Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-Q
x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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THE
SECURITIES EXCHANGE ACT OF 1934
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For
the quarterly period ended February 27, 2010
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
|
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THE
SECURITIES EXCHANGE ACT OF 1934
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For
the transition period from _______ to
________
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Commission
File Number 1-11024
CLARCOR
Inc.
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(Exact
name of registrant as specified in its
charter)
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DELAWARE
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|
36-0922490
|
(State or other jurisdiction of
incorporation or organization)
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|
(I.R.S. Employer
Identification No.)
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840
Crescent Centre Drive, Suite 600, Franklin, Tennessee
37067
|
(Address
of principal executive
offices)
|
Registrant’s
telephone number, including area code
|
615-771-3100
|
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 o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act:
Large
accelerated filer x
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|
Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting company o
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|
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2) Yes o No x
As of
February 27, 2010, 50,433,773 common shares with a par value of $1 per share
were outstanding.
TABLE OF CONTENTS
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PAGE
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Part
I – Financial Information
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Item
1.
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Financial
Statements
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3
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and
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Results
of Operations
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22
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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32
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Item
4.
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Controls
and Procedures
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32
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Part
II – Other Information
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Item
1.
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Legal
Proceedings
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33
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Item
1A.
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Risk
Factors
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33
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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33
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Item
3.
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Defaults
Upon Senior Securities
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*
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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*
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Item
5.
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Other
Information
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*
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Item
6.
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Exhibits
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33
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*
Item omitted because no answer is called for or item is not
applicable
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Part I – Item 1. Financial
Statements
CLARCOR
Inc.
CONSOLIDATED
CONDENSED BALANCE SHEETS
(Dollars
in thousands)
|
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February 27,
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November 28,
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|
|
2010
|
|
|
2009
|
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(Unaudited)
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ASSETS
|
|
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Current
assets:
|
|
|
|
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Cash
and cash equivalents
|
|
$ |
61,107 |
|
|
$ |
59,277 |
|
Restricted
cash
|
|
|
659 |
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|
762 |
|
Short-term
investments
|
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20,604 |
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32,171 |
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Accounts
receivable, less allowance for losses
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|
|
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of
$13,071 for 2010 and $15,150 for 2009
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162,168 |
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164,545 |
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Inventories:
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|
|
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Raw
materials
|
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|
58,259 |
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|
57,579 |
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Work
in process
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|
26,796 |
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23,405 |
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Finished
products
|
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79,718 |
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76,432 |
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Total
inventories
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|
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164,773 |
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|
157,416 |
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Deferred
income taxes
|
|
|
29,260 |
|
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|
27,567 |
|
Prepaid
expenses and other current assets
|
|
|
7,500 |
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|
6,790 |
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Total
current assets
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446,071 |
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448,528 |
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Plant
assets at cost,
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449,505 |
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447,241 |
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less
accumulated depreciation
|
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(263,030 |
) |
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|
(259,150 |
) |
|
|
|
186,475 |
|
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|
188,091 |
|
|
|
|
|
|
|
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Goodwill
|
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|
227,160 |
|
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228,182 |
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Acquired
intangibles, less accumulated amortization
|
|
|
94,777 |
|
|
|
95,990 |
|
Deferred
income taxes
|
|
|
630 |
|
|
|
630 |
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Other
noncurrent assets
|
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|
12,245 |
|
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|
12,469 |
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Total
assets
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$ |
967,358 |
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$ |
973,890 |
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LIABILITIES
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Current
liabilities:
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Current
portion of long-term debt
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$ |
92 |
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$ |
99 |
|
Accounts
payable
|
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|
57,016 |
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54,627 |
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Accrued
insurance liabilities
|
|
|
11,448 |
|
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10,572 |
|
Accrued
salaries, wages and commissions
|
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|
10,367 |
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|
8,599 |
|
Customer
deposits
|
|
|
9,749 |
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|
8,705 |
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Compensated
absences
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|
7,197 |
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|
7,903 |
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Other
accrued liabilities
|
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|
34,950 |
|
|
|
36,018 |
|
Income
taxes
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|
7,738 |
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|
5,419 |
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Total
current liabilities
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138,557 |
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131,942 |
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Long-term
debt, less current portion
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31,993 |
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52,096 |
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Postretirement
healthcare benefits
|
|
|
626 |
|
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|
689 |
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Long-term
pension liabilities
|
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|
62,344 |
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61,746 |
|
Deferred
income taxes
|
|
|
33,215 |
|
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|
32,136 |
|
Other
long-term liabilities
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|
4,653 |
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5,394 |
|
Total
liabilities
|
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|
271,388 |
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284,003 |
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Contingencies
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Redeemable
noncontrolling interest
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1,361 |
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1,412 |
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SHAREHOLDERS'
EQUITY
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Capital
stock
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50,434 |
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50,393 |
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Capital
in excess of par value
|
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|
39,663 |
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36,814 |
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Accumulated
other comprehensive loss
|
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|
(39,625 |
) |
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|
(32,879 |
) |
Retained
earnings
|
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|
642,239 |
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|
632,291 |
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Total
CLARCOR Inc. equity
|
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|
692,711 |
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|
686,619 |
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Noncontrolling
interests
|
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|
1,898 |
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|
1,856 |
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Total
shareholders' equity
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|
694,609 |
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|
688,475 |
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Total
liabilities and shareholders' equity
|
|
$ |
967,358 |
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|
$ |
973,890 |
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See Notes
to Consolidated Condensed Financial Statements
CLARCOR
Inc.
CONSOLIDATED
CONDENSED STATEMENTS OF EARNINGS
(Dollars
in thousands, except per share data)
(Unaudited)
|
|
Three Months Ended
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|
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|
February 27,
|
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|
February 28,
|
|
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|
2010
|
|
|
2009
|
|
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Net
sales
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|
$ |
215,131 |
|
|
$ |
213,690 |
|
Cost
of sales
|
|
|
145,326 |
|
|
|
152,707 |
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Gross
profit
|
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|
69,805 |
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|
60,983 |
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Selling
and administrative expenses
|
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|
46,909 |
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47,296 |
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|
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|
|
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Operating
profit
|
|
|
22,896 |
|
|
|
13,687 |
|
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|
|
|
|
|
|
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|
Other
income (expense):
|
|
|
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|
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|
Interest
expense
|
|
|
(123 |
) |
|
|
(928 |
) |
Interest
income
|
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|
21 |
|
|
|
142 |
|
Other,
net
|
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|
(392 |
) |
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|
(20 |
) |
|
|
|
|
|
|
|
|
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(494 |
) |
|
|
(806 |
) |
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Earnings
before income taxes
|
|
|
22,402 |
|
|
|
12,881 |
|
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|
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Provision
for income taxes
|
|
|
7,595 |
|
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|
4,096 |
|
|
|
|
|
|
|
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|
Net
earnings
|
|
|
14,807 |
|
|
|
8,785 |
|
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|
|
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|
|
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|
Less:
Net losses attributable to noncontrolling interests
|
|
|
(59 |
) |
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|
(6 |
) |
|
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|
Net
earnings attributable to CLARCOR Inc.
|
|
$ |
14,866 |
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$ |
8,791 |
|
|
|
|
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Net
earnings per share attributable to CLARCOR Inc:
|
|
|
|
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Basic
|
|
$ |
0.29 |
|
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$ |
0.17 |
|
Diluted
|
|
$ |
0.29 |
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|
$ |
0.17 |
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|
|
|
|
|
|
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|
Average
number of shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
50,594,234 |
|
|
|
51,059,182 |
|
Diluted
|
|
|
50,934,913 |
|
|
|
51,541,458 |
|
|
|
|
|
|
|
|
|
|
Dividends
paid per share
|
|
$ |
0.0975 |
|
|
$ |
0.0900 |
|
See Notes
to Consolidated Condensed Financial Statements
CLARCOR
Inc.
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars
in thousands)
(Unaudited)
|
|
Three Months Ended
|
|
|
|
February 27,
|
|
|
February 28,
|
|
|
|
2010
|
|
|
2009
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
earnings
|
|
$ |
14,807 |
|
|
$ |
8,785 |
|
Depreciation
|
|
|
6,989 |
|
|
|
6,921 |
|
Amortization
|
|
|
1,164 |
|
|
|
1,215 |
|
Stock-based
compensation expense
|
|
|
2,511 |
|
|
|
2,415 |
|
Excess
tax benefit from stock-based compensation
|
|
|
(127 |
) |
|
|
(422 |
) |
Changes
in short-term investments
|
|
|
11,567 |
|
|
|
(6,229 |
) |
Changes
in assets and liabilities, excluding short-term
|
|
|
|
|
|
|
|
|
investments
|
|
|
(1,647 |
) |
|
|
6,350 |
|
Other,
net
|
|
|
1 |
|
|
|
(82 |
) |
Net
cash provided by operating activities
|
|
|
35,265 |
|
|
|
18,953 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Additions
to plant assets
|
|
|
(5,996 |
) |
|
|
(6,955 |
) |
Proceeds
from disposition of plant assets
|
|
|
74 |
|
|
|
224 |
|
Business
acquisitions, net of cash acquired
|
|
|
- |
|
|
|
(6,075 |
) |
Proceeds
from insurance claim
|
|
|
557 |
|
|
|
- |
|
Investment
in affiliate
|
|
|
- |
|
|
|
(1,000 |
) |
Net
cash used in investing activities
|
|
|
(5,365 |
) |
|
|
(13,806 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
payments under line of credit
|
|
|
(20,000 |
) |
|
|
- |
|
Payments
on long-term debt
|
|
|
(29 |
) |
|
|
(45 |
) |
Sale
of capital stock under stock option
|
|
|
|
|
|
|
|
|
and
employee purchase plans
|
|
|
525 |
|
|
|
1,805 |
|
Excess
tax benefits from stock-based compensation
|
|
|
127 |
|
|
|
422 |
|
Cash
dividends paid
|
|
|
(4,933 |
) |
|
|
(4,596 |
) |
Net
cash used in financing activities
|
|
|
(24,310 |
) |
|
|
(2,414 |
) |
|
|
|
|
|
|
|
|
|
Net
effect of exchange rate changes on cash
|
|
|
(3,760 |
) |
|
|
(167 |
) |
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
1,830 |
|
|
|
2,566 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
59,277 |
|
|
|
40,715 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$ |
61,107 |
|
|
$ |
43,281 |
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
1,037 |
|
|
$ |
340 |
|
Income
taxes
|
|
$ |
6,328 |
|
|
$ |
3,708 |
|
See Notes
to Consolidated Condensed Financial Statements
CLARCOR
Inc.
|
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
(Dollars
in thousands, except per share data)
|
(Unaudited)
|
1.
|
CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
|
Basis of
Presentation
The
Consolidated Condensed Balance Sheet as of February 27, 2010, the Consolidated
Condensed Statements of Earnings and the Consolidated Condensed Statements of
Cash Flows for the periods ended February 27, 2010 and February 28, 2009, have
been prepared by CLARCOR Inc. (“CLARCOR” or “the Company”) without audit.
The Consolidated Condensed Financial Statements have been prepared on the same
basis as those in the Company’s Annual Report on Form 10-K for the fiscal year
ended November 28, 2009 (“2009 Form 10-K”). The November 28, 2009
Consolidated Balance Sheet data was derived from the Company’s year-end audited
Consolidated Financial Statements as presented in the 2009 Form 10-K but does
not include all disclosures required by accounting principles generally accepted
in the United States of America. 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 Company performed a review of subsequent events through the
date the Consolidated Condensed Financial Statements were issued, and concluded
no events or transactions occurred during that period requiring recognition or
disclosure. The results of operations for the period ended February 27,
2010, are not necessarily indicative of the operating results for the full
year.
New Accounting
Guidance
In
December 2008, the Financial Accounting Standards Board (“FASB”) expanded the
required disclosures for pension and other postretirement plans by requiring
disclosures about how investment allocation decisions are made by management,
major categories of plan assets and significant concentration of risk.
Additionally, an employer is required to disclose information about the
valuation of plan assets. This accounting guidance is effective for the
Company’s fiscal year 2010 year-end and will affect the disclosures in the
annual Consolidated Financial Statements.
In June
2008, the FASB issued guidance that requires that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) be considered participating securities and be included
in the computation of earnings per share pursuant to the two-class method.
The Company’s unvested restricted stock unit awards discussed in Note 3 qualify
as participating securities under this guidance. The impact of adopting
this guidance on November 29, 2009 was not material to the Consolidated
Condensed Financial Statements.
In
December 2007, the FASB issued guidance affecting the accounting for businesses
acquired, the presentation of noncontrolling interests, previously called
minority interests, and requiring that assets acquired or liabilities assumed in
a business combination and arising from a contingency be recognized at fair
value at the acquisition date if the acquisition date fair value can be
determined during the measurement period. The Company adopted this
guidance on November 29, 2009. The guidance dealing with noncontrolling
interests was retrospectively applied to all prior period information for
presentation and disclosure requirements and resulted in the reclassification of
certain prior year amounts. For all periods presented, noncontrolling
interests are classified in the Consolidated Condensed Balance Sheets as either
a separate component of shareholders’ equity or as redeemable noncontrolling
interests. Net earnings attributable to CLARCOR and the noncontrolling
interests are reflected in the Consolidated Condensed Statements of
Earnings. Payments for the acquisition of noncontrolling interests in
entities of which the Company did not previously have control are included in
investing activities in the Consolidated Condensed Statements of Cash
Flows. Payments for acquisitions of noncontrolling interest in entities of
which the Company did have previous control are treated as equity transactions
and are included in financing activities in the Consolidated Condensed
Statements of Cash Flows. Prior to the adoption of this guidance, payments
related to controlled entities were also included in investing
activities.
CLARCOR
Inc.
|
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
(Dollars
in thousands, except per share data)
|
(Unaudited)
|
2.
|
INVESTMENTS AND
REDEEMABLE NONCONTROLLING
INTERESTS
|
Investments
Effective
May 1, 2008, the Company acquired a 30% share in BioProcessH2O LLC
(“BPH”), a Rhode Island based manufacturer of industrial waste water and water
reuse filtration systems, for $4,000. Under the terms of the agreement
with BPH, the Company has the right, but not the obligation, to acquire
additional ownership shares and eventually complete ownership of the company
over several years at a price based on, among other factors, BPH’s operating
income. The investment, with a carrying amount of $3,451 included in other
noncurrent assets, is being accounted for under the equity method of
accounting. The carrying amount is adjusted each period to recognize the
Company’s share of the earnings or losses of the investee based on the
percentage of ownership, as well as the receipt of any dividends. During
the three months ended February 27, 2010, the Company received dividends of $382
from BPH. The equity investment is periodically reviewed for indicators of
impairment. The Company’s share of undistributed earnings was not material
at February 27, 2010 or November 28, 2009.
Redeemable Noncontrolling
Interests
In March
2007, the Company acquired an 80% ownership share in Sinfa SA (“SINFA”), a
manufacturer of automotive and heavy-duty engine filters based in Casablanca,
Morocco. As part of the purchase agreement, the Company and the
noncontrolling owners each have an option to require the purchase of the
remaining 20% ownership shares by the Company after December 31, 2012 which
would result in SINFA becoming a wholly owned subsidiary. The remaining
20% of SINFA owned by the noncontrolling owners has been reported as redeemable
noncontrolling interests and classified as mezzanine equity in the Consolidated
Condensed Balance Sheets. The redeemable noncontrolling interests will be
accreted to the redemption price, through equity, at the point at which the
redemption becomes probable.
3.
|
INCENTIVE PLANS AND
STOCK-BASED COMPENSATION
|
On March
23, 2009, the shareholders of CLARCOR approved the 2009 Incentive Plan, which
replaced the 2004 Incentive Plan. The 2009 Incentive Plan allows the
Company to grant stock options, restricted stock unit awards, restricted stock,
performance awards and other awards to officers, directors and key employees of
up to 3,800,000 shares during a ten-year period that ends in December
2019. Upon share option exercise or restricted stock unit award
conversion, the Company issues new shares unless treasury shares are
available. The key provisions of the Company’s stock-based incentive plans
are described in Note N of the Company’s consolidated financial statements
included in the 2009 Form 10-K.
Stock
Options
Nonqualified
stock options are granted at exercise prices equal to the market price of
CLARCOR common stock at the date of grant, which is the date the Board of
Directors approves the grant and the participants receive it. The
Company’s Board of Directors determines the vesting requirements for stock
options at the time of grant and may accelerate vesting. In general,
options granted to key employees vest 25% per year beginning at the end of the
first year; therefore, they become fully exercisable at the end of four
years. Vesting may be accelerated in the event of retirement, disability
or death of a participant or change in control of the Company. Options
granted to non-employee directors vest immediately. All options expire ten
years from the date of grant unless otherwise terminated.
CLARCOR
Inc.
|
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
(Dollars
in thousands, except per share data)
|
(Unaudited)
|
The
following table summarizes compensation expense related to stock options during
the three months ended February 27, 2010 and February 28, 2009.
|
|
Three Months Ended
|
|
|
|
February 27,
|
|
|
February 28,
|
|
|
|
2010
|
|
|
2009
|
|
Pre-tax
compensation expense
|
|
$ |
1,778 |
|
|
$ |
1,657 |
|
Tax
benefits
|
|
|
(602 |
) |
|
|
(527 |
) |
Excess
tax benefits associated with tax deductions over the amount of
compensation expense recognized in the consolidated condensed financial
statements
|
|
|
152 |
|
|
|
517 |
|
The
following table summarizes activity with respect to stock options granted by the
Company and includes options granted under the 1994 Incentive Plan, the 2004
Incentive Plan and the 2009 Incentive Plan.
|
|
Shares
Granted under
Incentive Plans
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding
at beginning of year
|
|
|
3,229,187 |
|
|
$ |
27.43 |
|
Granted
|
|
|
423,460 |
|
|
$ |
32.31 |
|
Exercised
|
|
|
(19,550 |
) |
|
$ |
12.27 |
|
Surrendered
|
|
|
(7,950 |
) |
|
$ |
33.79 |
|
Outstanding
at February 27, 2010
|
|
|
3,625,147 |
|
|
$ |
28.07 |
|
|
|
|
|
|
|
|
|
|
Options
exercisable at February 27, 2010
|
|
|
2,634,713 |
|
|
$ |
26.10 |
|
At
February 27, 2010, there was $4,309 of unrecognized compensation cost related to
option awards which the Company expects to recognize over a weighted-average
period of 2.9 years.
CLARCOR
Inc.
|
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
(Dollars
in thousands, except per share data)
|
(Unaudited)
|
The
following table summarizes information about the Company’s outstanding and
exercisable options at February 27, 2010.
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of
Exercise Prices
|
|
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Intrinsic
Value
|
|
|
Weighted
Average
Remaining
Life in Years
|
|
|
Number
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Intrinsic
Value
|
|
|
Weighted
Average
Remaining
Life in Years
|
|
$9.25
- $13.75
|
|
|
195,784 |
|
|
$ |
12.36 |
|
|
$ |
3,993 |
|
|
|
1.41 |
|
|
|
195,784 |
|
|
$ |
12.36 |
|
|
$ |
3,993 |
|
|
|
1.41 |
|
$16.01
- $22.80
|
|
|
792,445 |
|
|
$ |
20.34 |
|
|
|
9,833 |
|
|
|
2.85 |
|
|
|
792,445 |
|
|
$ |
20.34 |
|
|
|
9,833 |
|
|
|
2.85 |
|
$25.31
- $32.30
|
|
|
1,395,708 |
|
|
$ |
29.06 |
|
|
|
5,153 |
|
|
|
6.46 |
|
|
|
975,983 |
|
|
$ |
27.67 |
|
|
|
4,962 |
|
|
|
5.01 |
|
$32.78
- $38.23
|
|
|
1,241,210 |
|
|
$ |
34.38 |
|
|
|
- |
|
|
|
7.64 |
|
|
|
670,501 |
|
|
$ |
34.64 |
|
|
|
- |
|
|
|
7.27 |
|
|
|
|
3,625,147 |
|
|
$ |
28.07 |
|
|
$ |
18,979 |
|
|
|
5.80 |
|
|
|
2,634,713 |
|
|
$ |
26.10 |
|
|
$ |
18,788 |
|
|
|
4.67 |
|
The
following table summarizes information about stock option exercises during the
three months ended February 27, 2010 and February 28, 2009.
|
|
Three Months Ended
|
|
|
|
February 27,
|
|
|
February 28,
|
|
|
|
2010
|
|
|
2009
|
|
Fair
value of options exercised
|
|
$ |
71 |
|
|
$ |
425 |
|
Total
intrinsic value of options exercised
|
|
|
419 |
|
|
|
1,369 |
|
Cash
received upon exercise of options
|
|
|
240 |
|
|
|
1,498 |
|
Tax
benefit realized from exercise of options
|
|
|
152 |
|
|
|
502 |
|
The
weighted average fair value per option at the date of grant for options granted
during the three months ended February 27, 2010 and February 28, 2009, was $8.38
and $7.58, 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.
|
|
Three Months Ended
|
|
|
|
February 27,
|
|
|
February 28,
|
|
|
|
2010
|
|
|
2009
|
|
Risk-free
interest rate
|
|
|
2.76 |
% |
|
|
1.81 |
% |
Expected
dividend yield
|
|
|
1.25 |
% |
|
|
0.96 |
% |
Expected
volatility factor
|
|
|
26.28 |
% |
|
|
24.23 |
% |
Expected
option term in years
|
|
|
5.7 |
|
|
|
5.6 |
|
The
expected life selected for options granted during each year presented represents
the period of time that the options are expected to be outstanding based on
historical data of option holder exercise and termination behavior.
Expected volatilities are based upon historical volatility of the Company’s
monthly stock closing prices over a period equal to the expected life of each
option grant. The risk-free interest rate is selected based on yields from
U.S. Treasury zero-coupon issues with a remaining term approximately equal to
the expected term of the options being valued.
CLARCOR
Inc.
|
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
(Dollars
in thousands, except per share data)
|
(Unaudited)
|
Restricted Stock Unit
Awards
The
Company’s restricted stock unit awards are considered nonvested share
awards. The restricted stock unit awards require no payment from the
employee. Compensation cost is recorded based on the market price of the
stock 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 the amount of dividends declared on common shares they
would have been entitled to receive had the shares been issued. Upon
vesting, employees may elect to defer receipt of their shares. There were
101,629 and 99,265 vested and deferred shares at February 27, 2010 and November
28, 2009, respectively.
The
following table summarizes compensation expense related to restricted stock unit
awards during the periods presented.
|
|
Three Months Ended
|
|
|
|
February 27,
|
|
|
February 28,
|
|
|
|
2010
|
|
|
2009
|
|
Pre-tax
compensation expense
|
|
$ |
733 |
|
|
$ |
758 |
|
Tax
benefits
|
|
|
(248 |
) |
|
|
(241 |
) |
Excess
tax expense associated with tax deductions under the amount of
compensation expense recognized in the consolidated condensed financial
statements
|
|
|
(25 |
) |
|
|
(95 |
) |
The
following table summarizes the restricted stock unit awards.
|
|
Shares
Granted under
Incentive Plans
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Nonvested
at beginning of year
|
|
|
67,476 |
|
|
$ |
34.01 |
|
Granted
|
|
|
34,128 |
|
|
$ |
32.30 |
|
Vested
|
|
|
(21,727 |
) |
|
$ |
34.15 |
|
Nonvested
at February 27, 2010
|
|
|
79,877 |
|
|
$ |
33.24 |
|
The total
fair value of shares vested during the three months ended February 27, 2010 and
February 28, 2009 was $742 and $614, respectively.
The
Company has recognized $1,687 of compensation cost prior to February 27, 2010
related to nonvested restricted stock unit awards. As of February 27,
2010, there was $968 of total unrecognized compensation cost related to
nonvested restricted stock unit awards that the Company expects to recognize
during fiscal years 2010 through 2013.
CLARCOR
Inc.
|
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
(Dollars
in thousands, except per share data)
|
(Unaudited)
|
4.
|
COMPREHENSIVE
EARNINGS
|
Total
comprehensive earnings and its components are as follows:
|
|
|
|
|
Other Comprehensive Earnings, Net of Tax:
|
|
|
|
|
|
|
Net Earnings
|
|
|
Foreign Currency and
Other Adjustments
|
|
|
Pension Liability
Adjustments
|
|
|
Comprehensive
Earnings
|
|
Three
Months Ended February 27, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
CLARCOR
Inc.
|
|
$ |
14,866 |
|
|
$ |
(7,369 |
) |
|
$ |
623 |
|
|
$ |
8,120 |
|
Non-redeemable
noncontrolling interests
|
|
|
45 |
|
|
|
(3 |
) |
|
|
- |
|
|
|
42 |
|
Redeemable
noncontrolling interests
|
|
|
(104 |
) |
|
|
53 |
|
|
|
- |
|
|
|
(51 |
) |
|
|
$ |
14,807 |
|
|
$ |
(7,319 |
) |
|
$ |
623 |
|
|
$ |
8,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended February 28, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLARCOR
Inc.
|
|
$ |
8,791 |
|
|
$ |
(3,314 |
) |
|
$ |
217 |
|
|
$ |
5,694 |
|
Non-redeemable
noncontrolling interests
|
|
|
95 |
|
|
|
1 |
|
|
|
- |
|
|
|
96 |
|
Redeemable
noncontrolling interests
|
|
|
(101 |
) |
|
|
8 |
|
|
|
- |
|
|
|
(93 |
) |
|
|
$ |
8,785 |
|
|
$ |
(3,305 |
) |
|
$ |
217 |
|
|
$ |
5,697 |
|
The
components of the ending balances of accumulated other comprehensive loss are as
follows:
|
|
February 27,
|
|
|
November 28,
|
|
|
|
2010
|
|
|
2009
|
|
Pension
liability, net of tax of $23,178 and $22,796
|
|
$ |
(38,589 |
) |
|
$ |
(39,212 |
) |
Translation
adjustments, net of tax of $155 and $155
|
|
|
(1,036 |
) |
|
|
6,333 |
|
Accumulated
other comprehensive loss
|
|
$ |
(39,625 |
) |
|
$ |
(32,879 |
) |
5.
|
GOODWILL AND ACQUIRED
INTANGIBLES ASSETS
|
The
following table reconciles the activity for goodwill by segment for the three
months ended February 27, 2010. All goodwill is stated on a gross basis,
as the Company has not recorded any impairment charges against
goodwill.
|
|
Engine/Mobile
Filtration
|
|
|
Industrial/
Environmental
Filtration
|
|
|
Packaging
|
|
|
Total
|
|
Balance
at November 28, 2009
|
|
$ |
22,551 |
|
|
$ |
205,631 |
|
|
$ |
- |
|
|
$ |
228,182 |
|
Acquisitions
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Currency
translation adjustments
|
|
|
(1,013 |
) |
|
|
(9 |
) |
|
|
- |
|
|
|
(1,022 |
) |
Balance
at February 27, 2010
|
|
$ |
21,538 |
|
|
$ |
205,622 |
|
|
$ |
- |
|
|
$ |
227,160 |
|
CLARCOR
Inc.
|
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
(Dollars
in thousands, except per share data)
|
(Unaudited)
|
The
following table summarizes acquired intangibles by segment. Other acquired
intangibles includes parts manufacturer regulatory approvals, developed
technology, patents and non-compete agreements.
|
|
Engine/Mobile
Filtration
|
|
|
Industrial/
Environmental
Filtration
|
|
|
Packaging
|
|
|
Total
|
|
Balance
at February 27, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks,
gross - indefinite lived
|
|
$ |
603 |
|
|
$ |
41,022 |
|
|
$ |
- |
|
|
$ |
41,625 |
|
Trademarks,
gross - finite lived
|
|
|
307 |
|
|
|
488 |
|
|
|
- |
|
|
|
795 |
|
Accumulated
amortization
|
|
|
(47 |
) |
|
|
(279 |
) |
|
|
- |
|
|
|
(326 |
) |
Trademarks,
net
|
|
|
863 |
|
|
|
41,231 |
|
|
|
- |
|
|
|
42,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships, gross
|
|
|
4,122 |
|
|
|
34,194 |
|
|
|
- |
|
|
|
38,316 |
|
Accumulated
amortization
|
|
|
(1,252 |
) |
|
|
(8,793 |
) |
|
|
- |
|
|
|
(10,045 |
) |
Customer
relationships, net
|
|
|
2,870 |
|
|
|
25,401 |
|
|
|
- |
|
|
|
28,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
acquired intangibles, gross
|
|
|
243 |
|
|
|
35,921 |
|
|
|
- |
|
|
|
36,164 |
|
Accumulated
amortization
|
|
|
(243 |
) |
|
|
(11,509 |
) |
|
|
- |
|
|
|
(11,752 |
) |
Other
acquired intangibles, net
|
|
|
- |
|
|
|
24,412 |
|
|
|
- |
|
|
|
24,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,733 |
|
|
$ |
91,044 |
|
|
$ |
- |
|
|
$ |
94,777 |
|
The following table summarizes
estimated amortization expense for the next five fiscal years.
Fiscal
year 2010
|
|
$ |
4,669 |
|
Fiscal
year 2011
|
|
|
4,589 |
|
Fiscal
year 2012
|
|
|
4,574 |
|
Fiscal
year 2013
|
|
|
4,477 |
|
Fiscal
year 2014
|
|
|
4,340 |
|
CLARCOR
Inc.
|
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
(Dollars
in thousands, except per share data)
|
(Unaudited)
|
6.
|
FAIR VALUE
MEASUREMENTS
|
The
Company measures certain assets and liabilities at fair value as discussed
throughout the notes to its quarterly and annual financial statements. Assets or
liabilities that have recurring measurements are shown below:
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices
in Active Markets
for Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at February 27, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
$ |
20,604 |
|
|
$ |
20,604 |
|
|
$ |
- |
|
|
$ |
- |
|
Restricted
trust (part of noncurrent
assets)
|
|
|
1,350 |
|
|
|
1,350 |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at November 28, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
investments
|
|
$ |
32,171 |
|
|
$ |
32,171 |
|
|
$ |
- |
|
|
$ |
- |
|
Restricted
trust (part of noncurrent
assets)
|
|
|
1,419 |
|
|
|
1,419 |
|
|
|
- |
|
|
|
- |
|
Interest
rate agreement (part of
current liabilities)
|
|
|
(961 |
) |
|
|
- |
|
|
|
(961 |
) |
|
|
- |
|
The
Company’s short-term investments primarily consist of tax-exempt municipal money
market funds which are actively traded. The restricted trust, which is
used to fund certain payments for the Company’s U.S. combined nonqualified
pension plans, consists of actively traded equity and bond funds. The
interest rate agreement’s fair value was determined using the present value of
expected future cash flows using forward rates as of November 28, 2009 and
discount rates commensurate with the risks associated with those cash
flows. The interest rate agreement expired January 1, 2010. There
were no changes in fair value determination methods or significant assumptions
used in those methods during the three months ended February 27,
2010.
The fair
values of the Company’s financial instruments, which are cash, accounts
receivable, short-term investments, the restricted trust and the interest rate
agreement (only at November 28, 2009), approximated the carrying values of those
financial instruments at both February 27, 2010 and November 28, 2009. An
expected present value technique is used to estimate the fair value of long-term
debt. A fair value estimate of $30,768 and $49,513 for long-term debt at
February 27, 2010 and November 28, 2009, respectively, is based on the current
interest rates available to the Company for debt with similar remaining
maturities. The carrying value for the long-term debt at February 27, 2010
and November 28, 2009 is $32,085 and $52,195, respectively.
7.
|
GUARANTEES AND
WARRANTIES
|
The
Company has provided letters of credit totaling approximately $23,433 and
$23,395 as of February 27, 2010 and November 28, 2009, respectively, to various
government agencies, primarily related to industrial revenue bonds, and to
insurance companies and other commercial entities in support of its obligations.
The Company believes that no payments will be required resulting from these
obligations.
CLARCOR
Inc.
|
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
(Dollars
in thousands, except per share data)
|
(Unaudited)
|
In the
ordinary course of business, the Company also provides routine indemnifications
and other guarantees whose terms range in duration and are often 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.
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 three months ended February 27,
2010 and February 28, 2009, are as follows:
Balance
at November 28, 2009
|
|
$ |
3,989 |
|
Accruals
for warranties issued during the period
|
|
|
148 |
|
Accruals
related to pre-existing warranties
|
|
|
23 |
|
Settlements
made during the period
|
|
|
(178 |
) |
Other
adjustments, including currency translation
|
|
|
(131 |
) |
Balance
at February 27, 2010, included in other accrued
liabilities
|
|
$ |
3,851 |
|
|
|
|
|
|
Balance
at November 27, 2008
|
|
$ |
2,494 |
|
Accruals
for warranties issued during the period
|
|
|
157 |
|
Accruals
related to pre-existing warranties
|
|
|
73 |
|
Settlements
made during the period
|
|
|
(167 |
) |
Other
adjustments, including currency translation
|
|
|
(8 |
) |
Balance
at February 28, 2009, included in other accrued
liabilities
|
|
$ |
2,549 |
|
8.
|
LONG-TERM DEBT AND
INTEREST RATE AGREEMENT
|
On
December 18, 2007, the Company entered into a five-year multicurrency revolving
credit agreement (“Credit Facility”) with a group of financial institutions
under which it may borrow up to $250,000 under a selection of currencies and
rate formulas. The Credit Facility interest rate is based upon, at the
Company’s election, either a defined Base Rate or the London Interbank Offered
Rate (“LIBOR”) plus or minus applicable margins. Commitment fees, letter
of credit fees and other fees are also payable as provided in the credit
agreement. At February 27, 2010, long-term debt included $15,000
outstanding on the Credit Facility.
The
Company’s significant accounting policies for derivative instruments are
described in Note A of the 2009 Form 10-K. On January 2, 2008, the Company
entered into a fixed rate interest swap agreement to manage its interest rate
exposure on certain amounts outstanding under the Credit Facility. The
interest rate agreement expired January 1, 2010. The interest rate
agreement provided for the Company to receive interest at floating rates based
on LIBOR and pay a 3.93% fixed interest rate plus an applicable margin on a
notional amount of $100,000. Payments pursuant to the interest rate
agreement were settled on a net basis quarterly. Hedge accounting was not
applied to the fixed rate interest swap agreement and therefore, unrealized
gains or losses were recorded in interest expense in the Consolidated Condensed
Statements of Earnings. Periodic settlement payments or receipts were
recorded as a component of cash flows from operating activities in the
Consolidated Condensed Statements of Cash Flows.
CLARCOR
Inc.
|
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
(Dollars
in thousands, except per share data)
|
(Unaudited)
|
At
November 28, 2009, the Company had the following derivative in a liability
position.
|
|
Derivatives In Liability Position
|
|
|
|
|
|
|
|
Derivatives Not Designated
as Hedging Instruments
|
|
Consolidated Balance
Sheet Location
|
|
Fair
Value
|
|
|
|
|
|
|
|
November 28, 2009
|
|
|
|
|
|
Fixed
rate interest swap agreement
|
|
Current
liabilities
|
|
$ |
961 |
|
Total
|
|
|
|
$ |
961 |
|
The
following table reflects the loss on the interest rate agreement for the three
months ended February 27, 2010 and February 28, 2009, respectively.
Derivatives Not Designated
as Hedging Instruments
|
|
Location of Loss
on Interest Rate
Agreement
|
|
Amount of Loss on Interest
Rate Agreement
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
February 27,
2010
|
|
|
February 28,
2009
|
|
Fixed
rate interest swap agreement
|
|
Interest
expense
|
|
$ |
- |
|
|
$ |
(618 |
) |
The
Company made net settlement payments on the fixed interest rate swap agreement
of $961 and $13 for the three months ended February 27, 2010 and February 28,
2009, respectively.
CLARCOR
Inc.
|
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
(Dollars
in thousands, except per share data)
|
(Unaudited)
|
9.
|
PENSION AND OTHER
POSTRETIREMENT PLANS
|
The
Company provides various retirement benefits, including defined benefit plans
and postretirement healthcare plans covering certain current and retired
employees in the U.S. and abroad. Components of net periodic benefit cost
and Company contributions for these plans were as follows:
|
|
Three Months Ended
|
|
|
|
February 27,
|
|
|
February 28,
|
|
|
|
2010
|
|
|
2009
|
|
Pension Benefits:
|
|
|
|
|
|
|
Components
of net periodic benefit cost:
|
|
|
|
|
|
|
Service
cost
|
|
$ |
528 |
|
|
$ |
450 |
|
Interest
cost
|
|
|
2,039 |
|
|
|
2,297 |
|
Expected
return on plan assets
|
|
|
(1,785 |
) |
|
|
(1,713 |
) |
Amortization
of unrecognized:
|
|
|
|
|
|
|
|
|
Prior
service cost
|
|
|
(99 |
) |
|
|
33 |
|
Net
actuarial loss
|
|
|
1,201 |
|
|
|
389 |
|
Net
periodic benefit cost
|
|
$ |
1,884 |
|
|
$ |
1,456 |
|
|
|
|
|
|
|
|
|
|
Cash
contributions
|
|
$ |
93 |
|
|
$ |
390 |
|
|
|
Three Months Ended
|
|
|
|
February 27,
|
|
|
February 28,
|
|
|
|
2010
|
|
|
2009
|
|
Postretirement Healthcare
Benefits:
|
|
|
|
|
|
|
Components
of net periodic benefit income:
|
|
|
|
|
|
|
Interest
cost
|
|
$ |
8 |
|
|
$ |
15 |
|
Amortization
of unrecognized:
|
|
|
|
|
|
|
|
|
Prior
service cost
|
|
|
(31 |
) |
|
|
(31 |
) |
Net
actuarial gain
|
|
|
(32 |
) |
|
|
(46 |
) |
Net
periodic benefit income
|
|
$ |
(55 |
) |
|
$ |
(62 |
) |
|
|
|
|
|
|
|
|
|
Cash
contributions
|
|
$ |
39 |
|
|
$ |
50 |
|
The
Company’s policy is to contribute to its qualified U.S. and non-U.S. pension
plans at least the minimum amount required by applicable laws and regulations,
to contribute to the U.S. combined nonqualified plans when required for benefit
payments, and to contribute to the postretirement healthcare benefit plan an
amount equal to the benefit payments. The Company, from time to time,
makes voluntary contributions in excess of the minimum amount required as
economic conditions warrant. The Company expects to contribute up to
$6,700 to its U.S. qualified plans, $5,719 to its U.S. combined nonqualified
plans, $407 to its non-U.S. plan and $154 to its postretirement healthcare
benefit plan to pay benefits during 2010.
CLARCOR
Inc.
|
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
(Dollars
in thousands, except per share data)
|
(Unaudited)
|
In
addition to the plan assets related to its qualified plans, the Company has also
funded $1,350 and $1,419 at February 27, 2010 and November 28, 2009,
respectively, into a restricted trust for its U.S. combined nonqualifed plans.
This trust is included in other noncurrent assets in the Consolidated Condensed
Balance Sheets.
The
following is a reconciliation of the beginning and ending amount of gross
unrecognized tax benefits for uncertain tax positions, including positions which
impact only the timing of tax benefits, for the three months ended February 27,
2010 and February 28, 2009.
Balance
at November 28, 2009
|
|
$ |
2,161 |
|
Changes
for current period tax positions
|
|
|
(146 |
) |
Changes
for prior period tax positions
|
|
|
39 |
|
Changes
in interest and penalties
|
|
|
(6 |
) |
Balance
at February 27, 2010
|
|
$ |
2,048 |
|
|
|
|
|
|
Balance
at November 27, 2008
|
|
$ |
1,970 |
|
Changes
for current period tax positions
|
|
|
68 |
|
Changes
for prior period tax positions
|
|
|
2 |
|
Changes
in interest and penalties
|
|
|
73 |
|
Balance
at February 28, 2009
|
|
$ |
2,113 |
|
At
February 27, 2010, the amount of unrecognized tax benefit, that would impact the
effective tax rate if recognized, was $1,984. The Company recognizes
interest and penalties related to unrecognized benefits in income tax
expense. As of February 27, 2010, the Company had $477 accrued for the
payment of interest and penalties. Due to the various jurisdictions in
which the Company files tax returns and the uncertainty regarding the timing of
settlements it is possible that there could be other significant changes in the
amount of unrecognized tax benefits in fiscal year 2010; however, the amount
cannot be estimated.
The
Company is regularly audited by federal, state and foreign tax
authorities. The Internal Revenue Service has completed its audits of the
Company’s U.S. income tax returns through fiscal year 2005 and is currently
auditing 2006 through 2008. With few exceptions, the Company is no longer
subject to income tax examinations by state or foreign tax jurisdictions for
years prior to 2004.
11.
|
RESTRUCTURING
CHARGES
|
As
discussed more fully in the 2009 Form 10-K, in July 2006, the Company began a
restructuring program focused on the heating, ventilating and air conditioning
(“HVAC”) filter manufacturing operations within its Industrial/Environmental
Filtration segment. The HVAC restructuring program was substantially
complete in fiscal year 2009. At November 28, 2009, accrued severance of
$28 related to Kentucky facilities, was included in accrued liabilities.
At February 27, 2010, all restructuring expenses were paid.
The
Company did not incur any restructuring expenses during the three months ended
February 27, 2010.
CLARCOR
Inc.
|
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
(Dollars
in thousands, except per share data)
|
(Unaudited)
|
During
the first quarter of fiscal 2009, the Company consolidated four Louisville,
Kentucky area facilities into one location in Jeffersonville, Indiana to realize
cost savings and efficiency benefits. Restructuring severance costs of $26 were
expensed and were included in cost of sales in the Consolidated Condensed
Statements of Earnings for the three months ended February 28,
2009.
During
the first quarter of fiscal 2009, the Company recorded restructuring expenses of
$27 related to the Henderson, North Carolina location mainly for facility
consolidation and employee termination costs. These expenses were included
in cost of sales in the Consolidated Condensed Statements of Earnings for the
three months ended February 28, 2009. Minimal additional restructuring
charges related to facility consolidation costs will be recognized when the
Company exits that facility. In addition to costs classified as
restructuring expenses, the Company has incurred and will continue to incur
other non-restructuring costs related to this facility until it is
sold.
During
the second quarter of fiscal year 2008, the Company discontinued production at
an HVAC filter manufacturing plant in Davenport, Iowa. The Company did not
incur any restructuring expenses related to the Davenport, Iowa location during
the three months ended February 28, 2009. Minimal additional restructuring
charges related to contract termination costs and facility consolidation costs
will be recognized when the Company exits a lease related to that facility in
2012. In addition to costs classified as restructuring expenses, the
Company has incurred and will continue to incur other non-restructuring costs
related to this facility until the expiration of the lease.
During
June 2009, an Industrial/Environmental Filtration segment warehouse that the
Company leases was damaged by fire. A loss of $250, representing the
Company’s deductible, was recorded in cost of sales for the quarter ended August
29, 2009. During September 2009, the Company received $500 from the
insurance company. During February 2010, the Company received insurance
proceeds of $557. The Company does not expect to collect any further
amounts related to this claim.
Legal
Contingencies
From time
to time, the Company is subject to lawsuits, investigations and disputes (some
of which involve substantial claimed amounts) arising out of the conduct of its
business, including matters relating to commercial transactions, product
liability, intellectual property, and other matters. Included in these
other matters are the following:
Donaldson
On May
15, 2009, Donaldson Company, Inc. (“Donaldson”) filed a lawsuit in the U.S.
Federal District Court for the District of Minnesota alleging that certain
“ChannelFlow®” engine/mobile filters manufactured and sold by a subsidiary of
the Company infringe one or more patents held by Donaldson. Through
this lawsuit Donaldson seeks various remedies, including injunctive relief and
monetary damages of an unspecified amount. Management believes that
the products in question do not infringe the asserted patents and that such
patents are invalid. The Company is vigorously defending the
action.
CLARCOR
Inc.
|
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
(Dollars
in thousands, except per share data)
|
(Unaudited)
|
Antitrust
On March
31, 2008, S&E Quick Lube, a filter distributor, filed suit in U.S. District
Court for the District of Connecticut alleging that virtually every major North
American filter manufacturer, including the Company's subsidiary, Baldwin
Filters, Inc., engaged in a conspiracy to fix prices, rig bids and allocate U.S.
customers for aftermarket filters. This suit is a purported class
action on behalf of direct purchasers of filters from the
defendants. Parallel purported class actions, including on behalf of
indirect purchasers of filters, have been filed by other plaintiffs in a variety
of jurisdictions in the United States and Canada. The U.S cases have
been consolidated into a single multi-district litigation in the Northern
District of Illinois. The Company intends to vigorously defend the
claims raised in these actions. In this regard, the Company filed a
motion to be dismissed from these cases, due to the lack of any factual
allegations against the Company specifically and the fact that the allegations
center predominantly on the automotive filtration market rather than on the
heavy-duty filtration market. On November 9, 2009, the presiding
court denied the Company’s motion, a decision that the Company is seeking to
overturn.
The
Company understands that the Antitrust Division of the Department of Justice
(“DOJ”) was investigating the allegations raised in these suits and issued
subpoenas in connection with that investigation. The Company was not contacted
by the DOJ in connection with the DOJ investigation and was not the subject of
any subpoena. Public reports indicate that the DOJ officially closed
its investigation in January 2010 and took no action against any filter
manufacturer.
Additionally,
the Company is party to various proceedings relating to environmental
issues. The U.S. Environmental Protection Agency and/or other
responsible state agencies have designated the Company as a potentially
responsible party, 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 nature and extent of the contamination at issue, 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 potentially
responsible party for the cleanup.
In
addition to the matters cited above, the Company is involved in legal actions
arising in the normal course of business. The Company records
provisions with respect to identified claims or lawsuits when it is probable
that a liability has been incurred and the amount of the loss can be reasonably
estimated. Claims and lawsuits are reviewed quarterly and provisions
are taken or adjusted to reflect the status of a particular
matter. No such provisions have been taken in respect of the
Donaldson or antitrust legal proceeding referred to above.
The
Company believes recorded reserves in its Consolidated Condensed Financial
Statements are adequate in light of the probable and estimable outcomes of the
items discussed above. These recorded liabilities were not material
to the Company’s financial position, results of operation or liquidity and the
Company does not believe that any pending claims or litigation, including those
identified above, will materially affect its financial position, results of
operation or liquidity.
Other
Contingencies
In the
event of a change in control of the Company, termination benefits are likely to
be required for certain executive officers and other employees.
CLARCOR
Inc.
|
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
(Dollars
in thousands, except per share data)
|
(Unaudited)
|
14.
|
EARNINGS PER SHARE AND
TREASURY STOCK TRANSACTIONS
|
Diluted
earnings per share reflect the impact of outstanding stock options as if
exercised during the periods presented using the treasury stock
method. The following table provides a reconciliation of the
numerators and denominators utilized in the calculation of basic and diluted
earnings per share.
|
|
Three Months Ended
|
|
|
|
February 27,
|
|
|
February 28,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
50,594,234 |
|
|
|
51,059,182 |
|
|
|
|
|
|
|
|
|
|
Dilutive
effect of stock-based arrangements
|
|
|
340,679 |
|
|
|
482,276 |
|
|
|
|
|
|
|
|
|
|
Weighted
average number of diluted shares outstanding
|
|
|
50,934,913 |
|
|
|
51,541,458 |
|
|
|
|
|
|
|
|
|
|
Net
earnings attributable to CLARCOR
|
|
$ |
14,866 |
|
|
$ |
8,791 |
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share attributable to CLARCOR
|
|
$ |
0.29 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share attributable to CLARCOR
|
|
$ |
0.29 |
|
|
$ |
0.17 |
|
Options
with exercise prices greater than the average market price of the shares during
the respective periods are not included in the computation of diluted earnings
per share. For the three months ended February 27, 2010, 1,241,210
options with a weighted average exercise price of $34.38 were excluded from the
computation. For the three months ended February 28, 2009, 1,342,250
options with a weighted average exercise price of $34.32 were excluded from the
computation.
For the
three months ended February 27, 2010, exercises of stock options added $372 to
capital in excess of par value. For the three months ended February
28, 2009, exercises of stock options added $1,876 to capital in excess of par
value.
The
Company did not repurchase any shares of its common stock under its $250,000
stock repurchase program during the three months ended February 27, 2010 or the
three months ended February 28, 2009. As of February 27, 2010, there
was approximately $167,443 available for future purchases under this
program.
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 27, 2010 and February 28, 2009, respectively, is
shown below. Net sales represent sales to unaffiliated customers as reported in
the Consolidated Condensed Statements of Earnings. Intersegment sales were not
material.
CLARCOR
Inc.
|
NOTES
TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
|
(Dollars
in thousands, except per share data)
|
(Unaudited)
|
|
|
Three Months Ended
|
|
|
|
February 27,
|
|
|
February 28,
|
|
|
|
2010
|
|
|
2009
|
|
Net
sales:
|
|
|
|
|
|
|
Engine/Mobile
Filtration
|
|
$ |
96,428 |
|
|
$ |
85,380 |
|
Industrial/Environmental
Filtration
|
|
|
102,027 |
|
|
|
113,458 |
|
Packaging
|
|
|
16,676 |
|
|
|
14,852 |
|
|
|
$ |
215,131 |
|
|
$ |
213,690 |
|
|
|
|
|
|
|
|
|
|
Operating
profit:
|
|
|
|
|
|
|
|
|
Engine/Mobile
Filtration
|
|
$ |
17,862 |
|
|
$ |
13,301 |
|
Industrial/Environmental
Filtration
|
|
|
4,283 |
|
|
|
663 |
|
Packaging
|
|
|
751 |
|
|
|
(277 |
) |
|
|
|
22,896 |
|
|
|
13,687 |
|
Other
expense
|
|
|
(494 |
) |
|
|
(806 |
) |
|
|
|
|
|
|
|
|
|
Earnings
before income taxes
|
|
$ |
22,402 |
|
|
$ |
12,881 |
|
|
|
February 27,
|
|
|
November 28,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
Identifiable
assets:
|
|
|
|
|
|
|
|
|
Engine/Mobile
Filtration
|
|
$ |
264,934 |
|
|
$ |
252,747 |
|
Industrial/Environmental
Filtration
|
|
|
623,239 |
|
|
|
629,488 |
|
Packaging
|
|
|
37,356 |
|
|
|
36,456 |
|
Corporate
|
|
|
41,829 |
|
|
|
55,199 |
|
|
|
$ |
967,358 |
|
|
$ |
973,890 |
|
Part I –
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The
information presented in this discussion should be read in conjunction with
other financial information provided in the Consolidated Condensed Financial
Statements and Notes thereto. Except as otherwise set forth herein, references
to particular years refer to our applicable fiscal year. The analysis
of operating results focuses on our three reportable business
segments: Engine/Mobile Filtration, Industrial/Environmental
Filtration and Packaging.
EXECUTIVE
SUMMARY
Management
Discussion Snapshot
(Dollars
in millions except share and per share data)
|
|
First Quarter
|
|
|
2010 vs. 2009
|
|
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
215.1 |
|
|
$ |
213.7 |
|
|
$ |
1.4 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
145.3 |
|
|
|
152.7 |
|
|
|
(7.4 |
) |
|
|
-5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
69.8 |
|
|
|
61.0 |
|
|
|
8.8 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and administrative expenses
|
|
|
46.9 |
|
|
|
47.3 |
|
|
|
(0.4 |
) |
|
|
-1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
22.9 |
|
|
|
13.7 |
|
|
|
9.2 |
|
|
|
67 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
(0.5 |
) |
|
|
(0.8 |
) |
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
7.6 |
|
|
|
4.1 |
|
|
|
3.5 |
|
|
|
85 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings attributable to CLARCOR
|
|
|
14.9 |
|
|
|
8.8 |
|
|
|
6.1 |
|
|
|
69 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
diluted shares (millions)
|
|
|
50.9 |
|
|
|
51.5 |
|
|
|
(0.6 |
) |
|
|
-1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$ |
0.29 |
|
|
$ |
0.17 |
|
|
$ |
0.12 |
|
|
|
71 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentages:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
32.5 |
% |
|
|
28.5 |
% |
|
|
|
|
|
3.9
pt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and administrative percentage
|
|
|
21.8 |
% |
|
|
22.1 |
% |
|
|
|
|
|
-0.3
pt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margin
|
|
|
10.6 |
% |
|
|
6.4 |
% |
|
|
|
|
|
4.2
pt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
33.9 |
% |
|
|
31.8 |
% |
|
|
|
|
|
2.1
pt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings margin
|
|
|
6.9 |
% |
|
|
4.1 |
% |
|
|
|
|
|
2.8
pt
|
|
Our operating performance in the first
quarter of 2010 improved significantly from results in the first quarter of
2009. Even though net sales increased only slightly year-over-year,
operating profit increased $9.2 million or 67%, net earnings attributable to
CLARCOR increased $6.1 million or 69% and diluted earnings per share increased
$0.12 or 71% from $0.17 in the first quarter of 2009. Operating
margin improved to 10.6% from 6.4% in the first quarter of 2009. Net
sales in the first quarter were negatively impacted by a $3.9 million reduction
in HVAC filter sales to the 3M Company (“3M”).
MANAGEMENT’S DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
Our strong operating performance in the
first quarter of 2010 compared with 2009 was driven by an $11.0 million or 13%
increase in net sales at our Engine/Mobile Filtration segment, the cost benefits
of restructuring efforts at our HVAC operations and lower material costs on
sales of natural gas vessels. The benefits of the restructuring of
the HVAC operations and lower material costs were clearly seen in the operating
results of our Industrial/Environmental Filtration segment. In this
segment net sales declined $11.5 million, but operating profited increased $3.6
million from the first quarter of 2009.
We
completed no acquisitions in the first quarter of 2010. We completed
six acquisitions during fiscal year 2009, some of which were finalized after the
first quarter of 2009. The net impact of these acquisitions in the
first quarter of 2010 compared to 2009 was to increase net sales by $1.7 million
and operating profit by $0.2 million.
The
average exchange rate for most foreign currencies versus the U.S. dollar was
stronger in the first quarter of 2010 compared to the first quarter of
2009. As a result, stronger foreign currencies positively impacted
our translated U.S. dollar value of net sales by $5.1 million and operating
profit by $0.8 million in the first quarter of 2010 versus the first quarter of
2009.
Interest
expense
Interest
expense declined $0.8 million in the first quarter of 2010 compared to the first
quarter of 2009. $0.6 million of this decrease was driven by the
impact of a mark-to-market adjustment on an interest rate swap agreement in the
first quarter of 2009. The remaining $0.2 million decline was driven
by lower interest expense on our line of credit as a result of by a lower
average interest rate (0.6% in 2010 and 1.2% in 2009) and lower average
outstanding balances ($22.0 million in 2010 and $75.0 million in
2009).
Foreign currency gains and
losses
Changes
in foreign currency gains and losses negatively impacted other income (expense)
by $0.2 million in the first quarter of 2010 versus the first quarter of
2009. Much of the foreign currency gain or loss is driven by the
translation of U.S. dollar denominated intercompany debt into a local currency,
primarily the Euro. Since the U.S. dollar strengthened against the
Euro during the first quarter of 2010, we recognized a foreign currency
loss.
·
|
Provisions for income
taxes
|
The
effective tax rate in the first quarter of 2010 was 33.9% versus 31.8% in the
first quarter of 2009. This higher effective tax rate was caused by a
higher mix of our earnings in the first quarter of 2010 being generated in the
U.S.—which has a higher tax rate than our foreign tax
jurisdictions.
MANAGEMENT’S DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
Average
diluted shares outstanding declined 0.6 million in the first quarter of 2010
compared with the first quarter of 2009. This reduction was driven by
a 0.5 million decrease in average basic shares outstanding. Average
basic shares outstanding decreased primarily due to the repurchase of 0.7
million shares in the third quarter of 2009.
SEGMENT
ANALYSIS
|
|
First Quarter
|
|
(Dollars in millions)
|
|
2010
|
|
|
% Total
|
|
|
2009
|
|
|
% Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Engine/Mobile
Filtration
|
|
$ |
96.4 |
|
|
|
45 |
% |
|
$ |
85.4 |
|
|
|
40 |
% |
Industrial/Environmental
Filtration
|
|
|
102.0 |
|
|
|
47 |
% |
|
|
113.5 |
|
|
|
53 |
% |
Packaging
|
|
|
16.7 |
|
|
|
8 |
% |
|
|
14.8 |
|
|
|
7 |
% |
|
|
$ |
215.1 |
|
|
|
100 |
% |
|
$ |
213.7 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engine/Mobile
Filtration
|
|
$ |
17.9 |
|
|
|
78 |
% |
|
$ |
13.3 |
|
|
|
97 |
% |
Industrial/Environmental
Filtration
|
|
|
4.3 |
|
|
|
19 |
% |
|
|
0.7 |
|
|
|
5 |
% |
Packaging
|
|
|
0.7 |
|
|
|
3 |
% |
|
|
(0.3 |
) |
|
|
-2 |
% |
|
|
$ |
22.9 |
|
|
|
100 |
% |
|
$ |
13.7 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engine/Mobile
Filtration
|
|
|
18.5 |
% |
|
|
|
|
|
|
15.6 |
% |
|
|
|
|
Industrial/Environmental
Filtration
|
|
|
4.2 |
% |
|
|
|
|
|
|
0.6 |
% |
|
|
|
|
Packaging
|
|
|
4.5 |
% |
|
|
|
|
|
|
-1.9 |
% |
|
|
|
|
|
|
|
10.6 |
% |
|
|
|
|
|
|
6.4 |
% |
|
|
|
|
Engine/Mobile Filtration
Segment
(Dollars in millions)
|
|
First Quarter
|
|
|
2010 v 2009
|
|
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
96.4 |
|
|
$ |
85.4 |
|
|
$ |
11.0 |
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
17.9 |
|
|
|
13.3 |
|
|
|
4.6 |
|
|
|
35 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margin
|
|
|
18.5 |
% |
|
|
15.6 |
% |
|
|
|
|
|
2.9 pt
|
|
Our Engine/Mobile Filtration segment
primarily sells after-market filters for heavy-duty over-the-road trucks,
heavy-duty off-highway vehicles, locomotives and automobiles. The
largest market included in this segment is engine filters for heavy-duty trucks
produced at our Baldwin business unit.
Net sales for our Engine/Mobile
Filtration segment increased $11.0 million or 13% from the first quarter of 2009
to the first quarter of 2010 as detailed in the following
table:
MANAGEMENT’S DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
(Dollars in millions)
|
|
Net Sales
|
|
|
|
|
|
2009
|
|
$ |
85.4 |
|
|
|
|
|
|
U.S.
sales
|
|
|
0.1 |
|
Foreign
sales (including export)
|
|
|
7.9 |
|
Foreign
exchange
|
|
|
3.0 |
|
Net
increase
|
|
|
11.0 |
|
|
|
|
|
|
2010
|
|
$ |
96.4 |
|
Net sales in the U.S. in the first
quarter of 2010 increased $0.1 million from last year. Sales of
heavy-duty engine filters to the U.S. aftermarket were lower than in 2009 but
this decline was offset by higher filter sales to original equipment
manufacturers and other filter companies. U.S. sales of railroad filtration
products were up slightly in the first quarter of 2010 compared with the first
quarter of 2009.
Net sales outside the U.S. increased
$7.9 million in the first quarter of 2010 from the first quarter of
2009. This sales increase was spread throughout diverse international
markets; however, $3.6 million of this increase was from sales in China which
were positively impacted by additional market penetration and an acquisition
completed in the second quarter of 2009. In addition, both European
and Canadian market sales performed well compared to 2009.
Operating profit for the Engine/Mobile
Filtration segment increased $4.6 million or 35% to $17.9 million in the first
quarter of 2010 from $13.3 million in the first quarter of
2009. Operating margin increased to 18.5% in the first quarter of
2010 compared to 15.6% in the first quarter of 2009. In general, the
$4.6 million increase in operating profit and the improvement in operating
margin were driven by the $11.0 million increase in heavy-duty engine sales and
the resulting absorption of fixed manufacturing costs. Operating
profit from sales of railroad filtration products was up slightly
year-over-year. We estimate that the change in average foreign
exchange rates from the first quarter of 2009 to 2010 positively impacted the
translated U.S. dollar value of operating profit by $0.6 million.
Industrial/Environmental
Filtration Segment
(Dollars in millions)
|
|
First Quarter
|
|
|
2010 v 2009
|
|
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
102.0 |
|
|
$ |
113.5 |
|
|
$ |
(11.5 |
) |
|
|
-10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
4.3 |
|
|
|
0.7 |
|
|
|
3.6 |
|
|
|
514 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margin
|
|
|
4.2 |
% |
|
|
0.6 |
% |
|
|
|
|
|
3.6
pt
|
|
Our Industrial/Environmental Filtration
segment sells a large variety of filtration products to various
end-markets. Included in this market are HVAC filters, natural gas
vessels and replacement filters, aviation fuel filters and filter systems, and
other markets including oil drilling, aerospace, fibers and resins and dust
collector systems and replacement cartridges.
Net sales for our
Industrial/Environmental Filtration segment declined $11.5 million or 10% from
the first quarter of 2009 as detailed in the following table:
MANAGEMENT’S DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
(Dollars in millions)
|
|
Net Sales
|
|
|
|
|
|
2009
|
|
$ |
113.5 |
|
|
|
|
|
|
U.S.
sales
|
|
|
(8.9 |
) |
Foreign
sales (including export)
|
|
|
(4.6 |
) |
Foreign
exchange
|
|
|
2.0 |
|
Net
decrease
|
|
|
(11.5 |
) |
|
|
|
|
|
2010
|
|
$ |
102.0 |
|
The $8.9 million decrease in net sales
to customers within the U.S. was driven by the following:
|
·
|
HVAC
filter sales were down approximately $3.1 million in the first quarter of
2010 compared to the first quarter of 2009. This decline was
driven by a $3.9 million reduction in air filter sales to
3M. In the third quarter of 2009, we were informed by 3M that
it would no longer be purchasing HVAC filters from
us. Accordingly, we had no air filters sales to 3M in the first
quarter of 2010. In addition, our air filter sales were
negatively impacted by the harsh winter weather in the Eastern U.S. in the
first quarter of 2010. These sales reductions were partially
offset by a $1.4 million increase in air filter sales at our distribution
company, Total Filtration Services, which increased its net sales across
most market segments.
|
|
·
|
Sales
to the oil drilling and aerospace markets in the U.S. declined
approximately $2.3 million in the first quarter of 2010 compared with the
first quarter of 2009. Both of these markets have been
significantly impacted by the downturn in the global
economy. New off-shore oil drilling has been significantly
reduced to align with lower global demand, and reduced commercial and
private air travel has reduced our filter sales to the aerospace
market.
|
|
·
|
Sales
of natural gas vessels and replacement filter elements in the U.S.
declined approximately $3.3 million in the first quarter of 2010 compared
to the first quarter of 2009. Natural gas vessel sales in the
first quarter of 2009 continued to benefit from the historically high
natural gas drilling activity experienced in
2008.
|
|
·
|
Sales
of filters and filter systems to the aviation fuel market in the U.S.
declined by approximately $0.6 million in the first quarter of 2010
compared to the first quarter of
2009.
|
|
·
|
Sales
in the remaining filter markets in our Industrial/Environmental Filtration
segment in the U.S. were up a combined $0.6 million in the first quarter
of 2010 compared to the first quarter of 2009. These markets
include sales of wire mesh filters to the chemical fiber and plastics
markets, and sales of dust collector
systems.
|
The $4.6 million reduction in foreign
sales from the first quarter of 2009 was driven by a $3.5 million reduction in
the sale of natural gas vessels and replacement filter elements primarily in the
Malaysia and Canada markets. Part of this variance was driven by a
large sale of over $2.0 million that was recognized in Malaysia in the first
quarter of 2009. In addition, foreign sales in the first quarter of
2009 continued to benefit from the historically high natural gas drilling
activity experienced outside the U.S. in 2008.
MANAGEMENT’S DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
Operating profit for our
Industrial/Environmental Filtration segment increased $3.6 million or 514% from
$0.7 million in the first quarter of 2009 to $4.3 million in the first quarter
of 2010. This increase was driven primarily by improved operating
results at our HVAC operations. Even though global HVAC net sales
were $3.4 million lower than the first quarter of 2009, operating profit
increased approximately $4.0 million. This increase was driven by the
benefits of the HVAC restructuring program which was substantially completed in
2009, lower material costs resulting from lower commodity prices and improved
material efficiency and lower selling and administrative
expenses. Operating profit for global sales to the oil and gas and
aerospace markets declined approximately $0.5 million in the first quarter of
2010 compared to the first quarter of 2009. This reduction was driven
primarily by a $2.1 million reduction in global net sales to these markets.
Despite a relatively high reduction in sales, operating profit in the
first quarter of 2010 for the natural gas vessel and replacement filter element
market was only slightly lower than the first quarter of 2009 primarily due to
lower steel prices and selling and administrative expenses. We
estimate that the change in average foreign exchange rates from the first
quarter of 2009 to 2010 positively impacted the translated U.S. dollar value of
operating profit by $0.2 million.
Packaging
Segment
(Dollars in millions)
|
|
First Quarter
|
|
|
2010 v 2009
|
|
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
16.7 |
|
|
$ |
14.8 |
|
|
$ |
1.9 |
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit
|
|
|
0.7 |
|
|
|
(0.3 |
) |
|
|
1.0 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
margin
|
|
|
4.5 |
% |
|
|
-1.9 |
% |
|
|
|
|
|
6.4
pt
|
|
Our Packaging segment manufactures and
markets consumer and industrial packaging products.
Net sales for our Packaging segment
increased $1.9 million or 13% from the first quarter of 2009. This
increase was driven by $1.5 million additional sales from smokeless tobacco
packaging and $0.9 million additional sales from decorated flat sheet metal
offset by $0.5 million lower sales from packaging products for
batteries. Operating profit in the first quarter of 2010 increased
$1.0 million from the first quarter of 2009. This increase in
operating profit was driven primarily by the incremental profit from the $1.9
million increase in net sales.
FINANCIAL
CONDITION
Liquidity and Capital
Resources
Our
financial position remains strong with adequate cash resources and sufficient
borrowing capacity under our line of credit. In the first quarter of
2008, we entered into a five-year multicurrency revolving credit agreement
(“Credit Facility”) with a group of financial institutions under which we may
borrow up to $250.0 million under a selection of currencies and rate
formulas. We believe the financial institutions that are party to
this arrangement have adequate capital resources and will be able to fund any
borrowings under the Credit Facility. At our election the interest
rate is based upon either a defined base rate or the London Interbank Offered
Rate (“LIBOR”) interest rate plus or minus applicable margins. At the
end of the first quarter 2010, the LIBOR interest rate including margin was
0.6%. At the end of the first quarter 2010, there was $15.0 million
outstanding on the Credit Facility with an additional $8.4 million outstanding
on a $75.0 million letter of credit sub-line. Accordingly, we had
$226.6 million available for further borrowing at the end of the first quarter
2010.
In the
first quarter of 2008, we entered into an interest rate swap agreement (“Swap
Agreement”) with a bank to manage our interest rate exposure on certain amounts
outstanding under our Credit Facility. The Swap Agreement provided
for us to pay a 3.93% fixed interest rate plus applicable margins and receive
interest based on a three-month LIBOR on a notional amount of $100.0
million. The Swap Agreement was not designated as a hedge for
financial reporting purposes. Accordingly, unrealized gains and
losses were recorded as interest expense in the Consolidated Condensed
Statements of Earnings. Periodic settlement payments or receipts were
recorded as a component of cash flows from operating activities in the
Consolidated Condensed Statements of Cash Flows. The fair value of
the Swap Agreement at November 28, 2009 was approximately $1.0 million and was
recorded as part of other accrued liabilities. The Swap Agreement
expired in January 2010, and this final $1.0 million settlement was
paid.
MANAGEMENT’S DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
From time
to time, we use derivative financial instruments such as the Swap Agreement to
mitigate our exposure to certain market risks. However, by using
derivative financial instruments, we are exposed to credit
risk. Credit risk is the failure of the counterparty to perform under
the terms of the derivative contract. When the fair value of a
derivative contract is positive, the counterparty owes us, which creates credit
risk. We minimize this credit risk by entering into transactions with
counterparties which we believe have the financial resources to meet their
obligations. There were no derivative instruments outstanding at the
end of the first quarter of 2010.
Cash and
cash equivalents, restricted cash and short-term investments decreased $9.8
million to $82.4 million at the end of the first quarter 2010 from $92.2 million
at year-end 2009. Short-term investments primarily include tax-exempt
municipal money market funds. Cash and cash equivalents are held by
financial institutions throughout the world. We regularly review the
credit worthiness of these institutions and believe our funds at these
institutions are not at significant risk. The current ratio of 3.2 at
the end of the first quarter 2010 was lower than the current ratio of 3.4 at
year-end 2009.
Long-term
debt of $32.0 million at the end of the first quarter 2010 included $15.0
million outstanding on our Credit Facility, $15.8 million outstanding on
industrial revenue bonds and $1.2 million of other long-term debt. At
the end of the first quarter 2010 and at year-end 2009, we were in compliance
with all financial covenants included in our Credit Facility. The
ratio of total debt to total capitalization (defined as long-term debt plus
total shareholders’ equity) was 4.4% at the end of the first quarter 2010
compared to 7.0% at the end of 2009.
We had
50.4 million shares of common stock outstanding at the end of the first quarter
of 2010 and at year-end 2009. Shareholders’ equity increased to
$694.6 million at the end of the first quarter 2010 compared to $688.5 million
at year-end 2009. This $6.1 million increase was driven by additional
net earnings of $14.8 million, stock compensation expense pursuant to incentive
plans of $2.5 million, amortization of pension related items of $0.6 million and
proceeds from the exercise of stock options of $0.4 million, offset by currency
translation adjustments of $7.3 million and dividend payments of $4.9
million.
Net cash
provided by operating activities increased $16.3 million to $35.3 million in the
first quarter of 2010 from $19.0 million in the first quarter of
2009. This $16.3 million increase was driven by a $17.8 million
increase in cash generated from changes in short-term investments and a $6.0
million increase in net earnings. These positive cash flows were
offset by an $8.0 million increase in cash used for working capital primarily
related to the timing of cash received for accounts receivable and cash paid for
accounts payable.
Net cash
used in investing activities decreased $8.4 million to $5.4 million in the first
quarter of 2010 from $13.8 million in the first quarter of 2009. This
decrease was driven by a $7.1 million reduction in cash used for business
acquisitions and investments in affiliates. The $7.1 million invested
in business acquisitions and affiliates in 2009 was driven by several smaller
acquisitions. In addition to reduced investment for business
acquisitions, we invested $1.0 million less in capital expenditures in the first
quarter of 2010 compared with 2009, and we received $0.6 million in the first
quarter of 2010 of insurance proceeds related to a 2009 building
fire.
Net cash
used in financing increased $21.9 million to $24.3 million in the first quarter
of 2010 from $2.4 million in the first quarter of 2009. This increase
was driven by a $20.0 million payment on our line of credit in the first quarter
of 2010, $1.3 million less cash received from the exercise of stock options and
additional dividend payments of $0.3 million.
MANAGEMENT’S DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
Subsequent
to year-end 2009, we determined that we expect to voluntarily contribute up to
$6.7 million to our U.S. qualified pension plans in 2010. At year-end, we
disclosed our required $0.1 million contribution to the U.S. qualified pension
plans; however, we were still evaluating our voluntary
contribution.
We
believe that our current operations will continue to generate cash and that
sufficient lines of credit remain available to fund current operating needs, pay
dividends, invest in the development of new products and filter media, fund
planned capital expenditures and expansion of current facilities, provide for
interest payments and required principal payments related to debt agreements,
fund pension plan contributions and repurchase common stock. We also
continue to assess acquisition opportunities in related filtration businesses
that would expand our market base, distribution coverage or product
offerings. Any such acquisitions may affect operating cash flows and may
require changes in our debt and capitalization. In addition, capital
market disruptions may affect the cost or availability of future
borrowings. We have no material long-term purchase commitments. We
will also continue to assess repurchases of our common stock. At the end
of the first quarter 2010, there was $167.4 million available for repurchase
under the current authorization. Future repurchases of our stock will be
made after considering cash flow requirements for internal growth, capital
expenditures, acquisitions, interest rates and the market price of our common
stock.
At the
end of the first quarter 2010, our liability for uncertain income tax provisions
was $2.0 million including interest and penalties. Due to the high degree
of uncertainty regarding the timing of potential future cash outflows associated
with these liabilities, we are unable to make a reasonably reliable estimate of
the amount and period in which these remaining liabilities might be
paid.
Off-Balance Sheet
Arrangements
Our
off-balance sheet arrangements relate to various operating leases as discussed
in Note H to the Consolidated Financial Statements in our 2009 Form 10-K.
We had no variable interest entity or special purpose entity agreements during
the first quarter 2010 or fiscal 2009.
OTHER
MATTERS
Critical Accounting
Policies
Our
critical accounting policies, including the assumptions and judgments underlying
them, are disclosed in our 2009 Form 10-K in Management’s Discussion and
Analysis of Financial Condition and Results of Operations. There have been no
material changes in our critical accounting policies set forth in the 2009 Form
10-K. These policies have been consistently applied in all material respects.
While the estimates and judgments associated with the application of these
policies may be affected by different assumptions or conditions, we believe the
estimates and judgments associated with the reported amounts are appropriate in
the circumstances.
Recent Relevant Accounting
Pronouncements
A
discussion of recent relevant accounting pronouncements is included in Note 1 to
the Consolidated Condensed Financial Statements.
MANAGEMENT’S DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
Recent Market
Events
Current
market conditions and economic events have significantly impacted the financial
condition, liquidity and outlook for a wide range of companies, including many
manufacturing companies. We have considered the potential impact of such
conditions and events as it relates to currently reported financial results of
operations and liquidity, including consideration of the possible impact of
other than temporary impairment, counterparty credit risk and hedge
accounting. We do not believe that current market conditions and economic
events have significantly impacted our current liquidity. We believe that
our after-market focus, current investment policies and contractual
relationships reduce the risks faced by us in this economy. We continue to
monitor accounts receivable collection activity, and we have not experienced any
significant issues. We believe we are adequately reserved for any potential
bad debts.
Outlook
Our
operating results in the first quarter of 2010 were significantly improved from
the first quarter of last year. Based upon the cost reduction programs we
initiated last year, including the completion of our HVAC operations
restructuring, we believe we are well positioned to capitalize on our
anticipated incremental growth in 2010. We believe we have seen a turning
point in sales in most of our product markets. Once again, we anticipate
overall sales growth for the full year to be between 6% and 8% despite the
previously disclosed $13.7 million reduction in sales to 3M. Our sales
growth is spread through our many diverse end markets, but we expect significant
growth in our natural gas, aerospace and oil markets throughout the year.
We reaffirm our previous 2010 guidance for diluted earnings per share in the
range of $1.55 and $1.70.
MANAGEMENT’S DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - CONTINUED
FORWARD-LOOKING
INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
This
First Quarter 2010 Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements made in
this Form 10-Q, other than statements of historical fact, are forward-looking
statements. You can identify these statements from use of the words “may,”
“should,” “could,” “potential,” “continue,” “plan,” “forecast,” “estimate,”
“project,” “believe,” “intent,” “anticipate,” “expect,” “target,” “is likely,”
“will,” or the negative of these terms, and similar expressions. These
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements may
include, among other things:
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·
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statements
and assumptions relating to future growth, earnings, earnings per share
and other financial performance measures, as well as management’s
short-term and long-term performance
goals;
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·
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statements
relating to the anticipated effects on results of operations or financial
condition from recent and expected developments or events, including
acquisitions;
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·
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statements
relating to our business and growth strategies;
and
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·
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any
other statements or assumptions that are not historical
facts.
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We
believe that our expectations are based on reasonable assumptions. However,
these forward-looking statements involve known and unknown risks, uncertainties
and other important factors that could cause our actual results, performance or
achievements, or industry results, to differ materially from our expectations of
future results, performance or achievements expressed or implied by these
forward-looking statements. In addition, our past results of operations do not
necessarily indicate our future results. These and other uncertainties are
discussed in the “Risk Factors” section of our 2009 Form 10-K. Our future
results may fluctuate as a result of these and other risk factors detailed from
time to time in our filings with the Securities and Exchange
Commission.
You
should not place undue reliance on any forward-looking statements. These
statements speak only as of the date of this First Quarter 2010 Form 10-Q.
Except as otherwise required by applicable laws, we undertake no obligation to
publicly update or revise any forward-looking statements or the risks described
in this First Quarter 2010 Form 10-Q, whether as a result of new information,
future events, changed circumstances or any other reason after the date of this
First Quarter 2010 Form 10-Q.
Part I – Item 3. Quantitative and
Qualitative Disclosures About Market Risk
Our
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 our
2009 Form 10-K in “Item 7A. Quantitative and Qualitative Disclosures about
Market Risk”. There have been no material changes to the disclosure
regarding market risk set forth in the 2009 Form 10-K.
Part I –
Item 4.
Controls and Procedures
We have
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 (“Exchange Act”) is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms. Our management, with the
participation of Norman E. Johnson, Chairman of the Board, President, and Chief
Executive Officer and Bruce A. Klein, Chief Financial Officer and Chief
Accounting Officer, evaluated the effectiveness of our disclosure controls and
procedures as of February 27, 2010. Based on their evaluation, such
officers concluded that our disclosure controls and procedures pursuant to Rules
13a – 15(e) of the Exchange Act were effective as of February 27, 2010, in
achieving the objectives for which they were designed. No change in our
internal control over financial reporting occurred during our most recent fiscal
quarter ended February 27, 2010, that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
Part II – Other
Information
Part II – Item 1. Legal
Proceedings
The
information required by this Item is incorporated by reference from Note 13
included in Part I, Item 1 of this Form 10-Q.
Part II – Item 1A. Risk
Factors
There
have been no material changes to the risk factors disclosed in “Item 1A. Risk
Factors” in our Annual Report on Form 10-K for the year ended November 28,
2009.
Part II – Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds
On June
25, 2007, our Board of Directors approved a three-year, $250 million stock
repurchase program. Pursuant to the authorization, we may purchase shares from
time to time in the open market or through privately negotiated transactions
through June 25, 2010. We have no obligation to repurchase shares
under the authorization, and the timing, actual number and values of shares to
be purchased will depend on our stock price and market conditions. As
set forth in the table below, we did not repurchase any shares of our common
stock during the fiscal quarter ended February 27, 2010. The amount
of $167,442,663 remained available for purchase under such program at the end of
the first quarter of 2010.
COMPANY PURCHASES OF EQUITY SECURITIES (1)
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(a)
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(b)
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(c)
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|
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(d)
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Period
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Total
number of
shares
purchased
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|
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Average
price paid
per share
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|
Total number of
shares purchased
as part of the
Company's publicly
announced plan
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Maximum approximate
dollar value of shares
that may yet be
purchased under the
Plan
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|
|
|
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|
|
|
|
|
|
|
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November
29, 2009 through December 31, 2009
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|
|
- |
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$ |
- |
|
|
|
- |
|
|
$ |
167,442,663 |
|
January
1, 2010 through January 31, 2010
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
167,442,663 |
|
February
1, 2010 through February 27, 2010
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
167,442,663 |
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Total
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|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
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(1) The
Purchase Plan announced June 25, 2007 provides for aggregate purchases up to
$250 million. The program expires June 25, 2010.
Part II – Item 6.
Exhibits
a.
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Exhibits:
|
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31(i)
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Certification
of Norman E. Johnson pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
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31(ii)
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Certification
of Bruce A. Klein pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
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32(i)
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Certification
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of
2002
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SIGNATURES
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.
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CLARCOR
Inc.
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(Registrant)
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March
19, 2010
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By
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/s/
Norman E. Johnson
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(Date)
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Norman
E. Johnson
Chairman
of the Board, President and Chief
Executive
Officer
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|
|
|
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March
19, 2010
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|
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By
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/s/
Bruce A. Klein
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(Date)
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Bruce
A. Klein
Chief
Financial Officer and
Chief
Accounting
Officer
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