SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED NOVEMBER 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________________ COMMISSION FILE NUMBER 1-11024 CLARCOR Inc. --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 36-0922490 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2323 Sixth Street, P.O. Box 7007, Rockford, Illinois 61125 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 815-962-8867 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, par value $1.00 per share New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None ---------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes X No __ The aggregate market value (based on the closing price of registrant's Common Stock on January 15, 2003 as reported on the New York Stock Exchange Composite Transactions) of the voting stock held by non-affiliates of the registrant as at January 15, 2003 is $849,881,270. The number of outstanding shares of Common Stock as of January 15, 2003 is 24,913,905 shares. Certain portions of the registrant's 2002 Annual Report to Shareholders are incorporated by reference in Parts I, II and IV. Certain portions of the registrant's Proxy Statement dated February 20, 2003 for the Annual Meeting of Shareholders to be held on March 24, 2003 are incorporated by reference in Part III. PART I ITEM 1. DESCRIPTION OF BUSINESS. (a) General Development of Business CLARCOR Inc. ("CLARCOR") was organized in 1904 as an Illinois corporation and in 1969 was reincorporated in the State of Delaware. As used herein, the "Company" refers to CLARCOR and its subsidiaries unless the context otherwise requires. The Company's fiscal year ends on the Saturday closest to November 30. For fiscal year 2002 the year ended on November 30, 2002 and included 52 weeks. For fiscal year 2001 the year ended on December 1, 2001 and included 52 weeks. For fiscal year 2000 the year ended on December 2, 2000 and included 53 weeks. In this Form 10-K, all references to fiscal years are shown to begin on December 1 and end on November 30 for clarity of presentation. (i) Certain Significant Developments. On June 5, 2002 the Company acquired Locker Filtration Limited ("Locker"). Locker is located in Warrington, Cheshire, England and is engaged in three primary filtration markets. For its largest market, vehicle filtration, it manufactures air filters and filtration units for agricultural and off-road vehicles. Its power generation unit manufactures large scale air filtration systems primarily for diesel and gas turbine power installations. Finally, its Lockertex segment manufactures specialty filters for industrial uses, mainly for vacuums, pharmaceutical and incineration applications. Locker is included in the Engine/Mobile Filtration segment of the Company's business. The cost of the acquisition was approximately $6,500,000 in cash. The acquisition resulted in an increase of approximately $7,500,000 in the Company's revenues for fiscal 2002. During fiscal 2002 the Company also acquired two smaller companies, Total Filter Technology, Inc. ("TFT") and FilterSource. TFT is located in North Chelmsford, Massachusetts and manufacturers string wound and meltblown cartridges and liquid bags for use in liquid process filtration applications. FilterSource sells, installs and services industrial and commercial air filters primarily in West Coast markets. The TFT acquisition supports the Company's strategy to increase its ability to supply liquid process filtration products to industrial markets. TFT and FilterSource are included in the Industrial/Environmental Filtration segment of the Company's business. (ii) Summary of Business Operations. During 2002, the Company conducted business in three principal industry segments: (1) Engine/Mobile Filtration, (2) Industrial/Environmental Filtration and (3) Packaging. Engine/Mobile Filtration. Engine/Mobile Filtration includes filters for oil, air, fuel, coolants and hydraulic fluids for trucks, automobiles, construction, mining and industrial equipment, locomotives, marine and agricultural equipment. Industrial/Environmental Filtration. Industrial/Environmental Filtration products are used primarily for commercial, residential and industrial applications. The segment's industrial and environmental products include air and antimicrobial treated filters and high efficiency electronic air cleaners for commercial buildings, factories, residential buildings, paint spray booths, gas turbine systems, medical facilities, motor vehicle cabins, clean rooms, compressors and dust collector systems. The segment's process filtration products include specialty filters, industrial process liquid filters, filters for pharmaceutical processes and beverages, filtration systems for aircraft refueling, anti-pollution and water recycling, bilge separators and sand control filters for oil and gas drilling. Packaging. Packaging products include a wide variety of custom styled containers and packaging items used primarily by the food, confectionery, spice, drug, toiletries and chemical specialties industries. The segment's products include lithographed metal containers, flat sheet decorated metal, combination metal andplastic containers, plastic closures and various specialties, such as spools for wire and cable and outer shells for dry cell batteries and film canisters. (b) Financial Information About Industry Segments Business segment information for the fiscal years 2000 through 2002 is included on pages 23 and 24 of the Company's 2002 Annual Report to Shareholders (the "Annual Report"), is incorporated herein by reference and is filed as part of Exhibit 13(a)(vi) to this 2002 Annual Report on Form 10-K ("2002 Form 10-K"). (c) Narrative Description of the Business ENGINE/MOBILE FILTRATION The Company's engine/mobile filtration products business is conducted by the following wholly-owned subsidiaries: Baldwin Filters, Inc.; Clark Filter, Inc.; Baldwin Filters (Aust.) Pty. Ltd.; Baldwin Filters N.V.; Baldwin Filters Limited and Locker Filtration Limited (operating under the name "CLARCOR UK"). In addition, the Company owns (i) 90% of Filtros Baldwin de Mexico ("FIBAMEX"), (ii) 75% of Baldwin-Weifang Filters Ltd., and (iii) 80% of Baldwin-Unifil S.A. The companies market a full line of oil, air, fuel, coolant and hydraulic fluid filters. The filters are used in a wide variety of applications and in processes where filter efficiency, reliability and durability are essential. Impure air or fluid flow through semi-porous paper, cotton, synthetic, chemical or membrane filter media with varying efficiency filtration characteristics. The impurities on the media are disposed of when the filter is changed. The segment's filters are sold throughout the world, primarily in the replacement market for trucks, automobiles, locomotives, marine, construction, industrial, mining and agricultural equipment. In addition, some first-fit filters are sold to the original equipment market. INDUSTRIAL/ENVIRONMENTAL FILTRATION The Company's industrial/environmental filtration products business is conducted by the following wholly-owned subsidiaries: Airguard Industries, Inc. ("Airguard"); Airklean Engineering Pte. Ltd.; Airguard Asia Sdn. Bhd.; Facet USA, Inc. and related Facet companies in Italy, Spain, the United Kingdom and other European locations ("Facet"); Filter Products, Inc.; Purolator Facet, Inc. ("PFI"); Purolator Products Air Filtration Company ("Purolator"); Total Filtration Services, Inc. ("TFS"); Total Filter Technology, Inc. ("TFT"); and United Air Specialists, Inc. ("UAS"). Airguard also has a 70% equity interest in Airguard de Venezuela, S.A. The segment's products are sold throughout the world. The companies market commercial and industrial air filters and systems, electrostatic contamination control equipment and electrostatic high precision spraying equipment. The air filters and systems remove contaminants from recirculated indoor air and from process air which is exhausted outdoors. The products represent a complete line of air filters and cleaners with a wide range of uses for maintaining high quality standards in interior air and exterior pollution control. Additional products include specialty filters, filtration systems for aircraft refueling, anti-pollution and water recycling, and bilge separators. These products are used in a wide range of applications including commercial, military and general aviation, marine, oil and gas drilling and refining, chemical and pharmaceutical processes and beverages, utilities, paper mills and general industry. The filters are used for the process filtration of liquids using a variety of string wound, meltblown, and porous and sintered and non-sintered metal media filters, strainers, separators, coalescers and absorbent media. Many of these filter products and systems require special technical approvals and product certification in order to meet commercial and military requirements. TFS does not manufacture filtration products or equipment. It is engaged in the business of supplying a full range of filtration products and equipment acquired from the Company's subsidiaries and non-affiliated manufacturers to customers as well as providing filter maintenance and cleaning supplies and services for the customer's filtration equipment. In addition, TFS is promoting and developing the Company's Total Filtration Program. PACKAGING The Company's consumer and industrial packaging products business is conducted by a wholly-owned subsidiary, J. L. Clark, Inc. ("J. L. Clark"). J.L. Clark manufactures a wide variety of different types and sizes of containers and packaging specialties. Metal, plastic and combination metal/plastic containers and closures manufactured by the Company are used in packaging a wide variety of dry and paste form products, such as food specialties (tea, spices, cookies, potato chips, pretzels, candy and other confections); beverages and juices; cosmetics and toiletries; drugs and pharmaceuticals; and chemical specialties (hand cleaners, soaps and special cleaning compounds). Other packaging products include shells for dry batteries, film canisters, candles, spools for insulated and fine wire, and custom decorated flat steel sheets. Containers and packaging specialties are manufactured only upon orders received from customers, and individualized containers and packaging specialties are designed and manufactured, usually with distinctive decoration, to meet each customer's marketing and packaging requirements and specifications. DISTRIBUTION Engine/Mobile Filtration and Industrial/Environmental Filtration products are sold primarily through a combination of independent distributors, dealers for original equipment manufacturers and directly to end-use customers such as truck and equipment fleet users. The engine/mobile segment also distributes filtration products worldwide through each of its subsidiaries. Locker, Baldwin Filters N.V. and Baldwin Filters Limited primarily serve the European markets. Baldwin Filters (Aust.) Pty. Ltd., markets heavy duty liquid and air filters in Australia and New Zealand. FIBAMEX manufactures filters in Mexico with distribution in Mexico and Central and South America. Through the Company's investment in Baldwin-Weifang Filters Ltd., heavy duty filters and electrostatic air pollution control systems are manufactured in China for distribution in China and Southeast Asia. Additionally, through Baldwin-Unifil S.A., air filtration products are manufactured in South Africa with distribution throughout Africa, Great Britain, Europe and the Middle East. The industrial/environmental segment also distributes and services filtration products and equipment through company-owned branches and subsidiaries located throughout the United States and in Europe, Singapore, Malaysia, China and Venezuela. During fiscal 2002, the Company continued its development and expansion of its Total Filtration Program. Under the Program, the Company, primarily through TFS, offers customers the ability to purchase all of the filters needed by that customer for its facilities and manufacturing, transportation and construction equipment. Customers that purchase a broad range of filtration products and services from multiple suppliers are able, by taking advantage of the Program, to purchase all of their filter requirements from a single source, and thereby reducing administrative burdens and uncertainty concerning filter pricing, availability, delivery, performance and quality. The Company is confident that it can serve its customers' total filtration requirements because it believes that it now manufactures and supplies the broadest range of filtration products in the industry. Several total filtration management contracts were completed in 2001 and 2002 and negotiations continue on others. The Company expects that the impact of these contracts will grow over the next several years as these customers' facilities are converted to the Program. The Total Filtration Program will serve as an added distribution channel for all of the Company's filtration products. Packaging salespersons call directly on customers and prospective customers for containers and packaging specialties. Each salesperson is trained in all aspects of J.L. Clark's manufacturing processes with respect to the products sold and is qualified to consult with customers and prospective customers concerning the details of their particular requirements. In addition, salespersons with expertise in specific areas, such as flat-sheet decorating, are focused on specific customers and markets. CLASS OF PRODUCTS No class of products accounted for 10% or more of the total sales of the Company in any of the Company's last three fiscal years. RAW MATERIAL Steel, filter media, cartons, aluminum sheet and coil, stainless steel, chrome vanadium, chrome silicon, resins, gaskets, roll paper, bulk and roll plastic materials and cotton, wood and synthetic fibers and adhesives are the most important raw materials used in the manufacture of the Company's products. All of these are purchased or are available from a variety of sources. The Company has no long-term purchase commitments. The Company did not experience shortages in the supply of raw materials during 2002. PATENTS, TRADEMARKS AND TRADENAMES Certain features of some of the Company's products are covered by domestic and, in some cases, foreign patents or patent applications. While these patents are valuable and important for certain products, the Company does not believe that its competitive position is dependent upon patent protection. The Company believes, however, that its trademarks and tradenames used in connection with certain products are significant to its business. CUSTOMERS The largest 10 customers of the Engine/Mobile Filtration segment accounted for 20.6% of the $263,512,000 of fiscal year 2002 sales of such segment. The largest 10 customers of the Industrial/Environmental Filtration segment accounted for 28.5% of the $383,613,000 of fiscal year 2002 sales of such segment. The largest 10 customers of the Packaging segment accounted for 62% of the $68,438,000 of fiscal year 2002 sales of such segment. No single customer accounted for 10% or more of the Company's consolidated 2002 sales. BACKLOG At November 30, 2002, the Company had a backlog of firm orders for products amounting to approximately $71,900,000. The backlog figure for November 30, 2001 was approximately $65,500,000. Substantially all of the orders on hand at November 30, 2002 are expected to be filled during fiscal 2003. COMPETITION The Company encounters strong competition in the sale of all of its products. The Company competes in a number of filtration markets against a variety of competitors. The Company is unable to state its relative competitive position in all of these markets due to a lack of reliable industry-wide data. However, in the replacement market for heavy duty liquid and air filters used in internal combustion engines, the Company believes that it is among the top five companies measured by annual sales. In addition, the Company believes that it is a leading manufacturer of liquid and air filters for diesel locomotives. The Company believes that for industrial and environmental filtration products, it is among the top five companies measured by annual sales. In the Packaging segment, its principal competitors include several manufacturers whose specialty packaging segments are smaller than the Company's and who often compete on a regional basis only. Strong competition is also presented by manufacturers of paper, plastic and glass containers. The Company's competitors generally manufacture and sell a wide variety of products in addition to packaging products of the type produced by the Company and do not publish separate sales figures relative to these competitive products. Consequently, the Company is unable to state its relative competitive position in those markets. The Company believes that it is able to maintain its competitive position because of the quality and breadth of its products and services and the broad geographic scope of its operations. PRODUCT DEVELOPMENT The Company's Technical Centers and laboratories test product components and completed products to insure high quality manufacturing results, evaluate competitive products, aid suppliers in the development of product components, and conduct controlled tests of newly designed filters, filtration systems and packaging products for particular uses. Product development departments are concerned with the improvement and creation of new filters, filtration systems, containers and packaging products in order to broaden the uses of these items, counteract obsolescence and evaluate other products available in the marketplace. In fiscal 2002, the Company employed 81 professional employees on either a full-time or part-time basis on research activities relating to the development of new products or the improvement or redesign of its existing products. During this period the Company spent approximately $6,482,000 on such activities as compared with $5,365,000 for 2001 and $6,942,000 for 2000. ENVIRONMENTAL FACTORS The Company is not aware of any facts which would cause it to believe that it is in material violation of existing applicable standards with respect to emissions to the atmosphere, discharges to waters, or treatment, storage and disposal of solid or hazardous wastes. The Company is party to various proceedings relating to environmental issues. The U.S. Environmental Protection Agency (EPA) and/or other responsible state agencies have designated the Company as a potentially responsible party (PRP), along with other companies, in remedial activities for the cleanup of waste sites under the federal Superfund statute. During fiscal 2002, the Company was addressing two claims for environmental remediation costs at two sites where it has been named a potentially responsible party. Negotiated settlements have been reached concerning waste disposal by the Company and other companies at these sites in Maryland and Illinois at a total accrued cost to the Company of less than $50,000. Although it is not certain what future environmental claims, if any may be asserted, the Company currently believes that its potential liability for known environmental matters does not exceed its present accruals of $50,000. However, environmental and related remediation costs are difficult to quantify for a number of reasons including the number of parties involved, the difficulty in determining the extent of the contamination, the length of time remediation may require, the complexity of environmental regulation and the continuing advancement of remediation technology. Applicable federal law may impose joint and several liability on each PRP for the cleanup of a contaminated site. The Company does anticipate, however, that it may be required to install additional pollution control equipment to augment or replace existing equipment in the future in order to meet applicable environmental standards. During fiscal 2003, the Company expects to upgrade certain oxidizers used to remove air borne contaminants at its Rockford, Illinois, packaging manufacturing facility. The cost of this project is expected to be about $1.4 million. The Company is presently unable to predict the timing or the cost of any other project of this nature and cannot give any assurance that the cost of such projects may not have an adverse effect on earnings. However, the Company is not aware, at this time, of any additional significant current or pending requirements to install such equipment at any of its facilities. EMPLOYEES As of November 30, 2002, the Company had approximately 4,594 employees. (d) Financial Information About Foreign and Domestic Operations and Export Sales Financial information relating to export sales and the Company's operations in the United States and other countries is set forth on page 24 of the Annual Report and is incorporated herein by reference and filed as part of Exhibit 13(a)(vi) to this 2002 Form 10-K. The Company is not aware of any unusual risks attendant to the conduct of its operations in other countries. INTERNET WEBSITE The Company's Internet address is www.clarcor.com. The Company makes available, free of charge, on its Internet website, its annual report on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such forms are electronically filed with the SEC. ITEM 2. PROPERTIES. Location An office building owned by the Company located in Rockford, Illinois houses the Corporate offices in 22,000 square feet of office space. Engine/Mobile Filtration. The following is a description of the principal properties utilized by the Company in conducting its Engine/Mobile Filtration business: The Baldwin Filters' Kearney, Nebraska plant contains 516,000 square feet of manufacturing and warehousing space, 25,000 square feet of research and development space, and 40,000 square feet of office space. The Kearney facility is located on a site of approximately 40 acres. A manufacturing facility located in Yankton, South Dakota has approximately 170,000 square feet of floor space on a 21 acre tract. Both facilities are owned by the Company. In addition, Baldwin has a capital lease for a 100,000 square foot manufacturing facility on a site of 20 acres in Gothenburg, Nebraska. The Company also manufactures filters in Lancaster, Pennsylvania at its Clark Filter plant. The building, constructed about 1968 on an 11.4 acre tract of land, contains 168,000 square feet of manufacturing and office space and is owned by the Company. Locker owns two facilities on four acres in Warrington, Cheshire, England, which are used for offices, manufacturing and warehousing. These facilities total approximately 6,600 square meters. The Company leases various facilities in Australia, Belgium, Mexico, South Africa and the United Kingdom for the manufacture and distribution of engine/mobile filtration products. Industrial/Environmental Filtration. The following is a description of the principal properties utilized by the Company in conducting its Industrial/Environmental Filtration business: Airguard has nine manufacturing and warehousing locations. It leases 142,000 square feet in New Albany, Indiana, 100,000 square feet in Louisville, Kentucky, 84,000 square feet in Corona, California, 44,500 square feet in Dallas, Texas and 83,000 square feet in Rockford, Illinois and a smaller facility in North Carolina. The Company owns the following three facilities. The Airguard High Efficiency Filter plant, located in Jeffersontown, Kentucky on a 7.5 acre tract of land, contains 100,000 square feet of manufacturing and office facilities. Airguard also produces air filtration products in a 290,000 square foot manufacturing facility in Campbellsville, Kentucky. Airguard's ATI manufacturing and office facility in Ottawa, Kansas, contains 31,000 square feet. Airguard administrative and sales offices and distribution facilities are located in leased facilities in Louisville, Kentucky; Atlanta, Georgia; Portland, Oregon; Commerce City, Colorado; Dallas, Texas; Corona and Sacramento, California and New Albany, Indiana. Airguard leases facilities in Malaysia, Singapore and Venezuela. Facet owns manufacturing and distribution facilities in Tulsa, Oklahoma and La Coruna, Spain. The Tulsa facilities contain approximately 142,000 square feet on a 16 acre site. The La Coruna facility is on an approximately 17,000 square meter site and the building contains 5,700 square meters. Facet also leases facilities in Stillwell, Oklahoma; Tulsa, Oklahoma; Italy; Germany; France; United Kingdom and The Netherlands. Purolator owns a 228,500 square-foot manufacturing and office facility in Henderson, North Carolina on a site of approximately 25 acres. Purolator also owns a 42,500 square foot manufacturing and office facility in Kenly, North Carolina. Purolator leases sales, manufacturing and distribution facilities in Fresno, California; Hayward, California; Sacramento, California; Davenport, Iowa; Wichita, Kansas; Metuchen, New Jersey; Henderson, North Carolina; Sparks, Nevada; Fairfax, Virginia and Auburn, Washington. Purolator Facet, Inc. ("PFI") owns a manufacturing and distribution facility in Greensboro, North Carolina. This facility contains approximately 88,000 square feet on a 21 acre site. PFI also leases a facility in Greensboro, North Carolina. TFS leases 85,000 square feet of headquarters space in Rochester Hills, Michigan. In addition, it leases office, warehouse space or distribution facilities in Cincinnati, Toledo and Columbus, Ohio; Fort Wayne and Indianapolis, Indiana; Tonawanda, New York; Saginaw, Michigan; Nashville, Tennessee; Birmingham, Alabama; Kansas City, Missouri; and several locations in Mexico and Canada. It also owns an office and warehouse facility consisting of a total of 33,000 square feet in Goodlettsville, Tennessee. United Air Specialists ("UAS") has its offices and primary manufacturing facility in Blue Ash, Ohio (a suburb of Cincinnati), on approximately 17 acres of land. This facility was built in 1978 and was expanded in 1991 and 1993 to a total of approximately 157,000 square feet. In addition, UAS leases sales and service facilities in Bad Camberg, Germany; Phoenix, Arizona; Hayward, California; Anaheim, California; Louisville, Kentucky; Troy, Michigan; Jackson, Mississippi and Houston, Texas. Filter Products Inc. owns a 40,000 square foot manufacturing and office facility in Sacramento, California. TFT leases space in North Chelmsford, Massachusetts which houses its office and manufacturing operations. Packaging. The following is a description of the principal properties utilized by the Company in conducting its Packaging business: The Company's J. L. Clark, Rockford, Illinois plant, located on 34 acres, consists of one-story manufacturing buildings, the first of which was constructed in 1910. Since then a number of major additions have been constructed and an injection molding plant was constructed in 1972. Approximately 450,000 square feet of floor area are devoted to manufacturing, warehouse and office use. Of the 34 acres, approximately 12 are vacant. A J. L. Clark plant is located in Lancaster, Pennsylvania on approximately 11 acres. It consists of a two-story office building containing approximately 7,500 square feet of floor space and a manufacturing plant and warehouse containing 236,000 square feet of floor space, most of which is on one level. These buildings were constructed between 1924 and 1964. J. L. Clark also leases a manufacturing facility in Lathrop, California. The various properties owned by the Company are considered by it to be in good repair and well maintained. Plant asset additions in 2003 are estimated at $21,000,000 to $23,000,000 for land, buildings, equipment and machinery and cost reduction projects. Function Engine/Mobile Filtration. Oil, air, fuel, hydraulic fluid and coolant filters are produced at the Baldwin facilities in Kearney and Gothenburg, Nebraska and Yankton, South Dakota. The various processes of pleating paper, winding cotton and synthetic fibers, placing the filter element in a metal or fiber container and painting the containers are highly mechanized, but require some manual assistance. The plants also maintain an inventory of special dies and molds for filter manufacture. Oil, air and fuel filters, primarily for use in the railroad industry, are produced at Clark Filter in Lancaster, Pennsylvania. At its facilities in Warrington, England, Locker produces large scale air filtration systems primarily for diesel and gas turbine power installations, air filters and units for agricultural and off-road vehicles and specialty filters mainly for vacuums, pharmaceuticals and incineration applications. Industrial/Environmental Filtration. Air filters for the commercial, residential and industrial markets are produced in the Airguard and Purolator facilities. Dust collection systems, high efficiency electronic air cleaning systems and electrostatic precision spraying systems are designed and manufactured at the UAS facility in Cincinnati, Ohio. Specialty filter products for aviation, oil and gas drilling, military, marine and paper and chemical processes are manufactured and assembled at the PFI facilities in Greensboro, North Carolina. The manufacturing processes include bonding and sintering metal, tungsten inert gas and electron beam welding and diffusion-bonding of wire. Facet designs, manufactures and assembles filters and filtration systems for aircraft refueling, power generation, water treatment and general industrial applications at its United States and European facilities. The company also uses outside contractors for assembly and manufacturing of some of its products. Many of these products require special commercial or military technical approvals or product certification. Depth media filters for the pharmaceutical, biotech and food and beverage industries and other critical process filtration applications are manufactured at the Filter Products Inc. facility in Sacramento, California. TFT manufactures string wound and melt blown cartridges and bag filters at its leased facility in North Chelmsford, Massachusetts. Packaging. The Company's metal and combination metal and plastic packaging products are produced at J. L. Clark plants located in Rockford, Illinois, Lancaster, Pennsylvania, and Lathrop, California. The Rockford and Lancaster plants are completely integrated facilities which include creative and mechanical art departments and photographic facilities for color separation, preparation of multiple-design negatives and lithographing plates. Metal sheets are decorated on coating machines and lithographing presses connected with conveyor ovens. Decorated sheets are then cut to working sizes on shearing equipment, following which fabrication is completed by punch presses, can-forming and can-closing equipment and other specialized machinery for supplementary operations. Plastic packaging capabilities include molding and labeling of irregular shaped plastic containers and customized plastic closures which have tamper-evidence as well as convenience features. ITEM 3. LEGAL PROCEEDINGS. The Company is involved in legal actions arising in the normal course of business. Management is of the opinion that the outcome of these actions will not have a material adverse effect on the Company's consolidated results of operations or financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT AGE AT YEAR ELECTED NAME 11/30/02 TO OFFICE ---- -------- ------------ Norman E. Johnson........................................... 54 2000 Chairman of the Board, President and Chief Executive Officer. Mr. Johnson has been employed by the Company since 1990. He was elected President-Baldwin Filters, Inc. in 1990, Vice President-CLARCOR in 1992, Group Vice President- Filtration Products Group in 1993, President and Chief Operating Officer in 1995 and Chairman, President and Chief Executive Officer in 2000. Mr. Johnson has been a Director of the Company since June 1996. William B. Walker........................................... 62 2000 President, Environmental Filtration. Mr. Walker has been employed by Airguard, a subsidiary of the Company, since 1966. He was elected President of Airguard in 1994, Executive Vice President-Industrial/Environmental Filtration in 1999 and President, Environmental Filtration in 2000. Bruce A. Klein.............................................. 55 1995 Vice President-Finance and Chief Financial Officer. Mr. Klein was employed by the Company and elected Vice President-Finance and Chief Financial Officer on January 3, 1995. David J. Anderson........................................... 64 1999 Vice President-Corporate Development. Mr. Anderson has been employed by the Company since 1990. He was elected Vice President Marketing & Business Development for the CLARCOR Filtration Products subsidiary in 1991, Vice President-Corporate Development in 1993, Vice President-International/Corporate Development in 1994 and Vice President-Corporate Development in 1999. David J. Lindsay............................................ 47 1995 Vice President-Administration and Chief Administrative Officer. Mr. Lindsay has been employed by the Company in various administrative positions since 1987. He was elected Vice President-Group Services in 1991, Vice President-Administration in 1994 and Vice President-Administration and Chief Administrative Officer in 1995. Peter F. Nangle............................................. 41 1999 Vice President-Information Services and Chief Information Officer. Mr. Nangle has been employed by the Company since 1993. He was elected Vice President-Information Services in 1994, Vice President-Information Services and Operations Analysis, Chief Information Officer in 1997 and Vice President-Information Services and Chief Information Officer in 1999. Marcia S. Blaylock.......................................... 46 2000 Vice President, Controller. Ms. Blaylock has been an employee of the Company since 1974. She was elected Assistant Secretary in 1994, Corporate Secretary in 1995, Vice President and Corporate Secretary in 1996, Vice President, Controller and Corporate Secretary in 1997 and Vice President, Controller in 2000. David J. Boyd............................................... 62 2000 Vice President, General Counsel and Corporate Secretary. Mr. Boyd became an officer of the Company in May 2000. Prior to that date he served as a partner in the law firm of Sidley Austin Brown & Wood since 1972. Each executive officer of the Company is elected by the Board of Directors for a term of one year which begins at the Board of Directors Meeting at which he or she is elected, held at the time of the Annual Meeting of Shareholders, and ends on the date of the next Annual Meeting of Shareholders or upon the due election and qualification of his or her successor. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS. The Company's Common Stock is listed on the New York Stock Exchange; it is traded under the symbol CLC. The following table sets forth the high and low market prices as quoted during the relevant periods on the New York Stock Exchange and dividends per share paid for each quarter of the last two fiscal years. MARKET PRICE ----------------- QUARTER ENDED HIGH LOW DIVIDEND ------------- ------- ------- -------- March 2, 2002............................................... $29.100 $25.150 $.1200 June 1, 2002................................................ 34.000 28.830 .1200 August 31, 2002............................................. 32.010 25.030 .1200 November 30, 2002........................................... 33.840 27.730 .1225 ------ Total Dividends............................................. $.4825 ====== MARKET PRICE ----------------- QUARTER ENDED HIGH LOW DIVIDENDS ------------- ---- --- --------- March 3, 2001............................................... $25.375 $16.875 $.1175 June 2, 2001................................................ 26.844 22.500 .1175 September 1, 2001........................................... 27.547 24.656 .1175 December 1, 2001............................................ 27.594 21.906 .1200 ------ Total Dividends............................................. $.4725 The approximate number of holders of record of the Company's Common Stock at January 15, 2003 is 1,300. In addition, the Company believes that there are approximately 5,500 beneficial owners whose shares are held in street names. ITEM 6. SELECTED FINANCIAL DATA. The information required hereunder is set forth on pages 26 and 27 of the Annual Report under the caption "11-Year Financial Review," is incorporated herein by reference and is filed as Exhibit 13(a)(ix) to this 2002 Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The information required hereunder is set forth on pages 7 through 11 of the Annual Report under the caption "Financial Review," is incorporated herein by reference and is filed as Exhibit 13(a)(x) to this 2002 Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The information required hereunder is set forth on page 10 of the Annual Report under the caption "Financial Review -- Other Matters -- Market Risk," is incorporated herein by reference and is filed as part of Exhibit 13(a)(x) to this 2002 Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Consolidated Financial Statements, the Notes thereto and the report thereon of PricewaterhouseCoopers LLP, independent accountants, required hereunder with respect to the Company and its consolidated subsidiaries are set forth on pages 12 through 25, inclusive, of the Annual Report, are incorporated herein by reference and are filed as Exhibits 13(a)(ii) through 13(a)(vii) to this 2002 Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Certain information required hereunder is set forth on pages 1 and 2 of the Company's Proxy Statement dated February 20, 2003 (the "Proxy Statement") for the Annual Meeting of Shareholders to be held on March 24, 2003 under the caption "Election of Directors -- Nominees for Election to the Board of Directors" and "-- Information Concerning Nominees and Directors" and is incorporated herein by reference. Additional information required hereunder is set forth on page 5 of the Proxy Statement under the caption "Beneficial Ownership of the Company's Common Stock -- Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information required hereunder is set forth on pages 6 through 9 inclusive, of the Proxy Statement under the caption "Compensation of Executive Officers and Other Information" and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The information required hereunder is set forth on page 22 of the Proxy Statement under the caption "Approval of 2004 Incentive Plan -- Equity Compensation Plan Information" and on pages 4 and 5 of the Proxy Statement under the caption "Beneficial Ownership of the Company's Common Stock" and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. ITEM 14. CONTROLS AND PROCEDURES. The Company has established disclosure controls and procedures which are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934 are recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Norman E. Johnson, Chairman of the Board, President, and Chief Executive Officer and Bruce A. Klein, Vice President -- Finance and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures as of November 30, 2002. Based on their evaluation, they concluded that the Company's disclosure controls and procedures were effective in achieving the objectives for which they were designed. Since their evaluation, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K. (a) Financial Statements The following financial information is incorporated herein by reference to the Company's Annual Report to Shareholders for the fiscal year ended November 30, 2002: *Consolidated Balance Sheets at November 30, 2002 and 2001 *Consolidated Statements of Earnings for the years ended November 30, 2002, 2001 and 2000 *Consolidated Statements of Shareholders' Equity for the years ended November 30, 2002, 2001 and 2000 *Consolidated Statements of Cash Flows for the years ended November 30, 2002, 2001 and 2000 *Notes to Consolidated Financial Statements *Report of Independent Accountants *Management's Report on Responsibility for Financial Reporting - ------------------------------ *Filed herewith as part of Exhibit 13(a) to this 2002 Form 10-K The following items are set forth herein on the pages indicated: Report of Independent Accountants.......................................... F-1 Financial Statement Schedules: II. Valuation and Qualifying Accounts................................. F-2 Financial statements and schedules other than those listed above are omitted for the reason that they are not applicable, are not required, or the information is included in the financial statements or the footnotes therein. (b) None (c) Exhibits 3.1 The registrant's Second Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1998. 3.1(a) Amendment to ARTICLE FOURTH of the Second Restated Certificate of Incorporation. Incorporated by reference to the Company's Proxy Statement dated February 18, 1999 for the Annual Meeting of Shareholders held on March 23, 1999. 3.2 The registrant's By-laws, as amended. Incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1995. 3.3 Certificate of Designation of Series B Junior Participating Preferred Stock of CLARCOR as filed with the Secretary of State of the State of Delaware on April 2, 1996. Incorporated by reference to Exhibit 4.5 to the Registration Statement on Form 8-A filed April 3, 1996. 4.1 Stockholder Rights Agreement dated as of March 28, 1996 between the registrant and the First Chicago Trust Company of New York. Incorporated by reference to Exhibit 4 to the Company's Current Report on Form 8-K filed April 3, 1996. 4.1(a) First Amendment to Stockholders Rights Agreement dated as of March 23, 1999. Incorporated by reference to Exhibit 4 to the Company's Form 8-A/A filed March 29, 1999. 4.2 Certain instruments defining the rights of holders of long-term debt securities of CLARCOR and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. CLARCOR hereby agrees to furnish copies of these instruments to the SEC upon request. 4.2(a) Multicurrency Credit Agreement dated as of September 9, 1999. Incorporated by reference to Exhibit 4 to the Company's Current Report on Form 8-K filed September 17, 1999. 10.1 The registrant's Deferred Compensation Plan for Directors. Incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1984 (the "1984 10-K"). 10.2 The registrant's Supplemental Retirement Plan. Incorporated by reference to Exhibit 10.2 to the 1984 10-K. 10.2(a) The registrant's 1994 Executive Retirement Plan. Incorporated by reference to Exhibit 10.2(a) to the Company's Annual Report on Form 10-K for the fiscal year ended December 3, 1994 ("1994 10-K"). 10.2(b) The registrant's 1994 Supplemental Pension Plan. Incorporated by reference to Exhibit 10.2(b) to the 1994 10-K. 10.2(c) The registrant's Supplemental Retirement Plan (as amended and restated effective December 1, 1994). Incorporated by reference to Exhibit 10.2(c) to the 1994 10-K. 10.3 The registrant's 1984 Stock Option Plan. Incorporated by reference to Exhibit A to the Company's Proxy Statement dated March 2, 1984 for the Annual Meeting of Shareholders held on March 31, 1984. 10.4 Employment Agreements with certain officers. Incorporated by reference to Exhibit 5 to the Company's Current Report on Form 8-K filed July 25, 1989. 10.4(a)(1) Form of Amended and Restated Employment Agreement with each of David J. Anderson, Marcia S. Blaylock, David J. Boyd, Bruce A. Klein, David J. Lindsay, Norman E. Johnson, Peter F. Nangle, and William B. Walker. Incorporated by Reference to Exhibit 10.4(a)(1) to the Company's Annual Report on Form 10-K for the fiscal year ended December 2, 2000 (the "2000 10-K"). 10.4(b) Employment Agreement with Lawrence E. Gloyd dated July 1, 1997. Incorporated by reference to Exhibit 10.4(b) to the Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1997 ("1997 10-K"). 10.4(c) Employment Agreement with Norman E. Johnson dated July 1, 1997. Incorporated by reference to Exhibit 10.4(c) to the 1997 10-K. 10.4(c)(1) Amended and Restated Employment Agreement with Norman E. Johnson dated as of December 17, 2000. Incorporated by Reference to Exhibit 10.4(c)(1) to the 2000 10-K. 10.4(d) Trust Agreement dated December 1, 1997. Incorporated by reference to Exhibit 10.4(d) to the 1997 10-K. 10.4(e) Executive Benefit Trust Agreement dated December 22, 1997. Incorporated by reference to Exhibit 10.4(e) to the 1997 10-K. 10.5 The registrant's 1994 Incentive Plan (the "Plan") as amended through June 30, 2000. Incorporated by Reference to Exhibit 10.5 to the 2000 10-K. 10.5(a) Amendment to the Plan adopted December 18, 2000. Incorporated by Reference to Exhibit 10.5(a) to the 2000 10-K. 10.5(b) The registrant's 2004 Incentive Plan as proposed to be adopted by the shareholders of the Company at the Annual Meeting of Shareholders on March 24, 2003. Incorporated by reference to Exhibit A to the Proxy Statement. *12.1 Computation of Certain Ratios. *13 (a) The following items incorporated by reference herein from the Company's 2002 Annual Report to Shareholders ("2002 Annual Report"), are filed as Exhibits to this Annual Report on Form 10-K: (i) Business segment information for the fiscal years 2000 through 2002 set forth on pages 23 and 24 of the 2002 Annual Report (included in Exhibit 13(a)(vi) -- Note P of Notes to Consolidated Financial Statements); (ii) Consolidated Balance Sheets of the Company and its Subsidiaries at November 30, 2002 and 2001 set forth on page 12 of the 2002 Annual Report; (iii) Consolidated Statements of Earnings of the Company and its Subsidiaries for the years ended November 30, 2002, 2001 and 2000 set forth on page 13 of the 2002 Annual Report; (iv) Consolidated Statements of Shareholders' Equity for the Company and its Subsidiaries for the years ended November 30, 2002, 2001 and 2000 set forth on page 14 of the 2002 Annual Report; (v) Consolidated Statements of Cash Flows of the Company and its Subsidiaries for the years ended November 30, 2002, 2001 and 2000 set forth on page 15 of the 2002 Annual Report; (vi) Notes to Consolidated Financial Statements set forth on pages 16 through 24 of the 2002 Annual Report; (vii) Report of Independent Accountants set forth on page 25 of the 2002 Annual Report; (viii) Management's Report on Responsibility for Financial Reporting set forth on page 25 of the 2002 Annual Report; (ix) Information under the caption "11-Year Financial Review" set forth on pages 26 and 27 of the 2002 Annual Report; and (x) Management's Discussion and Analysis of Financial Condition and Results of Operation set forth under the caption "Financial Review" on pages 7 through 11 of the 2002 Annual Report. *21 Subsidiaries of the Registrant. *23 Consent of Independent Accountants. *99.1 Certifications pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code. - --------------- * Filed herewith. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 20, 2003 CLARCOR Inc. (Registrant) By: /s/ NORMAN E. JOHNSON -------------------------------------- Norman E. Johnson Chairman of the Board, President & Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: February 20, 2003 By: /s/ NORMAN E. JOHNSON ------------------------------------------------ Norman E. Johnson Chairman of the Board, President & Chief Executive Officer and Director Date: February 20, 2003 By: /s/ BRUCE A. KLEIN ------------------------------------------------ Bruce A. Klein Vice President -- Finance & Chief Financial Officer Date: February 20, 2003 By: /s/ MARCIA S. BLAYLOCK ------------------------------------------------ Marcia S. Blaylock Vice President, Controller & Chief Accounting Officer Date: February 20, 2003 By: /s/ J. MARC ADAM ------------------------------------------------ J. Marc Adam Director Date: February 20, 2003 By: /s/ ROBERT J. BURGSTAHLER ------------------------------------------------ Robert J. Burgstahler Director Date: February 20, 2003 By: /s/ LAWRENCE E. GLOYD ------------------------------------------------ Lawrence E. Gloyd Director Date: February 20, 2003 By: /s/ ROBERT H. JENKINS ------------------------------------------------ Robert H. Jenkins Director 16 Date: February 20, 2003 By: /s/ PHILIP R. LOCHNER, JR. ------------------------------------------------ Philip R. Lochner, Jr. Director Date: February 20, 2003 By: /s/ JAMES L. PACKARD ------------------------------------------------ James L. Packard Director Date: February 20, 2003 By: ------------------------------------------------ Roseann Stevens Director Date: February 20, 2003 By: /s/ KEITH E. WANDELL ------------------------------------------------ Keith E. Wandell Director CERTIFICATIONS I, Norman E. Johnson, certify that: 1. I have reviewed this annual report on Form 10-K of CLARCOR Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ NORMAN E. JOHNSON -------------------------------------- Norman E. Johnson Chairman of the Board, President and Chief Executive Officer Date: February 20, 2003 18 CERTIFICATIONS I, Bruce A. Klein, certify that: 1. I have reviewed this annual report on Form 10-K of CLARCOR Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ BRUCE A. KLEIN -------------------------------------- Bruce A. Klein Vice President-Finance and Chief Financial Officer Date: February 20, 2003 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Shareholders CLARCOR Inc. Rockford, Illinois Our audits of the consolidated financial statements referred to in our report dated January 8, 2003 appearing on page 25 in the 2002 Annual Report to Shareholders of CLARCOR Inc. and Subsidiaries (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a) of this Form 10-K (page 13, index of exhibits). In our opinion, the financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP Chicago, Illinois January 8, 2003 F-1 CLARCOR INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED NOVEMBER 30, 2002, 2001 AND 2000 (DOLLARS IN THOUSANDS) COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------------------------------------------- ---------- ----------------------- ---------- ---------- ADDITIONS ----------------------- (1) (2) BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD - -------------------------------------------- ---------- ---------- ---------- ---------- ---------- 2002: Allowance for losses on accounts receivable................................ $7,920 $2,379 $ 95(A) $3,374(B) $7,020 ====== ====== ====== ====== ====== 2001: Allowance for losses on accounts receivable................................ $5,027 $1,628 $2,286(A) $1,021(B) $7,920 ====== ====== ====== ====== ====== 2000: Allowance for losses on accounts receivable................................ $5,155 $1,167 $ 17(A) $1,312(B) $5,027 ====== ====== ====== ====== ====== NOTES: (A) Due to business acquisitions. (B) Bad debts written off during year, net of recoveries. F-2 EXHIBIT 12.1 CLARCOR INC. STATEMENT RE COMPUTATION OF RATIOS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) Fiscal Years Ended (A) ----------------------------------------------------------------------------- 2002 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- ---------- Return on Beginning Assets Net Earnings $ 46,601 $ 41,893 $ 40,237 $ 35,412 $ 32,079 $ 26,918 Divided by Beginning Assets 530,617 501,930 472,991 305,766 282,519 267,019 ---------- ---------- ---------- ---------- ---------- ---------- Equals Return on Beginning Assets 8.8% 8.3% 8.5% 11.6% 11.4% 10.1% ========== ========== ========== ========== ========== ========== Return on Beginning Shareholders' Equity Net Earnings $ 46,601 $ 41,893 $ 40,237 $ 35,412 $ 32,079 $ 26,918 Divided by Beginning Shareholders' Equity 274,261 242,093 210,718 186,807 171,162 154,681 ---------- ---------- ---------- ---------- ---------- ---------- Equals Return on Beginning Shareholders' Equity 17.0% 17.3% 19.1% 19.0% 18.7% 17.4% ========== ========== ========== ========== ========== ========== Dividend Payout to Net Earnings Dividends Paid $ 11,975 $ 11,575 $ 11,207 $ 10,814 $ 10,717 $ 10,290 Divided by Net Earnings 46,601 41,893 40,237 35,412 32,079 26,918 ---------- ---------- ---------- ---------- ---------- ---------- Equals Dividend Payout to Net Earnings 25.7% 27.6% 27.9% 30.5% 33.4% 38.2% ========== ========== ========== ========== ========== ========== Debt to Capitalization Current Debt $ 68,456 $ 5,579 $ 5,482 $ 5,440 $ 470 $ 1,140 Long Term Debt 22,648 135,203 141,486 145,981 36,419 37,656 ---------- ---------- ---------- ---------- ---------- ---------- Total Debt $ 91,104 $ 140,782 $ 146,968 $ 151,421 $ 36,889 $ 38,796 Ending Shareholders' Equity 315,461 274,261 242,093 210,718 186,807 171,162 ---------- ---------- ---------- ---------- ---------- ---------- Equals Capitalization $ 406,565 $ 415,043 $ 389,061 $ 362,139 $ 223,696 $ 209,958 ---------- ---------- ---------- ---------- ---------- ---------- Debt $ 91,104 $ 140,782 $ 146,968 $ 151,421 $ 36,889 $ 38,796 Divided by Capitalization 406,565 415,043 389,061 362,139 223,696 209,958 ---------- ---------- ---------- ---------- ---------- ---------- Equals Debt to Capitalization 22.4% 33.9% 37.8% 41.8% 16.5% 18.5% ========== ========== ========== ========== ========== ========== Working Capital Current Assets $ 259,746 $ 244,350 $ 230,479 $ 227,670 $ 168,173 $ 160,527 Less Current Liabilities 174,255 94,931 97,826 97,475 61,183 54,237 ---------- ---------- ---------- ---------- ---------- ---------- Equals Working Capital $ 85,491 $ 149,419 $ 132,653 $ 130,195 $ 106,990 $ 106,290 ========== ========== ========== ========== ========== ========== Current Ratio Current Assets $ 259,746 $ 244,350 $ 230,479 $ 227,670 $ 168,173 $ 160,527 Divided by Current Liabilities 174,255 94,931 97,826 97,475 61,183 54,237 ---------- ---------- ---------- ---------- ---------- ---------- Equals Current Ratio 1.5 2.6 2.4 2.3 2.7 3.0 ========== ========== ========== ========== ========== ========== Free Cash Flow Cash Flow From Operations $ 85,019 $ 63,290 $ 54,130 $ 38,642 $ 42,267 $ 41,632 Less Capital Expenditures 12,204 18,204 29,005 21,822 15,825 11,349 Less Dividends Paid 11,975 11,575 11,207 10,814 10,717 10,290 ---------- ---------- ---------- ---------- ---------- ---------- Equals Free Cash Flow $ 60,840 $ 33,511 $ 13,918 $ 6,006 $ 15,725 $ 19,993 ========== ========== ========== ========== ========== ========== Fiscal Years Ended (A) ---------------------------------------------------------------- 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- Return on Beginning Assets Net Earnings $ 25,945 $ 23,500 $ 21,416 $ 17,277 $ 13,619 Divided by Beginning Assets 245,697 206,928 191,657 181,660 179,337 ---------- ---------- ---------- ---------- ---------- Equals Return on Beginning Assets 10.6% 11.4% 11.2% 9.5% 7.6% ========== ========== ========== ========== ========== Return on Beginning Shareholders' Equity Net Earnings $ 25,945 $ 23,500 $ 21,416 $ 17,277 $ 13,619 Divided by Beginning Shareholders' Equity 138,144 122,801 110,299 105,460 102,000 ---------- ---------- ---------- ---------- ---------- Equals Return on Beginning Shareholders' Equity 18.8% 19.1% 19.4% 16.4% 13.4% ========== ========== ========== ========== ========== Dividend Payout to Net Earnings Dividends Paid $ 9,512 $ 9,330 $ 9,201 $ 9,036 $ 8,958 Divided by Net Earnings 25,945 23,500 21,416 17,277 13,619 ---------- ---------- ---------- ---------- ---------- Equals Dividend Payout to Net Earnings 36.7% 39.7% 43.0% 52.3% 65.8% ========== ========== ========== ========== ========== Debt to Capitalization Current Debt $ 7,625 $ 7,596 $ 7,579 $ 7,921 $ 6,825 Long Term Debt 43,449 41,860 25,090 32,650 38,534 ---------- ---------- ---------- ---------- ---------- Total Debt $ 51,074 $ 49,456 $ 32,669 $ 40,571 $ 45,359 Ending Shareholders' Equity 154,681 138,144 122,801 110,299 105,460 ---------- ---------- ---------- ---------- ---------- Equals Capitalization $ 205,755 $ 187,600 $ 155,470 $ 150,870 $ 150,819 ---------- ---------- ---------- ---------- ---------- Debt $ 51,074 $ 49,456 $ 32,669 $ 40,571 $ 45,359 Divided by Capitalization 205,755 187,600 155,470 150,870 150,819 ---------- ---------- ---------- ---------- ---------- Equals Debt to Capitalization 24.8% 26.4% 21.0% 26.9% 30.1% ========== ========== ========== ========== ========== Working Capital Current Assets $ 140,726 $ 133,286 $ 109,992 $ 97,569 $ 105,067 Less Current Liabilities 51,297 49,841 43,926 37,647 30,559 ---------- ---------- ---------- ---------- ---------- Equals Working Capital $ 89,429 $ 83,445 $ 66,066 $ 59,922 $ 74,508 ========== ========== ========== ========== ========== Current Ratio Current Assets $ 140,726 $ 133,286 $ 109,992 $ 97,569 $ 105,067 Divided by Current Liabilities 51,297 49,841 43,926 37,647 30,559 ---------- ---------- ---------- ---------- ---------- Equals Current Ratio 2.7 2.7 2.5 2.6 3.4 ========== ========== ========== ========== ========== Free Cash Flow Cash Flow From Operations $ 26,675 $ 21,092 $ 25,670 $ 20,727 $ 23,456 Less Capital Expenditures 22,230 14,471 12,119 10,776 8,290 Less Dividends Paid 9,512 9,330 9,201 9,036 8,958 ---------- ---------- ---------- ---------- ---------- Equals Free Cash Flow $ (5,067) $ (2,709) $ 4,350 $ 915 $ 6,208 ========== ========== ========== ========== ========== (A) Calculation of Certain Items Presented in the "11-Year Financial Review" Filed with Form 10-K for Fiscal Year Ended 11/30/2002 EXHIBIT 13(a)(ii) CONSOLIDATED BALANCE SHEETS NOVEMBER 30, 2002 AND 2001 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) ASSETS 2002 2001 ------------ ------------ Current assets: Cash and short-term cash investments ......................... $ 13,747 $ 7,418 Accounts receivable, less allowance for losses of $7,020 for 2002 and $7,920 for 2001 .................. 121,482 115,003 Inventories .................................................. 101,846 103,002 Prepaid expenses and other current assets .................... 5,576 5,409 Deferred income taxes ........................................ 17,095 13,518 ------------ ------------ Total current assets ............................... 259,746 244,350 ------------ ------------ Plant assets, at cost less accumulated depreciation .............. 132,892 137,316 Acquired intangibles, less accumulated amortization .............. 122,529 119,194 Pension assets ................................................... 21,771 18,939 Other noncurrent assets .......................................... 9,181 10,818 ------------ ------------ Total assets ....................................... $ 546,119 $ 530,617 ============ ============ LIABILITIES Current liabilities: Current portion of long-term debt ............................ $ 68,456 $ 5,579 Accounts payable and accrued liabilities ..................... 97,738 84,826 Income taxes ................................................. 8,061 4,526 ------------ ------------ Total current liabilities .......................... 174,255 94,931 ------------ ------------ Long-term debt, less current portion ............................. 22,648 135,203 Postretirement health care benefits .............................. 4,033 3,851 Long-term pension liabilities .................................... 7,823 4,955 Deferred income taxes ............................................ 19,045 15,114 Other long-term liabilities ...................................... 2,318 1,868 Minority interests ............................................... 536 434 Contingencies SHAREHOLDERS' EQUITY Capital stock: Preferred, par value $1, authorized 5,000,000 shares, none issued ............................................. -- -- Common, par value $1, authorized 60,000,000 shares, issued 24,918,614 in 2002 and 24,626,236 in 2001 ........ 24,919 24,626 Capital in excess of par value ............................... 12,854 9,565 Accumulated other comprehensive earnings ..................... (6,187) (9,179) Retained earnings ............................................ 283,875 249,249 ------------ ------------ Total shareholders' equity ......................... 315,461 274,261 ------------ ------------ Total liabilities and shareholders' equity ......... $ 546,119 $ 530,617 ============ ============ The accompanying notes are an integral part of the consolidated financial statements. EXHIBIT 13(a)(iii) CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED NOVEMBER 30, 2002, 2001 AND 2000 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 2002 2001 2000 ------------ ------------ ------------ Net sales ........................................................ $ 715,563 $ 666,964 $ 652,148 Cost of sales .................................................... 508,273 471,477 453,803 ------------ ------------ ------------ Gross profit ............................................ 207,290 195,487 198,345 Selling and administrative expenses .............................. 129,515 119,677 122,358 ------------ ------------ ------------ Operating profit ........................................ 77,775 75,810 75,987 ------------ ------------ ------------ Other income (expense): Interest expense ............................................. (6,073) (10,270) (11,534) Interest income .............................................. 461 654 698 Other, net ................................................... (713) (460) (1,664) ------------ ------------ ------------ (6,325) (10,076) (12,500) ------------ ------------ ------------ Earnings before income taxes and minority interests ..... 71,450 65,734 63,487 Provision for income taxes ....................................... 24,773 23,804 23,201 ------------ ------------ ------------ Earnings before minority interests ...................... 46,677 41,930 40,286 Minority interests in earnings of subsidiaries ................... (76) (37) (49) ------------ ------------ ------------ Net earnings ..................................................... $ 46,601 $ 41,893 $ 40,237 ============ ============ ============ Net earnings per common share: Basic ........................................................ $ 1.88 $ 1.71 $ 1.66 Diluted ...................................................... $ 1.85 $ 1.68 $ 1.64 ============ ============ ============ Average number of common shares outstanding: Basic ........................................................ 24,839,812 24,535,199 24,269,675 Diluted ...................................................... 25,171,931 24,892,062 24,506,171 ============ ============ ============ The accompanying notes are an integral part of the consolidated financial statements. EXHIBIT 13(a)(iv) CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED NOVEMBER 30, 2002, 2001 AND 2000 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) Common Stock Accumulated ---------------------------- Capital in Other Number of Amount Excess of Comprehensive Retained Shares Issued Issued Par Value Earnings Earnings Total ------------- ------------ ------------ ------------- ------------ ----------- Balance, November 30, 1999 ................. 24,019,722 $ 24,020 $ 948 $ (4,151) $ 189,901 $ 210,718 ------------ ------------ ------------ ------------ ------------ ----------- Net earnings ............................... -- -- -- -- 40,237 40,237 Other comprehensive earnings, net of tax: Translation adjustments ............... -- -- -- (2,768) -- (2,768) ----------- Total comprehensive earnings .......... 37,469 ----------- Business acquisition ....................... 160,704 161 2,734 -- -- 2,895 Stock options exercised .................... 182,479 182 1,898 -- -- 2,080 Issuance of stock under award plans ........................... 18,402 18 120 -- -- 138 Cash dividends - $0.4625 per common share ...................... -- -- -- -- (11,207) (11,207) ------------ ------------ ------------ ------------ ------------ ----------- Balance, November 30, 2000 ................. 24,381,307 24,381 5,700 (6,919) 218,931 242,093 ------------ ------------ ------------ ------------ ------------ ----------- Net earnings ............................... -- -- -- -- 41,893 41,893 Other comprehensive earnings, net of tax: Cumulative effect of accounting change ................. -- -- -- (769) -- (769) Unrealized losses on derivative ....... -- -- -- (1,137) -- (1,137) Translation adjustments ............... -- -- -- (354) -- (354) ----------- Total comprehensive earnings .......... 39,633 ----------- Stock options exercised .................... 246,424 246 3,223 -- -- 3,469 Issuance of stock under award plans ........................... 10,618 11 642 -- -- 653 Forfeiture of stock under award plans ........................... (12,113) (12) -- -- -- (12) Cash dividends - $0.4725 per common share ...................... -- -- -- -- (11,575) (11,575) ------------ ------------ ------------ ------------ ------------ ----------- Balance, November 30, 2001 ................. 24,626,236 24,626 9,565 (9,179) 249,249 274,261 ------------ ------------ ------------ ------------ ------------ ----------- Net earnings ............................... -- -- -- -- 46,601 46,601 Other comprehensive earnings, net of tax: Minimum pension liability adjustment .. -- -- -- (1,122) -- (1,122) Unrealized gain on derivative ......... -- -- -- 1,906 -- 1,906 Translation adjustments ............... -- -- -- 2,208 -- 2,208 ----------- Total comprehensive earnings .......... 49,593 ----------- Stock options exercised .................... 278,969 279 2,438 -- -- 2,717 Issuance of stock under award plans ........................... 17,884 18 851 -- -- 869 Forfeiture of stock under award plans ........................... (4,475) (4) -- -- -- (4) Cash dividends - $0.4825 per common share ...................... -- -- -- -- (11,975) (11,975) ------------ ------------ ------------ ------------ ------------ ----------- Balance, November 30, 2002 ................. 24,918,614 $ 24,919 $ 12,854 $ (6,187) $ 283,875 $ 315,461 ============ ============ ============ ============ ============ =========== The accompanying notes are an integral part of the consolidated financial statements. EXHIBIT 13(a)(v) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED NOVEMBER 30, 2002, 2001 AND 2000 (DOLLARS IN THOUSANDS) 2002 2001 2000 ---------- ---------- ---------- Cash flows from operating activities: Net earnings .................................................................... $ 46,601 $ 41,893 $ 40,237 Adjustments to reconcile net earnings to net cash provided by operations: Depreciation .............................................................. 18,999 18,187 17,537 Amortization .............................................................. 761 3,663 3,542 Minority interests in earnings of subsidiaries ............................ 76 37 49 Net loss on dispositions of plant assets .................................. 146 338 109 Impairment of plant assets ................................................ -- 2,422 -- Changes in assets and liabilities, net of business acquisitions: Accounts receivable .................................................. (3,804) 5,116 (3,448) Inventories .......................................................... 1,561 5,190 (9,636) Prepaid expenses and other current assets ............................ (150) (374) 8,040 Other noncurrent assets .............................................. 1,495 (2,523) (554) Accounts payable and accrued liabilities ............................. 14,020 (8,693) (1,170) Pension assets and liabilities, net .................................. (1,757) 1,163 (7,430) Income taxes ......................................................... 5,756 (2,683) 4,663 Deferred income taxes ................................................ 1,315 (446) 2,191 ---------- ---------- ---------- Net cash provided by operating activities ............................ 85,019 63,290 54,130 ---------- ---------- ---------- Cash flows from investing activities: Additions to plant assets ....................................................... (12,204) (18,204) (29,005) Business acquisitions, net of cash acquired ..................................... (6,677) (33,388) (12,735) Dispositions of plant assets .................................................... 63 539 55 Other, net ...................................................................... (160) (300) (440) ---------- ---------- ---------- Net cash used in investing activities ................................ (18,978) (51,353) (42,125) ---------- ---------- ---------- Cash flows from financing activities: Proceeds from multicurrency revolving credit agreement .......................... 24,333 27,500 43,200 Payments on multicurrency revolving credit agreement ............................ (68,500) (36,500) (42,200) Proceeds from borrowings under long-term debt ................................... -- 8,000 -- Payments on long-term debt ...................................................... (5,604) (5,349) (7,034) Sales of capital stock under stock option plan .................................. 1,972 2,598 1,379 Cash dividends paid ............................................................. (11,975) (11,575) (11,207) ---------- ---------- ---------- Net cash used in financing activities ................................ (59,774) (15,326) (15,862) ---------- ---------- ---------- Net effect of exchange rate changes on cash ........................................ 62 (57) (24) ---------- ---------- ---------- Net change in cash and short-term cash investments ................................. 6,329 (3,446) (3,881) Cash and short-term cash investments, beginning of year ............................ 7,418 10,864 14,745 ---------- ---------- ---------- Cash and short-term cash investments, end of year .................................. $ 13,747 $ 7,418 $ 10,864 ========== ========== ========== The accompanying notes are an integral part of the consolidated financial statements. EXHIBIT 13(a)(vi) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) A. ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include all domestic and foreign subsidiaries that are more than 50% owned and controlled. CLARCOR Inc. and its subsidiaries are hereinafter collectively referred to as the "Company" or CLARCOR. The Company has three reportable segments: Engine/Mobile Filtration, Industrial/Environmental Filtration and Packaging. Certain reclassifications have been made to conform prior years' data to the current presentation. These reclassifications had no effect on reported earnings. USE OF MANAGEMENT'S ESTIMATES The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ACCOUNTING PERIOD The Company's fiscal year ends on the Saturday closest to November 30. The fiscal years ended November 30, 2002 and December 1, 2001 were comprised of fifty-two weeks. The fiscal year ended December 1, 2000 included fifty-three weeks. In the consolidated financial statements, all fiscal years are shown to begin as of December 1 and end as of November 30 for clarity of presentation. CASH EQUIVALENTS All highly liquid investments with a maturity of three months or less when purchased or that are readily saleable are considered to be short-term cash equivalents. The carrying amount of the investments approximates fair value. FOREIGN CURRENCY TRANSLATION Financial statements of foreign subsidiaries are translated into U.S. dollars at current rates, except that revenues, costs and expenses are translated at average rates during each reporting period. Net exchange gains or losses resulting from the translation of foreign financial statements are accumulated with other comprehensive earnings as a separate component of shareholders' equity and are presented, net of tax, in the Consolidated Statements of Shareholders' Equity. DERIVATIVES The Company makes limited use of derivative financial instruments to manage certain interest rate and foreign currency risks. Interest rate swap agreements are utilized to convert certain floating rate debt into fixed rate debt. Cash flows related to interest rate swap agreements are included in interest expense over the terms of the agreements. The Company documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. In addition, the Company assesses (both at the hedge's inception and on an ongoing basis) the effectiveness of the derivatives that are used in hedging transactions. If it is determined that a derivative is not (or has ceased to be) effective as a hedge, the Company would discontinue hedge accounting prospectively. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. COMPREHENSIVE EARNINGS Foreign currency translation adjustments, unrealized gains and losses on derivative instruments and minimum pension liability adjustments are included in other comprehensive earnings, net of tax. PLANT ASSETS Depreciation is determined primarily by the straight-line method for financial statement purposes and by the accelerated method for tax purposes. The provision for depreciation is based on the estimated useful lives of the assets (15 to 40 years for buildings and improvements and 3 to 15 years for machinery and equipment). It is the policy of the Company to capitalize renewals and betterments and to charge to expense the cost of current maintenance and repairs. When property or equipment is retired or otherwise disposed of, the net book value of the asset is removed from the Company's books and the resulting gain or loss is reflected in earnings. GOODWILL AND OTHER INTANGIBLE ASSETS In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," which discontinues amortization of the excess of cost over fair value of assets acquired and of intangible assets with indefinite lives. It also requires goodwill and intangible assets with indefinite lives to be tested for impairment annually or whenever there is an impairment indicator. The FASB also issued SFAS No. 141, "Business Combinations," which requires all business combinations after June 30, 2001 to be accounted for under the purchase method. As a result of adopting these standards in the first quarter of fiscal 2002, the Company no longer amortizes goodwill, trademarks and trade names and changed its accounting policies as described below: Goodwill: The Company recognizes the excess of the cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed as goodwill. Goodwill is tested for impairment on an annual basis and between annual tests in certain circumstances. Impairment losses would be recognized whenever the implied fair value of goodwill is less than its carrying value. Prior to December 1, 2001, goodwill was amortized over a forty-year period using the straight-line method. Beginning December 1, 2001, goodwill is no longer amortized. Other Acquired Intangibles: The Company recognizes an acquired intangible apart from goodwill whenever the asset arises from contractual or other legal rights, or whenever it is capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related contract, asset or liability. An intangible other than goodwill is amortized over its estimated useful life unless that life is determined to be indefinite. The Company's trade names and trademarks have indefinite useful lives and will be subject to impairment testing under SFAS No. 142. Prior to December 1, 2001, the trademarks were amortizedover a forty-year life. All other acquired intangible assets, including patents (average fourteen year life) and other identifiable intangible assets with lives ranging from one to thirty years, are being amortized using the straight-line method over the estimated periods to be benefited. The Company reviews the lives of its definite-lived intangibles annually and if necessary, impairment losses would be recognized if the carrying amount of an intangible subject to amortization is not recoverable from expected future cash flows and its carrying amount exceeds its fair value. IMPAIRMENT OF LONG-LIVED ASSETS The Company determines any impairment losses based on underlying cash flows related to specific groups of acquired long-lived assets, including associated identifiable intangibles and goodwill, when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. INCOME TAXES The Company provides for income taxes and recognizes deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. REVENUE RECOGNITION Revenue is recognized when product ownership and risk of loss has transferred to the customer or performance of services is complete and the Company has no remaining obligations regarding the transaction. Estimated discounts and rebates are recorded as a reduction of sales in the same period revenue is recognized. Shipping and handling costs are recorded as revenue when billed to customers. PRODUCT WARRANTIES The Company provides for estimated warranty costs when the related products are recorded as sales or for specific items at the time their existence is known and the amounts are reasonably determinable. RESEARCH AND DEVELOPMENT The Company charges research and development costs relating to the development of new products or the improvement or redesign of its existing products to expense when incurred. These costs totaled approximately $6,482 in 2002, $5,365 in 2001 and $6,942 in 2000. B. ACQUISITIONS On June 5, 2002, the Company acquired Locker Filtration Limited (Locker), a Warrington, England manufacturer of heavy-duty air filters, diesel and gas turbine air intake system filters and specialty filters. Also during fiscal 2002, the Company acquired Total Filter Technology (TFT), a process liquid filtration manufacturer based in North Chelmsford, Massachusetts and FilterSource, an air filtration distributor based in California. The three acquisitions were purchased for approximately $10,371 in cash and their results are included in the Company's consolidated results of operations from the dates of acquisition. The combined sales for Locker, TFT and FilterSource in the most recent twelve-month period were approximately $16,500. Locker is included in the Engine/Mobile Filtration segment. TFT and FilterSource are included in the Industrial/Environmental Filtration segment. An allocation of the purchase price has been made to major categories of assets and liabilities for each acquisition. The preliminary allocation of the purchase price over the preliminary estimated fair value of the tangible and identifiable intangible assets acquired for Locker, TFT and FilterSource resulted in $2,713, $2,086, and $439 recorded as goodwill for each acquisition, respectively. The Company recognized $943 for a Locker customer relationship that will be amortized over ten years. In connection with the TFT and FilterSource acquisitions, the Company recorded $228 as indefinite-lived trademarks and $1,375 as other acquired intangibles which will be amortized over a weighted average life of 8 years. The preliminary allocations for TFT and FilterSource will be finalized when the Company completes its estimates of liabilities assumed, finishes an appraisal of the assets acquired and finalizes deferred taxes. The Company expects to do this in the first quarter 2003. These acquisitions are not material to the results of the Company. On June 4, 2001, the Company acquired the stock of several filtration management companies for approximately $29,258, net of cash received, including acquisition expenses. The purchase price was paid in cash with available funds and proceeds from long-term borrowings from a revolving credit facility. As a result of the acquisition, the companies were combined into one company, Total Filtration Services, Inc. (TFS), and became a subsidiary of the Company. TFS is included in the Industrial/Environmental Filtration segment from the date of acquisition. The transaction was accounted for under the purchase method of accounting with the excess of the initial purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired recorded as goodwill and amortized over forty years by the straight-line method. The initial purchase price was based on the net assets of the businesses acquired as shown on a June 4, 2001 balance sheet subject to a final adjustment. During first quarter 2002, the purchase price was finalized resulting in a $3,694 payment by the seller to the Company. A decrease to goodwill of $3,954 was recorded primarily as a result of the net settlement payment and entries associated with deferred income taxes, the valuation of inventory acquired, and preacquisition contingencies related to contract matters. No additional purchase accounting entries associated with the TFS acquisition are expected other than entries to finalize deferred income taxes. Unaudited pro forma net sales for the Company including TFS would have been approximately $695,700 and $707,500 for the years ended November 30, 2001 and 2000. Net earnings and earnings per share for each of these periods would not have been significantly affected. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) C. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for approximately 43% and 40% of the Company's inventories at November 30, 2002 and 2001, respectively, and by the first-in, first-out (FIFO) method for all other inventories. The FIFO method approximates current cost. Inventories are summarized as follows: 2002 2001 ------------ ------------ Raw materials .............................. $ 34,496 $ 36,166 Work in process ............................ 11,022 12,120 Finished products .......................... 56,784 55,078 ------------ ------------ Total at FIFO .............................. 102,302 103,364 Less excess of FIFO over LIFO .............. 456 362 ------------ ------------ $ 101,846 $ 103,002 ============ ============ D. PLANT ASSETS AND IMPAIRMENT LOSS Plant assets at November 30, 2002 and 2001 were as follows: 2002 2001 ------------ ------------ > Land ....................................... $ 5,410 $ 4,736 Buildings and building fixtures ............ 75,520 73,497 Machinery and equipment .................... 202,697 191,984 Construction in process .................... 6,675 7,092 ------------ ------------ 290,302 277,309 Less accumulated depreciation .............. 157,410 139,993 ------------ ------------ $ 132,892 $ 137,316 ============ ============ During the first quarter of 2001, the Company recognized an impairment loss in its Packaging segment of $2,422 related to certain plant assets used exclusively in the manufacture of plastic closures for a customer who terminated a manufacturing contract. The loss is included in the cost of sales and was calculated under the guidelines of SFAS No. 121. E. ACQUIRED INTANGIBLES The following table summarizes the activity for acquired intangibles by reporting unit for fiscal year 2002: Currency Beginning Translation End of of Year Acquisitions Adjustments Amortization Year ----------- ------------ ----------- ------------ ----------- Goodwill: Engine/Mobile Filtration ................. $ 8,562 $ 2,713 $ 253 $ -- $ 11,528 Industrial/Environmental Filtration ................. 71,546 (1,429) 13 -- 70,130 Packaging ................... -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- $ 80,108 $ 1,284 $ 266 $ -- $ 81,658 =========== =========== =========== =========== =========== Trademarks and trade names: Engine/Mobile Filtration ................. $ 603 $ -- $ -- $ -- $ 603 Industrial/Environmental Filtration ................. 28,652 228 -- -- 28,880 Packaging ................... -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- $ 29,255 $ 228 $ -- $ -- $ 29,483 =========== =========== =========== =========== =========== Other acquired intangibles, gross: Engine/Mobile Filtration ................. $ 97 $ 943 $ -- $ -- $ 1,040 Industrial/Environmental Filtration ................. 12,055 1,375 -- -- 13,430 Packaging ................... -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- 12,152 2,318 -- -- 14,470 Less accumulated amortization ............... 2,321 -- -- 761 3,082 ----------- ----------- ----------- ----------- ----------- Other acquired intangibles, net ............ $ 9,831 $ 2,318 $ -- $ (761) $ 11,388 =========== =========== =========== =========== =========== As a result of adopting SFAS No. 142, the Company completed the transitional goodwill impairment reviews required by the new standards during the first quarter of 2002. In performing the impairment reviews, the Company estimated the fair values of the reporting units using a present value method that discounted future cash flows. Such reviews are sensitive to assumptions associated with cash flow growth, discount rates, terminal value and the aggregation of reporting unit components. The Company further assessed the reasonableness of these estimates by using valuation methods based on market multiples and recent capital market transactions. As of December 1, 2001, the transition date, and November 30, 2002, the annual testing date, there was no impairment to goodwill as the fair values exceeded the carrying values of the reporting units. The Company performed the impairment tests on its indefinite-lived intangibles as of December 1, 2001 and November 30, 2002 using the relief-from-royalty method to determine the fair value of its trademarks and trade names. There was no impairment as the fair value was greater than the carrying value for these indefinite-lived intangibles as of these dates. In connection with adopting SFAS No. 142, the Company also reassessed the useful lives and classification of identifiable finite-lived intangible assets and determined that they continue to be appropriate. Amortization expense during the fiscal years ended November 30, 2001 and 2000 for amortized intangibles was $756 and $1,003, respectively. The estimated amounts of amortization expense for the next five years are: $936 in 2003, $781 in 2004, $777 in 2005, $752 in 2006 and $739 in 2007. The following table presents net earnings and earnings per share assuming the nonamortization provisions of SFAS No. 142 were applied in each fiscal year: 2002 2001 2000 ---------- ---------- ---------- Reported net earnings ............................ $ 46,601 $ 41,893 $ 40,237 Goodwill amortization, net of income taxes ..... -- 1,375 1,115 Other amortization, net of income taxes ........ -- 475 496 ---------- ---------- ---------- Adjusted net earnings ............................ $ 46,601 $ 43,743 $ 41,848 ========== ========== ========== Basic EPS: Basic as reported .............................. $ 1.88 $ 1.71 $ 1.66 Goodwill amortization, net of income taxes ..... -- 0.06 0.05 Other amortization, net of income taxes ........ -- 0.02 0.02 ---------- ---------- ---------- Adjusted basic earnings per share ................ $ 1.88 $ 1.79 $ 1.73 ========== ========== ========== Diluted EPS: Diluted as reported ............................ $ 1.85 $ 1.68 $ 1.64 Goodwill amortization, net of income taxes ..... -- 0.05 0.05 Other amortization, net of income taxes ........ -- 0.02 0.02 ---------- ---------- ---------- Adjusted diluted earnings per share .............. $ 1.85 $ 1.75 $ 1.71 ========== ========== ========== F. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities at November 30, 2002 and 2001 were as follows: 2002 2001 ------------ ------------ Accounts payable ........................... $ 50,350 $ 42,657 Accrued salaries, wages and commissions .... 15,283 8,733 Compensated absences ....................... 6,874 6,366 Accrued insurance liabilities .............. 6,892 5,805 Accrued pension liabilities ................ 269 263 Other accrued liabilities .................. 18,070 21,002 ------------ ------------ $ 97,738 $ 84,826 ============ ============ G. LONG-TERM DEBT Long-term debt at November 30, 2002 and 2001 consisted of the following: 2002 2001 ------------ ------------ Multicurrency revolving credit agreement, interest payable at the end of each funding period at an adjusted LIBOR ...... $ 62,833 $ 107,000 Promissory note, interest payable semi-annually at 6.69% ................... 10,000 15,000 Industrial Revenue Bonds, at 1.15% to 4.90% interest rates ......... 17,460 17,815 Other ...................................... 811 967 ------------ ------------ 91,104 140,782 Less current portion ....................... 68,456 5,579 ------------ ------------ $ 22,648 $ 135,203 ============ ============ A fair value estimate of $90,406 and $140,023 for long-term debt in 2002 and 2001, respectively, is based on the current interest rates available to the Company for debt with similar remaining maturities. In September 1999, the Company entered into a three-year, multicurrency revolving credit agreement with a group of participating financial institutions under which it may borrow up to $185,000. The agreement, which was extended for one additional year in 2000, provides that loans may be made under a selection of currencies and rate formulas. The interest rate is based upon either a defined Base Rate or the London Interbank Offered Rate (LIBOR) plus a variable spread of .55% to 1.25%. The variable spread is based on the ratio of the Company's outstanding borrowings compared to its shareholders' equity. The spread was .55% and .65% at November 30, 2002 and 2001, respectively. Facility fees and other fees on the entire loan commitment are payable for the duration of this facility. At November 30, 2002 and 2001, $62,833 and $107,000 were outstanding under this agreement and the related LIBOR, including the spread, was 1.97% and 4.17%, respectively. The amount outstanding at November 30, 2002 has been classified as current debt as the credit agreement expires in less than one year. A replacement credit facility is expected to be finalized in 2003 and at that time the full amount outstanding under the new facility will be reclassified into long-term debt. Borrowings under the credit facility are unsecured but are guaranteed by certain of the Company's subsidiaries. The agreement r