CLC Clarcor Inc. (delisted)

CLARCOR Inc. (NYSE: CLC):

   

Unaudited Third Quarter and First Nine Months 2016 Highlights

(Amounts in millions, except per share data and percentages)

  Third Quarter Ended Nine Months Ended 8/27/16   8/29/15   Change   8/27/16   8/29/15   Change Net sales $ 331.4   $ 357.6   -7 % $ 1,012.6   $ 1,108.5   -9 % Operating profit 50.7 50.4 1 % 136.4 148.6 -8 % Net earnings - CLC 35.7 36.4 -2 % 110.3 101.7 8 % Diluted EPS $ 0.73 $ 0.72 1 % $ 2.25 $ 2.00 13 % Operating margin 15.3 %   14.1 %   1.2pts   13.5 %   13.4 %   0.1pts  

CLARCOR Inc. (NYSE: CLC) reported that its third quarter diluted earnings per share were $0.73, a $0.01 increase from the third quarter of 2015. Higher diluted earnings per share were positively impacted by a 1.2 percentage point improvement in operating margin which more than offset the impact of a 7% reduction in net sales. Diluted earnings per share of $0.72 in last year’s third quarter were favorably impacted by approximately $0.15 from the net gain on the disposition of the packaging business, J.L. Clark, which occurred in last year’s third quarter, and unfavorably impacted by approximately $0.09 from the impairment of the BioProcess investments noted below. Excluding the aggregate impact of these two items, non-GAAP adjusted diluted earnings per share increased $0.07, or 11%, from the third quarter of 2015, as reflected in the table on the next page.

To allow investors to better compare and evaluate our historical financial performance, we are presenting non-GAAP adjusted financial results in the table following this paragraph. Non-GAAP adjusted financial results for the third quarter of 2016 exclude a favorable $0.1 million net adjustment for upfront expenses for cost reduction initiatives. Non-GAAP adjusted financial results for the third quarter of 2015 exclude the financial results of our J.L. Clark packaging business disposed of on June 27, 2015, a net gain on the sale of such packaging business, and the impairment loss related to our BioProcess H2O and Algae investments. Please refer to pages 13 through 16 of this earnings release for reconciliations and additional information with respect to non-GAAP adjusted financial results for the third quarter and the first nine months of 2015 and 2016.

   

Non-GAAP Adjusted Financial Results:

  Third Quarter Ended Nine Months Ended 8/27/16   8/29/15   Change   8/27/16   8/29/15   Change Adjusted net sales $ 331.4   $ 352.2   -6 % $ 1,012.6   $ 1,067.6   -5 % Adjusted operating profit 50.6 50.5 0 % 138.5 146.4 -5 % Adjusted net earnings - CLC 35.7 33.1 8 % 93.4 97.1 -4 % Adjusted diluted EPS $ 0.73 $ 0.66 11 % $ 1.90 $ 1.91 -1 % Adjusted operating margin 15.3 %   14.3 %   1.0 pts   13.7 %   13.7 %   0.0 pts  

Chris Conway, CLARCOR’s Chairman, President and Chief Executive Officer, commented, “Our third quarter was highlighted by several significant strategic advancements including our entry into a long-term contract with GE in respect of its H-class gas turbine platform, our release of the Channel Flow EXOTM heavy-duty engine air filtration product line and strategic investments occurring in connection with our second quarter acquisition of filtration media technology company FibeRio. Each of these strategic advancements is indicative of our continued efforts to establish CLARCOR as an industry leader in innovative filtration technology development. We provide additional detail for each of these initiatives later in this release. In addition to this focus on long-term strategic growth, we have continued to focus on operating execution as illustrated by our third quarter financial results. Diluted earnings per share improved $0.01 from last year’s third quarter despite the third quarter of 2015 being favorably influenced by approximately $0.06 on a net basis from the J.L. Clark disposition and the impairment of our BioProcess investments. Third quarter 2016 operating margin improved 1.2 percentage points from last year’s third quarter which more than offset the impact of a 7% reduction in net sales.

“The $7 million, or 5%, decline in net sales in our Engine/Mobile Filtration segment from last year’s third quarter was partially driven by lower average foreign currency exchange rates which negatively influenced net sales by $2 million, or 2%. The remaining $5 million net sales decline was primarily due to lower sales to a large retail customer, lower sales into the U.S. independent aftermarket and lower sales to the automotive filtration market, partially offset by higher fuel filtration product sales to off-road agricultural and construction equipment markets. We believe lower third quarter net sales to the large retail customer were due in part to a strategic reorganization taking place at this customer, and we expect our filtration sales to such customer to recover in the fourth quarter. Lower third quarter net sales into the U.S. independent aftermarket compared to last year’s third quarter was heavily impacted by continued declines in heavy-duty engine filtration sales into oil & gas markets. We believe these lower sales could continue into our fourth quarter and early fiscal 2017. Higher fuel filtration product sales to off-road markets in the third quarter were partly due to more stable demand in these end-markets compared to this period last year and partly due to Lean operational improvements introduced this year which enabled us to work through an accumulation of past due customer shipments in the third quarter. Although we do not anticipate significant sales growth in these off-road fuel filtration markets in our fourth quarter or the first half of fiscal 2017, these end markets have shown signs of stabilization.

“The $14 million, or 7%, net sales reduction in our Industrial/Environmental Filtration segment from last year’s third quarter was partially driven by lower average foreign currency exchange rates which negatively influenced net sales by $3 million, or 2%. The remaining $11 million reduction was primarily the result of lower natural gas and industrial air and liquid filtration sales, partially offset by higher HVAC and gas turbine filtration sales, as well as additional sales resulting from the acquisition of TDC Filter Manufacturing completed in the first quarter of 2016. Natural gas filtration sales declined approximately $16 million, or 26%, from last year’s third quarter driven by a 51% reduction in capital vessel sales which was partially offset by a 5% increase in aftermarket filtration sales. Similar to recent prior quarters, a majority of the year-over-year decline in natural gas vessel sales was driven by lower activity in the U.S., where we benefited from natural gas shale extraction infrastructure projects in prior years. As we will further discuss in our updated earnings guidance, the momentum in our oil & gas markets is not favorable. Significant projects continue to be delayed, and we believe--due to industry as opposed to competitive dynamics--that capital vessel filtration sales into these end markets will continue to decline in our fourth quarter and into fiscal 2017. Sales of HVAC filtration products increased $4 million, or 14%, from last year’s third quarter primarily due to continued higher sales into the Middle East. Net sales into our gas turbine filtration market increased $3 million, or 16%, from last year’s third quarter as first-fit sales increased 32% and aftermarket sales increased 6%. Overall, our gas turbine filtration product sales in the first nine months of 2016 have increased 16% from the same period last year.

“Our third quarter operating margin of 15.3% increased 1.2 percentage points from last year’s third quarter. This increase was driven by a 1.0 percentage point improvement in gross margin percentage and a 0.2 percentage point reduction in selling and administrative expenses as a percentage of net sales. Higher gross margin percentage compared to last year’s third quarter was primarily driven by lower material cost as a percentage of net sales, partly offset by lower absorption of fixed manufacturing costs from lower net sales. The reduction in material cost as a percentage of net sales was the result of lower commodity costs, favorable sales mix and our company-wide purchasing cost reduction initiative. Selling and administrative expenses declined approximately $6 million from the third quarter of 2015. This reduction was primarily driven by $3 million lower headcount-related costs and $3 million lower bad debt expense from improved past due accounts receivable collections.

“Our favorable operating margin performance compared to last year’s third quarter is indicative of the strides we are making with both our cost reduction initiative program and our on-going Lean implementation as part of our roll-out of the CLARCOR Management System. We believe we are on track to realize in excess of $20 million in cost savings in fiscal 2016 pursuant to our cost reduction initiative program. We intend to explore our ability to implement additional cost reduction initiatives in fiscal 2017 and beyond, including in connection with our natural gas filtration business based upon expected continued top-line headwinds in that market, and we anticipate providing further updates regarding cost reduction initiatives in our fourth quarter earnings release. However, despite recent challenges in the global oil & gas industry, we continue to remain excited about the long-term growth prospects of our natural gas filtration business. Natural gas continues to be the most prevalent, clean-burning fossil fuel, and we believe its share of global energy consumption should continue to grow for several decades. We believe our natural gas filtration business will benefit from this anticipated global energy trend.”

Update on Strategic Initiatives

Chris Conway, CLARCOR’s Chairman, President and Chief Executive Officer, further commented, “We are excited about our entry into a ten-year strategic supply and development arrangement with GE, under which we will supply GE with 100% of its requirements for filters and SmartParts for GE’s advanced technology H-class gas turbines and a majority of GE’s requirements for certain other gas turbine platforms, while simultaneously serving as the sole developer of the next-generation air inlet filtration system for the H-class gas turbine. We believe this long-term arrangement with a market-leading company like GE illustrates our advancement as a filtration technology solution provider and is indicative of the benefits that we expect to derive from our increased investments in technology and innovation.

“In addition to deepening our ties and working closely with GE to develop a new air inlet filtration system for the H-class, we believe we are getting in on the ground floor as the deployment cycle for the next generation of advanced technology turbines, the H-class, begins. We believe this is analogous to the deployment of the F-class twenty plus years ago. It has been our experience that, for a variety of reasons, aftermarket sales to heavy-duty gas turbine operators are particularly sticky, and we believe that this arrangement will increase our opportunity to be the preferred supplier in the higher margin aftermarket over the next ten to fifteen years. For this reason, we view certain pricing concessions that we made for H-class products during the initial phase of our H-class arrangement as a strategic long-term investment. While this investment will create certain margin headwinds for our Industrial Air Group during this initial phase, we believe it is appropriate in light of the anticipated enhanced opportunity to serve aftermarket customers in the years to come. Moreover, we anticipate that the sales under our non-H-class gas turbine supply agreement--which is at regularly negotiated pricing and also has a ten-year term--will soften the financial impact of these initial concessions, and that margins on our first-fit H-class product sales will return to historical levels once the initial phase of the H-class agreement has ended. Additional details regarding our deal with GE can be found in our 8-K filing of this Press Release.

“In the second quarter we completed our acquisition of FibeRio, a technology company focused on the research, development and commercialization of advanced filtration media and performance fabrics. Through this acquisition, we acquired proprietary technology which we believe will enable us to develop nanofiber and other media solutions with superior filtration capabilities at lower production costs than traditional media. We expect this technology will support various growth initiatives including our development efforts for the next-generation air inlet filtration system for the GE H-class gas turbine platform. As a result of our entering into the deal with GE, we have expedited various FibeRio development and transition activities, and we expect to accelerate certain costs in 2016 as a result. We believe the FibeRio acquisition further enhances our progress in becoming a premier innovative filtration solution provider to customers across our many diverse filtration end-markets.

“Another significant example of our advancement as a filtration technology solution provider is our recent release of the Channel Flow EXOTM product line at our CLARCOR Engine Mobile Group (“CEMG”). This aftermarket product line includes heavy-duty engine air intake filtration products that offer our customers a compelling alternative to the OE first-fit honeycomb filters supplied by a competitor. The development of this product line is just one example of our design engineers at our business units working with our technologists at our CLARCOR Innovation Center to introduce innovative, new products for our customers. We have released two Channel Flow EXOTM air intake filters to market in the past several months, and we anticipate releasing approximately fifty additional air filters to market over the next eighteen months. We take great pride in offering our aftermarket distribution customers one of the broadest heavy-duty engine filtration product lines in the industry, and the introduction of Channel Flow EXOTM demonstrates our commitment to maintain this broad product offering.”

2016 Guidance

We are lowering our 2016 financial guidance for consolidated diluted earnings per share, net sales and operating margin as detailed in the table following this paragraph. The financial guidance included in the table below includes the following assumptions:

• 2016 diluted earnings per share guidance excludes the impact of the $27.3 million patent litigation award received in the second quarter of 2016;
• 2016 financial guidance excludes the impact of $2.0 million in upfront expenses from cost reduction initiatives incurred in the first nine months of 2016; and
• 2016 financial guidance excludes the impact of additional costs we may incur in the remainder of 2016 related to any potential facility consolidations or any other restructuring or cost savings initiatives.

    Previous Guidance Current Guidance   Diluted earnings per share $2.60 to $2.80 $2.57 to $2.63 Net sales ($million) $1,375 to $1,415 $1,380 to $1,390 Operating margin 13.9% to 14.5% 13.7% to 13.9%  

Our estimated 2016 net sales comparison and operating margin by reporting segment and on a consolidated basis are set forth below. The financial guidance included in the table below includes the following assumptions:

• Our 2015 consolidated net sales taken into account in comparing 2016 estimated net sales and 2015 net sales excludes the net sales from the J.L. Clark business prior to its disposition in 2015;
• Our 2016 operating margin taken into account in comparing 2016 estimated operating margin and 2015 operating margin excludes the impact of $2.0 million in upfront expenses from cost reduction initiatives incurred in the first nine months of 2016; and
• Our 2016 operating margin taken into account in comparing 2016 estimated operating margin and 2015 operating margin excludes the impact of additional costs we may incur in the remainder of 2016 related to any potential facility consolidations or any other restructuring or cost savings initiatives.

  2016 Estimated 2016 Estimated Sales Decline Operating Margin   Engine/Mobile Filtration -3.6% to -3.2% 18.0% to 18.2% Industrial/Environmental Filtration -4.4% to -3.9% 10.6% to 10.8% CLARCOR -4.0% to -3.6% 13.7% to 13.9%  

Consolidated net sales guidance for 2016 was lowered from our previous guidance by approximately $10 million at the mid-point as the result of anticipated lower net sales in our Industrial/Environmental Filtration segment primarily as the result of expected continued headwinds in our natural gas capital vessel filtration market and our industrial air and liquid filtration product markets. We have lowered our previous guidance with respect to consolidated operating margin primarily as the result of an expected decline in our Industrial/Environmental Filtration segment, which we lowered from 11.3% at the mid-point in our previous guidance to 10.7% at the mid-point in our current guidance. This reduction was driven by lower anticipated fixed cost absorption in our natural gas filtration business as a result of lower expected sales, lower anticipated margin on first-fit gas turbine filtration products, and higher anticipated allocated research & development expenses pursuant to the FibeRio acquisition. We have lowered our previous guidance with respect to operating margin in our Engine/Mobile Filtration segment from 18.3% at the mid-point in our previous guidance to 18.1% at the mid-point in our current guidance primarily due to anticipated lower absorption of fixed manufacturing costs.

Our 2016 earnings guidance includes approximately $7.0 million of net interest and other expense. We project 2016 cash from operations to be between $220 million and $230 million (excluding after-tax proceeds from the patent litigation award). We expect capital expenditures to be between $35 million and $45 million, our effective tax rate to be between 30.5% and 31.0%, and 49.1 million average diluted shares outstanding. Our 2016 fiscal calendar contains a fifty-third fiscal week. This additional week falls in our 2016 fiscal fourth quarter.

CLARCOR will be holding a conference call to discuss the third quarter 2016 results at 10:00 a.m. CT on September 15, 2016. Interested parties can listen to the conference call at www.clarcor.com or http://public.viavid.com/index.php?id=120713. A replay will be available on these websites and also at 877-870-5176 or 858-384-5517 by providing confirmation code 8759479. The replay will be available through September 29, 2016 by telephone and for 30 days on the internet.

CLARCOR is based in Franklin, Tennessee, and is a diversified marketer and manufacturer of mobile, industrial and environmental filtration products sold in domestic and international markets. Common shares of CLARCOR are traded on the New York Stock Exchange under the symbol CLC.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements made in this press release other than statements of historical fact, are forward-looking statements. These statements may be identified from use of the words “may,” “should,” “could,” “potential,” “continue,” “plan,” “forecast,” “estimate,” “project,” “believe,” “intent,” “anticipate,” “expect,” “target,” “is likely,” “will,” or the negative of these terms, and similar expressions. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, among other things: statements and assumptions relating to anticipated future performance and results of operations, including the anticipated 2016 performance of the Company and each of its segments, our projections with respect to 2016 sales comparisons and 2016 operating margin for the Company and each of its segments, our projections with respect to 2016 diluted earnings per share, our projections with respect to 2016 cash from operations (excluding after-tax proceeds from the patent litigation settlement), 2016 capital expenditures, 2016 effective tax rate, 2016 interest expense and 2016 average diluted shares outstanding; statements regarding potential additional costs we may incur related to any potential facility consolidations or other restructuring and cost reduction initiatives; statements regarding strategic investments occurring in connection with our second quarter acquisition of FibeRio; statements regarding our expectations with respect to fourth quarter filtration sales to the large retail customer referenced above; statements regarding our expectations with respect to net sales into the U.S. independent aftermarket in our fourth quarter and early fiscal 2017; statements regarding our expectations with respect to fuel filtration product sales growth in off-road markets in our fourth quarter and the first half of fiscal 2017; statements regarding the lack of momentum in our oil & gas markets; statements regarding our expectations with respect to capital vessel filtration sales in our fourth quarter and fiscal 2017; statements regarding our expectation that we are on track to realize in excess of $20 million in cost savings in fiscal 2016 pursuant to our cost reduction program; statements regarding our intent to explore our ability to implement additional cost reduction initiatives in fiscal 2017 and beyond, including in connection with our natural gas filtration business based upon expected continued top-line headwinds in that market; statements regarding our expectation that we will provide further updates regarding cost reduction initiatives in our fourth quarter earnings release; statements regarding our views regarding the long-term growth prospects of our natural gas filtration business; statements regarding our expectations with respect to natural gas’s share of global energy consumption over the next several decades; statements regarding our belief that our natural gas filtration business will benefit from anticipated global energy consumption trends with respect to natural gas; statements regarding our expectations with respect to the strategic supply partnership with GE, including the benefits we expect to derive from our increased investments in technology and innovation, our belief that we are getting in on the ground floor as the deployment cycle for the next generation of advanced technology turbines, the H-class, begins, our belief that this development is analogous to the deployment of the F-class twenty plus years ago, our belief that the arrangement with GE will increase our opportunity to be the preferred supplier in the higher margin aftermarket over the next ten to fifteen years, our expectation that certain pricing concessions that we made for H-class products during the initial phase will create margin headwinds for our Industrial Air Group during this period, our belief that these pricing concessions are appropriate in light of the anticipated enhanced opportunity to serve aftermarket customers in the years to come, our expectation that sales under our non-H-class gas turbine supply agreement will soften the financial impact of the pricing concessions noted above, and our expectation that margins on our first-fit H-class product sales will return to historical levels once the initial phase of the H-class agreement has ended; statements regarding our belief that the technology acquired in connection with the acquisition of FibeRio will enable us to develop nanofiber and other media solutions with superior filtration capabilities at lower production costs than traditional media; statements regarding our expectation that the technology acquired in connection with the FibeRio acquisition will support various growth initiatives including our development efforts for the next-generation air inlet filtration system for the GE H-class gas turbine platform; statements regarding our expectation that we will incur incremental costs in 2016 to support FibeRio development and transition efforts; statements regarding our belief that the FibeRio acquisition further enhances our progress in becoming a premier innovative filtration solution provider to customers across our many diverse filtration end-markets; statements regarding our expectation that we will release approximately fifty additional air filters to market over the next eighteen months; and any other statements or assumptions that are not historical facts. The Company believes that its expectations are based on reasonable assumptions. However, these forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the Company's actual results, performance or achievements, or industry results, to differ materially from the Company's expectations of future results, performance or achievements expressed or implied by these forward-looking statements. The Company's past results of operations do not necessarily indicate its future results. The Company’s future results may differ materially from the Company’s past results as a result of various risks and uncertainties, including, but not limited to, risks associated with global and national macroeconomic pressures, trends with respect to the health of the markets we serve including with respect to challenging market conditions in various markets in the Engine/Mobile Filtration segment and the Industrial/Environmental Filtration segment, our ability to execute upon long-term strategic growth initiatives, our ability to execute upon any potential facility consolidations or other cost reduction and/or restructuring initiatives (including that the costs associated with such initiatives may be greater than anticipated, that we may be unable to realize anticipated cost savings or other contemplated benefits in connection with such initiatives, and that such initiatives may have an adverse impact on our performance), customer concentration issues in certain geographic locations and in respect of certain of our businesses, our ability to integrate the businesses we have acquired, currency fluctuations, particularly increases or decreases in the U.S. dollar against other currencies, commodity price increases and/or limited availability of raw materials and component products, including steel, compliance costs associated with environmental laws and regulations, political factors, our international operations, highly competitive markets, governmental laws and regulations, potential information systems interruptions and intrusions, potential global events resulting in instability and unpredictability in the world’s markets, including financial bailouts of sovereign nations, political changes, military and terrorist activities, health outbreaks and other factors, changes in accounting standards or adoption of new accounting standards, adverse effects of natural disasters, legal challenges with respect to intellectual property, product liability exposure, changes in tax rates or exposure to additional income tax liabilities, potential labor disruptions, the impact on our business and results of operations from developments related to the potential exit of the United Kingdom from the European Union, our potential inability to realize the anticipated benefits of the strategic supply partnership with GE, the risks discussed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year 2015 filed on January 22, 2016, and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. You should not place undue reliance on any forward-looking statements. These statements speak only as of the date of this press release. Except as otherwise required by applicable laws, the Company undertakes no obligation to publicly update or revise any forward-looking or other statements included in this press release, whether as a result of new information, future events, changed circumstances or any other reason.

TABLES FOLLOW

   

CLARCOR INC. 2016 UNAUDITED THIRD QUARTER RESULTS

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

(Dollars in thousands, except share data)

  Three Months Ended Nine Months Ended August 27,   August 29, August 27,   August 29, 2016 2015 2016 2015 Net sales $ 331,387 $ 357,557 $ 1,012,627 $ 1,108,479 Cost of sales 216,986   237,802   675,464   742,139     Gross profit 114,401 119,755 337,163 366,340   Selling and administrative expenses 63,703   69,333   200,722   217,782     Operating profit 50,698   50,422   136,441   148,558     Other income (expense): Interest expense (1,763 ) (1,338 ) (5,744 ) (3,965 ) Interest income 136 108 395 339 Other, net 574   5,649   28,022   5,111   (1,053 ) 4,419   22,673   1,485     Earnings before income taxes 49,645 54,841 159,114 150,043   Provision for income taxes 13,861   18,332   48,769   48,224     Net earnings 35,784 36,509 110,345 101,819  

Net earnings attributable to noncontrolling interests, net of tax

 

(35 ) (64 ) (79 ) (168 )   Net earnings attributable to CLARCOR Inc. $ 35,749   $ 36,445   $ 110,266   $ 101,651     Net earnings per share attributable to CLARCOR Inc. - Basic $ 0.73   $ 0.73   $ 2.26   $ 2.03   Net earnings per share attributable to CLARCOR Inc. - Diluted $ 0.73   $ 0.72   $ 2.25   $ 2.00     Weighted average number of shares outstanding - Basic 48,653,220   50,099,852   48,723,459   50,188,327   Weighted average number of shares outstanding - Diluted 49,055,047   50,525,049   49,103,211   50,701,490     Dividends paid per share $ 0.2200   $ 0.2000   $ 0.6600   $ 0.6000         CLARCOR INC. 2016 UNAUDITED THIRD QUARTER RESULTS, continued CONSOLIDATED CONDENSED BALANCE SHEETS

(Dollars in thousands)

  August 27, November 28, 2016 2015 ASSETS Current assets: Cash and cash equivalents $ 119,839 $ 101,529 Accounts receivable, less allowance for losses of $10,473 and $14,765, respectively 234,566 258,280 Inventories 250,781 274,825 Income taxes receivable 7,822 3,781 Prepaid expenses and other current assets 21,106   26,380   Total current assets 634,114   664,795     Property, plant and equipment, at cost, less accumulated depreciation of $302,993 and $286,335, respectively 293,659 301,019 Asset held for sale 533 533 Goodwill 506,236 506,265 Acquired intangible assets, less accumulated amortization 311,946 329,155 Deferred income taxes 3,046 3,651 Other noncurrent assets 10,257   13,038   Total assets $ 1,759,791   $ 1,818,456   LIABILITIES Current liabilities: Current portion of long-term debt $ 15,243 $ 7,788 Accounts payable 84,071 87,546 Accrued liabilities 84,532 106,410 Income taxes payable 697   1,956   Total current liabilities 184,543   203,700     Long-term debt, less current portion 302,789 397,368 Long-term pension and postretirement healthcare benefits liabilities 29,703 31,577 Deferred income taxes 77,899 64,908 Other long-term liabilities 14,520   10,438   Total liabilities 609,454   707,991     SHAREHOLDERS' EQUITY Capital stock 48,622 49,111 Capital in excess of par value 903 — Accumulated other comprehensive loss (100,128 ) (88,052 ) Retained earnings 1,200,221   1,148,510   Total CLARCOR Inc. equity 1,149,618   1,109,569   Noncontrolling interests 719   896   Total shareholders' equity 1,150,337   1,110,465   Total liabilities and shareholders' equity $ 1,759,791   $ 1,818,456       CLARCOR INC. 2016 UNAUDITED THIRD QUARTER RESULTS, continued CONSOLIDATED CONDENSED CASH FLOWS

(Dollars in thousands)

  Nine Months Ended August 27, 2016   August 29, 2015 Cash flows from operating activities: Net earnings $ 110,345 $ 101,819 Depreciation 25,503 23,133 Amortization 18,465 19,282 Other noncash items (4,533 ) (304 ) Net loss (gain) on disposition of assets 754 (2,132 ) Net gain on disposal of J.L. Clark — (12,132 ) Impairment of investments — 6,729 Stock-based compensation expense 5,126 7,722 Excess tax benefit from stock-based compensation (1,919 ) (1,138 ) Changes in assets and liabilities 54,829   (41,716 ) Net cash provided by operating activities 208,570   101,263     Cash flows from investing activities: Restricted cash (217 ) — Business acquisitions, net of cash acquired (19,299 ) (20,881 ) J.L. Clark disposition, net of cash divested — 47,103 Additions to plant assets (18,104 ) (51,273 ) Proceeds from disposition of plant assets 775 7,322 Investment in affiliates —   (525 ) Net cash used in investing activities (36,845 ) (18,254 )   Cash flows from financing activities: Net payments on revolving credit facility (82,000 ) — Payments on term loan facility (5,000 ) — Payments on long-term debt (226 ) (8,600 ) Sale of capital stock under stock option and employee purchase plans 30,202 6,441 Acquisition of noncontrolling interest — (1,239 ) Payments for repurchase of common stock (65,402 ) (30,196 ) Excess tax benefit from stock-based compensation 1,919 1,138 Dividend paid to noncontrolling interests (172 ) (206 ) Cash dividends paid (32,201 ) (30,141 ) Net cash used in financing activities (152,880 ) (62,803 ) Net effect of exchange rate changes on cash (535 ) (2,090 ) Net change in cash and cash equivalents 18,310 18,116 Cash and cash equivalents, beginning of period 101,529   94,064   Cash and cash equivalents, end of period $ 119,839   $ 112,180     Cash paid during the period for: Interest $ 5,055   $ 3,738   Income taxes, net of refunds $ 37,576   $ 48,380         CLARCOR INC. 2016 UNAUDITED THIRD QUARTER RESULTS, continued QUARTERLY INCOME STATEMENT DATA BY SEGMENT

(Dollars in thousands)

  Three Months Ended Nine Months Ended August 27,   August 29, August 27,   August 29, 2016 2015 2016 2015 Net sales by segment: Engine/Mobile Filtration $ 144,710 $ 151,734 $ 433,283 $ 457,482 Industrial/Environmental Filtration 186,677 200,496 579,344 610,088 Packaging —   5,327   —   40,909   $ 331,387   $ 357,557   $ 1,012,627   $ 1,108,479     Operating profit by segment: Engine/Mobile Filtration $ 29,337 $ 27,728 $ 77,904 $ 83,038 Industrial/Environmental Filtration 21,361 22,765 58,537 63,377 Packaging —     (71 ) —     2,143   $ 50,698   $ 50,422   $ 136,441   $ 148,558     Operating margin by segment: Engine/Mobile Filtration 20.3 % 18.3 % 18.0 % 18.2 % Industrial/Environmental Filtration 11.4 % 11.4 % 10.1 % 10.4 % Packaging — % (1.3 )% — % 5.2 % 15.3 % 14.1 % 13.5 % 13.4 %  

CLARCOR INC. 2016 UNAUDITED THIRD QUARTER RESULTS, continuedReconciliation of Third Quarter 2016 GAAP Financial Results to Non-GAAP Adjusted Results

In addition to the GAAP results, this earnings release presents information with respect to non-GAAP cost of sales, non-GAAP gross profit, non-GAAP selling and administrative expenses, non-GAAP operating profit, non-GAAP other, net, non-GAAP other income (expense), non-GAAP earnings before income taxes, non-GAAP provision for income taxes, non-GAAP net earnings, non-GAAP basic and diluted earnings per share, non-GAAP gross margin percentage, non-GAAP selling and administrative expenses as a percentage of net sales and non-GAAP operating margin, for the quarter ended August 27, 2016. These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measures most directly comparable to these non-GAAP measures are cost of sales, gross profit, selling and administrative expenses, operating profit, other, net, other income (expense), earnings before income taxes, provision for income taxes, net earnings, basic and diluted earnings per share, gross margin percentage, selling and administrative expenses as a percentage of net sales and operating margin, respectively.

The quarter ended August 27, 2016 non-GAAP financial measures provided in this release exclude upfront expenses for cost reduction initiatives. Although these financial measures excluding this item in the quarter ended August 27, 2016 are not measures of financial performance under GAAP, the Company believes that providing these non-GAAP financial measures better enables investors to understand and evaluate the Company's historical and prospective operating performance. In addition, the Company believes that removing the impact of this item provides a more comparable measure of the changes in these financial measures for the quarter ended August 27, 2016 compared to the quarter ended August 29, 2015.

These non-GAAP financial measures may have limitations as analytical tools, and management does not intend these measures to be considered in isolation or as a substitute for the related GAAP measures. Following are reconciliations to the most comparable GAAP financial measures of these non-GAAP financial measures.

    Upfront Third Quarter Expenses for 2016 Non- Third Quarter Cost Reduction GAAP

(Dollars in thousands, except per share data)

2016 GAAP Initiatives Adjusted   Net sales $ 331,387 $ — $ 331,387 Cost of sales 216,986   (280 ) 1 216,706   Gross profit 114,401 280 114,681 Selling and administrative expenses 63,703   384   1 64,087   Operating profit 50,698   (104 ) 50,594   Other income (expense): Interest expense (1,763 ) — (1,763 ) Interest income 136 — 136 Other, net 574   —   574   (1,053 ) —   (1,053 ) Earnings before income taxes 49,645 (104 ) 49,541 Provision for income taxes 13,861   (36 ) 13,825   Net earnings 35,784 (68 ) 35,716

Net earnings attributable to noncontrolling interests, net of tax

(35 ) —   (35 )

Net earnings attributable to CLARCOR Inc.

$ 35,749   $ (68 ) $ 35,681   Net earnings per share attributable to CLARCOR Inc. - Basic $ 0.73   $ 0.00   $ 0.73   Net earnings per share attributable to CLARCOR Inc. - Diluted $ 0.73   $ 0.00   $ 0.73   Gross margin percentage 34.5 % 0.1 % 34.6 % Selling and administrative expenses as a percentage of net sales 19.2 % 0.1 % 19.3 % Operating margin 15.3 % 0.0 % 15.3 %  

1 - Upfront expenses for cost reduction initiatives incurred in the third quarter of 2016 as noted above.

 

CLARCOR INC. 2016 UNAUDITED THIRD QUARTER RESULTS, continuedReconciliation of Third Quarter 2015 GAAP Financial Results to Non-GAAP Adjusted Results

In addition to the GAAP results, this earnings release presents information with respect to non-GAAP net sales, non-GAAP cost of sales, non-GAAP gross profit, non-GAAP selling and administrative expenses, non-GAAP operating profit, non-GAAP other, net, non-GAAP other income (expense), non-GAAP earnings before income taxes, non-GAAP provision for income taxes, non-GAAP net earnings, non-GAAP basic and diluted earnings per share, non-GAAP gross margin percentage, non-GAAP selling and administrative expenses as a percentage of net sales and non-GAAP operating margin, for the quarter ended August 29, 2015. These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measures most directly comparable to these non-GAAP measures are net sales, cost of sales, gross profit, selling and administrative expenses, operating profit, other, net, other income (expense), earnings before income taxes, provision for income taxes, net earnings, basic and diluted earnings per share, gross margin percentage, selling and administrative expenses as a percentage of net sales and operating margin, respectively.

The quarter ended August 29, 2015 non-GAAP financial measures provided in this release exclude the financial results of our J.L. Clark packaging business disposed of during the third quarter of 2015, a net gain on the sale of such packaging business, and an impairment loss related to our BioProcess H2O and Algae investments. Although these financial measures excluding these items are not measures of financial performance under GAAP, the Company believes that providing these non-GAAP financial measures better enables investors to understand and evaluate the Company's historical and prospective operating performance. In addition, the Company believes that removing the impact of the financial results of these items provides a more comparable measure of the changes in these financial measures for the quarter ended August 29, 2015 compared to the quarter ended August 27, 2016.

These non-GAAP financial measures may have limitations as analytical tools, and management does not intend these measures to be considered in isolation or as a substitute for the related GAAP measures. Following are reconciliations to the most comparable GAAP financial measures of these non-GAAP financial measures.

      J.L. Clark Third Quarter Results and BioProcess 2015 Non- Third Quarter Gain on Investment GAAP

(Dollars in thousands, except per share data)

2015 GAAP Disposition Impairment Adjusted   Net sales $ 357,557 $ (5,327 ) 1 $ — $ 352,230 Cost of sales 237,802   (4,588 ) 1 —   233,214   Gross profit 119,755 (739 ) — 119,016 Selling and administrative expenses 69,333   (810 ) 1 —   68,523   Operating profit 50,422   71   —   50,493   Other income (expense): Interest expense (1,338 ) — — (1,338 ) Interest income 108 — — 108 Other, net 5,649   (12,131 ) 2 6,729   247   4,419   (12,131 ) 6,729   (983 ) Earnings before income taxes 54,841 (12,060 ) 6,729 49,510 Provision for income taxes 18,332   (4,339 ) 2,355   16,348   Net earnings 36,509 (7,721 ) 4,374 33,162

Net earnings attributable to noncontrolling interests, net of tax

(64 ) —   —   (64 )

Net earnings attributable to CLARCOR Inc.

$ 36,445   $ (7,721 ) $ 4,374   $ 33,098   Net earnings per share attributable to CLARCOR Inc. - Basic $ 0.73   $ (0.15 ) $ 0.09   $ 0.66   Net earnings per share attributable to CLARCOR Inc. - Diluted $ 0.72   $ (0.15 ) $ 0.09   $ 0.66   Gross margin percentage 33.5 % 0.3 % 0.0 % 33.8 % Selling and administrative expenses as a percentage of net sales 19.4 % 0.1 % 0.0 % 19.5 % Operating margin 14.1 % 0.2 % 0.0 % 14.3 %  

1 - Third quarter 2015 results for J.L. Clark through disposition date of June 27, 2015 (approximately one month of operations during the third quarter of 2015).

2 - Net gain on third quarter 2015 disposition of J.L. Clark.

 

CLARCOR INC. 2016 UNAUDITED THIRD QUARTER RESULTS, continuedReconciliation of First Nine Months 2016 GAAP Financial Results to Non-GAAP Adjusted Results

In addition to the GAAP results, this earnings release presents information with respect to non-GAAP cost of sales, non-GAAP gross profit, non-GAAP selling and administrative expenses, non-GAAP operating profit, non-GAAP other, net, non-GAAP other income (expense), non-GAAP earnings before income taxes, non-GAAP provision for income taxes, non-GAAP net earnings, non-GAAP basic and diluted earnings per share, non-GAAP gross margin percentage, non-GAAP selling and administrative expenses as a percentage of net sales and non-GAAP operating margin, for the first nine months ended August 27, 2016. These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measures most directly comparable to these non-GAAP measures are cost of sales, gross profit, selling and administrative expenses, operating profit, other, net, other income (expense), earnings before income taxes, provision for income taxes, net earnings, basic and diluted earnings per share, gross margin percentage, selling and administrative expenses as a percentage of net sales and operating margin, respectively.

The first nine months ended August 27, 2016 non-GAAP financial measures provided in this release exclude the patent litigation award received from 3M Company, upfront expenses for cost reduction initiatives including lease termination payments related to our exit of a natural gas filtration vessel manufacturing facility in Australia, costs associated with the exit of an HVAC filtration facility in the U.S., and severance and other employee termination benefit costs pursuant to reductions in force. Although these financial measures excluding these items are not measures of financial performance under GAAP, the Company believes that providing these non-GAAP financial measures better enables investors to understand and evaluate the Company's historical and prospective operating performance. In addition, the Company believes that removing the impact of these items provides a more comparable measure of the changes in these financial measures for the first nine months ended August 27, 2016 compared to the first nine months ended August 29, 2015.

These non-GAAP financial measures may have limitations as analytical tools, and management does not intend these measures to be considered in isolation or as a substitute for the related GAAP measures. Following are reconciliations to the most comparable GAAP financial measures of these non-GAAP financial measures.

      Upfront First Nine First Nine Patent Expenses for Months 2016 Months 2016 Litigation Cost Reduction Non-GAAP

(Dollars in thousands, except per share data)

GAAP Award Initiatives Adjusted   Net sales $ 1,012,627 $ — $ — $ 1,012,627 Cost of sales 675,464   —   (2,181 ) 1 673,283   Gross profit 337,163 — 2,181 339,344 Selling and administrative expenses 200,722   —   144   1 200,866   Operating profit 136,441   —   2,037   138,478   Other income (expense): Interest expense (5,744 ) — — (5,744 ) Interest income 395 — — 395 Other, net 28,022   (27,250 ) —   772   22,673   (27,250 ) —   (4,577 ) Earnings before income taxes 159,114 (27,250 ) 2,037 133,901 Provision for income taxes 48,769   (9,102 ) 713   40,380   Net earnings 110,345 (18,148 ) 1,324 93,521

Net earnings attributable to noncontrolling interests, net of tax

(79 ) —   —   (79 )

Net earnings attributable to CLARCOR Inc.

$ 110,266   $ (18,148 ) $ 1,324   $ 93,442   Net earnings per share attributable to CLARCOR Inc. - Basic $ 2.26   $ (0.37 ) $ 0.03   $ 1.92   Net earnings per share attributable to CLARCOR Inc. - Diluted $ 2.25   $ (0.37 ) $ 0.03   $ 1.90   Gross margin percentage 33.3 % 0.0 % 0.2 % 33.5 % Selling and administrative expenses as a percentage of net sales 19.8 % 0.0 % 0.0 % 19.8 % Operating margin 13.5 % 0.0 % 0.2 % 13.7 %  

1 - Upfront expenses for cost reduction initiatives incurred in the first nine months of 2016 as noted above.

 

CLARCOR INC. 2016 UNAUDITED THIRD QUARTER RESULTS, continuedReconciliation of First Nine Months 2015 GAAP Financial Results to Non-GAAP Adjusted Results

In addition to the GAAP results, this earnings release presents information with respect to non-GAAP net sales, non-GAAP cost of sales, non-GAAP gross profit, non-GAAP selling and administrative expenses, non-GAAP operating profit, non-GAAP other, net, non-GAAP other income (expense), non-GAAP earnings before income taxes, non-GAAP provision for income taxes, non-GAAP net earnings, non-GAAP basic and diluted earnings per share, non-GAAP gross margin percentage, non-GAAP selling and administrative expenses as a percentage of net sales and non-GAAP operating margin, for the first nine months ended August 29, 2015. These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The GAAP measures most directly comparable to these non-GAAP measures are net sales, cost of sales, gross profit, selling and administrative expenses, operating profit, other, net, other income (expense), earnings before income taxes, provision for income taxes, net earnings, basic and diluted earnings per share, gross margin percentage, selling and administrative expenses as a percentage of net sales and operating margin, respectively.

The first nine months ended August 29, 2015 non-GAAP financial measures provided in this release exclude the financial results of our J.L. Clark packaging business disposed of during the third quarter of 2015, a net gain on the sale of such packaging business recognized in the third quarter of 2015, and an impairment loss related to our BioProcess H2O and Algae investments recognized in the third quarter of 2015. Although these financial measures excluding these items are not measures of financial performance under GAAP, the Company believes that providing these non-GAAP financial measures better enables investors to understand and evaluate the Company's historical and prospective operating performance. In addition, the Company believes that removing the impact of these items provides a more comparable measure of the changes in these financial measures for the first nine months ended August 29, 2015 compared to the first nine months ended August 27, 2016.

These non-GAAP financial measures may have limitations as analytical tools, and management does not intend these measures to be considered in isolation or as a substitute for the related GAAP measures. Following are reconciliations to the most comparable GAAP financial measures of these non-GAAP financial measures.

      J.L. Clark First Nine First Nine Results and BioProcess Months 2015 Months 2015 Gain on Investment Non-GAAP

(Dollars in thousands, except per share data)

GAAP Disposition Impairment Adjusted   Net sales $ 1,108,479 $ (40,909 ) 1 $ — $ 1,067,570 Cost of sales 742,139   (33,954 ) 1 —   708,185   Gross profit 366,340 (6,955 ) — 359,385 Selling and administrative expenses 217,782   (4,812 ) 1 —   212,970   Operating profit 148,558   (2,143 ) —   146,415   Other income (expense): Interest expense (3,965 ) — — (3,965 ) Interest income 339 — — 339 Other, net 5,111   (12,131 ) 2 6,729   (291 ) 1,485   (12,131 ) 6,729   (3,917 ) Earnings before income taxes 150,043 (14,274 ) 6,729 142,498 Provision for income taxes 48,224   (5,305 ) 2,355   45,274   Net earnings 101,819 (8,969 ) 4,374 97,224

Net earnings attributable to noncontrolling interests, net of tax

(168 ) —   —   (168 )

Net earnings attributable to CLARCOR Inc.

$ 101,651   $ (8,969 ) $ 4,374   $ 97,056   Net earnings per share attributable to CLARCOR Inc. - Basic $ 2.03   $ (0.18 ) $ 0.09   $ 1.94   Net earnings per share attributable to CLARCOR Inc. - Diluted $ 2.00   $ (0.18 ) $ 0.09   $ 1.91   Gross margin percentage 33.0 % 0.6 % 0.0 % 33.7 % Selling and administrative expenses as a percentage of net sales 19.6 % 0.3 % 0.0 % 19.9 % Operating margin 13.4 % 0.3 % 0.0 % 13.7 %  

1 - 2015 financial results for J.L. Clark through disposition date of June 27, 2015 (approximately seven months of operations during this nine month period).

2 - Net gain on third quarter 2015 disposition of J.L. Clark.

 

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CLARCOR Inc.David J. Fallon, 615-771-3100Chief Financial Officer