UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
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(Mark
One)
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R
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
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For
the fiscal year ended November 27, 2010
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OR
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
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.
(Exact
name of registrant as specified in its charter)
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DELAWARE
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36-0922490
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(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, TN
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37067
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
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615-771-3100
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which
registered
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Common
Stock, par value $1.00 per share
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New
York Stock Exchange
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Preferred
Stock Purchase Rights
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
None
(Title of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes þ No o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes £ No R
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes R No £
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. Yes R No £
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. R
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
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large
accelerated filer R
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Accelerated
filer £
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Non-accelerated
filer £
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Smaller
reporting company £
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(Do
not check if a smaller reporting
company)
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Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2). Yes £ No R
The
aggregate market value of the Common Stock held by non-affiliates computed by
reference to the price at which the Common Stock was last sold as of the last
business day of registrant’s most recently completed second fiscal quarter was
$1,805,283,219.
There
were 50,374,153 shares of Common Stock outstanding as of January 14,
2011.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain
portions of the registrant’s Proxy Statement for the 2011 Annual Meeting of
Shareholders (“Proxy Statement”), currently anticipated to be held on
March 22, 2011, are incorporated by reference in Part III of this
Annual Report on Form 10-K. Such Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after the
conclusion of the registrant’s fiscal year ended November 27,
2010.
TABLE OF
CONTENTS
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Page
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PART I
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Item
1.
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Business
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3
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Item
1A.
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Risk
Factors
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8
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Item
1B.
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Unresolved
Staff Comments
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12
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Item
2.
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Properties
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12
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Item
3.
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Legal
Proceedings
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14
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Item
4.
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[Removed
and Reserved]
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15
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Additional
Item
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Executive
Officers of the Registrant
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16
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PART II
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Item
5.
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Market
for the Registrant’s Common Equity, Related Stockholder Matters, Issuer
Purchase of Equity Securities and Five Year Performance of the
Company
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16
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Item
6.
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Selected
Financial Data
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18
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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19
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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36
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Item
8.
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Financial
Statements and Supplementary Data
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37
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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37
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Item
9A.
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Controls
and Procedures
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37
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Item
9B.
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Other
Information
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37
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PART III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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38
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Item
11.
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Executive
Compensation
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38
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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38
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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38
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Item
14.
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Principal
Accounting Fees and Services
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38
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PART IV
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Item
15.
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Exhibits
and Financial Statement Schedules
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39
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SIGNATURES
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42
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2
PART I
Item 1. Business.
(a) General
Development of Business
CLARCOR
Inc. (“CLARCOR”) was organized in 1904 as an Illinois corporation and in 1969
was reincorporated in the State of Delaware. As used herein, the
“Company” and terms such as “we” or “our” refers to CLARCOR and its subsidiaries
unless the context otherwise requires.
The
Company’s fiscal year ends on the Saturday closest to
November 30. For fiscal year 2010, the year ended on November
27, 2010 and included 52 weeks. For fiscal year 2009, the year ended
on November 28, 2009 and included 52 weeks. For fiscal year 2008, the
year ended on November 29, 2008 and included 52 weeks. In
this 2010 Annual Report on Form 10-K (“2010 Form 10-K”), all
references to fiscal years are shown to begin on December 1 and end on November
30 for clarity of presentation.
Certain
Significant Developments
Acquisitions
On
December 29, 2010 (which is part of fiscal year 2011), the Company acquired all
of the outstanding equity interests in TransWeb, LLC (“TransWeb”), a
privately-owned manufacturer of media used in a variety of end-use applications,
including respirators and heating, ventilating and air conditioning (“HVAC”)
filters. Founded in 1996 and based in Vineland, New Jersey, TransWeb
has supplied media to a subsidiary of the Company for several
years. TransWeb was acquired to expand the Company’s technology
capabilities in the area of media development and to enhance the product
offerings of our filtration operating companies. Transweb’s results
will be included in the Industrial/Environmental Filtration segment from the
date of acquisition.
As
disclosed in Items 1A and Item 3 of this 2010 Form 10-K and the Notes to our
Consolidated Financial Statements filed herewith, TransWeb has been accused by
3M Company (“3M”) and one of its affiliates of violating certain 3M patents, and
the parties are currently engaged in litigation in the United States District
Court for the District of New Jersey. TransWeb is seeking a
declaratory judgment that the asserted patents are invalid and that the products
in question do not infringe. The Company intends to vigorously defend
the action and pursue related claims.
The base
purchase price to acquire TransWeb was approximately $29 million, excluding cash
acquired, plus a potential earn-out payable to one of the former
owners. Of the base purchase price, the Company withheld $17 million
pending resolution of the 3M litigation, which funds may be used by the Company
in connection with the same. The Company paid the balance of the
purchase price with available cash.
There
were no acquisitions completed during fiscal year 2010.
(b) Financial
Information About Industry Segments
During
fiscal year 2010, the Company conducted business in three principal industry
segments: (1) Engine/Mobile Filtration, (2) Industrial/Environmental
Filtration and (3) Packaging. These segments are discussed in
greater detail below. Financial information for each of the Company’s
business segments for the fiscal years 2008 through 2010 is included in
Note P to Notes to Consolidated Financial Statements. See
pages F-38 through F-39 in this 2010 Form 10-K.
3
(c) Narrative
Description of the Business
Engine/Mobile
Filtration
The
Company’s Engine/Mobile Filtration segment sells filtration products used on
engines and in mobile equipment applications, including trucks, automobiles,
buses and locomotives, and marine, construction, industrial, mining and
agricultural equipment. The segment’s filters are sold throughout the
world, primarily in the replacement market. In addition, some “first-fit”
filters are sold to original equipment manufacturers. At one of the
Engine/Mobile Filtration segment plants, the Company also manufactures dust
collection cartridges, including cartridges incorporating the Company’s Protura®
nanofiber filtration media. These cartridges are used in
environmental filtration applications.
The
products in the Engine/Mobile Filtration segment include a full line of oil,
air, fuel, coolant, transmission and hydraulic fluid filters which are used in a
wide variety of applications and in processes where filter efficiency,
reliability and durability are essential. Most of these applications involve a
process where impure air or fluid flows through semi-porous paper, corrugated
paper, cotton, synthetic, chemical or membrane filter media with varying
filtration efficiency characteristics. The impurities contained on
the media are disposed of when the filter is changed.
The
Company’s sale of filtration products for use in automobiles occurs exclusively
in the replacement market (i.e., the Company does not sell “first-fit”
automotive filters to automobile manufacturers). The Company does
provide filtration products and services directly to automobile manufacturers
for use in their manufacturing facilities but not for use in the vehicles that
are manufactured in these facilities. A decrease or complete loss of
the Company’s sales directly to automobile manufacturers for use in their
manufacturing facilities would not be expected to have a material effect on the
Company’s financial performance.
Industrial/Environmental
Filtration
The
Company’s Industrial/Environmental Filtration segment centers around the
manufacturing and marketing of filtration products used in industrial and
commercial processes, and in buildings and infrastructures of various
types. The segment’s products are sold throughout the world, and
include liquid process filtration products and air filtration products and
systems used to maintain high interior air quality and to control exterior
pollution.
The
segment’s liquid process filtration products include specialty industrial
process liquid filters; filters for pharmaceutical processes and beverages;
filtration systems, filters and coalescers for the oil and natural gas industry;
filtration systems for aircraft refueling, anti-pollution, sewage treatment and
water recycling; bilge water separators; sand control filters for oil and gas
drilling; and woven wire and metallic products for filtration of plastics and
polymer fibers. These filters use a variety of string wound,
meltblown, and porous and sintered and non-sintered metal media, woven wire, and
absorbent media.
The
segment’s air filtration products represent a complete line of air filters and
cleaners, including antimicrobial treated filters and high efficiency electronic
air cleaners. These products are used in commercial buildings,
hospitals, factories, residential buildings, paint spray booths, gas turbine
systems, medical facilities, motor vehicle cabins, aircraft cabins, clean rooms,
compressors and dust collector systems.
Packaging
The
Company’s consumer and industrial packaging products business is conducted by a
wholly-owned subsidiary, J.L. Clark, Inc. (“J.L. Clark”).
J.L.
Clark manufactures a wide variety of different types and sizes of containers and
packaging specialties. Metal, plastic and combination metal/plastic
containers and closures manufactured by the Company are used in packaging a wide
variety of dry and paste form products, such as food specialties (e.g., tea,
coffee, spices, cookies, candy, mints and other confections); tobacco products;
toiletries; playing cards; cosmetics and pharmaceuticals. Other
packaging products include shells for dry batteries, canisters for film and
candles, spools for insulated and fine wire, and custom decorated flat metal
sheets.
Containers
and packaging specialties are manufactured only upon orders received from
customers, and individualized containers and packaging specialties are designed
and manufactured, usually with distinctive decoration, to meet each customer’s
marketing and packaging requirements and specifications.
4
Distribution
Products
in both the Engine/Mobile Filtration and Industrial/Environmental Filtration
segments are sold primarily through a combination of independent distributors,
dealers for original equipment manufacturers, retail stores and directly to
end-use customers such as truck and equipment fleet users, manufacturing
companies and contractors. In addition, both segments distribute
products worldwide through their respective foreign subsidiaries and through
export sales from the United States to end-use customers.
In the
Packaging segment, J.L. Clark uses an internal sales force and sells its
products directly to customers for containers and packaging
specialties. Each salesperson is trained in J.L. Clark’s
manufacturing processes with respect to the products sold and to consult with
customers and prospective customers concerning the details of their particular
requirements. In addition, salespersons with expertise in specific
areas, such as flat-sheet decorating, are focused on specific customers and
markets.
Financial
information related to the geographic areas in which the Company operates and
sells its products is included in Note P to Notes to Consolidated Financial
Statements. See pages F-38 through F-39 in this 2010
Form 10-K.
Class
of Products
No class
of similar products accounted for 10% or more of the total sales of the Company
in any of the Company’s last three fiscal years.
Raw
Materials
The
primary raw materials the Company uses to manufacture its products include
various types of steel, adhesives, plastic and paper products and filter medias
made from materials such as wood pulps, metals, polyester and other synthetic
fibers, fiberglass and cotton. All of these are purchased and are
available from a variety of sources. The Company experienced price
volatility in fiscal year 2010 with raw material prices trending higher in all
significant spend categories. The Company was able to procure
adequate supplies of raw materials throughout fiscal year 2010 and does not
anticipate procurement problems in 2011, although it does believe that prices
will generally continue to rise.
Patents,
Trademarks and Trade names
Certain
features of some of the Company’s products are covered by domestic and, in some
cases, foreign patents or patent applications. While these patents
are valuable and important for certain products, the Company does not believe
that its competitive position is dependent upon patent protection, although as
discussed under the heading of “Risk Factors”, the Company believes that
patent-related litigation may become more commonplace across all of its business
segments, particularly with respect to its engine aftermarket
business.
With
respect to trademarks and trade names, the Company believes that the trademarks
and trade names it uses in connection with certain products (such as “Baldwin”,
“Purolator,” “Peco” and “Facet”) are valuable and significant to its
business.
Seasonality
In
general, the Company’s products and service offerings are not seasonal in
nature, although certain of our operating companies in all our segments
experience modest seasonal increases and decreases with respect to products and
services supplied to particular end-use customers or
industries. These shifts are normally not material to the Company on
a consolidated basis.
5
Customers
The 10
largest customers of the Engine/Mobile Filtration segment accounted for 28% of
the approximately $446,104,000 of fiscal year 2010 segment sales.
The 10
largest customers of the Industrial/Environmental Filtration segment accounted
for 11% of the approximately $470,359,000 of fiscal year 2010 segment
sales.
The 10
largest customers of the Packaging segment accounted for 73% of the
approximately $94,966,000 of fiscal year 2010 segment sales.
No single
customer accounted for 10% or more of the Company’s consolidated fiscal year
2010 sales.
Backlog
At
November 30, 2010, the Company had a backlog of firm orders for products of
approximately $118,113,000. The backlog figure for November 30,
2009 was approximately $109,653,000. Substantially all of the orders
on hand at November 30, 2010 are expected to be filled during fiscal year
2011. The Company does not view its backlog as being insufficient,
excessive or problematic, or a significant indication of fiscal year 2011
sales.
Competition
The
Company encounters strong competition in the sale of all of its
products. The Company competes in a number of filtration markets
against a variety of competitors. The Company is unable to state its
relative competitive position in all of these markets due to a lack of reliable
industry-wide data. However, in the replacement market for heavy-duty
liquid and air filters used in internal combustion engines, the Company believes
that it is among the top five companies worldwide measured by annual
sales. In addition, the Company believes that it is a leading
manufacturer of liquid and air filters for diesel locomotives. The
Company believes that for industrial and environmental filtration products, it
is among the top ten companies worldwide measured by annual sales, and is a
market leader with respect to filtration products used in the oil and gas
industries.
In the
Packaging segment, the Company’s principal competitors include several
manufacturers that often compete on a regional basis only and whose specialty
packaging segments are smaller than the Company’s. Strong competition
is also presented by manufacturers of paper, plastic and glass
containers. The Company’s competitors generally manufacture and sell
a wide variety of products in addition to packaging products of the type
produced by the Company and do not publish separate sales figures relative to
these competitive products. Consequently, the Company is unable to
state its relative competitive position in those markets.
The
Company believes that it is able to maintain its competitive position because of
the quality and breadth of its products and services and the broad geographic
scope of its operations. The Company’s products primarily compete on
the basis of price, performance, speed of delivery, quality and customer
support.
Product
Development
The
Company develops products on its own and in consultation or partnership with its
customers. In addition to product testing and development that occurs
at the Company’s various subsidiaries, the Company maintains the CLARCOR
Filtration Research Center, a standalone research and development center in
Forrest Park, Ohio (“CFRC”). The Company’s laboratories, including
the CFRC, test product components and completed products to insure high-quality
manufacturing results, evaluate competitive products, aid suppliers in the
development of product components, and conduct controlled tests of newly
designed filters, filtration systems and packaging products for particular
uses. Product development is concerned with the improvement and
creation of new filters and filtration media, filtration systems, containers and
packaging products in order to increase their performance characteristics,
broaden their respective uses and counteract obsolescence.
In fiscal
year 2010, the Company employed approximately 116 professional employees,
including 4 at the CFRC, on either a full-time or part-time basis on research
activities relating to the development of new products or the improvement or
redesign of its existing products. During this period the Company
spent approximately $9,817,000 on such activities as compared with $9,595,000
for fiscal year 2009 and $9,343,000 for fiscal year 2008.
6
Environmental
Factors
The
Company is not aware of any facts which would cause it to believe that it is in
material violation of existing applicable standards with respect to emissions to
the atmosphere, discharges to waters, or treatment, storage and disposal of
solid or hazardous wastes.
The
Company is party to various proceedings relating to environmental
issues. The U.S. Environmental Protection Agency and/or other
responsible state agencies have designated the Company as a potentially
responsible party (“PRP”), along with other companies, in remedial activities
for the cleanup of waste sites under the federal Superfund statute.
Although
it is not certain what future environmental claims, if any, may be asserted, the
Company currently believes that its potential liability for known environmental
matters does not exceed its present accrual of $50,000. However,
environmental and related remediation costs are difficult to quantify for a
number of reasons, including the number of parties involved, the difficulty in
determining the extent of the contamination, the length of time remediation may
require, the complexity of environmental regulation and the continuing
advancement of remediation technology. Applicable federal law may
impose joint and several liability on each PRP for the cleanup of a contaminated
site.
The
Company does anticipate, however, that it may be required to install additional
pollution control equipment to augment or replace existing equipment in the
future in order to meet applicable environmental standards. The
Company is presently unable to predict the timing or the cost of any project of
this nature and cannot give any assurance that the cost of such projects may not
have a material adverse effect on earnings. However, the Company is
not aware, at this time, of any other additional significant current or pending
requirements to install such equipment at any of its facilities.
Employees
As of
November 30, 2010, the Company had approximately
5,136 employees.
(d) Financial
Information About Foreign and Domestic Operations and Export Sales
Financial
information relating to export sales and the Company’s operations in the United
States and other countries is included in Note P to Notes to Consolidated
Financial Statements. As noted therein, total international sales for
the Company in fiscal year 2010 were $308,919,000. See page F-39
in this 2010 Form 10-K. In addition, see “Item 1A —
Risk Factors” below for a discussion of certain risks of foreign
operations.
(e) Available
Information
Pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), the Company files electronically with the
Securities and Exchange Commission (“SEC”) required current reports on Form 8-K,
quarterly reports on Form 10-Q, annual reports on Form 10-K and Form 11-K; proxy
materials; ownership reports for insiders as required by Section 16 of the
Exchange Act; and registration statements on Form S-8, as necessary; and any
other form or report as required.
Our
corporate headquarters are located at 840 Crescent Centre Drive, Suite 600,
Franklin TN 37067, and our telephone number is (615) 771-3100. The
Company’s corporate Internet site is www.CLARCOR.com. The
Company makes available on that site, free of charge, its Form 10-Ks,
Form 10-Qs, Form 8-Ks and amendments to such reports, as soon as
reasonably practicable after such forms are electronically filed with, or
furnished to, the SEC. The information contained on the Company’s
website is not incorporated herein or otherwise considered to be a part of this
2010 Form 10-K.
The
public may read and copy any materials that the Company files with the SEC at
the SEC’s Public Reference Room at 100 F Street, N.E., Washington D.C.
20549. Information regarding the SEC’s Public Reference Room can be
obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains
an Internet site (www.sec.gov) that contains reports, proxy information
statements and other information regarding issuers that file electronically with
the SEC.
7
Item 1A. Risk
Factors.
Our business faces a variety of
risks. These risks include those described below and may include additional risks and
uncertainties not presently known to us or that we currently deem
immaterial. If any of the events or circumstances described in
the following risk
factors occur, our business, financial condition or results of operations may suffer, and the
trading price of our common stock could decline. These risk factors should be read in
conjunction with the other information in this 2010
Form 10-K.
Our
business is affected by the health of the markets we serve.
Our
financial performance depends, in large part, on varying conditions in the
markets that we serve, particularly the general industrial and trucking
markets. Demand in these markets fluctuates in response to overall
economic conditions and is particularly sensitive to changes in fuel costs,
although the replacement nature of our products helps mitigate the effects of
these changes. In addition, a continued general economic downturn may
have an adverse effect on sales of more expensive filtration systems and
products, such as capital equipment sold by Perry Equipment Corporation (which
may be affected by a decrease in the cost of oil and natural gas), United Air
Specialists and our Facet companies. A continued economic downturn in
the markets we serve may result in reductions in sales and pricing of our
products, which could reduce future earnings and cash flow.
Adverse
macroeconomic and business conditions may significantly and negatively
affect our revenues,
profitability and results of operations.
Economic
conditions in the United States and in foreign markets in which we operate could
substantially affect our sales and profitability. Economic activity
in the United States and throughout much of the world remains depressed
following the recent housing downturn and subprime lending
collapse. Global credit and capital markets have experienced
volatility and disruption. Business credit and liquidity continues to
be tight in much of the world.
It is
difficult to determine the breadth and duration of the economic and financial
market problems and the many ways in which such problems may continue to affect
our suppliers, customers and our business in general. Nonetheless,
continuation or worsening of these difficult financial and macroeconomic
conditions could have a significant adverse effect on our sales, profitability
and results of operations.
Our
access to borrowing capacity could be affected by the uncertainty impacting
credit markets generally.
As a
result of current economic conditions, credit
markets continue to be tight such that the ability to obtain new
capital has become more challenging and more expensive in comparison
to recent years. Although we believe that the banks under our credit
facility have adequate capital and resources, we can provide no assurance that
all of these banks will continue to operate as a going concern in the
future. If any of the banks in the lending group of our credit
facility were to fail, it is possible that the borrowing capacity under our
credit facility would be reduced. In the event that the availability
under our credit facility were reduced significantly, we could be required to
obtain capital from alternate sources in order to finance our capital
needs. Our options for addressing such capital constraints would
include, but not be limited to (i) obtaining commitments from the remaining
banks in the lending group or from new banks to fund increased amounts under the
terms of our credit facility, (ii) accessing the public capital markets, or
(iii) delaying certain of our existing development projects. If it
became necessary to access additional capital, it is likely that any such
alternatives in the current market would be on terms less favorable than under
our existing credit facility terms, which could have a material effect on our
consolidated financial position, results of operations, or cash
flows.
We
could be adversely impacted by environmental matters and climate change and
energy legislation and regulation.
Our
operations are subject to U.S. and non-U.S. environmental laws and regulations
governing emissions to air; discharges to water; the generation, handling,
storage, transportation, treatment and disposal of waste materials; and the
cleanup of contaminated properties. Currently, we believe that any
potential environmental liabilities with respect to our former or existing
operations are not material, but there is no assurance that we will not be
adversely impacted by such liabilities, costs or claims in the future, either
under present laws and regulations or those that may be adopted or imposed in
the future.
Foreign,
federal, state and local regulatory and legislative bodies have proposed various
legislative and regulatory measures relating to climate change, regulating
greenhouse gas emissions and energy policies. Due to the uncertainty
in the regulatory and legislative processes, as well as the scope of such
requirements and initiatives, we cannot currently determine the effect such
legislation and regulation may have on our operations.
8
The
potential physical impacts of climate change on our operations are also highly
uncertain and would vary depending on type of physical impact and geographic
location. Climate change physical impacts could include changing
temperatures, water shortages, changes in weather and rainfall patterns, and
changing storm patterns and intensities. The occurrence of one or
more natural disasters, whether due to climate change or naturally occurring,
such as tornadoes, hurricanes, earthquakes and other forms of severe weather in
the U.S. or in a country in which we operate or in which our suppliers or
customers are located could adversely impact our operations and financial
performance. Such events could result in:
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•
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physical
damage to and complete or partial closure of one or more of our
manufacturing facilities;
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•
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temporary
or long-term disruption in the supply of raw materials from our
suppliers;
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•
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disruption
in the transport of our products to customers and end users;
and/or
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•
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delay
in the delivery of our products to our
customers
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Our operations
outside of the United States are subject to political, investment and
local
business risks.
Approximately
30% of our sales result from exports to countries outside of the United States
and from sales of our foreign business units. As part of our business
strategy, we expect to expand our international operations through internal
growth and acquisitions. Sales and operations outside of the United States,
particularly in emerging markets, are subject to a variety of risks which are
different from or additional to the risks the Company faces within the United
States. Among others, these risks include:
|
|
•
|
local
political and social conditions, including potential hyperinflationary
conditions and political instability in certain
countries;
|
|
|
•
|
imposition
of limitations on the remittance of dividends and payments by foreign
subsidiaries;
|
|
|
•
|
adverse
currency exchange rate fluctuations, including significant devaluations of
currencies;
|
|
|
•
|
tax-related
risks, including the imposition of taxes and the lack of beneficial
treaties, that result in a higher effective tax rate for the
Company;
|
|
|
•
|
difficulties
in enforcing agreements and collecting receivables through certain foreign
legal systems;
|
|
|
•
|
domestic
and foreign customs, tariffs and quotas or other trade
barriers;
|
|
|
•
|
increased
costs for transportation and
shipping;
|
|
|
•
|
difficulties
in protecting intellectual
property;
|
|
|
•
|
increased
risk of corruption, self-dealing or other unethical practices that may be
difficult to detect or remedy;
|
|
|
•
|
risk
of nationalization of private enterprises by foreign
governments;
|
|
|
•
|
managing
and obtaining support and distribution channels for overseas
operations;
|
|
|
•
|
hiring
and retaining qualified management personnel for our overseas
operations;
|
|
|
•
|
imposition
or increase of restrictions on
investment; and
|
|
|
•
|
required
compliance with a variety of local laws and regulations which may be
materially different than those to which we are subject in the United
States.
|
The
occurrence of one or more of the foregoing factors could have a material adverse
effect on our international operations or on our financial condition and results
of operations.
9
We
face significant competition in the markets we serve.
The
markets in which we operate are highly competitive and highly
fragmented. We compete worldwide with a number of other manufacturers
and distributors that produce and sell similar products. Our products
primarily compete on the basis of price, performance, speed of delivery, quality
and customer support. Some of our competitors are companies, or divisions or
operating units of companies, that have greater financial and other resources
than we do. Any failure by us to compete effectively in the markets
we serve could have a material adverse effect on our business, results of
operations and financial condition.
Increasing costs
for manufactured components, raw materials, transportation, health care and energy
prices may adversely affect our profitability.
We use a
broad range of manufactured components and raw materials in our products,
including raw steel, steel-related components, filtration media, resins,
plastics, paper and packaging materials. Materials comprise the
largest component of our costs, representing over 40% of the costs of our net
sales in fiscal year 2010. Increases in the price of these items
could further materially increase our operating costs and materially adversely
affect our profit margins. Similarly, transportation, energy and
health care costs have risen steadily over the past few years and represent an
increasingly important burden for the Company. Although we try to
contain these costs wherever possible, and although we try to pass along
increased costs in the form of price increases to our customers, we may be
unsuccessful in doing so for competitive reasons, and even when successful, the
timing of such price increases may lag significantly behind our incurrence of
higher costs.
Our
manufacturing operations are dependent upon third-party suppliers.
We obtain
materials and manufactured components from third-party
suppliers. Although the majority of these materials and components
can be obtained from multiple sources, and while we historically have not
suffered any significant limitations on our ability to procure them, any delay
in our suppliers’ abilities to provide us with necessary materials and
components may affect our capabilities at a number of our manufacturing
locations. Delays in obtaining supplies may result from a number of
factors affecting our suppliers, including capacity constraints, labor disputes,
the impaired financial condition of a particular supplier, suppliers’
allocations to other purchasers, weather emergencies or acts of war or
terrorism. Any delay in receiving supplies could impair our ability
to deliver products to our customers and, accordingly, could have a material
adverse effect on our business, results of operations and financial
condition.
We
face heightened legal challenges from our competitors with respect to
intellectual property, particularly in the area of patents, as evidenced by our
lawsuits with Donaldson and 3M.
We face
increasing exposure to claims by others for infringement of intellectual
property rights, particularly with respect to patents, which claims could result
in significant costs or losses. This is especially important with respect to our
Engine/Mobile Filtration segment, where many of our competitors are suppliers of
‘‘first-fit’’ products to original equipment manufacturers (“OEMs”) and seek to
control or at least gain an advantage in the aftermarket through aggressive and
comprehensive patent strategies, sometimes in conjunction with the OEMs. These
strategies may involve attempting to obtain as many patents as possible,
including particularly with respect to the systems for attaching or sealing
filters to their respective housings, deliberately delaying the final issuance
of patents so as to be able to modify them in response to competitive product
designs, and seeking multiple ‘‘continuations’’ of their patents in an attempt
to have their patents more clearly apply to competitive product
designs.
This
increased exposure to patent claims is also becoming more relevant to our
Industrial/Environmental Filtration segment, where we face sophisticated
competitors that are larger and better financed than we are and that have
complex patent portfolios that present potential obstacles to our
growth.
While we
spend (and will continue to spend) significant resources to combat these risks,
including by understanding the patent landscape applicable to our operating
companies, creating alternative products and product designs that fall outside
of our competitors’ claimed patent rights, challenging patents which we believe
to be invalid and attempting to build our own patent portfolio, there can be no
guaranty that we will be successful. Any such failure could have a material
adverse effect on the financial condition or prospects of the
Company.
10
Examples
of significant patent disputes that we face are the Donaldson and 3M/TransWeb
litigations that are identified in Item 3 of this 2010 Form 10-K and referenced
in the Notes to our Consolidated Financial Statements. While
the Company believes in its positions with respect to these actions and is
defending and pursuing them vigorously, doing so has required us, and will
continue to require us, to expend significant financial and human resources with
no guaranty of success.
We
face heightened legal challenges with respect to protecting our own intellectual
property, particularly overseas.
We have
developed and actively pursue developing proprietary technology in the
industries in which we operate, and rely on intellectual property laws and a
number of patents to protect such technology. In doing so, we incur
ongoing costs to enforce and defend our intellectual
property. Despite our efforts in this regard, we may face situations
where our own intellectual property rights are ignored, invalidated or
circumvented, to our material detriment. This is of particular
concern in China, where we anticipate the market for our products to develop
substantially, and, with it, the incentive of third parties to infringe or
challenge our intellectual property rights.
Our success
depends in part on our development of improved products, and we may fail
to meet the
needs of customers on a timely or cost-effective basis.
Our
continued success depends on our ability to maintain technological capabilities,
machinery and knowledge necessary to adapt to changing market demands as well as
to develop and commercialize innovative products, such as innovative filtration
media and higher efficiency filtration systems. We may not be able to
develop new products as successfully as in the past or be able to keep pace with
technological developments by our competitors and the industry
generally. In addition, we may develop specific technologies and
capabilities in anticipation of customers’ demands for new innovations and
technologies. If such demand does not materialize, we may be unable
to recover the costs incurred in such programs. If we are unable to
recover these costs or if any such programs do not progress as expected, our
business, financial condition or results of operations could be materially
adversely affected.
The introduction
of new and improved products and services could reduce our future sales.
Substantial
changes or technological developments in the industries in which our products
are used could reduce sales if these changes negatively impact the need for our
products. For example, improvements in engine technology may reduce
the need to make periodic filter changes and thus negatively impact our
aftermarket filter sales for such engines.
Our ability to
operate effectively could be impaired if we fail to attract and retain
key
personnel.
Our
ability to operate our business and implement our strategies depends, in part,
on the efforts of our executive officers and other key employees. Our
management philosophy of cost-control means that we operate what we consider to
be a very lean company with respect to personnel, and our commitment to a less
centralized organization (discussed further below) also places greater emphasis
on the strength of local management. Our future success will depend
on, among other factors, our ability to attract and retain other qualified
personnel, particularly management, research and development engineers and
technical sales professionals. The loss of the services of any of our
key employees or the failure to attract or retain other qualified personnel,
domestically or abroad, could have a material adverse effect on our business or
business prospects.
Our
acquisition strategy may be unsuccessful.
As part
of our growth strategy, we plan to pursue the acquisition of other companies,
assets and product lines that either complement or expand our existing
business. We may be unable to find or consummate future acquisitions
at acceptable prices and terms. We continually evaluate potential
acquisition opportunities in the ordinary course of business, including those
that could be material in size and scope. Acquisitions involve a number of
special risks and factors, including:
|
|
•
|
the
focus of management’s attention to the assimilation of the acquired
companies and their employees and on the management of expanding
operations;
|
|
|
•
|
the
incorporation of acquired products into our product
line;
|
|
|
•
|
the
increasing demands on our operational and information technology
systems;
|
11
|
|
•
|
potentially
insufficient internal controls over financial activities or financial
reporting at an acquired company that could impact us on a consolidated
basis;
|
|
|
•
|
the
failure to realize expected
synergies;
|
|
|
•
|
the
potential loss of customers as a result of changes in
control;
|
|
|
•
|
the
possibility that we have acquired substantial undisclosed
liabilities; and
|
|
|
•
|
the
loss of key employees of the acquired
businesses.
|
Although
we conduct what we believe to be a prudent level of investigation regarding the
operating and financial condition of the businesses we purchase, an unavoidable
level of risk remains regarding the actual operating condition of these
businesses. Until we actually assume operating control of these
business assets and their operations, we may not be able to fully ascertain the
actual value or understand the potential liabilities of the acquired entities
and their operations. This is particularly true with respect to
non-U.S. acquisitions.
We
compete for potential acquisitions based on a number of factors, including
price, terms and conditions, size and ability to offer cash, stock or other
forms of consideration. In pursuing acquisitions, we compete against
other strategic and financial buyers, some of which are larger than we are and
have greater financial and other resources than we have. Increased
competition for acquisition candidates could result in fewer acquisition
opportunities for us and higher acquisition prices. In addition, the
negotiation of potential acquisitions may require members of management to
divert their time and resources away from our operations.
We
are a decentralized company, which presents certain risks.
The
Company is relatively decentralized in comparison with its
peers. While we believe this practice has catalyzed our growth and
enabled us to remain responsive to opportunities and to our customers’ needs, it
necessarily places significant control and decision-making powers in the hands
of local management. This presents various risks, including the risk
that we may be slower or less able to identify or react to problems affecting a
key business than we would in a more centralized environment. In
addition, it means that “company-wide” business initiatives, such as the
integration of disparate information technology systems, are often more
challenging and costly to implement, and their risk of failure higher, than they
would be in a more centralized environment. Depending on the nature
of the initiative in question, such failure could materially adversely affect
our business, financial condition or results of operations.
Item 1B. Unresolved
Staff Comments.
The
Company has no unresolved SEC comments.
Item 2. Properties.
The
various properties owned and leased by the Company and its operating units are
considered by it to be in generally good repair and well
maintained. Plant asset additions in fiscal year 2011 are estimated
to be between $30 and $40 million for land, buildings, furniture, production
equipment and machinery, and computer and communications equipment.
The
following is a description of the real property owned or leased by the Company
or its affiliated entities, broken down by business segment. All
acreage and square foot measurements are approximate.
Corporate
Headquarters
The
Company’s corporate headquarters are located in Franklin, Tennessee, and housed
in 23,000 sq ft of office space under lease to the Company. The
Company also owns a parcel of undeveloped land in Rockford, Illinois totaling
6 acres. The Company also leases approximately 14,400 square
feet of space in Forrest Park, Ohio, which is occupied by the
CFRC.
12
Engine/Mobile
Filtration Segment
United
States Facilities
|
Location
|
Approximate Size
|
Owned or Leased
|
||
|
Gothenburg,
NE
|
19 acre
site with 100,000 sq ft of manufacturing space.
|
Owned
|
||
|
Kearney,
NE
|
42 acre
site with 516,000 sq ft of manufacturing and warehousing space, 25,000 sq
ft of research and development space and 40,000 sq ft of office
space.
|
Owned
|
||
|
Lancaster,
PA
|
11.4 acre
site with 160,000 sq ft of manufacturing and office space.
|
Owned
|
||
|
Yankton,
SD
|
20 acre
site with 170,000 sq ft of manufacturing space.
|
Owned
|
International
Facilities
|
Location
|
Approximate Size
|
Owned or Leased
|
||
|
Warrington,
Cheshire, England
|
4 acre
site with two facilities totaling 71,000 sq feet for manufacturing,
warehousing and office space.
|
Leased
|
||
|
Weifang,
People’s Republic of China
|
14
buildings, constituting 300,000 sq ft of manufacturing, warehousing and
office space.
|
Leased
|
||
|
Weifang,
People’s Republic of China
|
105,000
sq ft of manufacturing, warehousing and office space.
|
Leased
|
||
|
Queretaro,
Mexico
|
3 acre
site with 76,000 sq ft of manufacturing, warehousing and office
space.
|
Owned
|
||
|
Casablanca,
Morocco
|
4 acre
site with 95,000 sq ft of manufacturing, warehousing and office
space.
|
Owned
|
In
addition to the above properties, the Engine/Mobile Filtration segment leases
and operates smaller facilities in Australia, Belgium, South Africa and the
United Kingdom in order to manufacture and/or distribute applicable filtration
products.
Industrial/Environmental
Filtration Segment
United
States Facilities
|
Location
|
Approximate Size
|
Owned or Leased
|
||
|
Auburn
Hills, MI
|
44,222
sq ft of warehousing and office space.
|
Leased
|
||
|
Blue
Ash, OH
|
17 acre
site with 157,000 sq ft of manufacturing and office space.
|
Owned
|
||
|
Campbellsville,
KY
|
100 acre
site with 242,000 sq ft of manufacturing and office space.
|
Owned
|
||
|
Corona,
CA
|
84,000
sq feet of manufacturing, warehousing and office space.
|
Leased
|
||
|
Dallas,
TX
|
83,500
sq feet of manufacturing, warehousing and office space.
|
Leased
|
||
|
Greensboro,
NC
|
21 acre
site with 88,000 sq ft of manufacturing, warehousing and office
space.
|
Owned
|
||
|
Greensboro,
NC
|
97,000
sq ft of manufacturing, warehousing and office space.
|
Owned
|
||
|
Goodlettsville,
TN
|
35,000
sq ft of warehouse space.
|
Owned
|
||
|
Houston,
TX
|
88,000
sq ft of manufacturing, warehousing and office space.
|
Leased
|
||
|
Houston,
TX
|
14,000
sq ft of warehousing and office space.
|
Leased
|
||
|
Jeffersonville,
IN
|
450,000
sq feet of manufacturing, warehousing and office space.
|
Leased
|
||
|
Lenexa,
KS
|
18,000
sq feet of warehousing and office space.
|
Leased
|
||
|
Mineral
Wells, TX
|
46 acre
site with 351,000 sq feet of manufacturing, warehousing and office
space.
|
Owned
|
||
|
Mineral
Wells, TX
|
35,000
sq ft of warehousing space.
|
Leased
|
||
|
Ottawa,
KS
|
41,000
sq ft of manufacturing and office space.
|
Owned
|
||
|
Pittston,
PA
|
250,000
sq feet of manufacturing, warehousing and office space.
|
Leased
|
||
|
Stilwell,
OK
|
11
acre site with 132,000 sq feet of manufacturing, warehousing and office
space.
|
Leased
|
||
|
Sacramento,
CA
|
40,000
sq feet of manufacturing, warehousing and office space.
|
Owned
|
||
|
Shelby,
NC
|
48,000
sq ft of manufacturing, warehousing and office space.
|
Owned
|
||
|
Tulsa,
OK
|
16 acre
site with 142,000 sq ft of manufacturing and office space.
|
Owned
|
||
|
Vineland,
NJ
|
55,492 sq
ft of manufacturing, warehousing and office space.
|
Owned/Leased
|
13
International
Facilities
|
Location
|
Approximate Size
|
Owned or Leased
|
||
|
Calgary,
Alberta, Canada
|
25,000
sq feet of manufacturing, warehousing and office space.
|
Owned
|
||
|
St.
Catharines, Ontario, Canada
|
25,000
sq ft of warehouse space. Right to occupy 40,000 sq ft total (15,000 sq ft
currently being sublet).
|
Leased
|
||
|
La Coruña,
Spain
|
4 acre
site with 61,000 sq ft of manufacturing and office space.
|
Owned
|
||
|
Pujiang
City, People’s Republic of China
|
53,819
sq ft of manufacturing, warehousing and office space.
|
Leased
|
||
|
Queretaro,
Mexico
|
5 acre
site with 108,000 sq ft of manufacturing, warehousing and office
space.
|
Owned
|
||
|
Quzhou,
People’s Republic of China
|
215,278
sq ft of manufacturing, warehousing and office space
|
Leased
|
In
addition to the above properties, the Industrial/Environmental Filtration
segment leases and operates smaller facilities in the following locations in
order to manufacture, distribute and/or service applicable filtration products:
United States:
Atlanta, GA; Auburn, WA; Birmingham, AL; Evansville, WY; Chantilly, VA;
Hamilton, OH; Clover, SC; Columbus, OH; Commerce City, CO; Dallas, TX;
Farmington, NM; Fresno, CA; Hayward, CA; Houston, TX; Jackson, MS; Kansas City,
MO; Louisville, KY; Shakopee, MN; Phoenix, AZ; Portland, OR; Ontario, CA;
Vernal, UT; Wichita, KS. International: Brazil; Canada; China; France;
Germany; Italy; Malaysia; Netherlands; Singapore; United Kingdom.
Packaging
Segment
|
Location
|
Approximate Size
|
Owned or Leased
|
||
|
Rockford,
IL
|
34 acre
site with buildings totaling 405,000 sq ft of manufacturing, warehousing
and office space.
|
Owned
|
||
|
Lancaster,
PA
|
11 acre
site with 243,500 sq ft of manufacturing and office space.
|
Owned
|
Item 3. Legal
Proceedings.
From time
to time, the Company is subject to lawsuits, investigations and disputes (some
of which involve substantial amounts claimed) arising out of the conduct of its
business, including matters relating to commercial transactions, product
liability, intellectual property, and other matters. The Company
recognizes a liability for any contingency that is probable of occurrence and
reasonably estimable. The Company continually assesses the likelihood
of adverse judgments of outcomes in these matters, as well as potential ranges
of possible losses (taking into consideration any insurance recoveries), based
on a careful analysis of each matter with the assistance of outside legal
counsel and, if applicable, other experts. Included in these other matters are
the following:
Anti-Trust/Qui Tam. 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 engine filter manufacturer, including the Company's
subsidiary, Baldwin Filters, Inc. (the “Defendant Group”), 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 Defendant Group. Parallel purported class actions,
including on behalf of indirect purchasers of filters, have been filed by other
plaintiffs against the Defendant Group in a variety of jurisdictions in the
United States and Canada.
14
In
addition, the Attorney General of the State of Florida and the County of
Suffolk, New York have filed complaints against the Defendant Group based on
these same allegations, and the Attorney General of the State of Washington
requested various documents, information and cooperation, which the Company has
agreed to provide.
Finally,
in late 2010, William Burch, a former employee of two other defendants in these
cases, has brought an action under the United States False Claims Act and
similar state statutes on behalf of the governments of the United States and
approximately twenty individual states against the Defendant Group, based on
these same allegations.
All of
the U.S cases, including the actions brought by and/or on behalf of governmental
entities, have been consolidated into a single multi-district litigation in the
Northern District of Illinois. The Company believes all of
these lawsuits and the claims made therein to be without merit and is vigorously
defending them.
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.
TransWeb/3M. Prior to
the Company’s acquisition of TransWeb, 3M Company and 3M Innovative Properties
Company (“3M”) filed a lawsuit against TransWeb in the United States District
Court for the District of Minnesota on May 21, 2010, alleging that certain
TransWeb products infringed certain 3M patents. TransWeb filed its
own complaint against 3M in the United States District Court for the District of
New Jersey on August 27, 2010, seeking a declaratory judgment that the asserted
patents are invalid and that the products in question do not
infringe. 3M withdrew its Minnesota action, and the parties are
currently litigating the matter in New Jersey. The Company intends to
vigorously defend the action and pursue related claims.
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 PRP, along with other companies, in remedial
activities for the cleanup of waste sites under the federal Superfund
statute. The Company is not certain what future environmental claims,
if any, may be asserted.
Item 4. [Removed
and Reserved].
15
ADDITIONAL
ITEM: Executive Officers of the Registrant
The
following individuals are the executive officers of the Company as of January
21, 2011:
|
Name
|
Age at
11/27/10
|
Year Elected
to Office
|
|||
|
Sam
Ferrise
|
54 |
2003
|
|||
|
President,
Baldwin Filters, Inc. Mr. Ferrise was appointed President of Baldwin
Filters, Inc. in 2000. He became an executive officer of the Company in
2003 while retaining the same title with Baldwin Filters,
Inc.
|
|||||
|
Norman
E. Johnson
|
62 |
2000
|
|||
|
Chairman
of the Board and Chief Executive Officer. Mr. Johnson has been
employed by the Company since 1990. He was elected President-Baldwin
Filters, Inc. in 1990, Vice President-CLARCOR in 1992, Group Vice
President-Filtration Products Group in 1993, President and Chief Operating
Officer in 1995 and Chairman, President and Chief Executive Officer in
2000. Mr. Johnson has been a Director of the Company since June
1996.
|
|||||
|
Christopher
L. Conway
|
55 |
2010
|
|||
|
President
and Chief Operating Officer. Mr. Conway has been employed by the
Company or its affiliates since 2006, when he was named Vice President of
Manufacturing of Baldwin Filters, Inc. In September 2007, Mr.
Conway was promoted to the position of President of Facet USA, Inc.,
another affiliate of the Company. He was then named President
of the Company’s PecoFacet division in December 2007 and continued in that
role until being named as President and Chief Operating Officer of the
Company in May 2010. Prior to joining the Company or its
affiliates, Mr. Conway served for two years as the Chief Operating Officer
of Cortron Corporation, Inc., a small manufacturing start-up based in
Minneapolis, Minnesota.
|
|||||
|
David
J. Fallon
|
40 |
2010
|
|||
|
Vice
President – Finance & Chief Financial Officer. Mr. Fallon has
been employed by the Company since 2009, when he was elected
Vice President-Finance. He was elected Chief Financial Officer
in 2010. Prior to joining the Company, Mr. Fallon
held various positions for Noble International, Ltd. and its affiliates,
including the position of Chief Financial Officer of Noble International,
Ltd. immediately prior to his employment with the Company.
|
|||||
|
David
J. Lindsay
|
55 |
1995
|
|||
|
Vice
President-Administration and Chief Administrative Officer.
Mr. Lindsay has been employed by the Company in various
administrative positions since 1987. He was elected Vice President-Group
Services in 1991, Vice President-Administration in 1994 and Vice
President-Administration and Chief Administrative Officer in
1995.
|
|||||
|
Richard
M. Wolfson
|
44 |
2006
|
|||
|
Vice
President-General Counsel and Secretary. Mr. Wolfson was employed by
the Company and elected Vice President, General Counsel and Secretary in
2006. Prior to joining the Company, he was a principal of the
InterAmerican Group, an advisory services and private equity firm, from
2001 until 2006.
|
|||||
Each
executive officer of the Company is elected by the Board of Directors for a term
of one year which begins at the Board of Directors Meeting at which he or she is
elected, typically held at the time of the Annual Meeting of Shareholders, and
ends on the date of the next Annual Meeting of Shareholders or upon their
earlier death, resignation or removal in accordance with the Company’s
By-Laws.
PART II
Item 5. Market for the
Registrant’s Common Equity, Related Stockholder Matters, Issuer Purchase of Equity
Securities and Five-Year Performance of the
Company.
The
Company’s Common Stock is listed on the New York Stock Exchange; it is traded
under the symbol CLC.
16
The
following table sets forth the high and low market prices as quoted during the
relevant periods on the New York Stock Exchange and dividends per share
paid for each quarter of the last two fiscal years.
|
Market Price
|
||||||||||||
|
Quarter Ended
|
High
|
Low
|
Dividends
|
|||||||||
|
February 27,
2010
|
$ | 35.25 | $ | 30.72 | $ | 0.0975 | ||||||
|
May 29,
2010
|
38.73 | 33.50 | 0.0975 | |||||||||
|
August 28,
2010
|
38.59 | 33.58 | 0.0975 | |||||||||
|
November 27,
2010
|
42.01 | 33.64 | 0.1050 | |||||||||
|
Total
Dividends
|
$ | 0.3975 | ||||||||||
|
Market Price
|
||||||||||||
|
Quarter Ended
|
High
|
Low
|
Dividends
|
|||||||||
|
February
28, 2009
|
$ | 34.64 | $ | 25.73 | $ | 0.0900 | ||||||
|
May
30, 2009
|
33.04 | 23.05 | 0.0900 | |||||||||
|
August
29, 2009
|
34.50 | 27.47 | 0.0900 | |||||||||
|
November
28, 2009
|
33.78 | 28.77 | 0.0975 | |||||||||
|
Total
Dividends
|
$ | 0.3675 | ||||||||||
As set
forth above, the quarterly dividend rate was increased in fiscal year 2010, and
the Company currently expects to continue making dividend payments to
shareholders. The Company’s right to make dividend payments is
subject to restrictions contained in the credit agreement to which the Company
is a party. The Company has never been prevented from making dividend
payments under its past credit agreements or its current credit agreement and
does not anticipate being so restricted in the foreseeable future.
The
approximate number of holders of record of the Company’s Common Stock at
January 14, 2011 was 1,842.
On June
22, 2010, the Company’s Board of Directors approved a three-year, $250 million
stock repurchase program. Pursuant to the authorization, the Company
may purchase shares from time to time in the open market or through privately
negotiated transactions through June 22, 2013. The Company has 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.
The
Company repurchased 445,991 shares of its common stock, at an average price of
$36.50 per share, and an aggregate cost of approximately $16.3 million during
the fiscal year 2010. As set forth in the table below, the Company
repurchased 157,149 shares of its common stock during the fourth quarter of
fiscal year 2010. The average price for the shares repurchased in the
fourth quarter was $39.89 with an aggregate cost of approximately $6.3
million. The Company had a balance of $233,722,827 available to
repurchase shares as of November 27, 2010.
|
COMPANY PURCHASES OF EQUITY SECURITIES
|
||||||||||||||||
|
(a)
|
(b)
|
(c)
|
(d)
|
|||||||||||||
|
Period
|
Total
Number of
shares
purchased
|
Average
price paid
per share
|
Total number of shares
purchased as part of
the Company's publicly
announced plan
|
Maximum approximate
dollar value of shares that
may yet be purchased
under the Plan
|
||||||||||||
|
August
29, 2010 through September 30, 2010
|
- | $ | - | - | $ | 239,991,336 | ||||||||||
|
October
1, 2010 through October 31, 2010
|
- | $ | - | - | $ | 239,991,336 | ||||||||||
|
November
1, 2010 through November 27, 2010
|
157,149 | $ | 39.89 | 157,149 | $ | 233,722,827 | ||||||||||
|
Total
|
157,149 | 157,149 | ||||||||||||||
17
5-Year
Performance of the Company
The
following Performance Graph compares the Company’s cumulative total return on
its Common Stock for a five-year period (December 3, 2005 to November 27,
2010) with the cumulative total return of the S&P SmallCap 600 Index
and the S&P 500 Industrial Machinery Index.
TOTAL
RETURN TO SHAREHOLDERS
Comparison
of Five-Year Cumulative Total Return Among the Company, S&P SmallCap 600
Index and
S&P
500 Industrial Machinery Index - Assumes Initial Investment of $100 and
Reinvestment of All Dividends
Item 6. Selected
Financial Data.
The
information required hereunder is included as Exhibit 13 to this 2010
Form 10-K.
18
Item 7. 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 Financial Statements
and Notes thereto. The analysis of operating results focuses on the
Company’s three reportable business segments: Engine/Mobile Filtration,
Industrial/Environmental Filtration and Packaging. Except as
otherwise set forth herein, references to particular years refer to the
applicable fiscal year of the Company.
EXECUTIVE
SUMMARY
Management
Discussion Snapshot
(Dollars
in millions except per share data)
|
2010 vs. 2009
|
||||||||||||||||||||
|
2010
|
2009
|
2008
|
$ Change
|
% Change
|
||||||||||||||||
|
Net
sales
|
$ | 1,011.4 | $ | 907.7 | $ | 1,059.6 | $ | 103.7 | 11 | % | ||||||||||
|
Cost
of sales
|
673.0 | 628.4 | 719.7 | 44.6 | 7 | % | ||||||||||||||
|
Gross
profit
|
338.4 | 279.3 | 339.9 | 59.1 | 21 | % | ||||||||||||||
|
Selling
and administrative expenses
|
193.8 | 173.6 | 188.0 | 20.2 | 12 | % | ||||||||||||||
|
Operating
profit
|
144.6 | 105.7 | 151.9 | 38.9 | 37 | % | ||||||||||||||
|
Other
expense, net
|
(1.2 | ) | (0.1 | ) | (6.6 | ) | (1.1 | ) | ||||||||||||
|
Provision
for income taxes
|
47.1 | 33.8 | 49.3 | 13.3 | 39 | % | ||||||||||||||
|
Net
earnings attributable to CLARCOR
|
96.1 | 71.5 | 95.7 | 24.6 | 34 | % | ||||||||||||||
|
Average
diluted shares
|
51.2 | 51.1 | 51.5 | 0.1 | 0 | % | ||||||||||||||
|
Diluted
earnings per share
|
$ | 1.88 | $ | 1.40 | $ | 1.86 | $ | 0.48 | 34 | % | ||||||||||
|
Percentages:
|
||||||||||||||||||||
|
Gross
margin. .
|
33.5 | % | 30.8 | % | 32.1 | % |
2.7
pt
|
|||||||||||||
|
Selling
and administrative percentage
|
19.2 | % | 19.1 | % | 17.7 | % |
0.1
pt
|
|||||||||||||
|
Operating
margin
|
14.3 | % | 11.6 | % | 14.3 | % |
2.7
pt
|
|||||||||||||
|
Effective
tax rate
|
32.8 | % | 32.0 | % | 33.9 | % |
0.8
pt
|
|||||||||||||
|
Net
earnings margin
|
9.5 | % | 7.9 | % | 9.0 | % |
1.6
pt
|
|||||||||||||
Fiscal Year 2010 versus
Fiscal Year 2009
Our
fiscal year 2010 operating performance improved from fiscal year 2009 primarily
due to a $103.7 million or 11% increase in net sales. The incremental
net sales allowed us to leverage our fixed manufacturing costs and increase our
gross margin percentage to 33.5% from 30.8% in 2009. The $103.7
million increase in net sales was the result of a $72.8 million increase at our
Engine/Mobile Filtration segment and a $21.5 million increase at our Packaging
segment. The net sales increase at our Packaging segment includes a
no-margin $4.6 million tooling and equipment sale to one of our
customers. Net sales at our Industrial/Environmental Filtration
segment increased $9.4 million compared with fiscal year 2009 despite a $13.7
million decline in HVAC filter sales to 3M.
19
The
increase in operating margin to 14.3% in fiscal year 2010 from 11.6% in fiscal
year 2009 was primarily the result of the 2.7 point improvement in gross margin
percentage. This 2.7 point improvement was a result of the net sales
increase and the associated leveraging of fixed manufacturing costs in addition
to the cost benefits from the restructuring of our HVAC filter
operations. The 33.5% gross margin percentage in fiscal year 2010 was
our highest annual gross margin percentage in almost twenty
years. Selling and administrative expenses in fiscal year 2010 as a
percentage of net sales were consistent with fiscal year 2009 but increased
$20.2 million primarily as a result of incremental employee compensation
associated with our company-wide profit sharing program and additional legal
expenses partially offset by a reduction in bad debt expense.
The 14.3%
operating margin in fiscal year 2010 not only was 2.7 points greater than fiscal
year 2009, but it was equivalent to the operating margin from fiscal year 2008
despite $48.2 million lower net sales. We were able to generate a
fiscal year 2010 operating margin equivalent to fiscal year 2008 despite lower
net sales as a result of various cost efficiencies implemented in 2009 including
the benefits of the aforementioned restructuring program at our HVAC filter
operations. As a result of this improved operating performance,
diluted earnings per share of $1.88 in fiscal year 2010 was 34% greater than
diluted earnings per share of $1.40 in fiscal year 2009 and $0.02 greater than
diluted earnings per share of $1.86 in fiscal year 2008.
Fiscal Year 2009 versus
Fiscal Year 2008
Fiscal
year 2009 was a challenging year as we were significantly impacted by the global
economic recession. Our net sales declined $151.9 million or 14% from
fiscal year 2008. This sales reduction and the resulting
under-absorption of fixed manufacturing costs was the primary reason for our
reduced operating profit which declined 30% or $46.2 million from fiscal year
2008. The negative impact of lower net sales was offset in part by
three significant cost items in fiscal year 2009 compared with fiscal year 2008:
lower material costs, reduced discretionary spending and the benefits from HVAC
filter operations restructuring program.
We
realized an approximate $11.0 million benefit from the reduction of
material costs in fiscal year 2009 compared with fiscal year
2008. This reduction was driven by lower commodity pricing primarily
in steel, filter media and adhesives. In addition, we initiated
several projects in fiscal year 2009 which removed material cost from our
products without compromising the quality of the product to the end
customer.
Due to
the challenging economic environment in fiscal year 2009, we established several
cost initiatives including headcount reductions, wage freezes and significant
cuts in discretionary spending including travel and outside professional
services. As a result of these cost initiatives, we were able to
reduce our selling and administrative expenses by $14.4 million from fiscal year
2008. Despite this focus on lower costs, we did not sacrifice
spending on future growth initiatives including our sales force, customer
service or product development.
We
largely completed our restructuring program at our HVAC filter operations in
fiscal year 2009. At the beginning of fiscal year 2009, we completed
the consolidation of two manufacturing operations, one distribution facility and
one office location into one facility in Indiana. As a result of this
consolidation and the full year benefits of facilities closed in fiscal year
2008, we recognized approximately $4.0 million in fixed cost savings in fiscal
year 2009 compared to fiscal year 2008. These fixed cost savings were
offset in part by a $1.2 million impairment charge recognized on a HVAC facility
in North Carolina which we closed in fiscal year 2008.
Other
Items
Other
significant items impacting the comparison between the years presented are as
follows:
|
|
·
|
Acquisitions
|
We
completed no acquisitions in fiscal year 2010 and six acquisitions in fiscal
year 2009. The net sales and operating profit impact of these six
acquisitions for comparisons between fiscal years 2008, 2009 and 2010 was not
significant. At the beginning of fiscal year 2008, we completed the
acquisition of Perry Equipment Corporation (“Peco”), a manufacturer of
engineered filtration products and technologies primarily in the natural gas
industry. The purchase price was $145.8 million, excluding cash
acquired. Net sales and operating profit results from the Peco
acquisition are included in all fiscal years presented.
20
|
|
·
|
Foreign
exchange
|
The
average exchange rate for foreign currencies in which we transact business was
higher in fiscal year 2010 compared with fiscal year 2009. As a
result, the U.S. dollar value of our net sales in fiscal year 2010 was
positively influenced by $6.6 million and operating profit by $1.7
million. Weaker foreign currencies negatively impacted our translated
fiscal year 2009 results compared with fiscal year 2008. As a result,
the U.S. dollar value of net sales in 2009 declined $24.8 million and operating
profit declined $2.7 million.
|
|
·
|
Other income
(expense)
|
Interest
expense
Interest
expense declined $1.6 million in fiscal year 2010 compared to fiscal year
2009. $1.1 million of this decrease was due to the impact of a
mark-to-market adjustment on an interest rate swap agreement in
2009. The remaining $0.5 million decline primarily resulted from
lower interest expense on our line of credit driven by a lower average interest
rate (0.6% in fiscal year 2010 and 0.8% in fiscal year 2009) and lower average
outstanding balances ($7.9 million in fiscal year 2010 and $61.3 million in
fiscal 2009).
Interest
expense declined $4.4 million in fiscal year 2009 compared to fiscal year
2008. Debt had increased in 2008 due to the Peco
acquisition. $2.8 million of this decrease was driven by lower
interest expense on our line of credit driven by both a lower average interest
rate (0.8% in fiscal year 2009 and 3.7% in fiscal year 2008) and lower average
outstanding balances ($61.3 million in fiscal year 2009 and $90.4 million in
fiscal year 2008). In addition, the $1.1 million mark-to-market
adjustment on the interest rate swap in fiscal year 2009 was $1.3 million lower
than the adjustment in fiscal year 2008.
Foreign currency gains and
losses
Changes
in foreign currency transaction gains and losses negatively impacted other
income (expense) by $1.9 million in fiscal year 2010 versus fiscal year
2009. We recognized a foreign currency loss of $0.7 million in fiscal
year 2010 from the translation of cash accounts at certain foreign subsidiaries
denominated in currencies other than their functional currency. As most
foreign currencies strengthened against the U.S. dollar throughout fiscal year
2009, we recognized approximately $1.2 million of foreign currency gains in
fiscal year 2009 mostly related to the translation of U.S. dollar denominated
intercompany debt at our non-U.S. subsidiaries. Most of this U.S.
dollar denominated intercompany debt was repaid by the first quarter of fiscal
year 2010.
Changes
in foreign currency transaction gains and losses contributed a positive $2.7
million change in other income (expense) in fiscal year 2009 compared to fiscal
year 2008. As previously mentioned, we recognized $1.2 million of
foreign currency gains in fiscal year 2009. The weakening of foreign
currencies against the U.S. dollar generated $1.5 million of foreign currency
losses in fiscal year 2008.
|
|
·
|
Provision for income
taxes
|
The
effective tax rate in fiscal year 2010 was 32.8% compared with 32.0% in fiscal
year 2009. This increase in the effective tax rate was primarily
driven by the expiration of the research and development tax credit in fiscal
year 2010.
The
effective tax rate in fiscal year 2009 was 32.0% compared with 33.9% in fiscal
year 2008. This reduction was driven by a higher mix of taxable
income in foreign operations with lower tax rates than in the U.S.
|
|
·
|
Shares
outstanding
|
Average
diluted shares remained relatively flat in fiscal year 2010 compared with fiscal
year 2009. Average diluted shares climbed 0.1 million due to an
increase in the dilutive impact of our outstanding stock
options. This higher dilutive impact resulted from the higher average
share price in fiscal year 2010. This increase in average diluted
shares was offset by a 0.2 million share reduction in average basic shares
outstanding. Average basic shares declined from fiscal year 2009 due
to our share repurchases in both 2009 and 2010 offset by additional shares
issued from the exercise of stock options.
21
Average
diluted shares outstanding declined 0.4 million in fiscal year 2009 compared to
fiscal year 2008. This reduction was driven almost entirely by the
lower dilution from our outstanding stock options and restricted share
units. Average basic shares outstanding remained consistent from 2008
to 2009.
SEGMENT
ANALYSIS
|
(Dollars in millions)
|
2010
|
% Total
|
2009
|
% Total
|
2008
|
% Total
|
||||||||||||||||||
|
Net
sales:
|
||||||||||||||||||||||||
|
Engine/Mobile
Filtration
|
$ | 446.1 | 44 | % | $ | 373.3 | 41 | % | $ | 439.0 | 42 | % | ||||||||||||
|
Industrial/Environmental
Filtration
|
470.4 | 47 | % | 461.0 | 51 | % | 543.1 | 51 | % | |||||||||||||||
|
Packaging
|
94.9 | 9 | % | 73.4 | 8 | % | 77.5 | 7 | % | |||||||||||||||
| $ | 1,011.4 | 100 | % | $ | 907.7 | 100 | % | $ | 1,059.6 | 100 | % | |||||||||||||
|
Operating
profit:
|
||||||||||||||||||||||||
|
Engine/Mobile
Filtration
|
$ | 92.2 | 64 | % | $ | 75.2 | 71 | % | $ | 99.4 | 65 | % | ||||||||||||
|
Industrial/Environmental
Filtration
|
43.5 | 30 | % | 24.7 | 23 | % | 45.8 | 30 | % | |||||||||||||||
|
Packaging
|
8.9 | 6 | % | 5.8 | 6 | % | 6.7 | 5 | % | |||||||||||||||
| $ | 144.6 | 100 | % | $ | 105.7 | 100 | % | $ | 151.9 | 100 | % | |||||||||||||
|
Operating
margin:
|
||||||||||||||||||||||||
|
Engine/Mobile
Filtration
|
20.7 | % | 20.1 | % | 22.6 | % | ||||||||||||||||||
|
Industrial/Environmental
Filtration
|
9.3 | % | 5.4 | % | 8.4 | % | ||||||||||||||||||
|
Packaging
|
9.4 | % | 7.9 | % | 8.6 | % | ||||||||||||||||||
| 14.3 | % | 11.6 | % | 14.3 | % | |||||||||||||||||||
Net
sales, operating profit and operating margin increased for each of our segments
in fiscal year 2010 compared with fiscal year 2009. Net sales for
both the Engine/Mobile Filtration and Packaging segments increased significantly
from fiscal year 2009. The 20% growth in our Engine/Mobile/Filtration
segment was due to stronger heavy-duty engine filter demand in the U.S. and
continued growth internationally. The 29% growth in our Packaging
segment was a result of increased sales of our smokeless tobacco metal lids in
addition to a no margin $4.6 million equipment and tooling sale to one of our
customers. Although we recognized only moderate 2% net sales growth
at our Industrial/Environmental Filtration segment, operating margin improved
3.9 points to 9.3%. This improvement was the result of various cost
efficiencies but mainly those from the restructuring at our HVAC filter
operations.
Net
sales, operating profit and operating margin declined for each of our segments
in fiscal year 2009 compared with fiscal year 2008. Net sales were
down approximately 15% at both our Engine/Mobile Filtration and
Industrial/Environmental Filtration segments and 5% at our Packaging
segment. In general, this reduction in net sales, due to a decline in
global economic conditions, was the primary reason for the lower operating
profit and margin at each of our segments.
Engine/Mobile Filtration
Segment
|
(Dollars in millions)
|
2010 v 2009
|
2009 v 2008
|
||||||||||||||||||||||||||
|
2010
|
2009
|
2008
|
$ Change
|
% Change
|
$ Change
|
% Change
|
||||||||||||||||||||||
|
Net
sales
|
$ | 446.1 | $ | 373.3 | $ | 439.0 | $ | 72.8 | 20% | $ | (65.7 | ) | -15% | |||||||||||||||
|
Operating
profit
|
92.2 | 75.2 | 99.4 | 17.0 | 23% | (24.2 | ) | -24% | ||||||||||||||||||||
|
Operating
margin
|
20.7 | % | 20.1 | % | 22.6 | % |
0.6
pt
|
-2.5
pt
|
||||||||||||||||||||
22
Our
Engine/Mobile Filtration segment primarily sells after-market filters for
heavy-duty trucks and off-highway vehicles, locomotives and
automobiles. The largest market in this segment includes engine
filters, for heavy-duty trucks, produced at our Baldwin business
unit.
Fiscal Year 2010 versus
Fiscal Year 2009
The net
sales increases for our Engine/Mobile Filtration segment for fiscal year 2010
compared with fiscal year 2009 are detailed in the following table:
|
(Dollars in millions)
|
Net Sales
|
|||
|
2009
|
$ | 373.3 | ||
|
U.S.
sales
|
36.8 | |||
|
Foreign
sales (including export)
|
30.0 | |||
|
Foreign
exchange
|
6.0 | |||
|
Net
increase
|
72.8 | |||
|
2010
|
$ | 446.1 | ||
The net increase in U.S. sales for the
Engine/Mobile Filtration segment in fiscal year 2010 as compared with fiscal
year 2009 is detailed as follows:
|
(Dollars
in millions)
|
||||
|
Heavy-duty
engine filters
|
$ | 33.7 | ||
|
Locomotive
filters
|
3.1 | |||
|
Net
increase in U.S. sales
|
$ | 36.8 | ||
Our sales
of heavy-duty engine filters in the U.S. have been positively influenced by
continued strength in the U.S. trucking industry. Through November
2010, heavy-duty truck tonnage in the U.S. was approximately 6.0% higher
compared with the same period in 2009. In addition, truck tonnage
continues to trend upwards as average U.S. truck tonnage in our fiscal fourth
quarter 2010 exceeded our fiscal third quarter 2010 by approximately
1.0%. Our U.S. sales of railroad filtration products have increased
slightly, but we anticipate activity to improve in fiscal 2011. As an
indicator of the recovery in U.S. rail activity, through October 2010
approximately 130,000 freight cars have been removed from storage since the end
of 2009. Additional cars have been removed from storage for sixteen
consecutive months.
Net sales
(adjusted for changes in foreign currency) outside the U.S. increased $30.0
million in fiscal year 2010 from fiscal year 2009. This net sales
increase was spread throughout our diverse international
markets. However, approximately $12.0 million of this increase in
fiscal year 2010 was from sales in China which have been positively impacted by
our continued market penetration in first fit heavy-duty engine filter
sales.
The
increase in operating profit for the Engine/Mobile Filtration segment compared
to fiscal year 2009 was driven by the increase in heavy-duty engine filter
sales. For fiscal year 2010, selling and administrative expenses were
approximately $18.5 million higher than fiscal year 2009. The
increase in selling and administrative expenses was the result of higher
payments under our company-wide profit sharing program and incremental legal
expenses. We estimate that the change in average foreign exchange
rates from fiscal year 2009 to fiscal year 2010 positively influenced the
translated U.S. dollar value of fiscal year 2010 operating profit by $1.6
million.
23
Fiscal Year 2009 versus
Fiscal Year 2008
The net
sales decrease for our Engine/Mobile Filtration segment for fiscal year 2009
compared with fiscal year 2008 is detailed in the following table:
|
(Dollars in millions)
|
Net Sales
|
|||
|
2008
|
$ | 439.0 | ||
|
U.S.
sales
|
(39.2 | ) | ||
|
Foreign
sales (including export)
|
(14.2 | ) | ||
|
Foreign
exchange
|
(12.3 | ) | ||
|
Net
decrease
|
(65.7 | ) | ||
|
2009
|
$ | 373.3 | ||
The net decrease in U.S. sales for the
Engine/Mobile Filtration segment in fiscal year 2009 as compared to fiscal year
2008 is detailed as follows:
|
(Dollars
in millions)
|
||||
|
Heavy-duty
engine filters
|
$ | (33.5 | ) | |
|
Locomotive
filters
|
(5.7 | ) | ||
|
Net
decrease in U.S. sales
|
$ | (39.2 | ) | |
The $39.2
million decline in U.S. sales was the result of lower demand from our heavy-duty
truck and locomotive customers. Truck tonnage in the U.S. declined
approximately 11.0% from fiscal year 2008 to fiscal year 2009, and locomotive
car loadings in North America declined approximately 20.0%. The $14.2
million reduction in sales to customers outside the U.S. was driven by an
approximate $7.0 million decline at our subsidiary in the United
Kingdom. This subsidiary lost a major customer at the end of 2008 and
was also significantly impacted by the downturn in the power generation
market. The remainder of the decrease in non-U.S. sales was spread
throughout our remaining foreign subsidiaries. Each of our major
foreign locations had lower net sales in 2009 compared with 2008 with the
exception of our South Africa subsidiary which was flat
year-over-year.
Operating
profit for our Engine/Mobile Filtration segment declined $24.2 million or 24%
from fiscal year 2008 to fiscal year 2009. In general, the $24.2
million reduction in operating profit was primarily driven by the $65.7 million
reduction in net sales and the resulting under-absorption of fixed manufacturing
costs world-wide. The negative impact of this net sales reduction was
offset in part by reduced material cost and a $10.0 million reduction in selling
and administrative expenses driven by headcount reductions and limits on
discretionary spending such as travel and outside professional
services. The change in average foreign exchange rates from 2008 to
2009 negatively impacted the translated U.S. dollar value of operating profit by
approximately $1.4 million.
Industrial/Environmental
Filtration Segment
|
(Dollars in millions)
|
2010 v 2009
|
2009 v 2008
|
||||||||||||||||||||||||||
|
2010
|
2009
|
2008
|
$ Change
|
% Change
|
$ Change
|
% Change
|
||||||||||||||||||||||
|
Net
sales
|
$ | 470.4 | $ | 461.0 | $ | 543.1 | $ | 9.4 | 2% | $ | (82.1 | ) | -15% | |||||||||||||||
|
Operating
profit
|
43.5 | 24.7 | 45.8 | 18.8 | 76% | (21.1 | ) | -46% | ||||||||||||||||||||
|
Operating
margin
|
9.3 | % | 5.4 | % | 8.4 | % |
3.9
pt
|
-3.0
pt
|
||||||||||||||||||||
24
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.
Fiscal Year 2010 versus
Fiscal Year 2009
The net
sales increase for our Industrial/Environmental Filtration segment for fiscal
year 2010 compared to fiscal year 2009 is detailed in the following
table:
|
(Dollars in millions)
|
Net Sales
|
|||
|
2009
|
$ | 461.0 | ||
|
U.S.
sales
|
10.2 | |||
|
Foreign
sales (including export)
|
(1.4 | ) | ||
|
Foreign
exchange
|
0.6 | |||
|
Net
increase
|
9.4 | |||
|
2010
|
$ | 470.4 | ||
The net increase in U.S. sales for the
Industrial/Environmental Filtration segment in fiscal year 2010 as compared to
fiscal year 2009 is detailed as follows:
|
(Dollars
in millions)
|
||||
|
HVAC
filters - 3M
|
$ | (13.7 | ) | |
|
HVAC
filters - retail trial
|
(3.6 | ) | ||
|
HVAC
filters - commercial and industrial
|
9.8 | |||
|
Filter
sales through Total Filtration Services ("TFS")
|
7.2 | |||
|
Aerospace,
oil drilling and other industrial filters
|
6.3 | |||
|
Natural
gas - vessels and aftermarket filters
|
2.0 | |||
|
Aviation
- vessels and aftermarket filters
|
1.2 | |||
|
Other
|
1.0 | |||
|
Net
increase in U.S. sales
|
$ | 10.2 | ||
|
|
·
|
In
the third quarter of fiscal year 2009, we were informed by 3M that it
would no longer be purchasing HVAC filters from
us. Accordingly, we had no HVAC filter sales to 3M in fiscal
year 2010. In fiscal year 2009, we sold $3.6 million of our
high-end Purolator® brand HVAC residential filters to a large retail store
chain on a trial basis. These sales did not repeat in fiscal
year 2010, creating a negative variance in our year-over-year
comparisons. We continue to seek additional opportunities to
penetrate the residential HVAC filter retail market. The
remaining increase in HVAC filter sales in the U.S. in fiscal year 2010
was primarily due to the year-over-year improvement in general economic
conditions driving growth in commercial and industrial
applications.
|
|
|
·
|
The
increase in U.S. net sales in fiscal year 2010 at TFS was the result of
increased filter sales to the automotive and other industrial markets
including chemical, metals and power generation. Filter sales
to the automotive industry increased $2.3 million in fiscal year 2010
compared with fiscal year 2009 as the automotive industry began to recover
from the economic downturn in 2009. These automotive industry
sales were primarily air filters used in manufacturing and other
facilities.
|
|
|
·
|
The
increase in fiscal year 2010 U.S. sales to the aerospace, oil drilling and
other industrial markets was driven in part by additional Parts
Manufacturer Approvals (“PMAs”) from commercial aerospace customers and as
a result of improved general economic conditions which supported net sales
increases notably in the wire mesh filter and other industrial
markets.
|
25
|
|
·
|
Net
sales in the U.S. natural gas market increased slightly in fiscal year
2010 compared with fiscal year 2009 due to an increase in replacement
filter sales offset by a similar reduction in vessel sales. The
increase in replacement filter sales was driven by a focused effort to
build our market share in this segment. The reduction in
natural gas vessel sales was due to the lower price of natural gas and the
related decrease in construction of new natural gas pipelines in fiscal
year 2010 compared with fiscal year
2009.
|
|
|
·
|
The
increase in U.S. aviation net sales in fiscal year 2010 was primarily the
result of a large military aviation aftermarket filter sale consummated in
the third quarter of fiscal year
2010.
|
The
decline in foreign sales for fiscal year 2010 was driven by a reduction in
European sales primarily in Spain and Germany. The reduction in Spain
was caused by a reduction in military aviation orders, and the reduction in
Germany was caused by several large system orders consummated in fiscal year
2009 that did not repeat in fiscal year 2010. In addition, a decline
in natural gas vessel sales in Canada due to the lower price of natural gas
contributed to the reduction in foreign sales in fiscal year
2010. These foreign sales reductions were partially offset by an
increase in filter sales to the oil drilling market primarily in
Asia.
The
increase in operating profit and margin at our Industrial/Environmental
Filtration segment was the result of the continued improved operating results at
our HVAC filter operations (including TFS) where operating profit increased in
fiscal year 2010 compared with fiscal year 2009. Despite lower
overall HVAC filter sales in fiscal year 2010 primarily from the loss of 3M
sales, operating profit increased due to the benefits of our restructuring
program which was substantially completed in fiscal year 2009, lower material
costs driven by lower commodity prices and improved material efficiency and
lower selling and administrative expenses. Driven by stronger sales,
operating profit in our aerospace, oil drilling and other industrial markets
increased in fiscal year 2010 compared with fiscal year 2009. The
operating profit at the remaining Industrial/Environmental Filtration segment
markets, including aviation and natural gas, increased in fiscal year 2010
compared with fiscal year 2009. The operating margin increase of 3.9
points for fiscal year 2010 was primarily influenced by the restructuring
efforts at our HVAC operations, lower material costs and a higher mix of
aftermarket filters (which have higher operating margins than vessels) sold in
our natural gas, aviation and marine markets. We estimate that the
change in average foreign exchange rates from fiscal year 2009 to fiscal year
2010 positively impacted operating profit by $0.1 million.
Fiscal Year 2009 versus
Fiscal Year 2008
The net
sales decrease for our Industrial/Environmental Filtration segment for fiscal
year 2009 compared to fiscal year 2008 is detailed in the following
table:
|
(Dollars in millions)
|
Net Sales
|
|||
|
2008
|
$ | 543.1 | ||
|
U.S.
sales
|
(47.3 | ) | ||
|
Foreign
sales (including export)
|
(22.3 | ) | ||
|
Foreign
exchange
|
(12.5 | ) | ||
|
Net
decrease
|
(82.1 | ) | ||
|
2009
|
$ | 461.0 | ||
26
The net decrease in U.S. sales for the
Industrial/Environmental Filtration segment in fiscal year 2009 as compared to
fiscal year 2008 is detailed as follows:
|
(Dollars
in millions)
|
||||
|
Aerospace,
oil drilling and other industrial filters
|
$ | (25.6 | ) | |
|
Filter
sales through Total Filtration Services ("TFS")
|
(13.0 | ) | ||
|
HVAC
filters - 3M
|
(7.8 | ) | ||
|
HVAC
filters - commercial and industrial
|
(3.8 | ) | ||
|
HVAC
filters - retail trial
|
3.6 | |||
|
Natural
gas - vessels and aftermarket filters
|
1.0 | |||
|
Aviation
- vessels and aftermarket filters
|
0.9 | |||
|
Other
|
(2.6 | ) | ||
|
Net
decrease in U.S. sales
|
$ | (47.3 | ) | |
|
|
·
|
The
decrease in fiscal year 2009 U.S. sales to the aerospace, oil drilling and
other industrial markets was primarily driven by a $16.5 million reduction
in filter sales to the oil and gas industry as off-shore drilling activity
declined with lower oil prices. The remaining decrease in sales
to the aerospace and other industrial markets was driven by the general
decline in economic activity.
|
|
|
·
|
The
decrease in U.S. net sales in fiscal year 2009 at TFS was primarily the
result of lower filter sales to the automotive market, which declined
$11.0 million in fiscal year 2009 compared with fiscal year
2008. These filters were primarily air filters used in
automotive manufacturing and other
facilities.
|
|
|
·
|
The
decrease in HVAC filters was driven by a reduction in air filter sales to
3M. We had supplied HVAC filters to 3M for many years although
our annual sales had been declining for years as 3M moved production into
its Mexican manufacturing facility. In the third quarter of
fiscal year 2009, we were informed by 3M that it would no longer be
purchasing HVAC filters from us. The lost sales in the fourth
quarter in addition to generally lower demand from 3M in the prior three
quarters contributed to the $7.8 million reduction
from 2008. As an offset to this reduction in U.S.
sales in fiscal year 2009, we sold $3.6 million of our high-end Purolator®
brand HVAC residential filters to a large retail store chain on a trial
basis.
|
|
|
·
|
Sales
of natural gas vessels and aftermarket filters increased slightly due to
the carryover of strong vessel orders in the first half of fiscal year
2009 from the historically high natural gas prices in fiscal year
2008. In addition, we continued our focus on growing our market
share in natural gas aftermarket
filters.
|
The
reduction in foreign sales from fiscal year 2008 to fiscal year 2009 was driven
by a $10.0 million decrease in foreign export sales of our natural gas vessels
produced at our North American manufacturing
facilities. Approximately $8.0 million of this $10.0 million decline
was related to 2008 shipments to India, Africa and the Middle East which did not
recur in 2009. The remainder of the decline in foreign sales was due
to an approximate $5.7 million reduction in dust collector sales in
Europe.
In
general, the reduction in operating profit in fiscal year 2009 compared with
fiscal year 2008 was driven by the significant reduction in net sales and the
resulting under-absorption of fixed manufacturing costs world-wide, including a
$10.1 million operating profit decline at our oil drilling filtration business
which was significantly impacted by reduced offshore drilling
activity. The negative impact of the significant sales decline was
offset in part by a $9.5 million reduction in selling and administrative
expenses. In addition, the near completion of our restructuring
program at our HVAC operations reduced fixed manufacturing costs by
approximately $4.0 million in fiscal year 2009. The change in average
foreign exchange rates from fiscal year 2008 to fiscal year 2009 negatively
impacted the translated U.S. dollar value of operating profit by approximately
$1.3 million.
27
Packaging
Segment
|
(Dollars in millions)
|
2010 v 2009
|
2009 v 2008
|
||||||||||||||||||||||||||
|
2010
|
2009
|
2008
|
$ Change
|
% Change
|
$ Change
|
% Change
|
||||||||||||||||||||||
|
Net
sales
|
$ | 94.9 | $ | 73.4 | $ | 77.5 | $ | 21.5 | 29% | $ | (4.1 | ) | -5% | |||||||||||||||
|
Operating
profit
|
8.9 | 5.8 | 6.7 | 3.1 | 53% | (0.9 | ) | -13% | ||||||||||||||||||||
|
Operating
margin
|
9.4 | % | 7.9 | % | 8.6 | % |
1.5
pt
|
-0.7
pt
|
||||||||||||||||||||
Our
Packaging segment manufactures and markets consumer and industrial packaging
products.
The
increase in net sales at our Packaging segment in fiscal year 2010 includes a
no-margin $4.6 million equipment and tooling sale to one of our customers in the
second quarter. The remaining net sales increase for fiscal year 2010
was primarily the result of additional sales from smokeless tobacco packaging
and decorated flat sheet metal. Operating profit in fiscal year 2010
increased from fiscal year 2009 primarily due to the incremental profit from the
increase in net sales. Less than 5% of sales in this segment are
outside the U.S.
The
decrease in net sales from fiscal year 2008 to fiscal year 2009 was driven by a
$10.7 million reduction in the confectionary, film, health and beauty and
pharmaceutical markets offset in part by $7.0 million increase in net sales from
smokeless tobacco packaging and decorated flat sheet metal. The
reduction in operating profit from fiscal year 2008 to fiscal year 2009 was
driven by the reduction in sales but was offset in part by savings resulting
from cost initiatives to reduce direct labor and manufacturing
overhead.
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 future
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 each fiscal year 2010 and 2009, the LIBOR interest rate on our Credit
Facility including margin was 0.6%. At November 27, 2010 there were
no amounts outstanding on the Credit Facility. However, we had $16.0
million outstanding on a $75.0 million letter of credit
subline. Accordingly, we had approximately $234.0 million available
for further borrowing at the end of fiscal year 2010.
Cash and
cash equivalents, restricted cash and short-term investments increased $25.5
million to $117.7 million at the end of fiscal year 2010 from $92.2 million at
the end of fiscal year 2009. Of the $117.7 million of cash at year-end,
$63.1 million was located at entities outside the U.S. Although we plan to
use this cash at our non-U.S. entities, if we repatriated this cash to the U.S.,
we could incur significant tax expense. Cash and cash equivalents are held
by financial institutions throughout the world. The Company invests in
financially strong institutions and limits the amount of credit exposure to any
one institution. 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 fiscal year 2010 was
comparable with the current ratio of 3.4 at the end of year-end
2009.
Total
long-term debt of $17.5 million at November 27, 2010 included $15.8 million
outstanding on industrial revenue bonds and $1.6 million of other long-term
debt. At the end of fiscal years 2010 and 2009 we were in compliance
with all financial covenants as included in our Credit Facility. We
expect to be in compliance with these covenants in the foreseeable
future. The ratio of total debt to total capitalization (defined as
long-term debt plus total shareholders’ equity) was 2.3% at the end of fiscal
year 2010 compared to 7.0% at the end of fiscal year 2009.
28
We had
50.3 million shares of common stock outstanding at the end of fiscal year 2010
compared to 50.4 million outstanding at the end of fiscal year
2009. The 0.1 million decrease in outstanding shares was driven by
our repurchase of 0.5 million shares in the third and fourth quarters of fiscal
year 2010 offset in part by the issuance of 0.4 million shares in conjunction
with incentive plans. Shareholders’ equity increased to $757.5
million at the end of fiscal year 2010 from $688.5 million at the end of fiscal
year 2009. This $69.0 million increase was driven by additional net
earnings of $96.3 million, stock and stock compensation expense pursuant to
incentive plans of $12.9 million and pension and other postretirement benefits
adjustments of $2.2 million offset by dividend payments of $20.1 million, our
repurchase of common stock of $16.3 million, currency translation adjustments of
$5.1 million and changes in noncontrolling interest ownership and other of $0.9
million.
Net cash
provided by operating activities increased $28.9 million in fiscal year 2010 to
$142.3 million. This increase was driven by a $24.0 million increase
in net earnings adjusted for non-cash items and $57.1 million of cash generated
from changes in short-term investments offset by $52.2 million of additional
cash required for additional working capital to support our higher net sales
levels. Net cash provided by operating activities increased $6.3
million to $113.4 million in fiscal year 2009 from $107.1 million in fiscal year
2008. This $6.3 million increase was driven by $28.6 million of
additional cash generated from changes in working capital offset by lower
earnings adjusted for non-cash items of $22.3 million. The $28.6
million of additional cash generated from changes in working capital was
significantly impacted by the $45.8 million of cash generated from a reduction
in accounts receivable which declined as a result of lower net
sales. This cash generated was offset in part by $22.5 million of
additional cash invested in short-term investments. Our 2009
inventory levels did not decline significantly with lower net sales based upon
our strategic decision to maintain high customer fill rates.
Net cash
used in investing activities declined $8.9 million in fiscal year 2010 compared
with fiscal year 2009. This reduction was primarily the result of a
reduction in cash used for business acquisitions of $7.3 million. We
used $7.3 million of cash in fiscal year 2009 for several smaller acquisitions
while we completed no acquisitions in fiscal year 2010. Net cash used
in investing activities decreased $79.3 million to $29.6 million in fiscal year
2009 compared to $108.9 million in fiscal year 2008. This decrease
was driven by a $67.6 million reduction in cash used for business
acquisitions. The $74.9 million invested in business acquisitions in
2008 was primarily related to our acquisition of Peco. The $7.3
million invested in business acquisitions in 2009 was driven by several smaller
acquisitions. In addition to reduced investment for business
acquisitions, we used $13.2 million less cash for additions to plant assets in
fiscal year 2009 compared to fiscal year 2008. This reduction was
primarily related to lower spending for the restructuring of our HVAC operations
of approximately $7.0 million.
Net cash
used in financing activities decreased $7.5 million in fiscal year 2010 compared
with fiscal year 2009. The $62.5 million cash used in financing
activities in fiscal year 2010 was driven by payments of $35.0 million on our
Credit Facility, $20.1 million for dividends and $16.3 million for our
repurchase of common stock. These cash outflows were offset in part
by $7.3 million received for the issuance of stock pursuant to employee
incentive plans. The $70.0 million cash used in financing activities
in fiscal year 2009 was driven by payments of $40.0 million on our Credit
Facility, $19.8 million for our repurchase of common stock, $18.7 million for
dividends and $4.6 million for the acquisition of non-controlling interests for
several entities in China. These cash outflows were offset by
proceeds of $8.4 million from the re-issuance of an industrial revenue bond and
$3.6 million from the issuance of stock pursuant to employee incentive
plans. Net cash used in financing activities increased $86.2 million
in fiscal year 2009 compared with fiscal year 2008. The $16.2 million
cash provided by financing activities in 2008 was driven by proceeds of $75.0
million from our Credit Facility primarily to finance the Peco acquisition and
$8.9 million from the issuance of stock pursuant to incentive
plans. These cash proceeds were offset by payments of $37.3 million
for the repurchase of stock, $16.8 million for dividends and $16.1 million for
payments on an industrial revenue bond.
On
December 29, 2010, the Company acquired all of the outstanding equity interests
in TransWeb, a privately-owned manufacturer and supplier of media used in a
variety of end-market applications, including respirators and HVAC
filters. The base purchase price to acquire TransWeb was approximately $29
million, excluding cash acquired, plus a potential earn-out payable to one of
the former owners. Of the base purchase price, the Company withheld $17
million pending resolution of certain patent litigation described in Item 3 of this annual
report, which funds may be used by the Company in connection with the
same. The Company paid the balance of the purchase price with available
cash.
29
We
believe that our current operations will continue to generate cash and that
sufficient borrowings under the Credit Facility 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. The Company enters into
purchase obligations with suppliers on a short-term basis in the normal course
of business.
We will
also continue to assess repurchases of our common stock. In June
2010, our Board of Directors authorized a $250.0 million stock repurchase
program of our common stock in the open market and through private transactions
over a three-year period. This authorization replaced our previous
$250.0 million share repurchase program that expired in June
2010. During fiscal year 2010, we repurchased and retired 0.5 million
shares of our common stock for $16.3 million. During 2009, we
repurchased and retired 0.7 million shares of our common stock for $19.8
million. At the end of fiscal year 2010, there was approximately
$233.7 million available for repurchase under the current
authorization. Future repurchases of our common stock may be made
after considering cash flow requirements for internal growth, capital
expenditures, acquisitions, interest rates and the market price of our common
stock.
The
following table summarizes our current fixed cash obligations as of the end of
fiscal year 2010 for the years indicated:
|
Payments Due by Period
|
||||||||||||||||||||
|
(Dollars in millions)
|
Total
|
Less than 1
Year
|
1 - 3
Years
|
3 - 5
Years
|
More than 5
Years
|
|||||||||||||||
|
Pension
plan and other post-retirement contributions
|
$ | 70.8 | $ | 18.1 | $ | 33.4 | $ | 14.3 | $ | 5.0 | ||||||||||
|
Operating
leases
|
44.6 | 10.0 | 15.0 | 9.5 | 10.1 | |||||||||||||||
|
Long-term
debt (excluding line of credit)
|
17.4 | 0.1 | 1.5 | - | 15.8 | |||||||||||||||
|
Interest
on long-term debt (excluding line of credit)
|
1.2 | 0.2 | 0.2 | 0.1 | 0.7 | |||||||||||||||
|
Payments
for acquisitions
|
0.2 | 0.1 | 0.1 | - | - | |||||||||||||||
|
Investment
in affiliate
|
0.2 | 0.2 | - | - | - | |||||||||||||||
|
Total
|
$ | 134.4 | $ | 28.7 | $ | 50.2 | $ | 23.9 | $ | 31.6 | ||||||||||
Anticipated
payments pursuant to our pension plans and for other post-retirement benefits
are based upon the assumption that we make the minimum required contributions
and also make additional contributions to maintain a funded percentage of at
least 80% for each plan. Future estimates of our pension plan
contributions may change significantly depending upon the actual rate of return
on plan assets, discount rates and regulatory requirements.
Interest
payments on our variable rate debt in the table above are determined based upon
current interest rates as of the end of fiscal year 2010 and assume that no
additional borrowings or payments will be made on our Credit Facility during the
periods presented.
At the
end of fiscal year 2010, our liability for uncertain income tax provisions was
$1.8 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 were unable to make a reasonably reliable estimate of
the amount and period in which these remaining liabilities might be
paid.
From time
to time, we use derivative financial instruments 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. We did not
hold any derivative financial instruments at November 27, 2010.
30
Off-Balance Sheet
Arrangements
Our
off-balance sheet arrangements relate to various operating leases as discussed
in Note H to the Consolidated Financial Statements. We had no
variable interest entity or special purpose entity agreements during 2010 or
2009.
OTHER
MATTERS
Critical Accounting
Estimates
Our
critical accounting policies, including the assumptions and judgments underlying
them, are disclosed in the Notes to the Consolidated Financial
Statements. These policies have been consistently applied in all material
respects and address such matters as revenue recognition, depreciation methods,
inventory valuation, asset impairment recognition, business combination
accounting and pension and postretirement benefits. These critical
accounting policies may be affected by recent relevant accounting pronouncements
discussed in the following section.
While the
estimates and judgments associated with the application of these critical
accounting 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. The following lists the most critical
accounting estimates used in preparing the consolidated financial statements
which require us to use significant judgment and estimates of amounts that are
inherently uncertain:
|
|
·
|
Goodwill and Indefinite-lived
Intangible Assets – We annually review goodwill and
indefinite-lived intangible assets for impairment. These
reviews of fair value involve judgment and estimates of discount rates,
terminal values, transaction multiples and future cash flows for the
reporting units that may be impacted by future sales and operating results
for the reporting units, market conditions and worldwide economic
conditions. All goodwill and intangibles are allocated to the
reporting unit component at the time of acquisition. We have
determined that the reporting unit components meet the criteria for
aggregation into five reporting units. These reporting units
are aggregated based upon similar economic characteristics, nature of
products and services, nature of production processes, type of customers
and distribution methods. In performing our impairment reviews,
we estimated the fair values of the aggregated reporting units using a
present value method that discounted future cash flows. For our
indefinite-lived intangibles, we performed annual impairment tests using
the relief-from-royalty method to determine the fair value of our
trademarks and trade names. We further analyzed various
discount rates, transaction and capital market multiples and cash flows
for aggregated reporting units to assess the reasonableness of our
estimates and assumptions. We believe our valuation techniques
and assumptions are reasonable for this purpose. We have not
materially changed our methodology for valuing goodwill and
indefinite-lived intangible assets. Based upon our analysis at
November 27, 2010, the estimated fair value for each of our reporting
units exceeded its carrying value by at least approximately
35%. The weighted average excess of fair value over carrying
value of all our reporting units was approximately
230%.
|
|
|
·
|
Allowance for Losses on
Accounts Receivable – Allowances for losses on customer accounts
receivable balances are estimated based on economic conditions in the
industries to which we sell and on historical experience by evaluating
specific customer accounts for risk of loss, fluctuations in amounts owed
and current payment trends. Our concentration of risk is also
monitored and at the end of fiscal year 2010, the largest outstanding
customer account balance was $6.9 million and the five largest account
balances totaled $21.1 million. The allowances provided are
estimates that may be impacted by economic and market conditions which
could have an effect on future allowance requirements and results of
operations.
|
31
|
|
·
|
Pensions – Our pension
obligations are determined using estimates including those related to
discount rates, asset values and changes in compensation. The
discount rate used for each plan was based on the Citigroup Pension
Discount Curve. The projected benefit payments in each year
were discounted using the appropriate spot rate from the
curve. For each plan, a single discount rate was determined
that produced the same total discounted value. That rate,
rounded to 25 basis points, was the discount rate selected for the
plan. The 5.25% discount rate used for the qualified plans for
U.S. employees was selected as the best estimate of the rate at which the
benefit obligations could be effectively settled on the measurement date
taking into account the nature and duration of the benefit obligations of
the plan using high-quality fixed-income investments currently available
(rated Aa or better) and expected to be available during the period to
maturity of the benefits. The 7.5% expected return on plan
assets was determined based on historical long-term investment returns as
well as future expectations given target investment asset allocations and
current economic conditions. The 4.0% rate of compensation
increase represents the long-term assumption for expected increases in
salaries among continuing active participants accruing benefits under the
qualified plan. The mortality table for the qualified plans is
determined based on the actuarial table that is most reflective of the
expected mortality of the plan participants. The mortality
table adopted (RP 2000 Projected) was developed for pension plans by a
Society of Actuaries study. The mortality table used for the
nonqualified pension plan is specified by the plan
agreement. The assumptions are similarly determined for each
pension obligation. Actual results and future obligations will
vary based on changes in interest rates, stock and bond market valuations
and employee compensation.
|
In 2011,
a reduction in the expected return on plan assets of 0.25% would result in
additional expense in fiscal 2011 of approximately $0.2 million, while a
reduction in the discount rate of 0.25% would have resulted in additional
expense of approximately $0.3 million for our qualified defined benefit pension
plans for U.S. covered employees. Interest rates and pension plan
valuations may vary significantly based on worldwide economic conditions and
asset investment decisions. The unrecognized net actuarial loss of
$60.7 million at year-end 2010 is due primarily to prior changes in assumptions
related to discount rates and expected compared to actual asset
returns. This actuarial loss will be recognized as pension expense in
the future over the average remaining service period of the employees in the
plans. See Note I to the Consolidated Financial
Statements.
|
|
·
|
Income Taxes – We are
required to estimate and record income taxes payable for each of the U.S.
and international jurisdictions in which we operate. This
process involves estimating actual current tax expense and assessing
temporary differences resulting from differing accounting treatment
between tax and book which result in deferred tax assets and
liabilities. In addition, accruals are also estimated for
federal, state and international tax transactions for which deductibility
is subject to interpretation. Taxes payable and the related
deferred tax differences may be impacted by changes to tax laws, changes
in tax rates and changes in taxable profits and
losses. Reserves are also estimated for uncertain tax positions
that are currently unresolved. We routinely monitor the
potential impact of such situations and believe that it is properly
reserved.
|
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
companies outside the financial services sectors. 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, based on our
current investment policies and contractual relationships, we are subject to
greater risk from such factors than other companies of similar size and market
breadth.
32
Recent Accounting
Pronouncements
In
February 2010, the Financial Accounting Standards Board (“FASB”) issued guidance
which amended its subsequent events guidance issued in May 2009. This
guidance eliminated the requirement for an SEC filer to disclose the date
through which subsequent events were evaluated and refined the scope of the
disclosure requirement for reissued financial statements. The impact
of adopting this guidance affected disclosures in the Consolidated Financial
Statements.
In
January 2010, the FASB issued guidance related to fair value measurements (see
Note E to the Notes to Consolidated Financial Statements) requiring new
disclosures regarding transfers in and out of Level 1 and 2 and requiring the
gross presentation of activity within Level 3. The guidance also
clarifies existing disclosures of inputs and valuation techniques for Level 2
and 3 fair value measurements. Additionally, the guidance includes
conforming amendments to employers’ disclosures about postretirement benefit
plan assets. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009 (except for the disclosure of activity within Level 3
fair value measurements which is effective for fiscal years beginning after
December 15, 2010 and for interim periods within those years). The
impact of adopting this guidance resulted in additional disclosures in the
Consolidated Financial Statements.
In
October 2009, the FASB issued guidance on revenue arrangements with multiple
deliverables effective for the Company’s 2011 fiscal year, although early
adoption is permitted. The guidance revises the criteria for
separating, measuring, and allocating arrangement consideration to each
deliverable in a multiple element arrangement. The guidance requires
companies to allocate revenue using the relative selling price of each
deliverable, which must be estimated if the company does not have a history of
selling the deliverable on a stand-alone basis or third-party evidence of
selling price. The impact of adopting this guidance on December 1,
2010 will not be material to the Consolidated Financial Statements.
In
December 2008, the 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. The impact of adopting this guidance on November 30, 2010
affected the disclosures in the 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 N to the Notes to Consolidated Financial Statements qualify as
participating securities under this guidance. The impact of adopting
this guidance on December 1, 2009 was not material to the Consolidated 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 December 1, 2009. The guidance dealing with
noncontrolling interests was retroactively 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 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 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 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
Statements of Cash Flows. Prior to the adoption of this guidance,
payments related to controlled entities were included in investing
activities.
33
Outlook
We expect
to build upon our 2010 success in fiscal year 2011. We will focus on
the continued growth of our top-line through the introduction of innovative
products while leveraging our technology capabilities, including media
development. In addition, we will continue to expand our geographical
presence in developing markets, notably China and the rest of Asia—where we
expect to grow sales in excess of 30% next year. Moreover, consistent
with our continuous improvement culture, we will continue to focus on reducing
costs while optimizing process efficiencies.
We expect
to generate diluted earnings per share in the range of $2.10 to $2.25 in fiscal
year 2011. Anticipated sales growth and operating margin by segment
and on a consolidated basis in 2011 (which includes a 53rd week)
are as follows:
|
2011 Estimated
Sales Growth
|
2011 Estimated
Operating Margin
|
|||||
|
Engine/Mobile
Filtration
|
9.0%
to 11.0%
|
20.0%
to 22.0%
|
||||
|
Industrial/Environmental
Filtration
|
10.0%
to 12.0%
|
10.0%
to 11.0%
|
||||
|
Packaging
|
-9.0%
to -7.0%
|
8.0%
to 9.0%
|
||||
|
CLARCOR
|
8.0%
to 10.0%
|
14.5%
to 15.5%
|
We expect
2011 cash from operations will be between $120 and $130 million, capital
expenditures will be between $30 and $40 million and our effective tax rate will
range between 32% and 33%.
Engine/Mobile
Filtration
We expect
continued solid growth in this segment in 2011, primarily from sales of
heavy-duty engine filters in both U.S. and international markets—notably China
and the rest of Asia. Although we anticipate stronger growth
internationally, our domestic sales are targeted to grow in excess of 6% in
2011. Achieving this domestic growth is dependent upon the continued
expansion of the U.S. economy and the related increase in truck tonnage in
2011.
Industrial/Environmental
Filtration
We
project 2011 operating margin in this segment will exceed our long-stated goal
of 10.0%. We expect that continued cost improvements at our HVAC
filter and TFS businesses, in conjunction with several growth opportunities we
foresee in this segment, will facilitate us reaching this goal. Our
anticipated double-digit sales growth is driven by the further development of
new products, the full launch of our self-supported pleat (“SSP”) HVAC filter
product, the continued penetration of the natural gas element aftermarket and
the growth of our current filtration products in international markets,
including the Mideast and Brazil.
Packaging
Our
Packaging segment had a very successful 2010 with a 9.4% operating margin and
its highest sales level in almost 30 years. We project sales in this
segment to decline in 2011 primarily due to a no-margin, $4.6 million equipment
and tooling sale to one of our customers in 2010 that will not repeat in
2011. Sales to the smokeless tobacco and flat sheet metal markets in
this segment are anticipated to remain strong in 2011.
34
Forward Looking
Statements
This 2010
Form 10-K 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 2010
Form
10-K, 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:
|
|
·
|
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;
|
|
|
·
|
statements
relating to the anticipated effects on results of operations or financial
condition from recent and expected developments or events, including
acquisitions;
|
|
|
·
|
statements
relating to our business and growth strategies;
and
|
|
|
·
|
any
other statements or assumptions that are not historical
facts.
|
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. These
factors include, but are not only limited to, risks associated with: (1) world
economic factors and the ongoing economic uncertainty impacting many regions of
the world, (2) reductions in sales volume and orders, (3) our customers’
financial condition, (4) currency fluctuations, particularly increases or
decreases in the U.S. dollar against other currencies, (5) commodity price
increases and/or limited availability of raw materials and component products,
including steel, (6) compliance costs associated with environmental laws and
regulations, (7) political factors, (8) our international operations, (9) highly
competitive markets, (10) governmental laws and regulations including
the impact of the economic stimulus and financial reform measures being
implemented by governments around the world, (11) the implementation of new
information systems, (12) potential global events resulting in instability and
unpredictability in the world’s markets, including financial bailouts of
sovereign nations, political changes, military and terrorist activities, health
outbreaks and other factors, (13) changes in accounting standards or adoption of
new accounting standards, (14) adverse effects of natural disasters, and (15)
other factors described in more detail in the “Risk Factors” section of this
2010 Form 10-K. In addition, our past results of operations do not
necessarily indicate our future results. Our future results may
fluctuate as a result of these and other risk factors detailed from time to time
in our filings with the SEC.
You
should not place undue reliance on any forward-looking
statements. These statements speak only as of the date of this 2010
Form 10-K. 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 2010 Form 10-K, whether as a result of
new information, future events, changed circumstances or any other reason after
the date of this 2010 Form 10-K.
35
Item
7A. Quantitative and Qualitative Disclosures about Market Risk.
Our
market risk is primarily related to the potential loss arising from adverse
changes in interest rates and foreign currency fluctuations. In the
normal course of business, we may also be exposed to various market risks that
arise from transactions entered into in the normal course of business related to
items such as the cost of raw materials and changes in
inflation. Certain contractual relationships with customers and
vendors mitigate risks from changes in raw material costs and currency exchange
rate changes that arise from normal purchasing and normal sales
activities.
Interest
Rates
We are
exposed to changes in interest rates, primarily due to our financing and cash
management activities, which include long and short-term debt as well as cash,
cash equivalents and certain short-term, highly liquid
investments. Interest rate fluctuations could affect earnings, cash
flows or the fair value of our financial liabilities. Our debt
obligations are primarily at variable rates and are denominated in U.S.
dollars. To minimize the long-term costs of borrowing, we manage our
interest rate risk by monitoring trends in rates as a basis for determining
whether to enter into fixed rate or variable rate agreements and the duration of
such agreements. We mitigated our interest rate risk on our borrowing
under our revolving line of credit in 2009 by entering into a fixed interest
rate swap agreement at the beginning of 2008 which fixed our interest until
January 2010. Interest rate risk is not expected to be significant to
us in fiscal year 2011 as amounts outstanding on our long-term debt agreements
are more than offset by cash and cash equivalents. The primary
interest rate risk will be driven by our return on cash and cash
equivalents. Based upon the $117.7 million in cash and cash
equivalents at November 27, 2010, a 0.25% change in interest rates could impact
annual interest income by approximately $0.3 million. This change in
interest income would increase or decrease as cash and cash equivalents increase
or decrease.
Foreign
Currency
Since we
operate through subsidiaries in several countries around the world, our reported
financial results of operations, including the reported value of assets and
liabilities, are exposed to translation risk when the financial statements of
our subsidiaries, as stated in their functional currencies, are translated into
the U.S. Dollar. The assets and liabilities of subsidiaries outside
the U.S. are translated at period end rates of exchange for each reporting
period. Earnings and cash flow statements are translated at
weighted-average rates of exchange. Although these translation changes have
no immediate cash impact, the translation changes may impact the overall value
of net assets.
We are
also exposed to transaction risk from changes in foreign currency rates through
sales and purchasing transactions when we sell products in functional
currencies different from the currency in which product and manufacturing costs
were incurred. The functional currencies of our worldwide facilities
primarily include the U.S. Dollar, the Euro, the British Pound Sterling, the
Canadian Dollar, the Chinese Yuan Renminbi, the Malaysian Ringgit and the
Mexican Peso. As these currencies fluctuate against each other, and other
currencies, we are exposed to foreign currency transaction risk on sales and
purchasing transactions.
Currency
exchange rates vary daily and often one currency strengthens against the U.S.
Dollar while another currency weakens. Because of the complex
interrelationship of the worldwide supply chains and distribution channels, it
is difficult to quantify the impact of a particular change in exchange
rates. However, we estimate that if the U.S. dollar strengthened or
weakened 10% relative to the currencies where our foreign income and cash flows
are derived the effect on the consolidated results of operations could be $0.06
to $0.09 per diluted share. We estimate that the effect of changes in
the average foreign currency translation rates in 2010 compared to 2009
positively impacted our operating profit by approximately $1.7 million in
2010.
As a
result of continued foreign sales and business activities, we continue to
evaluate derivative financial instruments, including forwards, swaps and
purchased options, to manage foreign currency exchange rate changes in the
future. We did not hold any such derivatives during 2010, 2009 or
2008 related to foreign currency exchange.
36
Item 8. Financial
Statements and Supplementary Data.
The
Consolidated Financial Statements, the Notes thereto and the report thereon of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
required hereunder with respect to the Company and its consolidated subsidiaries
are included in this 2010 Form 10-K on pages F-1 through F-40.
Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
Item 9A. Controls
and Procedures.
Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures
Under the
supervision and with the participation of the Company’s management, including
its Chief Executive Officer and Chief Financial Officer, the Company conducted
an evaluation of its disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Exchange Act. Based
on this evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures were effective
as of November 27, 2010, the end of the period covered by this 2010 Form
10-K.
Management’s
Report on Internal Control Over Financial Reporting
The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Exchange Act Rule 13a-15(f), for the Company. Under the
supervision and with the participation of management, including the Company’s
Chief Executive Officer and Chief Financial Officer, an evaluation of the
effectiveness of the Company’s internal control over financial reporting was
conducted based on the framework in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that evaluation, the Company’s management
concluded that the Company’s internal control over financial reporting was
effective as of November 27, 2010.
There
have been no changes in our internal control over financial reporting during the
fourth quarter of the fiscal year ended November 27, 2010, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
The
effectiveness of the Company’s internal control over financial reporting as of
November 27, 2010, has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which
appears on page F-2 of this 2010 Form 10-K.
Item 9B. Other
Information.
None.
37
PART III
Item 10. Directors,
Executive Officers and Corporate Governance.
Certain
information required hereunder is set forth in the Proxy Statement under the
captions “Election of Directors — Nominees for Election to the Board of
Directors”, and “Election of Directors — Information Concerning Nominees
and Directors”, and “Corporate Governance — Committees of the Board of
Directors”, and “Corporate Governance — Code of Ethics” and is incorporated
herein by reference. Additional information required hereunder is set forth in
the Proxy Statement under the caption “Beneficial Ownership of the Company’s
Common Stock — Section 16(a) Beneficial Ownership Reporting
Compliance” and is incorporated herein by reference.
Item 11. Executive
Compensation.
The
information required hereunder is set forth in the Proxy Statement under the
captions “Compensation of Executive Officers and Other Information”, and
“Corporate Governance - Compensation Committee Interlocks and Insider
Participation”, and “Corporate Governance — Meetings and Fees”, and
“Corporate Governance – Director Compensation for Fiscal Year 2010” and is
incorporated herein by reference.
Item 12. Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The
information required hereunder is set forth in the Proxy Statement under the
caption “Equity Compensation Plan Information” and under the caption “Beneficial
Ownership of the Company’s Common Stock” and is incorporated herein by
reference.
Item 13. Certain
Relationships and Related Transactions, and Director Independence.
The
information required hereunder is set forth in the Proxy Statement under the
captions “Corporate Governance — Certain Transactions” and “Corporate
Governance — Independence” and under the caption “Corporate
Governance — Committees of the Board of Directors” and is incorporated
herein by reference.
Item 14. Principal
Accounting Fees and Services.
The
information required hereunder is set forth in the Proxy Statement under the
caption “Ratification of Appointment of Independent Registered Accounting Firm—
Amounts Paid to PricewaterhouseCoopers LLP” and is incorporated herein by
reference.
38
PART IV
Item 15. Exhibits
and Financial Statement Schedules.
(a)(1)
Financial Statements
|
Page No.
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Statements of Earnings for the years ended November 30, 2010, 2009
and 2008
|
F-3
|
|
Consolidated
Balance Sheets at November 30, 2010 and 2009
|
F-4
|
|
Consolidated
Statements of Shareholders’ Equity for the years ended November 30,
2010, 2009 and 2008
|
F-5
|
|
Consolidated
Statements of Cash Flows for the years ended November 30, 2010, 2009
and 2008
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
(a)(2)
Financial Statement Schedule
|
II. Valuation
and Qualifying Accounts and Reserves
|
S-1
|
Financial
statements and schedules other than those listed above are omitted for the
reason that they are not applicable, are not required, or the information is
included in the financial statements or the footnotes therein.
(a)(3)
Exhibits
|
2.1
|
Agreement
and Plan of Merger, dated as of October 17, 2007, by and among the
Company, PECO Acquisition Company, Perry Equipment Corp., and PECO
Management LLC, as the Shareholder Representative. Incorporated by
reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed
October 18, 2007.
|
|
3.1
|
The
registrant’s Second Restated Certificate of Incorporation. Incorporated by
reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for
the fiscal year ended December 1, 2007.
|
|
3.2
|
The
registrant’s By-Laws, as amended. Incorporated by reference to Exhibit 3.1
to the Company’s Current Report on Form 8-K filed December 19,
2007.
|
|
3.3
|
Certificate
of Designation of Series B Junior Participating Preferred Stock of CLARCOR
as filed with the Secretary of State of the State of Delaware on April 2,
1996. Incorporated by reference to Exhibit 4.5 to the Registration
Statement on Form 8-A filed April 3, 1996.
|
|
4.1
|
Certain
instruments defining the rights of holders of long-term debt securities of
CLARCOR and its subsidiaries are omitted pursuant to Item
601(b)(4)(iii)(A) of Regulation S-K. CLARCOR hereby agrees to furnish
copies of these instruments to the SEC upon request.
|
|
10.1
|
The
registrant’s Amended and Restated Deferred Compensation Plan for Directors
of CLARCOR dated January 1, 2008. Incorporated by reference to Exhibit
10.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended
November 28, 2009. +
|
|
10.2
|
The
registrant’s Amended and Restated CLARCOR Deferred Compensation Plan dated
January 1, 2008. Incorporated by reference to Exhibit 10.2 to
the Company’s Annual Report on Form 10-K for the fiscal year ended
November 28, 2009. +
|
|
10.2(a)
|
The
registrant’s Supplemental Retirement Plan. Incorporated by reference to
Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal
year ended November 30, 1984. +
|
|
10.2(b)
|
The
registrant’s Amended and Restated Executive Retirement Plan dated December
20, 1999 (the “Grandfathered Plan”). Incorporated by reference
to Exhibit 10.2(b) to the Company’s Annual Report on Form 10-K for the
fiscal year ended November 28, 2009. +
|
|
10.2(c)
|
The
registrant’s Amended and Restated CLARCOR Executive Retirement Plan dated
January 1, 2009 (the “Later ERP”). Incorporated by reference to
Exhibit 10.2(c) to the Company’s Annual Report on Form 10-K for the fiscal
year ended November 28, 2009.
+
|
39
|
10.2(d)
|
Amendment
No. 1 to the Grandfathered Plan effective as of December 14,
2009. Incorporated by reference to Exhibit 10.2(d) to the
Company’s Annual Report on Form 10-K for the fiscal year ended November
28, 2009. +
|
|
10.2(e)
|
Amendment
No.1 to the Later ERP dated and effective as of December 14,
2009. Incorporated by reference to Exhibit 10.1 to the
Company’s Current Report filed on Form 8-K on December 17, 2009.
+
|
|
10.2(f)
|
The
registrant’s Amended and Restated CLARCOR Supplemental Pension Plan dated
January 1, 2008. Incorporated by reference to Exhibit 10.2(f)
to the Company’s Annual Report on Form 10-K for the fiscal year ended
November 28, 2009. +
|
|
10.2(g)
|
The
registrant’s Supplemental Retirement Plan (as amended and restated
effective December 1, 1994). Incorporated by reference to
Exhibit 10.2(c) to the Company’s Annual Report on Form 10-K for the fiscal
year ended December 3, 1994. +
|
|
10.4
|
Form
of Change in Control Agreement with each of Norman E. Johnson, Sam
Ferrise, David J. Fallon, David J. Lindsay, Richard M. Wolfson,
Christopher L. Conway and other Company executives. Incorporated by
reference to Exhibit 10.1 to the Company’s Current Report filed on Form
8-K on December 30, 2008 (the “2008 8-K”). +
|
|
10.4(a)
|
Amended
and Restated Employment Agreement with Norman E. Johnson dated as of
December 17, 2000. Incorporated by reference to Exhibit 10.4(c)(1) to the
Company’s Annual Report on Form 10-K for the fiscal year ended December 2,
2000 (the “2000 10-K”). +
|
|
10.4(b)
|
First
Amendment to Amended and Restated Employment Agreement with Norman E.
Johnson dated as of January 19, 2008. Incorporated by reference to Exhibit
10.1 to the Company’s Current Report filed on Form 8-K on January 23,
2008. +
|
|
10.4(c)
|
Second
Amendment to Amended and Restated Employment Agreement with Norman E.
Johnson dated as of December 29, 2008. Incorporated by reference to
Exhibit 10.2 to the 2008 8-K. +
|
|
10.4(d)
|
Trust
Agreement dated December 1, 1997. Incorporated by reference to Exhibit
10.4(d) to the Company’s Annual Report on Form 10-K for the fiscal year
ended November 29, 1997 (the “1997 10-K”). +
|
|
10.4(e)
|
Executive
Benefit Trust Agreement dated December 22, 1997. Incorporated by reference
to Exhibit 10.4(e) to the 1997 10-K. +
|
|
10.5
|
The
registrant’s 1994 Incentive Plan (the “1994 Plan”) as amended through June
30, 2000. Incorporated by reference to Exhibit 10.5 to the 2000 10-K.
+
|
|
10.5
|
Amendment
to the 1994 Plan adopted December 18, 2000. Incorporated by reference to
Exhibit 10.5(a) to the
2000 10-K.
+
|
|
10.5(a)
|
The
registrant’s 2004 Incentive Plan (the “2004 Plan”). Incorporated by
reference to Exhibit A to the Company’s Proxy Statement dated February 20,
2003 for the Annual Meeting of Shareholders held on March 24, 2003.
+
|
|
10.5(b)
|
Amendment
to the 1994 Plan and to the 2004 Plan. Incorporated by reference to
Exhibit 10.5(c) to the Company’s Annual Report for the fiscal year ended
November 29, 2003. +
|
|
10.6
|
Credit
Agreement dated as of December 18, 2007, by and among the Company, the
lenders party thereto, J.P. Morgan Chase Bank, National Association,
as administrative agent, and certain other lenders or affiliates thereof
acting in the capacity of agent, book runner or arranger. Incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed December 19, 2007.
|
|
10.7
|
Form
of Stock Option Agreement used by Company for all employees receiving
stock option awards, including grants to executive officers made in FY
2007. Incorporated by reference to Exhibit 10.7 to the Company’s Annual
Report on Form 10-K for the fiscal year ended December 2, 2006 (the “2006
10-K”). +
|
|
10.7(a)
|
Form
of Stock Option Agreement used by Company for executive officers and
certain other senior members of Company management receiving stock option
awards beginning in FY 2009. Incorporated by reference to Exhibit 10.7(a)
to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 1, 2007. +
|
|
10.7(b)
|
Amended
and Restated form of Restricted Stock Agreement used by Company for all
employees receiving restricted stock units, including executive
officers. Incorporated by reference to Exhibit 10.7(b) to
the Company’s Annual Report on Form 10-K for the fiscal year ended
November 28, 2009. +
|
|
10.8
|
CLARCOR
Value Added Incentive Plan. Incorporated by reference to Exhibit A to the
Company’s Proxy Statement dated February 9, 2007 for the Annual Meeting of
Shareholders held on March 26, 2007.
+
|
40
|
10.9
|
CLARCOR
Inc. 2009 Incentive Plan. Incorporated by reference to Appendix
A to the Company’s Proxy Statement dated February 13, 2009 for the Annual
Meeting of Shareholders held on March 23, 2009. +
|
|
*10.10
|
Summary
of Compensation Paid to Non-Employee Directors and Named Executive
Officers. +
|
|
*12.1
|
Statement
Re Computation of Certain Ratios.
|
|
*13
|
The
“11-Year Financial Review.”
|
|
*21
|
Subsidiaries
of the Registrant.
|
|
*23
|
Consent
of Independent Registered Public Accounting Firm.
|
|
*31.1
|
Certification
of Norman E. Johnson, Chairman of the Board and Chief
Executive Officer of the Company, pursuant to Rule13a-14(a) of the
Exchange Act.
|
|
*31.2
|
Certification
of David J. Fallon, Chief
Financial Officer and Chief Accounting Officer of the Company,
pursuant to Rule 13a-14(a) of the Exchange Act.
|
|
*32.1
|
Certification
of Norman E. Johnson, Chairman of the Board and Chief
Executive Officer of the Company, pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States Code.
|
|
*32.2
|
Certification
of David J. Fallon, Chief
Financial Officer and Chief Accounting Officer of the Company,
pursuant to Section 1350 of Chapter 63 of Title 18 of the United States
Code.
|
|
**101.INS
|
XBRL
Instance Document ++
|
|
**101.SCH
|
XBRL
Taxonomy Extension Schema Document ++
|
|
**101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase ++
|
|
**101.LAB
|
XBRL
Taxonomy Extension Label Linkbase ++
|
|
**101.PRE
|
XBRL
Taxonomy Extension Presentation Linkbase ++
|
|
**101.DEF
|
XBRL
Taxonomy Extension Definition Linkbase
++
|
|
*
|
Filed
herewith.
|
| ** |
Submitted
electronically with this 2010 Annual Report on Form 10-K.
|
|
+
|
Management
contract or compensatory plan or arrangement
|
| ++ |
XBRL
information is furnished and not filed for purposes of Sections 11 and 12
of the Securities Act of 1933 and Section 18 of the Securities Exchange
Act of 1934, and is not subject to liability under those sections, is not
part of any registration statement or prospectus to which is relates and
is not incorporated or deemed to be incorporated by reference into any
registration statement, prospectus or other
document. |
41
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date:
January 21, 2011
|
CLARCOR
Inc.
|
||
|
(Registrant)
|
||
|
By:
|
/s/ Norman E.
Johnson
|
|
|
Norman
E. Johnson
|
||
|
Chairman
of the Board &Chief Executive
Officer
|
||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Date:
January 21, 2011
|
By:
|
/s/ NORMAN E. JOHNSON
|
|
Norman
E. Johnson
Chairman
of the Board &
Chief
Executive Officer and Director
|
||
|
Date:
January 21, 2011
|
By:
|
/s/ DAVID J. FALLON
|
|
David
J. Fallon
Chief
Financial Officer &
Chief
Accounting Officer
|
||
|
Date:
January 21, 2011
|
By:
|
/s/ J. MARC ADAM
|
|
J.
Marc Adam
Director
|
||
|
Date:
January 21, 2011
|
By:
|
/s/ JAMES W. BRADFORD,
JR.
|
|
James
W. Bradford, Jr.
Director
|
||
|
Date:
January 21, 2011
|
By:
|
/s/ ROBERT J.
BURGSTAHLER
|
|
Robert
J. Burgstahler
Director
|
||
|
Date:
January 21, 2011
|
By:
|
/s/ PAUL DONOVAN
|
|
Paul
Donovan
Director
|
||
|
Date:
January 21, 2011
|
By:
|
/s/ ROBERT H. JENKINS
|
|
Robert
H. Jenkins
Director
|
||
|
Date:
January 21, 2011
|
By:
|
/s/ PHILIP R. LOCHNER,
JR.
|
|
Philip
R. Lochner, Jr.
Director
|
||
|
Date:
January 21, 2011
|
By:
|
/s/ JAMES L. PACKARD
|
|
James
L. Packard
Director
|
||
|
Date:
January 21, 2011
|
By:
|
/s/ MARK A. EMKES
|
|
Mark
A. Emkes
Director
|
42
CLARCOR
Inc.
CONSOLIDATED
FINANCIAL STATEMENTS
For
the years ended November 30,
2010,
2009 and 2008
F-1
Report
of Independent Registered Public Accounting Firm
To The
Board of Directors and Shareholders
CLARCOR
Inc.
In our
opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial
position of CLARCOR Inc. and its subsidiaries (the "Company") at November 27,
2010 and November 28, 2009, and the results of their operations and their cash
flows for each of the three years in the period ended November 27, 2010 in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(2) presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of November 27, 2010, based on
criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for these
financial statements and financial statement schedule, for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in
Management’s Report on Internal Control Over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the Company's internal
control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
Nashville,
Tennessee
January
21, 2011
F-2
CLARCOR
Inc.
CONSOLIDATED
STATEMENTS OF EARNINGS
For
the years ended November 30, 2010, 2009 and 2008
(Dollars
in thousands except share data)
|
2010
|
2009
|
2008
|
||||||||||
|
Net
sales
|
$ | 1,011,429 | $ | 907,748 | $ | 1,059,601 | ||||||
|
Cost
of sales
|
673,022 | 628,460 | 719,726 | |||||||||
|
Gross
profit
|
338,407 | 279,288 | 339,875 | |||||||||
|
Selling
and administrative expenses
|
193,758 | 173,555 | 187,952 | |||||||||
|
Operating
profit
|
144,649 | 105,733 | 151,923 | |||||||||
|
Other
income (expense):
|
||||||||||||
|
Interest
expense
|
(546 | ) | (2,120 | ) | (6,532 | ) | ||||||
|
Interest
income
|
288 | 278 | 1,373 | |||||||||
|
Other,
net
|
(968 | ) | 1,758 | (1,393 | ) | |||||||
| (1,226 | ) | (84 | ) | (6,552 | ) | |||||||
|
Earnings
before income taxes
|
143,423 | 105,649 | 145,371 | |||||||||
|
Provision
for income taxes
|
47,072 | 33,819 | 49,310 | |||||||||
|
Net
earnings
|
96,351 | 71,830 | 96,061 | |||||||||
|
Net
earnings attributable to noncontrolling interests
|
(270 | ) | (287 | ) | (407 | ) | ||||||
|
Net
earnings attributable to CLARCOR Inc.
|
$ | 96,081 | $ | 71,543 | $ | 95,654 | ||||||
|
Net
earnings per share attributable to CLARCOR Inc.:
|
||||||||||||
|
Basic
|
$ | 1.90 | $ | 1.41 | $ | 1.88 | ||||||
|
Diluted
|
$ | 1.88 | $ | 1.40 | $ | 1.86 | ||||||
|
Average
number of shares outstanding:
|
||||||||||||
|
Basic
|
50,678,617 | 50,851,933 | 50,841,586 | |||||||||
|
Diluted
|
51,156,229 | 51,120,286 | 51,465,528 | |||||||||
The
accompanying notes are an integral part of the consolidated financial
statements.
F-3
CLARCOR
Inc.
CONSOLIDATED
BALANCE SHEETS
November
30, 2010 and 2009
(Dollars
in thousands except share data)
|
2010
|
2009
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 117,022 | $ | 59,277 | ||||
|
Restricted
cash
|
708 | 762 | ||||||
|
Short-term
investments
|
- | 32,171 | ||||||
|
Accounts
receivable, less allowance for losses of $11,428 for 2010 and $15,150 for
2009
|
188,186 | 164,545 | ||||||
|
Inventories
|
182,384 | 157,416 | ||||||
|
Deferred
income taxes
|
25,081 | 27,567 | ||||||
|
Income
taxes receivable
|
7,324 | - | ||||||
|
Prepaid
expenses and other current assets
|
5,568 | 6,790 | ||||||
|
Total
current assets
|
526,273 | 448,528 | ||||||
|
Plant
assets, at cost, less accumulated depreciation
|
181,175 | 188,091 | ||||||
|
Assets
held for sale
|
2,000 | - | ||||||
|
Goodwill
|
228,105 | 228,182 | ||||||
|
Acquired
intangibles, less accumulated amortization
|
91,174 | 95,990 | ||||||
|
Deferred
income taxes
|
1,000 | 630 | ||||||
|
Other
noncurrent assets
|
12,684 | 12,469 | ||||||
|
Total
assets
|
$ | 1,042,411 | $ | 973,890 | ||||
|
LIABILITIES
|
||||||||
|
Current
liabilities:
|
||||||||
|
Current
portion of long-term debt
|
$ | 146 | $ | 99 | ||||
|
Accounts
payable and accrued liabilities
|
160,206 | 126,424 | ||||||
|
Income
taxes
|
3,105 | 5,419 | ||||||
|
Total
current liabilities
|
163,457 | 131,942 | ||||||
|
Long-term
debt, less current portion
|
17,331 | 52,096 | ||||||
|
Postretirement
healthcare benefits
|
540 | 689 | ||||||
|
Long-term
pension liabilities
|
65,584 | 61,746 | ||||||
|
Deferred
income taxes
|
31,266 | 32,136 | ||||||
|
Other
long-term liabilities
|
5,138 | 5,394 | ||||||
|
Total
liabilities
|
283,316 | 284,003 | ||||||
|
Contingencies
|
||||||||
|
Redeemable
noncontrolling interests
|
1,568 | 1,412 | ||||||
|
SHAREHOLDERS'
EQUITY
|
||||||||
|
Capital
stock:
|
||||||||
|
Preferred,
par value $1, authorized 5,000,000 shares, none issued
|
- | - | ||||||
|
Common,
par value $1, authorized 120,000,000
shares, issued 50,334,776 in 2010 and 50,392,571 in
2009
|
50,335 | 50,393 | ||||||
|
Capital
in excess of par value
|
33,698 | 36,814 | ||||||
|
Accumulated
other comprehensive loss
|
(35,041 | ) | (32,879 | ) | ||||
|
Retained
earnings
|
707,478 | 632,291 | ||||||
|
Total
CLARCOR Inc. equity
|
756,470 | 686,619 | ||||||
|
Noncontrolling
interests
|
1,057 | 1,856 | ||||||
|
Total
shareholders' equity
|
757,527 | 688,475 | ||||||
|
Total
liabilities and shareholders' equity
|
$ | 1,042,411 | $ | 973,890 | ||||
The
accompanying notes are an integral part of the consolidated financial
statements.
F-4
CLARCOR
Inc.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
For
the years ended November 30, 2010, 2009 and 2008
(Dollars
in thousands except share data)
|
CLARCOR Inc. Shareholders
|
||||||||||||||||||||||||||||
|
Common Stock
|
Accumulated
|
|||||||||||||||||||||||||||
|
Issued
|
Capital in
|
Other
|
Non-
|
|||||||||||||||||||||||||
|
Number
|
Excess of
|
Comprehensive
|
Retained
|
controlling
|
||||||||||||||||||||||||
|
of Shares
|
Amount
|
Par Value
|
Earnings (Loss)
|
Earnings
|
Interests
|
Total
|
||||||||||||||||||||||
|
Balance,
November 30, 2007
|
49,218,822 | $ | 49,219 | $ | - | $ | 5,912 | $ | 500,599 | $ | 2,191 | $ | 557,921 | |||||||||||||||
|
Net
earnings (excludes redeemable noncontrolling interests)
|
- | - | - | - | 95,654 | 507 | 96,161 | |||||||||||||||||||||
|
Other
comprehensive earnings, net of tax:
|
||||||||||||||||||||||||||||
|
Pension
and other postretirement benefits liability adjustments, net of tax of
$2,793
|
- | - | - | (4,706 | ) | - | - | (4,706 | ) | |||||||||||||||||||
|
Pension
curtailment, net of tax of $3,846
|
- | - | - | (6,478 | ) | - | - | (6,478 | ) | |||||||||||||||||||
|
Translation
adjustments, net of tax of $0
|
- | - | - | (21,290 | ) | - | 295 | (20,995 | ) | |||||||||||||||||||
|
Comprehensive
earnings (excludes redeemable noncontrolling interests)
|
63,982 | |||||||||||||||||||||||||||
|
Adoption
of new income tax guidance
|
- | - | - | - | (67 | ) | - | (67 | ) | |||||||||||||||||||
|
Stock
issued for business acquisition
|
2,137,797 | 2,138 | 69,816 | - | - | - | 71,954 | |||||||||||||||||||||
|
Stock
options exercised
|
389,459 | 389 | 6,796 | - | - | - | 7,185 | |||||||||||||||||||||
|
Tax
benefit applicable to stock options
|
- | - | 2,752 | - | - | - | 2,752 | |||||||||||||||||||||
|
Issuance
of stock under award plans
|
48,344 | 48 | 1,553 | - | - | - | 1,601 | |||||||||||||||||||||
|
Purchase
and retire treasury stock
|
(1,000,000 | ) | (1,000 | ) | (36,260 | ) | - | - | - | (37,260 | ) | |||||||||||||||||
|
Stock
option expense
|
- | - | 3,368 | - | - | - | 3,368 | |||||||||||||||||||||
|
Other
|
- | - | - | - | 161 | - | 161 | |||||||||||||||||||||
|
Cash
dividends - $0.3300 per common share
|
- | - | - | - | (16,845 | ) | - | (16,845 | ) | |||||||||||||||||||
|
Balance,
November 30, 2008
|
50,794,422 | 50,794 | 48,025 | (26,562 | ) | 579,502 | 2,993 | 654,752 | ||||||||||||||||||||
|
Adoption
of pension and other postretirement plans measurement date guidance, net
of tax of $155
|
- | - | - | (268 | ) | (293 | ) | - | (561 | ) | ||||||||||||||||||
|
Balance,
December 1, 2008
|
50,794,422 | 50,794 | 48,025 | (26,830 | ) | 579,209 | 2,993 | 654,191 | ||||||||||||||||||||
|
Net
earnings (excludes redeemable noncontrolling interests)
|
- | - | - | - | 71,543 | 359 | 71,902 | |||||||||||||||||||||
|
Other
comprehensive earnings, net of tax:
|
||||||||||||||||||||||||||||
|
Pension
and other postretirement benefits liability adjustments, net of tax of
$11,850
|
- | - | - | (20,766 | ) | - | - | (20,766 | ) | |||||||||||||||||||
|
Translation
adjustments, net of tax of $0
|
- | - | - | 14,717 | - | (79 | ) | 14,638 | ||||||||||||||||||||
|
Comprehensive
earnings (excludes redeemable noncontrolling interests)
|
65,774 | |||||||||||||||||||||||||||
|
Changes
in noncontrolling interests ownership
|
- | - | - | - | - | (1,417 | ) | (1,417 | ) | |||||||||||||||||||
|
Stock
options exercised
|
205,031 | 205 | 1,355 | - | - | - | 1,560 | |||||||||||||||||||||
|
Tax
benefit applicable to stock options
|
- | - | 1,809 | - | - | - | 1,809 | |||||||||||||||||||||
|
Issuance
of stock under award plans
|
81,318 | 82 | 1,677 | - | - | - | 1,759 | |||||||||||||||||||||
|
Purchase
and retire treasury stock
|
(688,200 | ) | (688 | ) | (19,079 | ) | - | - | - | (19,767 | ) | |||||||||||||||||
|
Stock
option expense
|
- | - | 3,027 | - | - | - | 3,027 | |||||||||||||||||||||
|
Other
|
- | - | - | - | 221 | - | 221 | |||||||||||||||||||||
|
Cash
dividends - $0.3675 per common share
|
- | - | - | - | (18,682 | ) | - | (18,682 | ) | |||||||||||||||||||
|
Balance,
November 30, 2009
|
50,392,571 | 50,393 | 36,814 | (32,879 | ) | 632,291 | 1,856 | 688,475 | ||||||||||||||||||||
|
Net
earnings (excludes redeemable noncontrolling interests)
|
- | - | - | - | 96,081 | 175 | 96,256 | |||||||||||||||||||||
|
Other
comprehensive earnings, net of tax:
|
||||||||||||||||||||||||||||
|
Pension
and other postretirement benefits liability adjustments, net of tax of
$(1,647)
|
- | - | - | 2,170 | - | - | 2,170 | |||||||||||||||||||||
|
Translation
adjustments, net of tax of $0
|
- | - | - | (5,097 | ) | - | (3 | ) | (5,100 | ) | ||||||||||||||||||
|
Comprehensive
earnings (excludes redeemable noncontrolling interests)
|
93,326 | |||||||||||||||||||||||||||
|
Changes
in noncontrolling interests ownership
|
- | - | 190 | - | - | (971 | ) | (781 | ) | |||||||||||||||||||
|
Stock
options exercised
|
336,189 | 336 | 4,718 | - | - | - | 5,054 | |||||||||||||||||||||
|
Tax
benefit applicable to stock options
|
- | - | 2,457 | - | - | - | 2,457 | |||||||||||||||||||||
|
Issuance
of stock under award plans
|
52,007 | 52 | 1,718 | - | - | - | 1,770 | |||||||||||||||||||||
|
Purchase
and retire treasury stock
|
(445,991 | ) | (446 | ) | (15,831 | ) | - | - | - | (16,277 | ) | |||||||||||||||||
|
Stock
option expense
|
- | - | 3,632 | - | - | - | 3,632 | |||||||||||||||||||||
|
Other
|
- | - | - | 765 | (752 | ) | - | 13 | ||||||||||||||||||||
|
Cash
dividends - $0.3975 per common share
|
- | - | - | - | (20,142 | ) | - | (20,142 | ) | |||||||||||||||||||
|
Balance,
November 30, 2010
|
50,334,776 | $ | 50,335 | $ | 33,698 | $ | (35,041 | ) | $ | 707,478 | $ | 1,057 | $ | 757,527 | ||||||||||||||
The
accompanying notes are an integral part of the consolidated financial
statements.
F-5
CLARCOR
Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the years ended November 30, 2010, 2009 and 2008
(Dollars
in thousands)
|
2010
|
2009
|
2008
|
||||||||||
|
Cash
flows from operating activities:
|
||||||||||||
|
Net
earnings
|
$ | 96,351 | $ | 71,830 | $ | 96,061 | ||||||
|
Adjustments
to reconcile net earnings to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation
|
26,119 | 26,005 | 25,231 | |||||||||
|
Amortization
|
4,802 | 4,957 | 5,157 | |||||||||
|
Other
noncash items
|
(101 | ) | (332 | ) | - | |||||||
|
Net
loss (gain) on disposition of plant assets
|
337 | (47 | ) | (282 | ) | |||||||
|
Impairment
of plant assets
|
276 | 1,200 | - | |||||||||
|
Stock-based
compensation expense
|
4,602 | 4,088 | 4,474 | |||||||||
|
Excess
tax benefit from stock-based compensation
|
(2,500 | ) | (1,854 | ) | (2,469 | ) | ||||||
|
Changes
in assets and liabilities, net of business acquisitions:
|
||||||||||||
|
Restricted
cash
|
(1,119 | ) | (289 | ) | 582 | |||||||
|
Short-term
investments
|
32,171 | (24,902 | ) | (2,385 | ) | |||||||
|
Accounts
receivable
|
(26,442 | ) | 38,194 | (7,611 | ) | |||||||
|
Inventories
|
(26,244 | ) | 6,057 | (6,277 | ) | |||||||
|
Prepaid
expenses and other current assets
|
1,165 | 1,426 | 1,995 | |||||||||
|
Other
noncurrent assets
|
(376 | ) | 1,060 | 858 | ||||||||
|
Accounts
payable, accrured liabilities and other liabilities
|
36,790 | (23,499 | ) | (15,284 | ) | |||||||
|
Pension
and postretirement healthcare liabilities, net
|
4,120 | 6,950 | 293 | |||||||||
|
Income
taxes
|
(6,823 | ) | 3,422 | 4,568 | ||||||||
|
Deferred
income taxes
|
(845 | ) | (862 | ) | 2,225 | |||||||
|
Net
cash provided by operating activities
|
142,283 | 113,404 | 107,136 | |||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Business
acquisitions, net of cash acquired
|
- | (7,326 | ) | (74,921 | ) | |||||||
|
Additions
to plant assets
|
(23,371 | ) | (21,740 | ) | (34,908 | ) | ||||||
|
Proceeds
from disposition of plant assets
|
2,296 | 815 | 909 | |||||||||
|
Investment
in affiliate
|
(199 | ) | (1,794 | ) | (2,000 | ) | ||||||
|
Proceeds
from insurance claims
|
557 | 500 | 2,025 | |||||||||
|
Other,
net
|
- | (65 | ) | (5 | ) | |||||||
|
Net
cash used in investing activities
|
(20,717 | ) | (29,610 | ) | (108,900 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Net
(payments) proceeds under multicurrency revolving credit
agreement
|
(35,000 | ) | (40,000 | ) | 75,000 | |||||||
|
Borrowings
under long-term debt
|
- | 8,410 | - | |||||||||
|
Payments
on long-term debt
|
(164 | ) | (838 | ) | (16,092 | ) | ||||||
|
Sale
of capital stock under stock option and employee purchase
plans
|
7,290 | 3,616 | 8,883 | |||||||||
|
Acquisition
of noncontrolling interest
|
(732 | ) | (4,592 | ) | - | |||||||
|
Purchase
of treasury stock
|
(16,277 | ) | (19,767 | ) | (37,260 | ) | ||||||
|
Excess
tax benefit from stock-based compensation
|
2,500 | 1,854 | 2,469 | |||||||||
|
Cash
dividends paid
|
(20,143 | ) | (18,682 | ) | (16,845 | ) | ||||||
|
Net
cash (used in) provided by financing activities
|
(62,526 | ) | (69,999 | ) | 16,155 | |||||||
|
Net
effect of exchange rate changes on cash
|
(1,295 | ) | 4,767 | (9,735 | ) | |||||||
|
Net
change in cash and cash equivalents
|
57,745 | 18,562 | 4,656 | |||||||||
|
Cash
and cash equivalents, beginning of period
|
59,277 | 40,715 | 36,059 | |||||||||
|
Cash
and cash equivalents, end of period
|
$ | 117,022 | $ | 59,277 | $ | 40,715 | ||||||
|
Cash
paid during the period for:
|
||||||||||||
|
Interest
|
$ | 1,161 | $ | 708 | $ | 4,101 | ||||||
|
Income
taxes, net of refunds
|
$ | 54,560 | $ | 32,208 | $ | 42,346 | ||||||
The
accompanying notes are an integral part of the consolidated financial
statements.
F-6
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
|
A.
|
BASIS OF PRESENTATION
AND SIGNIFICANT ACCOUNTING
POLICIES
|
Principles of
Consolidation
CLARCOR
Inc. and its subsidiaries (collectively, the “Company” or “CLARCOR”) is a global
provider of filtration products, filtration systems and services, and consumer
and industrial packaging products. As discussed further in Note P,
the Company has three reportable segments: Engine/Mobile Filtration,
Industrial/Environmental Filtration and Packaging. The Consolidated
Financial Statements include all domestic and foreign subsidiaries that were
more than 50% owned and controlled as of fiscal year-end 2010. All
intercompany accounts and transactions have been eliminated.
Accounting
Period
The
Company's fiscal year-end is the Saturday closest to November 30, typically
resulting in a fifty-two week year, but occasionally giving rise to an
additional week, resulting in a fifty-three week year. The fiscal
years ended November 27, 2010, November 28, 2009 and November 29, 2008 were
comprised of fifty-two weeks. For clarity of presentation in the
Consolidated Financial Statements, all fiscal years are shown to begin as of
December 1 and end as of November 30.
Use of Management's
Estimates
The
preparation of the financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results will differ from those
estimates.
Foreign Currency
Translation
Financial
statements of foreign subsidiaries are translated into U.S. dollars at current
rates, except that revenues, costs, expenses and cash flows are translated at
average rates during each reporting period and equity accounts are translated at
historical rates. Net exchange gains or losses resulting from the
translation of foreign financial statements are accumulated with other
comprehensive earnings (losses) as a separate component of shareholders' equity
and are presented in the Consolidated Statements of Shareholders’
Equity.
Cash and Cash Equivalents,
Restricted Cash and Short-term Investments
Highly
liquid investments with an original maturity of three months or less when
purchased or that are readily saleable are considered to be cash and cash
equivalents. Restricted cash represents funds held in escrow and cash
balances held by German banks as collateral for certain guarantees of overseas
subsidiaries. Restricted cash classified as current corresponds to
guarantees that expire within one year. The Company also has $2,016
and $1,040 of noncurrent restricted cash recorded in other noncurrent assets as
of November 30, 2010 and 2009, respectively, corresponding to guarantees and
escrow agreements that expire longer than one year from the dates of the
Consolidated Balance Sheets.
Short-term
investments included tax-exempt municipal money market funds classified as
trading securities. Short-term investments are carried at fair value
(see Note E). Management determines the appropriate classification of
its short-term investments at the time of acquisition and reevaluates such
determination at each balance sheet date. The carrying values of cash
and cash equivalents and restricted cash approximate fair value.
Cash and
cash equivalents, restricted cash and short-term investments represent financial
instruments with potential credit risk. The Company mitigates the
risk by investing the assets with financially strong institutions and by
limiting the amount of credit exposure to any one institution.
F-7
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
Derivatives
From
time-to-time, the Company may make use of derivative financial instruments to
manage certain interest rate and foreign currency risks. Fixed rate
interest swap agreements may be utilized to convert certain floating rate debt
into fixed rate debt (see Note G). Unrealized gains or losses are
recorded in Interest expense in the Consolidated Statements of Earnings, and
periodic settlement payments are a component of cash flows from operating
activities in the Consolidated Statements of Cash Flows. The Company
recognizes all derivatives on the balance sheet at fair value (see Note
E). Derivatives that are not accounted for as hedges are adjusted to
fair value through income.
The
Company documents all relationships between hedging instruments and hedged
items, as well as its risk-management objective and strategy for undertaking
various hedge transactions. In addition, the Company assesses (both
at the hedge’s inception and on an ongoing basis) the effectiveness of the
derivatives that are used in hedging transactions. If it is
determined that a derivative is not (or has ceased to be) effective as a hedge,
the Company discontinues hedge accounting prospectively. Ineffective
portions of changes in the fair value of cash flow hedges would be recognized in
interest expense. At November 30, 2010 and 2009, the Company did not
have any derivative financial instruments that qualified for hedge
accounting.
Accounts Receivable and
Allowance for Losses
Trade
accounts receivable are recorded at the invoiced amount and do not bear
interest. Trade accounts receivable represent financial instruments
with potential credit risk. The allowance for losses is the Company’s
best estimate of the amount of probable credit losses in its existing accounts
receivable. The Company determines the allowance based on economic
conditions in the industries to which the Company sells and on historical
experience by evaluating specific customer accounts for risk of loss,
fluctuations in amounts owed and current payment trends. The
allowances provided are estimates that may be impacted by economic and market
conditions which could have an effect on future allowance requirements and
results of operations. The Company reviews its allowance for doubtful
accounts monthly. Past due balances over ninety days and over a
specified amount are reviewed individually for
collectability. Account balances are charged off against the
allowance when it is probable the receivable will not be
recovered. The Company does not have any off-balance sheet credit
exposure related to its customers.
Inventories
Inventories
are valued at the lower of cost or market primarily determined on the first-in,
first-out (“FIFO”) method of inventory costing, which approximates current
cost. The Company periodically assesses its inventories for potential
excess, slow movement and obsolescence and adjusts inventory values
accordingly. Inventories are summarized as follows:
|
2010
|
2009
|
|||||||
|
Raw
materials
|
$ | 67,011 | $ | 57,579 | ||||
|
Work
in process
|
26,219 | 23,405 | ||||||
|
Finished
products
|
89,154 | 76,432 | ||||||
| $ | 182,384 | $ | 157,416 | |||||
Plant
Assets
Depreciation
is determined by the straight-line method for financial statement purposes and
by the accelerated method for tax purposes. The provision for
depreciation is based on the estimated useful lives of the assets (15 to 40
years for buildings and improvements, the shorter of the asset life or the life
of the lease for leasehold improvements and leased equipment and 3 to 15 years
for machinery and equipment). It is the Company’s policy to
capitalize the cost of renewals and betterments and to charge to expense the
cost of current maintenance and repairs. When property or equipment
is retired or otherwise disposed of, the net book value of the asset is removed
from the Company’s books and the resulting gain or loss is reflected in
operating profit.
Plant
assets classified as Assets held for sale are initially measured at the lesser
of the assets’ carrying amount or the fair value less costs to
sell. Gains or losses are recognized for any subsequent changes in
the fair value less cost to sell; however, gains are only recognized to the
extent of cumulative losses previously recognized. Plant assets
classified as Assets held for sale are not depreciated.
F-8
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
Goodwill and Acquired
Intangible Assets
The
Company recognizes the excess of the cost of an acquired entity over the net
amount assigned to assets acquired and liabilities assumed as
goodwill. Goodwill is tested for impairment at the reporting unit
level on an annual basis and between annual tests in certain
circumstances. Impairment losses would be recognized whenever the
implied fair value of goodwill is less than its carrying value.
The
Company recognizes an acquired intangible asset apart from goodwill whenever the
asset arises from contractual or other legal rights, or whenever it is capable
of being separated or divided from the acquired entity and sold, transferred,
licensed, rented or exchanged, either individually or in combination with a
related contract, asset or liability. An intangible asset other than
goodwill is amortized over its estimated useful life unless that life is
determined to be indefinite. Most of the Company’s trade names and
trademarks have indefinite useful lives and are subject to impairment
testing. All other acquired intangible assets, including patents
(average 13 year life), and other identifiable intangible assets with lives
ranging from 2 to 30 years, are being amortized using the straight-line method
over the estimated periods to be benefited. The Company reviews the
lives of its definite-lived intangible assets at least annually, and if
necessary, impairment losses are recognized if the carrying amount of an
intangible subject to amortization is not recoverable from expected future cash
flows and its carrying amount exceeds its fair value.
Impairment of Long-Lived
Assets
The
Company determines any impairment losses based on underlying cash flows related
to specific groups of acquired long-lived assets, including plant assets,
associated identifiable intangible assets and goodwill, when events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. For the year ended November 30, 2010, the Company
recorded impairment charges of $276, included in Cost of sales in the
Consolidated Statements of Earnings, related to machinery and equipment
previously used in the production of certain products which are no longer
produced. The Company recorded an impairment charge of $1,200,
included in Cost of sales in the Consolidated Statements of Earnings, for the
year ended November 30, 2009, as discussed in Note K.
Income
Taxes
The
Company provides for income taxes and recognizes deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
the financial statement carrying amounts and the tax basis of assets and
liabilities. The Company accounts for uncertain tax positions in
accordance with guidance issued by the Financial Accounting Standards Board
(“FASB”). This guidance applies broadly to all tax positions taken by
a company, including decisions to not report income in a tax return or to
classify a transaction as tax exempt. The approach is a two-step
benefit recognition model. The amount of benefit to recognize is
measured as the largest amount of tax benefit that is greater than 50% likely of
being ultimately realized upon settlement. The tax position is
derecognized when it is no longer more likely than not of being
sustained. The Company does not provide deferred taxes on unremitted
foreign earnings from certain foreign affiliates that are intended to be
indefinitely reinvested to finance operations and expansion outside the United
States.
F-9
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
Accumulated Other
Comprehensive Earnings (Loss)
Accumulated
other comprehensive earnings (loss), net of tax, consists of foreign currency
translation adjustments and pension related gains and losses, prior service
costs and credits and any remaining transition amounts that have not yet been
recognized through net periodic benefit costs. The components of the
ending balances of accumulated other comprehensive earnings (loss) are as
follows:
|
2010
|
2009
|
2008
|
||||||||||
|
Pension
liability, gross
|
$ | (58,191 | ) | $ | (62,008 | ) | $ | (28,968 | ) | |||
|
Tax
effect of pension liability
|
21,149 | 22,796 | 10,790 | |||||||||
|
Pension
liability, net of tax
|
(37,042 | ) | (39,212 | ) | (18,178 | ) | ||||||
|
Translation
adjustments, gross
|
2,156 | 6,488 | (8,229 | ) | ||||||||
|
Tax
effect of translation adjustments
|
(155 | ) | (155 | ) | (155 | ) | ||||||
|
Translation
adjustments, net of tax
|
2,001 | 6,333 | (8,384 | ) | ||||||||
|
Accumulated
other comprehensive loss
|
$ | (35,041 | ) | $ | (32,879 | ) | $ | (26,562 | ) | |||
Stock-based
Compensation
Stock-based
employee compensation cost is recognized using the fair-value based method for
all awards granted on or after the beginning of fiscal year 2006. The
Company issues stock option awards and restricted stock unit awards to employees
and issues stock option awards and restricted stock to non-employee directors
under its stock-based incentive plans. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option pricing
model. Compensation cost related to restricted stock units is
recorded based on the market price of the Company’s common stock on the grant
date. The Company recognizes compensation expense from the date of
grant on a straight-line basis over a four year period or to the date retirement
eligibility is achieved, whichever is shorter. For those who are
already retirement eligible on the date of grant, compensation expense is
recognized immediately.
Revenue
Recognition
In
general, revenue is recognized when product ownership and risk of loss have
transferred to the customer or performance of services is complete and the
Company has no remaining obligations regarding the
transaction. Estimated discounts, rebates and sales returns are
recorded as a reduction of sales in the same period revenue is
recognized. Shipping and handling costs are recorded as revenue when
billed to customers. The related shipping and handling expenses are
included in cost of sales.
The
Company acquired a business during 2008 which uses the percentage of completion
accounting revenue recognition method for qualifying contracts under which
products are manufactured to customer specifications. Approximately
$40,500, $35,600 and $29,000 of the Company’s total revenue for fiscal year
2010, 2009 and 2008, respectively, was recognized under the percentage of
completion accounting method. Revenue is recognized on contracts
utilizing the percentage of completion method based on costs incurred as a
percentage of estimated total costs. Revenue recognized on
uncompleted contracts in excess of amounts billed to customers is reflected as a
current asset. Amounts billed to customers in excess of revenue
recognized on uncompleted contracts are reflected as a current liability. When
it is estimated that a contract will result in a loss, the entire amount of the
estimated loss is accrued. The effect of revisions in costs and profit estimated
for contracts is reflected in the accounting period in which the facts requiring
the revisions become known.
Product
Warranties
The
Company provides for estimated warranty costs when the related products are
recorded as sales or for specific items at the time existence of the claims is
known and the amounts are reasonably determinable.
F-10
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
Research and
Development
The
Company charges research and development costs, relating to the development of
new products or the improvement or redesign of its existing products, to expense
when incurred. These costs were approximately $9,817 in 2010, $9,595
in 2009 and $9,343 in 2008.
Insurance
Insurance
coverage is generally obtained for certain property and casualty exposures,
workers’ compensation and general liability, as well as risks that require
insurance by law or contract. The Company self-insures for certain
other insurable risks, primarily employee medical coverage, which the Company
carries insurance for certain losses above specified
amounts. Liabilities are determined using estimates, including
actuarial where applicable, of the aggregate liability for claims incurred and
an estimate of incurred but not reported claims, on an undiscounted
basis.
Guarantees
At
November 30, 2010, the Company has letters of credit totaling $23,189 issued to
various government agencies, primarily related to industrial revenue bonds, and
to insurance companies and other entities in support of its
obligations. The Company believes that no payments will be required
resulting from these obligations.
In the
ordinary course of business, the Company also provides routine indemnifications
and other guarantees whose terms range in duration and often are not explicitly
defined. The Company does not believe these will have a material
impact on the results of operations or financial condition of the
Company.
New
Pronouncements
In
February 2010, the FASB issued guidance which amended its subsequent events
guidance issued in May 2009. This guidance eliminated the requirement
for a United States Securities and Exchange Commission (“SEC”) filer to disclose
the date through which subsequent events were evaluated and refined the scope of
the disclosure requirement for reissued financial statements. The
impact of adopting this guidance affected disclosures in the Consolidated
Financial Statements.
In
January 2010, the FASB issued guidance related to fair value measurements (see
Note E) requiring new disclosures regarding transfers in and out of Level 1 and
2 and requiring the gross presentation of activity within Level
3. The guidance also clarifies existing disclosures of inputs and
valuation techniques for Level 2 and 3 fair value
measurements. Additionally, the guidance includes conforming
amendments to employers’ disclosures about postretirement benefit plan
assets. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009 (except for the disclosure of activity within Level 3
fair value measurements which is effective for fiscal years beginning after
December 15, 2010 and for interim periods within those years). The
impact of adopting this guidance resulted in additional disclosures in the
Consolidated Financial Statements.
In
October 2009, the FASB issued guidance on revenue arrangements with multiple
deliverables effective for the Company’s 2011 fiscal year, although early
adoption is permitted. The guidance revises the criteria for
separating, measuring, and allocating arrangement consideration to each
deliverable in a multiple element arrangement. The guidance requires
companies to allocate revenue using the relative selling price of each
deliverable, which must be estimated if the company does not have a history of
selling the deliverable on a stand-alone basis or third-party evidence of
selling price. The impact of adopting this guidance on December 1,
2010 will not be material to the Consolidated Financial Statements.
In
December 2008, the 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. The impact of adopting this guidance on November 30, 2010
affected the disclosures in the Consolidated Financial
Statements.
F-11
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
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 N qualify as participating securities under this
guidance. The impact of adopting this guidance on December 1, 2009
was not material to the Consolidated 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 December 1, 2009. The guidance dealing with
noncontrolling interests was retroactively 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 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 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 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
Statements of Cash Flows. Prior to the adoption of this guidance,
payments related to controlled entities were included in investing
activities.
|
B.
|
BUSINESS ACQUISITIONS,
INVESTMENTS AND REDEEMABLE NONCONTROLLING
INTERESTS
|
Business
Acquisitions
On June
8, 2010, the Company purchased the remaining 15% noncontrolling ownership
interests in both Pujiang Novaeastern International Mesh Co., Ltd. (“Pujiang”)
and Purolator Advanced Filtration (Quzhou) Co., Ltd. (“Quzhou”) for $732,
thereby making the companies 100% owned subsidiaries of CLARCOR. This
transaction decreased noncontrolling interests by $971 and increased capital in
excess of par value by $239. Legal fees of $49, incurred in
connection with the transaction, decreased capital in excess of par
value.
On April
20, 2009, prior to the Company’s adoption of the guidance affecting the
accounting for businesses acquired and the presentation of noncontrolling
interests, the Company purchased the remaining 20% minority interest in its
consolidated subsidiary based in Weifang, China for $4,592 including acquisition
costs. This subsidiary is part of the Company’s Engine/Mobile
Filtration segment and manufactures heavy-duty engine filters, certain lines of
environmental filters and filter systems and filters used in off-shore oil
drilling. An allocation of the purchase price for the acquisition has
been made to major categories of assets and liabilities. Acquired
intangible assets of $1,960 were recorded in connection with the
purchase. The $222 excess of the initial purchase price over the
estimated fair value of the assets acquired and liabilities assumed was recorded
as goodwill.
On April
6, 2009, the Company purchased Weifang Yuhua Filters Ltd. (“Yuhua”), based in
Weifang, China for $643, excluding cash acquired and including acquisition
costs. Yuhua manufactures heavy-duty engine filters. The
business is included in the Company’s Engine/Mobile Filtration segment from the
date of acquisition. The acquisition is not material to the results
of the Company. An allocation of the purchase price for the
acquisition has been made to major categories of assets and
liabilities. The Company did not recognize any goodwill in connection
with this acquisition.
On
February 1, 2009, the Company purchased 85% ownership interests in Pujiang and
Quzhou. Both companies are based in China and were under common
ownership. Pujiang and Quzhou are manufacturers of wire mesh
filtration products sold primarily to the fibers, resin and aerospace
industries. The combined purchase price for the ownership interests
in both companies was $618, excluding cash acquired and including acquisition
costs. The businesses are included in the Company’s
Industrial/Environmental Filtration segment from the date of
acquisition. The acquisition is not material to the results of the
Company. An allocation of the purchase price for the acquisition has
been made to major categories of assets and liabilities. Acquired
intangible assets of $201 were recorded in connection with the
purchase. The Company did not recognize any goodwill in connection
with this acquisition.
F-12
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
On
January 16, 2009, the Company purchased certain assets of Meggitt (UK) Limited
(“Meggitt”), for $578. This business was acquired to expand the
Company’s product range of aerospace filters sold primarily to European aircraft
manufacturers and aerospace parts distributors. The purchased assets
were combined into an existing Company subsidiary which is part of the Company’s
Industrial/Environmental Filtration segment. The acquisition is not
material to the results of the Company. An allocation of the purchase
price for the acquisition has been made to major categories of
assets. Acquired intangible assets included customer relationships
valued at $201 which are being amortized over their estimated useful life of 13
years. The $231 excess of the initial purchase price over the
estimated fair value of the net assets acquired was recorded as
goodwill.
On
December 29, 2008, the Company purchased 100% ownership interest in the Keddeg
Company (“Keddeg”), a manufacturer of aerospace filtration products based in
Lenexa, Kansas. The purchase price was $5,570, excluding cash
acquired and including acquisition costs. Keddeg’s results are
included as part of the Company’s Industrial/Environmental Filtration segment
from the date of acquisition. The acquisition is not material to the
results of the Company. An allocation of the purchase price has been
made to major categories of assets and liabilities assumed. The
$1,828 excess of the purchase price over the fair value of the net tangible and
identifiable intangible assets acquired was recorded as goodwill. The fair value
of the identifiable intangible assets and their respective lives are shown in
the following table.
|
Identifiable Intangible Asset
|
Value
|
Estimated
Useful Life
|
|||
|
Trade
names
|
$ | 553 |
Indefinite
|
||
|
Non-compete
agreements
|
86 |
5
years
|
|||
|
Customer
relationships
|
875 |
12
years
|
|||
|
Developed
technology
|
1,256 |
10
years
|
|||
|
Total
fair value
|
$ | 2,770 | |||
On
December 3, 2007, the Company acquired Perry Equipment Corporation (“Peco”), a
privately-owned manufacturer of engineered filtration products and technologies
used in a wide array of industries, including oil and natural gas, refining,
power generation, petrochemical, food and beverage, electronics, polymers and
pulp and paper. Peco is based in Mineral Wells, Texas with operations
in Mexico, Canada, the United Kingdom, Italy, Romania, Malaysia and
China. Peco was merged with the Company’s Facet operations with the
combined headquarters based in Mineral Wells. Peco was acquired to
expand the Company’s product offerings, technology, filtration solutions and
customer base in the oil and natural gas industries. Its results are
included as part of the Company’s Industrial/Environmental Filtration segment
since the date of acquisition. The purchase price was $145,807
excluding cash acquired and including acquisition costs. The Company
issued 2,137,797 shares of CLARCOR common stock with a value of $71,954 and paid
the remaining purchase price with available cash of $5,301 and $80,000 of cash
borrowed under the Company’s multicurrency revolving credit
agreement. For accounting purposes, the basis for determining the
value of the common stock issued in connection with the acquisition was the
average closing price per share of CLARCOR stock for the five trading days
centered on the October 17, 2007 announcement of the purchase
agreement.
During
fiscal year 2009, the Company resolved various tax accrual issues resulting in a
decrease to goodwill of $510. An allocation of the purchase price for
the acquisition has been made to major categories of assets and
liabilities. The $101,477 excess of the purchase price over the fair
value of the net tangible and identifiable intangible assets acquired was
recorded as goodwill. The fair value of the identifiable intangible
assets and their respective lives are shown in the following table.
|
Identifiable Intangible Asset
|
Value
|
Estimated
Useful Life
|
|||
|
Trade
names
|
$ | 11,800 |
Indefinite
|
||
|
Non-compete
agreements
|
800 |
2
years
|
|||
|
Customer
relationships
|
14,200 |
15
years
|
|||
|
Developed
technology
|
20,300 |
16
years
|
|||
|
Total
fair value
|
$ | 47,100 | |||
F-13
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
The
following condensed balance sheet is based on the fair values of the assets
acquired and liabilities assumed as of December 3, 2007.
|
Cash
|
$ | 11,448 | ||
|
Accounts
receivable, less allowance for losses
|
18,658 | |||
|
Inventory,
net
|
15,220 | |||
|
Prepaid
expenses and current assets
|
2,512 | |||
|
Current
deferred tax assets
|
2,119 | |||
|
Plant
assets
|
17,114 | |||
|
Goodwill
|
101,477 | |||
|
Trademarks
and trade names
|
11,800 | |||
|
Other
acquired intangibles
|
35,300 | |||
|
Other
noncurrent assets
|
1,013 | |||
|
Total
assets acquired
|
216,661 | |||
|
Current
notes payable
|
(7,411 | ) | ||
|
Accounts
payable and accrued liabilities
|
(32,102 | ) | ||
|
Long-term
deferred tax liabilities
|
(17,954 | ) | ||
|
Long-term
liabilities
|
(1,939 | ) | ||
|
Net
assets acquired
|
157,255 | |||
|
Less
cash acquired
|
(11,448 | ) | ||
|
Assets
acquired, net of cash
|
$ | 145,807 |
In
December 2007, the Company purchased a distributor of engineered filtration
products in Canada for $1,402 including acquisition costs. During
fiscal year 2008, $811 of the purchase price was paid, $198 was paid during
fiscal year 2009, $142 was paid during fiscal year 2010 and the remaining amount
will be paid over the next two years. An allocation of the purchase
price for the acquisition has been made to major categories of assets and
liabilities. The $698 excess of the purchase price over the fair
value of the net tangible and identifiable intangible assets acquired was
recorded as goodwill. The business is included in the
Industrial/Environmental Filtration segment from the date of acquisition and is
not material to the results of the Company.
On March
5, 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, which is included in the Engine/Mobile Filtration segment from the date
of acquisition. During fiscal year 2009, the Company was refunded a
portion of its purchase price which had been held in escrow. This
refund reduced goodwill by $243.
During
fiscal year 2009, the Company paid $160 related to a 2006
Industrial/Environmental Filtration segment acquisition, pursuant to the terms
of the purchase agreement. The payment was recorded as
goodwill. During fiscal year 2010, the Company accrued an additional
$666 pursuant to the terms of the purchase agreement and recorded additional
goodwill. The amount was paid subsequent to November 30,
2010. Additional payments, not to exceed $257, may be required in
future years based on the operating performance of this entity.
Also
during fiscal year 2009, the Company recognized additional tax benefits related
to a prior year acquisition which increased goodwill by $580.
F-14
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
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 $3,266
and $4,045, at November 30, 2010 and 2009, respectively, 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 BPH based on the percentage of
ownership, as well as the receipt of any dividends. During the year
ended November 30, 2010, the Company received dividends of $382 from
BPH. The Company did not receive any dividends from BPH during the
year ended November 30, 2009. The equity investment is periodically
reviewed for indicators of impairment.
The
Company also owns a 15% share in BioProcess Algae LLC (“Algae”), a
Delaware-based company developing technology to grow and harvest algae which can
be used to consume carbon dioxide and also be used as a renewable energy
source. During the year ended November 30, 2010, the Company invested
an additional $398. The investment, with a carrying amount of $398
included in other noncurrent assets, is being accounted for under the cost
method of accounting. Under the cost method, the Company recognizes
dividends as income when received and reviews the cost basis of the investment
for impairment if factors indicate that a decrease in value of the investment
has occurred. The Company has not received any dividends from
Algae.
Redeemable Noncontrolling
Interests
As
discussed above, in March 2007, the Company acquired an 80% ownership share in
SINFA. 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 Balance Sheets. The redeemable noncontrolling interests
will be accreted to the redemption price, through equity, at the point at which
the redemption becomes probable.
|
C.
|
PLANT
ASSETS
|
Plant
assets at November 30, 2010 and 2009 were as follows:
|
2010
|
2009
|
|||||||
|
Land
|
$ | 8,669 | $ | 8,801 | ||||
|
Buildings
and building fixtures
|
95,452 | 98,264 | ||||||
|
Machinery
and equipment
|
324,757 | 317,686 | ||||||
|
Construction
in process
|
27,669 | 22,490 | ||||||
| 456,547 | 447,241 | |||||||
|
Accumulated
depreciation
|
(275,372 | ) | (259,150 | ) | ||||
| $ | 181,175 | $ | 188,091 | |||||
At
November 30, 2010, land of $398 and building and building fixtures of $1,602
related to one Kentucky plant are classified as Assets held for
sale.
At
November 30, 2010, additions to plant assets totaling $645 were included in
accounts payable and accrued liabilities. During the year ended
November 30, 2010, plant assets of $437 were capitalized by incurring additional
debt.
F-15
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
|
D.
|
GOODWILL AND ACQUIRED
INTANGIBLE ASSETS
|
The
following table reconciles the activity for goodwill by segment for fiscal years
2010 and 2009. 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
|
|||||||||||||
|
November
30, 2008
|
$ | 21,143 | $ | 202,821 | $ | - | $ | 223,964 | ||||||||
|
Acquisitions
|
(21 | ) | 2,289 | - | 2,268 | |||||||||||
|
Currency
translation adjustments
|
1,429 | 521 | - | 1,950 | ||||||||||||
|
November
30, 2009
|
$ | 22,551 | $ | 205,631 | $ | - | $ | 228,182 | ||||||||
|
Acquisitions
|
- | 666 | - | 666 | ||||||||||||
|
Currency
translation adjustments
|
(917 | ) | 174 | - | (743 | ) | ||||||||||
|
November
30, 2010
|
$ | 21,634 | $ | 206,471 | $ | - | $ | 228,105 | ||||||||
The
Company completed an annual impairment review at each fiscal year-end and
concluded there was no impairment of goodwill. In performing the
impairment reviews, the Company estimated the fair values of the reporting units
using a present value method that discounted future cash flows. Such
valuations are sensitive to assumptions associated with cash flow growth,
discount rates, terminal value and the aggregation of reporting unit
components. The Company further assessed the reasonableness of these
estimates by considering relevant market multiples.
The
following table summarizes acquired intangible assets by
segment. Other acquired intangible assets include parts manufacturer
regulatory approvals, proprietary technology, patents and noncompete
agreements.
|
Engine/Mobile
Filtration
|
Industrial/
Environmental
Filtration
|
Packaging
|
Total
|
|||||||||||||
|
November
30, 2010
|
||||||||||||||||
|
Trademarks,
gross - indefinite lived
|
$ | 603 | $ | 41,022 | $ | - | $ | 41,625 | ||||||||
|
Trademarks,
gross - finite lived
|
302 | 486 | - | 788 | ||||||||||||
|
Accumulated
amortization
|
(58 | ) | (287 | ) | - | (345 | ) | |||||||||
|
Trademarks,
net
|
$ | 847 | $ | 41,221 | $ | - | $ | 42,068 | ||||||||
|
Customer
relationships, gross
|
$ | 4,161 | $ | 34,188 | $ | - | $ | 38,349 | ||||||||
|
Accumulated
amortization
|
(1,371 | ) | (10,562 | ) | - | (11,933 | ) | |||||||||
|
Customer
relationships, net
|
$ | 2,790 | $ | 23,626 | $ | - | $ | 26,416 | ||||||||
|
Other
acquired intangibles, gross
|
$ | 243 | $ | 35,928 | $ | - | $ | 36,171 | ||||||||
|
Accumulated
amortization
|
(243 | ) | (13,238 | ) | - | (13,481 | ) | |||||||||
|
Other
acquired intangibles, net
|
$ | - | $ | 22,690 | $ | - | $ | 22,690 | ||||||||
F-16
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
|
Engine/Mobile
Filtration
|
Industrial/
Environmental
Filtration
|
Packaging
|
Total
|
|||||||||||||
|
November
30, 2009
|
||||||||||||||||
|
Trademarks,
gross - indefinite lived
|
$ | 603 | $ | 41,022 | $ | - | $ | 41,625 | ||||||||
|
Trademarks,
gross - finite lived
|
329 | 488 | - | 817 | ||||||||||||
|
Accumulated
amortization
|
(44 | ) | (276 | ) | - | (320 | ) | |||||||||
|
Trademarks,
net
|
$ | 888 | $ | 41,234 | $ | - | $ | 42,122 | ||||||||
|
Customer
relationships, gross
|
$ | 4,135 | $ | 34,179 | $ | - | $ | 38,314 | ||||||||
|
Accumulated
amortization
|
(1,212 | ) | (8,190 | ) | - | (9,402 | ) | |||||||||
|
Customer
relationships, net
|
$ | 2,923 | $ | 25,989 | $ | - | $ | 28,912 | ||||||||
|
Other
acquired intangibles, gross
|
$ | 243 | $ | 35,951 | $ | - | $ | 36,194 | ||||||||
|
Accumulated
amortization
|
(243 | ) | (10,995 | ) | - | (11,238 | ) | |||||||||
|
Other
acquired intangibles, net
|
$ | - | $ | 24,956 | $ | - | $ | 24,956 | ||||||||
The
Company performed annual impairment tests on its indefinite-lived intangible
assets at each fiscal year-end using the relief-from-royalty method to determine
the fair value of its trademarks and trade names. There was no
impairment as the fair value was greater than the carrying value for these
indefinite-lived intangible assets as of these dates. In addition,
the Company reassessed the useful lives and classification of identifiable
finite-lived intangible assets at each year-end and determined that they
continue to be appropriate.
The
following table summarizes actual amortization expense for the past three fiscal
years and estimated amortization expense for the next five fiscal
years.
|
Amortization
expense for the years ended:
|
||||
|
2010
|
$ | 4,802 | ||
|
2009
|
4,957 | |||
|
2008
|
5,157 | |||
|
Estimated
amortization expense for the next five years:
|
||||
|
2011
|
$ | 4,508 | ||
|
2012
|
4,508 | |||
|
2013
|
4,483 | |||
|
2014
|
4,297 | |||
|
2015
|
4,284 | |||
F-17
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
|
E.
|
FAIR VALUE
MEASUREMENTS
|
Fair Value
Measurements
The
Company measures certain assets and liabilities at fair value as discussed
throughout the notes to its Consolidated Financial Statements. Fair
value is the exchange price that would be received for an asset or paid to
transfer a liability, an exit price, in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants. Fair value measurements are categorized in a hierarchy
based upon the observability of inputs used in valuation
techniques. Observable inputs are the highest level and reflect
market data obtained from independent sources, while unobservable inputs are the
lowest level and reflect internally developed market assumptions. The
Company classifies fair value measurements by the following
hierarchy:
|
|
·
|
Level
1 – Quoted active market prices for identical
assets
|
|
|
·
|
Level
2 – Significant other observable inputs, such as quoted prices for similar
(but not identical) instruments in active markets, quoted prices for
identical or similar instruments in markets which are not active and model
determined valuations in which all significant inputs or significant
value-drivers are observable in active
markets
|
|
|
·
|
Level
3 – Significant unobservable inputs, such as model determined valuations
in which one or more significant inputs or significant value-drivers are
unobservable
|
Assets or
liabilities that have recurring measurements are shown below:
|
Fair Value Measurements at Reporting Date
|
||||||||||||||||
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
|
November
30, 2010
|
||||||||||||||||
|
Restricted
trust: (part of noncurrent assets)
|
||||||||||||||||
|
Mutual
fund investments - equities
|
$ | 879 | $ | 879 | $ | - | $ | - | ||||||||
|
Mutual
fund investments - bonds
|
357 | 357 | - | - | ||||||||||||
|
Cash
and equivalents
|
22 | 22 | - | - | ||||||||||||
|
Total
restricted trust
|
$ | 1,258 | $ | 1,258 | $ | - | $ | - | ||||||||
|
November
30, 2009
|
||||||||||||||||
|
Short-term
investments
|
$ | 32,171 | $ | 32,171 | $ | - | $ | - | ||||||||
|
Restricted
trust: (part of noncurrent assets)
|
||||||||||||||||
|
Mutual
fund investments - equities
|
$ | 855 | $ | 855 | $ | - | $ | - | ||||||||
|
Mutual
fund investments - bonds
|
542 | 542 | - | - | ||||||||||||
|
Cash
and equivalents
|
22 | 22 | - | - | ||||||||||||
|
Total
restricted trust
|
$ | 1,419 | $ | 1,419 | $ | - | $ | - | ||||||||
|
Fixed
rate interest swap agreement (part of current
liabilities)
|
$ | (961 | ) | $ | - | $ | (961 | ) | $ | - | ||||||
The
Company’s short-term investments consisted of tax-exempt municipal money market
funds. 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 fair value of the fixed rate
interest swap agreement (see Note A and Note G) was determined using the present
value of expected future cash flows using forward rates as of November 30, 2009
and discount rates commensurate with the risks associated with those cash
flows.
There
were no transfers between Level 1 and Level 2 during the years ended November
30, 2010 and 2009. The fixed rate interest swap agreement (Level 2)
expired January 1, 2010. The Company liquidated the short-term
investments (Level 1) during May 2010.
F-18
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
Fair Values of Financial
Instruments
The fair
values of the Company’s financial instruments, which are cash and cash
equivalents, restricted cash, accounts receivable, short-term investments (only
at November 30, 2009), the restricted trust and the interest rate agreement
(only at November 30, 2009), approximated the carrying values of those financial
instruments at both November 30, 2010 and 2009. An expected present
value technique is used to estimate the fair value of long-term
debt. A fair value estimate of $16,892 and $49,513 for long-term debt
at November 30, 2010 and 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 November 30,
2010 and 2009 is $17,477 and $52,195, respectively.
|
F.
|
ACCOUNTS PAYABLE AND
ACCRUED LIABILITIES
|
Accounts
payable and accrued liabilities at November 30, 2010 and 2009 were as
follows:
|
2010
|
2009
|
|||||||
|
Accounts
payable
|
$ | 64,630 | $ | 54,627 | ||||
|
Accrued
salaries, wages and commissions
|
31,497 | 8,599 | ||||||
|
Compensated
absences
|
8,172 | 7,903 | ||||||
|
Accrued
insurance liabilities
|
11,473 | 10,572 | ||||||
|
Customer
deposits
|
7,732 | 8,705 | ||||||
|
Other
accrued liabilities
|
36,702 | 36,018 | ||||||
| $ | 160,206 | $ | 126,424 | |||||
No
amounts within the other accrued liabilities amount shown above exceed 5% of
total current liabilities.
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, which is included in other accrued liabilities, for the years
ended November 30, 2010, 2009 and 2008 are as follows:
|
2010
|
2009
|
2008
|
||||||||||
|
Balance
at beginning of period
|
$ | 3,989 | $ | 2,494 | $ | 1,485 | ||||||
|
Business
acquisitions
|
- | - | 1,732 | |||||||||
|
Accruals
for warranties issued during the period
|
825 | 2,324 | 1,015 | |||||||||
|
Adjustments
related to pre-existing warranties
|
(308 | ) | 39 | 48 | ||||||||
|
Settlements
made during the period
|
(856 | ) | (965 | ) | (1,637 | ) | ||||||
|
Other
adjustments, including currency translation
|
(151 | ) | 97 | (149 | ) | |||||||
|
Balance
at end of period
|
$ | 3,499 | $ | 3,989 | $ | 2,494 | ||||||
F-19
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
|
G.
|
LONG-TERM DEBT AND
INTEREST RATE AGREEMENT
|
Long-term
debt at November 30, 2010 and 2009 consisted of the following:
|
2010
|
2009
|
|||||||
|
Multicurrency
Revolving Credit Agreement, at an interest rate of 0.583% at November 30,
2009
|
$ | - | $ | 35,000 | ||||
|
Industrial
Revenue Bonds, at a weighted average interest rate of 0.50% and 0.51%,
respectively, at November 30
|
15,820 | 15,820 | ||||||
|
Note
payable, due March 2012, at a fixed interest rate of 6.00% at both year
ends
|
1,109 | 1,116 | ||||||
|
Other
|
548 | 259 | ||||||
| 17,477 | 52,195 | |||||||
|
Current
portion
|
(146 | ) | (99 | ) | ||||
| $ | 17,331 | $ | 52,096 | |||||
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 and approximate $190 per year. At November 30, 2010,
there were no borrowings outstanding on the Credit Facility. The
Credit Facility includes a $75,000 letter of credit subline, against which
$16,031 and $8,491 in letters of credit had been issued at November 30, 2010 and
2009, respectively.
Borrowings
under the Credit Facility are unsecured, but are guaranteed by certain
subsidiaries of the Company. The agreement contains certain
restrictive covenants that include limiting new borrowings, maintaining minimum
interest coverage and restricting certain changes in ownership.
As of
November 30, 2010 and 2009, the industrial revenue bonds include $7,410 issued
in cooperation with the Campbellsville-Taylor County Industrial Development
Authority (Kentucky) due May 1, 2031 and $8,410 re-issued in cooperation with
the South Dakota Economic Development Finance Authority due February 1,
2016. The interest rates on these bonds are reset
weekly.
Required
principal maturities of long-term debt as of year-end 2010 for the next five
fiscal years ending November 30 are as follows:
|
2011
|
$ | 146 | ||
|
2012
|
1,465 | |||
|
2013
|
33 | |||
|
2014
|
8 | |||
|
2015
|
5 | |||
|
Thereafter
|
15,820 |
F-20
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
On
January 2, 2008, the Company entered into a fixed rate interest swap agreement
(“Swap Agreement”) to manage its interest rate exposure on certain amounts
outstanding under the Credit Facility. The Company’s accounting
policies for derivatives are discussed in Note A. The Swap Agreement
expired January 1, 2010. The Swap 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 Swap Agreement were settled on a
net basis quarterly. Hedge accounting was not applied to the Swap
Agreement and therefore, unrealized gains or losses were recorded in interest
expense in the Consolidated Statements of Earnings. Periodic
settlement payments or receipts were recorded as a component of cash flows from
operating activities in the Consolidated Statements of Cash Flows.
At
November 30, 2009, the Company had the following derivative in a liability
position (see Note E).
|
Derivatives In Liability Position
|
||||||
|
Derivatives Not Designated
as Hedging Instruments
|
Consolidated Balance
Sheet Location
|
Fair Value
|
||||
|
November
30, 2009
|
||||||
|
Fixed
rate interest swap agreement
|
Current
liabilities
|
$ | 961 | |||
|
Total
|
$ | 961 | ||||
The
following table reflects the loss and net settlement payments on the Swap
Agreement for the years ended November 30, 2010, 2009 and 2008.
|
Derivatives Not Designated
as Hedging Instruments
|
Location
|
Amount
|
||||||||||||
|
2010
|
2009
|
2008
|
||||||||||||
|
Fixed
rate interest swap agreement unrealized losses
|
Interest
expense
|
$ | - | $ | 1,123 | $ | 2,408 | |||||||
|
Fixed
rate interest swap agreement net settlement payments
|
Cash
flows from operating activities
|
961 | 2,169 | 401 | ||||||||||
F-21
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
|
H.
|
LEASES
|
The
Company has various lease agreements for offices, warehouses, manufacturing
plants and equipment that expire on various dates through December
2019. Some of these lease agreements contain renewal options and
provide for payment of property taxes, utilities and certain other
expenses.
The
following table summarizes rent expense for the past three fiscal years and
commitments for minimum rentals under noncancelable leases having initial or
remaining terms in excess of one year at November 30, 2010.
|
Rent
expense for the years ended:
|
||||
|
2010
|
$ | 14,248 | ||
|
2009
|
13,804 | |||
|
2008
|
12,254 | |||
|
Future
minimum rentals under noncancelable leases:
|
||||
|
2011
|
$ | 10,139 | ||
|
2012
|
8,725 | |||
|
2013
|
6,681 | |||
|
2014
|
5,262 | |||
|
2015
|
4,201 | |||
|
Thereafter
|
10,125 | |||
|
I.
|
PENSION AND OTHER
POSTRETIREMENT PLANS
|
The
Company has defined benefit pension plans and a postretirement healthcare
benefit plan covering certain current and retired employees. The
Company has frozen participation in its defined benefit plans. For
one of the plans, certain current plan participants continue to participate in
the plan, while other current participants do not accrue future benefits under
the plan but participate in an enhanced defined contribution plan which offers
an increased Company match.
As
discussed in Note A, the Company adopted accounting guidance expanding 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. The guidance also requires an employer to disclose information
about the valuation of plan assets similar to that required under the accounting
guidance on fair value measurements. Additional FASB guidance
regarding the change in the measurement date of pension and other postretirement
plans from a November 1st date to
the Company’s fiscal year-end date was effective for fiscal year
2009.
During
the fourth quarter of fiscal year 2009, the method of determining the
amortization of unrealized gains and losses included in accumulated other
comprehensive earnings (loss) related to the U.S. combined nonqualifed plans was
changed from a simple average of the remaining years of future service of
participants to a weighted average approach to more accurately reflect the
expense incurred related to participants over their remaining expected service
with the Company. Additionally, the gains and losses being
amortized include gains or losses occurring during the year. As
a result of this change, a $2,000 charge was recorded which increased pension
expense, included in selling and administrative expenses in the accompanying
Consolidated Statements of Earnings. This charge also reduced
earnings before income taxes and minority interests by $2,000 and reduced net
earnings by $1,266. The Company determined that the retroactive
effect of applying this change was not material to any prior periods or to
fiscal year 2009 and therefore recorded the entire amount during fiscal year
2009.
F-22
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
During
fiscal year 2008, as a result of two plant closings in the
Industrial/Environmental Filtration segment, the Company recognized a
curtailment loss of $516 in current earnings and $6,478, net of tax, in other
comprehensive earnings due to the significant reduction in the expected
aggregate years of future service cost for employees covered by one of its U.S.
qualified pension plans. The curtailment loss includes recognition of
the change in the projected benefit obligation (“PBO”) and a portion of the
previously unrecognized prior service cost reflecting the reduction in expected
future service. The PBO increased by $333. The
remeasurement of the U.S. qualified pension plan as of the July 1, 2008
curtailment date increased fiscal year 2008 pension costs by $575.
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 did not make a voluntary
contribution to its qualified U.S. pension plans in 2010, 2009 or
2008. The Company has not determined whether it will make a voluntary
contribution to its U.S. qualified plans in 2011; however, it does expect to
contribute $15,400 to its U.S. qualified plans, $2,194 to its U.S. combined
nonqualified plans, $403 to its non-U.S. plan and $121 to its postretirement
healthcare benefit plan to pay benefits during 2011.
The PBO
and accumulated benefit obligation (“ABO”) and fair value of plan assets for
qualified pension plans with PBOs and ABOs in excess of plan assets were
$147,745, $142,859 and $100,866, respectively, at November 30,
2010.
In
addition to the plan assets related to its qualified plans, the Company has also
funded $1,258 and $1,419 at November 30, 2010 and 2009, respectively, into a
restricted trust for its U.S. combined nonqualified plans, see Note
E. This trust is included in other noncurrent assets in the
Consolidated Balance Sheets. The PBO and ABO for the U.S. combined
nonqualified plans were $20,900 and $18,439, at November 30, 2010,
respectively.
The
discount rate is used to calculate the present value of the PBO. The
Company’s objective in selecting a discount rate is to select the best estimate
of the rate at which the benefit obligations could be effectively settled on the
measurement date taking into account the nature and duration of the benefit
obligations of the plan. In making this estimate, the Company looks
at rates of return on high-quality fixed-income investments currently available
and expected to be available during the period to maturity of the
benefits. This process includes looking at the bonds available on the
measurement date with a quality rating of Aa or better. Similar
appropriate benchmarks are used to determine the discount rate for the non-U.S.
plan. The difference in the discount rates between the qualified, the
nonqualified and the other postretirement plans is due to different expectations
as to the period of time in which plan members will participate in the various
plans. In general, higher discount rates correspond to longer
participation periods. The assumptions for the discount rate, rate of
compensation increase and expected rate of return and the asset allocations
related to the non-U.S. plan are not materially different than for the U.S.
qualified plans.
The rate
of compensation increase represents the long-term assumption for expected
increases in salaries among continuing active participants accruing benefits in
the pay-related plans. The Company considers the impact of
profit-sharing payments, merit increases and promotions in setting the salary
increase assumption as well as possible future inflation increases and its
impact on salaries paid to plan participants at the locations where the Company
has facilities.
F-23
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
The
following table shows reconciliations of the pension plans and other
postretirement plan benefits as of November 30, 2010 and 2009. The
accrued pension benefit obligation includes an unfunded benefit obligation of
$20,900 and $20,808 as of November 30, 2010 and 2009, respectively, related to
the Company’s U.S. combined nonqualified plans.
|
Pension Benefits
|
Other Postretirement Benefits
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Change in benefit
obligation:
|
||||||||||||||||
|
Benefit
obligation at beginning of year
|
$ | 163,069 | $ | 117,166 | $ | 843 | $ | 841 | ||||||||
|
Currency
translation
|
(374 | ) | 399 | - | - | |||||||||||
|
Service
cost
|
2,119 | 1,948 | - | - | ||||||||||||
|
Interest
cost
|
8,108 | 10,008 | 32 | 66 | ||||||||||||
|
Plan
participants' contributions
|
39 | 44 | - | - | ||||||||||||
|
Plan
amendments
|
(1,124 | ) | - | - | - | |||||||||||
|
Actuarial
losses (gains)
|
6,309 | 40,506 | (177 | ) | 277 | |||||||||||
|
Benefits
paid
|
(9,502 | ) | (7,002 | ) | (500 | ) | (718 | ) | ||||||||
|
Retiree
contributions
|
- | - | 465 | 377 | ||||||||||||
|
Benefit
obligation at end of year
|
$ | 168,644 | $ | 163,069 | $ | 663 | $ | 843 | ||||||||
|
Change in plan assets:
|
||||||||||||||||
|
Fair
value of plan assets at beginning of year
|
$ | 95,604 | $ | 89,202 | $ | - | $ | - | ||||||||
|
Currency
translation
|
(313 | ) | 351 | - | - | |||||||||||
|
Actual
return on plan assets
|
11,516 | 11,759 | - | - | ||||||||||||
|
Employer
contributions
|
3,522 | 1,274 | - | - | ||||||||||||
|
Plan
participants' contributions
|
39 | 44 | - | - | ||||||||||||
|
Benefits
paid
|
(9,502 | ) | (7,026 | ) | - | - | ||||||||||
|
Fair
value of plan assets at end of year
|
$ | 100,866 | $ | 95,604 | $ | - | $ | - | ||||||||
|
Funded
status
|
$ | (67,778 | ) | $ | (67,465 | ) | $ | (663 | ) | $ | (843 | ) | ||||
|
Accumulated
benefit obligation at end of year
|
$ | 161,298 | $ | 157,269 |
n/a
|
n/a
|
||||||||||
|
Pension Benefits
|
Other Postretirement Benefits
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Amounts recognized in the Consolidated Balance
Sheets as of November 30 include:
|
||||||||||||||||
|
Accounts
payable and accrued liabilities
|
$ | (2,194 | ) | $ | (5,719 | ) | $ | (123 | ) | $ | (154 | ) | ||||
|
Long-term
pension liabilities
|
(65,584 | ) | (61,746 | ) | (540 | ) | (689 | ) | ||||||||
|
Funded
status
|
$ | (67,778 | ) | $ | (67,465 | ) | $ | (663 | ) | $ | (843 | ) | ||||
|
Accumulated
other comprehensive loss, pre-tax
|
$ | 60,306 | $ | 64,197 | $ | (2,115 | ) | $ | (2,189 | ) | ||||||
|
Amounts recognized in Accumulated Other
Comprehensive Loss, as of November 30 include:
|
||||||||||||||||
|
Net
actuarial loss (gain)
|
$ | 60,731 | $ | 63,895 | $ | (1,153 | ) | $ | (1,104 | ) | ||||||
|
Net
prior service cost (credit)
|
(425 | ) | 302 | (962 | ) | (1,085 | ) | |||||||||
|
Total
pre-tax
|
60,306 | 64,197 | (2,115 | ) | (2,189 | ) | ||||||||||
|
Deferred
taxes
|
(21,924 | ) | (23,600 | ) | 775 | 804 | ||||||||||
|
Accumulated
other comprehensive loss, after-tax
|
$ | 38,382 | $ | 40,597 | $ | (1,340 | ) | $ | (1,385 | ) | ||||||
|
Assumptions:
|
||||||||||||||||
|
Discount
rate - qualified plans
|
5.25 | % | 5.50 | % | 3.75 | % | 4.25 | % | ||||||||
|
Discount
rate - nonqualified plans
|
2.25 | % | 2.50 | % | n/a | n/a | ||||||||||
|
Rate
of compensation increase - qualified plans
|
4.00 | % | 4.00 | % | n/a | n/a | ||||||||||
|
Rate
of compensation increase - nonqualified plans
|
4.00 | % | 0.00 | % | n/a | n/a | ||||||||||
|
Measurement
date
|
11/30/2010
|
11/30/2009
|
11/30/2010
|
11/30/2009
|
||||||||||||
F-24
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
The
amounts affecting accumulated other comprehensive loss for the years ended
November 30, 2010 and 2009 are as follows:
|
Pension Benefits
|
Other Postretirement Benefits
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Amortization
of prior service (cost) credit, net of tax of $(147), $53 and $(45),
$(49), respectively
|
$ | 250 | $ | (90 | ) | $ | 78 | $ | 84 | |||||||
|
Amortization
of actuarial (losses) gains, net of tax of $1,831, $1,355 and $(47),
$(73), respectively
|
(3,175 | ) | (2,332 | ) | 82 | 126 | ||||||||||
|
Current
year actuarial losses (gains), net of tax of $(716), $(13,332) and $65,
$(103), respectively
|
1,126 | 22,929 | (113 | ) | 174 | |||||||||||
|
Plan
amendments, net of tax of $421, $0 and $0, $0,
respectively
|
(703 | ) | - | - | - | |||||||||||
|
Effect
of change in deferred tax rate
|
287 | 157 | (2 | ) | (14 | ) | ||||||||||
|
Total
|
$ | (2,215 | ) | $ | 20,664 | $ | 45 | $ | 370 | |||||||
In 2009
the Company adjusted accumulated other comprehensive earnings (loss) by $268,
net of tax of $155 in connection with the adoption of pension and other
postretirement plans measurement date guidance. This adjustment is
included in the 2009 amounts in the previous table.
The
target allocation for the U.S. plans is 70% equity securities, 25% debt
securities and 5% real estate. The target allocation is based on the
Company’s desire to maximize total return, considering the long-term funding
objectives of the pension plans, but may change in the future. Plan
assets are diversified to achieve a balance between risk and
return. The Company does not invest plan assets in private equity
funds or hedge funds. The Company’s expected long-term rate of return
considers historical returns on plan assets as well as future expectation given
the current and target asset allocation and current economic conditions with
input from investment managers and actuaries. The expected rate of
return on plan assets is designed to be a long-term assumption that may be
subject to considerable year-to-year variance from actual returns.
As of the
November 30th
measurement dates, the fair values of actual pension asset allocations were as
follows:
|
2010
|
2009
|
|||||||
|
Equity
securities
|
71.5 | % | 73.2 | % | ||||
|
Debt
securities
|
24.9 | % | 23.1 | % | ||||
|
Real
estate and other
|
3.6 | % | 3.7 | % | ||||
| 100.0 | % | 100.0 | % | |||||
F-25
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
The
accounting guidance on fair value measurements specifies a fair value hierarchy
based upon the observability of inputs used in valuation techniques (Level 1, 2
and 3). See Note E for a discussion of the fair value
hierarchy. The following table summarizes the fair value of the
pension plans’ assets.
|
Fair Value Measurements at Reporting Date
|
||||||||||||||||
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
|
November
30, 2010
|
||||||||||||||||
|
U.S.
equity securities funds
|
$ | 60,386 | $ | - | $ | 60,386 | $ | - | ||||||||
|
Non-U.S.
equity securities funds
|
11,747 | 5,475 | 6,272 | - | ||||||||||||
|
Fixed
income securities funds
|
25,094 | 1,786 | 23,308 | - | ||||||||||||
|
Real
estate funds
|
3,203 | - | - | 3,203 | ||||||||||||
|
Cash
and equivalents funds
|
16 | 16 | - | - | ||||||||||||
|
Total
|
100,446 | $ | 7,277 | $ | 89,966 | $ | 3,203 | |||||||||
|
Other
items to reconcile to fair value of plan assets
|
420 | |||||||||||||||
|
Fair
value of plan assets
|
$ | 100,866 | ||||||||||||||
|
Fair Value Measurements at Reporting Date
|
||||||||||||||||
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
|
November
30, 2009
|
||||||||||||||||
|
U.S.
equity securities funds
|
$ | 56,946 | $ | - | $ | 56,946 | $ | - | ||||||||
|
Non-U.S.
equity securities funds
|
13,061 | 6,932 | 6,129 | - | ||||||||||||
|
Fixed
income securities funds
|
22,069 | - | 22,069 | - | ||||||||||||
|
Real
estate funds
|
3,053 | - | - | 3,053 | ||||||||||||
|
Cash
and equivalents funds
|
60 | 60 | - | - | ||||||||||||
|
Total
|
95,189 | $ | 6,992 | $ | 85,144 | $ | 3,053 | |||||||||
|
Other
items to reconcile to fair value of plan assets
|
415 | |||||||||||||||
|
Fair
value of plan assets
|
$ | 95,604 | ||||||||||||||
U.S.
equity securities funds consist primarily of large cap and small cap U.S.
companies. Non-U.S. equity securities funds consist primarily of
equities of non-U.S. developed markets. Funds that are traded on a
national exchange are categorized as Level 1. For fund units not
traded on a national exchange, the funds are valued at the net asset value
(“NAV”) as determined by the custodian of the funds. The NAV is based
on the fair value of the underlying assets owned by the fund, minus its
liabilities then divided by the number of units outstanding.
Fixed
income securities funds consist primarily of bonds such as governmental
agencies, investment grade credit, commercial mortgage backed, residential
mortgage backed and asset backed. Funds that are traded on a national
exchange are categorized as Level 1. For fund units not traded on a
national exchange, the funds are valued at the NAV as determined by the
custodian of the funds. The NAV is based on the fair value of the
underlying assets owned by the fund, minus its liabilities then divided by the
number of units outstanding.
Real
estate funds consist of units of other private real estate funds, each of which
have different pre-notification and valuation parameters. The NAV for
the funds is calculated on a lag of approximately 30 days and the funds only
trade on a quarterly basis through the custodian of the funds.
Other
items to reconcile to fair value of plan assets is the net of interest
receivable, amounts due for securities sold, amounts payable for securities
purchased and interest payable.
F-26
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
The
following table summarizes changes in the fair value of level 3 assets for the
year ended November 30, 2010.
|
2010
|
||||
|
Balance
at beginning of year
|
$ | 3,053 | ||
|
Unrealized
gains
|
150 | |||
|
Balance
at end of year
|
$ | 3,203 | ||
The
components of net periodic benefit cost for pensions are shown
below. Net periodic benefit cost is based on assumptions determined
at the prior year-end measurement date. Increases in the liability
due to changes in plan benefits are recognized in the net periodic benefit costs
through straight-line amortization over the average remaining service period of
employees expected to receive benefits.
|
Pension Benefits
|
||||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Components
of net periodic benefit cost:
|
||||||||||||
|
Service
cost
|
$ | 2,119 | $ | 1,799 | $ | 2,411 | ||||||
|
Interest
cost
|
8,108 | 9,275 | 8,452 | |||||||||
|
Expected
return on plan assets
|
(7,123 | ) | (6,938 | ) | (9,863 | ) | ||||||
|
Amortization
of unrecognized:
|
||||||||||||
|
Prior
service cost
|
(394 | ) | 127 | 158 | ||||||||
|
Net
actuarial loss
|
5,006 | 3,559 | 451 | |||||||||
|
Net
periodic benefit cost
|
7,716 | 7,822 | 1,609 | |||||||||
|
Curtailment
settlement cost
|
- | - | 516 | |||||||||
|
Total
increases to accrued benefit cost
|
$ | 7,716 | $ | 7,822 | $ | 2,125 | ||||||
|
Assumptions:
|
||||||||||||
|
Discount
rate - qualified plans
|
5.50 | % | 8.25 | % | 6.25 | % | ||||||
|
Discount
rate - nonqualified plans
|
2.25 | % | 7.50 | % | 5.25 | % | ||||||
|
Expected
return on plan assets
|
7.75 | % | 8.00 | % | 8.00 | % | ||||||
|
Rate
of compensation increase - qualified plans
|
4.00 | % | 4.00 | % | 4.00 | % | ||||||
|
Rate
of compensation increase - nonqualified plans
|
4.00 | % | 0.00 | % | 0.00 | % | ||||||
|
Measurement
date - qualified plans
|
11/30/2009
|
11/1/2008
|
11/1/2007
|
|||||||||
|
Measurement
date - nonqualified plans
|
11/30/2010
|
11/1/2008
|
11/1/2007
|
|||||||||
For the
determination of 2011 expense, the Company will decrease its assumptions for the
long-term return on assets for its qualified plans to 7.50%, decrease the
discount rates on its qualified plans to 5.25%, and leave the rate of
compensation increase unchanged. For its U.S. combined nonqualified
plans, the Company will leave the discount rates and rate of compensation
increase unchanged.
The
changes in the fair value of plan assets and in the assumptions will result in a
net decrease in fiscal year 2011 expense of approximately $(1,188) for the
qualified U.S. pension plans and a net increase of approximately $1,738 for the
U.S. combined nonqualified plans unless the Company makes contributions to the
plans in fiscal year 2011.
The
postretirement obligations represent a fixed dollar amount per
retiree. The Company has the right to modify or terminate these
benefits. The participants will assume substantially all future
healthcare benefit cost increases, and future increases in healthcare costs will
not increase the postretirement benefit obligation or cost to the
Company. Therefore, the Company has not assumed any annual rate of
increase in the per capita cost of covered healthcare benefits for future
years. The Company discontinued the prescription drug benefit portion
of its plan effective January 31, 2006.
F-27
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
The
components of net periodic benefit income for postretirement healthcare benefits
are shown below.
|
Other Postretirement Benefits
|
||||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Components
of net periodic benefit income:
|
||||||||||||
|
Service
cost
|
$ | - | $ | - | $ | - | ||||||
|
Interest
cost
|
32 | 61 | 61 | |||||||||
|
Amortization
of unrecognized:
|
||||||||||||
|
Prior
service cost
|
(123 | ) | (123 | ) | (123 | ) | ||||||
|
Net
actuarial gain
|
(129 | ) | (184 | ) | (133 | ) | ||||||
|
Net
periodic benefit income
|
$ | (220 | ) | $ | (246 | ) | $ | (195 | ) | |||
|
Assumptions:
|
||||||||||||
|
Discount
rate
|
4.25 | % | 8.25 | % | 5.75 | % | ||||||
|
Measurement
date
|
11/30/2009
|
11/1/2008
|
11/1/2007
|
|||||||||
The
Company froze participation in the postretirement healthcare plan to eligible
retirees effective January 1, 2007. As a result, unrecognized prior
service costs of $1,708 are being amortized over the average remaining years of
service for active plan participants. The Company will decrease its
discount rate assumption to 3.75% in 2011 for its other postretirement benefits
plan, which will not significantly affect the fiscal year 2011
expense.
The
estimated amounts that will be amortized from accumulated other comprehensive
earnings (loss) at November 30, 2010 into net periodic benefit cost, pre-tax, in
fiscal year 2011 are as follows:
|
Other
|
||||||||
|
Pension
|
Postretirement
|
|||||||
|
Benefits
|
Benefits
|
|||||||
|
Prior
service cost (credit)
|
$ | (372 | ) | $ | (123 | ) | ||
|
Actuarial
loss (gain)
|
5,487 | (130 | ) | |||||
|
Total
|
$ | 5,115 | $ | (253 | ) | |||
The
expected cash benefit payments from the plans for the next ten fiscal years are
as follows:
|
Other
|
||||||||
|
Pension
|
Postretirement
|
|||||||
|
Benefits
|
Benefits
|
|||||||
|
2011
|
$ | 8,901 | $ | 121 | ||||
|
2012
|
|
24,738 | 101 | |||||
|
2013
|
7,790 | 80 | ||||||
|
2014
|
8,172 | 74 | ||||||
|
2015
|
|
8,502 | 66 | |||||
|
2016-2020
|
48,461 | 204 | ||||||
F-28
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
The
Company also sponsors various defined contribution plans that provide employees
with an opportunity to accumulate funds for their retirement. The
Company may match, at its discretion, the contributions of participating
employees in the respective plans. The Company recognized expense
related to these plans for the past three fiscal years as follows:
|
2010
|
$ | 3,597 | ||
|
2009
|
3,658 | |||
|
2008
|
3,841 |
|
J.
|
INCOME
TAXES
|
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 years ended November 30, 2010,
2009 and 2008.
|
2010
|
2009
|
2008
|
||||||||||
|
Balance
at December 1,
|
$ | 2,161 | $ | 1,970 | $ | 1,650 | ||||||
|
Additions
for current period tax positions
|
424 | 163 | 245 | |||||||||
|
Additions
for prior period tax positions
|
37 | 59 | 196 | |||||||||
|
Reductions
for lapse of statue of limitations/settlements
|
(803 | ) | (128 | ) | (185 | ) | ||||||
|
Changes
in interest and penalties
|
(13 | ) | 97 | 64 | ||||||||
|
Balance
at November 30,
|
$ | 1,806 | $ | 2,161 | $ | 1,970 | ||||||
At
November 30, 2010 and 2009, the amount of unrecognized tax benefit, that would
impact the effective tax rate if recognized, was $1,697 and $1,907,
respectively. The Company recognizes interest and penalties related
to unrecognized benefits in income tax expense. As of November 30,
2010 and 2009, the Company had $470 and $483, respectively, accrued for the
payment of interest and penalties.
The
Company believes it is reasonably possible that the total amount of unrecognized
tax benefits as of November 30, 2010, will decrease by $12 over the next twelve
months as a result of expected settlements with taxing
authorities. 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 2011; 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 2009. With
few exceptions, the Company is no longer subject to income tax examinations by
state or foreign tax jurisdictions for years prior to 2004.
The
provision for income taxes consisted of:
|
2010
|
2009
|
2008
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 35,292 | $ | 25,938 | $ | 36,240 | ||||||
|
State
|
2,526 | 970 | 2,975 | |||||||||
|
Foreign
|
10,099 | 7,773 | 8,004 | |||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
631 | (1,564 | ) | 2,241 | ||||||||
|
State
|
(1,085 | ) | (53 | ) | (72 | ) | ||||||
|
Foreign
|
(391 | ) | 755 | (78 | ) | |||||||
| $ | 47,072 | $ | 33,819 | $ | 49,310 | |||||||
F-29
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
Earnings
before income taxes and noncontrolling interests included the following
components:
|
2010
|
2009
|
2008
|
||||||||||
|
Domestic
income
|
$ | 109,303 | $ | 77,276 | $ | 120,815 | ||||||
|
Foreign
income
|
34,120 | 28,373 | 24,556 | |||||||||
| $ | 143,423 | $ | 105,649 | $ | 145,371 | |||||||
The
provision for income taxes resulted in effective tax rates that differ from the
statutory federal income tax rates. The reasons for these differences
are as follows:
|
Percent of Pre-Tax Earnings
|
||||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Statutory
U.S. tax rates
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
State
income taxes, net of federal benefit
|
1.0 | 0.6 | 1.3 | |||||||||
|
Tax
credits
|
- | (0.7 | ) | (0.9 | ) | |||||||
|
Foreign
taxes at different rates, net of credits
|
(1.6 | ) | (1.7 | ) | (0.7 | ) | ||||||
|
Domestic
production activities deduction
|
(1.6 | ) | (1.3 | ) | (1.4 | ) | ||||||
|
Other,
net
|
- | 0.1 | 0.6 | |||||||||
| 32.8 | % | 32.0 | % | 33.9 | % | |||||||
The
components of the net deferred tax liability as of November 30, 2010 and 2009
were as follows:
|
2010
|
2009
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Deferred
compensation
|
$ | 7,590 | $ | 9,019 | ||||
|
Tax
credits and carryforward items
|
3,146 | 2,822 | ||||||
|
Accounts
receivable
|
6,092 | 6,185 | ||||||
|
Inventories
|
4,532 | 4,779 | ||||||
|
Pensions
|
24,036 | 23,932 | ||||||
|
Accrued
liabilities and other
|
9,181 | 7,700 | ||||||
|
Valuation
allowance
|
(1,658 | ) | (2,328 | ) | ||||
|
Total
deferred tax assets, net
|
52,919 | 52,109 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Percentage
of completion
|
(413 | ) | (40 | ) | ||||
|
Plant
assets
|
(21,202 | ) | (21,981 | ) | ||||
|
Goodwill
and acquired intangible assets
|
(35,958 | ) | (33,437 | ) | ||||
|
Other
deferred tax liabilities
|
(531 | ) | (590 | ) | ||||
|
Total
deferred tax liabilities
|
(58,104 | ) | (56,048 | ) | ||||
|
Deferred
tax liability, net
|
$ | (5,185 | ) | $ | (3,939 | ) | ||
Of
the foreign and state tax credits and foreign and state loss
carryforwards, $2,795 expires in 2011 through 2029 and $352 may be carried over
indefinitely. The Company decreased the valuation allowance by
$670 and $593 in 2010 and 2009, respectively, related to foreign and state net
operating losses and foreign and state tax credit carryovers. The
valuation allowance reflects the estimated amount of deferred tax assets due to
foreign net operating losses that may not be realized. The Company
expects to realize the remaining deferred tax assets through the reversal of
taxable temporary differences and future earnings.
F-30
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
The
Company did not repatriate any accumulated foreign earnings in
2010. The Company repatriated $991 of accumulated foreign earnings in
2009 related to a Canadian subsidiary due to favorable tax rates. For
the Company’s other foreign subsidiaries, the Company has not provided deferred
taxes on unremitted foreign earnings from certain foreign affiliates of
approximately $104,157 that are intended to be indefinitely reinvested to
finance operations and expansion outside the United States. If such
earnings were distributed beyond the amount for which taxes have been provided,
foreign tax credits could offset in part any incremental U.S. tax
liability. Determination of the unrecognized deferred taxes related
to these undistributed earnings is not practicable.
|
K.
|
RESTRUCTURING
CHARGES
|
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. All of the restructuring expenses were paid as of November 30,
2010. As of November 30, 2009, all restructuring expenses were paid
except for accrued severance of $28 related to Kentucky facilities, which is
included in accrued liabilities.
Current Year Restructuring
Charges
The
Company did not incur any restructuring expenses during the year ended November
30, 2010.
Prior Year Restructuring
Charges
During
the first and second quarters of fiscal year 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 $170 were expensed during
the year ended November 30, 2009 and were included in cost of sales in the
Consolidated Statements of Earnings.
During
May 2009, the Company also closed a small facility in Clover, South
Carolina. The Company did not incur any material expenses related to
this closure.
The
Company discontinued production at an HVAC filter manufacturing plant in
Davenport, Iowa during the second quarter 2008. The Company did not
incur any restructuring expenses related to the Davenport, Iowa location during
the year ended November 30, 2009. The Company expensed and paid $154
for the year ended November 30, 2008, which is included in cost of sales in the
Consolidated Statements of Earnings, mainly for employee termination costs,
related to the Iowa plant closing. 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.
The
Company also discontinued production at an HVAC filter manufacturing plant in
Henderson, North Carolina during the third quarter 2008. The Company
recorded restructuring expenses of $47, which is included in cost of sales in
the Consolidated Statements of Earnings, related to the Henderson, North
Carolina location during the year ended November 30, 2009, mainly for facility
consolidation and employee termination costs. The Company expensed
$1,081 for the year ended November 30, 2008, mainly for employee termination
costs and a pension curtailment expense of $516 (see Note I), related to the
North Carolina plant closing. 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. The Company recorded an impairment charge of $1,200, $1,050 of
which was recorded during the fourth quarter, related to the North Carolina
property for the year ended November 30, 2009 which is included in cost of sales
in the Consolidated Statements of Earnings.
F-31
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
|
L.
|
INSURANCE CLAIMS AND
SETTLEMENTS
|
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
additional insurance proceeds of $557. The Company does not expect to
collect any further amounts related to this claim.
In the
second quarter of fiscal year 2008, four of the Company’s facilities in three
states were damaged in weather-related events. The Company’s
Industrial/Environmental Filtration segment recognized a gain, resulting from
the excess of insurance proceeds received over the net book value of the
property, of $1,963 (net of the $500 deductible paid by the Company) as a
reduction of cost of sales. The Company’s Engine/Mobile Filtration
segment recognized a loss, resulting from costs incurred below the Company’s
deductible limit, of $178 in cost of sales. During fiscal year 2009,
the Company received $654 from the insurance company, which had been recorded as
a receivable at November 30, 2008.
|
M.
|
CONTINGENCIES
|
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. Items included in
these other matters are discussed below. The Company believes recorded
reserves in its Consolidated Financial Statements are adequate in light of the
probable and estimable outcomes of the items discussed below. Any recorded
liabilities were not material to the Company’s financial position, results of
operation or liquidity and the Company does not currently believe that any
pending claims or litigation, including those identified below, will materially
affect its financial position, results of operation or liquidity.
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.
Antitrust/Qui
Tam
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 engine filter manufacturer, including the Company's subsidiary, Baldwin
Filters, Inc. (the “Defendant Group”), 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 Defendant Group. Parallel purported class actions, including on
behalf of indirect purchasers of filters, have been filed by other plaintiffs
against the Defendant Group in a variety of jurisdictions in the United States
and Canada.
In
addition, the Attorney General of the State of Florida and the County of
Suffolk, New York have filed complaints against the Defendant Group based on
these same allegations, and the Attorney General of the State of Washington
requested various documents, information and cooperation, which the Company has
agreed to provide.
In late
2010, William Burch, a former employee of two other defendants in the Defendant
Group, brought an action under the United States False Claims Act and similar
state statutes on behalf of the governments of the United States and
approximately twenty individual states against the Defendant Group, based on
these same allegations.
F-32
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
Finally,
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.
All of
the U.S cases, including the actions brought by and/or on behalf of governmental
entities, have been consolidated into a single multi-district litigation in the
Northern District of Illinois. The Company believes all of these
lawsuits and the claims made therein to be without merit and is vigorously
defending them.
TransWeb/3M
On May
21, 2010, 3M Company and 3M Innovative Properties (“3M”) brought a lawsuit
against TransWeb LLC (“TransWeb”), a company acquired in December 2010 (see Note
R), in the United States District Court for the District of Minnesota, alleging
that certain TransWeb products infringe certain 3M patents. Shortly
after receiving service of process in this litigation, TransWeb filed its own
complaint against 3M in the United States District Court for the District of New
Jersey, seeking a declaratory judgment that the asserted patents are invalid and
that the products in question do not infringe. 3M withdrew its
Minnesota action, and the parties are currently litigating the matter in New
Jersey. The litigation in question was filed and underway before the
Company acquired TransWeb in December 2010, but the Company assumed the risk of
this litigation as a result of the acquisition. The Company intends
to vigorously defend the action and pursue related claims.
Other
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, antitrust or TransWeb
legal proceedings referred to above.
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.
F-33
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
|
N.
|
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
and performance 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.
Stock
Options
Under the
2009 Incentive Plan and the 2004 Incentive Plan, nonqualified stock options are
granted at exercise prices equal to the market price at the date of
grant. All outstanding stock options have been granted at the fair
market value on 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.
The
following table summarizes compensation expense related to stock options during
the years ended November 30, 2010, 2009 and 2008.
|
2010
|
2009
|
2008
|
||||||||||
|
Pre-tax
compensation expense
|
$ | 3,632 | $ | 3,027 | $ | 3,368 | ||||||
|
Deferred
tax benefits
|
(1,335 | ) | (969 | ) | (1,160 | ) | ||||||
|
Excess
tax benefits associated with tax deductions over the amount of
compensation expense recognized in the consolidated condensed financial
statements
|
2,500 | 1,881 | 2,761 | |||||||||
The
following table summarizes activity with respect to nonqualified stock options
granted by the Company and includes options granted under the 2009, 2004 and
1994 Incentive Plans.
|
2010
|
2009
|
2008
|
||||||||||||||||||||||
|
Shares
Granted under
Incentive
Plans
|
Weighted
Average
Exercise
Price
|
Shares
Granted under
Incentive
Plans
|
Weighted
Average
Exercise
Price
|
Shares
Granted under
Incentive
Plans
|
Weighted
Average
Exercise
Price
|
|||||||||||||||||||
|
Outstanding
at beginning of year
|
3,229,187 | $ | 27.43 | 3,132,111 | $ | 25.75 | 3,191,598 | $ | 23.79 | |||||||||||||||
|
Granted
|
482,510 | $ | 32.69 | 466,025 | $ | 31.94 | 477,900 | $ | 36.38 | |||||||||||||||
|
Exercised
|
(443,810 | ) | $ | 20.76 | (322,236 | ) | $ | 16.40 | (458,701 | ) | $ | 21.43 | ||||||||||||
|
Surrendered
|
(38,477 | ) | $ | 33.02 | (46,713 | ) | $ | 35.45 | (78,686 | ) | $ | 35.86 | ||||||||||||
|
Outstanding
at end of year
|
3,229,410 | $ | 29.07 | 3,229,187 | $ | 27.43 | 3,132,111 | $ | 25.75 | |||||||||||||||
|
Options
exercisable at end of year
|
2,347,852 | $ | 27.48 | 2,372,757 | $ | 25.02 | 2,486,807 | $ | 23.28 | |||||||||||||||
At
November 30, 2010, there was $2,965 of unrecognized compensation cost related to
nonvested option awards which the Company expects to recognize over a
weighted-average period of 2.4 years.
F-34
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
The
following table summarizes information about the Company’s outstanding and
exercisable options at November 30, 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
|
||||||||||||||||||||||
|
$11.50
- $13.75
|
110,150 | $ | 13.39 | $ | 3,041 |
0.97
|
110,150 | $ | 13.39 | $ | 3,041 |
0.97
|
||||||||||||||||||
|
$16.01
- $22.80
|
565,020 | $ | 20.12 | 11,799 |
2.47
|
565,020 | $ | 20.12 | 11,799 |
2.47
|
||||||||||||||||||||
|
$25.31
- $34.40
|
2,044,928 | $ | 30.61 | 21,237 |
6.37
|
1,315,552 | $ | 29.49 | 15,143 |
5.28
|
||||||||||||||||||||
|
$35.11
- $38.23
|
509,312 | $ | 36.19 | 2,450 |
7.04
|
357,130 | $ | 36.07 | 1,761 |
7.03
|
||||||||||||||||||||
| 3,229,410 | $ | 29.07 | $ | 38,527 |
5.61
|
2,347,852 | $ | 27.48 | $ | 31,744 |
4.67
|
|||||||||||||||||||
The
following table summarizes information about stock option exercises during the
fiscal years shown.
|
2010
|
2009
|
2008
|
||||||||||
|
Fair
value of options exercised
|
$ | 2,450 | $ | 1,597 | $ | 2,542 | ||||||
|
Total
intrinsic value of options exercised
|
7,547 | 4,975 | 7,535 | |||||||||
|
Cash
received upon exercise of options
|
5,703 | 2,479 | 7,649 | |||||||||
|
Tax
benefit realized from exercise of options
|
2,457 | 1,809 | 2,752 | |||||||||
|
Addition
to capital in excess of par value due to exercise of stock
options
|
7,313 | 3,164 | 9,549 | |||||||||
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.
|
2010
|
2009
|
2008
|
||||||||||
|
Weighted
average fair value per option at the date of grant for options
granted
|
$ | 8.73 | $ | 7.62 | $ | 9.37 | ||||||
|
Risk-free
interest rate
|
2.84 | % | 1.91 | % | 3.76 | % | ||||||
|
Expected
dividend yield
|
1.02 | % | 1.25 | % | 0.85 | % | ||||||
|
Expected
volatility factor
|
26.00 | % | 24.16 | % | 20.24 | % | ||||||
|
Expected
option term in years
|
6.2 | 6.1 | 6.1 | |||||||||
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. Expected dividend yield is based on historical
information.
Subsequent
to the end of fiscal year 2010, the Company issued 432,250 options under the
2009 Incentive Plan with exercise prices of $42.86.
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 the dividends declared on common shares, which is treated as personal
compensation. Upon vesting, employees may elect to defer receipt of
their shares. There were 108,800 and 99,265 shares which were vested
and deferred at November 30, 2010 and 2009.
F-35
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
The
following table summarizes compensation expense related to restricted stock unit
awards during the years ended November 30, 2010, 2009 and 2008.
|
2010
|
2009
|
2008
|
||||||||||
|
Pre-tax
compensation expense
|
$ | 970 | $ | 1,061 | $ | 1,106 | ||||||
|
Deferred
tax benefits
|
(357 | ) | (339 | ) | (381 | ) | ||||||
|
Excess
tax expense associated with tax deductions under the amount of
compensation expense recognized in the consolidated condensed financial
statements
|
(111 | ) | (27 | ) | (292 | ) | ||||||
|
Fair
value of shares vested
|
983 | 790 | 712 | |||||||||
The
following table summarizes the restricted stock unit awards.
|
2010
|
2009
|
2008
|
||||||||||||||||||||||
|
Units
|
Weighted
Average
Grant Date
Fair Value
|
Units
|
Weighted
Average
Grant Date
Fair Value
|
Units
|
Weighted
Average
Grant Date
Fair Value
|
|||||||||||||||||||
|
Nonvested
at beginning of year
|
67,476 | $ | 34.01 | 57,724 | $ | 33.66 | 57,371 | $ | 29.76 | |||||||||||||||
|
Granted
|
34,128 | $ | 32.30 | 36,368 | $ | 32.78 | 25,989 | $ | 36.48 | |||||||||||||||
|
Vested
|
(28,898 | ) | $ | 34.01 | (25,135 | ) | $ | 31.42 | (25,636 | ) | $ | 27.79 | ||||||||||||
|
Surrendered
|
(1,812 | ) | $ | 32.30 | (1,481 | ) | $ | 34.19 | - | - | ||||||||||||||
|
Nonvested
at end of year
|
70,894 | $ | 33.23 | 67,476 | $ | 34.01 | 57,724 | $ | 33.66 | |||||||||||||||
The
Company has recognized $1,683 of compensation cost prior to November 30, 2010
related to nonvested restricted stock unit awards. As of November 30,
2010, there was $673 of total unrecognized compensation cost related to
restricted stock unit awards that the Company expects to recognize during fiscal
years 2011 through 2013.
Subsequent
to the end of fiscal year 2010, the Company issued 29,467 restricted stock unit
awards, each with a fair value of $42.86 at the date of grant.
Directors' Restricted Stock
Compensation
The
incentive plans provide for grants of shares of common stock to all non-employee
directors equal to a one-year annual retainer in lieu of cash at the directors’
option. The directors’ rights to the shares vest immediately on the
date of grant; however, the shares cannot be sold for a six-month period from
the date of grant. The following table summarizes compensation
expense related to directors’ restricted stock and the number of shares issued
under the plans during the years ended November 30, 2010, 2009 and
2008.
|
2010
|
2009
|
2008
|
||||||||||
|
Pre-tax
compensation expense
|
$ | 240 | $ | 210 | $ | 210 | ||||||
|
Shares
of Company common stock issued under the plans
|
6,760 | 8,298 | 5,910 | |||||||||
F-36
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
Employee Stock Purchase
Plan
The
Company sponsors an employee stock purchase plan which allows employees to
purchase stock at a discount of 5%. Effective January 1, 2006, the
plan was amended to be in compliance with safe harbor rules so that the plan is
not compensatory, and no expense is recognized related to the
plan. The Company issued stock under this plan as follows during the
years ended November 30, 2010, 2009 and 2008.
|
2010
|
2009
|
2008
|
||||||||||
|
Company
stock issued under the plan
|
$ | 1,096 | $ | 1,138 | $ | 1,234 | ||||||
|
O.
|
EARNINGS PER SHARE AND
TREASURY STOCK TRANSACTIONS
|
The
Company calculates basic earnings per share by dividing net earnings by the
weighted average number of shares outstanding. Diluted earnings per
share reflects the impact of outstanding stock options, restricted stock and
other stock-based arrangements. The following table provides a
reconciliation of the denominators utilized in the calculation of basic and
diluted earnings per share:
|
2010
|
2009
|
2008
|
||||||||||
|
Weighted
average number of shares outstanding
|
50,678,617 | 50,851,933 | 50,841,586 | |||||||||
|
Dilutive
effect of stock-based arrangements
|
477,612 | 268,353 | 623,942 | |||||||||
|
Weighted
average number of diluted shares outstanding
|
51,156,229 | 51,120,286 | 51,465,528 | |||||||||
|
Net
earnings attributable to CLARCOR Inc.
|
$ | 96,081 | $ | 71,543 | $ | 95,654 | ||||||
|
Basic
earnings per share
|
$ | 1.90 | $ | 1.41 | $ | 1.88 | ||||||
|
Diluted
earnings per share
|
$ | 1.88 | $ | 1.40 | $ | 1.86 | ||||||
The
following table provides additional information regarding the calculation of
earnings per share and treasury stock transactions.
|
2010
|
2009
|
2008
|
||||||||||
|
Weighted
average exercise price per share of antidilutive options
|
$ | 35.80 | $ | 34.28 | $ | 38.23 | ||||||
|
Number
of options with exercises prices greater than the average market price
excluded from the computation of dilutive earnings per share because the
effect would have been antidilutive
|
646,349 | 1,297,675 | 5,325 | |||||||||
|
Common
stock repurchased and retired pursuant to the Company's $250,000 stock
repurchase program
|
$ | 16,277 | $ | 19,767 | $ | 37,260 | ||||||
|
Number
of shares repurchased and retired pursuant to the Company's $250,000 stock
repurchase program
|
445,991 | 688,200 | 1,000,000 | |||||||||
On June
22, 2010, the Company’s Board of Directors approved a three-year, $250,000 stock
repurchase program. Pursuant to the authorization, the Company may
purchase shares from time to time in the open market or through privately
negotiated transactions through June 22, 2013. The Company has no
obligation to repurchase shares under the authorization, and the timing, actual
number and values of shares to be purchased will depend on the Company’s stock
price and market conditions. At November 30, 2010, there was
approximately $233,723 available for future purchase under the
program.
F-37
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
|
P.
|
SEGMENT
INFORMATION
|
Based on
the economic characteristics of the Company’s business activities, the nature of
products, customers and markets served and the performance evaluation by
management and the Company’s Board of Directors, the Company has identified
three reportable segments: Engine/Mobile Filtration, Industrial/Environmental
Filtration and Packaging.
The
Engine/Mobile Filtration segment manufactures and markets a complete line of
filters used in the filtration of oils, air, fuel, coolant, hydraulic and
transmission fluids in both domestic and international markets. The
Engine/Mobile Filtration segment provides filters for certain types of
transportation equipment including automobiles, heavy-duty and light trucks,
buses and locomotives, marine and mining equipment, industrial equipment and
heavy-duty construction and agricultural equipment. The products are
sold to aftermarket distributors, original equipment manufacturers and dealer
networks, private label accounts and directly to truck service centers and large
national accounts.
The
Industrial/Environmental Filtration segment manufactures and markets a complete
line of filters, cartridges, dust collectors, filtration systems, engineered
filtration products and technologies used in the filtration of air and
industrial fluid processes in both domestic and international
markets. The filters and filter systems are used in commercial and
industrial buildings, hospitals, manufacturing processes, pharmaceutical
processes, clean rooms, airports, shipyards, refineries and other oil and
natural gas facilities, power generation plants, petrochemical plants,
residences and various other infrastructures. The products are sold
to commercial and industrial distributors, original equipment manufacturers and
dealer networks, private label accounts, retailers and directly to large
national accounts.
The
Packaging segment manufactures and markets consumer and industrial packaging
products including custom-designed plastic and metal containers and closures and
lithographed metal sheets in both domestic and international
markets. The products are sold directly to consumer and industrial
packaging customers.
Net sales
represent sales to unaffiliated customers. Intersegment sales were
not material. No single customer accounted for 10% or more of the
Company’s consolidated 2010 sales. Unallocated amounts consist of
interest expense, interest income and other non-operating income and expense
items. Assets are those assets used in each business
segment. Corporate assets consist of cash, deferred income taxes,
corporate facility and equipment and various other assets that are not specific
to an operating segment. The Company operates as a consolidated
entity, including cooperation between segments, cost allocating and sharing of
certain assets. As such, the Company makes no representation, that if
operated on a standalone basis, these segments would report net sales, operating
profit and other financial data reflected below.
The
following table provides segment data for the years ended November 30, 2010,
2009 and 2008:
|
2010
|
2009
|
2008
|
||||||||||
|
Net
sales:
|
||||||||||||
|
Engine/Mobile
Filtration
|
$ | 446,104 | $ | 373,295 | $ | 439,033 | ||||||
|
Industrial/Environmental
Filtration
|
470,359 | 461,000 | 543,112 | |||||||||
|
Packaging
|
94,966 | 73,453 | 77,456 | |||||||||
| $ | 1,011,429 | $ | 907,748 | $ | 1,059,601 | |||||||
|
Operating
profit:
|
||||||||||||
|
Engine/Mobile
Filtration
|
$ | 92,246 | $ | 75,216 | $ | 99,420 | ||||||
|
Industrial/Environmental
Filtration
|
43,515 | 24,712 | 45,848 | |||||||||
|
Packaging
|
8,888 | 5,805 | 6,655 | |||||||||
| 144,649 | 105,733 | 151,923 | ||||||||||
|
Other
expense, net
|
(1,226 | ) | (84 | ) | (6,552 | ) | ||||||
|
Earnings
before income taxes
|
$ | 143,423 | $ | 105,649 | $ | 145,371 | ||||||
F-38
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
|
2010
|
2009
|
2008
|
||||||||||
|
Identifiable
assets:
|
||||||||||||
|
Engine/Mobile
Filtration
|
$ | 292,196 | $ | 252,747 | $ | 252,380 | ||||||
|
Industrial/Environmental
Filtration
|
650,530 | 629,488 | 638,915 | |||||||||
|
Packaging
|
40,450 | 36,456 | 37,949 | |||||||||
|
Corporate
|
59,235 | 55,199 | 28,638 | |||||||||
| $ | 1,042,411 | $ | 973,890 | $ | 957,882 | |||||||
|
Additions
to plant assets:
|
||||||||||||
|
Engine/Mobile
Filtration
|
$ | 7,704 | $ | 8,360 | $ | 10,118 | ||||||
|
Industrial/Environmental
Filtration
|
14,597 | 11,744 | 22,726 | |||||||||
|
Packaging
|
2,152 | 1,399 | 1,983 | |||||||||
|
Corporate
|
- | 237 | 81 | |||||||||
| $ | 24,453 | $ | 21,740 | $ | 34,908 | |||||||
|
Depreciation
and amortization:
|
||||||||||||
|
Engine/Mobile
Filtration
|
$ | 9,810 | $ | 9,645 | $ | 10,334 | ||||||
|
Industrial/Environmental
Filtration
|
17,151 | 17,322 | 16,217 | |||||||||
|
Packaging
|
3,260 | 3,308 | 3,165 | |||||||||
|
Corporate
|
700 | 687 | 672 | |||||||||
| $ | 30,921 | $ | 30,962 | $ | 30,388 | |||||||
Financial
data relating to the geographic areas in which the Company operates are shown
for the years ended November 30, 2010, 2009 and 2008. Net sales by
geographic area are based on sales to final customers within that
region.
|
2010
|
2009
|
2008
|
||||||||||
|
Net
sales:
|
||||||||||||
|
United
States
|
$ | 702,510 | $ | 634,057 | $ | 724,121 | ||||||
|
Europe
|
99,939 | 103,917 | 117,100 | |||||||||
|
Other
international
|
208,980 | 169,774 | 218,380 | |||||||||
| $ | 1,011,429 | $ | 907,748 | $ | 1,059,601 | |||||||
|
Plant
assets, at cost, less accumulated depreciation
|
||||||||||||
|
United
States
|
$ | 161,000 | $ | 170,398 | $ | 175,322 | ||||||
|
Europe
|
3,375 | 4,157 | 4,596 | |||||||||
|
Other
international
|
16,800 | 13,536 | 12,681 | |||||||||
| $ | 181,175 | $ | 188,091 | $ | 192,599 | |||||||
F-39
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Dollars
in thousands except share data)
|
Q.
|
SELECTED QUARTERLY
FINANCIAL DATA (Unaudited)
|
The
unaudited quarterly data for 2010 and 2009 were as follows:
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
|||||||||||||
|
2010
|
||||||||||||||||
|
Net
sales
|
$ | 215,131 | $ | 257,869 | $ | 262,770 | $ | 275,659 | ||||||||
|
Gross
profit
|
69,805 | 84,843 | 91,561 | 92,198 | ||||||||||||
|
Net
earnings
|
14,807 | 23,935 | 28,571 | 29,038 | ||||||||||||
|
Net
earnings attributable to CLARCOR Inc.
|
14,866 | 23,885 | 28,326 | 29,004 | ||||||||||||
|
Net
earnings per common share attributable to CLARCOR Inc.
|
||||||||||||||||
|
Basic
|
$ | 0.29 | $ | 0.47 | $ | 0.56 | $ | 0.57 | ||||||||
|
Diluted
|
$ | 0.29 | $ | 0.47 | $ | 0.55 | $ | 0.57 | ||||||||
|
Dividends
declared and paid
|
$ | 0.0975 | $ | 0.0975 | $ | 0.0975 | $ | 0.1050 | ||||||||
|
2009
|
||||||||||||||||
|
Net
sales
|
$ | 213,690 | $ | 229,395 | $ | 230,271 | $ | 234,392 | ||||||||
|
Gross
profit
|
60,983 | 69,598 | 73,943 | 74,764 | ||||||||||||
|
Net
earnings
|
8,785 | 17,057 | 21,324 | 24,664 | ||||||||||||
|
Net
earnings attributable to CLARCOR Inc.
|
8,791 | 16,791 | 21,282 | 24,679 | ||||||||||||
|
Net
earnings per common share attributable to CLARCOR Inc.
|
||||||||||||||||
|
Basic
|
$ | 0.17 | $ | 0.33 | $ | 0.42 | $ | 0.49 | ||||||||
|
Diluted
|
$ | 0.17 | $ | 0.33 | $ | 0.42 | $ | 0.49 | ||||||||
|
Dividends
declared and paid
|
$ | 0.0900 | $ | 0.0900 | $ | 0.0900 | $ | 0.0975 | ||||||||
|
R.
|
SUBSEQUENT
EVENT
|
On
December 29, 2010, the Company acquired all of the outstanding equity interests
in TransWeb, a privately-owned manufacturer of media used in a variety of
end-use applications, including respirators and HVAC filters. Founded in
1996 and based in Vineland, New Jersey, TransWeb has supplied media to a
subsidiary of the Company for several years. TransWeb was acquired to
expand the Company’s technology capabilities in the area of media development
and to enhance the product offerings of our filtration operating
companies. Transweb’s results will be included in the
Industrial/Environmental Filtration segment from the date of
acquisition.
TransWeb
has been accused by 3M Company and one of its affiliates of violating certain 3M
patents, and the parties are currently engaged in litigation in the United
States District Court for the District of New Jersey (see Note M). In this
litigation TransWeb is seeking a declaratory judgment that the asserted patents
are invalid and that the products in question do not infringe. The Company intends to vigorously
defend the action and pursue related claims.
The base
purchase price to acquire TransWeb was approximately $29,000, excluding cash
acquired, plus a potential earn-out payable to one of the former owners.
Of the base purchase price, the Company withheld approximately $17,000 pending
resolution of the 3M litigation, which funds may be used by the Company in
connection with the same. The Company paid the balance of the purchase
price with available cash.
F-40
CLARCOR
Inc.
SCHEDULE
II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For
the years ended November 30, 2010, 2009 and 2008
(Dollars
in thousands)
|
Column A
|
Column B
|
Column C
|
Column D
|
Column E
|
||||||||||||||||
|
Additions
|
||||||||||||||||||||
|
Description
|
Balance at
beginning of
period
|
(1)
Charged to
costs and
expenses
|
(2)
Charged
to other
accounts
|
Deductions
|
Balance at
end of
period
|
|||||||||||||||
|
2010:
|
||||||||||||||||||||
|
Allowance
for losses on accounts receivable
|
$ | 15,150 | $ | 94 | $ | (727 | )(A) | $ | (3,089 | )(B) | $ | 11,428 | ||||||||
|
2009:
|
||||||||||||||||||||
|
Allowance
for losses on accounts receivable
|
$ | 13,267 | $ | 3,099 | $ | 557 | (A) | $ | (1,773 | )(B) | $ | 15,150 | ||||||||
|
2008:
|
||||||||||||||||||||
|
Allowance
for losses on accounts receivable
|
$ | 11,129 | $ | 3,269 | $ | (39 | )(A) | $ | (1,092 | )(B) | $ | 13,267 | ||||||||
NOTES:
(A) Due
to business acquisitions and reclassifications.
(B) Bad
debts written off during year, net of recoveries.
S-1