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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
QUARTERLY REPORT
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Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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For the quarter ended February 28, 2004
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REGISTRANT: CLARCOR Inc. (Delaware)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission File Number 1-11024
CLARCOR Inc.
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(Exact name of registrant as specified in its charter)
DELAWARE 36-0922490
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2323 Sixth Street, P.O. Box 7007, Rockford, Illinois 61125
- ---------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 815-962-8867
------------
No Change
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
25,372,273 common shares outstanding
------------------------------------
Page 1
CLARCOR Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
February 28, November 30,
2004 2003
-------------------- --------------------
ASSETS (unaudited)
Current assets:
Cash and short-term cash investments $ 18,150 $ 8,348
Accounts receivable, less allowance for losses
of $9,178 for 2004 and $9,106 for 2003 123,152 127,546
Inventories:
Raw materials 36,156 34,174
Work in process 12,965 11,866
Finished products 54,510 53,633
-------------- ---------------
Total inventories 103,631 99,673
-------------- ---------------
Prepaid expenses and other current assets 5,181 5,880
Deferred income taxes 16,370 15,955
-------------- ---------------
Total current assets 266,484 257,402
-------------- ---------------
Plant assets at cost, 309,299 304,892
less accumulated depreciation (179,639) (175,320)
-------------- ---------------
129,660 129,572
-------------- ---------------
Goodwill 83,078 82,720
Trademarks 29,476 29,476
Other acquired intangibles, less accumulated amortization 9,965 10,155
Pension assets 20,443 20,153
Other noncurrent assets 9,259 8,759
-------------- ---------------
$ 548,365 $ 538,237
============== ===============
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 639 $ 674
Accounts payable 53,188 49,256
Income taxes 8,067 8,377
Accrued employee compensation 13,264 23,400
Other accrued liabilities 31,820 29,666
-------------- ---------------
Total current liabilities 106,978 111,373
-------------- ---------------
Long-term debt, less current portion 18,414 16,913
Long-term pension liabilities 8,661 7,813
Deferred income taxes 22,119 21,729
Other long-term liabilities 8,810 8,339
Minority interests 1,524 1,678
Contingencies
SHAREHOLDERS' EQUITY
Capital stock 25,372 25,309
Capital in excess of par value 20,811 19,998
Accumulated other comprehensive earnings 1,169 (936)
Retained earnings 334,507 326,021
-------------- ---------------
381,859 370,392
-------------- ---------------
$ 548,365 $ 538,237
============== ===============
See Notes to Consolidated Condensed Financial Statements
Page 2
CLARCOR Inc.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Dollars in thousands except per share data)
(Unaudited)
Three Months Ended
---------------------------------------
February 28, March 1,
2004 2003
--------------- -----------------
Net sales $ 175,272 $ 171,494
Cost of sales 123,788 123,145
--------------- -----------------
Gross profit 51,484 48,349
Selling and administrative expenses 33,671 32,862
--------------- -----------------
Operating profit 17,813 15,487
--------------- -----------------
Other income (expense):
Interest expense (118) (524)
Interest income 51 110
Other, net 652 46
--------------- -----------------
585 (368)
--------------- -----------------
Earnings before income taxes and minority interests 18,398 15,119
Provision for income taxes 6,703 5,516
--------------- -----------------
Earnings before minority interests 11,695 9,603
Minority interests in earnings of subsidiaries (34) (7)
--------------- -----------------
Net earnings $ 11,661 $ 9,596
=============== =================
Net earnings per common share:
Basic $ 0.46 $ 0.39
=============== =================
Diluted $ 0.45 $ 0.38
=============== =================
Average number of common shares outstanding:
Basic 25,368,917 24,920,638
=============== =================
Diluted 25,813,606 25,348,353
=============== =================
Dividends paid per share $ 0.1250 $ 0.1225
=============== =================
See Notes to Consolidated Condensed Financial Statements
Page 3
CLARCOR Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
--------------------------------------
February 28, March 1,
2004 2003
------------ -------------
Cash flows from operating activities:
Net earnings $ 11,661 $ 9,596
Depreciation 4,602 4,967
Amortization 190 225
Changes in assets and liabilities (993) (1,570)
Other, net (653) -
------------ -------------
Net cash provided by operating activities 14,807 13,218
------------ -------------
Cash flows from investing activities:
Additions to plant assets (5,242) (3,017)
Other, net 1,407 7
------------ -------------
Net cash used in investing activities (3,835) (3,010)
------------ -------------
Cash flows from financing activities:
Proceeds from line of credit 1,500 6,250
Payments on line of credit - (18,333)
Payments on long-term debt (34) (181)
Cash dividends paid (3,175) (3,052)
Other, net 297 162
------------ -------------
Net cash used in financing activities (1,412) (15,154)
------------ -------------
Net effect of exchange rate changes on cash 242 23
------------ -------------
Net change in cash and short-term cash investments 9,802 (4,923)
Cash and short-term cash investments,
beginning of period 8,348 13,747
------------ -------------
Cash and short-term cash investments,
end of period $ 18,150 $ 8,824
============ =============
Cash paid during the period for:
Interest $ 117 $ 704
============ =============
Income taxes $ 5,962 $ 1,639
============ =============
See Notes to Consolidated Condensed Financial Statements
Page 4
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The November 30, 2003 consolidated balance sheet data was derived from
CLARCOR's year-end audited financial statements, but does not include all
disclosures required by accounting principles generally accepted in the
United States of America. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America
have been condensed or omitted.
The consolidated condensed balance sheet as of February 28, 2004, the
consolidated condensed statements of earnings and the consolidated
condensed statements of cash flows for the periods ended February 28, 2004,
and March 1, 2003, have been prepared by the Company without audit. The
financial statements have been prepared on the same basis as those in the
Company's November 30, 2003 annual report on Form 10-K. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations, and cash flows have been made. The results of operations for
the period ended February 28, 2004 are not necessarily indicative of the
operating results for the full year. Certain reclassifications have been
made to conform prior years' data to the current presentation. These
reclassifications had no effect on reported earnings.
2. STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic value
method. If the Company had determined compensation expense for its
stock-based compensation plans based on the fair value at the grant dates,
the Company's pro forma net earnings and basic and diluted earnings per
share (EPS) would have been as follows:
Three Months Ended
---------------------------------
February 28, March 1,
2004 2003
------------- ------------
Net earnings, as reported $ 11,661 $ 9,596
Less total stock-based compensation expense under the
fair value-based method, net of tax (591) (401)
------------- ------------
Pro forma net earnings $ 11,070 $ 9,195
============= ============
Basic EPS, as reported $ 0.46 $ 0.39
Pro forma basic EPS $ 0.44 $ 0.37
Diluted EPS, as reported $ 0.45 $ 0.38
Pro forma diluted EPS $ 0.43 $ 0.36
Page 5
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited) Continued
2. STOCK-BASED COMPENSATION (Continued)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions for the three months ended February 28, 2004 and March 1, 2003,
respectively. Adjustments for forfeitures are made as they occur.
Three Months Ended
--------------------------
February 28, March 1,
2004 2003
------------ --------
Risk-free interest rate 4.50% 3.87%
Expected dividend yield 1.29% 1.58%
Expected volatility factor 27.20% 23.00%
Expected option term (in years) 7.0 7.0
3. EARNINGS PER SHARE
Diluted earnings per share reflects the impact of outstanding stock options
and restricted stock as if exercised during the periods presented using the
treasury stock method. The following table provides a reconciliation of the
numerators and denominators utilized in the calculation of basic and
diluted earnings per share:
Three Months Ended
--------------------------------
February 28, March 1,
2004 2003
------------ -----------
Net Earnings $ 11,661 $ 9,596
Basic EPS:
Weighted average number of common
shares outstanding 25,368,917 24,920,638
Basic per share amount $ 0.46 $ 0.39
=========== ===========
Diluted EPS:
Weighted average number of common
shares outstanding 25,368,917 24,920,638
Dilutive effect of stock options and restricted stock 444,689 427,715
----------- -----------
Diluted weighted average number of
common shares outstanding 25,813,606 25,348,353
Diluted per share amount $ 0.45 $ 0.38
=========== ===========
Page 6
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited) Continued
3. EARNINGS PER SHARE (Continued)
The following options were not included in the computation of diluted
earnings per share as the options' exercise prices were greater than the
average market price of the common shares during the respective quarter:
Three Months Ended
-----------------------------
February 28, March 1,
2004 2003
------------ --------
Options 293,400 -
Weighted Average Exercise Price $ 45.59 -
For the three months ended February 28, 2004, exercises of stock options
added $761 to capital in excess of par value.
4. COMPREHENSIVE EARNINGS
The Company's total comprehensive earnings and its components are as
follows:
Three Months Ended
---------------------------
February 28, March 1,
2004 2003
------------ --------
Net earnings $ 11,661 $ 9,596
Other comprehensive earnings, net of tax:
Foreign currency translation adjustments 2,105 1,455
--------- --------
Total comprehensive earnings $ 13,766 $ 11,051
========= ========
5. RELOCATION COSTS
On January 8, 2004, the Company 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 during the third quarter of fiscal
2004, are still being finalized. Approximately $8 was accrued during the
first quarter ended February 28, 2004 for employee termination benefits.
These termination benefits, currently estimated at $100, are dependent upon
the employees rendering service through the retention period and will be
recognized ratably over the required service period. Relocation costs in
total are not expected to exceed $0.07 per share. The Company expects to
pay all significant relocation costs during fiscal year 2004.
6. GUARANTEES AND WARRANTIES
The Company has provided letters of credit totaling approximately $23,513
to various government agencies, primarily related to industrial revenue
bonds and to insurance companies
Page 7
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited) Continued
6. GUARANTEES AND WARRANTIES (Continued)
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.
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 quarter ended February
28, 2004 are as follows:
Balance at November 30, 2003 $ 1,789
Accruals for warranties issued during the period 170
Accruals related to pre-existing warranties (10)
Settlements made during the period (99)
Other adjustments, including currency translation 2
--------
Balance at February 28, 2004, included in other current liabilities $ 1,852
========
7. GOODWILL AND INTANGIBLES
The following table summarizes the activity for acquired intangibles by
reporting unit for the quarter ended February 28, 2004.
2004
----------------------------------------------------------------------------
Currency
Beginning Translation End of
of Year Acquisitions Adjustments Amortization Quarter
--------- ------------ ----------- ------------ -------
Goodwill:
Engine/Mobile Filtration $12,170 $ - $ 350 $ - $12,520
Industrial/Environmental Filtration 70,550 - 8 - 70,558
Packaging - - - - -
------- ---- ------- ----- -------
$82,720 $ - $ 358 $ - $83,078
======= ==== ======= ===== =======
Page 8
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited) Continued
7. GOODWILL AND INTANGIBLES (Continued)
2004
-------------------------------------------------------------------------
Currency
Beginning Translation End of
of Year Acquisitions Adjustments Amortization Quarter
--------- ------------ ----------- ------------ -------
Trademarks:
Engine/Mobile Filtration $ 603 $ - $ - $ - $ 603
Industrial/Environmental Filtration 28,873 - - - 28,873
Packaging - - - - -
------- ----- ------ ------- -------
$29,476 $ - $ - $ - $29,476
======= ===== ====== ======= =======
Other acquired intangibles, gross:
Engine/Mobile Filtration $ 1,040 $ - $ - $ - $ 1,040
Industrial/Environmental Filtration 13,104 - - - 13,104
Packaging - - - - -
------- ----- ------ ------- -------
14,144 - - - 14,144
Less accumulated amortization 3,989 - - 190 4,179
------- ----- ------ ------- -------
Other acquired intangibles, net $10,155 $ - $ - $ 190 $ 9,965
======= ===== ====== ======= =======
Amortization expense is estimated to be $759 in 2004, $755 in 2005, $721 in
2006, $708 in 2007, and $653 in 2008.
8. 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.
In the event of a change in control of the Company, termination benefits
may be required for certain executive officers and other key employees.
Page 9
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited) Continued
9. SEGMENT DATA
The Company operates in three principal product segments: Engine/Mobile
Filtration, Industrial/Environmental Filtration, and Packaging. The segment
data for the three months ended February 28, 2004 and March 1, 2003,
respectively, are shown below. Net sales represent sales to unaffiliated
customers as reported in the consolidated condensed statements of earnings.
Intersegment sales were not material.
Three Months Ended
------------------------------
February 28, March 1,
2004 2003
------------ ---------
Net sales:
Engine/Mobile Filtration $ 70,800 $ 66,776
Industrial/Environmental Filtration 88,962 90,369
Packaging 15,510 14,349
--------- ---------
$ 175,272 $ 171,494
========= =========
Operating profit:
Engine/Mobile Filtration $ 14,425 $ 12,686
Industrial/Environmental Filtration 3,252 2,373
Packaging 136 428
--------- ---------
17,813 15,487
Other income (expense) 585 (368)
--------- ---------
Earnings before income taxes and
minority earnings $ 18,398 $ 15,119
========= =========
Identifiable assets:
Engine/Mobile Filtration $ 161,777 $ 147,528
Industrial/Environmental Filtration 300,449 292,779
Packaging 41,140 41,366
Corporate 44,999 55,858
--------- ---------
$ 548,365 $ 537,531
========= =========
Page 10
CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited) Continued
10. NEW ACCOUNTING STANDARDS
Effective January 12, 2004, the FASB issued FASB Staff Position No. 106-1,
"Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003," (the Act).
This Staff Position permits a sponsor of a postretirement health care plan
that provides a prescription drug benefit to make a one-time election to
defer accounting for the effects of the Act until authoritative guidance on
accounting for subsidies provided by the Act is issued. The Act introduces
a prescription drug benefit under Medicare as well as a federal subsidy to
sponsors of retiree health care benefit plans. The Company does not
anticipate that the Act will have a material effect on the measurement of
the Company's postretirement obligations.
On December 23, 2003, the FASB issued SFAS No. 132R, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This
Statement requires additional disclosures to be made by employers regarding
pensions and other postretirement benefit plans, but does not change the
measurement or recognition of those plans. The interim period disclosure
requirements of the Statement are effective for interim periods beginning
after December 15, 2003. The Company will adopt the interim provisions of
this Statement beginning in the second quarter of 2004. All other
provisions of this Statement will be adopted in the fourth quarter of 2004.
Page 11
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS: FIRST QUARTER OF 2004 COMPARED WITH FIRST QUARTER OF
2003.
CLARCOR reported record sales, operating profit and net earnings for the first
quarter of 2004. Sales increased 2.2%, operating profit increased 15.0% and net
earnings increased 21.5% over the same quarter in 2003.
Net sales of $175,272,000 increased from $171,494,000 reported for the first
quarter of 2003. Favorable currency translation, due to the weaker U.S. dollar,
improved sales by approximately $900,000.
The Engine/Mobile Filtration segment reported increased sales of 6.0% to
$70,800,000 from $66,776,000 in 2003. This increase was primarily due to
additional sales of heavy-duty filters through domestic aftermarket and national
account distribution and sales to railroads and railroad equipment maintenance
companies. International sales also increased, both in local currencies and U.S.
dollars. The favorable currency translation due to the weaker U.S. dollar
resulted in additional sales of approximately $400,000 for the quarter.
The Company's Industrial/Environmental Filtration segment recorded a 1.6%
overall decrease in sales to $88,962,000 for the 2004 quarter from $90,369,000
for the 2003 first quarter. The decreased sales level was primarily due to
reduced customer demand for HVAC filters used in building maintenance and for
air quality equipment. Sales increases were recorded for specialty process
liquid filters, both domestically and internationally. Approximately $500,000 of
sales for the quarter was related to favorable currency translation during the
2004 quarter.
The Packaging segment reported sales of $15,510,000 compared to $14,349,000 in
2003. Sales increases for the quarter were related to flat sheet metal
decorating and tooling charges billed to customers; however, these increases
were partially offset by reduced sales of plastic packaging and metal container
sales that were particularly strong in the first quarter of 2003.
Operating profit for the first quarter of 2004 was $17,813,000 compared to
$15,487,000 in 2003, a 15.0% increase. The operating profit increase resulted
primarily from the Engine/Mobile segment's sales growth, from continued cost
reduction programs throughout each of the business segments, and from
restructuring and integration programs in the Industrial/Environmental segment.
The Engine/Mobile Filtration segment recorded an operating profit increase of
13.7% to $14,425,000 from $12,686,000 in 2003. This increase resulted primarily
from sales growth, cost reduction programs and favorable capacity utilization.
The segment's operating margin was 20.4% compared to 19.0% recorded in the first
quarter of 2003.
The Industrial/Environmental Filtration segment reported operating profit of
$3,252,000 in 2004 compared to $2,373,000 in 2003. Although sales were lower
overall for the quarter, cost reduction initiatives and restructuring and
integration programs benefited the segment's 2004 quarter. In addition,
increased sales of specialty process liquid filters, used primarily in aerospace
and aviation fuel systems, also improved operating profit. The segment's
operating margin improved to 3.7% compared to 2.6% in the 2003 quarter.
Page 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
The Packaging segment's operating profit in the 2004 quarter was $136,000
compared to $428,000 in 2003. The decrease resulted from reduced utilization of
facilities and unfavorable absorption related primarily to reduced plastic
product sales and metal container sales.
Net other income for the quarter of $585,000 included a gain of $720,000 related
to the sale of a building, interest expense of $118,000 and interest income of
$51,000. Net other expense in 2003 of $368,000 included interest expense of
$524,000 and interest income of $110,000. Interest expense was lower in 2004 due
to significantly lower debt balances during the 2004 quarter.
Earnings before income taxes and minority interests for the first quarter of
2004 totaled $18,398,000, compared to $15,119,000 in the comparable quarter last
year. The provision for income taxes in 2004 was $6,703,000 compared to
$5,516,000 in 2003. The effective rate was 36.4% in 2004 and 36.5% in 2003. The
Company expects that the overall effective tax rate for fiscal 2004 will be
approximately 36.5%.
Net earnings in the first quarter of the current year were $11,661,000, or $0.45
per share on a diluted basis. Net earnings in the first quarter of 2003 were
$9,596,000, or $0.38 per share on a diluted basis. Diluted average shares
outstanding were 25,813,606 at the end of the first quarter of 2004, an increase
of 1.8% from the average of 25,348,353 for the 2003 quarter.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased to $14,807,000 in first quarter
2004 compared to $13,218,000 in 2003, primarily due to increased net earnings.
In the first quarter of 2004, cash flows for investing activities totaled
$3,835,000 and included $5,242,000 used for plant asset additions offset by
$1,407,000 received from the sale of plant assets. In the 2003 quarter,
$3,017,000 was used for additions to plant assets. Cash flows used in financing
activities totaled $1,412,000 in 2004 and included $3,175,000 used for dividend
payments offset by $1,500,000 that was drawn on a line of credit. Cash flows
used in financing activities of $15,154,000 in 2003 included net repayments on
debt agreements of $12,264,000 and dividend payments of $3,052,000.
CLARCOR's current operations continue to generate cash and sufficient lines of
credit remain available to fund current operating needs, pay dividends, fund
planned capital expenditures, and provide for interest payments and required
principal payments related to the Company's debt agreements. At the end of the
first quarter of 2004, $1,500,000 was the outstanding balance on a $165 million
multicurrency revolving credit facility. The credit facility also includes a $40
million letter of credit line subline, against which $14,132,000 had been issued
at the end of the first quarter of 2004. Other long-term debt totaled
$17,553,000 at the end of the 2004 quarter and related principal payments in
2004 will be approximately $674,000. The Company is in compliance with all
covenants related to debt agreements.
The Company expects to continue to use future additional cash flow for
dividends, capital expenditures and acquisitions. Capital expenditures in fiscal
year 2004 are expected to be approximately $25 million to $30 million and will
be used primarily for normal facility improvements, productivity improvements,
improvements to technical centers, and to support new products. Early in the
second quarter of 2004, the Company acquired the operating assets of a small
engine filter company in England for approximately $5 million, subject to
finalization of assets acquired.
Page 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
Off-Balance Sheet Arrangements - The Company's off-balance sheet arrangements
relate to various operating leases. Commitments for noncancelable leases in 2004
total approximately $8,229,000. The Company had no derivative, swap, hedge,
variable interest entity or special purpose entity agreements during 2004 or in
fiscal 2003.
The following table summarizes the Company's fixed cash obligations for the
various future years ending November 30:
(Dollars in thousands)
2004 2005 & 2006 2007 & 2008 Thereafter
---- ----------- ----------- ----------
Long-Term Debt $ 674 $ 503 $ - $ 16,410
Credit Facility $ - $ - $ 1,500 $ -
Operating Leases $ 8,229 $ 10,705 $ 6,834 $ 9,933
While changes in customer demand for the Company's products will affect
operating cash flow, the Company is not aware of any known trends, demands or
reasonably likely events that would materially affect cash flow from operations
in the future. It is likely that cash flow from operations for fiscal 2004 will
be lower than the prior fiscal year due to additional investments in working
capital that may be required to support increased operations in fiscal 2004. In
addition, a higher level of capital expenditures is expected in fiscal 2004 than
in the prior year. 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.
The Company's financial position at the end of the first quarter reflected cash
and short-term investments of $18,150,000, an increase from $8,348,000 at
year-end 2003. As mentioned previously, subsequent to the end of the first
quarter, approximately $5 million of cash was used for a small asset
acquisition. At the end of the first quarter 2004 compared to year-end 2003,
accounts receivable were reduced by $4,394,000 primarily due to lower sales in
the first quarter of 2004 compared to the fourth quarter of 2003. Inventories
increased $3,958,000 from the year-end level due to inventory requirements for
increased shipments expected for the remainder of 2004. The changes in accounts
receivable and inventories at the end of the first quarter were consistent with
the normal seasonality changes between fiscal quarters. The current ratio at the
end of the first quarter was 2.5 compared to 2.3 at the end of fiscal 2003. The
ratio of total debt to total capitalization was 4.8% at the end of the 2004
first quarter compared to the year-end 2003 level of 4.5%. At the end of the
first quarter 2004, CLARCOR had 25,372,273 shares of common stock outstanding.
OTHER MATTERS
Market Risk
The Company's interest expense on long-term debt is sensitive to changes in
interest rates. In addition, changes in foreign currency exchange rates may
affect assets, liabilities and commitments that are to be settled in cash and
are denominated in foreign currencies. Market risks are also discussed in the
Company's Annual Report and Form 10-K for the year ended November 30, 2003 (the
"Annual Report") in the Financial Review on page 10.
Page 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
Critical Accounting Policies
The Company's critical accounting policies, including the assumptions and
judgments underlying them, are disclosed in the Company's Annual Report in the
Financial Review on page 10 and in the Notes to the Consolidated Financial
Statements on pages 16-24 and in the Notes to the Consolidated Condensed
Financial Statements included herein. 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 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.
Recent Accounting Pronouncements
Effective January 12, 2004, the FASB issued FASB Staff Position No. 106-1,
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003," (the Act). This Staff Position
permits a sponsor of a postretirement health care plan that provides a
prescription drug benefit to make a one-time election to defer accounting for
the effects of the Act until authoritative guidance on accounting for subsidies
provided by the Act is issued. The Act introduces a prescription drug benefit
under Medicare as well as a federal subsidy to sponsors of retiree health care
benefit plans. The Company does not anticipate that the Act will have a material
effect on the measurement of the Company's postretirement obligations.
On December 23, 2003, the FASB issued SFAS No. 132R, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This Statement requires
additional disclosures to be made by employers regarding pensions and other
postretirement benefit plans, but does not change the measurement or recognition
of those plans. The interim period disclosure requirements of the Statement are
effective for interim periods beginning after December 15, 2003. The Company
will adopt the interim provisions of this Statement beginning in the second
quarter of 2004. All other provisions of this Statement will be adopted in the
fourth quarter of 2004.
Outlook
Stronger sales growth for the Company overall is expected for the remainder of
2004. Continued sales growth is expected for the Engine/Mobile segment as a
result of continued improvement in aftermarket distribution, increased sales to
OEM dealers and sales of new products. Sales are expected to increase for the
Industrial/Environmental segment as the economy improves and additional facility
maintenance occurs. The Total Filtration Program is also expected to benefit
from the completion of the conversion 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. Sales and operating profit growth are
expected for the Packaging segment for 2004.
As a result of the anticipated overall sales growth for the Company combined
with continued cost control efforts for the remainder of the year, it is
expected that diluted earnings per share for 2004 will be in the $2.25 to $2.40
range. This range does not include estimated costs of approximately
Page 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
$0.07 per share related to moving the Company's headquarters to Nashville, TN.
The majority of these costs are expected to be incurred and paid during the
third quarter of fiscal 2004.
Continued emphasis on cost reductions and price changes within each business
unit are expected to offset costs that have recently been increasing for energy
and for purchased materials, primarily metal products. These costs for the
Company may change significantly based on future changes in the U.S. and world
economies. Capital investments will continue to be made in each segment's
facilities to improve productivity and to support new products. While the
Company fully anticipates that sales and profits will improve as a result of
sales initiatives and cost reductions, the Company has developed contingency
plans to reduce discretionary spending if unfavorable economic conditions
persist.
CLARCOR 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 assets
of a small engine filter company were acquired early in the second quarter of
2004. This acquisition will not materially affect operating results for 2004.
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
Certain statements quoted in the body of this report, and statements in the
"Outlook" section of this report are forward-looking. These statements involve
risk and uncertainty. Actual future results and trends may differ materially
depending on a variety of factors including: the volume and timing of orders
received during the period; the mix of changes in distribution channels through
which the Company's products are sold; the 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, energy costs, and purchasing patterns of distributors and
customers; competitive conditions in the industry; business cycles affecting the
markets in which the Company's products are sold; the effectiveness of plant
conversions, plant expansions and productivity improvement programs; the
management of both growth and acquisitions; the cost of the relocation of the
Company's corporate offices; the cost of compliance with recently enacted
regulatory requirements such as Sarbanes-Oxley Rule Section 404; the fluctuation
in interest rates, primarily LIBOR, which affect the cost of borrowing under its
revolving credit facility; the fluctuation in foreign and U.S. currency exchange
rates; extraordinary events such as litigation, acquisitions or divestitures
including related charges; market disruptions caused by domestic or
international conflicts; and economic conditions generally or in various
geographic areas. All of the foregoing matters are difficult to forecast. The
future results of the Company may fluctuate as a result of these and the other
risk factors detailed from time to time in the Company's Securities and Exchange
Commission reports.
Due to the foregoing items it is possible that in some future quarters the
Company's operating results will be below the expectation of some stock market
analysts and investors. In such event, the price of CLARCOR common stock could
be materially adversely affected.
Page 16
Part I - Item 3. Quantitative and Qualitative Disclosure About Market Risk.
The information required hereunder is set forth on Page 14 of the
Quarterly Report under the captions "Management's Discussion and
Analysis - Other Matters - Market Risk."
Part I - Item 4. Controls and Procedures.
The Company has established disclosure controls and procedures which
are designed to ensure that information required to be disclosed in
reports filed or submitted under the Securities Exchange Act of 1934
are recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commission's rules
and forms. Norman E. Johnson, Chairman of the Board, President, and
Chief Executive Officer and Bruce A. Klein, Vice President - Finance
and Chief Financial Officer, evaluated the effectiveness of the
Company's disclosure controls and procedures as of February 28, 2004.
Based on their evaluation, they concluded that the Company's
disclosure controls and procedures were effective in achieving the
objectives for which they were designed. No change in the Company's
internal control over financial reporting occurred during the
Company's most recent fiscal quarter ended February 28, 2004 that has
materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
Page 17
Part II - Other Information
Item 6 Exhibits and Reports on Form 8K
a. Exhibits:
31(i) Certification of Norman E. Johnson pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31(ii) Certification of Bruce A. Klein pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32(i) Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
c. Report Filed on Form 8-K During the First Quarter Ended February 28,
2004.
Form 8-K dated January 15, 2004 reporting Item 7--Financial
Statements and Exhibits and Item 5--Other Events. Item 7 (c)
included an exhibit 99.1, "CLARCOR Press Release dated January
15, 2004".
Page 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLARCOR INC.
(Registrant)
March 19, 2004 By /s/ Norman E. Johnson
--------------------------
(Date) Norman E. Johnson
Chairman of the Board, President and
Chief Executive Officer
March 19, 2004 By /s/ Bruce A. Klein
---------------------------
(Date) Bruce A. Klein
Vice President - Finance and
Chief Financial Officer
Page 19