------ (unaudited) Current assets: Cash and short-term cash investments $ 20,658 $ 10,864 Accounts receivable, less allowance for losses of $5,139 for 2001 and $5,027 for 2000 103,363 110,083 Inventories: Raw materials 40,608 38,277 Work in process 13,411 14,103 Finished products 48,505 48,181 --------- --------- Total inventories 102,524 100,561 --------- --------- Prepaid expenses and other current assets 3,439 3,640 Deferred income taxes 9,766 5,331 --------- --------- Total current assets 239,750 230,479 --------- --------- Plant assets at cost, 270,790 272,252 less accumulated depreciation (133,565) (132,131) --------- --------- 137,225 140,121 --------- --------- Excess of cost over fair value of assets acquired, less accumulated amortization 62,093 62,333 Other acquired intangibles, less accumulated amortization 38,842 39,544 Pension assets 20,228 19,519 Other noncurrent assets 13,738 9,934 --------- --------- $ 511,876 $ 501,930 ========= ========= LIABILITIES Current liabilities: Current portion of long-term debt $ 5,571 $ 5,482 Accounts payable 33,122 40,826 Income taxes 7,433 8,157 Accrued and other liabilities 36,070 43,361 --------- --------- Total current liabilities 82,196 97,826 --------- --------- Long-term debt, less current portion 147,287 141,486 Long-term pension liabilities 5,287 4,374 Other long-term liabilities 21,195 15,756 Minority interests 380 395 Contingencies SHAREHOLDERS' EQUITY Capital stock 24,520 24,381 Capital in excess of par value 8,082 5,700 Accumulated other comprehensive earnings (9,014) (6,919) Retained earnings 231,943 218,931 --------- --------- 255,531 242,093 --------- --------- $ 511,876 $ 501,930 ========= =========
See Notes to Consolidated Condensed Financial Statements Page 2 of 18 4 CLARCOR Inc. CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS (Dollars in thousands except per share data) (Unaudited) _________
Quarter Ended Six Months Ended ----------------------------- ---------------------------- June 2, May 27, June 2, May 27, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Net sales $ 159,505 $ 162,205 $ 315,702 $ 312,902 Cost of sales 114,161 112,220 224,072 218,634 ------------ ------------ ------------ ------------ Gross profit 45,344 49,985 91,630 94,268 Selling and administrative expenses 28,289 30,795 56,891 61,608 ------------ ------------ ------------ ------------ Operating profit 17,055 19,190 34,739 32,660 ------------ ------------ ------------ ------------ Other income (expense): Interest expense (2,727) (2,795) (5,461) (5,355) Interest income 181 82 336 284 Other, net (434) (565) (194) (646) ------------ ------------ ------------ ------------ (2,980) (3,278) (5,319) (5,717) ------------ ------------ ------------ ------------ Earnings before income taxes and minority interests 14,075 15,912 29,420 26,943 Provision for income taxes 5,129 5,800 10,678 9,774 ------------ ------------ ------------ ------------ Earnings before minority interests 8,946 10,112 18,742 17,169 Minority interests in earnings of subsidiaries (10) (22) (2) (16) ------------ ------------ ------------ ------------ Net earnings $ 8,936 $ 10,090 $ 18,740 $ 17,153 ============ ============ ============ ============ Net earnings per common share: Basic $ 0.36 $ 0.42 $ 0.77 $ 0.71 ============ ============ ============ ============ Diluted $ 0.36 $ 0.41 $ 0.76 $ 0.70 ============ ============ ============ ============ Average number of common shares outstanding: Basic 24,502,173 24,252,425 24,460,368 24,210,788 ============ ============ ============ ============ Diluted 24,973,755 24,516,307 24,787,903 24,462,017 ============ ============ ============ ============ Dividends paid per share $ 0.1175 $ 0.1150 $ 0.2350 $ 0.2300 ============ ============ ============ ============
See Notes to Consolidated Condensed Financial Statements Page 3 of 18 5 CLARCOR Inc. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) ________
Six Months Ended -------------------- June 2, May 27, 2001 2000 -------- -------- Cash flows from operating activities: Net earnings $ 18,740 $ 17,153 Depreciation and amortization 11,009 11,151 Impairment of plant assets 2,422 -- Changes in assets and liabilities (14,049) (15,276) Other, net 183 133 -------- -------- Net cash provided by operating activities 18,305 13,161 -------- -------- Cash flows from investing activities: Additions to plant assets (10,220) (12,166) Business acquisitions, net of cash acquired (130) (12,972) Other, net 195 98 -------- -------- Net cash used in investing activities (10,155) (25,040) -------- -------- Cash flows from financing activities: Proceeds from line of credit 5,500 20,000 Payments on line of credit (7,500) (8,500) Proceeds from long term-debt 8,000 -- Reduction of long-term debt (110) (1,686) Cash dividends paid (5,728) (5,560) Other, net 1,479 518 -------- -------- Net cash provided by financing activities 1,641 4,772 -------- -------- Net effect of exchange rate changes on cash 3 (64) -------- -------- Net change in cash and short-term cash investments 9,794 (7,171) Cash and short-term cash investments, beginning of period 10,864 14,745 -------- -------- Cash and short-term cash investments, end of period $ 20,658 $ 7,574 ======== ======== Cash paid during the period for: Interest $ 4,540 $ 5,128 ======== ======== Income taxes $ 10,957 $ 8,648 ======== ========
See Notes to Consolidated Condensed Financial Statements Page 4 of 18 6 CLARCOR Inc. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (Unaudited) - -------------------------------------------------------------------------------- 1. CONSOLIDATED FINANCIAL STATEMENTS The November 30, 2000 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 June 2, 2001, the consolidated condensed statements of earnings and the consolidated condensed statements of cash flows for the periods ended June 2, 2001, and May 27, 2000, 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, 2000 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 June 2, 2001 are not necessarily indicative of the operating results for the full year. 2. RECLASSIFICATIONS Certain reclassifications have been made to conform prior years' data to the current presentation. These reclassifications had no effect on reported earnings. 3. ACCOUNTING CHANGE AND DERIVATIVE INSTRUMENTS The Company makes limited use of derivative financial instruments and does not use them for trading or speculative purposes. Derivative financial instruments are used principally to manage certain interest rate and foreign currency risks. Interest rate swap agreements are utilized to convert certain floating rate debt into fixed rate debt. Cash flows related to interest rate swap agreements are included in interest expense over the terms of the agreements. Effective December 1, 2000, the Company adopted Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires the recognition of all derivatives in the balance sheet as either an asset or a liability measured at fair value. The statement also requires a company to recognize changes in the derivative's fair value currently in earnings unless it meets specific hedge accounting criteria. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive earnings and are recognized in the income statement when the hedged item affects earnings. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. In addition, the Company formally assesses (both at the hedge's inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been effective in offsetting changes in the fair value or cash flows of hedged items and whether Page 5 of 18 7 CLARCOR Inc. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (Unaudited) Continued - -------------------------------------------------------------------------------- 3. ACCOUNTING CHANGE AND DERIVATIVE INSTRUMENTS (Continued) those derivatives may be expected to remain effective in future periods. If it is determined that a derivative is not (or has ceased to be) effective as a hedge, the Company would discontinue hedge accounting prospectively. Such a determination would be made (1) when the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; (4) a hedged firm commitment no longer meets the definition of a firm commitment; or (5) management determines that designating the derivative as a hedging instrument is no longer appropriate. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. During 2000, the Company entered into interest rate agreements to manage its interest exposure related to the multicurrency credit revolver. The agreement in place at June 2, 2001 provides for the Company to pay a 7.34% fixed interest rate on a notional amount of $60,000 that is effective until September 11, 2002. Under the agreement the Company will receive interest at floating rates based on LIBOR. The adoption of SFAS 133 resulted in a cumulative effect of an accounting change to accumulated other comprehensive earnings of a negative $769 ($1,183 pretax) and the recognition of a long-term liability. The Company's derivative instrument is designated as a cash flow hedge and determined to be effective. Therefore, there was no adjustment to net earnings. Approximately $702 (or $1,079 pretax) of the net derivative loss included in other comprehensive earnings as of December 1, 2000, will be reclassified into earnings during the twelve months ended November 30, 2001. At June 2, 2001, the fair value of the agreement was a negative $2,613 and is included in other noncurrent liabilities. The net loss included in other comprehensive earnings for the six months ended June 2, 2001 was $930 (or $1,430 pretax). Derivative gains and losses will be reclassified into earnings as payments are made on its variable rate interest debt. Approximately $142 was reclassified into earnings during the six months ended June 2, 2001. The Company estimates that $1,186 (or $1,825 pretax) of net derivative losses included in other comprehensive income at June 2, 2001 will be reclassified into earnings within the next twelve months. 4. BUSINESS COMBINATIONS Subsequent to the end of the second quarter, on June 4, 2001, the Company acquired several filtration management companies for approximately $31,000 in cash. As a result of the acquisition, the companies were combined into one company, Total Filtration Services, Inc. and became a subsidiary of the Company. The transaction will be accounted for under the purchase method of accounting and the results will be included in the Company's consolidated results of operations from the date of acquisition. In the most recent twelve-month period, sales of the acquired companies totaled approximately $63,000. 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 Page 6 of 18 8 CLARCOR Inc. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (Unaudited) Continued - -------------------------------------------------------------------------------- 4. BUSINESS COMBINATIONS (Continued) stock. During the six months ended June 2, 2001, the final allocation of the purchase price to the assets and liabilities acquired resulted in an increase to goodwill of $615. 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, Facet International, and Purolator Facet, Inc. The transaction was accounted for under the purchase method of accounting with the excess of the initial purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired recorded as goodwill. During the fourth quarter of fiscal year 2000, the Company finalized the purchase price according to the terms of the purchase agreement and completed the estimates of liabilities assumed, including those associated with exit and other costs of the acquisition. The finalized allocation to major categories of assets and liabilities resulted in a reduction to goodwill of $34. As part of the final allocation of purchase price, the Company accrued an additional $800 for severance and exit costs during 2000, resulting in a total accrual of $1,085 of which $1,012 was paid out as of June 2, 2001. The remaining accrual for severance and exit costs is expected to be settled by the end of 2001. The operating results are included in the Company's consolidated results of operations from September 1, 1999, the effective date of the acquisitions. 5. LONG-TERM DEBT On May 1, 2001, the Company, in cooperation with the Campbellsville-Taylor County Industrial Development Authority, issued $8,000 of Industrial Revenue Bonds. The bonds are due May 1, 2031, with a variable rate of interest that is reset weekly. In conjunction with the issuance of the Industrial Revenue Bonds, the Company holds in trust certain restricted investments committed for the acquisition of plant equipment. At June 2, 2001, the restricted asset balance was $2,941 and is included in other noncurrent assets. 6. IMPAIRMENT LOSS During the six months ended June 2, 2001, the Company recognized an impairment loss in its Packaging segment of $2,422 related to certain plant assets used exclusively in the manufacture of plastic closures for a customer who terminated a manufacturing contract. The loss is included in the cost of sales and was calculated under the guidelines of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." 7. EARNINGS PER SHARE 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 and restricted stock as if exercised during the periods presented using Page 7 of 18 9 CLARCOR Inc. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (Unaudited) Continued - -------------------------------------------------------------------------------- 7. EARNINGS PER SHARE (Continued) 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 ------------------------- ------------------------- June 2, May 27, June 2, May 27, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Net Earnings (numerator) $ 8,936 $ 10,090 $ 18,740 $ 17,153 Basic EPS: Weighted average number of common shares outstanding (denominator) 24,502,173 24,252,425 24,460,368 24,210,788 Basic per share amount $ 0.36 $ 0.42 $ 0.77 $ 0.71 =========== =========== =========== =========== Diluted EPS: Weighted average number of common shares outstanding 24,502,173 24,252,425 24,460,368 24,210,788 Dilutive effect of stock options 471,582 263,882 327,535 251,229 ----------- ----------- ----------- ----------- Diluted weighted average number of common shares outstanding (denominator) 24,973,755 24,516,307 24,787,903 24,462,017 Diluted per share amount $ 0.36 $ 0.41 $ 0.76 $ 0.70 =========== =========== =========== ===========
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 -------------------- ------------------------- June 2, May 27, June 2, May 27, 2001 2000 2001 2000 -------- ---------- ---------- ------------ Options -- 1,144,239 1,535,894 1,144,239 Weighted Average Exercise Price -- $ 18.92 $ 23.58 $ 18.92
For the six months ended June 2, 2001, exercises of stock options added $2,382 to capital in excess of par value. 8. COMPREHENSIVE EARNINGS The Company's total comprehensive earnings and its components are as follows: Page 8 of 18 10 CLARCOR Inc. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (Unaudited) Continued - -------------------------------------------------------------------------------- 8. COMPREHENSIVE EARNINGS (Continued)
Quarter Ended Six Months Ended ------------------- --------------------- June 2, May 27, June 2, May 27, 2001 2000 2001 2000 ------------------- -------- ---------- Net earnings $ 8,936 $ 10,090 $ 18,740 $ 17,153 Other comprehensive earnings, net of tax: Cashflow hedges: Cumulative effect of accounting change -- -- (769) -- Net loss on derivative instruments (234) -- (930) -- Foreign currency translation adjustments (1,601) (732) (396) (1,809) -------- -------- -------- -------- Total comprehensive earnings $ 7,101 $ 9,358 $ 16,645 $ 15,344 ======== ======== ======== ========
9. 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 June 2, 2001 and May 27, 2000, 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 ---------------------- ----------------------- June 2, May 27, June 2, May 27, 2001 2000 2001 2000 --------- --------- --------- --------- Net sales: Engine/Mobile Filtration $ 64,333 $ 65,362 $ 123,117 $ 125,213 Industrial/Environmental Filtration 80,553 78,770 158,101 153,815 Packaging 14,619 18,073 34,484 33,874 --------- --------- --------- --------- $ 159,505 $ 162,205 $ 315,702 $ 312,902 ========= ========= ========= ========= Operating profit: Engine/Mobile Filtration $ 12,879 $ 12,910 $ 23,830 $ 22,465 Industrial/Environmental Filtration 3,806 4,403 5,828 6,738 Packaging 370 1,877 5,081 3,457 --------- --------- --------- --------- 17,055 19,190 34,739 32,660 Other expense (2,980) (3,278) (5,319) (5,717) --------- --------- --------- --------- Earnings before income taxes and minority earnings $ 14,075 $ 15,912 $ 29,420 $ 26,943 ========= ========= ========= =========
Page 9 of 18 11 CLARCOR Inc. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Dollars in thousands, except per share data) (Unaudited) Continued - -------------------------------------------------------------------------------- 9. SEGMENT DATA (Continued) Six Months Ended -------------------------- June 2, May 27, 2001 2000 --------- --------- Identifiable assets: Engine/Mobile Filtration $ 142,684 $ 146,868 Industrial/Environmental Filtration 271,885 260,484 Packaging 40,259 39,397 Corporate 57,048 45,295 --------- --------- $ 511,876 $ 492,044 ========= ========= The 2001 six-month results for the Packaging segment include a contract cancellation payment from a customer received in the first quarter, which increased operating profit by approximately $3,000 compared with the 2000 six-month period. Page 10 of 18 12 Part I - Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CLARCOR reported increased sales, operating profit, net earnings and earnings per share for the first six months of 2001 compared to the same period in 2000. Included in the first quarter of 2001 was a contract cancellation payment received from a customer of the Company's Packaging segment which increased the 2001 six months operating profit approximately $3 million and diluted earnings per share by $0.08 compared to last year's six-month results. Overall, sales and operating profit were lower than expected for the six months due to reduced customer orders caused by a slowdown in the U.S. economy compared to fiscal 2000. RESULTS OF OPERATIONS: SECOND QUARTER OF 2001 COMPARED WITH SECOND QUARTER OF 2000. Net sales of $159,505,000 decreased 1.7% from $162,205,000 reported for the second quarter of 2000. Compared to last year's second quarter, excluding the contract cancellation by a Packaging segment's customer in February 2001, overall sales increased approximately 1% in the 2001 quarter. The Engine/Mobile Filtration segment reported reduced sales of 1.6% to $64,333,000 from $65,362,000 in 2000. The decline in sales reflects the overall slowdown in the U.S. economy, the continuing strength of the U.S. dollar which impacts both export sales and sales made by the segment's foreign business units, and our customers continuing to reduce their inventory levels which reduced their demand for the segment's products. The Company's Industrial/Environmental Filtration segment recorded a 2.3% overall increase in sales to $80,553,000 for the 2001 second quarter. This sales increase included additional sales from new product introductions and increased distribution coverage; however, partially offsetting these increases were reduced sales due to the slowdown in the U.S. economy and in particular, sales of air quality equipment and systems. The Packaging segment reported a decrease in sales of 19.1% for the 2001 quarter primarily as a result of the contract cancellation by a customer in the first quarter of 2001. Excluding the impact of the canceled contract, sales would have increased approximately 1% compared to the prior year quarter. If not canceled, this license and manufacturing contract for plastic closures would have continued for two additional years. The early termination payment that was received in February 2001 was approximately equal to the operating profit that would have been earned over the remaining contract period. Future sales of plastic packaging products will be lower as a result of this contract termination. However, increased sales of metal packaging products for the Packaging segment are expected beginning in the third quarter of fiscal 2001 as a result of new metal lithography equipment installed during the first six months of 2001. Operating profit for the second quarter 2001 was $17,055,000 compared to $19,190,000 in 2000, a decrease of 11.1%. Excluding the impact from the cancellation of a customer contract, operating profit decreased approximately 7% for the quarter. The reduction in operating profit was principally due to lower sales and a reduction in gross profit margin to 28.4% for the quarter compared to 30.8% in the second quarter 2000. The reduced gross profit margin was due primarily to reduced capacity utilization and continued start-up costs for two new manufacturing facilities and new lithography equipment. Discretionary cost controls and reduced employee-related costs during the 2001 second quarter resulted in an 8.1% reduction from the prior year in selling and administrative expenses. Page 11 of 18 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued The Engine/Mobile Filtration segment recorded operating profit of $12,879,000 which was approximately level with the second quarter of 2000. Lower than expected sales reduced capacity utilization but cost containment efforts resulted in operating margin of 20.0%, which was slightly higher than 19.8% for the second quarter 2000. The segment's discretionary cost reductions also offset increases in energy, material and health care costs. The Industrial/Environmental Filtration segment reported a $597,000 reduction in operating profit in the second quarter of 2001 to $3,806,000 from $4,403,000 recorded in 2000. This reduction was primarily due to reduced sales of air quality equipment and systems and start-up costs related to two new air filter manufacturing plants that were established in late 2000. These new plants were added primarily to meet a customer's demand for both current products and new products. The sales increase for the products has been less than expected as the customer has continued to reduce its orders throughout 2001 below the level originally planned. The costs associated with these start-up activities are expected to continue through the third quarter of 2001. The Packaging segment's decrease in operating profit to $370,000 from $1,877,000 recorded in the 2000 quarter resulted primarily from reduced sales due to the February 2001 customer contract cancellation. The Packaging segment's operating profit will be reduced in future quarters as a result of the loss of sales for this customer. Operating profit for the 2001 quarter was lower than the 2000 quarter also due to higher energy and pension costs and reduced capacity utilization. However, beginning in the third quarter of 2001, sales and operating profit are expected to be favorably impacted by additional sales from new metal lithography equipment that was installed during the first six months of fiscal 2001. Net other expense for the quarter of $2,980,000 was slightly lower than the $3,278,000 in the 2000 quarter primarily due to higher interest income recorded in the 2001 quarter. Earnings before income taxes and minority interests for the second quarter of 2001 were $14,075,000, a decrease of 11.5% from $15,912,000 in the comparable quarter last year. The provision for income taxes in 2001 was $5,129,000, an effective rate of 36.4% compared to 36.5% recorded in the 2000 quarter. Net earnings in the second quarter of the current year were $8,936,000, or $0.36 per share on a diluted basis. The 2000 net earnings for the quarter of $10,090,000 resulted in diluted earnings per share of $0.41. Diluted average shares outstanding were 24,973,755 for the second quarter of 2001, an increase of 1.9% from the average of 24,516,307 for the 2000 quarter. SIX MONTHS OF 2001 COMPARED TO SIX MONTHS OF 2000. Net sales for the six-month 2001 period totaled $315,702,000 compared to $312,902,000 for the prior year period. The Engine/Mobile Filtration segment's sales decrease of 1.7% to $123,117,000 resulted primarily from reduced light-duty and railroad filtration product sales. The segment's sales were lower than expected for the six-month 2001 period due to the slowdown in the U.S. economy and a reduction in inventory levels and product demand by our customers. The Industrial/Environmental Filtration segment reported a 2.8% increase in sales for the six-month period primarily resulting from new products introduced late in fiscal 2000 and increased distribution coverage for environmental air filters. This increase in sales was partially offset by lower sales of air quality equipment and systems in the 2001 period. The Packaging segment's sales of $34,484,000 Page 12 of 18 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued were 1.8% higher than the prior year and included the contract cancellation payment received in the first quarter of 2001 offset by reduced sales of plastic closures and license fees for that customer. Operating profit for the 2001 six-month period of $34,739,000 exceeded the 2000 period by 6.4%. Included in the six-month results was a contract cancellation payment received in the first quarter of 2001 that increased six-month 2001 operating profit by approximately $3 million compared to the 2000 six-month period. Excluding the operating profit related to this customer from the 2001 and 2000 six-month periods, operating profit declined by approximately 3% compared to the prior year. Reduced discretionary spending and management and selling expenses also contributed to a 11.0% operating profit margin compared to 10.4% in the 2000 six-month period. The Engine/Mobile Filtration segment reported an increase in operating profit of 6.1% from the prior year period. This increase resulted from reduced discretionary spending and productivity improvements that offset reduced capacity utilization and increases in energy, material and health care costs. The Industrial/Environmental Filtration segment reported reduced operating profit of 13.5% to $5,828,000. The reduction in operating profit for the segment resulted primarily from reduced sales of air quality equipment and systems and start-up costs associated with two new manufacturing facilities. The start-up costs associated with these new facilities are expected to be reduced during the third quarter of 2001 as production efficiencies improve and capacity utilization improves. The Packaging segment reported an increase in profit to $5,081,000 for the six-month 2001 period from $3,457,000 in 2000. This increase resulted from the contract cancellation payment received in first quarter 2001 offset by reduced capacity utilization and start-up costs related to the installation of new lithography equipment. Increased sales and profits for metal packaging products are expected beginning with the 2001 third quarter as a result of the new automated equipment. Net other expense of $5,319,000 in the 2001 six-month period was lower than the $5,717,000 recorded in the prior year period. The reduction was principally due to reduced currency exchange losses resulting from changes in European currency rates. Earnings before income taxes and minority interests totaled $29,420,000 for the 2001 six-month period compared to $26,943,000 in 2000, an increase of 9.2%. The effective tax rate for both of the six-month periods was 36.3%. The Company expects the overall effective tax rate for fiscal 2001 to be approximately 36.5%. Net earnings totaled $18,740,000, or $0.76 diluted earnings per share, for the six-month 2001 period. Net earnings totaled $17,153,000, or $0.70 diluted earnings per share, for the 2000 six-month period. The diluted earnings per share increased approximately $0.08 per share in 2001 as a result of the Packaging segment's customer contract cancellation. Excluding the impact of this contract cancellation for both 2001 and 2000, diluted earnings per share were lower in 2001 by approximately 3% primarily as a result of lower sales levels and the new facility and equipment start-up costs discussed above. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities totaled $18,305,000 for the 2001 six-month period, an increase of $5,144,000 from the prior year. Net increases in assets and liabilities of $14,049,000 for the six months of 2001 compared to $15,276,000 recorded in 2000. Cash flows used in investing Page 13 of 18 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued activities in 2001 of $10,155,000 included $10,220,000 for additions to plant assets. In the first six months of 2000, cash flows for investing activities totaled $25,040,000 and included $12,972,000 used for acquisitions. The Company also issued 160,704 common shares related to one of the acquisitions. Additions to plant assets totaled $12,166,000 in the 2000 quarter. Cash flows from financing activities of $1,641,000 in 2001 included net repayments on a line of credit of $2,000,000, $8,000,000 received from the issuance of industrial revenue bonds related to a new facility in Kentucky, and dividend payments of $5,728,000. Cash flows from financing activities of $4,772,000 in the 2000 six-month period included net additional borrowings on a line of credit of $11,500,000 primarily for acquisitions, repayments on long-term debt of $1,686,000 and dividend payments of $5,560,000. CLARCOR's current operations continue to generate cash and sufficient lines of credit remain available to fund current operating needs, pay dividends, fund planned capital expenditures, and provide for interest payments and required principal payments related to the Company's long-term debt. Subsequent to the end of the 2001 second quarter, the Company completed the acquisition of Total Filtration Services (TFS) for approximately $31,000,000. Cash balances and additional borrowing against the Company's outstanding credit line were used to fund the acquisition. At the end of the 2001 second quarter, the outstanding balance on the credit facility was $114,000,000. Principal payments on long-term debt will be approximately $5,500,000 in fiscal 2001; however, no payments are required in fiscal 2001 on the multicurrency revolving credit facility. The Company is in compliance with covenants related to the facility. Operating profit before depreciation, asset impairment and amortization, increased to $48,170,000 compared to $43,811,000 in 2000. Capital expenditures in fiscal year 2001 are expected to be approximately $20,000,000 to $25,000,000 compared to the total of $29,005,000 in 2000. The 2001 expenditures will be used to increase production capacity, reduce manufacturing costs, integrate and improve businesses previously acquired, and develop new products. The Company's financial position at the end of the second quarter was not significantly different from fiscal year-end 2000. Cash and short-term investments totaled $20,658,000 at the end of the quarter, an increase from $10,864,000 at year-end 2000. At the end of the 2001 second quarter compared to year-end 2000, accounts receivable were reduced by $6,720,000 and inventory increased $1,963,000 due to reduced sales levels during the 2001 period as customers reduced their inventories and order rate. The current ratio at the end of the 2001 second quarter was 2.9 compared to 2.4 at the end of fiscal 2000. Including the $8,000,000 of industrial revenue bonds issued during the 2001 second quarter, the ratio of long-term debt to total capitalization at the end of the second quarter was 36.6% compared to the year-end level of 36.9%. At June 2, 2001, CLARCOR had 24,519,905 shares of common stock outstanding. 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 fiscal 2000, the Company entered into several interest rate swap agreements related to a multicurrency credit Page 14 of 18 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued revolver based on LIBOR. The Company's interest rate agreements are discussed in Note 3 to the consolidated condensed financial statements as the Company adopted SFAS 133 effective December 1, 2000. Market risks are also discussed in the Company's Annual Report and Form 10-K for the year ended November 30, 2000 (the "Annual Report") in the Financial Review on page 10. Recent Accounting Pronouncements 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. The Emerging Issues Task Force has also issued related guidance regarding revenue recognition and disclosure. The Company expects to continue to review the guidance provided in SAB 101 during fiscal 2001 as compliance is required by the end of fiscal 2001 for the Company. Based on the assessment to date of current practices, management does not expect this review to result in any material effect on the Company's future revenue recognition practices. Outlook The Company believes the reduced order rate for filtration products that occurred in the first six months of 2001 resulted primarily from customer concerns related to a downturn in the U.S. economy. This particularly affected sales of air quality equipment and systems, which are not expected to return to prior year sales levels before the end of 2001. The order rate from aftermarket distributors, which is the Company's largest distribution channel for filtration products, was also reduced during the period. However, the Company anticipates that although some aftermarket distributors have delayed orders and reduced their inventory during the first six months of fiscal 2001, ongoing filter maintenance and replacement requirements for vehicles, equipment and buildings will lead to reasonably consistent annual sales of aftermarket filtration products. Continued emphasis on cost reductions within each business unit is expected to offset cost increases for pensions, health care, energy and for certain raw materials. Labor availability has improved in several locations that will also help to reduce costs compared to 2000. Customer interest in the Company's Total Filtration Program, which was initiated in fiscal 2000, continues to grow and additional sales are anticipated from new customers and increased sales to current customers. The Company's third quarter 2001 acquisition of Total Filtration Services (TFS) is expected to enhance the ability of CLARCOR to meet the filtration management requirements of its customers. Even in the current economic environment, the Total Filtration Program has continued to grow as customers respond enthusiastically to the simplification CLARCOR provides to the management of their filtration needs. The investment in TFS and other resources into the Total Filtration Program is expected to accelerate sales growth in the future. The Packaging segment will continue with its transition to a business model focused on growth in its core strength of flat sheet metal lithography. This repositioning is expected to result in improved sales and operating profit beginning in the third quarter of 2001 when the start-up of new lithography equipment will be completed. If the slowdown in the U.S. economy continues, it will affect the Company's businesses for the remainder of the fiscal year. Being primarily a manufacturer of consumable, disposable filters used Page 15 of 18 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued in aftermarket applications normally provides stability to sales and profits, but it does not make the Company immune to fluctuations in the economy overall. The results from TFS will be included for the third and fourth quarters of the 2001 fiscal year and this acquisition is expected to be accretive to earnings per share beginning in fiscal 2002. CLARCOR expects to continue to produce a strong, stable cash flow. The Company continues to assess 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. 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 trends may differ materially depending on a variety of factors including: the volume and timing of orders received during the period; 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 and related costs, 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 interest rates, primarily LIBOR, which affect the cost of borrowing under the revolving credit facility; the fluctuation in foreign and U.S. currency exchange rates; 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 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 16 of 18 18 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 27, 2001, all of management's nominees for directors, as listed in the proxy statement dated February 23, 2001, were elected. The Company had 24,462,933 shares of common stock outstanding as of the close of business on the February 9, 2001 record date, and the holders of 22,229,381 shares of common stock were present at the meeting, in person or by proxy. The four nominees elected received votes as follows: For Withheld ---------- -------- Robert J. Burgstahler 21,916,602 312,779 Lawrence E. Gloyd 21,773,431 455,950 Norman E. Johnson 21,918,383 310,998 Keith E. Wandell 21,915,402 313,979 Item 6b - The Company filed a Form 8-K on March 28, 2001, announcing the election of Keith E. Wandell to its Board of Directors. The Company filed a Form 8-K on May 14, 2001, announcing a definitive agreement to acquire several filtration management companies from MPW Industrial Services Group, Inc. and commenting on its expectations for the second quarter and the outlook for the year. The acquisition was completed on June 4, 2001. Page 17 of 18 19 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 21, 2001 By /s/ Bruce A. Klein - --------------------- ----------------------------------- (Date) Bruce A. Klein, Vice President - Finance and Chief Financial Officer Page 18 of 18 -----END PRIVACY-ENHANCED MESSAGE-----