-----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, EL6eQ8uNfdTpQVjxV2P6A/ycpoRmFGFklSJQiAFS8e6gVGOGPfHSiUXr3uVejfe/ qVYOhNTsDEL6rTD0k73t2A== 0000950137-04-001044.txt : 20040218 0000950137-04-001044.hdr.sgml : 20040218 20040218095512 ACCESSION NUMBER: 0000950137-04-001044 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 20031129 FILED AS OF DATE: 20040218 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: 04611918 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 c82240e10vk.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 29, 2003 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 of the Common Stock held by non-affiliates computed by reference to the price at which the Common Stock was last sold as of the last day of registrant's most recently completed second fiscal quarter is $896,867,717. The number of outstanding shares of Common Stock as of February 5, 2004 is 25,372,273 shares. Certain portions of the registrant's 2003 Annual Report to Shareholders are incorporated by reference in Parts I, II and IV. Certain portions of the registrant's Proxy Statement dated February 18, 2004 for the Annual Meeting of Shareholders to be held on March 22, 2004 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 2003 the year ended on November 29, 2003 and included 52 weeks. 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. 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 January 8, 2004, after the close of the 2003 fiscal year, the Company announced that it will relocate its corporate headquarters from Rockford, Illinois, to Nashville, Tennessee. This move is expected to be completed in the next six to 12 months. Certain manufacturing facilities operated by the Company's subsidiaries will remain in Rockford. The costs of the move will be a one-time charge incurred primarily in fiscal 2004 and are estimated to not exceed $0.07 per share. (ii) Summary of Business Operations. During 2003, 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 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 2001 through 2003 is included on pages 23 and 24 of the Company's 2003 Annual Report to Shareholders (the "Annual Report"), is incorporated herein by reference and is filed as part of Exhibit 13(a)(vi) to this 2003 Annual Report on Form 10-K ("2003 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.; 2 Baldwin Filters Limited and CLARCOR UK Limited (formerly named Locker Filtration Limited). In addition, the Company owns (i) 90% of Filtros Baldwin de Mexico ("FIBAMEX"), (ii) 80% 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, corrugated 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: CLARCOR Air Filtration Products, Inc. ("CLC Air"); 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"); Purolator Advanced Filtration Group, Inc. ("AFG"); Purolator Facet, Inc. ("PFI"); Total Filtration Services, Inc. ("TFS"); Total Filter Technology, Inc. ("TFT"); and United Air Specialists, Inc. ("UAS"). The segment's products are sold throughout the world. CLC Air resulted from the merger, on December 1, 2003, of two of the Company's former subsidiaries, Airguard Industries, Inc. ("Airguard") and Purolator Products Air Filtration Company ("Purolator"). CLC Air will manufacture and sell Airguard and Purolator branded commercial and industrial air filters. Purolator Advanced Filtration Group, Inc. was formerly named Filter Products, Inc. and is in the business of manufacturing and selling liquid filters primarily for pharmaceutical, beverage and other products. 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. 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 3 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. CLARCOR UK Limited ("CLARCOR UK"), 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. During fiscal 2004, it is expected that Baldwin-Weifang Filters Ltd. will expand its product line to include air and liquid filters for automobiles manufactured by Japanese companies. 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 and China. During fiscal 2003, 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 reduce 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. The Company expects that the impact of this Program will grow over the next several years as 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. 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, corrugated 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. 4 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 2003. 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 (such as "Purolator" and "Facet") used in connection with certain products are significant to its business. CUSTOMERS The largest 10 customers of the Engine/Mobile Filtration segment accounted for 25% of the $287,797,000 of fiscal year 2003 sales of such segment. The largest 10 customers of the Industrial/Environmental Filtration segment accounted for 29% of the $386,275,000 of fiscal year 2003 sales of such segment. The largest 10 customers of the Packaging segment accounted for 64% of the $67,286,000 of fiscal year 2003 sales of such segment. No single customer accounted for 10% or more of the Company's consolidated 2003 sales. BACKLOG At November 30, 2003, the Company had a backlog of firm orders for products amounting to approximately $85,800,000. The backlog figure for November 30, 2002 was approximately $71,900,000. Substantially all of the orders on hand at November 30, 2003 are expected to be filled during fiscal 2004. 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. 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. 5 In fiscal 2003, the Company employed 87 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 $7,403,000 on such activities as compared with $6,482,000 for 2002 and $5,365,000 for 2001. During fiscal 2004, the Company expects to complete an expansion of its air filtration technical center in Louisville, Kentucky and its process liquid technical center in Greensboro, North Carolina and to build a new aviation fuel test facility. 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. In November 2003, the Nebraska Department of Environmental Quality notified Baldwin Filters, Inc. ("Baldwin"), a CLARCOR subsidiary, that the State intended to pursue an enforcement action against Baldwin related to an alleged exceedance of an opacity standard for emissions from its Kearney, Nebraska facility. Prior to receipt of the notice, Baldwin had installed a thermal oxidizer to reduce its visible emissions below applicable standards and the facility is now in full compliance with those standards. Nonetheless, the State continued to insist on the payment of a civil forfeiture and Baldwin agreed to pay a forfeiture of $5,000.00. That payment has been made and the matter is now resolved. The Company is party to various other 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. 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 replaced certain oxidizers used to remove air borne contaminants at its Rockford, Illinois, packaging manufacturing facility. The cost of this project was about $1.4 million. In the future similar equipment may be installed at the Company's packaging manufacturing facility located in Lancaster, Pennsylvania, at approximately the same cost. 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 other additional significant current or pending requirements to install such equipment at any of its facilities. EMPLOYEES As of November 30, 2003, the Company had approximately 4,832 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 2003 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 this 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. In addition, the following corporate governance documents can be found on this website: (a) charters for the Audit Committee, the Directors Affairs/Corporate Governance Committee and the Compensation Committee of the Board of Directors; (b) Code of Conduct; (c) Code of Ethics for Chief Executive Officer and Senior Financial Officers; (d) Corporate Governance Guidelines; (e) Disclosure Controls and Procedures; (f) Procedures Regarding Reports of Misconduct or Alleged Misconduct and (g) the Company's By-laws. Copies of all of these documents can also be obtained, free of charge, upon written request to the Corporate Secretary, CLARCOR Inc., 2323 Sixth Street, P.O. Box 7007, Rockford, Illinois 61125. ITEM 2. PROPERTIES. Location An office building owned by the Company located in Rockford, Illinois currently houses the Corporate offices in 22,000 square feet of office space. The Company expects to lease about 23,000 square feet of office space in the Nashville, Tennessee area, and plans to move its headquarters from Rockford to that location during fiscal 2004. It is expected that about 30 headquarter personnel, including the Company's officers, will move to the new facility at a cost currently estimated to not exceed $0.07 per share. No decision has been made on the disposition of the Rockford property. 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. CLARCOR UK 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 (now part of CLC Air) 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 South 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 and New Albany, Indiana. Airguard leases facilities in Malaysia and Singapore. 7 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 (now part of CLC Air) 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 Davenport, Iowa; and Henderson, North Carolina. 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 Fresno, Hayward, Corona and Sacramento, California; Cincinnati and Columbus, Ohio; Jasper and Indianapolis, Indiana; Tonawanda, New York; Birmingham, Alabama; Kansas City, Missouri; Wichita, Kansas; Sparks, Nevada; Fairfax, Virginia; Auburn, Washington; Atlanta, Georgia; Louisville, Kentucky; Portland, Oregon; Dallas, Texas; Commerce City, Colorado; 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. AFG (formerly named Filter Products, Inc.) owns a 40,000 square foot manufacturing and office facility in Sacramento, California. During fiscal 2003, TFT leased space in North Chelmsford, Massachusetts for its office and manufacturing operations. During fiscal 2003 and 2004, TFT's equipment and operations are being moved to PFI's facilities in Greensboro, North Carolina. 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 2004 are estimated at $25,000,000 to $30,000,000 for land, buildings, equipment and machinery and cost reduction projects. 8 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, CLARCOR UK 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. 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 AFG facility in Sacramento, California. TFT manufactures string wound and melt blown cartridges and bag filters. 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 11/30/03 TO OFFICE - ---- -------- ------------ Norman E. Johnson........................................... 55 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........................................... 63 2003 Vice Chairman of the Company. Mr. Walker has been employed by Airguard, a subsidiary of the Company (now named CLARCOR Air Filtration Products, Inc.), since 1966. He was elected President of Airguard in 1994, Executive Vice President-Industrial/Environmental Filtration in 1999, President, Environmental Filtration in 2000 and Vice Chairman of the Company in 2003. Bruce A. Klein.............................................. 56 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. Sam Ferrise................................................. 47 2003 President, Baldwin Filters, Inc. Mr. Ferrise was appointed President of Baldwin Filters, Inc. in 2000. He became an executive officer of the Company in 2003 while retaining the same title with Baldwin Filters, Inc. by designation of the Board of Directors. David J. Lindsay............................................ 48 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............................................. 42 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.......................................... 47 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............................................... 63 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 LLP 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 DIVIDENDS - ------------- ------ ------ --------- March 1, 2003............................................... $36.30 $31.05 $.1225 May 31, 2003................................................ 39.24 33.11 .1225 August 30, 2003............................................. 43.51 35.95 .1225 November 29, 2003........................................... 45.93 38.25 .1250 ------ Total Dividends............................................. $.4925 ======
MARKET PRICE --------------- QUARTER ENDED HIGH LOW DIVIDEND - ------------- ------ ------ -------- March 2, 2002............................................... $29.10 $25.15 $.1200 June 1, 2002................................................ 34.00 28.83 .1200 August 31, 2002............................................. 32.01 25.03 .1200 November 30, 2002........................................... 33.84 27.73 .1225 ------ Total Dividends............................................. $.4825 ======
The approximate number of holders of record of the Company's Common Stock at January 15, 2004 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 2003 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 2003 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 2003 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 2003 Form 10-K. 11 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 9A. CONTROLS AND PROCEDURES. (a) As of November 30, 2003 (the end of the fiscal year covered by this 2003 Form 10-K), the Company, under the supervision and with the participation of its management, including the Company's Chief Executive Officer and its Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures pursuant to Rule 13a-15(b) and 15d-15(b) promulgated under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective. (b) During the fourth quarter of the Company's fiscal year ended November 30, 2003, there were no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Certain information required hereunder is set forth on pages 1 through 5, inclusive, of the Company's Proxy Statement dated February 18, 2004 (the "Proxy Statement") for the Annual Meeting of Shareholders to be held on March 22, 2004 under the caption "Election of Directors -- Nominees for Election to the Board of Directors," "-- Information Concerning Nominees and Directors" and "-- Committees of the Board of Directors -- Audit Committee" and is incorporated herein by reference. Additional information required hereunder is set forth on page 6 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 7 through 14 inclusive, of the Proxy Statement under the captions "Compensation of Executive Officers and Other Information" and "Report of the Compensation Committee" and on page 17 under the caption "Performance Graph" 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 21 of the Proxy Statement under the caption "Approval of Employee Stock Purchase Plan -- Equity Compensation Plan Information" and on pages 5 and 6 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. PRINCIPAL ACCOUNTANT FEES AND SERVICES. The information required herein is set forth on pages 15 and 16 of the Proxy Statement under the caption "Report of the Audit Committee -- Amounts Paid to PricewaterhouseCoopers LLP" and in the Audit Committee Charter attached to the Proxy Statement as Exhibit A and is incorporated herein by reference. 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, 2003: *Consolidated Balance Sheets at November 30, 2003 and 2002 *Consolidated Statements of Earnings for the years ended November 30, 2003, 2002 and 2001 *Consolidated Statements of Shareholders' Equity for the years ended November 30, 2003, 2002 and 2001 *Consolidated Statements of Cash Flows for the years ended November 30, 2003, 2002 and 2001 *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 2003 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) The Company filed a Current Report on Form 8-K on September 19, 2003 to report the issuance by the Company of a press release disclosing the Company's financial results for the third quarter and nine month period which ended on August 30, 2003. (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 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(c) Credit Agreement dated as of April 8, 2003 among CLARCOR Inc., the Lenders and Bank One, NA, as Agent. Incorporated by reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q filed June 27, 2003. 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 Marcia S. Blaylock, David J. Boyd, Sam Ferrise, Bruce A. Klein, David J. Lindsay, 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(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 "1994 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 1994 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 (the "2004 Plan"). Incorporated by reference to Exhibit A to the Company's Proxy Statement dated February 20, 2003 for the Annual Meeting of Shareholders held on March 24, 2003. *10.5(c) Amendment to the 1994 Plan and to the 2004 Plan. *12.1 Computation of Certain Ratios.
14 *13 (a) The following items incorporated by reference herein from the Company's 2003 Annual Report to Shareholders ("2003 Annual Report"), are filed as Exhibits to this Annual Report on Form 10-K:
(i) Business segment information for the fiscal years 2001 through 2003 set forth on pages 23 and 24 of the 2003 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, 2003 and 2002 set forth on page 12 of the 2003 Annual Report; (iii) Consolidated Statements of Earnings of the Company and its Subsidiaries for the years ended November 30, 2003, 2002 and 2001 set forth on page 13 of the 2003 Annual Report; (iv) Consolidated Statements of Shareholders' Equity for the Company and its Subsidiaries for the years ended November 30, 2003, 2002 and 2001 set forth on page 14 of the 2003 Annual Report; (v) Consolidated Statements of Cash Flows of the Company and its Subsidiaries for the years ended November 30, 2003, 2002 and 2001 set forth on page 15 of the 2003 Annual Report; (vi) Notes to Consolidated Financial Statements set forth on pages 16 through 24 of the 2003 Annual Report; (vii) Report of Independent Accountants set forth on page 25 of the 2003 Annual Report; (viii) Management's Report on Responsibility for Financial Reporting set forth on page 25 of the 2003 Annual Report; (ix) Information under the caption "11-Year Financial Review" set forth on pages 26 and 27 of the 2003 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 2003 Annual Report.
*14 Code of Ethics for Chief Executive Officer and Senior Financial Officers. *18 Letter dated January 8, 2004 from PricewaterhouseCoopers LLP to the Company concerning a change by the Company in accounting principle from the last in, first out to the first in, first out method for certain inventories. *21 Subsidiaries of the Registrant. *23 Consent of Independent Accountants. *31.1 Certification of Norman E. Johnson, Chairman, President and Chief Executive Officer of the Company, pursuant to Rule 13a-14(a) of the Exchange Act. *31.2 Certification of Bruce A. Klein, Vice President -- Finance and Chief Financial Officer of the Company, pursuant to Rule 13a-14(a) of the Exchange Act. *32.1 Certification of Norman E. Johnson, Chairman, President and Chief Executive Officer of the Company, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code. *32.2 Certification of Bruce A. Klein, Vice President -- Finance and Chief Financial Officer of the Company, 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 18, 2004 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 18, 2004 By: /s/ NORMAN E. JOHNSON ------------------------------------------------ Norman E. Johnson Chairman of the Board, President & Chief Executive Officer and Director Date: February 18, 2004 By: /s/ BRUCE A. KLEIN ------------------------------------------------ Bruce A. Klein Vice President -- Finance & Chief Financial Officer Date: February 18, 2004 By: /s/ MARCIA S. BLAYLOCK ------------------------------------------------ Marcia S. Blaylock Vice President, Controller & Chief Accounting Officer Date: February 18, 2004 By: /s/ J. MARC ADAM ------------------------------------------------ J. Marc Adam Director Date: February 18, 2004 By: /s/ ROBERT J. BURGSTAHLER ------------------------------------------------ Robert J. Burgstahler Director Date: February 18, 2004 By: /s/ PAUL DONOVAN ------------------------------------------------ Paul Donovan Director Date: February 18, 2004 By: /s/ ROBERT H. JENKINS ------------------------------------------------ Robert H. Jenkins Director
16 Date: February 18, 2004 By: /s/ PHILIP R. LOCHNER, JR. ------------------------------------------------ Philip R. Lochner, Jr. Director Date: February 18, 2004 By: /s/ JAMES L. PACKARD ------------------------------------------------ James L. Packard Director Date: February 18, 2004 By: /s/ ROSEANNE STEVENS ------------------------------------------------ Roseanne Stevens Director Date: February 18, 2004 By: /s/ KEITH E. WANDELL ------------------------------------------------ Keith E. Wandell Director
17 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, 2004 appearing on page 25 in the 2003 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, 2004 F-1 CLARCOR INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (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 - -------------------------------------------- ---------- ---------- ---------- ---------- ---------- 2003: Allowance for losses on accounts receivable................................ $7,020 $3,407 $ 994(A) $2,315(B) $9,106 ====== ====== ====== ====== ====== 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 ====== ====== ====== ====== ======
NOTES: (A) Due to business acquisitions and reclassifications. (B) Bad debts written off during year, net of recoveries. F-2 EX-10.5(C) 3 c82240exv10w5xcy.txt AMENDMENT TO THE 1994 PLAN AND TO THE 2004 PLAN EXHIBIT 10.5(c) 12. NO REPRICING OF GRANTS OR AWARDS. Notwithstanding anything in the Plan to the contrary and subject to Section VII.7, the exercise price or base price, as the case may be, of any grant or award hereunder shall not be reduced after the date of such grant or award, and no grant or award hereunder shall be canceled for the purpose of regranting a new grant or award at a lower exercise price or base price, as the case may be, without shareholder approval given at a meeting in which the reduction of such exercise price or base price, or the cancellation and regranting of a grant or award, as the case may be, is considered for approval. EX-12.1 4 c82240exv12w1.txt COMPUTATION OF CERTAIN RATIOS . . . EXHIBIT 12.1 CLARCOR INC. STATEMENT RE COMPUTATION OF RATIOS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Fiscal Years Ended (A) -------------------------------------------------------------------- 2003 2002 2001 2000 1999 1998 -------------------------------------------------------------------- Return on Beginning Assets Net Earnings $ 54,552 $ 46,601 $ 41,893 $ 40,237 $ 35,412 $ 32,079 Divided by Beginning Assets 546,119 530,617 501,930 472,991 305,766 282,519 -------------------------------------------------------------------- Equals Return on Beginning Assets 10.0% 8.8% 8.3% 8.5% 11.6% 11.4% ==================================================================== Return on Beginning Shareholders' Equity Net Earnings $ 54,552 $ 46,601 $ 41,893 $ 40,237 $ 35,412 $ 32,079 Divided by Beginning Shareholders' Equity 315,461 274,261 242,093 210,718 186,807 171,162 -------------------------------------------------------------------- Equals Return on Beginning Shareholders' Equity 17.3% 17.0% 17.3% 19.1% 19.0% 18.7% ==================================================================== Dividend Payout to Net Earnings Dividends Paid $ 12,406 $ 11,975 $ 11,575 $ 11,207 $ 10,814 $ 10,717 Divided by Net Earnings 54,552 46,601 41,893 40,237 35,412 32,079 -------------------------------------------------------------------- Equals Dividend Payout to Net Earnings 22.7% 25.7% 27.6% 27.9% 30.5% 33.4% ==================================================================== Debt to Capitalization Current Debt $ 674 $ 68,456 $ 5,579 $ 5,482 $ 5,440 $ 470 Long Term Debt 16,913 22,648 135,203 141,486 145,981 36,419 -------------------------------------------------------------------- Total Debt $ 17,587 $ 91,104 $140,782 $146,968 $151,421 $ 36,889 Ending Shareholders' Equity 370,392 315,461 274,261 242,093 210,718 186,807 -------------------------------------------------------------------- Equals Capitalization $387,979 $406,565 $415,043 $389,061 $362,139 $223,696 -------------------------------------------------------------------- Debt $ 17,587 $ 91,104 $140,782 $146,968 $151,421 $ 36,889 Divided by Capitalization 387,979 406,565 415,043 389,061 362,139 223,696 -------------------------------------------------------------------- Equals Debt to Capitalization 4.5% 22.4% 33.9% 37.8% 41.8% 16.5% ==================================================================== Working Capital Current Assets $257,402 $259,746 $244,350 $230,479 $227,670 $168,173 Less Current Liabilities 111,373 174,255 94,931 97,826 97,475 61,183 -------------------------------------------------------------------- Equals Working Capital $146,029 $ 85,491 $149,419 $132,653 $130,195 $106,990 ==================================================================== Current Ratio Current Assets $257,402 $259,746 $244,350 $230,479 $227,670 $168,173 Divided by Current Liabilities 111,373 174,255 94,931 97,826 97,475 61,183 -------------------------------------------------------------------- Equals Current Ratio 2.3 1.5 2.6 2.4 2.3 2.7 ==================================================================== Fiscal Years Ended (A) -------------------------------------------------------- 1997 1996 1995 1994 1993 -------------------------------------------------------- Return on Beginning Assets Net Earnings $ 26,918 $ 25,945 $ 23,500 $ 21,416 $ 17,277 Divided by Beginning Assets 267,019 245,697 206,928 191,657 181,660 -------------------------------------------------------- Equals Return on Beginning Assets 10.1% 10.6% 11.4% 11.2% 9.5% ======================================================== Return on Beginning Shareholders' Equity Net Earnings $ 26,918 $ 25,945 $ 23,500 $ 21,416 $ 17,277 Divided by Beginning Shareholders' Equity 154,681 138,144 122,801 110,299 105,460 -------------------------------------------------------- Equals Return on Beginning Shareholders' Equity 17.4% 18.8% 19.1% 19.4% 16.4% ======================================================== Dividend Payout to Net Earnings Dividends Paid $ 10,290 $ 9,512 $ 9,330 $ 9,201 $ 9,036 Divided by Net Earnings 26,918 25,945 23,500 21,416 17,277 -------------------------------------------------------- Equals Dividend Payout to Net Earnings 38.2% 36.7% 39.7% 43.0% 52.3% ======================================================== Debt to Capitalization Current Debt $ 1,140 $ 7,625 $ 7,596 $ 7,579 $ 7,921 Long Term Debt 37,656 43,449 41,860 25,090 32,650 -------------------------------------------------------- Total Debt $ 38,796 $ 51,074 $ 49,456 $ 32,669 $ 40,571 Ending Shareholders' Equity 171,162 154,681 138,144 122,801 110,299 -------------------------------------------------------- Equals Capitalization $209,958 $205,755 $187,600 $155,470 $150,870 -------------------------------------------------------- Debt $ 38,796 $ 51,074 $ 49,456 $ 32,669 $ 40,571 Divided by Capitalization 209,958 205,755 187,600 155,470 150,870 -------------------------------------------------------- Equals Debt to Capitalization 18.5% 24.8% 26.4% 21.0% 26.9% ======================================================== Working Capital Current Assets $160,527 $140,726 $133,286 $109,992 $ 97,569 Less Current Liabilities 54,237 51,297 49,841 43,926 37,647 -------------------------------------------------------- Equals Working Capital $106,290 $ 89,429 $ 83,445 $ 66,066 $ 59,922 ======================================================== Current Ratio Current Assets $160,527 $140,726 $133,286 $109,992 $ 97,569 Divided by Current Liabilities 54,237 51,297 49,841 43,926 37,647 -------------------------------------------------------- Equals Current Ratio 3.0 2.7 2.7 2.5 2.6 ========================================================
(A) Calculation of Certain Items Presented in the "11-Year Financial Review" Filed with Form 10-K for Fiscal Year Ended 11/30/2003 EX-13.(A)(II) 5 c82240exv13wxayxiiy.txt CONSOLIDATED BALANCE SHEETS . . . EXHIBIT 13(a)(ii) CONSOLIDATED BALANCE SHEETS NOVEMBER 30, 2003 AND 2002 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
ASSETS 2003 2002 - --------------------------------------------------------------------------------------------------------- Current assets: Cash and short-term cash investments ............................... $ 8,348 $ 13,747 Accounts receivable, less allowance for losses of $9,106 for 2003 and $7,020 for 2002 ........................... 127,546 121,482 Inventories ........................................................ 99,673 101,846 Prepaid expenses and other current assets .......................... 5,880 5,576 Deferred income taxes .............................................. 15,955 17,095 --------------------------- Total current assets ........................................... 257,402 259,746 --------------------------- Plant assets, at cost less accumulated depreciation .................. 129,572 132,892 Acquired intangibles, less accumulated amortization .................. 122,351 122,529 Pension assets ....................................................... 20,153 21,771 Other noncurrent assets .............................................. 8,759 9,181 --------------------------- Total assets ................................................... $ 538,237 $ 546,119 =========================== LIABILITIES Current liabilities: Current portion of long-term debt .................................. $ 674 $ 68,456 Accounts payable and accrued liabilities ........................... 102,322 97,738 Income taxes ....................................................... 8,377 8,061 --------------------------- Total current liabilities ...................................... 111,373 174,255 --------------------------- Long-term debt, less current portion ................................. 16,913 22,648 Postretirement health care benefits .................................. 4,313 4,033 Long-term pension liabilities ........................................ 7,813 7,823 Deferred income taxes ................................................ 21,729 19,045 Other long-term liabilities .......................................... 4,026 2,318 Minority interests ................................................... 1,678 536 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 25,309,127 in 2003 and 24,918,614 in 2002 ................. 25,309 24,919 Capital in excess of par value ..................................... 19,998 12,854 Accumulated other comprehensive earnings ........................... (936) (6,187) Retained earnings .................................................. 326,021 283,875 --------------------------- Total shareholders' equity ..................................... 370,392 315,461 --------------------------- Total liabilities and shareholders' equity ..................... $ 538,237 $ 546,119 ===========================
The accompanying notes are an integral part of the consolidated financial statements. 12 CLARCOR EX-13.(A)(III) 6 c82240exv13wxayxiiiy.txt CONSOLIDATED STATEMENT OF EARNINGS EXHIBIT 13(a)(iii) [A WORLD OF OPPORTUNITY LOGO] CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
2003 2002 2001 - --------------------------------------------------------------------------------------------------------- Net sales .................................................... $ 741,358 $ 715,563 $ 666,964 Cost of sales ................................................ 519,667 508,273 471,477 ----------------------------------------- Gross profit ........................................... 221,691 207,290 195,487 Selling and administrative expenses .......................... 134,629 129,515 119,677 ----------------------------------------- Operating profit ....................................... 87,062 77,775 75,810 ----------------------------------------- Other income (expense): Interest expense ........................................... (1,767) (6,073) (10,270) Interest income ............................................ 235 461 654 Other, net ................................................. 529 (713) (460) ----------------------------------------- (1,003) (6,325) (10,076) ----------------------------------------- Earnings before income taxes and minority interests .... 86,059 71,450 65,734 Provision for income taxes ................................... 31,371 24,773 23,804 ----------------------------------------- Earnings before minority interests ..................... 54,688 46,677 41,930 Minority interests in earnings of subsidiaries ............... (136) (76) (37) ----------------------------------------- Net earnings ................................................. $ 54,552 $ 46,601 $ 41,893 ========================================= Net earnings per common share: Basic ...................................................... $ 2.17 $ 1.88 $ 1.71 Diluted .................................................... $ 2.15 $ 1.85 $ 1.68 ========================================= Average number of common shares outstanding: Basic ...................................................... 25,106,561 24,839,812 24,535,199 Diluted .................................................... 25,372,806 25,171,931 24,892,062 =========================================
The accompanying notes are an integral part of the consolidated financial statements. CLARCOR 13 EX-13.(A)(IV) 7 c82240exv13wxayxivy.txt CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY . . . EXHIBIT 13(a)(iv) CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Common Stock -------------------------- Capital in Accumulated Other Number of Shares Amount Excess of Comprehensive Retained Issued Issued Par Value Earnings Earnings Total - ----------------------------------------------------------------------------------------------------------------------------------- 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 loss 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 - ----------------------------------------------------------------------------------------------------------------------------------- Net earnings ............................ - - - - 54,552 54,552 Other comprehensive earnings, net of tax: Minimum pension liability adjustment . - - - 517 - 517 Translation adjustments .............. - - - 4,734 - 4,734 ---------- Total comprehensive earnings ......... 59,803 ---------- Stock options exercised ................. 385,170 385 6,591 - - 6,976 Issuance of stock under award plans .......................... 11,913 12 553 - - 565 Forfeiture of stock under award plans .......................... (6,570) (7) - - - (7) Cash dividends - $0.4925 per common share ..................... - - - - (12,406) (12,406) - ----------------------------------------------------------------------------------------------------------------------------------- Balance, November 30, 2003 .............. 25,309,127 $ 25,309 $ 19,998 $ (936) $ 326,021 $ 370,392 ===================================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. 14 CLARCOR EX-13.(A)(V) 8 c82240exv13wxayxvy.txt CONSOLIDATED STATEMENTS OF CASH FLOWS EXHIBIT 13(a)(v) [A WORLD OF OPPORTUNITY LOGO] CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED NOVEMBER 30, 2003, 2002 AND 2001 (DOLLARS IN THOUSANDS)
2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net earnings ....................................................... $ 54,552 $ 46,601 $ 41,893 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation ................................................... 18,078 18,999 18,187 Amortization ................................................... 907 761 3,663 Minority interests in earnings of subsidiaries ................. 136 76 37 Net loss on dispositions of plant assets ....................... 105 146 338 Impairment of plant assets ..................................... - - 2,422 Changes in assets and liabilities, net of business acquisitions: Accounts receivable ......................................... (4,392) (3,804) 5,116 Inventories ................................................. 3,572 1,561 5,190 Prepaid expenses and other current assets ................... (332) (150) (374) Other noncurrent assets ..................................... (862) 1,495 (2,523) Accounts payable and accrued liabilities .................... 5,879 14,020 (8,693) Pension assets and liabilities, net ......................... 1,817 (1,757) 1,163 Income taxes ................................................ 4,810 5,756 (2,683) Deferred income taxes ....................................... 3,626 1,315 (446) --------------------------------------- Net cash provided by operating activities ................... 87,896 85,019 63,290 --------------------------------------- Cash flows from investing activities: Additions to plant assets .......................................... (13,042) (12,204) (18,204) Business acquisitions, net of cash acquired ........................ - (6,677) (33,388) Dispositions of plant assets ....................................... 7 63 539 Other, net ......................................................... 49 (160) (300) --------------------------------------- Net cash used in investing activities ....................... (12,986) (18,978) (51,353) --------------------------------------- Cash flows from financing activities: Proceeds from multicurrency revolving credit agreement ............. 108,386 24,333 27,500 Payments on multicurrency revolving credit agreement ............... (170,859) (68,500) (36,500) Proceeds from borrowings under long-term debt ...................... - - 8,000 Payments on long-term debt ......................................... (11,044) (5,604) (5,349) Sales of capital stock under stock option plan ..................... 5,254 1,972 2,598 Cash dividends paid ................................................ (12,406) (11,975) (11,575) --------------------------------------- Net cash used in financing activities ....................... (80,669) (59,774) (15,326) --------------------------------------- Net effect of exchange rate changes on cash .......................... 360 62 (57) --------------------------------------- Net change in cash and short-term cash investments ................... (5,399) 6,329 (3,446) Cash and short-term cash investments, beginning of year .............. 13,747 7,418 10,864 --------------------------------------- Cash and short-term cash investments, end of year .................... $ 8,348 $ 13,747 $ 7,418 =======================================
The accompanying notes are an integral part of the consolidated financial statements. CLARCOR 15 EX-13.(A)(VI) 9 c82240exv13wxayxviy.txt NOTES TO 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 29, 2003, November 30, 2002, and December 1, 2001 were comprised of fifty-two weeks. In the consolidated financial statements, all fiscal years are shown to begin as of December 1 and end as of November 30 for clarity of presentation. 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 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. STOCK-BASED COMPENSATION In accordance with Statement of Financial Accounting Standards (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. In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," which amends SFAS No. 123, providing alternative methods of accounting and requiring more prominent and frequent disclosures of the effects of stock-based compensation under the fair value-based method. 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 and SFAS No. 148, the Company's pro forma net earnings and basic and diluted earnings per share (EPS) would have been as follows. (See Note M.)
2003 2002 2001 ---------- ---------- ---------- Net earnings, as reported............. $ 54,552 $ 46,601 $ 41,893 Less total stock-based compensation expense under the fair value-based method, net of tax................. (2,307) (1,487) (1,133) ---------- ---------- ---------- Pro forma net earnings................ $ 52,245 $ 45,114 $ 40,760 ========== ========== ========== Basic EPS, as reported................ $ 2.17 $ 1.88 $ 1.71 Pro forma basic EPS................... $ 2.08 $ 1.82 $ 1.66 Diluted EPS, as reported.............. $ 2.15 $ 1.85 $ 1.68 Pro forma diluted EPS................. $ 2.06 $ 1.79 $ 1.64
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 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 in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets." 16 CLARCOR [A WORLD OF OPPORTUNITY LOGO] 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 are 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 $7,403 in 2003, $6,482 in 2002 and $5,365 in 2001. NEW PRONOUNCEMENT In November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that certain guarantees be recognized as liabilities at fair value at their inception date and requires certain disclosures by the guarantor in its financial statements about its obligations. The provisions of FIN 45, which were effective for qualifying guarantees entered into or modified after December 31, 2002, did not have a material impact on the Company's financial statements. The disclosure requirements were effective for the quarter ended March 1, 2003. The Company has provided letters of credit totaling approximately $23,219 to various government agencies, primarily related to industrial revenue bonds and to insurance companies and other entities in support of its obligations. The Company believes that no payments will be required resulting from these accommodation obligations. In the ordinary course of business, the Company also provides routine indemnifications and other guarantees whose terms range in duration and often are not explicitly defined. The Company does not believe these will have a material impact on the results of operations or financial condition of the Company. The Company has a majority ownership interest in a consolidated affiliate in which the Company has agreed, under certain conditions, to buy out the minority owners' interest for an amount estimated not to exceed $850. B. ACQUISITIONS On June 5, 2002, the Company acquired CLARCOR UK (formerly Locker Filtration Limited), a Warrington, England manufacturer of heavy-duty air filters, diesel and gas turbine air intake system filters and specialty filters. The Company acquired Total Filter Technology (TFT), a process liquid filtration manufacturer based in North Chelmsford, Massachusetts during third quarter 2002 and FilterSource, an air filtration distributor based in California during fourth quarter 2002. The three acquisitions were purchased for approximately $10,371 in cash and their results were included in the Company's consolidated results of operations from the dates of acquisition. The combined sales for CLARCOR UK, TFT and FilterSource in the most recent twelve-month period prior to acquisition were approximately $16,500. CLARCOR UK 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 acquisitions are not material to the results of the Company. The preliminary allocation of the purchase price over the preliminary estimated fair value of the tangible and identifiable intangible assets acquired for CLARCOR UK, TFT and FilterSource resulted in $2,713, $2,086 and $439 recorded as goodwill for each acquisition, respectively. The Company recognized $943 for a CLARCOR UK 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 eight years. During fiscal 2003, the appraisal and other purchase accounting adjustments for TFT and FilterSource were finalized resulting in an increase to goodwill of $413, a decrease to trademarks of $7, and a decrease to other identifiable definite-lived intangibles of $326. No additional purchase accounting entries associated with the 2002 acquisitions are expected. 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. As a result of the acquisition, the companies were combined into one company, Total Filtration Services, Inc. (TFS), and included in the Industrial/Environmental Filtration segment from the date of acquisition. 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 CLARCOR 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 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. Unaudited pro forma net sales for the Company including TFS would have been approximately $695,700 for the year ended November 30, 2001. Net earnings and earnings per share for fiscal year 2001 would not have been significantly affected. C. INVENTORIES Inventories are stated at the lower of cost or market. During the fourth quarter of 2003, the Company changed its method of inventory costing on certain inventory from last-in, first-out (LIFO) to first-in, first-out (FIFO). Approximately 43% of the Company's November 30, 2002 inventories were on LIFO; however, only 7% of that inventory created a LIFO reserve which was $456 at the end of fiscal 2002. Increased productivity gains and a continued decline in factor input prices render the LIFO method outmoded for the Company and not reflective of current or expected manufacturing costs. For more than five years, the Company has seen declining costs for its primary inputs, including labor, filter media and paper. The Company expects this trend to continue in the future and believes this disparity will grow with future cost reduction initiatives. In addition, FIFO appears to be more commonly used in similar industries. The change increased net income in 2003 by $289 or $.01 per diluted share. Prior years were not restated as the impact of the change was immaterial to each year. The FIFO method approximates current cost. Inventories are summarized as follows:
2003 2002 -------- -------- Raw materials $ 34,174 $ 34,496 Work in process 11,866 11,022 Finished products 53,633 56,784 ------------------- Total at FIFO 99,673 102,302 Less excess of FIFO over LIFO -- 456 ------------------- $ 99,673 $101,846 ===================
D. PLANT ASSETS AND IMPAIRMENT LOSS Plant assets at November 30, 2003 and 2002 were as follows:
2003 2002 -------- -------- Land $ 6,656 $ 5,410 Buildings and building fixtures 76,517 75,520 Machinery and equipment 215,398 202,697 Construction in process 6,321 6,675 ------------------- 304,892 290,302 Less accumulated depreciation 175,320 157,410 ------------------- $129,572 $132,892 ===================
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 which 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 2003:
Currency Beginning Translation End of of Year Acquisitions Adjustments Amortization Year - ------------------------------------------------------------------------------------------------------------- Goodwill: Engine/Mobile Filtration.................. $ 11,528 $ - $ 642 $ - $ 12,170 Industrial/Environmental...... Filtration.................. 70,130 413 7 - 70,550 Packaging..................... - - - - - ------------------------------------------------------------------------ $ 81,658 $ 413 $ 649 $ - $ 82,720 ======================================================================== Trademarks and trade names: Engine/Mobile................. Filtration.................. $ 603 $ - $ - $ - $ 603 Industrial/Environmental Filtration.................. 28,880 (7) - - 28,873 Packaging..................... - - - - - ------------------------------------------------------------------------ $ 29,483 $ (7) $ - $ - $ 29,476 ======================================================================== Other acquired intangibles, gross: Engine/Mobile Filtration.................. $ 1,040 $ - $ - $ - $ 1,040 Industrial/Environmental Filtration.................. 13,430 (326) - - 13,104 Packaging..................... - - - - - ------------------------------------------------------------------------ 14,470 (326) - - 14,144 Less accumulated amortization................ 3,082 - - 907 3,989 ------------------------------------------------------------------------ Other acquired intangibles, net.............. $ 11,388 $ (326) $ - $ 907 $ 10,155 ========================================================================
As a result of adopting SFAS No. 142, the Company completed the transitional goodwill impairment reviews required by the new standard during the first quarter of 2002 and subsequently completed the annual impairment reviews at each year end, with no indications of impairment of goodwill. 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 valuations 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. The Company performed the annual impairment tests on its indefinite-lived intangibles as of December 1, 2001 and November 30, 2003 and 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, 2002 and 2001 for amortized intangibles was $761 and $756, respectively. The estimated amounts of amortization expense for the next five years are: $759 in 2004, $755 in 2005, $721 in 2006, $708 in 2007 and $653 in 2008. The following table presents net earnings and earnings per share assuming the non-amortization provisions of SFAS No. 142 were applied in each fiscal year: 18 CLARCOR [A WORLD OF OPPORTUNITY LOGO]
2003 2002 2001 ------------------------------------ Reported net earnings ............................ $ 54,552 $ 46,601 $ 41,893 Goodwill amortization, net of income taxes ...... - - 1,375 Other amortization, net of income taxes ......... - - 475 ------------------------------------ Adjusted net earnings ............................ $ 54,552 $ 46,601 $ 43,743 ==================================== Basic EPS: Basic as reported ............................... $ 2.17 $ 1.88 $ 1.71 Goodwill amortization, net of income taxes ...... - - 0.06 Other amortization, net of income taxes ......... - - 0.02 ------------------------------------ Adjusted basic earnings per share ................ $ 2.17 $ 1.88 $ 1.79 ==================================== Diluted EPS: Diluted as reported ............................. $ 2.15 $ 1.85 $ 1.68 Goodwill amortization, net of income taxes ...... - - 0.05 Other amortization, net of income taxes ......... - - 0.02 ------------------------------------ Adjusted diluted earnings per share .............. $ 2.15 $ 1.85 $ 1.75 ====================================
F. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities at November 30, 2003 and 2002 were as follows:
2003 2002 ------------------ Accounts payable .............................. $ 49,256 $ 50,350 Accrued salaries, wages and commissions ....... 16,068 15,283 Compensated absences .......................... 7,332 6,874 Accrued insurance liabilities ................. 9,431 6,892 Accrued pension liabilities ................... 518 269 Warranties .................................... 1,789 1,873 Other accrued liabilities ..................... 17,928 16,197 ------------------ $102,322 $ 97,738 ==================
Warranties are recorded as a liability on the balance sheet and as charges to current expense for estimated normal warranty costs and, if applicable, for specific performance issues known to exist on products already sold. The expenses estimated to be incurred are provided at the time of sale and adjusted as needed, based primarily upon experience. Changes in the Company's warranty accrual during the year ended November 30, 2003 are as follows: Balance at November 30, 2002 ............................. $ 1,873 Accruals for warranties issued during the period ........ 641 Accruals related to pre-existing warranties ............. (532) Settlements made during the period ...................... (355) Other adjustments, primarily currency translation ....... 162 ------- Balance at November 30, 2003 ............................. $ 1,789 =======
G. LONG-TERM DEBT Long-term debt at November 30, 2003 and 2002 consisted of the following:
2003 2002 ----------------- Multicurrency revolving credit agreements, interest payable at the end of each funding period at an adjusted LIBOR ............. $ - $62,833 Promissory note, interest payable semi-annually at 6.69% .......................... - 10,000 Industrial Revenue Bonds, at .85% to 1.75% interest rates ................. 16,968 17,460 Other ........................................... 619 811 ----------------- 17,587 91,104 Less current portion ............................ 674 68,456 ----------------- $16,913 $22,648 =================
A fair value estimate of $17,359 and $90,406 for long-term debt in 2003 and 2002, respectively, is based on the current interest rates available to the Company for debt with similar remaining maturities. In April 2003, the Company entered into a five-year multicurrency revolving credit agreement with a group of participating financial institutions under which it may borrow up to $165,000. This credit facility replaced a $185,000 agreement that was to expire in September 2003. The replacement agreement provides that loans may be made under a selection of currencies and rate formulas. The interest rate is based upon either a defined Base Rate or the London Interbank Offered Rate (LIBOR) plus or minus applicable margins. Facility fees and other fees on the entire loan commitment are payable for the duration of this facility. At November 30, 2003, there were no outstanding amounts under this agreement. Borrowings under the credit facility are unsecured but are guaranteed by subsidiaries of the Company. 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. The Company was in compliance with these covenants throughout fiscal year 2003. This agreement also includes a $40,000 letter of credit line sub-line, against which $14,095 in letters of credit had been issued at November 30, 2003. At November 30, 2002, $62,833 was outstanding under the $185,000 revolving credit agreement and the related LIBOR, including the spread, was 1.97%. The amount outstanding at November 30, 2002 was classified as current debt as the credit agreement was to expire in 2003. This agreement also included a letter of credit facility, against which $12,743 in letters of credit had been issued as of November 30, 2002. Borrowings under the credit facility in place at November 30, 2002 were unsecured but were guaranteed by certain of the Company's subsidiaries. The Company was in compliance with restrictive covenants related to the borrowings under the credit facility throughout fiscal years 2003 and 2002. On May 1, 2001, the Company, in cooperation with the Campbellsville-Taylor County Industrial Development Authority (Kentucky), issued $8,000 of Industrial Revenue Bonds, that are due May 1, 2031, with a variable rate of interest that is reset weekly. In connection with the issuance of these bonds, the Company holds in trust certain restricted investments committed for the acquisition of plant equipment. At November 30, 2003, the restricted asset balance was $1,268 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 $558 and $1,050 outstanding as of November 30, 2003 and 2002, respectively, which mature in 2005. During 2003, the Company prepaid $5,000 that would have been due July 2004 on the 6.69% promissory note, including $183 of interest paid as a prepayment penalty. Principal maturities of long-term debt for the next five fiscal years ending November 30 approximates: $674 in 2004, $306 in 2005, $197 in 2006, $0 in 2007, $0 in 2008 and $16,410 thereafter. 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 CLARCOR 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) rate on a notional amount of $60,000. The agreement 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 or 2001. During fiscal year 2001, the net loss included in other comprehensive earnings was $1,137 (or $1,750 pretax). 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 and $711 was reclassified into earnings during the fiscal years ended November 30, 2002 and 2001, respectively. Interest paid totaled $1,868, $7,482 and $10,666 during 2003, 2002 and 2001, 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, 2003 for the next five years are: $8,229 in 2004, $5,636 in 2005, $4,301 in 2006, $3,228 in 2007, and $2,704 in 2008. Rent expense totaled $9,999, $9,879 and $9,670 for the years ended November 30, 2003, 2002 and 2001, 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 $1,682 and $1,796 at November 30, 2003 and 2002, respectively, in restricted trusts for its nonqualified plans. These trusts are included in other noncurrent assets in the Company's Consolidated Balance Sheets. Effective January 1, 2004, the Company froze participation in one of its defined benefit plans. Certain current plan participants will continue to participate in the plan while others will not accrue future benefits under the plan but will participate in an enhanced defined contribution plan which offers an increased company match. The following table shows reconciliations of the pension plans and other postretirement plan benefits as of November 30, 2003 and 2002. The accrued pension benefit liability includes an unfunded benefit obligation of $9,189 and $6,128 as of November 30, 2003 and 2002, respectively, related to non-qualified plans. The Company contributed $3,000 and $5,000 to the qualified U.S. pension plan in fiscal years 2003 and 2002, respectively. The obligations for the U.S. pension plans have been determined with a weighted average discount rate of 6.0% and 6.75%, a rate of increase in future compensation of primarily 4.0% and 5.0% and an expected weighted average long-term rate of return on plan assets of 8.5% and 9.0% in 2003 and 2002, respectively. The Company expects to lower the long-term rate of return assumption to 8.25% in fiscal year 2004. The non-U.S. pension plan obligation was determined with a weighted average discount rate of 5.75% and an expected weighted average long-term rate of return assumption of 7.5% for both years and a rate of increase in future compensation of 3.3% and 3.75% for 2003 and 2002, respectively.
Pension Postretirement Benefits Benefits --------------------------------------------------------- 2003 2002 2003 2002 --------------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year ............... $ 89,116 $ 76,423 $ 3,661 $ 3,535 Addition of non-U.S. plan ............ - 6,323 - - Service cost ......................... 4,332 3,884 114 112 Interest cost ........................ 5,828 5,755 237 247 Plan participants' contributions ..... 62 57 - - Amendments ........................... (4,014) 225 - - Actuarial losses / (gains) ........... 11,025 1,240 (180) (105) Benefits paid ........................ (6,557) (4,791) (82) (128) Foreign currency exchange rate changes ............................ 717 - - - --------------------------------------------------------- Benefit obligation at end of year .... 100,509 89,116 3,750 3,661 --------------------------------------------------------- Change in plan assets: Fair value of plan assets at beginning of year ............... 72,969 70,505 - - Addition of non-U.S. plan ............ - 5,405 - - Actual return on plan assets ......... 14,815 (3,566) - - Employer contributions ............... 3,103 5,092 - - Plan participants' contributions ..... 62 57 - - Benefits paid ........................ (4,833) (4,524) - - Foreign currency exchange rate changes ............................ 466 - - - --------------------------------------------------------- Fair value of plan assets at end of year ..................... 86,582 72,969 - - --------------------------------------------------------- Funded status ........................ (13,927) (16,147) (3,750) (3,661) Unrecognized prior service cost ...... 1,362 1,411 - - Unrecognized net actuarial loss / (gain) ............ 26,359 30,203 (819) (659) --------------------------------------------------------- Net amount recognized ................ $ 13,794 $ 15,467 $ (4,569) $ (4,320) ========================================================= Amounts recognized in the Consolidated Balance Sheets include: Prepaid benefit cost ............... $ 20,153 $ 21,771 $ - $ - Accrued benefit liability .......... (8,331) (8,092) (4,569) (4,320) Other noncurrent assets ............ 1,008 - - - Accumulated other comprehensive income, pretax ..... 964 1,788 - - --------------------------------------------------------- Net amount recognized ................ $ 13,794 $ 15,467 $ (4,569) $ (4,320) =========================================================
The components of net periodic benefit cost for pensions are shown below.
Pension Benefits --------------------------- 2003 2002 2001 --------------------------- Components of net periodic benefit cost: Service cost .............................. $ 4,327 $ 3,887 $ 3,142 Interest cost ............................. 5,820 5,759 5,114 Expected return on plan assets ............ (6,001) (6,793) (7,527) Amortization of unrecognized: Prior service cost ....................... 140 134 22 Net actuarial loss ....................... 1,689 628 5 Settlement cost for a terminated plan ....... 69 - 669 --------------------------- Net periodic benefit cost ................... $ 6,044 $ 3,615 $ 1,425 ===========================
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 20 CLARCOR [A WORLD OF OPPORTUNITY LOGO] 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 ----------------------- 2003 2002 2001 ----------------------- Components of net periodic benefit cost: Service cost ............................. $ 114 $ 112 $ 107 Interest cost ............................ 237 247 305 Net actuarial gain ....................... (20) (16) - ---------------------- Net periodic benefit cost ................. $ 331 $ 343 $ 412 ======================
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 $1,471, $1,460 and $1,395 in 2003, 2002 and 2001, respectively. J. INCOME TAXES The provision for income taxes consisted of:
2003 2002 2001 ---------------------------------------- Current: Federal ... $ 24,433 $ 21,134 $ 22,142 State ..... 2,066 1,699 2,253 Foreign ... 2,938 1,380 1,460 Deferred ... 1,934 560 (2,051) ---------------------------------------- $ 31,371 $ 24,773 $ 23,804 ========================================
Income taxes paid, net of refunds, totaled $22,607, $17,678 and $26,858 during 2003, 2002 and 2001, respectively. Earnings before income taxes and minority interests included the following components:
2003 2002 2001 ---------------------------------- Domestic income........ $ 77,779 $ 69,748 $ 61,381 Foreign income......... 8,280 1,702 4,353 ---------------------------------- $ 86,059 $ 71,450 $ 65,734 ==================================
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 -------------------------------------------- 2003 2002 2001 -------------------------------------------- Statutory U.S. tax rates ....................... 35.0% 35.0% 35.0% State income taxes, net of federal benefit ..... 1.7 1.6 2.1 Foreign sales .................................. (0.8) (1.0) (1.1) Tax credits .................................... (1.1) (2.8) (0.6) Other, net ..................................... 1.7 1.9 0.8 -------------------------------------------- Consolidated effective income tax rate ......... 36.5% 34.7% 36.2% ============================================
The components of the net deferred tax liability as of November 30, 2003 and 2002 were as follows:
2003 2002 ------------------- Deferred tax assets: Deferred compensation ..................... $ 4,333 $ 5,654 Other postretirement benefits ............. 1,115 1,025 Foreign net operating loss carryforwards .. 2,039 839 Accounts receivable ....................... 4,193 3,501 Inventories ............................... 3,594 3,522 Accrued liabilities and other ............. 5,020 5,815 Valuation allowance ....................... (2,039) (585) ------------------- Total deferred tax assets, net ............. 18,255 19,771 ------------------- Deferred tax liabilities: Pensions .................................. (4,384) (4,977) Plant assets .............................. (15,115) (14,023) Intangibles ............................... (4,530) (2,721) ------------------- Total deferred tax liabilities ............. (24,029) (21,721) ------------------- Net deferred tax liability ................. $ (5,774) $ (1,950) ===================
The valuation allowance was recorded to reflect the estimated amount of deferred tax assets that may not be realized due to carryforward limitations on foreign tax credits and foreign net operating losses. Approximately $1,225 of foreign tax credit carryforwards will expire in 2007 and 2008. Approximately $814 of foreign net operating loss carryforwards will expire between 2008 and 2013. Recognition of such items will be achieved either when the benefits are realized or when it is determined that it is more likely than not that such benefits will be realized. The Company expects to realize the remaining deferred tax assets through the reversal of taxable temporary differences and future earnings. As of November 30, 2003, the Company has not provided taxes on unremitted foreign earnings of approximately $9,760 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. 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 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. CLARCOR 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) In the event of a change in control of the Company, termination benefits may be required for certain executive officers and other key employees. 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 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 2003, 312,316 shares were granted, including the restricted stock units discussed hereafter. On March 24, 2003, the shareholders of CLARCOR approved the 2004 Incentive Plan, which replaces the 1994 Incentive Plan on its termination date of December 14, 2003. The 2004 Incentive Plan provides for similar types of awards and grants as were permitted by the 1994 Incentive Plan for up to 1,500,000 shares. The following is a description and a summary of key provisions related to outstanding grants under the 1994 Incentive Plan. STOCK OPTIONS Nonqualified stock options may, at the discretion of the Board of Directors, be granted at the fair market value at the date of grant or at an exercise price less than the fair market value at the date of grant. Options granted to key employees vest primarily 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.
2003 2002 2001 --------------------------------------------------------------------------------------- WEIGHTED Weighted Weighted AVERAGE Average Average EXERCISE Exercise Exercise SHARES PRICE Shares Price Shares Price --------------------------------------------------------------------------------------- Outstanding at beginning of year ..... 2,046,268 $ 19.38 2,324,130 $ 16.83 2,286,026 $ 14.53 Granted at fair market value on dates of grants ....... 509,721 33.66 356,925 28.19 449,366 19.93 Exercised/surrendered ...... (640,055) 17.90 (634,787) 15.00 (411,262) 14.15 --------------------------------------------------------------------------------------- Outstanding at end of year ........... 1,915,934 $ 23.67 2,046,268 $ 19.38 2,324,130 $ 16.83 ======================================================================================= Options exercisable at end of year ........... 1,349,040 $ 22.80 1,381,858 $ 18.52 1,531,152 $ 16.06 =======================================================================================
The following table summarizes information about the options at November 30, 2003.
Options Outstanding Options Exercisable ----------------------------------------------------------------- Weighted Weighted Weighted Range of Average Average Average Exercise Exercise Remaining Exercise Prices Number Price Life in Years Number Price - ---------------------------------------------------------------------------------------- $12.58 - $17.94 439,295 $ 16.18 4.32 322,706 $ 15.55 $18.38 - $25.55 669,955 $ 19.10 5.79 562,287 $ 19.16 $27.50 - $38.80 806,684 $ 31.55 7.28 464,047 $ 32.26
The weighted average fair value per option at the date of grant for options granted in 2003, 2002 and 2001 was $7.80, $7.87 and $5.12, 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 by grant year. Adjustments for forfeitures are made as they occur.
2003 2002 2001 ------------------------- Risk-free interest rate ............... 3.87% 4.70% 5.53% Expected dividend yield ............... 1.58% 1.91% 2.50% Expected volatility factor ............ 23.00% 25.50% 25.50% Expected option term (in years) ....... 7.0 7.0 7.0
RESTRICTED STOCK AWARDS During 2003, 2002 and 2001, respectively, the Company granted 22,645, 25,436 and 44,404 restricted units of Company common stock with a fair value of $32.30, $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 2003, the Company granted 18,916 restricted stock units in December 2003 at the then-market price of $45.59. 22 CLARCOR [A WORLD OF OPPORTUNITY LOGO] Compensation expense related to restricted stock awards and long range performance stock awards totaled $569, $426 and $618 in 2003, 2002 and 2001, 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 2003, 2002 and 2001, respectively, 7,176, 8,120 and 10,618 shares of Company common stock were issued under the amended plan. Compensation expense for the plan totaled $260 for each year 2003, 2002 and 2001. 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:
2003 2002 2001 --------------------------------------- Net Earnings .......................... $ 54,552 $ 46,601 $ 41,893 Basic EPS: Weighted average number of common shares outstanding .................. 25,106,561 24,839,812 24,535,199 Basic per share amount ............ $ 2.17 $ 1.88 $ 1.71 ======================================= Diluted EPS: Weighted average number of common shares outstanding .................. 25,106,561 24,839,812 24,535,199 Dilutive effect of stock options..... 266,245 332,119 356,863 --------------------------------------- Diluted weighted average number of common shares outstanding ......... 25,372,806 25,171,931 24,892,062 Diluted per share amount ........... $ 2.15 $ 1.85 $ 1.68 =======================================
For fiscal years ended November 30, 2003, 2002 and 2001, respectively, 7,773, 55,458 and 28,491 stock options with a weighted average exercise price of $38.80, $31.66 and $25.97 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 2003 and 2002 were as follows:
First Second Third Fourth Quarter Quarter Quarter Quarter Total ---------------------------------------------------- 2003: NET SALES ...... $171,494 $185,775 $190,647 $193,442 $741,358 GROSS PROFIT ... 48,349 56,599 56,154 60,589 221,691 NET EARNINGS ... 9,596 13,047 14,304 17,605 54,552 NET EARNINGS PER COMMON SHARE: BASIC ....... $ 0.39 $ 0.52 $ 0.57 $ 0.70 $ 2.17 DILUTED ..... $ 0.38 $ 0.51 $ 0.56 $ 0.68 $ 2.15
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
During the fourth quarter of 2003, the Company changed its method of accounting for inventory as described in Note C which increased gross profit by $456, net earnings by $289 and diluted EPS by $0.01. 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. 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 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 CLARCOR 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) metal sheets in both domestic and international markets. The products are sold directly to consumer and industrial packaging customers. In fiscal 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. 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 2003 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, 2003, 2002 and 2001 were as follows:
2003 2002 2001 ----------------------------------- Net sales: Engine/Mobile Filtration ............ $ 287,797 $ 263,512 $ 250,960 Industrial/Environmental Filtration.. 386,275 383,613 346,394 Packaging ........................... 67,286 68,438 69,610 ----------------------------------- $ 741,358 $ 715,563 $ 666,964 =================================== Operating profit: Engine/Mobile Filtration ............ $ 58,299 $ 52,779 $ 51,785 Industrial/Environmental Filtration.. 24,171 20,670 16,761 Packaging ........................... 4,592 4,326 7,264 ----------------------------------- 87,062 77,775 75,810 Other income (expense) .............. (1,003) (6,325) (10,076) ----------------------------------- Earnings before income taxes and minority interests ............. $ 86,059 $ 71,450 $ 65,734 =================================== Identifiable assets: Engine/Mobile Filtration ............ $ 153,621 $ 152,209 $ 135,265 Industrial/Environmental Filtration.. 297,219 306,206 303,901 Packaging ........................... 39,733 42,114 41,652 Corporate ........................... 47,664 45,590 49,799 ----------------------------------- $ 538,237 $ 546,119 $ 530,617 =================================== Additions to plant assets: Engine/Mobile Filtration ............ $ 3,637 $ 4,208 $ 3,852 Industrial/Environmental Filtration.. 4,825 5,386 8,746 Packaging ........................... 3,284 2,242 5,404 Corporate ........................... 1,296 368 202 ----------------------------------- $ 13,042 $ 12,204 $ 18,204 =================================== Depreciation and amortization: Engine/Mobile Filtration ............ $ 7,335 $ 7,328 $ 7,725 Industrial/Environmental Filtration.. 8,075 8,642 10,711 Packaging ........................... 2,861 3,096 2,725 Corporate ........................... 714 694 689 ----------------------------------- $ 18,985 $ 19,760 $ 21,850 ===================================
As discussed in Note C, the Company changed its method of inventory costing to FIFO in fiscal year 2003. This increased operating profit $397 in the Packaging segment and had an immaterial impact on the Engine/Mobile and Industrial/ Environmental segments. 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 was $443 in the Engine/Mobile Filtration segment and $2,464 in the Industrial/Environmental segment. The Packaging segment operating profit did not include any nonrecurring amortization in 2001. Financial data relating to the geographic areas in which the Company operates are shown for the years ended November 30, 2003, 2002 and 2001. Net sales by geographic area are based on sales to final customers within that region.
2003 2002 2001 ------------------------------ Net sales: United States ................... $599,843 $599,937 $549,210 Europe .......................... 70,023 56,130 58,490 Other international ............. 71,492 59,496 59,264 ------------------------------ $741,358 $715,563 $666,964 ============================== Plant assets, at cost, less accumulated depreciation: United States ................... $120,719 $125,508 $131,171 Europe .......................... 6,423 6,239 5,144 Other international ............. 2,430 1,145 1,001 ------------------------------ $129,572 $132,892 $137,316 ==============================
24 CLARCOR EX-13.(A)(VII) 10 c82240exv13wxayxviiy.txt REPORT OF INDEPENDENT ACCOUNTANTS 13(a)(vii) [A WORLD OF OPPORTUNITY LOGO] 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, 2003 and November 30, 2002 and the consolidated results of their operations and their cash flows for each of the three years in the period ended November 30, 2003, 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." PRICEWATERHOUSECOOPERS LLP Chicago, Illinois January 8, 2004 EX-13.(A)(VIII) 11 c82240exv13wxayxviiiy.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, 2004 CLARCOR 25 EX-13.(A)(IX) 12 c82240exv13wxayxixy.txt INFORMATION UNDER THE "11-YEAR FINANCIAL REVIEW" . . . EXHIBIT 13(a)(ix) 11-YEAR FINANCIAL REVIEW
2003 2002 2001 2000 - ------------------------------------------------------------------------------------------------------------- PER SHARE Equity ........................................... $ 14.63 $ 12.66 $ 11.14 $ 9.93 Diluted Earnings from Continuing Operations ...... 2.15 1.85 1.68 1.64 Diluted Net Earnings ............................. 2.15 1.85 1.68 1.64 Dividends ........................................ 0.4925 0.4825 0.4725 0.4625 Price: High ...................................... 45.93 34.00 27.59 21.44 Low ....................................... 31.05 25.03 16.88 16.06 - ------------------------------------------------------------------------------------------------------------- EARNINGS DATA ($000) Net Sales ........................................ $ 741,358 $ 715,563 $ 666,964 $ 652,148 Operating Profit ................................. 87,062 77,775 75,810 75,987 Interest Expense ................................. 1,767 6,073 10,270 11,534 Pretax Income .................................... 86,059 71,450 65,734 63,487 Income Taxes ..................................... 31,371 24,773 23,804 23,201 Income from Continuing Operations ................ 54,552 46,601 41,893 40,237 Cumulative Effect of Accounting Changes .......... - - - - Net Earnings ..................................... 54,552 46,601 41,893 40,237 Basic Average Shares Outstanding ................. 25,107 24,840 24,535 24,270 Diluted Average Shares Outstanding ............... 25,373 25,172 24,892 24,506 - ------------------------------------------------------------------------------------------------------------- EARNINGS ANALYSIS Operating Margin ................................. 11.7% 10.9% 11.4% 11.7% Pretax Margin .................................... 11.6% 10.0% 9.9% 9.7% Effective Tax Rate ............................... 36.5% 34.7% 36.2% 36.5% Net Margin-Continuing Operations ................. 7.4% 6.5% 6.3% 6.2% Net Margin ....................................... 7.4% 6.5% 6.3% 6.2% Return on Beginning Assets ....................... 10.0% 8.8% 8.3% 8.5% Return on Beginning Shareholders' Equity ......... 17.3% 17.0% 17.3% 19.1% Dividend Payout to Net Earnings .................. 22.7% 25.7% 27.6% 27.9% - ------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA ($000) Current Assets ................................... $ 257,402 $ 259,746 $ 244,350 $ 230,479 Plant Assets, Net ................................ 129,572 132,892 137,316 140,121 Total Assets ..................................... 538,237 546,119 530,617 501,930 Current Liabilities .............................. 111,373 174,255 94,931 97,826 Long-Term Debt ................................... 16,913 22,648 135,203 141,486 Shareholders' Equity ............................. 370,392 315,461 274,261 242,093 - ------------------------------------------------------------------------------------------------------------- BALANCE SHEET ANALYSIS ($000) Debt to Capitalization (A) ....................... 4.5% 22.4% 33.9% 37.8% Working Capital .................................. $ 146,029 $ 85,491 $ 149,419 $ 132,653 Current Ratio .................................... 2.3 1.5 2.6 2.4 - ------------------------------------------------------------------------------------------------------------- CASH FLOW DATA ($000) From Operations .................................. $ 87,896 $ 85,019 $ 63,290 $ 54,130 For Investment ................................... (12,986) (18,978) (51,353) (42,125) From/(For) Financing ............................. (80,669) (59,774) (15,326) (15,862) Change in Cash & Equivalents ..................... (5,399) 6,329 (3,446) (3,881) Capital Expenditures ............................. 13,042 12,204 18,204 29,005 Depreciation & Amortization ...................... 18,985 19,760 21,850 21,079 Dividends Paid ................................... 12,406 11,975 11,575 11,207 Net Interest Expense ............................. 1,532 5,612 9,616 10,836 Income Taxes Paid ................................ 22,607 17,678 26,858 16,458 - -------------------------------------------------------------------------------------------------------------
(A) Total Debt (current and long-term) divided by Total Debt plus Shareholders' Equity. Note: In fiscal 2003, the Company changed its method of costing certain inventory. Prior years were not restated as the impact of the change was immaterial to each year presented above. 26 CLARCOR [A WORLD OF OPPORTUNITY LOGO]
1999 1998 1997 1996 1995 1994 1993 - ---------------------------------------------------------------------------------------------------- $ 8.77 $ 7.80 $ 7.06 $ 6.46 $ 5.79 $ 5.18 $ 4.63 1.46 1.30 1.11 1.07 0.97 0.87 0.72 1.46 1.30 1.11 1.07 0.97 0.89 0.72 0.4525 0.4425 0.4350 0.4283 0.4217 0.4150 0.4067 21.38 24.63 20.79 16.75 18.00 14.92 13.33 14.25 14.25 13.33 12.42 12.08 10.58 10.67 - ---------------------------------------------------------------------------------------------------- $ 477,869 $ 426,773 $ 394,264 $ 372,382 $ 330,110 $ 300,450 $ 253,211 56,077 51,663 44,424 42,596 38,728 33,188 29,960 3,733 2,336 2,759 3,822 3,418 3,298 3,979 55,615 51,347 44,192 41,405 36,631 31,886 27,221 20,137 19,262 17,164 15,315 13,060 12,057 9,944 35,412 32,079 26,918 25,945 23,500 20,786 17,277 - - - - - 630 - 35,412 32,079 26,918 25,945 23,500 21,416 17,277 23,970 24,268 24,133 23,908 23,850 23,804 23,831 24,314 24,649 24,344 24,217 24,205 24,030 24,076 - ---------------------------------------------------------------------------------------------------- 11.7% 12.1% 11.3% 11.4% 11.7% 11.0% 11.8% 11.6% 12.0% 11.2% 11.1% 11.1% 10.6% 10.8% 36.2% 37.5% 38.8% 37.0% 35.7% 37.8% 36.5% 7.4% 7.5% 6.8% 7.0% 7.1% 6.9% 6.8% 7.4% 7.5% 6.8% 7.0% 7.1% 7.1% 6.8% 11.6% 11.4% 10.1% 10.6% 11.4% 11.2% 9.5% 19.0% 18.7% 17.4% 18.8% 19.1% 19.4% 16.4% 30.5% 33.4% 38.2% 36.7% 39.7% 43.0% 52.3% - ---------------------------------------------------------------------------------------------------- $ 227,670 $ 168,173 $ 160,527 $ 140,726 $ 133,286 $ 109,992 $ 97,569 126,026 86,389 82,905 84,525 73,047 58,787 53,839 472,991 305,766 282,519 267,019 245,697 206,928 191,657 97,475 61,183 54,237 51,297 49,841 43,926 37,647 145,981 36,419 37,656 43,449 41,860 25,090 32,650 210,718 186,807 171,162 154,681 138,144 122,801 110,299 - ---------------------------------------------------------------------------------------------------- 41.8% 16.5% 18.5% 24.8% 26.4% 21.0% 29.6% $ 130,195 $ 106,990 $ 106,290 $ 89,429 $ 83,445 $ 66,066 $ 59,922 2.3 2.7 3.0 2.7 2.7 2.5 2.6 - ---------------------------------------------------------------------------------------------------- $ 38,642 $ 42,267 $ 41,632 $ 26,675 $ 21,092 $ 25,670 $ 20,727 (160,658) (19,290) (8,193) (18,934) (29,044) (1,159) (74) 103,501 (19,943) (21,850) (8,774) 7,226 (18,656) (22,772) (18,576) 2,997 11,497 (964) (684) 5,912 (2,197) 21,822 15,825 11,349 22,230 14,471 12,119 10,776 15,372 12,380 11,600 10,704 9,145 8,166 7,227 10,814 10,717 10,290 9,512 9,330 9,201 9,036 2,282 1,053 1,739 2,991 2,560 2,750 3,104 22,234 16,199 15,112 11,230 11,939 10,194 10,059 - ----------------------------------------------------------------------------------------------------
CLARCOR 27 EX-13.(A)(X) 13 c82240exv13wxayxxy.txt MANAGEMENT'S DISCUSSION AND ANALYSIS EXHIBIT 13(a)(x) [A WORLD OF OPPORTUNITY LOGO] FINANCIAL REVIEW (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) CLARCOR's operating results for fiscal 2003 were at record levels and marked the Company's 11th consecutive year of earnings growth. Fiscal 2003 sales, operating profit and net earnings increased from fiscal 2002, 3.6%, 11.9% and 17.1%, respectively. There were several key drivers for the increases in sales and operating profit including (1) increased sales of heavy-duty engine filtration products for the aftermarket, (2) increased sales of private label HVAC filtration products, (3) increased sales of specialty filtration products used primarily in oil and gas drilling, aviation and fluid power, and (4) increased capacity utilization and production efficiencies. Fiscal 2003 sales levels also increased approximately $9 million due to an additional six months of operations in 2003 compared with 2002 for CLARCOR UK (formerly Locker Filtration) which was acquired in June 2002. Cash flow from operating activities set a new record and totaled $87.9 million. As a result of strong cash flow from operating activities, debt was reduced significantly in 2003. Reduced debt and low interest rates during fiscal 2003 resulted in significantly reduced interest expense which increased net earnings from 2002 by approximately $2.7 million or $0.11 per diluted share. Net earnings per diluted share totaled $2.15 in fiscal 2003 compared to $1.85 in 2002. The results of operations and financial position reflect acquisitions the Company made in fiscal 2002 and 2001, and these acquisitions are described in Note B to the Consolidated Financial Statements. The acquisitions that most impacted the periods presented were CLARCOR UK (formerly Locker Filtration) and Total Filtration Services (TFS). In June 2002, CLARCOR UK was acquired, adding approximately $7.5 million in sales to the second half of fiscal 2002 and $9 million to the first half of 2003. In June 2001, TFS was acquired adding approximately $28 million in sales to the second half of fiscal 2001 and $34 million to the first half of 2002. Several smaller acquisitions also occurred that were not material to the sales or results of operations for the periods presented. The following are several other significant items that occurred during the periods presented: (1) At the beginning of the first quarter of fiscal 2002, the Company adopted Statement of Financial Accounting Standards No. 142 (SFAS 142) 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. (2) In the fourth quarter of 2002 upon completion 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. (3) In fiscal 2001, results of operations were impacted by a non-recurring contract cancellation payment received from a customer of the Company's Packaging segment. 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 information presented in this financial review should be read in conjunction with other financial information provided throughout this 2003 Annual Report. The following discussion of operating results focuses on the Company's three reportable business segments: Engine/Mobile Filtration, Industrial/Environmental Filtration and Packaging. OPERATING RESULTS SALES Net sales in fiscal 2003 were $741.4 million, a 3.6% increase from $715.6 million in fiscal 2002. The 2003 sales increase was the 17th consecutive year of sales growth for the Company. Included in the sales growth of $25.8 million for 2003 was approximately $9 million related to the CLARCOR UK acquisition that was completed at the beginning of the third quarter in 2002. Comparative net sales information related to CLARCOR's operating segments is shown in the following tables.
2003 VS. 2002 CHANGE -------------------- NET SALES 2003 % TOTAL $ % - ----------------------------------------------------------------------------------------------------- ENGINE/MOBILE FILTRATION .................... $287.8 38.8% $ 24.3 9.2% INDUSTRIAL/ENVIRONMENTAL FILTRATION ......... 386.3 52.1% 2.7 0.7% PACKAGING ................................... 67.3 9.1% (1.2) -1.7% ------------------------------------------------ TOTAL ............................... $741.4 100.0% $ 25.8 3.6% ================================================
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% =================================================
The Engine/Mobile Filtration segment's sales increased 9.2% in 2003 from 2002. The growth of $24.3 million included approximately $9 million from an additional six months of operations in 2003 for CLARCOR UK which was acquired in June 2002. The remainder of the sales growth in 2003 resulted primarily from increased domestic and international heavy-duty filter sales to traditional aftermarket distribution and also due to efforts in 2003 to increase sales to OEM dealer organizations. Price increases improved the segment's sales by approximately one percentage point and changes in currency translation rates favorably impacted sales by one and one-half percentage points in 2003. The segment's sales increased 5.0% in 2002 from 2001. Approximately $7.5 million of the $12.5 million sales growth in 2002 was related to CLARCOR UK. The remainder of the sales growth in 2002 resulted from increased heavy-duty filter sales to traditional aftermarket distribution. The Company's Industrial/Environmental Filtration segment recorded a 0.7% increase in sales in 2003 over 2002. The segment's sales increase reflects strong sales of specialty filters sold to industrial markets used in applications for oil and gas drilling, aviation and fluid power and increased sales of private label HVAC filters sold through retail mass merchants. Changes in currency translation rates favorably impacted sales by approximately one percentage point in 2003. Offsetting these sales increases in 2003 were continued low sales of filtration equipment, mainly dust collectors and electrostatic precipitators, and sales of HVAC filters used in automotive manufacturing plants. The segment's sales increased 10.7% in 2002 compared to 2001 and included the full-year impact from the TFS acquisition. The impact of an additional six months of sales from TFS in 2002 totaled approximately $34 million. The additional sales growth in 2002 resulted from sales of environmental air filters, specialty industrial filters and the Total Filtration Program. Partially offsetting this increase in sales in 2002 were reduced sales of air quality equipment and filtration systems sold primarily into capital goods markets. CLARCOR 7 FINANCIAL REVIEW (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) The Packaging segment's sales were $67.3 million in 2003, a 1.7% reduction from 2002. Although sales increased in 2003 for metal decorating and packaging products, sales of plastic packaging products were reduced. The 2002 segment sales were $68.5 million. 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 the impact of the non-recurring payment, sales improved 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. OPERATING PROFIT Operating profit of $87.1 million in 2003 reflects improved sales levels overall and improved capacity utilization and production efficiencies. Cost increases for pensions, energy, incentive compensation programs and employee health care were offset by manufacturing efficiencies and cost reduction programs including cost reductions for certain purchased materials. During 2003 as described in Note C to the Consolidated Financial Statements, the Company changed its method of inventory costing from last-in, first-out (LIFO) for certain inventory to the first-in, first-out (FIFO) method, which increased operating profit by approximately $0.5 million and primarily impacted the Packaging segment's operating profit. Operating profit of $77.8 million in 2002 was 2.6% higher than in 2001. Compared to 2001, operating profit in 2002 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 operating profit included approximately $4.5 million from a non-recurring customer contract cancellation payment. Operating margin improved to 11.7% from 10.9% in 2002 and 11.4% in 2001. 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. Foreign currency fluctuations did not have a material impact on consolidated operating profit in 2003, 2002 or 2001. Comparative operating profit information related to the Company's business segments is as follows.
2003 VS. 2002 CHANGE ----------------- OPERATING PROFIT 2003 % TOTAL $ % - ------------------------------------------------------------------------------------------------- ENGINE/MOBILE FILTRATION .................... $58.3 67.0% $ 5.5 10.5% INDUSTRIAL/ENVIRONMENTAL FILTRATION ......... 24.2 27.8% 3.5 16.9% PACKAGING ................................... 4.6 5.2% 0.3 6.2% -------------------------------------------- TOTAL ............................... $87.1 100.0% $ 9.3 11.9% ============================================
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% =============================================
OPERATING MARGIN AS A PERCENT OF NET SALES 2003 2002 2001 - ----------------------------------------------------------------------------------- Engine/Mobile Filtration .................... 20.3% 20.0% 20.6% Industrial/Environmental Filtration ......... 6.3% 5.4% 4.8% Packaging ................................... 6.8% 6.3% 10.4% ------------------------------ Total ................................ 11.7% 10.9% 11.4% ==============================
Operating profit for the Engine/Mobile Filtration segment increased 10.5% to $58.3 million from $52.8 million in fiscal 2002. Operating margin improved to 20.3% primarily as a result of increased sales and capacity utilization. Cost reduction programs that included material and labor cost reductions also contributed to the improved operating profit for the segment. Operating profit also improved in 2002 compared to 2001 as a result of increased sales, productivity improvement programs and reduced amortization expense. Offsetting these profit improvements in 2003 and 2002 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 CLARCOR UK. The Industrial/Environmental Filtration segment's 2003 operating profit improved 16.9% over fiscal 2002 primarily as a result of the significantly improved capacity utilization of several manufacturing plants that began operating in 2001, increased sales of industrial products for aviation and oil and gas drilling applications, and ongoing discretionary cost reduction programs. The segment has been actively integrating newly acquired businesses and making organizational changes within several of the segment's businesses that have reduced overhead and administrative costs. As a result of these efforts, the segment's operating margin improved to 6.3% in 2003 from 5.4% in 2002 and 4.8% in 2001. In fiscal 2002, operating profit for the segment improved to $20.7 million 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. The Packaging segment's operating profit of $4.6 million was nearly the same level as recorded in fiscal 2002 on slightly lower sales. Although higher capacity utilization of the segment's metal packaging facilities and cost reduction programs improved the 2003 operating profit, these improvements were offset by lower sales of plastic packaging. Included in 2003 operating profit is approximately $0.4 million related to a change to FIFO inventory costing as described in Note C to the Consolidated Financial Statements. The segment's 2002 operating profit of $4.3 million was lower than the 2001 level of $7.2 million primarily because the fiscal 2001 results included approximately $4.5 mil- lion related to a non-recurring cancellation payment from a customer. The segment's 2002 operating profit benefited from increased metal lithography sales, improved leverage of fixed costs and improved productivity from equipment installed in 2001. OTHER INCOME & EXPENSE Net other expense totaled $1.0 million in 2003, $6.3 million in 2002 and $10.1 million in 2001. Interest expense of $1.8 million was lower in 2003 compared with $6.1 million in 2002 and $10.3 million in 2001, due to lower interest rates and reduced overall borrowings during the year. Currency gains of $1.0 million in 2003, losses of $0.2 million in 2002 and gains of $0.2 million in 2001 resulted primarily from fluctuations of the Euro against the U.S. dollar. 8 CLARCOR [A WORLD OF OPPORTUNITY LOGO] PROVISION FOR INCOME TAXES The provision for income taxes in 2003 was $31.4 million and resulted in an effective tax rate of 36.5%. The provision for income taxes in 2002 was $24.8 million and resulted in an effective tax rate of 34.7%. The 2002 provision included approximately $1.0 million related to a research and experiment tax credit recorded in the fourth quarter of 2002. The provision for taxes was $23.8 million in 2001 and resulted in an effective tax rate of 36.2%. The effective tax rate in 2004 is expected to be approximately 36.5%. NET EARNINGS AND EARNINGS PER SHARE Net earnings were a record $54.6 million in 2003 or diluted earnings per share of $2.15. Net earnings in 2002 were $46.6 million or diluted earnings per share of $1.85, compared to $41.9 million or $1.68 per diluted share in 2001. As described in Note A to the Consolidated Financial Statements, diluted earnings per share would have been $2.06, $1.79 and $1.64 for 2003, 2002 and 2001, respectively, had compensation expense for stock options been recorded in accordance with SFAS 123. Diluted average shares outstanding for fiscal 2003 were 25,372,806 compared to 25,171,931 for 2002, an increase of 0.8%. Diluted average shares outstanding for fiscal 2001 were 24,892,062. The increase in diluted average shares outstanding 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 decreased to $8.3 million at year-end 2003 from $13.7 million at year-end 2002. Cash provided by operating activities totaled $87.9 million in 2003 compared to $85.0 million in 2002 and $63.3 million in 2001. The increases in cash provided by operating activities in 2003 and 2002 resulted from higher net earnings and as a result of improvements in working capital management during fiscal 2003 and 2002. In the 2003 and 2002 fourth quarters, voluntary contributions of $3.0 million and $5.0 million, respectively, were made to the Company's pension trust for covered U.S. employees. Using the current assumptions for pension plan asset returns, interest rates and benefit costs, annual contributions are not expected to be required until after fiscal 2009. The Company used cash of $13.0 million for investing activities in 2003, $19.0 million in 2002 and $51.4 million in 2001. The Company made no acquisitions in fiscal 2003. 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. Additions to plant assets totaled $13.0 million in 2003 and were primarily for new products, productivity improvement programs and cost reduction programs. Plant asset addi- tions totaled $12.2 million in 2002 and $18.2 million in 2001. Net cash used in financing activities totaled $80.7 million and $59.8 million in 2003 and 2002, respectively. In 2003 and 2002, net payments of $62.5 million and $44.2 million, respectively, were made on revolving credit agreements and an additional $11.0 million and $5.6 million, respectively, was repaid to reduce 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. In 2001 the Company also received $8.0 million from the issuance of industrial revenue bonds related to a manufacturing facility in Campbellsville, Kentucky. The Company did not repurchase any shares in 2003; nor were any shares repurchased in 2002 or 2001 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 and has not been renewed. Dividend payments totaled $12.4 million, $12.0 million and $11.6 million in 2003, 2002 and 2001, 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 2003, a $165 million credit facility with a group of financial institutions was established to replace a $185 million credit facility that was to expire in September 2003. The replacement facility will expire in April 2008. As of year-end 2003, there were no outstanding borrowings against the replacement facility; however, under a related $40 million letter of credit line subline, $14.1 million had been issued for letters of credit. The Company's other long-term debt totaled $17.6 million at year-end 2003 and is principally industrial revenue bonds. Principal payments on long-term debt will be approximately $0.7 million in 2004 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 expects to continue to use future additional cash flow for dividends, capital expenditures and acquisitions. Capital expenditures for normal facility maintenance and improvements, expansion of manufacturing and technical facilities, productivity improvements and new products are expected to total $25 to $30 million in 2004. The Company's off-balance sheet arrangements relate to various operating leases as discussed in Note H to the Consolidated Financial Statements. The Company had no derivative, swap, hedge, variable interest entity agreements or special purpose entity agreements at fiscal year-end 2003. The following table summarizes the Company's fixed cash obligations as of November 30, 2003 over various future years:
Year Year Year There- 1 2 & 3 3 & 4 after ----------------------------------------- Long-Term Debt .................. $ 0.7 $ 0.5 $ - $16.4 Credit Facility ................. - - - - Operating Leases ................ 8.2 9.9 5.9 6.9
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. Although in fiscal 2003 and 2002 the Company's investment in working capital was reduced, it is likely that additional investments in working capital may be required to support increased operations in fiscal 2004. 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, 2003, 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 2003 fiscal year. Total assets decreased to $538.2 million at the end of fiscal 2003, a decrease of 1.4% from the year-end 2002 level of $546.1 million. Total current assets decreased to $257.4 million from $259.7 million at year-end CLARCOR 9 FINANCIAL REVIEW (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) 2002. Total current liabilities at year-end 2003 decreased to $111.4 million from $174.3 million at year-end 2002. Current liabilities at year-end 2002 included the $62.8 million outstanding balance on a revolving credit agreement that was replaced in April 2003. The current ratio was 2.3 at year-end 2003 compared to 1.5 at year-end 2002. Long-term debt of $16.9 million at year-end 2003 relates primarily to various industrial revenue bonds, as there was no outstanding amount owed at year-end 2003 under the $165 million replacement revolving credit facility. Shareholders' equity increased to $370.4 million from $315.5 million at year-end 2002. The increase in shareholders' equity resulted primarily from net earnings of $54.6 million offset by dividend payments of $12.4 million or $0.4925 per share. Total debt decreased to 4.5% of total capitalization at year-end 2003 compared to 22.4% at year-end 2002. At November 30, 2003, CLARCOR had 25,309,127 shares of common stock outstanding at $1.00 par value, compared to 24,918,614 shares outstanding at the end of 2002. OTHER MATTERS MARKET RISK The Company's market risk is primarily the potential loss arising from adverse changes in interest rates. However, based on the low level of debt obligations as of year-end 2003, interest rate risk is not expected to be significant to the Company in fiscal 2004. 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. 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 2004 net earnings and cash flows by approximately $0.1 million and reduce the fair value of fixed rate long-term debt, as measured at November 30, 2003, by approximately $0.1 million. Last year, a hypothetical 1% increase in interest rates would have adversely affected fiscal 2003's net earnings and cash flows by approximately $0.4 million and reduced the fair value of fixed rate long-term debt by approximately $0.1 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 2003, 2002 or 2001. 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. 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 economic conditions in the industries to which the Company sells and on historical experience by evaluating specific customer accounts for risk of loss, fluctuations in amounts owed and current payment trends. The Company's concentration of risk is also monitored and at year-end 2003, the largest outstanding customer account balance was $4.9 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 8.25% from 8.5% would result in additional expense in fiscal 2004 of approximately $0.2 million, while a reduction in the discount rate to 6.00% from 6.75% would result in additional expense of approximately $0.9 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. 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 - The Company periodically reviews goodwill and indefinite-lived intangible assets 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 In November 2002, the FASB issued Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." The interpretation requires disclosure in periodic financial statements of certain guarantee arrangements. The implementation of this interpretation requires certain disclosures regarding guarantees of the indebtedness of others as provided in Note A to the Consolidated Financial Statements. The requirements of FIN 45 did not have a significant impact on the Company's results of operations or financial condition. In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS 148 provides alternative methods of transition for a voluntary change to the fair 10 CLARCOR [A WORLD OF OPPORTUNITY LOGO] value-based method of accounting for stock-based employee compensation and amends certain requirements of SFAS 123. The transition provisions were effective for the Company in fiscal 2003 and the disclosure requirements were effective for the Company beginning with its second quarter 2003 consolidated financial statements. The Company currently plans to continue to apply the intrinsic value method to account for stock-based employee compensation. Diluted earnings per share would have been reduced by approximately $0.09 for fiscal 2003 based on the fair value calculation as described in Note A to the Consolidated Financial Statements. OUTLOOK The Company's objective to record compound annual growth rates in diluted earnings per share of 10% to 15% over a five to seven year period will 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 2004, making it the 12th consecutive year of earnings per share growth for the Company. The Company expects diluted earnings per share to be in the range of $2.25 to $2.35 in 2004. The Company has announced that the corporate headquarters will move to Nashville, TN in 2004. Costs for this move, which will largely be a one-time expense incurred primarily in 2004, are still being finalized and have not been reflected in the earnings per share estimate for 2004. These costs have been estimated to not exceed $0.07 per share. Sales growth and increased operating profits are expected for the Engine/Mobile Filtration segment as product demand for aftermarket heavy-duty filtration products remains good. This growth is expected due to a continuation of new product introductions and from sales and marketing initiatives begun over the past two years. Sales growth for the Industrial/Environmental segment is also expected due to specialty process liquid filters, while HVAC filtration sales are expected to be stable. The Company remains optimistic that there will be an upturn in demand for filtration systems sold into capital goods markets and that the Total Filtration Program will grow in 2004. The Total Filtration Program had a slow 2003 caused by lower sales of maintenance filters to automobile and automotive parts manufacturers. The Total Filtration Program's growth in the future will come from increasing sales to non-automotive customers and expansion of the fil- ter service business. The Total Filtration Program is also expected to benefit from the completion of the conversion in early 2004 of a group of 20 company-owned branches from selling primarily HVAC filtration products to selling the Company's entire range of liquid and air filter products. The operating margin for the Industrial/Environmental segment is expected to continue to improve towards the Company's goal of a 10% annual margin for the segment. The Packaging segment's sales are expected to grow in 2004 as emphasis continues on increasing sales of flat sheet metal decorating and non-promotional metal and plastic packaging products. The Packaging segment is reviewing customer profitability and expects that certain customer relationships may be terminated or changed during 2004 where profitability is unacceptable and unlikely to improve. Capital investments will continue to be made in each segment's facilities to improve productivity, expand technical centers, support the Total Filtration Program and produce new products. As a result of recent changes to the qualified pension plan and defined contribution plans for U.S. employees, the total cost of these plans is not expected to change significantly; however, the expense for pensions is expected to be reduced in future periods while costs for the defined contribution plan will increase. While the Company fully anticipates that sales and profits will improve as a result of sales initiatives and cost reduction efforts, the Company has developed contingency plans to reduce discretionary spending as necessary. 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 dis- tributors 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; market disruptions caused by domestic or international conflicts; 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. CLARCOR 11 EX-14 14 c82240exv14.txt CODE OF ETHICS EXHIBIT 14 Adopted March 24, 2003 CODE OF ETHICS FOR CHIEF EXECUTIVE OFFICER AND SENIOR FINANCIAL OFFICERS PREFACE As used in this Code, the term "Senior Financial Officers" means the Company's Chief Executive Officer, Chief Financial Officer, its Chief Accounting Officer, its Internal Audit Director and any other person performing the duties of such officials. Senior Financial Officers hold an important role in corporate governance. The Senior Financial Officers have the responsibility and authority to accurately compile and report the financial condition and results of operations of the Company in accordance with Generally Accepted Accounting Practices and the highest standards of ethics. Senior Financial Officers fulfill this responsibility by prescribing and enforcing the policies and procedures employed in the operation of the enterprise's financial organization, and by demonstrating the following: I. HONEST AND ETHICAL CONDUCT SENIOR FINANCIAL OFFICERS WILL EXHIBIT AND PROMOTE THE HIGHEST STANDARDS OF HONEST AND ETHICAL CONDUCT THROUGH THE ESTABLISHMENT AND OPERATION OF POLICIES AND PROCEDURES THAT: o Encourage and reward professional integrity in the financial organization, by eliminating inhibitions and barriers to responsible behavior such as coercion, fear of reprisal, or alienation from the financial organization or the enterprise itself. o Prohibit and eliminate the appearance or occurrence of conflicts between what is in the best interest of the enterprise and what could result in material personal gain for a member of the financial organization, including Senior Financial Officers. o Provide a mechanism for members of the finance organization to inform senior management of deviations in practice from policies and procedures governing honest and ethical behavior. o Demonstrate their personal support for such polices and procedures through communication reinforcing these ethical standards throughout the finance organization. II. Financial Records and Periodic Reports Senior Financial Officers will establish and manage the enterprise transaction and reporting systems and procedures to ensure that: o Business transactions are properly authorized and recorded on the Company's books and records in accordance with Generally Accepted Accounting Principles (GAAP) and established company financial policy. o The retention or proper disposal of Company records is accordance with established enterprise financial policies and applicable legal and regulatory requirements. o Periodic financial communications and reports are delivered in a manner that facilitates clarity of content and meaning so that readers and users can reasonably quickly and accurately determine their significance and consequences. ILL. COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS Senior Financial Officers will establish and maintain mechanisms to: o Educate members of the finance organization about federal, state or local statute, regulation or administrative procedure that affects the operation of the finance organization and the enterprise generally. o Monitor the compliance of the finance organization with applicable federal, state or local statute, regulation or administrative rule. o Identify, report and correct promptly any detected deviations from applicable federal, state or local statutes or regulations. March, 2003 EX-18 15 c82240exv18.txt LETTER FROM PRICEWATERHOUSECOOPERS LLP EXHIBIT 18 January 8, 2004 The Audit Committee CLARCOR Inc. 2323 Sixth Street Rockford, IL 61125 Dear Directors: We are providing this letter to you for inclusion as an exhibit to your Form 10-K filing pursuant to Item 601 of Regulation S-K. We have audited the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended November 29, 2003 and issued our report thereon dated January 8, 2004. Note C to the financial statements describes a change in accounting principle from the last in, first out to the first in, first out method for certain inventories. It should be understood that the preferability of one acceptable method of accounting over another for inventory accounting has not been addressed in any authoritative accounting literature, and in expressing our concurrence below we have relied on management's determination that this change in accounting principle is preferable. Based on our reading of management's stated reasons and justification for this change in accounting principle in the Form 10-K, and our discussions with management as to their judgment about the relevant business planning factors relating to the change, we concur with management that such change represents, in the Company's circumstances, the adoption of a preferable accounting principle in conformity with Accounting Principles Board Opinion No. 20. Very truly yours, PricewaterhouseCoopers LLP EX-21 16 c82240exv21.txt SUBSIDIAIRES OF THE REGISTRANT . . . EXHIBIT 21 CLARCOR INC. SUBSIDIARIES AS OF FEBRUARY 15, 2004
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% CLARCOR Air Filtration Products, Inc. Kentucky 100% CLARCOR Total Filtration, Inc. Delaware 100% Airklean Engineering Pte. Ltd. Singapore 100% Airguard Asia Sdn. Bhd. Malaysia 100% Baldwin Filters, Inc. Delaware 100% Baldwin Filters N.V. Belgium 100% Baldwin Filters Limited United Kingdom 100% Baldwin South Africa, Inc. Delaware 100% Baldwin-Unifil S.A. South Africa 80% Hastings Filters Ltd. Canada Canada 100% Baldwin Filters (Aust.) Pty. Limited Australia 100% Baldwin-Weifang Filters Ltd. China 80% CLARCOR UK Limited United Kingdom 100% CLARCOR UK (Holdings) Ltd. 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% Purolator Advanced Filtration Group, Inc. Delaware 100% GS Costa Mesa, Inc. Delaware 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% United Air Specialists Ltd. UK United Kingdom 100% CLARCOR International, Inc. Delaware 100% CLARCOR Trading Company Delaware 100% CLC Support Services, Inc. Delaware 100% CLC Technologies, Inc. Delaware 100%
- ------------------------------ * Direct or indirect EX-23 17 c82240exv23.txt CONSENT OF INDEPENDENT ACCOUNTANTS 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, 333-101767, 333-110726 and 333-109359) of CLARCOR Inc. and Subsidiaries of our report dated January 8, 2004 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, 2004 relating to the financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Chicago, Illinois February 18, 2004 EX-31.1 18 c82240exv31w1.txt CERTIFICATION EXHIBIT 31.1 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ NORMAN E. JOHNSON -------------------------------------- Norman E. Johnson Chairman of the Board, President and Chief Executive Officer Date: February 18, 2004 EX-31.2 19 c82240exv31w2.txt CERTIFICATION EXHIBIT 31.2 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ BRUCE A. KLEIN -------------------------------------- Bruce A. Klein Vice President-Finance and Chief Financial Officer Date: February 18, 2004 EX-32.1 20 c82240exv32w1.txt CERTIFICATION EXHIBIT 32.1 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 EX-32.2 21 c82240exv32w2.txt CERTIFICATION EXHIBIT 32.2 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-----