Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CLC > SEC Filings for CLC > Form 10-Q on 21-Mar-2014All Recent SEC Filings

Show all filings for CLARCOR INC.

Form 10-Q for CLARCOR INC.


21-Mar-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The information presented in this discussion should be read in conjunction with other financial information provided in the Consolidated Condensed Financial Statements and accompanying notes and with the audited Consolidated Financial Statements and accompanying notes included in the 2013 Form 10-K. Except as otherwise set forth herein, references to particular years or quarters refer to our applicable fiscal year or quarter. The analysis of operating results focuses on our three reportable business segments: Engine/Mobile Filtration, Industrial/Environmental Filtration and Packaging.

EXECUTIVE SUMMARY

                         Management Discussion Snapshot
                     (In thousands, except per share data)

                                                                      First Three Months
                                                                                        Change
                                                        2014          2013           $           %
Net sales                                            $ 312,685     $ 256,271     $ 56,414       22  %
Cost of sales                                          216,098       174,785       41,313       24  %
Gross profit                                            96,587        81,486       15,101       19  %
Selling and administrative expenses                     65,321        47,671       17,650       37  %
Operating profit                                     $  31,266     $  33,815     $ (2,549 )     (8 )%
Other income (expense)                               $   3,678     $     (11 )   $  3,689
Provision for income taxes                           $  10,603     $  10,276     $    327        3  %
Net earnings attributable to CLARCOR                 $  24,321     $  23,462     $    859        4  %
Weighted average diluted shares                         50,924        50,409          515        1  %
Diluted earnings per share attributable to CLARCOR   $    0.48     $    0.47     $   0.01        2  %

Percentages:
Gross margin                                              30.9 %        31.8 %                (0.9 )   pt
Selling and administrative percentage                     20.9 %        18.6 %                 2.3     pt
Operating margin                                          10.0 %        13.2 %                (3.2 )   pt
Effective tax rate                                        30.3 %        30.4 %                (0.1 )   pt
Net earnings margin                                        7.8 %         9.2 %                (1.4 )   pt

First Quarter

Net Sales

Net sales increased $56.4 million, or 22%, in the first quarter of 2014 from the
first quarter of 2013. Estimated components of this 22% increase in net sales
are as follows:
Volume                           4  %
Pricing                          -  %
GE Air Filtration acquisition   18  %
Bekaert Business acquisition     1  %
Foreign exchange                (1 )%
                                22  %

The $56.4 million, or 22%, increase in net sales in the first quarter of 2014 from the first quarter of 2013 primarily resulted from a $52.2 million, or 43%, increase in net sales at our Industrial/Environmental Filtration segment -- which included a $45.4 million increase due to net sales from the acquisition of General Electric Company's (GE) Air Filtration business, now operated

Page 24


as CLARCOR Industrial Air, and a $2.8 million increase due to net sales from our acquisition of the Bekaert Business -- and a $4.8 million, or 4%, increase in net sales at our Engine/Mobile Filtration segment, partially offset by a $0.7 million, or 4%, decrease in net sales at our Packaging segment.

The $52.2 million, or 43%, increase in net sales at our Industrial/Environmental Filtration segment reflects a $45.4 million increase in net sales due to the December 2013 acquisition of GE's air filtration business, a $2.8 million increase in net sales due to the December 2013 acquisition of the Bekaert Business, a $3.4 million, or 11%, increase in foreign net sales excluding acquisitions, and a $1.1 million, or 1%, increase in net sales within the U.S. excluding acquisitions, partly offset by a $0.5 million decrease in net sales due to changes in foreign currency exchange rates. The $3.4 million, or 11%, increase in foreign net sales excluding acquisitions primarily resulted from increased sales of natural gas vessels and aftermarket filters in Latin America, the Middle East and Canada and increased sales of dust collector systems and replacement filter cartridges in China, partially offset by a decline in sales of natural gas vessels and aftermarket filters in Europe. The $1.1 million, or 1%, increase in U.S. net sales excluding acquisitions was driven by increased sales of dust collector systems, commercial aerospace filters and filter media, partially offset by declines in sales of HVAC air filtration products, aviation and marine filter vessels and military aerospace filters.

The $4.8 million, or 4%, increase in net sales at our Engine/Mobile Filtration segment was driven by $3.5 million, or 5%, higher net sales within the U.S. and $2.3 million, or 5%, higher foreign net sales, partly offset by a $0.9 million decrease in net sales due to changes in foreign currency exchange rates. The 5% increase in U.S. sales in this segment primarily resulted from a 7% increase in sales of heavy-duty engine filters to the U.S. aftermarket and a 14% increase in sales of locomotive filters, partially offset by lower sales of heavy-duty engine filters to U.S. automotive and filter company customers. The 5% increase in foreign sales was driven by a 21% increase in heavy-duty engine filtration export sales to the Middle East, as well as increased export sales of heavy-duty engine filters to Canada, Southeast Asia and South America, partially offset by an 11% decrease in heavy-duty engine filter sales in Australia, while sales in Europe and China were relatively flat.

The $0.7 million, or 4%, decrease in net sales at our Packaging segment was driven primarily by lower sales of spice containers, tobacco packaging products and film packaging products, partially offset by higher sales of decorated flat sheet metal products.

Cost of Sales

Cost of sales increased $41.3 million, or 24%, in the first quarter of 2014 from the first quarter of 2013. This 24% increase in cost of sales was greater than the 22% increase in net sales. As a result, our gross margin decreased to 30.9% in the first quarter of 2014 from 31.8% in the first quarter of 2013. This 0.9 percentage point decrease in gross margin primarily reflects a 0.5 percentage point decrease due to the impact of the December 2013 acquisitions of GE's air filtration business and the Bekaert Business and a 0.4 percentage point decrease due to $1.2 million of costs related to the restructuring charge recorded in the first quarter of 2014 in our Industrial/Environmental Filtration segment pursuant to the closure of one of our HVAC air filtration manufacturing facilities. We also experienced higher material costs in certain of our businesses in the first quarter of 2014 compared with the first quarter of 2013, primarily reflecting higher media and steel pricing, which was offset by improved sales mix and improved fixed overhead absorption in our Industrial/Environmental Filtration segment as well as lower costs related to workers compensation claims in the first quarter of 2014 compared with the first quarter of 2013.

Selling and Administrative Expenses

Selling and administrative expenses increased $17.7 million, or 37%, in the first quarter of 2014 from the first quarter of 2013. This increase was primarily the result of a $14.3 million increase due to the December 2013 acquisition of CLARCOR Industrial Air -- including $3.1 million of legal, investment advisory, consulting and other professional services costs related to the acquisition execution and integration, and $1.8 million of intangible asset amortization -- and a $0.9 million increase due to the December 2013 acquisition of the Bekaert Business. The remaining increase of $2.5 million in the first quarter of 2014 from the first quarter of 2013 primarily resulted from $1.7 million of increased employee costs, $1.0 million of increased costs related to professional services and $0.3 million of increased bad debt expense, partially offset by a $0.5 million decrease in pension and stock-based compensation. Since selling and administrative expenses increased 37% while sales increased 22%, our selling and administrative expenses as a percentage of net sales increased to 20.9% in the first quarter of 2014 from 18.6% in last year's first quarter. Of this 2.3 percentage point increase, approximately 1.0 percentage points was driven by the $3.1 million of costs related to the GE Air Filtration acquisition and integration in the first quarter of 2014 and approximately 0.6 percentage points was driven by the $1.8 million increase in intangible asset amortization related to the GE Air Filtration acquisition.

Page 25


Other Items

Other significant items impacting the comparison between the periods presented are as follows:

Acquisitions

The acquisition of GE's air filtration business, now operated as CLARCOR Industrial Air, in the first quarter of 2014 impacted the our net sales and operating profit in the first quarter of 2014 compared to the first quarter of 2013 as follows:

(Dollars in thousands)       First Three Months
Net sales                   $           45,378
Operating profit (loss)                 (1,048 )

The net sales and operating loss for CLARCOR Industrial Air reflect results from December 16, 2013, the date of acquisition, through March 1, 2014. The operating loss of approximately $1.0 million in the first quarter of 2014 includes approximately $3.6 million of cost of sales related to the recording of inventory acquired in the transaction at estimated acquisition date fair values, as well as approximately $3.1 million of legal, investment advisory, consulting and other professional services costs related to the acquisition and integration of the GE air filtration business, which are included in Selling and administrative expenses in the Consolidated Condensed Statements of Earnings. Operating results for the CLARCOR Industrial Air business in the first quarter of 2014 exceeded our expectations, driven by favorable sales mix -- including higher sales of gas turbine cartridge filters and industrial air filtration aftermarket products in relation to sales of air intake filtration systems and housings for heavy duty gas turbine installations -- as well as favorable material costs and fixed overhead absorption. We do not expect this favorable sales mix to be maintained during the balance of fiscal 2014.

The acquisition of the Bekaert Business in the first quarter of 2014 impacted our net sales and operating profit in the first quarter of 2014 compared to the first quarter of 2013 as follows:

(Dollars in thousands)       First Three Months
Net sales                   $           2,777
Operating profit (loss)                  (251 )

The net sales and operating loss for the Bekaert Business reflect results from December 3, 2013, the date of acquisition, through March 1, 2014. Operating results for the Bekaert Business in the first quarter of 2014 were materially in-line with expectations.

Foreign Exchange

The average exchange rates for foreign currencies versus the U.S. dollar unfavorably impacted our 2014 translated U.S. dollar value of net sales and operating profit compared to the same period in 2013 as follows:

(Dollars in thousands)       First Three Months
Net sales                   $           (1,388 )
Operating profit (loss)                   (342 )

Other income (expense)

Interest income (expense)

Net interest expense was $0.3 million in the first quarter of 2014 while we did not have any significant net interest expense in the first quarter of 2013. Net interest expense in the first quarter of 2014 was driven by $0.3 million of interest expense related to borrowings on the Term Loan Facility and on the Credit Facility, which borrowings were undertaken to fund a portion of the cost of our acquisition of CLARCOR Industrial Air. At the end of 2013, we had $100.0 million outstanding

Page 26


on the Term Loan Facility and we had $50.0 million outstanding on the Credit Facility. At the end of the first quarter of 2014, we had $80.0 million outstanding on the Term Loan Facility and no borrowings outstanding on the Credit Facility.

Foreign currency gains and (losses)

We recognized foreign currency gains (losses) in other income (expense) as follows:

(Dollars in thousands)      First Three Months
2014                       $            958
2013                                    (44 )

The foreign currency gain of approximately $1.0 million in the first quarter of 2014 primarily reflects the translation of inter-company loans -- in cases where such loans are expected to be settled in cash at some point in the future -- at certain foreign subsidiaries denominated in currencies other than their functional currencies. The foreign currency loss in the first quarter of 2013 primarily reflects the translation of cash accounts at certain foreign subsidiaries denominated in currencies other than their functional currencies.

Other income (expense)

Other income of approximately $3.7 million in the first quarter of 2014 primarily resulted from the $2.8 million bargain purchase gain that resulted from the Company's acquisition of the Bekaert Business and the foreign currency gains of approximately $1.0 million as described above. There was no significant other income (expense) in the first quarter of 2013.

The purchase price paid for the Bekaert Business was approximately $7.3 million net of cash acquired. Assets acquired and liabilities assumed in the transaction were recorded at their estimated acquisition date fair values, including property, plant and equipment of approximately $7.0 million, intangible assets of approximately $2.1 million, and net working capital of approximately $1.0 million, excluding cash acquired. The $2.8 million excess of the fair value of the net assets acquired over the purchase price was recorded as a bargain purchase gain and is included in Other, net income in the Consolidated Condensed Statements of Earnings. As the Company maintains a permanent reinvestment strategy for all foreign operations, this gain is not subject to tax.

Provisions for income taxes

Our effective tax rate decreased 0.1 percentage points to 30.3% in the first quarter of 2014 from 30.4% in the first quarter of 2013, primarily due to the $2.8 million bargain purchase gain recognized in the first quarter of 2014 which, as described above, was not subject to tax, partially offset by a $0.8 million tax benefit realized in the first quarter of 2013 related to the extension of the research and development tax credit in December 2012, which did not recur in the first quarter of 2014.

Shares outstanding

Average diluted shares outstanding increased by approximately 0.5 million shares in the first quarter of 2014 from the first quarter of 2013 primarily due incremental dilutive shares related to stock option exercises and the issuance of stock options and restricted stock units. We did not repurchase any shares of common stock in the first quarter of 2014 as excess cash on hand was used primarily to pay interest and principal related to outstanding debt.

Page 27


SEGMENT ANALYSIS

                                                    First Three Months
                                                        %                      %
(Dollars in thousands)                     2014       Total       2013       Total
Net sales:
Engine/Mobile Filtration                $ 122,497       39 %   $ 117,675       46 %
Industrial/Environmental Filtration       174,863       56 %     122,626       48 %
Packaging                                  15,325        5 %      15,970        6 %
                                        $ 312,685      100 %   $ 256,271      100 %

Gross profit:
Engine/Mobile Filtration                $  40,974       42 %   $  41,023       50 %
Industrial/Environmental Filtration        53,521       55 %      37,888       46 %
Packaging                                   2,092        3 %       2,575        4 %
                                        $  96,587      100 %   $  81,486      100 %

Operating profit:
Engine/Mobile Filtration                $  22,874       73 %   $  23,449       69 %
Industrial/Environmental Filtration         8,146       26 %       9,678       29 %
Packaging                                     246        1 %         688        2 %
                                        $  31,266      100 %   $  33,815      100 %

Gross margin:
Engine/Mobile Filtration                     33.4 %                 34.9 %
Industrial/Environmental Filtration          30.6 %                 30.9 %
Packaging                                    13.7 %                 16.1 %
                                             30.9 %                 31.8 %

Operating margin:
Engine/Mobile Filtration                     18.7 %                 19.9 %
Industrial/Environmental Filtration           4.7 %                  7.9 %
Packaging                                     1.6 %                  4.3 %
                                             10.0 %                 13.2 %

Page 28


Engine/Mobile Filtration Segment

                                                    First Three Months
                                                                      Change
(Dollars in thousands)                   2014         2013          $         %
Net sales                             $ 122,497    $ 117,675    $ 4,822       4  %
Cost of sales                            81,523       76,652      4,871       6  %
Gross profit                             40,974       41,023        (49 )     -  %
Selling and administrative expenses      18,100       17,574        526       3  %
Operating profit                         22,874       23,449       (575 )    (2 )%

Gross margin                            33.4%        34.9%                  (1.5)  pt
Selling and administrative percentage   14.8%        14.9%                  (0.1)  pt
Operating margin                        18.7%        19.9%                  (1.2)  pt

Our Engine/Mobile Filtration segment primarily sells aftermarket filters for heavy-duty trucks and off-highway vehicles, locomotives and automobiles. The largest market included in this segment includes heavy-duty engine truck filters produced at our Baldwin business unit.

Net Sales

The $4.8 million, or 4%, increase in net sales for our Engine/Mobile Filtration
segment in the first quarter of 2014 from the first quarter of 2013 is detailed
in the following tables:

                     First Three Months
Volume                       5  %
Pricing                      -  %
Foreign exchange            (1 )%
                             4  %



(Dollars in thousands)                    First Three Months
2013                                     $         117,675

U.S. net sales                                       3,512
Foreign net sales (including export)                 2,251
Foreign exchange                                      (941 )
Net increase                                         4,822

2014                                     $         122,497

Page 29


The net increase in U.S. net sales for our Engine/Mobile Filtration segment in the first quarter of 2014 from the first quarter of 2013 is detailed as follows:

(Dollars in thousands)          First Three Months
Heavy-duty engine filters      $           3,050
Locomotive filters                           861
Other                                       (399 )
Increase in U.S. net sales     $           3,512

Our U.S. net sales increased 5% in the first quarter of 2014 compared with the same period in 2013. This increase was primarily the result of a 7% increase in heavy-duty engine filter aftermarket sales, which was driven by improved year-over-year demand from our U.S. independent distributors--our primary distribution channel. This growth was generally consistent with the 9% year-over-year increase in heavy-duty truck tonnage for the preceding three months (September through November) as measured by the American Trucking Associations, which we believe is a leading indicator of heavy-duty engine filter aftermarket demand in the U.S. We also experienced growth of approximately 14% in locomotive filter sales in the first quarter of 2014 compared with the same period in 2013, as well as growth in dust collection cartridge filter sales. This growth in locomotive filter sales reflects the impact of new products and increased railroad activity leading to increased replacement filter sales. These impacts were partially offset by lower heavy-duty engine filter aftermarket sales to automotive and filter company customers.

The net change in foreign net sales (including export sales and adjusted for changes in foreign currencies) for our Engine/Mobile Filtration segment in the first quarter of 2014 from the comparable period in 2013 is detailed as follows:

(Dollars in thousands)                                                    First Three Months
Export sales primarily to the Middle East, Canada, Southeast Asia
and South America                                                        $           3,716
Heavy-duty engine filter sales in Europe                                              (568 )
Heavy-duty engine filter sales in Australia                                           (384 )
Other                                                                                 (513 )
Increase in foreign net sales                                            $           2,251

Our foreign net sales increased 5% in the first quarter of 2014 compared with the same period in 2013, adjusted for changes in foreign currencies. This increase was primarily the result of increased export sales of heavy-duty engine filters to the Middle East, Canada, Southeast Asia and South America, reflecting the impact of new distribution and a recovery from sales declines in certain of these markets in the comparable prior year period. Sales of heavy-duty engine filters declined in Europe, Australia and South Africa in the first quarter of 2014 compared with 2013 primarily due to weak economic conditions in those markets and a resulting decline in trucking volume and filter replacement activity.

Cost of Sales

Cost of sales increased $4.9 million, or 6%, in the first quarter of 2014 from the first quarter of 2013. This increase was greater than the 4% increase in net sales. As a result, our gross margin declined to 33.4% in the first quarter of 2014 from 34.9% in the first quarter of 2013. This decline primarily resulted from increased manufacturing overhead, reflecting the impact of additional capacity brought into service to support expected future growth, as well as higher material costs including higher media and steel pricing. We executed a customer price increase at the end of the first quarter of 2014 which we expect will partially offset these higher material costs.

Selling and Administrative Expenses

Selling and administrative expenses increased $0.5 million, or 3%, in the first quarter of 2014 from the first quarter of 2013. This increase was primarily the result of $0.3 million higher salaries and wages, primarily reflecting annual wage rate increases, and $0.3 million higher bad debt expenses, partially offset by lower discretionary expenses. With selling and administrative expenses in this segment increasing 3% while segment net sales increased 4%, our selling and administrative expenses as a percentage of net sales decreased to 14.8% in the first quarter of 2014 from 14.9% in the first quarter of 2013.

Page 30


Industrial/Environmental Filtration Segment

                                                       First Three Months
                                                                        Change
(Dollars in thousands)                     2014         2013          $          %
Net sales                               $ 174,863    $ 122,626    $ 52,237      43  %
Cost of sales                             121,342       84,738      36,604      43  %
Gross profit                               53,521       37,888      15,633      41  %
Selling and administrative expenses        45,375       28,210      17,165      61  %
Operating profit                            8,146        9,678      (1,532 )   (16 )%

Gross margin                              30.6%        30.9%                   (0.3)  pt
Selling and administrative percentage     25.9%        23.0%                    2.9   pt
Operating margin                           4.7%         7.9%                   (3.2)  pt

Our Industrial/Environmental Filtration segment sells a variety of filtration products to various end-markets. Included in this market are HVAC filters, natural gas vessels and aftermarket filters, aviation fuel filters and filter systems, filtration systems and replacement filters for gas turbine air intake applications, industrial air filters, and other markets including oil drilling, aerospace, fibers and resins and dust collector systems.

Net Sales

The $52.2 million, or 43%, increase in net sales for our
Industrial/Environmental Filtration segment in the first quarter of 2014 from
the first quarter in 2013 is detailed in the following tables:

                                            First Three Months
Volume                                                 4 %
Pricing                                                - %
Foreign exchange                                       - %
GE Air Filtration acquisition                         37 %
Bekaert Advanced Filtration acquisition                2 %
                                                      43 %



(Dollars in thousands)                    First Three Months
2013                                     $         122,626

U.S. net sales                                      24,274
Foreign net sales (including export)                28,407
Foreign exchange                                      (444 )
Net increase                                        52,237

2014                                     $         174,863

Page 31


. . .
  Add CLC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CLC - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.