-----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, JpkbLyo3FjldytBUY2RQria1z1lyCEyftLkp3NH8ZmjlJR70PGpcouEytWgDLZT4 i9sXWEmyiTtVGVylKS6c9A== 0000950137-03-001103.txt : 20030220 0000950137-03-001103.hdr.sgml : 20030220 20030220080157 ACCESSION NUMBER: 0000950137-03-001103 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20021130 FILED AS OF DATE: 20030220 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11024 FILM NUMBER: 03573599 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-K 1 c73959e10vk.txt ANNUAL REPORT 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 30, 2002 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 New York Stock Exchange
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] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes X No __ The aggregate market value (based on the closing price of registrant's Common Stock on January 15, 2003 as reported on the New York Stock Exchange Composite Transactions) of the voting stock held by non-affiliates of the registrant as at January 15, 2003 is $849,881,270. The number of outstanding shares of Common Stock as of January 15, 2003 is 24,913,905 shares. Certain portions of the registrant's 2002 Annual Report to Shareholders are incorporated by reference in Parts I, II and IV. Certain portions of the registrant's Proxy Statement dated February 20, 2003 for the Annual Meeting of Shareholders to be held on March 24, 2003 are incorporated by reference in Part III. 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 2002 the year ended on November 30, 2002 and included 52 weeks. For fiscal year 2001 the year ended on December 1, 2001 and included 52 weeks. For fiscal year 2000 the year ended on December 2, 2000 and included 53 weeks. 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. On June 5, 2002 the Company acquired Locker Filtration Limited ("Locker"). Locker is located in Warrington, Cheshire, England and is engaged in three primary filtration markets. For its largest market, vehicle filtration, it manufactures air filters and filtration units for agricultural and off-road vehicles. Its power generation unit manufactures large scale air filtration systems primarily for diesel and gas turbine power installations. Finally, its Lockertex segment manufactures specialty filters for industrial uses, mainly for vacuums, pharmaceutical and incineration applications. Locker is included in the Engine/Mobile Filtration segment of the Company's business. The cost of the acquisition was approximately $6,500,000 in cash. The acquisition resulted in an increase of approximately $7,500,000 in the Company's revenues for fiscal 2002. During fiscal 2002 the Company also acquired two smaller companies, Total Filter Technology, Inc. ("TFT") and FilterSource. TFT is located in North Chelmsford, Massachusetts and manufacturers string wound and meltblown cartridges and liquid bags for use in liquid process filtration applications. FilterSource sells, installs and services industrial and commercial air filters primarily in West Coast markets. The TFT acquisition supports the Company's strategy to increase its ability to supply liquid process filtration products to industrial markets. TFT and FilterSource are included in the Industrial/Environmental Filtration segment of the Company's business. (ii) Summary of Business Operations. During 2002, 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, mining 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. The segment's process filtration products include specialty filters, industrial process liquid filters, filters for pharmaceutical processes and beverages, filtration systems for aircraft refueling, anti-pollution and water recycling, bilge separators and sand control filters for oil and gas drilling. 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 2 plastic containers, plastic closures and various specialties, such as spools for wire and cable and outer shells for dry cell batteries and film canisters. (b) Financial Information About Industry Segments Business segment information for the fiscal years 2000 through 2002 is included on pages 23 and 24 of the Company's 2002 Annual Report to Shareholders (the "Annual Report"), is incorporated herein by reference and is filed as part of Exhibit 13(a)(vi) to this 2002 Annual Report on Form 10-K ("2002 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.; Baldwin Filters (Aust.) Pty. Ltd.; Baldwin Filters N.V.; Baldwin Filters Limited and Locker Filtration Limited (operating under the name "CLARCOR UK"). In addition, the Company owns (i) 90% of Filtros Baldwin de Mexico ("FIBAMEX"), (ii) 75% 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, mining 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 USA, Inc. and related Facet companies in Italy, Spain, the United Kingdom and other European locations ("Facet"); Filter Products, Inc.; Purolator Facet, Inc. ("PFI"); Purolator Products Air Filtration Company ("Purolator"); Total Filtration Services, Inc. ("TFS"); Total Filter Technology, Inc. ("TFT"); and United Air Specialists, Inc. ("UAS"). Airguard also has a 70% equity interest in Airguard de Venezuela, S.A. 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 filters and 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 and beverages, utilities, paper mills and general industry. The filters are used for the process filtration of liquids using a variety of string wound, meltblown, and porous and sintered and non-sintered metal media filters, strainers, separators, coalescers and absorbent media. Many of these filter products and systems require special technical approvals and product certification in order to meet commercial and military requirements. TFS does not manufacture filtration products or equipment. It is engaged in the business of supplying a full range of filtration products and equipment acquired from the Company's subsidiaries and non-affiliated manufacturers to customers as well as providing filter maintenance and cleaning supplies and services for the customer's filtration equipment. In addition, TFS is promoting and developing the Company's Total Filtration Program. 3 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, cookies, 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, 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, dealers for original equipment manufacturers and directly to end-use customers such as truck and equipment fleet users. The engine/mobile segment also distributes filtration products worldwide through each of its subsidiaries. Locker, 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 and electrostatic air pollution control systems are manufactured in China for distribution in China and Southeast Asia. Additionally, through Baldwin-Unifil S.A., air filtration products are manufactured in South Africa with distribution throughout Africa, Great Britain, Europe and the Middle East. The industrial/environmental segment also distributes and services filtration products and equipment through company-owned branches and subsidiaries located throughout the United States and in Europe, Singapore, Malaysia, China and Venezuela. During fiscal 2002, the Company continued its development and expansion of its Total Filtration Program. Under the Program, the Company, primarily through TFS, offers customers the ability to purchase all of the filters needed by that customer for its facilities and manufacturing, transportation and construction equipment. Customers that purchase a broad range of filtration products and services from multiple suppliers are able, by taking advantage of the Program, to purchase all of their filter requirements from a single source, and thereby reducing administrative burdens and uncertainty concerning filter pricing, availability, delivery, performance and quality. The Company is confident that it can serve its customers' total filtration requirements because it believes that it now manufactures and supplies the broadest range of filtration products in the industry. Several total filtration management contracts were completed in 2001 and 2002 and negotiations continue on others. The Company expects that the impact of these contracts will grow over the next several years as these customers' facilities are converted to the Program. The Total Filtration Program will serve as an added distribution channel for all of the Company's filtration products. 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. 4 CLASS OF PRODUCTS No class of products accounted for 10% or more of the total sales of the Company in any of the Company's last three fiscal years. RAW MATERIAL Steel, filter media, cartons, aluminum sheet and coil, stainless steel, chrome vanadium, chrome silicon, resins, gaskets, roll paper, bulk and roll plastic materials and cotton, wood and synthetic fibers and adhesives are the most important raw materials used in the manufacture of the Company's products. All of these are purchased or are available from a variety of sources. The Company has no long-term purchase commitments. The Company did not experience shortages in the supply of raw materials during 2002. 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 are significant to its business. CUSTOMERS The largest 10 customers of the Engine/Mobile Filtration segment accounted for 20.6% of the $263,512,000 of fiscal year 2002 sales of such segment. The largest 10 customers of the Industrial/Environmental Filtration segment accounted for 28.5% of the $383,613,000 of fiscal year 2002 sales of such segment. The largest 10 customers of the Packaging segment accounted for 62% of the $68,438,000 of fiscal year 2002 sales of such segment. No single customer accounted for 10% or more of the Company's consolidated 2002 sales. BACKLOG At November 30, 2002, the Company had a backlog of firm orders for products amounting to approximately $71,900,000. The backlog figure for November 30, 2001 was approximately $65,500,000. Substantially all of the orders on hand at November 30, 2002 are expected to be filled during fiscal 2003. 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 companies 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 companies 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 and the broad geographic scope of its operations. 5 PRODUCT DEVELOPMENT The Company's Technical Centers and laboratories test product components and completed products to insure high quality manufacturing results, evaluate competitive products, aid suppliers in the development of product components, and conduct controlled tests of newly designed filters, filtration systems and packaging products 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 2002, the Company employed 81 professional employees on either a full-time or part-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 $6,482,000 on such activities as compared with $5,365,000 for 2001 and $6,942,000 for 2000. 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 with respect to 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. During fiscal 2002, the Company was addressing two claims for environmental remediation costs at two sites where it has been named a potentially responsible party. Negotiated settlements have been reached concerning waste disposal by the Company and other companies at these sites in Maryland and Illinois at a total accrued cost to the Company of less than $50,000. Although it is not certain what future environmental claims, if any may be asserted, the Company currently believes that its potential liability for known environmental matters does not exceed its present accruals of $50,000. However, 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 of a contaminated site. The Company does anticipate, however, that it may be required to install additional pollution control equipment to augment or replace existing equipment in the future in order to meet applicable environmental standards. During fiscal 2003, the Company expects to upgrade certain oxidizers used to remove air borne contaminants at its Rockford, Illinois, packaging manufacturing facility. The cost of this project is expected to be about $1.4 million. The Company is presently unable to predict the timing or the cost of any other project of this nature and cannot give any assurance that the cost of such projects may not have an adverse effect on earnings. However, the Company is not aware, at this time, of any additional significant current or pending requirements to install such equipment at any of its facilities. EMPLOYEES As of November 30, 2002, the Company had approximately 4,594 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 page 24 of the Annual Report and is incorporated herein by reference and filed as part of Exhibit 13(a)(vi) to this 2002 Form 10-K. The Company is not aware of any unusual risks attendant to the conduct of its operations in other countries. 6 INTERNET WEBSITE The Company's Internet address is www.clarcor.com. The Company makes available, free of charge, on its Internet website, its annual report on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such forms are electronically filed with the SEC. ITEM 2. PROPERTIES. Location An office building owned by the Company located in Rockford, Illinois houses the Corporate 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 516,000 square feet of manufacturing and warehousing space, 25,000 square feet of research and development space, and 40,000 square feet of office space. 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. Locker owns two facilities on four acres in Warrington, Cheshire, England, which are used for offices, manufacturing and warehousing. These facilities total approximately 6,600 square meters. The Company leases various facilities in Australia, Belgium, Mexico, South Africa and the United Kingdom for the manufacture and distribution of engine/mobile 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 nine manufacturing and warehousing locations. It leases 142,000 square feet in New Albany, Indiana, 100,000 square feet in Louisville, Kentucky, 84,000 square feet in Corona, California, 44,500 square feet in Dallas, Texas and 83,000 square feet in Rockford, Illinois and a smaller facility in North Carolina. The Company owns the following three 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 also produces air filtration products in a 290,000 square foot manufacturing facility in Campbellsville, Kentucky. 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 leased facilities in Louisville, Kentucky; Atlanta, Georgia; Portland, Oregon; Commerce City, Colorado; Dallas, Texas; Corona and Sacramento, California and New Albany, Indiana. Airguard leases facilities in Malaysia, Singapore and Venezuela. 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; Italy; Germany; France; United Kingdom and The Netherlands. Purolator owns a 228,500 square-foot manufacturing and office facility in Henderson, North Carolina on a site of approximately 25 acres. Purolator also owns a 42,500 square foot manufacturing and office facility in Kenly, North Carolina. Purolator leases sales, manufacturing and distribution facilities in Fresno, California; 7 Hayward, California; Sacramento, California; Davenport, Iowa; Wichita, Kansas; Metuchen, New Jersey; Henderson, 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 a facility in Greensboro, North Carolina. TFS leases 85,000 square feet of headquarters space in Rochester Hills, Michigan. In addition, it leases office, warehouse space or distribution facilities in Cincinnati, Toledo and Columbus, Ohio; Fort Wayne and Indianapolis, Indiana; Tonawanda, New York; Saginaw, Michigan; Nashville, Tennessee; Birmingham, Alabama; Kansas City, Missouri; and several locations in Mexico and Canada. It also owns an office and warehouse facility consisting of a total of 33,000 square feet in Goodlettsville, Tennessee. United Air Specialists ("UAS") has its offices and primary manufacturing facility 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. In addition, UAS leases sales and service facilities in Bad Camberg, Germany; Phoenix, Arizona; Hayward, California; Anaheim, California; Louisville, Kentucky; Troy, Michigan; Jackson, Mississippi and Houston, Texas. Filter Products Inc. owns a 40,000 square foot manufacturing and office facility in Sacramento, California. TFT leases space in North Chelmsford, Massachusetts which houses its office and manufacturing operations. 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 Lathrop, California. The various properties owned by the Company are considered by it to be in good repair and well maintained. Plant asset additions in 2003 are estimated at $21,000,000 to $23,000,000 for land, buildings, equipment and machinery and cost reduction projects. Function Engine/Mobile Filtration. Oil, air, fuel, hydraulic fluid and coolant filters are produced at the Baldwin 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. At its facilities in Warrington, England, Locker produces large scale air filtration systems primarily for diesel and gas turbine power installations, air filters and units for agricultural and off-road vehicles and specialty filters mainly for vacuums, pharmaceuticals and incineration applications. 8 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 and gas 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 sintering metal, tungsten inert gas and electron beam welding and diffusion-bonding of 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. Depth media filters for the pharmaceutical, biotech and food and beverage industries and other critical process filtration applications are manufactured at the Filter Products Inc. facility in Sacramento, California. TFT manufactures string wound and melt blown cartridges and bag filters at its leased facility in North Chelmsford, Massachusetts. Packaging. The Company's metal and combination metal and plastic packaging products are produced at J. L. Clark plants located in Rockford, Illinois, Lancaster, Pennsylvania, and Lathrop, California. 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. Plastic packaging capabilities include molding and labeling of irregular shaped plastic containers and customized plastic closures which have tamper-evidence as well as convenience features. ITEM 3. LEGAL PROCEEDINGS. The Company is involved in legal actions arising in the normal course of business. Management is of the opinion that the outcome of these actions 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 ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
AGE AT YEAR ELECTED NAME 11/30/02 TO OFFICE ---- -------- ------------ Norman E. Johnson........................................... 54 2000 Chairman of the Board, President and Chief Executive 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, President and Chief Operating Officer in 1995 and Chairman, President and Chief Executive Officer in 2000. Mr. Johnson has been a Director of the Company since June 1996. William B. Walker........................................... 62 2000 President, Environmental Filtration. Mr. Walker has been employed by Airguard, a subsidiary of the Company, since 1966. He was elected President of Airguard in 1994, Executive Vice President-Industrial/Environmental Filtration in 1999 and President, Environmental Filtration in 2000. Bruce A. Klein.............................................. 55 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........................................... 64 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............................................ 47 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. Peter F. Nangle............................................. 41 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. Marcia S. Blaylock.......................................... 46 2000 Vice President, Controller. 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, Vice President, Controller and Corporate Secretary in 1997 and Vice President, Controller in 2000. David J. Boyd............................................... 62 2000 Vice President, General Counsel and Corporate Secretary. Mr. Boyd became an officer of the Company in May 2000. Prior to that date he served as a partner in the law firm of Sidley Austin Brown & Wood since 1972.
Each executive officer of the Company is elected by the Board of Directors 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. 10 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 per share paid for each quarter of the last two fiscal years.
MARKET PRICE ----------------- QUARTER ENDED HIGH LOW DIVIDEND ------------- ------- ------- -------- March 2, 2002............................................... $29.100 $25.150 $.1200 June 1, 2002................................................ 34.000 28.830 .1200 August 31, 2002............................................. 32.010 25.030 .1200 November 30, 2002........................................... 33.840 27.730 .1225 ------ Total Dividends............................................. $.4825 ======
MARKET PRICE ----------------- QUARTER ENDED HIGH LOW DIVIDENDS ------------- ---- --- --------- March 3, 2001............................................... $25.375 $16.875 $.1175 June 2, 2001................................................ 26.844 22.500 .1175 September 1, 2001........................................... 27.547 24.656 .1175 December 1, 2001............................................ 27.594 21.906 .1200 ------ Total Dividends............................................. $.4725 ======
The approximate number of holders of record of the Company's Common Stock at January 15, 2003 is 1,300. In addition, the Company believes that there are approximately 5,500 beneficial owners whose shares are held in street names. ITEM 6. SELECTED FINANCIAL DATA. The information required hereunder is set forth on pages 26 and 27 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 2002 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 7 through 11 of the Annual Report under the caption "Financial Review," is incorporated herein by reference and is filed as Exhibit 13(a)(x) to this 2002 Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information required hereunder is set forth on page 10 of the Annual Report under the caption "Financial Review -- Other Matters -- Market Risk," is incorporated herein by reference and is filed as part of Exhibit 13(a)(x) to this 2002 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 12 through 25, inclusive, of the Annual Report, are incorporated herein by reference and are filed as Exhibits 13(a)(ii) through 13(a)(vii) to this 2002 Form 10-K. 11 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 20, 2003 (the "Proxy Statement") for the Annual Meeting of Shareholders to be held on March 24, 2003 under the caption "Election of Directors -- Nominees for Election to the Board of Directors" and "-- Information Concerning Nominees and Directors" and is incorporated herein by reference. Additional information required hereunder is set forth on page 5 of the Proxy Statement under the caption "Beneficial Ownership of the Company's Common Stock -- Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information required hereunder is set forth on pages 6 through 9 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 AND RELATED STOCKHOLDER MATTERS. The information required hereunder is set forth on page 22 of the Proxy Statement under the caption "Approval of 2004 Incentive Plan -- Equity Compensation Plan Information" and 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. None. ITEM 14. CONTROLS AND PROCEDURES. The Company has established disclosure controls and procedures which are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934 are recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Norman E. Johnson, Chairman of the Board, President, and Chief Executive Officer and Bruce A. Klein, Vice President -- Finance and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures as of November 30, 2002. Based on their evaluation, they concluded that the Company's disclosure controls and procedures were effective in achieving the objectives for which they were designed. Since their evaluation, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses. 12 PART IV ITEM 15. 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, 2002: *Consolidated Balance Sheets at November 30, 2002 and 2001 *Consolidated Statements of Earnings for the years ended November 30, 2002, 2001 and 2000 *Consolidated Statements of Shareholders' Equity for the years ended November 30, 2002, 2001 and 2000 *Consolidated Statements of Cash Flows for the years ended November 30, 2002, 2001 and 2000 *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 2002 Form 10-K 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) None (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. 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.
13 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. 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)(1) Form of Amended and Restated Employment Agreement with each of David J. Anderson, Marcia S. Blaylock, David J. Boyd, Bruce A. Klein, David J. Lindsay, Norman E. Johnson, Peter F. Nangle, and William B. Walker. Incorporated by Reference to Exhibit 10.4(a)(1) to the Company's Annual Report on Form 10-K for the fiscal year ended December 2, 2000 (the "2000 10-K"). 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(c)(1) Amended and Restated Employment Agreement with Norman E. Johnson dated as of December 17, 2000. Incorporated by Reference to Exhibit 10.4(c)(1) to the 2000 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. 10.5 The registrant's 1994 Incentive Plan (the "Plan") as amended through June 30, 2000. Incorporated by Reference to Exhibit 10.5 to the 2000 10-K. 10.5(a) Amendment to the Plan adopted December 18, 2000. Incorporated by Reference to Exhibit 10.5(a) to the 2000 10-K. 10.5(b) The registrant's 2004 Incentive Plan as proposed to be adopted by the shareholders of the Company at the Annual Meeting of Shareholders on March 24, 2003. Incorporated by reference to Exhibit A to the Proxy Statement. *12.1 Computation of Certain Ratios.
14 *13 (a) The following items incorporated by reference herein from the Company's 2002 Annual Report to Shareholders ("2002 Annual Report"), are filed as Exhibits to this Annual Report on Form 10-K:
(i) Business segment information for the fiscal years 2000 through 2002 set forth on pages 23 and 24 of the 2002 Annual Report (included in Exhibit 13(a)(vi) -- Note P of Notes to Consolidated Financial Statements); (ii) Consolidated Balance Sheets of the Company and its Subsidiaries at November 30, 2002 and 2001 set forth on page 12 of the 2002 Annual Report; (iii) Consolidated Statements of Earnings of the Company and its Subsidiaries for the years ended November 30, 2002, 2001 and 2000 set forth on page 13 of the 2002 Annual Report; (iv) Consolidated Statements of Shareholders' Equity for the Company and its Subsidiaries for the years ended November 30, 2002, 2001 and 2000 set forth on page 14 of the 2002 Annual Report; (v) Consolidated Statements of Cash Flows of the Company and its Subsidiaries for the years ended November 30, 2002, 2001 and 2000 set forth on page 15 of the 2002 Annual Report; (vi) Notes to Consolidated Financial Statements set forth on pages 16 through 24 of the 2002 Annual Report; (vii) Report of Independent Accountants set forth on page 25 of the 2002 Annual Report; (viii) Management's Report on Responsibility for Financial Reporting set forth on page 25 of the 2002 Annual Report; (ix) Information under the caption "11-Year Financial Review" set forth on pages 26 and 27 of the 2002 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 7 through 11 of the 2002 Annual Report.
*21 Subsidiaries of the Registrant. *23 Consent of Independent Accountants. *99.1 Certifications pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
- --------------- * Filed herewith. 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 20, 2003 CLARCOR Inc. (Registrant) By: /s/ NORMAN E. JOHNSON -------------------------------------- Norman E. Johnson Chairman of the Board, President & 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 20, 2003 By: /s/ NORMAN E. JOHNSON ------------------------------------------------ Norman E. Johnson Chairman of the Board, President & Chief Executive Officer and Director Date: February 20, 2003 By: /s/ BRUCE A. KLEIN ------------------------------------------------ Bruce A. Klein Vice President -- Finance & Chief Financial Officer Date: February 20, 2003 By: /s/ MARCIA S. BLAYLOCK ------------------------------------------------ Marcia S. Blaylock Vice President, Controller & Chief Accounting Officer Date: February 20, 2003 By: /s/ J. MARC ADAM ------------------------------------------------ J. Marc Adam Director Date: February 20, 2003 By: /s/ ROBERT J. BURGSTAHLER ------------------------------------------------ Robert J. Burgstahler Director Date: February 20, 2003 By: /s/ LAWRENCE E. GLOYD ------------------------------------------------ Lawrence E. Gloyd Director Date: February 20, 2003 By: /s/ ROBERT H. JENKINS ------------------------------------------------ Robert H. Jenkins Director
16 Date: February 20, 2003 By: /s/ PHILIP R. LOCHNER, JR. ------------------------------------------------ Philip R. Lochner, Jr. Director Date: February 20, 2003 By: /s/ JAMES L. PACKARD ------------------------------------------------ James L. Packard Director Date: February 20, 2003 By: ------------------------------------------------ Roseann Stevens Director Date: February 20, 2003 By: /s/ KEITH E. WANDELL ------------------------------------------------ Keith E. Wandell Director
17 CERTIFICATIONS I, Norman E. Johnson, certify that: 1. I have reviewed this annual report on Form 10-K of CLARCOR Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ NORMAN E. JOHNSON -------------------------------------- Norman E. Johnson Chairman of the Board, President and Chief Executive Officer Date: February 20, 2003 18 CERTIFICATIONS I, Bruce A. Klein, certify that: 1. I have reviewed this annual report on Form 10-K of CLARCOR Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ BRUCE A. KLEIN -------------------------------------- Bruce A. Klein Vice President-Finance and Chief Financial Officer Date: February 20, 2003 19 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE 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 8, 2003 appearing on page 25 in the 2002 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 15(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 8, 2003 F-1 CLARCOR INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED NOVEMBER 30, 2002, 2001 AND 2000 (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 - -------------------------------------------- ---------- ---------- ---------- ---------- ---------- 2002: Allowance for losses on accounts receivable................................ $7,920 $2,379 $ 95(A) $3,374(B) $7,020 ====== ====== ====== ====== ====== 2001: Allowance for losses on accounts receivable................................ $5,027 $1,628 $2,286(A) $1,021(B) $7,920 ====== ====== ====== ====== ====== 2000: Allowance for losses on accounts receivable................................ $5,155 $1,167 $ 17(A) $1,312(B) $5,027 ====== ====== ====== ====== ======
NOTES: (A) Due to business acquisitions. (B) Bad debts written off during year, net of recoveries. F-2 EX-12.1 3 c73959exv12w1.txt EXHIBIT 12.1 EXHIBIT 12.1 CLARCOR INC. STATEMENT RE COMPUTATION OF RATIOS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Fiscal Years Ended (A) ----------------------------------------------------------------------------- 2002 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- ---------- Return on Beginning Assets Net Earnings $ 46,601 $ 41,893 $ 40,237 $ 35,412 $ 32,079 $ 26,918 Divided by Beginning Assets 530,617 501,930 472,991 305,766 282,519 267,019 ---------- ---------- ---------- ---------- ---------- ---------- Equals Return on Beginning Assets 8.8% 8.3% 8.5% 11.6% 11.4% 10.1% ========== ========== ========== ========== ========== ========== Return on Beginning Shareholders' Equity Net Earnings $ 46,601 $ 41,893 $ 40,237 $ 35,412 $ 32,079 $ 26,918 Divided by Beginning Shareholders' Equity 274,261 242,093 210,718 186,807 171,162 154,681 ---------- ---------- ---------- ---------- ---------- ---------- Equals Return on Beginning Shareholders' Equity 17.0% 17.3% 19.1% 19.0% 18.7% 17.4% ========== ========== ========== ========== ========== ========== Dividend Payout to Net Earnings Dividends Paid $ 11,975 $ 11,575 $ 11,207 $ 10,814 $ 10,717 $ 10,290 Divided by Net Earnings 46,601 41,893 40,237 35,412 32,079 26,918 ---------- ---------- ---------- ---------- ---------- ---------- Equals Dividend Payout to Net Earnings 25.7% 27.6% 27.9% 30.5% 33.4% 38.2% ========== ========== ========== ========== ========== ========== Debt to Capitalization Current Debt $ 68,456 $ 5,579 $ 5,482 $ 5,440 $ 470 $ 1,140 Long Term Debt 22,648 135,203 141,486 145,981 36,419 37,656 ---------- ---------- ---------- ---------- ---------- ---------- Total Debt $ 91,104 $ 140,782 $ 146,968 $ 151,421 $ 36,889 $ 38,796 Ending Shareholders' Equity 315,461 274,261 242,093 210,718 186,807 171,162 ---------- ---------- ---------- ---------- ---------- ---------- Equals Capitalization $ 406,565 $ 415,043 $ 389,061 $ 362,139 $ 223,696 $ 209,958 ---------- ---------- ---------- ---------- ---------- ---------- Debt $ 91,104 $ 140,782 $ 146,968 $ 151,421 $ 36,889 $ 38,796 Divided by Capitalization 406,565 415,043 389,061 362,139 223,696 209,958 ---------- ---------- ---------- ---------- ---------- ---------- Equals Debt to Capitalization 22.4% 33.9% 37.8% 41.8% 16.5% 18.5% ========== ========== ========== ========== ========== ========== Working Capital Current Assets $ 259,746 $ 244,350 $ 230,479 $ 227,670 $ 168,173 $ 160,527 Less Current Liabilities 174,255 94,931 97,826 97,475 61,183 54,237 ---------- ---------- ---------- ---------- ---------- ---------- Equals Working Capital $ 85,491 $ 149,419 $ 132,653 $ 130,195 $ 106,990 $ 106,290 ========== ========== ========== ========== ========== ========== Current Ratio Current Assets $ 259,746 $ 244,350 $ 230,479 $ 227,670 $ 168,173 $ 160,527 Divided by Current Liabilities 174,255 94,931 97,826 97,475 61,183 54,237 ---------- ---------- ---------- ---------- ---------- ---------- Equals Current Ratio 1.5 2.6 2.4 2.3 2.7 3.0 ========== ========== ========== ========== ========== ========== Free Cash Flow Cash Flow From Operations $ 85,019 $ 63,290 $ 54,130 $ 38,642 $ 42,267 $ 41,632 Less Capital Expenditures 12,204 18,204 29,005 21,822 15,825 11,349 Less Dividends Paid 11,975 11,575 11,207 10,814 10,717 10,290 ---------- ---------- ---------- ---------- ---------- ---------- Equals Free Cash Flow $ 60,840 $ 33,511 $ 13,918 $ 6,006 $ 15,725 $ 19,993 ========== ========== ========== ========== ========== ========== Fiscal Years Ended (A) ---------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- Return on Beginning Assets Net Earnings $ 25,945 $ 23,500 $ 21,416 $ 17,277 $ 13,619 Divided by Beginning Assets 245,697 206,928 191,657 181,660 179,337 ---------- ---------- ---------- ---------- ---------- Equals Return on Beginning Assets 10.6% 11.4% 11.2% 9.5% 7.6% ========== ========== ========== ========== ========== Return on Beginning Shareholders' Equity Net Earnings $ 25,945 $ 23,500 $ 21,416 $ 17,277 $ 13,619 Divided by Beginning Shareholders' Equity 138,144 122,801 110,299 105,460 102,000 ---------- ---------- ---------- ---------- ---------- Equals Return on Beginning Shareholders' Equity 18.8% 19.1% 19.4% 16.4% 13.4% ========== ========== ========== ========== ========== Dividend Payout to Net Earnings Dividends Paid $ 9,512 $ 9,330 $ 9,201 $ 9,036 $ 8,958 Divided by Net Earnings 25,945 23,500 21,416 17,277 13,619 ---------- ---------- ---------- ---------- ---------- Equals Dividend Payout to Net Earnings 36.7% 39.7% 43.0% 52.3% 65.8% ========== ========== ========== ========== ========== Debt to Capitalization Current Debt $ 7,625 $ 7,596 $ 7,579 $ 7,921 $ 6,825 Long Term Debt 43,449 41,860 25,090 32,650 38,534 ---------- ---------- ---------- ---------- ---------- Total Debt $ 51,074 $ 49,456 $ 32,669 $ 40,571 $ 45,359 Ending Shareholders' Equity 154,681 138,144 122,801 110,299 105,460 ---------- ---------- ---------- ---------- ---------- Equals Capitalization $ 205,755 $ 187,600 $ 155,470 $ 150,870 $ 150,819 ---------- ---------- ---------- ---------- ---------- Debt $ 51,074 $ 49,456 $ 32,669 $ 40,571 $ 45,359 Divided by Capitalization 205,755 187,600 155,470 150,870 150,819 ---------- ---------- ---------- ---------- ---------- Equals Debt to Capitalization 24.8% 26.4% 21.0% 26.9% 30.1% ========== ========== ========== ========== ========== Working Capital Current Assets $ 140,726 $ 133,286 $ 109,992 $ 97,569 $ 105,067 Less Current Liabilities 51,297 49,841 43,926 37,647 30,559 ---------- ---------- ---------- ---------- ---------- Equals Working Capital $ 89,429 $ 83,445 $ 66,066 $ 59,922 $ 74,508 ========== ========== ========== ========== ========== Current Ratio Current Assets $ 140,726 $ 133,286 $ 109,992 $ 97,569 $ 105,067 Divided by Current Liabilities 51,297 49,841 43,926 37,647 30,559 ---------- ---------- ---------- ---------- ---------- Equals Current Ratio 2.7 2.7 2.5 2.6 3.4 ========== ========== ========== ========== ========== Free Cash Flow Cash Flow From Operations $ 26,675 $ 21,092 $ 25,670 $ 20,727 $ 23,456 Less Capital Expenditures 22,230 14,471 12,119 10,776 8,290 Less Dividends Paid 9,512 9,330 9,201 9,036 8,958 ---------- ---------- ---------- ---------- ---------- Equals Free Cash Flow $ (5,067) $ (2,709) $ 4,350 $ 915 $ 6,208 ========== ========== ========== ========== ==========
(A) Calculation of Certain Items Presented in the "11-Year Financial Review" Filed with Form 10-K for Fiscal Year Ended 11/30/2002 EX-13.(A)(II) 4 c73959exv13wxayxiiy.txt CONSOLIDATED BALANCE SHEETS EXHIBIT 13(a)(ii) CONSOLIDATED BALANCE SHEETS NOVEMBER 30, 2002 AND 2001 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
ASSETS 2002 2001 ------------ ------------ Current assets: Cash and short-term cash investments ......................... $ 13,747 $ 7,418 Accounts receivable, less allowance for losses of $7,020 for 2002 and $7,920 for 2001 .................. 121,482 115,003 Inventories .................................................. 101,846 103,002 Prepaid expenses and other current assets .................... 5,576 5,409 Deferred income taxes ........................................ 17,095 13,518 ------------ ------------ Total current assets ............................... 259,746 244,350 ------------ ------------ Plant assets, at cost less accumulated depreciation .............. 132,892 137,316 Acquired intangibles, less accumulated amortization .............. 122,529 119,194 Pension assets ................................................... 21,771 18,939 Other noncurrent assets .......................................... 9,181 10,818 ------------ ------------ Total assets ....................................... $ 546,119 $ 530,617 ============ ============ LIABILITIES Current liabilities: Current portion of long-term debt ............................ $ 68,456 $ 5,579 Accounts payable and accrued liabilities ..................... 97,738 84,826 Income taxes ................................................. 8,061 4,526 ------------ ------------ Total current liabilities .......................... 174,255 94,931 ------------ ------------ Long-term debt, less current portion ............................. 22,648 135,203 Postretirement health care benefits .............................. 4,033 3,851 Long-term pension liabilities .................................... 7,823 4,955 Deferred income taxes ............................................ 19,045 15,114 Other long-term liabilities ...................................... 2,318 1,868 Minority interests ............................................... 536 434 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 24,918,614 in 2002 and 24,626,236 in 2001 ........ 24,919 24,626 Capital in excess of par value ............................... 12,854 9,565 Accumulated other comprehensive earnings ..................... (6,187) (9,179) Retained earnings ............................................ 283,875 249,249 ------------ ------------ Total shareholders' equity ......................... 315,461 274,261 ------------ ------------ Total liabilities and shareholders' equity ......... $ 546,119 $ 530,617 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. EX-13.(A)(III) 5 c73959exv13wxayxiiiy.txt CONSOLIDATED STATEMENTS OF EARNINGS EXHIBIT 13(a)(iii) CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED NOVEMBER 30, 2002, 2001 AND 2000 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
2002 2001 2000 ------------ ------------ ------------ Net sales ........................................................ $ 715,563 $ 666,964 $ 652,148 Cost of sales .................................................... 508,273 471,477 453,803 ------------ ------------ ------------ Gross profit ............................................ 207,290 195,487 198,345 Selling and administrative expenses .............................. 129,515 119,677 122,358 ------------ ------------ ------------ Operating profit ........................................ 77,775 75,810 75,987 ------------ ------------ ------------ Other income (expense): Interest expense ............................................. (6,073) (10,270) (11,534) Interest income .............................................. 461 654 698 Other, net ................................................... (713) (460) (1,664) ------------ ------------ ------------ (6,325) (10,076) (12,500) ------------ ------------ ------------ Earnings before income taxes and minority interests ..... 71,450 65,734 63,487 Provision for income taxes ....................................... 24,773 23,804 23,201 ------------ ------------ ------------ Earnings before minority interests ...................... 46,677 41,930 40,286 Minority interests in earnings of subsidiaries ................... (76) (37) (49) ------------ ------------ ------------ Net earnings ..................................................... $ 46,601 $ 41,893 $ 40,237 ============ ============ ============ Net earnings per common share: Basic ........................................................ $ 1.88 $ 1.71 $ 1.66 Diluted ...................................................... $ 1.85 $ 1.68 $ 1.64 ============ ============ ============ Average number of common shares outstanding: Basic ........................................................ 24,839,812 24,535,199 24,269,675 Diluted ...................................................... 25,171,931 24,892,062 24,506,171 ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. EX-13.(A)(IV) 6 c73959exv13wxayxivy.txt CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY EXHIBIT 13(a)(iv) CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED NOVEMBER 30, 2002, 2001 AND 2000 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Common Stock Accumulated ---------------------------- Capital in Other Number of Amount Excess of Comprehensive Retained Shares Issued Issued Par Value Earnings Earnings Total ------------- ------------ ------------ ------------- ------------ ----------- Balance, November 30, 1999 ................. 24,019,722 $ 24,020 $ 948 $ (4,151) $ 189,901 $ 210,718 ------------ ------------ ------------ ------------ ------------ ----------- Net earnings ............................... -- -- -- -- 40,237 40,237 Other comprehensive earnings, net of tax: Translation adjustments ............... -- -- -- (2,768) -- (2,768) ----------- Total comprehensive earnings .......... 37,469 ----------- Business acquisition ....................... 160,704 161 2,734 -- -- 2,895 Stock options exercised .................... 182,479 182 1,898 -- -- 2,080 Issuance of stock under award plans ........................... 18,402 18 120 -- -- 138 Cash dividends - $0.4625 per common share ...................... -- -- -- -- (11,207) (11,207) ------------ ------------ ------------ ------------ ------------ ----------- Balance, November 30, 2000 ................. 24,381,307 24,381 5,700 (6,919) 218,931 242,093 ------------ ------------ ------------ ------------ ------------ ----------- Net earnings ............................... -- -- -- -- 41,893 41,893 Other comprehensive earnings, net of tax: Cumulative effect of accounting change ................. -- -- -- (769) -- (769) Unrealized losses on derivative ....... -- -- -- (1,137) -- (1,137) Translation adjustments ............... -- -- -- (354) -- (354) ----------- Total comprehensive earnings .......... 39,633 ----------- Stock options exercised .................... 246,424 246 3,223 -- -- 3,469 Issuance of stock under award plans ........................... 10,618 11 642 -- -- 653 Forfeiture of stock under award plans ........................... (12,113) (12) -- -- -- (12) Cash dividends - $0.4725 per common share ...................... -- -- -- -- (11,575) (11,575) ------------ ------------ ------------ ------------ ------------ ----------- Balance, November 30, 2001 ................. 24,626,236 24,626 9,565 (9,179) 249,249 274,261 ------------ ------------ ------------ ------------ ------------ ----------- Net earnings ............................... -- -- -- -- 46,601 46,601 Other comprehensive earnings, net of tax: Minimum pension liability adjustment .. -- -- -- (1,122) -- (1,122) Unrealized gain on derivative ......... -- -- -- 1,906 -- 1,906 Translation adjustments ............... -- -- -- 2,208 -- 2,208 ----------- Total comprehensive earnings .......... 49,593 ----------- Stock options exercised .................... 278,969 279 2,438 -- -- 2,717 Issuance of stock under award plans ........................... 17,884 18 851 -- -- 869 Forfeiture of stock under award plans ........................... (4,475) (4) -- -- -- (4) Cash dividends - $0.4825 per common share ...................... -- -- -- -- (11,975) (11,975) ------------ ------------ ------------ ------------ ------------ ----------- Balance, November 30, 2002 ................. 24,918,614 $ 24,919 $ 12,854 $ (6,187) $ 283,875 $ 315,461 ============ ============ ============ ============ ============ ===========
The accompanying notes are an integral part of the consolidated financial statements. EX-13.(A)(V) 7 c73959exv13wxayxvy.txt CONSOLIDATED STATEMENTS OF CASH FLOWS EXHIBIT 13(a)(v) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED NOVEMBER 30, 2002, 2001 AND 2000 (DOLLARS IN THOUSANDS)
2002 2001 2000 ---------- ---------- ---------- Cash flows from operating activities: Net earnings .................................................................... $ 46,601 $ 41,893 $ 40,237 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation .............................................................. 18,999 18,187 17,537 Amortization .............................................................. 761 3,663 3,542 Minority interests in earnings of subsidiaries ............................ 76 37 49 Net loss on dispositions of plant assets .................................. 146 338 109 Impairment of plant assets ................................................ -- 2,422 -- Changes in assets and liabilities, net of business acquisitions: Accounts receivable .................................................. (3,804) 5,116 (3,448) Inventories .......................................................... 1,561 5,190 (9,636) Prepaid expenses and other current assets ............................ (150) (374) 8,040 Other noncurrent assets .............................................. 1,495 (2,523) (554) Accounts payable and accrued liabilities ............................. 14,020 (8,693) (1,170) Pension assets and liabilities, net .................................. (1,757) 1,163 (7,430) Income taxes ......................................................... 5,756 (2,683) 4,663 Deferred income taxes ................................................ 1,315 (446) 2,191 ---------- ---------- ---------- Net cash provided by operating activities ............................ 85,019 63,290 54,130 ---------- ---------- ---------- Cash flows from investing activities: Additions to plant assets ....................................................... (12,204) (18,204) (29,005) Business acquisitions, net of cash acquired ..................................... (6,677) (33,388) (12,735) Dispositions of plant assets .................................................... 63 539 55 Other, net ...................................................................... (160) (300) (440) ---------- ---------- ---------- Net cash used in investing activities ................................ (18,978) (51,353) (42,125) ---------- ---------- ---------- Cash flows from financing activities: Proceeds from multicurrency revolving credit agreement .......................... 24,333 27,500 43,200 Payments on multicurrency revolving credit agreement ............................ (68,500) (36,500) (42,200) Proceeds from borrowings under long-term debt ................................... -- 8,000 -- Payments on long-term debt ...................................................... (5,604) (5,349) (7,034) Sales of capital stock under stock option plan .................................. 1,972 2,598 1,379 Cash dividends paid ............................................................. (11,975) (11,575) (11,207) ---------- ---------- ---------- Net cash used in financing activities ................................ (59,774) (15,326) (15,862) ---------- ---------- ---------- Net effect of exchange rate changes on cash ........................................ 62 (57) (24) ---------- ---------- ---------- Net change in cash and short-term cash investments ................................. 6,329 (3,446) (3,881) Cash and short-term cash investments, beginning of year ............................ 7,418 10,864 14,745 ---------- ---------- ---------- Cash and short-term cash investments, end of year .................................. $ 13,747 $ 7,418 $ 10,864 ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. EX-13.(A)(VI) 8 c73959exv13wxayxviy.txt NOTES OF CONSOLIDATED FINANCIAL STATEMENTS 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. The Company has three reportable segments: Engine/Mobile Filtration, Industrial/Environmental Filtration and Packaging. Certain reclassifications have been made to conform prior years' data to the current presentation. These reclassifications had no effect on reported earnings. USE OF MANAGEMENT'S ESTIMATES The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ACCOUNTING PERIOD The Company's fiscal year ends on the Saturday closest to November 30. The fiscal years ended November 30, 2002 and December 1, 2001 were comprised of fifty-two weeks. The fiscal year ended December 1, 2000 included fifty-three 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. CASH EQUIVALENTS All highly liquid investments with a maturity of three months or less when purchased or that are readily saleable are considered to be short-term cash equivalents. The carrying amount of the investments approximates fair value. 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 rates during each reporting period. Net exchange gains or losses resulting from the translation of foreign financial statements 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. DERIVATIVES The Company makes limited use of derivative financial instruments 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. The Company 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 assesses (both at the hedge's inception and on an ongoing basis) the effectiveness of the derivatives that are used in hedging transactions. 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. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. COMPREHENSIVE EARNINGS Foreign currency translation adjustments, unrealized gains and losses on derivative instruments and minimum pension liability adjustments are included in other comprehensive earnings, net of tax. PLANT ASSETS Depreciation is determined primarily by the straight-line method 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. When property or equipment is retired or otherwise disposed of, the net book value of the asset is removed from the Company's books and the resulting gain or loss is reflected in earnings. GOODWILL AND OTHER INTANGIBLE ASSETS In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," which discontinues amortization of the excess of cost over fair value of assets acquired and of intangible assets with indefinite lives. It also requires goodwill and intangible assets with indefinite lives to be tested for impairment annually or whenever there is an impairment indicator. The FASB also issued SFAS No. 141, "Business Combinations," which requires all business combinations after June 30, 2001 to be accounted for under the purchase method. As a result of adopting these standards in the first quarter of fiscal 2002, the Company no longer amortizes goodwill, trademarks and trade names and changed its accounting policies as described below: Goodwill: The Company recognizes the excess of the cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed as goodwill. Goodwill is tested for impairment on an annual basis and between annual tests in certain circumstances. Impairment losses would be recognized whenever the implied fair value of goodwill is less than its carrying value. Prior to December 1, 2001, goodwill was amortized over a forty-year period using the straight-line method. Beginning December 1, 2001, goodwill is no longer amortized. Other Acquired Intangibles: The Company recognizes an acquired intangible apart from goodwill whenever the asset arises from contractual or other legal rights, or whenever it is capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related contract, asset or liability. An intangible other than goodwill is amortized over its estimated useful life unless that life is determined to be indefinite. The Company's trade names and trademarks have indefinite useful lives and will be subject to impairment testing under SFAS No. 142. Prior to December 1, 2001, the trademarks were amortized over a forty-year life. All other acquired intangible assets, including patents (average fourteen year life) and other identifiable intangible assets with lives ranging from one to thirty years, are being amortized using the straight-line method over the estimated periods to be benefited. The Company reviews the lives of its definite-lived intangibles annually and if necessary, impairment losses would be recognized if the carrying amount of an intangible subject to amortization is not recoverable from expected future cash flows and its carrying amount exceeds its fair value. IMPAIRMENT OF LONG-LIVED ASSETS The Company determines any impairment losses based on underlying cash flows related to specific groups of acquired long-lived assets, including associated identifiable intangibles and goodwill, when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. INCOME TAXES The Company provides for income taxes and recognizes 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 when product ownership and risk of loss has transferred to the customer or performance of services is complete and the Company has no remaining obligations regarding the transaction. Estimated discounts and rebates are recorded as a reduction of sales in the same period revenue is recognized. Shipping and handling costs are recorded as revenue when billed to customers. PRODUCT WARRANTIES The Company provides for estimated warranty costs when the related products are recorded as sales or for specific items at the time their existence is known and the amounts are reasonably determinable. RESEARCH AND DEVELOPMENT The Company charges research and development costs relating to the development of new products or the improvement or redesign of its existing products to expense when incurred. These costs totaled approximately $6,482 in 2002, $5,365 in 2001 and $6,942 in 2000. B. ACQUISITIONS On June 5, 2002, the Company acquired Locker Filtration Limited (Locker), a Warrington, England manufacturer of heavy-duty air filters, diesel and gas turbine air intake system filters and specialty filters. Also during fiscal 2002, the Company acquired Total Filter Technology (TFT), a process liquid filtration manufacturer based in North Chelmsford, Massachusetts and FilterSource, an air filtration distributor based in California. The three acquisitions were purchased for approximately $10,371 in cash and their results are included in the Company's consolidated results of operations from the dates of acquisition. The combined sales for Locker, TFT and FilterSource in the most recent twelve-month period were approximately $16,500. Locker is included in the Engine/Mobile Filtration segment. TFT and FilterSource are included in the Industrial/Environmental Filtration segment. An allocation of the purchase price has been made to major categories of assets and liabilities for each acquisition. The preliminary allocation of the purchase price over the preliminary estimated fair value of the tangible and identifiable intangible assets acquired for Locker, TFT and FilterSource resulted in $2,713, $2,086, and $439 recorded as goodwill for each acquisition, respectively. The Company recognized $943 for a Locker customer relationship that will be amortized over ten years. In connection with the TFT and FilterSource acquisitions, the Company recorded $228 as indefinite-lived trademarks and $1,375 as other acquired intangibles which will be amortized over a weighted average life of 8 years. The preliminary allocations for TFT and FilterSource will be finalized when the Company completes its estimates of liabilities assumed, finishes an appraisal of the assets acquired and finalizes deferred taxes. The Company expects to do this in the first quarter 2003. These acquisitions are not material to the results of the Company. On June 4, 2001, the Company acquired the stock of several filtration management companies for approximately $29,258, net of cash received, including acquisition expenses. The purchase price was paid in cash with available funds and proceeds from long-term borrowings from a revolving credit facility. As a result of the acquisition, the companies were combined into one company, Total Filtration Services, Inc. (TFS), and became a subsidiary of the Company. TFS is included in the Industrial/Environmental Filtration segment from the date of acquisition. 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 and amortized over forty years by the straight-line method. The initial purchase price was based on the net assets of the businesses acquired as shown on a June 4, 2001 balance sheet subject to a final adjustment. During first quarter 2002, the purchase price was finalized resulting in a $3,694 payment by the seller to the Company. A decrease to goodwill of $3,954 was recorded primarily as a result of the net settlement payment and entries associated with deferred income taxes, the valuation of inventory acquired, and preacquisition contingencies related to contract matters. No additional purchase accounting entries associated with the TFS acquisition are expected other than entries to finalize deferred income taxes. Unaudited pro forma net sales for the Company including TFS would have been approximately $695,700 and $707,500 for the years ended November 30, 2001 and 2000. Net earnings and earnings per share for each of these periods would not have been significantly affected. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) C. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for approximately 43% and 40% of the Company's inventories at November 30, 2002 and 2001, 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:
2002 2001 ------------ ------------ Raw materials .............................. $ 34,496 $ 36,166 Work in process ............................ 11,022 12,120 Finished products .......................... 56,784 55,078 ------------ ------------ Total at FIFO .............................. 102,302 103,364 Less excess of FIFO over LIFO .............. 456 362 ------------ ------------ $ 101,846 $ 103,002 ============ ============
D. PLANT ASSETS AND IMPAIRMENT LOSS Plant assets at November 30, 2002 and 2001 were as follows:
2002 2001 ------------ ------------ Land ....................................... $ 5,410 $ 4,736 Buildings and building fixtures ............ 75,520 73,497 Machinery and equipment .................... 202,697 191,984 Construction in process .................... 6,675 7,092 ------------ ------------ 290,302 277,309 Less accumulated depreciation .............. 157,410 139,993 ------------ ------------ $ 132,892 $ 137,316 ============ ============
During the first quarter of 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 SFAS No. 121. E. ACQUIRED INTANGIBLES The following table summarizes the activity for acquired intangibles by reporting unit for fiscal year 2002:
Currency Beginning Translation End of of Year Acquisitions Adjustments Amortization Year ----------- ------------ ----------- ------------ ----------- Goodwill: Engine/Mobile Filtration ................. $ 8,562 $ 2,713 $ 253 $ -- $ 11,528 Industrial/Environmental Filtration ................. 71,546 (1,429) 13 -- 70,130 Packaging ................... -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- $ 80,108 $ 1,284 $ 266 $ -- $ 81,658 =========== =========== =========== =========== =========== Trademarks and trade names: Engine/Mobile Filtration ................. $ 603 $ -- $ -- $ -- $ 603 Industrial/Environmental Filtration ................. 28,652 228 -- -- 28,880 Packaging ................... -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- $ 29,255 $ 228 $ -- $ -- $ 29,483 =========== =========== =========== =========== =========== Other acquired intangibles, gross: Engine/Mobile Filtration ................. $ 97 $ 943 $ -- $ -- $ 1,040 Industrial/Environmental Filtration ................. 12,055 1,375 -- -- 13,430 Packaging ................... -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- 12,152 2,318 -- -- 14,470 Less accumulated amortization ............... 2,321 -- -- 761 3,082 ----------- ----------- ----------- ----------- ----------- Other acquired intangibles, net ............ $ 9,831 $ 2,318 $ -- $ (761) $ 11,388 =========== =========== =========== =========== ===========
As a result of adopting SFAS No. 142, the Company completed the transitional goodwill impairment reviews required by the new standards during the first quarter of 2002. In performing the impairment reviews, the Company estimated the fair values of the reporting units using a present value method that discounted future cash flows. Such reviews are sensitive to assumptions associated with cash flow growth, discount rates, terminal value and the aggregation of reporting unit components. The Company further assessed the reasonableness of these estimates by using valuation methods based on market multiples and recent capital market transactions. As of December 1, 2001, the transition date, and November 30, 2002, the annual testing date, there was no impairment to goodwill as the fair values exceeded the carrying values of the reporting units. The Company performed the impairment tests on its indefinite-lived intangibles as of December 1, 2001 and November 30, 2002 using the relief-from-royalty method to determine the fair value of its trademarks and trade names. There was no impairment as the fair value was greater than the carrying value for these indefinite-lived intangibles as of these dates. In connection with adopting SFAS No. 142, the Company also reassessed the useful lives and classification of identifiable finite-lived intangible assets and determined that they continue to be appropriate. Amortization expense during the fiscal years ended November 30, 2001 and 2000 for amortized intangibles was $756 and $1,003, respectively. The estimated amounts of amortization expense for the next five years are: $936 in 2003, $781 in 2004, $777 in 2005, $752 in 2006 and $739 in 2007. The following table presents net earnings and earnings per share assuming the nonamortization provisions of SFAS No. 142 were applied in each fiscal year:
2002 2001 2000 ---------- ---------- ---------- Reported net earnings ............................ $ 46,601 $ 41,893 $ 40,237 Goodwill amortization, net of income taxes ..... -- 1,375 1,115 Other amortization, net of income taxes ........ -- 475 496 ---------- ---------- ---------- Adjusted net earnings ............................ $ 46,601 $ 43,743 $ 41,848 ========== ========== ========== Basic EPS: Basic as reported .............................. $ 1.88 $ 1.71 $ 1.66 Goodwill amortization, net of income taxes ..... -- 0.06 0.05 Other amortization, net of income taxes ........ -- 0.02 0.02 ---------- ---------- ---------- Adjusted basic earnings per share ................ $ 1.88 $ 1.79 $ 1.73 ========== ========== ========== Diluted EPS: Diluted as reported ............................ $ 1.85 $ 1.68 $ 1.64 Goodwill amortization, net of income taxes ..... -- 0.05 0.05 Other amortization, net of income taxes ........ -- 0.02 0.02 ---------- ---------- ---------- Adjusted diluted earnings per share .............. $ 1.85 $ 1.75 $ 1.71 ========== ========== ==========
F. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities at November 30, 2002 and 2001 were as follows:
2002 2001 ------------ ------------ Accounts payable ........................... $ 50,350 $ 42,657 Accrued salaries, wages and commissions .... 15,283 8,733 Compensated absences ....................... 6,874 6,366 Accrued insurance liabilities .............. 6,892 5,805 Accrued pension liabilities ................ 269 263 Other accrued liabilities .................. 18,070 21,002 ------------ ------------ $ 97,738 $ 84,826 ============ ============
G. LONG-TERM DEBT Long-term debt at November 30, 2002 and 2001 consisted of the following:
2002 2001 ------------ ------------ Multicurrency revolving credit agreement, interest payable at the end of each funding period at an adjusted LIBOR ...... $ 62,833 $ 107,000 Promissory note, interest payable semi-annually at 6.69% ................... 10,000 15,000 Industrial Revenue Bonds, at 1.15% to 4.90% interest rates ......... 17,460 17,815 Other ...................................... 811 967 ------------ ------------ 91,104 140,782 Less current portion ....................... 68,456 5,579 ------------ ------------ $ 22,648 $ 135,203 ============ ============
A fair value estimate of $90,406 and $140,023 for long-term debt in 2002 and 2001, 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, which was extended for one additional year in 2000, 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 a variable spread of .55% to 1.25%. The variable spread is based on the ratio of the Company's outstanding borrowings compared to its shareholders' equity. The spread was .55% and .65% at November 30, 2002 and 2001, respectively. Facility fees and other fees on the entire loan commitment are payable for the duration of this facility. At November 30, 2002 and 2001, $62,833 and $107,000 were outstanding under this agreement and the related LIBOR, including the spread, was 1.97% and 4.17%, respectively. The amount outstanding at November 30, 2002 has been classified as current debt as the credit agreement expires in less than one year. A replacement credit facility is expected to be finalized in 2003 and at that time the full amount outstanding under the new facility will be reclassified into long-term debt. Borrowings under the credit facility are unsecured 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, limiting new borrowings, maintaining a minimum interest coverage, and restricting certain changes in ownership as stipulated in the agreement. The Company was in compliance with these covenants throughout fiscal years 2002 and 2001. This agreement also includes a letter of credit facility, against which $12,743 and $11,182 in letters of credit had been issued as of November 30, 2002 and 2001, respectively. 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 agreement, 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 May 1, 2001, the Company, in cooperation with the Campbellsville-Taylor County Industrial Development Authority (Kentucky), 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 connection with the issuance of the Industrial Revenue Bonds, the Company holds in trust certain restricted investments committed for the acquisition of plant equipment. At November 30, 2002, the restricted asset balance was $1,255 and is included in other noncurrent assets. The Company has other industrial revenue bonds, including $8,410 issued in cooperation with the South Dakota Economic Development Finance Authority due February 1, 2016 with a variable rate of interest that is reset weekly and additional bonds of $1,050 and $1,405 outstanding as of November 30, 2002 and 2001, respectively, which mature in 2005. Exclusive of the multicurrency revolving credit facility, principal maturities of long-term debt for the next five fiscal years ending November 30 approximates: $5,623 in 2003, $5,655 in 2004, $403 in 2005, $166 in 2006, $0 in 2007, and $16,424 thereafter. Effective December 1, 2000, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." 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 November 30, 2001 provided for the Company to pay a 7.34% fixed interest rate on a notional amount of $60,000. The agreement NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) expired September 11, 2002. Under the agreement the Company received interest at floating rates based on LIBOR. This derivative instrument was designated as a cash flow hedge and determined to be effective. Therefore, there was no adjustment to net earnings during 2002, 2001 or 2000. The net gain included in other comprehensive earnings for the twelve months ended November 30, 2002 was $1,906 (or $2,932 pretax). Such derivative gains and losses were reclassified into earnings as payments were made on its variable rate interest debt. Approximately $1,983 was reclassified into earnings during the fiscal year ended November 30, 2002. At November 30, 2001, the fair value of the agreement was a negative $2,932 and was included in other current liabilities. Interest paid totaled $7,482, $10,666 and $10,714 during 2002, 2001 and 2000, respectively. H. LEASES The Company has various lease agreements for offices, warehouses, manufacturing plants, and equipment that expire on various dates through December 2015 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, 2002 for the next five years are: $8,474 in 2003, $6,880 in 2004, $4,822 in 2005, $3,299 in 2006, and $2,660 in 2007. Rent expense totaled $9,879, $9,670 and $9,099 for the years ended November 30, 2002, 2001 and 2000, respectively. I. 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 $1,796 and $2,281 at November 30, 2002 and 2001, respectively, in restricted trusts for its nonqualified plans. These trusts are included in other noncurrent assets in the Company's Consolidated Balance Sheets. During 2001, the Company received approval from the Internal Revenue Service to terminate one of its plans related to a business that was previously sold and distribute all the plan's assets. The Company terminated the plan and settled all of its obligations by making lump-sum distributions or purchasing annuity contracts for its participants. The following table shows reconciliations of the pension plans and other postretirement plan benefits as of November 30, 2002 and 2001. The accrued pension benefit liability included an unfunded benefit obligation of $6,128 and $6,974 as of November 30, 2002 and 2001, respectively. The obligations for the U.S. pension plans have been determined with a weighted average discount rate of 6.75% and 7.25% in 2002 and 2001, 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 2002 and 2001. The Company expects to lower that assumption to 8.5% in fiscal year 2003. The non-U.S. pension plan obligation was determined with a weighted average discount rate of 5.75%, a rate of increase in future compensation of 3.75% and an expected weighted average long-term rate of return assumption of 7.5%.
Pension Postretirement Benefits Benefits -------------------------- -------------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Change in benefit obligation: Benefit obligation at beginning of year ..................... $ 76,423 $ 68,980 $ 3,535 $ 4,082 Addition of non-U.S. plan .................. 6,323 -- -- -- Service cost ............................... 3,884 3,142 112 107 Interest cost .............................. 5,755 5,114 247 305 Plan participants' contributions ........... 57 -- -- -- Amendments ................................. 225 1,154 -- -- Actuarial losses / (gains) ................. 1,240 3,750 (105) (808) Benefits paid .............................. (4,791) (5,717) (128) (151) ---------- ---------- ---------- ---------- Benefit obligation at end of year .......... 89,116 76,423 3,661 3,535 ---------- ---------- ---------- ---------- Change in plan assets: Fair value of plan assets at beginning of year ..................... 70,505 86,686 -- -- Addition of non-U.S. plan .................. 5,405 -- -- -- Actual return on plan assets ............... (3,566) (10,726) -- -- Employer contributions ..................... 5,092 -- -- -- Plan participants' contributions ........... 57 -- -- -- Benefits paid .............................. (4,524) (5,455) -- -- ---------- ---------- ---------- ---------- Fair value of plan assets at end of year ........................... 72,969 70,505 -- -- ---------- ---------- ---------- ---------- Funded status .............................. (16,147) (5,918) (3,661) (3,535) Unrecognized prior service cost ............ 1,411 1,320 -- -- Unrecognized net actuarial loss / (gain) .................. 30,203 18,319 (659) (570) ---------- ---------- ---------- ---------- Net amount recognized ...................... $ 15,467 $ 13,721 $ (4,320) $ (4,105) ========== ========== ========== ========== Amounts recognized in the Consolidated Balance Sheets include: Prepaid benefit cost .................. $ 21,771 $ 18,939 $ -- $ -- Accrued benefit liability ............. (8,092) (5,218) (4,320) (4,105) Accumulated other comprehensive income, pretax ........ 1,788 -- -- -- ---------- ---------- ---------- ---------- Net amount recognized ...................... $ 15,467 $ 13,721 $ (4,320) $ (4,105) ========== ========== ========== ==========
The components of net periodic benefit cost for pensions are shown below.
Pension Benefits ------------------------------------------ 2002 2001 2000 ---------- ---------- ---------- Components of net periodic benefit cost: Service cost ................................... $ 3,887 $ 3,142 $ 3,122 Interest cost .................................. 5,759 5,114 5,021 Expected return on plan assets ................. (6,793) (7,527) (7,695) Amortization of unrecognized: Net transition asset ........................ -- -- (1,056) Prior service cost .......................... 134 22 21 Net actuarial loss .......................... 628 5 7 Settlement cost for a terminated plan ....... -- 669 -- ---------- ---------- ---------- Net periodic benefit cost / (income) ............ $ 3,615 $ 1,425 $ (580) ========== ========== ==========
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 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. The components of net periodic benefit cost for postretirement health care benefits are shown below.
Postretirement Benefits ----------------------------------------------- 2002 2001 2000 ------------ ------------ ------------ Components of net periodic benefit cost: Service cost ........................................ $ 112 $ 107 $ 92 Interest cost ....................................... 247 305 280 Net actuarial gain .................................. (16) -- -- ------------ ------------ ------------ Net periodic benefit cost ............................. $ 343 $ 412 $ 372 ============ ============ ============
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 $1,460, $1,395 and $1,408 in 2002, 2001 and 2000, respectively. J. INCOME TAXES The provision for income taxes consisted of:
2002 2001 2000 ------------ ------------ ------------ Current: Federal ............................................. $ 19,304 $ 21,644 $ 17,693 State ............................................... 2,860 2,751 2,574 Foreign ............................................. 2,049 1,460 1,063 Deferred .............................................. 560 (2,051) 1,871 ------------ ------------ ------------ $ 24,773 $ 23,804 $ 23,201 ============ ============ ============
Income taxes paid, net of refunds, totaled $17,678, $26,858 and $16,458 during 2002, 2001 and 2000, respectively. Earnings before income taxes and minority interests included the following components:
2002 2001 2000 ------------ ------------ ------------ Domestic income ....................................... $ 68,713 $ 62,664 $ 60,471 Foreign income ........................................ 2,737 3,070 3,016 ------------ ------------ ------------ $ 71,450 $ 65,734 $ 63,487 ============ ============ ============
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 ----------------------------------------------- 2002 2001 2000 ------------ ------------ ------------ Statutory U.S. tax rates .............................. 35.0% 35.0% 35.0% State income taxes, net of federal benefit ............ 2.7 2.6 2.6 Foreign sales ......................................... (1.0) (1.1) (0.8) Tax credits ........................................... (2.8) (0.6) (0.5) Other, net ............................................ 0.8 0.3 0.2 ------------ ------------ ------------ Consolidated effective income tax rate ................ 34.7% 36.2% 36.5% ============ ============ ============
The components of the net deferred tax liability as of November 30, 2002 and 2001 were as follows:
2002 2001 ------------ ------------ Deferred tax assets: Deferred compensation ..................... $ 5,654 $ 4,304 Other postretirement benefits ............. 1,025 931 Foreign net operating loss carryforwards .. 839 406 Accounts receivable ....................... 3,501 3,385 Inventories ............................... 3,522 3,113 Other comprehensive income items .......... -- 1,026 Accrued liabilities and other ............. 5,815 2,915 Valuation allowance ....................... (585) -- ------------ ------------ Total deferred tax assets, net .............. 19,771 16,080 ------------ ------------ Deferred tax liabilities: Pensions .................................. (4,977) (5,069) Plant assets .............................. (14,023) (12,081) Intangibles ............................... (2,721) (526) ------------ ------------ Total deferred tax liabilities .............. (21,721) (17,676) ------------ ------------ Net deferred tax liability .................. $ (1,950) $ (1,596) ============ ============
A valuation allowance was recorded in fiscal 2002 to reflect the estimated amount of deferred tax assets that may not be realized due to foreign net operating loss carryforward limitations. The Company expects to realize the deferred tax assets through the reversal of taxable temporary differences and future earnings. As of November 30, 2002, the Company has not provided taxes on unremitted foreign earnings of approximately $4,423 that are intended to be indefinitely reinvested to finance operations and expansion outside the United States. If such earnings were distributed beyond the amount for which taxes have been provided, foreign tax credits would substantially offset any incremental U.S. tax liability. K. CONTINGENCIES The Company is involved in legal actions arising in the normal course of business. Additionally, the Company is party to various proceedings relating to environmental issues. The U.S. Environmental Protection Agency (EPA) and/or other responsible state agencies have designated the Company as a potentially responsible party (PRP), along with other companies, in remedial activities for the cleanup of waste sites under the federal Superfund statute. During fiscal 2002, the Company was addressing two claims for environmental remediation costs at two sites where it has been named a potentially responsible party. Negotiated settlements have been reached concerning waste disposal by the Company and other companies at these sites in Maryland and Illinois at a total accrued cost to the Company of less than $50. Although it is not certain what future environmental claims, if any, may be asserted, the Company currently believes that its potential liability for known environmental matters does not exceed its present accrual of $50. However, 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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 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. L. 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 person 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. M. 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. The 1994 Incentive Plan, as amended on March 25, 2000, allows grants and awards of up to 1.5% of the outstanding common stock as of January 1 of each calendar year. 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. Any portion that is not granted in a given year is available for future grants. After the close of fiscal year 2002, 330,595 shares were granted, including the restricted stock units discussed hereafter. The following is a description and a summary of key provisions related to this Plan. STOCK OPTIONS In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company accounts 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 and provides the disclosure-only provisions of SFAS No. 123. 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. Options granted to key employees prior to the end of fiscal year 2000 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 key employees after the close of fiscal year 2000 vest 25% per year beginning at the end of the first year; therefore, they become fully exercisable at the end of four years. Options granted to non-employee directors vest immediately. All options expire ten years from the date of grant unless otherwise terminated. The following table summarizes the activity under the nonqualified stock option plans.
2002 2001 2000 -------------------------- -------------------------- -------------------------- WEIGHTED Weighted Weighted AVERAGE Average Average EXERCISE Exercise Exercise SHARES PRICE Shares Price Shares Price ---------- ---------- ---------- ---------- ---------- ---------- Outstanding at beginning of year .......... 2,324,130 $ 16.83 2,286,026 $ 14.53 2,239,162 $ 14.83 Granted at fair market value on dates of grants ............ 356,925 28.19 449,366 19.93 412,404 17.80 Exercised/surrendered ........... (634,787) 15.00 (411,262) 14.15 (365,540) 12.75 ---------- ---------- ---------- ---------- ---------- ---------- Outstanding at end of year ................ 2,046,268 $ 19.38 2,324,130 $ 16.83 2,286,026 $ 14.53 ========== ========== ========== ========== ========== ========== Options exercisable at end of year ................ 1,381,858 $ 18.52 1,531,152 $ 16.06 1,508,859 $ 14.68 ========== ========== ========== ========== ========== ==========
The following table summarizes information about the options at November 30, 2002.
Options Outstanding Options Exercisable ------------------------------------- -------------------- Weighted Weighted Weighted Range of Average Average Average Exercise Exercise Remaining Exercise Prices Number Price Life in Years Number Price - -------- ------- -------- ------------- ------- -------- $12.17 - $17.94 747,213 $ 15.45 4.63 560,145 $ 14.62 $18.38 - $24.01 946,406 $ 19.25 6.34 668,095 $ 19.42 $25.55 - $32.02 352,649 $ 28.07 8.57 153,618 $ 28.83
In addition, stock options outstanding and exercisable at November 30, 2002 and 2001 assumed as part of the UAS acquisition were 1,090 and 6,949, respectively. These substitute options have an exercisable price per share of $5.94 at November 30, 2002 and expire in 2005. RESTRICTED STOCK AWARDS During 2002 and 2001, respectively, the Company granted 25,436 and 44,404 restricted units of Company common stock with a fair value of $27.50 and $18.50 per share, the respective market price of the stock at the date granted. The restricted share units require no payment from the employee and compensation cost is recorded based on the market price on the grant date and is recorded equally over the vesting period of four years. During the vesting period, officers and key employees receive compensation equal to dividends declared on common shares. Upon vesting, the employee may elect to defer receipt of their shares. Subsequent to the end of fiscal year 2002, the Company granted 22,645 restricted stock units in December 2002 at the then-market price of $32.30. Compensation expense related to restricted stock awards and long range performance stock awards totaled $426, $618 and $901 in 2002, 2001 and 2000, respectively. There have been no grants of long range shares or units since December 1999 and no future awards of long range performance shares or units are expected to be granted. DIRECTORS' RESTRICTED STOCK COMPENSATION The amended 1994 Incentive Plan provides for grants of shares of common stock to all non-employee directors equal to a one-year annual retainer in lieu of cash. The directors' rights to the shares vest immediately on the date of grant. In 2002 and 2001, respectively, 8,120 and 10,618 shares of Company common stock were issued under the amended plan. Compensation expense for the plan totaled $260, $260 and $184 in 2002, 2001 and 2000, respectively. FAIR VALUE ACCOUNTING (SFAS NO. 123) If the Company had determined compensation expense for its stock-based compensation plans based on the fair value at the grant dates consistent with the method of SFAS No. 123, the Company's pro forma net earnings and diluted earnings per share would have been $45,114, $40,760 and $39,520 and $1.79, $1.64 and $1.61 for 2002, 2001 and 2000, 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 2002, 2001 and 2000. Adjustments for forfeitures are made as they occur.
2002 2001 2000 ---------- ---------- ---------- Risk-free interest rate ................ 4.70% 5.53% 6.34% Expected dividend yield ................ 1.91% 2.50% 2.47% Expected volatility factor ............. 25.50% 25.50% 25.00% 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 2002, 2001 and 2000 was $7.87, $5.12 and $5.28, respectively. N. EARNINGS PER SHARE The Company calculates and presents basic earnings per share by dividing net earnings by the weighted average number of shares outstanding. 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 denominators utilized in the calculation of basic and diluted earnings per share:
2002 2001 2000 ------------ ------------ ------------ Net Earnings .......................................... $ 46,601 $ 41,893 $ 40,237 Basic EPS: Weighted average number of common shares outstanding ............................... 24,839,812 24,535,199 24,269,675 Basic per share amount ......................... $ 1.88 $ 1.71 $ 1.66 ============ ============ ============ Diluted EPS: Weighted average number of common shares outstanding ............................... 24,839,812 24,535,199 24,269,675 Dilutive effect of stock options .................... 332,119 356,863 236,496 ------------ ------------ ------------ Diluted weighted average number of common shares outstanding ...................... 25,171,931 24,892,062 24,506,171 Diluted per share amount ......................... $ 1.85 $ 1.68 $ 1.64 ============ ============ ============
For fiscal years ended November 30, 2002, 2001 and 2000, respectively, 55,458, 28,491 and 682,866 stock options with a weighted average exercise price of $31.66, $25.97 and $19.34 were not included in the computation of diluted earnings per share as the exercise prices of the options were greater than the average market price of the common shares during the respective periods. O. UNAUDITED QUARTERLY FINANCIAL DATA The unaudited quarterly data for 2002 and 2001 were as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter Total ---------- ---------- ---------- ---------- ---------- 2002: NET SALES .............. $ 158,262 $ 176,510 $ 189,368 $ 191,423 $ 715,563 GROSS PROFIT ........... 44,710 51,300 53,558 57,722 207,290 NET EARNINGS ........... 7,998 10,607 12,185 15,811 46,601 NET EARNINGS PER COMMON SHARE: BASIC .............. $ 0.32 $ 0.43 $ 0.49 $ 0.63 $ 1.88 DILUTED ............ $ 0.32 $ 0.42 $ 0.48 $ 0.62 $ 1.85 2001: Net sales .............. $ 156,197 $ 159,505 $ 175,645 $ 175,617 $ 666,964 Gross profit ........... 46,286 45,344 50,306 53,551 195,487 Net earnings ........... 9,804 8,936 10,257 12,896 41,893 Net earnings per common share: Basic ............. $ 0.40 $ 0.36 $ 0.42 $ 0.52 $ 1.71 Diluted ........... $ 0.40 $ 0.36 $ 0.41 $ 0.51 $ 1.68
The Company recorded a research and experiment tax credit during the fourth quarter of 2002 that decreased income taxes $1,000 and increased diluted EPS by $0.04. During the first quarter of 2001, the Company received a settlement payment of $7,000 for the early termination of a supply and license agreement and in connection therewith recognized an impairment loss in its Packaging segment of $2,422 related to certain plant assets as discussed in Note D. P. SEGMENT INFORMATION 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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) the Company's Board of Directors, the Company has identified three reportable segments: Engine/Mobile Filtration, Industrial/Environmental Filtration and Packaging. The Engine/Mobile Filtration segment manufactures and markets a complete line of filters used in the filtration of oils, 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, industrial 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, pharmaceutical 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. As discussed in Note O, the Company received a settlement payment of $7,000 for the early termination of a supply and license agreement and in connection therewith recognized an impairment loss in its Packaging segment of $2,422 related to certain plant assets as discussed in Note D. The segment's sales of plastic closures were reduced in 2001 as a result of the termination of the agreement. Net sales represent sales to unaffiliated customers. No single customer or class of product accounted for 10% or more of the Company's consolidated 2002 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, 2002, 2001 and 2000 were as follows:
2002 2001 2000 ------------ ------------ ------------ Net sales: Engine/Mobile Filtration .............................. $ 263,512 $ 250,960 $ 259,791 Industrial/Environmental Filtration ................... 383,613 346,394 319,746 Packaging ............................................. 68,438 69,610 72,611 ------------ ------------ ------------ $ 715,563 $ 666,964 $ 652,148 ============ ============ ============ Operating profit: Engine/Mobile Filtration .............................. $ 52,779 $ 51,785 $ 49,162 Industrial/Environmental Filtration ................... 20,670 16,761 18,433 Packaging ............................................. 4,326 7,264 8,392 ------------ ------------ ------------ 77,775 75,810 75,987 Other income (expense) ................................ (6,325) (10,076) (12,500) ------------ ------------ ------------ Earnings before income taxes and minority interests .............................. $ 71,450 $ 65,734 $ 63,487 ============ ============ ============ Identifiable assets: Engine/Mobile Filtration .............................. $ 152,209 $ 135,265 $ 144,563 Industrial/Environmental Filtration ................... 306,206 303,901 271,669 Packaging ............................................. 42,114 41,652 41,891 Corporate ............................................. 45,590 49,799 43,807 ------------ ------------ ------------ $ 546,119 $ 530,617 $ 501,930 ============ ============ ============ Additions to plant assets: Engine/Mobile Filtration .............................. $ 4,208 $ 3,852 $ 7,588 Industrial/Environmental Filtration ................... 5,386 8,746 10,842 Packaging ............................................. 2,242 5,404 8,045 Corporate ............................................. 368 202 2,530 ------------ ------------ ------------ $ 12,204 $ 18,204 $ 29,005 ============ ============ ============ Depreciation and amortization: Engine/Mobile Filtration .............................. $ 7,328 $ 7,725 $ 7,475 Industrial/Environmental Filtration ................... 8,642 10,711 10,145 Packaging ............................................. 3,096 2,725 2,832 Corporate ............................................. 694 689 627 ------------ ------------ ------------ $ 19,760 $ 21,850 $ 21,079 ============ ============ ============
As discussed in Note A with the adoption of SFAS No. 142, the Company no longer amortizes goodwill or trademarks. Nonrecurring amortization expense recorded in operating profit in 2001 and 2000 was $443 and $450, respectively, in the Engine/Mobile Filtration segment and $2,464 and $2,089, respectively, in the Industrial/Environmental segment. The Packaging segment operating profit did not include any nonrecurring amortization in 2001 or 2000. Financial data relating to the geographic areas in which the Company operates are shown for the years ended November 30, 2002, 2001 and 2000. Net sales by geographic area are based on sales to final customers within that region.
2002 2001 2000 ------------ ------------ ------------ Net sales: United States ......................................... $ 599,937 $ 549,210 $ 532,210 Europe ................................................ 56,130 58,490 60,250 Other international ................................... 59,496 59,264 59,688 ------------ ------------ ------------ $ 715,563 $ 666,964 $ 652,148 ============ ============ ============ Plant assets, at cost, less accumulated depreciation: United States ......................................... $ 125,508 $ 131,171 $ 133,323 Europe ................................................ 6,239 5,144 5,695 Other international ................................... 1,145 1,001 1,103 ------------ ------------ ------------ $ 132,892 $ 137,316 $ 140,121 ============ ============ ============
EX-13.(A)(VII) 9 c73959exv13wxayxviiy.txt REPORT OF INDEPENDENT ACCOUNTANTS 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, 2002 and November 30, 2001 and the consolidated results of their operations and their cash flows for each of the three years in the period ended November 30, 2002, in conformity with accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America, 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 our opinion. As discussed in Note A to the consolidated financial statements, effective December 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." /s/ PRICEWATERHOUSECOOPERS LLP Chicago, Illinois January 8, 2003 EX-13.(A)(VIII) 10 c73959exv13wxayxviiiy.txt MANAGEMENT'S REPORT 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 accounting principles generally accepted in the United States of America 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 independent 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 external and internal auditors to review matters of a material nature related to financial reporting and disclosure and the planning, results and recommendations of audits. The external and internal auditors have free access to the Audit Committee. The Committee is also responsible for reporting to the Board of Directors concerning its selection of the external auditors. /s/ NORMAN E. JOHNSON /s/ BRUCE A. KLEIN /s/ MARCIA S. BLAYLOCK NORMAN E. JOHNSON BRUCE A. KLEIN MARCIA S. BLAYLOCK CHAIRMAN, PRESIDENT AND VICE PRESIDENT-FINANCE AND VICE PRESIDENT, CONTROLLER CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER
January 8, 2003 EX-13.(A)(IX) 11 c73959exv13wxayxixy.txt INFORMATION EXHIBIT 13(a)(ix) 11-YEAR FINANCIAL REVIEW
2002 2001 2000 1999 ---------- ---------- ---------- ---------- PER SHARE Equity ........................................ $ 12.66 $ 11.14 $ 9.93 $ 8.77 Diluted Earnings from Continuing Operations ... 1.85 1.68 1.64 1.46 Diluted Net Earnings .......................... 1.85 1.68 1.64 1.46 Dividends ..................................... 0.4825 0.4725 0.4625 0.4525 Price: High ................................... 34.00 27.59 21.44 21.38 Low .................................... 25.03 16.88 16.06 14.25 ---------- ---------- ---------- ---------- EARNINGS DATA ($000) Net Sales ..................................... $ 715,563 $ 666,964 $ 652,148 $ 477,869 Operating Profit .............................. 77,775 75,810 75,987 56,077 Interest Expense .............................. 6,073 10,270 11,534 3,733 Pretax Income ................................. 71,450 65,734 63,487 55,615 Income Taxes .................................. 24,773 23,804 23,201 20,137 Income from Continuing Operations ............. 46,601 41,893 40,237 35,412 Cumulative Effect of Accounting Changes ....... -- -- -- -- Net Earnings .................................. 46,601 41,893 40,237 35,412 Basic Average Shares Outstanding .............. 24,840 24,535 24,270 23,970 Diluted Average Shares Outstanding ............ 25,172 24,892 24,506 24,314 ---------- ---------- ---------- ---------- EARNINGS ANALYSIS Operating Margin .............................. 10.9% 11.4% 11.7% 11.7% Pretax Margin ................................. 10.0% 9.9% 9.7% 11.6% Effective Tax Rate ............................ 34.7% 36.2% 36.5% 36.2% Net Margin-Continuing Operations .............. 6.5% 6.3% 6.2% 7.4% Net Margin .................................... 6.5% 6.3% 6.2% 7.4% Return on Beginning Assets .................... 8.8% 8.3% 8.5% 11.6% Return on Beginning Shareholders' Equity ...... 17.0% 17.3% 19.1% 19.0% Dividend Payout to Net Earnings ............... 25.7% 27.6% 27.9% 30.5% ---------- ---------- ---------- ---------- BALANCE SHEET DATA ($000) Current Assets ................................ $ 259,746 $ 244,350 $ 230,479 $ 227,670 Plant Assets, Net ............................. 132,892 137,316 140,121 126,026 Total Assets .................................. 546,119 530,617 501,930 472,991 Current Liabilities ........................... 174,255 94,931 97,826 97,475 Long-Term Debt ................................ 22,648 135,203 141,486 145,981 Shareholders' Equity .......................... 315,461 274,261 242,093 210,718 ---------- ---------- ---------- ---------- BALANCE SHEET ANALYSIS ($000) Debt to Capitalization (A) .................... 22.4% 33.9% 37.8% 41.8% Working Capital ............................... $ 85,491 $ 149,419 $ 132,653 $ 130,195 Current Ratio ................................. 1.5 2.6 2.4 2.3 ---------- ---------- ---------- ---------- CASH FLOW DATA ($000) From Operations ............................... $ 85,019 $ 63,290 $ 54,130 $ 38,642 For Investment ................................ (18,978) (51,353) (42,125) (160,658) From/(For) Financing .......................... (59,774) (15,326) (15,862) 103,501 Change in Cash & Equivalents .................. 6,329 (3,446) (3,881) (18,576) Capital Expenditures .......................... 12,204 18,204 29,005 21,822 Depreciation & Amortization ................... 19,760 21,850 21,079 15,372 Dividends Paid ................................ 11,975 11,575 11,207 10,814 Net Interest Expense .......................... 5,612 9,616 10,836 2,282 Income Taxes Paid ............................. 17,678 26,858 16,458 22,234 Free Cash Flow (B) ............................ 60,840 33,511 13,918 6,006 ---------- ---------- ---------- ----------
(A) Total Debt (current and long-term) divided by Total Debt plus Shareholders' Equity. (B) Cash Flow From Operations less Capital Expenditures and Dividends Paid. 11-YEAR FINANCIAL REVIEW
1998 1997 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- ---------- ---------- $ 7.80 $ 7.06 $ 6.46 $ 5.79 $ 5.18 $ 4.63 $ 4.39 1.30 1.11 1.07 0.97 0.87 0.72 0.66 1.30 1.11 1.07 0.97 0.89 0.72 0.56 0.4425 0.4350 0.4283 0.4217 0.4150 0.4067 0.4000 24.63 20.79 16.75 18.00 14.92 13.33 15.00 14.25 13.33 12.42 12.08 10.58 10.67 10.00 ---------- ---------- ---------- ---------- ---------- ---------- ---------- $ 426,773 $ 394,264 $ 372,382 $ 330,110 $ 300,450 $ 253,211 $ 218,172 51,663 44,424 42,596 38,728 33,188 29,960 27,810 2,336 2,759 3,822 3,418 3,298 3,979 4,438 51,347 44,192 41,405 36,631 31,886 27,221 24,930 19,262 17,164 15,315 13,060 12,057 9,944 8,941 32,079 26,918 25,945 23,500 20,786 17,277 15,989 -- -- -- -- 630 -- (2,370) 32,079 26,918 25,945 23,500 21,416 17,277 13,619 24,268 24,133 23,908 23,850 23,804 23,831 24,030 24,649 24,344 24,217 24,205 24,030 24,076 24,346 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 12.1% 11.3% 11.4% 11.7% 11.0% 11.8% 12.7% 12.0% 11.2% 11.1% 11.1% 10.6% 10.8% 11.4% 37.5% 38.8% 37.0% 35.7% 37.8% 36.5% 35.9% 7.5% 6.8% 7.0% 7.1% 6.9% 6.8% 7.3% 7.5% 6.8% 7.0% 7.1% 7.1% 6.8% 6.2% 11.4% 10.1% 10.6% 11.4% 11.2% 9.5% 7.6% 18.7% 17.4% 18.8% 19.1% 19.4% 16.4% 13.4% 33.4% 38.2% 36.7% 39.7% 43.0% 52.3% 65.8% ---------- ---------- ---------- ---------- ---------- ---------- ---------- $ 168,173 $ 160,527 $ 140,726 $ 133,286 $ 109,992 $ 97,569 $ 105,067 86,389 82,905 84,525 73,047 58,787 53,839 42,324 305,766 282,519 267,019 245,697 206,928 191,657 181,660 61,183 54,237 51,297 49,841 43,926 37,647 30,559 36,419 37,656 43,449 41,860 25,090 32,650 38,534 186,807 171,162 154,681 138,144 122,801 110,299 105,460 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 16.5% 18.5% 24.8% 26.4% 21.0% 29.6% 30.1% $ 106,990 $ 106,290 $ 89,429 $ 83,445 $ 66,066 $ 59,922 $ 74,508 2.7 3.0 2.7 2.7 2.5 2.6 3.4 ---------- ---------- ---------- ---------- ---------- ---------- ---------- $ 42,267 $ 41,632 $ 26,675 $ 21,092 $ 25,670 $ 20,727 $ 23,456 (19,290) (8,193) (18,934) (29,044) (1,159) (74) (7,737) (19,943) (21,850) (8,774) 7,226 (18,656) (22,772) (9,929) 2,997 11,497 (964) (684) 5,912 (2,197) 5,811 15,825 11,349 22,230 14,471 12,119 10,776 8,290 12,380 11,600 10,704 9,145 8,166 7,227 8,387 10,717 10,290 9,512 9,330 9,201 9,036 8,958 1,053 1,739 2,991 2,560 2,750 3,104 4,140 16,199 15,112 11,230 11,939 10,194 10,059 11,200 15,725 19,993 (5,067) (2,709) 4,350 915 6,208 ---------- ---------- ---------- ---------- ---------- ---------- ----------
EX-13.(A)(X) 12 c73959exv13wxayxxy.txt MANAGEMENT'S DISCUSSION AND ANALYSIS EXHIBIT 13(a)(x) FINANCIAL REVIEW (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) CLARCOR's operating results for fiscal 2002 were at record levels for sales, cash flow and earnings. Fiscal 2002 also marked CLARCOR's tenth consecutive year of earnings growth. The results of operations and financial position reflect acquisitions the Company made in each of the periods presented and these acquisitions are described in Note B to the Consolidated Financial Statements. The acquisitions that most impacted the periods presented were Locker Filtration (Locker) and Total Filtration Services (TFS). In June 2002, Locker was acquired, adding approximately $7.5 million in sales for the second half of fiscal 2002. In June 2001, TFS was acquired, adding approximately $28 million in sales for the second half of fiscal 2001. Several smaller acquisitions also occurred that were not material to the sales or results of operations for the periods presented. In addition, results of operations were impacted by a non-recurring contract cancellation payment that was received from a customer of the Company's Packaging segment in 2001. This contract cancellation payment increased sales $7.0 million, operating profit $4.5 million and diluted earnings per share $0.12 in the first quarter of 2001. The Company adopted Statement of Financial Accounting Standards No. 142 (SFAS 142) at the beginning of the first quarter of 2002 as described in Note E to the Consolidated Financial Statements. No impairment charges were recorded as a result of adopting SFAS 142; however, amortization expense for goodwill and indefinite-lived intangible assets was reduced by approximately $2.9 million before tax or $0.07 per diluted share after tax in fiscal 2002 compared to 2001. In the fourth quarter of 2002 upon resolution of specific tax reviews, the Company recorded a research and experiment tax credit that increased 2002 net earnings by $1.0 million and diluted earnings per share by $0.04. The information presented in this financial review should be read in conjunction with other financial information provided throughout this 2002 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. Fiscal 2002 was a fifty-two week year for the Company and fiscal years 2001 and 2000 were fifty-two and fifty-three week years, respectively. OPERATING RESULTS SALES Net sales in fiscal 2002 were $715.6 million, a 7.3% increase from $667.0 million in fiscal 2001. The 2002 sales increase was the 16th consecutive year of sales growth for the Company. Net sales increased 2.3% in fiscal 2001 over the 2000 level of $652.1 million. The sales increases in 2002 and 2001 included sales from acquisitions in each year and fiscal 2001 included $7.0 million from a non-recurring customer cancellation payment. Fiscal 2000 included approximately $12-$13 million in additional sales compared to fiscal 2001 because fiscal year 2000 was a fifty-three week year for the Company. Excluding the impact of acquisitions, the non-recurring payment in 2001 and the additional week in fiscal 2000, sales increased approximately 2% in 2002 compared with 2001 and fiscal 2001 sales decreased approximately 1% from 2000. Overall sales levels in 2002 and 2001 were reduced by weakened U.S. and world economies, reduced customer demand and competitive pricing pressures. Comparative net sales information related to CLARCOR's operating segments is shown in the following tables.
2002 VS. 2001 CHANGE ------------------------ NET SALES 2002 % TOTAL $ % - --------- ---------- ---------- ---------- ---------- ENGINE/MOBILE FILTRATION ................ $ 263.5 36.8% $ 12.5 5.0% INDUSTRIAL/ENVIRONMENTAL FILTRATION ..... 383.6 53.6% 37.2 10.7% PACKAGING ............................... 68.5 9.6% (1.1) -1.7% ---------- ---------- ---------- ---------- TOTAL .............................. $ 715.6 100.0% $ 48.6 7.3% ========== ========== ========== ==========
2001 vs. 2000 Change ------------------------ NET SALES 2001 % Total $ % - --------- ---------- ---------- ---------- ---------- Engine/Mobile Filtration ................ $ 251.0 37.6% $ (8.8) -3.4% Industrial/Environmental Filtration ..... 346.4 52.0% 26.7 8.3% Packaging ............................... 69.6 10.4% (3.0) -4.1% ---------- ---------- ---------- ---------- Total ............................. $ 667.0 100.0% $ 14.9 2.3% ========== ========== ========== ==========
The Engine/Mobile Filtration segment's sales increased 5.0% in 2002 from 2001 or approximately 2% excluding the sales from Locker which was acquired in June 2002. Excluding Locker, 2002 sales growth was primarily due to increased domestic and international heavy-duty filter sales. Railroad filtration product sales decreased approximately 4% in 2002 due to soft market conditions, including reduced locomotive mileage, extended filter drain intervals and lower new locomotive sales. The segment's sales decreased 3.4% in 2001 from 2000 or approximately 1.5% excluding the additional week in fiscal 2000. Sales decreased in fiscal 2001 primarily due to the slowdown in the U.S. economy, competitive pricing pressures, and a reduction in both inventory levels and product demand by our customers. The Company's Industrial/Environmental Filtration segment recorded a 10.7% increase in sales in 2002 over 2001. Fiscal 2002 included the full-year impact from TFS, while 2001 included only six months. Excluding the impact of an additional six months of sales from TFS in 2002, the segment's sales grew approximately 2% over 2001. Growth resulted from sales of environmental air filters, specialty industrial filters and the Total Filtration Program. Partially offsetting this increase in sales were reduced sales of air quality equipment and filtration systems that are sold primarily into the capital goods markets. The segment recorded an 8.3% increase in sales in 2001 over 2000. Excluding the sales increase from TFS in 2001 and the additional week in fiscal 2000, sales for the segment increased approximately 1.5% in 2001 compared to fiscal 2000. Fiscal 2001 results benefited from additional sales of new products introduced late in fiscal 2000 and greater distribution coverage for environmental filters. This increase was partially offset by lower sales due to the U.S. economic recession which primarily affected sales of filtration equipment and systems. The Packaging segment's sales were $68.5 million in 2002, a 1.7% reduction from 2001. Included in 2001 sales of $69.6 million was a non-recurring $7.0 million payment arising from a contract cancellation by a customer. Excluding this non-recurring payment, sales increased approximately 9% in 2002 from 2001 as a result of increased sales of flat sheet metal decorating and non-promotional metal and plastic packaging. As a result of the customer cancellation, sales of plastic closures decreased substantially beginning in the first quarter 2001. The segment continues to focus on sales of non-promotional packaging products such as metal and plastic closures and containers for food, confectionary and beverage containers and film and battery cartridges. FINANCIAL REVIEW (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) OPERATING PROFIT Operating profit of $77.8 million in 2002 was 2.6% higher than in 2001. Fiscal 2001 operating profit of $75.8 million was slightly lower than the $76.0 million recorded in 2000. The 2002 operating profit increased approximately $2.9 million as a result of reduced amortization expense for goodwill and long-lived intangible assets due to the adoption of SFAS 142. Fiscal 2001 included approximately $4.5 million from a non-recurring customer contract cancellation payment. Excluding these two items, operating profit increased approximately 5% in 2002. Operating margin was 10.9% in 2002 compared to 11.4% in 2001 and 11.7% in fiscal 2000. Operating margins decreased in 2002 and 2001 principally due to the increase in sales from acquisitions that have lower margins than the 11.7% overall margin recorded in 2000. Continued cost reductions, improved manufacturing productivity and the integration of acquired businesses positively impacted operating profit in both fiscal 2002 and 2001. The profit improvements in 2002 offset, in part, competitive pricing pressures and cost increases the Company experienced for certain raw materials, health care, incentive compensation programs, insurance and pensions. Pension cost increased approximately $2.2 million in 2002 from 2001, primarily due to a reduction in the discount rate and reduced pension asset values. Discretionary cost reduction programs, particularly in 2001, were effective in offsetting reduced customer demand. Foreign currency fluctuations did not have a material impact on consolidated operating profit in 2002, 2001 or 2000. Comparative operating profit information related to the Company's business segments is as follows.
2002 VS. 2001 CHANGE ------------------------ OPERATING PROFIT 2002 % TOTAL $ % - ---------------- ---------- ---------- ---------- ---------- ENGINE/MOBILE FILTRATION ............... $ 52.8 67.9% $ 1.0 1.9% INDUSTRIAL/ENVIRONMENTAL FILTRATION .... 20.7 26.6% 3.9 23.3% PACKAGING .............................. 4.3 5.5% (2.9) -40.4% ---------- ---------- ---------- ---------- TOTAL ............................. $ 77.8 100.0% $ 2.0 2.6% ========== ========== ========== ==========
2001 vs. 2000 Change ------------------------ OPERATING PROFIT 2001 % Total $ % - ---------------- ---------- ---------- ---------- ---------- Engine/Mobile Filtration ............... $ 51.8 68.3% $ 2.6 5.3% Industrial/Environmental Filtration .... 16.8 22.1% (1.6) -9.1% Packaging .............................. 7.2 9.6% (1.2) -13.4% ---------- ---------- ---------- ---------- Total ............................ $ 75.8 100.0% $ (0.2) -0.2% ========== ========== ========== ==========
OPERATING MARGIN AS A PERCENT OF NET SALES 2002 2001 2000 - ---------------------- ---------- ---------- ---------- Engine/Mobile Filtration ............... 20.0% 20.6% 18.9% Industrial/Environmental Filtration .... 5.4% 4.8% 5.8% Packaging .............................. 6.3% 10.4% 11.6% ---------- ---------- ---------- Total ............................ 10.9% 11.4% 11.7% ========== ========== ==========
Operating profit for the Engine/Mobile Filtration segment increased to $52.8 million in 2002 from $51.8 million in 2001, an increase of 1.9%. Operating profit improved in 2002 as a result of increased sales, productivity improvement programs and reduced amortization expense. Offsetting these profit improvements were increased costs for health care, insurance, incentive programs and pensions. Operating margin as a percent of sales in fiscal 2002 decreased to 20.0% from 20.6% in 2001, primarily as a result of lower margins from Locker. In fiscal 2001, the segment's operating margin improved to 20.6% from 18.9% in 2000 as a result of material and labor cost reductions and improved productivity in its main distribution and light-duty filter manufacturing facilities. These improvements more than offset increased energy and employee insurance costs and competitive pricing pressures. The Industrial/Environmental Filtration segment's operating profit improved to $20.7 million in 2002 from $16.8 million in 2001, an increase of 23.3%. The increase included profit from TFS for an additional six months compared to 2001 and reduced amortization expense of approximately $2.5 million. In addition, reduced manufacturing costs and improved productivity at several newer facilities offset cost increases for insurance, pensions and incentive programs. Operating margin as a percent of sales improved to 5.4% compared to 4.8% in 2001. Operating profit decreased in 2001 to $16.8 million from $18.4 million in 2000 primarily as a result of start-up costs early in fiscal 2001 related to two new production facilities and reduced sales of filtration equipment and systems. The start-up costs associated with the new facilities and new product introductions decreased during the third quarter of 2001 as production efficiencies and capacity utilization improved. Fiscal 2001 also included approximately $1.2 million of operating profit from TFS for the six-month period from its acquisition in June 2001. The Packaging segment's operating profit was $4.3 million in fiscal 2002. In fiscal 2001, the segment reported operating profit of $7.2 million that included the non-recurring item discussed previously. Excluding that item from 2001, 2002 operating profit increased over 50% compared to 2001 primarily as a result of increased metal lithography sales, improved leverage of fixed costs and improved productivity from equipment installed in 2001. The fiscal 2001 results included approximately $7.0 million related to a non-recurring cancellation payment from a customer that was reduced by $2.4 million for related asset impairment charges. Excluding this item, operating profit in 2001 was lower than 2000 due to the lower sales of plastic closures to this customer, reduced capacity utilization, higher energy and pension costs, and increased costs related to the installation of new lithography equipment in early 2001. Due to difficulties with the start-up of this new equipment, plant utilization was reduced throughout 2001 from expected levels and additional costs were incurred for product scrap and rework. OTHER INCOME & EXPENSE Net other expense totaled $6.3 million in 2002, $10.1 million in 2001 and $12.5 million in 2000. Interest expense of $6.1 million was lower in 2002 compared with $10.3 million in 2001 and $11.5 million in 2000, due to declining interest rates and reduced overall borrowings during the year. Interest income was reduced to $0.5 million in 2002 from $0.7 million for both 2001 and 2000, primarily as a result of lower interest rates. Currency losses of $0.2 million in 2002, gains of $0.2 million in 2001 and losses of $1.2 million in 2000 resulted primarily from fluctuations in European currency exchange rates against the U.S. dollar. PROVISION FOR INCOME TAXES The provision for income taxes in 2002 was $24.8 million and resulted in an effective tax rate of 34.7%. The 2002 provision includes approximately $1.0 million related to a research and experiment tax credit recorded in the fourth quarter of 2002. Excluding this credit, which should not be as large in future years, the effective rate in 2002 would have been approximately 36.1%. The provision for taxes was $23.8 million and $23.2 million in 2001 and 2000, respectively, and resulted in effective tax rates of 36.2% and 36.5%, respectively. The effective tax rate in 2003 is expected to be approximately 36.0% to 36.5%. NET EARNINGS AND EARNINGS PER SHARE Net earnings were a record $46.6 million in 2002 or diluted earnings per share of $1.85, compared to $41.9 million or $1.68 per diluted share in 2001. Net earnings in 2000 were $40.2 million or $1.64 per diluted share. As described in Note M to the Consolidated Financial Statements, diluted earnings per share would have been $1.79, $1.64 and $1.61 for 2002, 2001 and 2000, respectively, had compensation expense for stock options been recorded in accordance with SFAS 123. Diluted average shares outstanding for fiscal 2002 were 25,171,931 compared to 24,892,062 for 2001, an increase of 1.1%. Diluted average shares outstanding for fiscal 2000 were 24,506,171. The increase in outstanding shares was primarily due to additional stock option grants. FINANCIAL CONDITION CORPORATE LIQUIDITY The Consolidated Statements of Cash Flows are shown on page 15, and this discussion of corporate liquidity should be read in conjunction with information presented in those statements. Cash and short-term cash investments increased to $13.7 million at year-end 2002 from $7.4 million at year-end 2001. Cash provided by operating activities totaled $85.0 million in 2002 compared to $63.3 million in 2001 and $54.1 million in 2000. The increases in cash provided by operating activities in 2002 and 2001 resulted from higher net earnings and depreciation and as a result of improvement in working capital management during fiscal 2002 and 2001. In fourth quarter 2002, a $5.0 million voluntary contribution was made to the Company's pension trust for covered U.S. employees. Depending on future pension plan asset returns and benefit costs, annual contributions of approximately $3-$5 million are expected to be required beginning in 2005. The Company used cash of $19.0 million for investing activities in 2002, $51.4 million in 2001 and $42.1 million in 2000. Cash used for acquisitions in 2002 totaled $10.7 million offset partially by a $4.0 million settlement payment received from the sellers of TFS in accordance with the terms of the purchase agreement. Cash used for acquisitions in 2001, primarily for TFS, totaled $33.4 million, while cash used for the acquisition of several small filtration businesses in 2000 totaled $12.7 million. Additions to plant assets totaled $12.2 million in 2002 and were primarily for new products, productivity improvement programs and cost reduction programs. Plant asset additions totaled $18.2 million in 2001 and included final payments on several projects begun in fiscal 2000. Additions to plant assets in 2000 totaled $29.0 million and included payments on new state-of-the-art lithography equipment, the purchase and refurbishment of a manufacturing building in Campbellsville, Kentucky, and additional manufacturing capacity throughout the Company. Net cash used in financing activities totaled $59.8 million and $15.3 million in 2002 and 2001, respectively. In 2002, net repayments of $44.2 million were made on a revolving credit agreement and an additional $5.6 million was repaid on other long-term debt. During 2001 the Company borrowed an additional $27.5 million under its revolving credit agreement, primarily for the TFS acquisition; however, repayments of $36.5 million were made during the year. The Company received $8.0 million in 2001 from the issuance of industrial revenue bonds related to a manufacturing facility in Campbellsville, Kentucky. Net cash provided by financing activities in fiscal 2000 totaled $15.9 million and included a net additional $1.0 million borrowed under the revolving credit agreement. The Company did not repurchase any shares in 2002, 2001 or 2000 under its remaining authorization of approximately 920,000 shares from the December 1997 Board of Directors' approved stock repurchase plan. This authorization expired in December 2002. Dividend payments totaled $12.0 million, $11.6 million and $11.2 million in 2002, 2001 and 2000, respectively. CLARCOR's current operations continue to generate cash and sufficient lines of credit remain available to fund current operating needs, pay dividends, provide for additions and the replacement of necessary plant facilities, and to service and repay long-term debt. During fiscal 2002, $5.6 million was repaid on long-term notes and a net repayment of $44.2 million was made on the outstanding balance on the revolving credit facility. This $185 million credit facility was established in 1999 with several financial institutions and the outstanding balance was $62.8 million at the end of 2002 with $12.7 million outstanding for letters of credit. This facility expires in September 2003 and the Company is currently negotiating a $150 million replacement credit facility that is expected to be finalized in 2003. The Company expects to continue to use future additional cash flow to further reduce outstanding borrowings. Capital expenditures for normal facility maintenance, productivity improvements and new products are expected to total $21-$23 million in 2003. Principal payments on long-term debt will be approximately $5.6 million in 2003 based on scheduled payments in current debt agreements. The Company is in compliance with all covenants related to its borrowings, as described in Note G to the Consolidated Financial Statements. The Company's off-balance sheet arrangements relate to various operating leases as discussed in Note H to the Consolidated Financial Statements. Commitments for noncancelable leases in 2003 total approximately $8.5 million. The Company had no derivative, swap, hedge or special purpose entity agreements at year-end 2002. The following table summarizes the Company's fixed cash obligations as of November 30, 2002 over the next five years:
2003 2004 2005 2006 2007 ---------- ---------- ---------- ---------- ---------- Long-Term Debt ...... $ 5.6 $ 5.7 $ 0.4 $ 0.2 $ -- Credit Facility ..... 62.8 -- -- -- -- Operating Leases .... 8.5 6.9 4.8 3.3 2.7
While changes in customer demand for our products will affect operating cash flow, the Company is not aware of any known trends, demands or reasonably likely events that would materially affect cash flow from operations in the future. It is possible that business acquisitions or dispositions could be made in the future that may affect operating cash flows and may require changes in the Company's debt and capitalization. CAPITAL RESOURCES The Company's financial position at November 30, 2002, continued to be sufficiently liquid to support current operations and reflects increased cash flow from operations and significant reductions in borrowings since the beginning of the 2002 fiscal year. Total assets increased to $546.1 million at the end of fiscal 2002, an increase of 2.9% from the year-end 2001 level of $530.6 million. Total current assets increased to $259.7 million from $244.4 million at year-end 2001. Total current liabilities at year-end 2002 increased to $174.3 million from $94.9 million at year-end 2001. Included in current liabilities in 2002 is the $62.8 million outstanding balance on a revolving FINANCIAL REVIEW (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) credit agreement that expires in September 2003. The current ratio was 1.5 at year-end 2002 or 2.3 excluding the revolving credit balance, compared to 2.6 at year-end 2001. Inventories decreased during fiscal 2002 primarily due to increased emphasis on working capital management. Net plant assets also decreased during 2002 as depreciation expense exceeded 2002 expenditures for plant assets. Acquired intangibles increased to $122.5 million primarily due to the acquisition of Locker, which was offset by reduced goodwill related to purchase accounting adjustments for TFS. Accounts payable and accrued liabilities at year-end 2002 were higher primarily due to increased accruals for incentive plans and increased payables to vendors. Long-term debt of $22.6 million at year-end 2002 excludes the $62.8 million borrowing under the revolving credit facility, since it expires in September 2003 and is classified as a short-term obligation. A replacement credit facility is expected to be finalized in 2003 and at that time the full amount outstanding under the new facility will be included in long-term debt. Shareholders' equity increased to $315.5 million from $274.3 million at year-end 2001. The increase in shareholders' equity resulted primarily from net earnings of $46.6 million offset by dividend payments of $12.0 million or $0.4825 per share. Total debt decreased to 22.4% of total capitalization at year-end 2002, compared to 33.9% at year-end 2001. At November 30, 2002, CLARCOR had 24,918,614 shares of common stock outstanding at $1.00 par value, compared to 24,626,236 shares outstanding at the end of 2001. OTHER MATTERS MARKET RISK The Company's market risk is primarily the potential loss arising from adverse changes in interest rates. The Company's debt obligations are primarily at variable LIBOR-associated rates and fixed interest rates and are 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 fiscal 2000, the Company entered into an interest rate agreement, which expired in September 2002, related to the revolving credit agreement as described in Note G to the Consolidated Financial Statements. As a result of the expiration of this interest rate agreement, the Company estimates that interest expense on the notional amount of $60 million will be reduced by approximately $3 million per year based on interest rates currently payable under the revolving credit agreement. The Company has no other interest rate or other derivative agreements. Market risk is estimated as the potential change 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 on the Company's variable rate agreements would adversely affect fiscal 2003 net earnings and cash flows by approximately $0.4 million and reduce the fair value of fixed rate long-term debt, as measured at November 30, 2002, by approximately $0.1 million. Last year, a hypothetical 1% increase in interest rates would have adversely affected fiscal 2002's net earnings and cash flows by approximately $0.4 million and reduced the fair value of fixed rate long-term debt by approximately $0.3 million. 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 trading purposes during 2002, 2001 or 2000. The Company has used forward exchange contracts on a limited basis to manage foreign currency exchange risk related to certain transactions, primarily certain large purchases denominated in currencies other than U.S. dollars. As a result of continued foreign sales and business activities, the Company will continue to evaluate the use of derivative financial instruments to manage foreign currency exchange rate changes in the future. CRITICAL ACCOUNTING POLICIES The Company's critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the Notes to the Consolidated Financial Statements. These policies have been consistently applied in all material respects and address such matters as revenue recognition, depreciation methods, inventory valuation, asset impairment recognition, business combination accounting and pension and postretirement benefits. At the beginning of fiscal year 2002 as described in Note A to the Consolidated Financial Statements, the Company adopted SFAS 142 which changed the Company's accounting policy related to goodwill and intangible assets. Goodwill and indefinite-lived intangible assets are no longer amortized but are subject to periodic impairment assessment. The transitional impairment testing for such assets was completed during the first quarter of 2002, which determined that at the December 1, 2001 transition date there was no impairment to such assets. While the estimates and judgments associated with the application of these critical accounting policies may be affected by different assumptions or conditions, the Company believes the estimates and judgments associated with the reported amounts are appropriate in the circumstances. The following explains several of the Company's critical accounting policies that are used in preparing its consolidated financial statements which require the Company's management to use significant judgment and estimates: Allowance for Losses on Accounts Receivable - Allowances for losses on customer accounts receivable balances are estimated based on historical experience, by evaluating specific customer accounts for risk of loss and current payment trends, and economic conditions in the industries to which the Company sells. The Company's concentration of risk is also monitored and at year-end 2002, the largest outstanding customer account balance was $4.2 million. The allowances provided are estimates that may be impacted by economic and market conditions which could have an effect on future allowance requirements and results of operations. Pensions - The Company's pension obligations are determined using estimates including those related to discount rates, asset values and changes in compensation. Actual results and future obligations will vary based on changes in interest rates, stock and bond market valuations and employee compensation. For example, for the Company's pension plan for U.S. covered employees, a reduction in the expected return on plan assets to 8.5% from 9.0% will result in additional expense in fiscal 2003 of approximately $0.3 million, while a reduction in the discount rate to 6.75% from 7.25% will result in additional expense of approximately $0.6 million. Interest rates and pension plan valuations may vary significantly based on worldwide economic conditions and asset investment decisions. Income Taxes - The Company is required to estimate and record income taxes payable for each of the U.S. and international jurisdictions in which the Company operates. This process involves estimating actual current tax expense and assessing temporary differences resulting from differing accounting treatment between tax and book which result in deferred tax assets and liabilities. In addition, accruals are also estimated for federal, state and international tax matters that are subject to judgment. In fiscal 2002, the Company's effective tax rate was 34.7% which included a $1.0 million research and experiment tax credit recorded upon resolution of specific tax reviews. Excluding this credit, the effective rate for 2002 would have been approximately 36.1%. Taxes payable and the related deferred tax differences may be impacted by changes to tax codes, changes in tax rates and changes in taxable profits and losses. Goodwill and Indefinite-lived Intangible Assets - As described earlier, the Company has adopted SFAS 142 and goodwill and indefinite-lived intangible assets are now reviewed periodically for impairment. These reviews of fair value involve judgment and estimates of discount rates, transaction multiples and future cash flows for the reporting units that may be impacted by market conditions and worldwide economic conditions. RECENT RELEVANT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations," SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," and SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." These standards will be effective for the Company beginning in fiscal 2003. The Company has not completed the evaluation of the impact of these standards on its financial statements but it does not expect these standards to have a material impact on its results of operations or financial condition. OUTLOOK The Company's long-term objective to record compound annual growth rates in diluted earnings per share of 10% to 15% will continue to require internally generated sales growth, improved profitability and additional acquisitions. Excluding acquisitions, the Company expects that sales and diluted earnings per share will continue to grow in 2003, making it the 11th consecutive year of earnings per share growth for the Company. Unless worldwide economic conditions change, the Company's internal sales growth is not expected to differ significantly in 2003 from 2002. Sales growth for the Engine/Mobile Filtration segment is expected to grow approximately at the same rate as in 2002, excluding acquisitions. This increase will result from new product introductions and the continued benefit from sales and marketing initiatives begun over the past year. Sales of filters used for railroad locomotives are expected to be lower due to a continuation of reduced filter usage and reduced production of new locomotives. Sales growth for the Industrial/Environmental segment is also expected to grow at about the 2002 rate, excluding acquisitions. Reduced sales for air quality systems and filtration equipment are expected to continue throughout 2003. Several new products for the air quality equipment market are expected to be introduced in 2003 and the potential for these products is favorable when that sector of the economy recovers. The Packaging segment's sales are expected to grow in 2003 as emphasis continues on increasing sales of flat sheet metal decorating and non-promotional metal and plastic packaging products. The Total Filtration Program is also expected to favorably impact sales. Double-digit growth for this Program is expected in 2003, continuing the pace of 2002. This is expected to be accomplished through (1) a continued focus on selling the Total Filtration Program to major industrial companies, especially those outside the automotive industry; (2) a major effort to enable thousands of our distributors throughout North America to become Total Filtration Distributors; and (3) a change in focus at our 22 company-owned branches and stores from selling primarily air filtration HVAC products to selling our entire range of liquid, air and process filtration products. These initiatives will be supported by our expertise in product acquisition, training, logistics and in selling a broad line of filtration products for thousands of different end uses. Continued emphasis on cost reductions and improved pricing programs within each business unit are expected to offset cost increases for materials, including filter media and steel, health care, insurance and pensions. Due to reduced pension asset valuations and lower discount and asset return rates, pension expense is expected to increase by $2.0 million in fiscal 2003 from 2002. Costs for property and liability insurance and pensions are particularly impacted by economic conditions and by interest rates, stock market valuations and reinsurance availability. These costs for the Company may change significantly based on future changes in the U.S. and world economies. Capital investments will continue to be made in each segment's facilities to improve productivity and to support the Total Filtration Program and new products. While the Company fully anticipates that sales and profits will improve as a result of sales initiatives and cost reductions, the Company has developed contingency plans to reduce discretionary spending if recessionary economic conditions persist. 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. The Company has established financial standards that will continue to be vigorously applied in the review of all acquisition opportunities and the Company believes that it has sufficient additional borrowing capacity to continue this acquisition program. 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 success of the Company's Total Filtration Program; 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, insurance, pension and 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 its revolving credit facility; the finalization of a replacement 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 affected. EX-21 13 c73959exv21.txt SUBSIDIARIES EXHIBIT 21 CLARCOR INC. SUBSIDIARIES AS OF FEBRUARY 15, 2003
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% Airguard de Venezuela, S.A. Venezuela 70% 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 Ltd. Canada Canada 100% Baldwin Filters (Aust.) Pty. Limited Australia 100% CLARCOR UK Limited United Kingdom 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 Italiana, S.p.A. Italy 100% Facet USA Inc. Delaware 100% Filter Products, Inc. California 100% GS Costa Mesa, Inc. Delaware 100% Locker Filtration Limited United Kingdom 100% FilterSource California 100% Purolator Filter GmbH Germany 100% Total Filtration Services, Inc. Ohio 100% Total Filtration Services LLC of VC Mexico 100% Total Filter Technology, Inc. Massachusetts 100% United Air Specialists, Inc. Ohio 100% CLARCOR International, Inc. Delaware 100% Baldwin-Weifang Filters Ltd. China 75% CLARCOR Foreign Sales Corporation Barbados 100% CLARCOR Trading Company Delaware 100%
- ------------------------------ * Direct or indirect EX-23 14 c73959exv23.txt CONSENT OF INDEPENDENT AUDITORS 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, 33-53899, 33-801767 and 333-101767) of CLARCOR Inc. and Subsidiaries of our report dated January 8, 2003 relating to the consolidated financial statements, which appears in the Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated January 8, 2003 relating to the financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Chicago, Illinois February 20, 2003 EX-99.1 15 c73959exv99w1.txt CERTIFICATIONS EXHIBIT 99.1 CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE I, Norman E. Johnson, the Chief Executive Officer of CLARCOR Inc., certify that (i) the Form 10-K Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-K Annual Report fairly presents, in all material respects, the financial condition and results of operations of CLARCOR Inc. /s/ NORMAN E. JOHNSON -------------------------------------- Norman E. Johnson Chairman of the Board, President and Chief Executive Officer EXHIBIT 99.1 CERTIFICATION PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE I, Bruce A. Klein, the Chief Financial Officer of CLARCOR Inc., certify that (i) the Form 10-K Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Form 10-K Annual Report fairly presents, in all material respects, the financial condition and results of operations of CLARCOR Inc. /s/ BRUCE A. KLEIN -------------------------------------- Bruce A. Klein Vice President -- Finance and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----