MRO Magazine

CLARCOR Reports Record Second Quarter Diluted Earnings Per Share


June 17, 2015
By Business Wire News

FRANKLIN, Tenn.

CLARCOR Inc. (NYSE:CLC):

Unaudited Second Quarter 2015 Highlights

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

GAAP Financial Results:

  Three Months Ended   Six Months Ended
5/30/15   5/31/14   Change 5/30/15   5/31/14   Change
Net sales $ 399.8 $ 386.6 3% $ 750.9 $ 699.3 7%
Operating profit 58.9 51.1 15% 98.1 82.4 19%
Net earnings — CLC 38.5 34.6 11% 65.2 58.9 11%
Diluted EPS $ 0.76 $ 0.68 12% $ 1.28 $ 1.16 10%
Operating margin 14.7% 13.2% 1.5 pts 13.1 % 11.8 % 1.3 pts

Non-GAAP Adjusted Financial Results:

The second quarter and first six months of 2014 contained integration, purchase accounting and transaction related costs associated with the GE Air Filtration, Bekaert Advanced Filtration and Stanadyne Filtration acquisitions and a bargain purchase gain related to the Bekaert Advanced Filtration acquisition.The following table reflects second quarter and first six months of 2014 GAAP results adjusted to exclude these costs and this bargain purchase gain, as well as 2015 GAAP results.Reconciliations of these non-GAAP financial measures for the second quarter and first six months of 2014, adjusted for each of these items, are provided on pages 10 and 11 of this release

  Three Months Ended   Six Months Ended

5/30/15
(Actual)

 

5/31/14
(Adjusted)

  Change

5/30/15
(Actual)

 

5/31/14
(Adjusted)

  Change
Net sales $ 399.8 $ 386.6 3% $ 750.9 $ 699.3 7%
Adjusted operating profit 58.9 57.5 2% 98.1 95.7 3%
Adjusted net earnings — CLC 38.5 38.9 -1% 65.2 65.4 0%
Adjusted diluted EPS $ 0.76 $ 0.76 0% $ 1.28 $ 1.28 0%
Adjusted operating margin 14.7% 14.9% -0.2 pts 13.1 % 13.7 % -0.6 pts

CLARCOR Inc. (NYSE:CLC) reported that its diluted earnings per share for the second quarter of 2015 increased 12% from the second quarter of 2014 to a record second quarter high of $0.76. Net sales increased $13.2 million, or 3%, from last year’s second quarter. These higher net sales were favorably influenced by $23.1 million, or 6%, of aggregate additional sales from the second quarter 2014 acquisition of Stanadyne Filtration and the first quarter 2015 acquisition of Filter Resources. Net sales were negatively impacted by $13.1 million, or 4%, from changes in average foreign currency exchange rates from last year’s second quarter.

Chris Conway, CLARCOR’s Chairman, President and Chief Executive Officer, commented, “Although we faced top-line headwinds in several of our major end-markets in the second quarter and we were unfavorably impacted by changes in average foreign currency exchange rates, our consolidated net sales increased $13.2 million, or 3%, from last year’s second quarter. Our ability to generate year-over-year sales growth despite challenging macroeconomic and industry environments is testament to our execution upon our long-term strategic growth initiatives. Our top-line growth in the second quarter was not only favorably impacted by the strategic business acquisitions of Stanadyne Filtration and Filter Resources, but we also benefited from additional sales from a significant new domestic heavy-duty engine filtration customer procured late last year in a relatively new distribution channel for us. The penetration of new distribution channels in our heavy-duty engine filtration business to complement our historical strength in the independent aftermarket is a strategic growth initiative we have focused on for several years. Our recent success in driving this initiative is evidenced by both last year’s acquisition of Stanadyne Filtration and our recent procurement of this new significant customer.

“Net sales in our Engine/Mobile Filtration segment increased $12.9 million, or 9%, from the second quarter of 2014 driven by a $15.0 million, or 16%, increase in U.S. net sales partially offset by a $2.1 million, or 4%, reduction in international net sales. The increase in U.S. net sales from last year’s second quarter was driven by additional U.S. sales of $10.9 million pursuant to the Stanadyne acquisition and an 18% increase in heavy-duty engine filtration sales in our independent distribution aftermarket. Similar to the first quarter, this domestic independent aftermarket strength was the result of the positive impact of the significant new customer noted above. Excluding this new customer, sales into our domestic independent aftermarket would have declined from last year’s second quarter—which we believe is primarily the result of slowing macroeconomic activity and industry-wide softness that has driven inventory de-stocking at many of our independent aftermarket distributors in both on-road and off-road markets. Net sales in our other domestic heavy-duty engine filtration markets, including automotive and sales to other filter companies, also declined in the second quarter of 2015 compared to the prior year quarter.

“International sales in our Engine/Mobile Filtration segment were positively influenced by $7.1 million from additional international sales pursuant to our Stanadyne Filtration acquisition, but these additional sales were more than offset by the negative impact of $4.3 million from changes in average foreign currency exchange rates, as well as by continued challenges in several international markets that first arose in our first quarter. We experienced a significant reduction in heavy-duty engine filtration sales in China and in U.S. export filtration sales in the second quarter compared to the prior year quarter. We believe lower sales in China were driven by slowing macroeconomic activity in general and lower end-market diesel engine sales in particular. The decline in export filtration sales was partially driven by lower filter purchases from a significant global rental equipment customer—we believe based upon their end-market dynamics.

“Net sales in our Industrial/Environmental Filtration segment remained relatively flat—declining $0.9 million—from last year’s second quarter. However, these segment net sales were negatively influenced by $8.7 million, or 4%, from changes in average foreign currency exchange rates from last year’s second quarter. Overall, we experienced mixed net sales performance at our primary filtration end-markets in this reporting segment with our oil & gas filtration net sales increasing $5.0 million, or 8%, and our gas turbine filtration net sales declining $6.7 million, or 22%, from the second quarter of 2014. Geographically, oil & gas net sales were generally stronger in the U.S., and several international markets demonstrated solid second quarter net sales growth including Europe and Asia. We remain cautiously optimistic that our oil & gas net sales will continue to grow in excess of 10% for the full year 2015. However, we continue to be mindful of top-line risk dependent upon future oil prices and the timing of several significant natural gas filtration vessel orders scheduled to ship in our fourth quarter. The decline in net sales in our gas turbine filtration market from last year’s second quarter was primarily driven by a decrease in net sales of first-fit filters and systems arising from the timing of several large system sales which occurred during the prior-year quarter. We expect net sales of first-fit gas turbine filters and systems to continue to be relatively low in the third quarter. However, based upon visibility to a solid backlog, we anticipate a significant increase in our fourth quarter, when we expect to ship approximately 50% of our full year 2015 gas turbine first-fit filters and systems. Second quarter net sales performance for other filtration end-markets in this reporting segment was mixed but relatively flat overall in comparison to the prior year quarter.

“Our 14.7% operating margin in the second quarter declined from our 14.9% adjusted operating margin in last year’s second quarter. This 0.2 percentage point reduction was driven by a 0.6 percentage point increase in selling and administrative expenses as a percentage of net sales, partially offset by a 0.4 percentage point improvement in gross margin. Higher selling and administrative expenses as a percentage of net sales were primarily driven by higher amortization expense pursuant to the Stanadyne Filtration acquisition and additional headcount and related costs to support growth initiatives, partially offset by a $1.8 million gain on sale of an asset in the second quarter of 2015. The 0.4 percentage point improvement in gross margin from last year’s second quarter was primarily driven by improved margin at our CLARCOR Industrial Air business in part due to a higher mix of aftermarket filter sales in relation to lower margin gas turbine first-fit filters and systems.”

2015 Guidance

We are revising our guidance for 2015 consolidated diluted earnings per share from our prior estimate of $3.15 to $3.35 to our current estimate of $3.00 to $3.15. These revised expected 2015 results are based upon projected consolidated net sales between $1,590 million and $1,620 million and consolidated operating margin between 14.2% and 15.3%. Expected sales growth (on a GAAP basis) from 2014 and operating margin by reporting segment and on a consolidated basis are as follows:

 

2015 Estimated
Sales Growth

 

2015 Estimated
Operating Margin

 
Engine/Mobile Filtration 6.0% to 8.0% 19.5% to 20.5%
Industrial/Environmental Filtration 5.0% to 7.0% 11.0% to 12.0%
Packaging 2.0% to 4.0% 6.0% to 9.0%
CLARCOR 5.0% to 7.0% 14.2% to 15.3%

The primary changes from our prior financial guidance relate to our Engine/Mobile Filtration segment. Based upon our expectation for continued softness in our international markets—including export sales from the U.S., and China—and based upon market dynamics experienced in the second quarter of 2015 in our domestic heavy-duty engine filtration market, we have reduced our estimated 2015 net sales for this reporting segment by approximately $30.0 million in comparison to our prior full year 2015 estimate. In addition, primarily based upon these lower expected sales and the related lower absorption of fixed costs, we have lowered our estimate for full year operating margin for our Engine/Mobile Filtration segment from 21.0% at the mid-point to 20.0% at the mid-point.

Our full year 2015 guidance assumes changes in foreign currency exchange rates from full year 2014 to negatively impact projected 2015 net sales by approximately $45 million, or 3%, and to negatively impact our projected 2015 diluted earnings per share by approximately $0.07.

We project 2015 cash from operations to be between $180 million and $200 million, capital expenditures to be between $75 million and $95 million and our effective tax rate to be between 31.5% and 32.5%. We expect 2015 interest expense to be between $6.0 million and $7.0 million and assume 50.8 million average diluted shares outstanding.

CLARCOR will be holding a conference call to discuss the second quarter 2015 results at 10:00 a.m. CT on June 18, 2015. Interested parties can listen to the conference call at www.clarcor.com or www.viavid.net. A replay will be available on these websites and also at 877-870-5176 or 858-384-5517 by providing confirmation code 8710909. The replay will be available through July 2, 2015 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 and consumer and industrial packaging 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 growth and results of operations, including the anticipated 2015 performance of the Company and each of its segments, our projections with respect to 2015 sales growth and 2015 operating margin for the Company and each of its segments, our projections with respect to 2015 diluted earnings per share,our projections with respect to 2015 consolidated net sales and consolidated operating margin; the anticipated impact that year-over-year changes in foreign currency exchange rates from full year 2014 will have on projected 2015 net sales and projected 2015 diluted earnings per share;our projections with respect to 2015 cash from operations, 2015 capital expenditures, 2015 effective tax rate, 2015 interest expense and 2015 average diluted shares outstanding;statements regarding management’s short-term and long-term performance goals; statements regarding anticipated order patterns from our customers or the anticipated economic conditions of the industries and markets which we serve; statements related to the performance of the U.S. and other economies generally; statements relating to the anticipated effects on results of operations or financial condition from recent and expected developments or events;statements regarding our cautious optimism with respect to our anticipated oil & gas net sales growth in 2015; statements regarding continued top-line risk with respect to anticipated oil & gas net sales based upon future oil prices and the timing of several significant natural gas filtration vessel orders scheduled to ship in our fourth quarter; statements regarding our anticipation that net sales of first-fit filters and systems will continue to be relatively low in the third quarter; statements regarding our expectation that, based upon visibility to a solid backlog, we will experience a significant increase in net sales of first-fit filters and systemsin the fourth quarter, and our expectation that approximately 50% of our full year 2015 gas turbine first-fit filter and system sales will occur in the fourth quarter; statements regarding our expectation of continued softness in our international markets, including export sales from the U.S., and China;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 the risk factors discussed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year 2014 filed on January 26, 2015, and other risk factors 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.

   

CLARCOR INC. 2015 UNAUDITED SECOND QUARTER RESULTS

CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS

(Dollars in thousands, except share data)

 
Three Months Ended Six Months Ended
May 30,
2015
  May 31,
2014
May 30,
2015
  May 31,
2014
Net sales $ 399,799 $ 386,642 $ 750,922 $ 699,327
Cost of sales 266,189   261,272   504,337   477,370  
 
Gross profit 133,610 125,370 246,585 221,957
 
Selling and administrative expenses 74,667   74,223   148,449   139,544  
 
Operating profit 58,943   51,147   98,136   82,413  
 
Other income (expense):
Interest expense (1,556 ) (670 ) (2,627 ) (1,070 )
Interest income 90 96 231 203
Other, net (422 ) 174   (538 ) 4,145  
(1,888 ) (400 ) (2,934 ) 3,278  
 
Earnings before income taxes 57,055 50,747 95,202 85,691
 
Provision for income taxes 18,482   16,201   29,892   26,804  
 
Net earnings 38,573 34,546 65,310 58,887
 

Net (earnings) loss attributable to noncontrolling interests, net of tax

(76

) 6   (104 ) (14 )
 
Net earnings attributable to CLARCOR Inc. $ 38,497   $ 34,552   $ 65,206   $ 58,873  
 
Net earnings per share attributable to CLARCOR Inc. – Basic $ 0.77   $ 0.68   $ 1.30   $ 1.17  
Net earnings per share attributable to CLARCOR Inc. – Diluted $ 0.76   $ 0.68   $ 1.28   $ 1.16  
 
Weighted average number of shares outstanding – Basic 50,209,215   50,513,588   50,232,565   50,488,651  
Weighted average number of shares outstanding – Diluted 50,791,198   50,945,090   50,791,840   50,934,768  
 
Dividends paid per share $ 0.2000   $ 0.1700   $ 0.4000   $ 0.3400  
   

CLARCOR INC. 2015 UNAUDITED SECOND QUARTER RESULTS, continued

CONSOLIDATED CONDENSED BALANCE SHEETS

(Dollars in thousands)

 

May 30,
2015

November 29,
2014

ASSETS
Current assets:
Cash and cash equivalents $ 81,837 $ 94,064
Accounts receivable, less allowance for losses of $11,132 and $10,811, respectively 280,563 305,580
Inventories 300,885 274,718
Deferred income taxes 38,209 37,749
Prepaid expenses and other current assets 21,952   16,796  
Total current assets 723,446   728,907  
 
Plant assets, at cost, less accumulated depreciation of $363,694 and $357,564, respectively 309,955 288,356
Goodwill 508,273 507,172
Acquired intangible assets, less accumulated amortization 342,878 347,578
Other noncurrent assets 18,420   16,756  
Total assets $ 1,902,972   $ 1,888,769  
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 227 $ 233
Accounts payable 102,476 97,885
Accrued liabilities 102,360 120,036
Income taxes payable 4,871   6,226  
Total current liabilities 209,934   224,380  
 
Long-term debt, less current portion 417,800 411,330
Long-term pension and postretirement healthcare benefits liabilities 32,141 33,266
Deferred income taxes 104,057 104,250
Other long-term liabilities 13,868   8,853  
Total liabilities 777,800   782,079  
 
Contingencies
Redeemable noncontrolling interests 1,587
SHAREHOLDERS’ EQUITY
Capital stock 50,119 50,204
Capital in excess of par value 6,944 10,644
Accumulated other comprehensive loss (75,290 ) (54,080 )
Retained earnings 1,142,544   1,097,292  
Total CLARCOR Inc. equity 1,124,317   1,104,060  
Noncontrolling interests 855   1,043  
Total shareholders’ equity 1,125,172   1,105,103  
Total liabilities and shareholders’ equity $ 1,902,972   $ 1,888,769  
 

CLARCOR INC. 2015 UNAUDITED SECOND QUARTER RESULTS, continued

CONSOLIDATED CONDENSED CASH FLOWS

(Dollars in thousands)

 
Six Months Ended

May 30,
2015

 

May 31,
2014

Cash flows from operating activities:
Net earnings $ 65,310 $ 58,887
Depreciation 15,583 14,870
Amortization 12,523 7,943
Other noncash items 104 933
Net (gain) loss on disposition of plant assets (1,418 ) 73
Bargain purchase gain (2,815 )
Stock-based compensation expense 6,994 3,654
Excess tax benefit from stock-based compensation (995 ) (351 )
Changes in assets and liabilities (30,871 ) (40,444 )
Net cash provided by operating activities 67,230   42,750  
 
Cash flows from investing activities:
Restricted cash (642 )
Business acquisitions, net of cash acquired (20,881 ) (595,621 )
Additions to plant assets (37,992 ) (28,275 )
Proceeds from disposition of plant assets 4,792 148
Investment in affiliates (525 ) (473 )
Net cash used in investing activities (54,606 ) (624,863 )
 
Cash flows from financing activities:
Net borrowings (payments) on multicurrency revolving credit facility 15,000 (22,000 )
Borrowings under term loan facility 315,000
Payments on term loan facility (20,000 )
Payments on long-term debt (8,536 ) (1,487 )
Payment of financing costs (723 )
Sale of capital stock under stock option and employee purchase plans 5,360 2,442
Acquisition of noncontrolling interest (1,239 )
Payments for repurchase of common stock (16,110 )
Excess tax benefit from stock-based compensation 995 351
Dividend paid to noncontrolling interests (206 ) (166 )
Cash dividends paid (20,124 ) (17,166 )
Net cash (used in) provided by financing activities (24,860 ) 256,251  
Net effect of exchange rate changes on cash 9   (1,673 )
Net change in cash and cash equivalents (12,227 ) (327,535 )
Cash and cash equivalents, beginning of period 94,064   411,562  
Cash and cash equivalents, end of period $ 81,837   $ 84,027  
 
Cash paid during the period for:
Interest $ 2,478   $ 598  
Income taxes, net of refunds $ 26,505   $ 28,812  
   

CLARCOR INC. 2015 UNAUDITED SECOND QUARTER RESULTS, continued

QUARTERLY INCOME STATEMENT DATA BY SEGMENT

(Dollars in thousands)

 
Quarter Ended Six Months Ended

May 30,
2015

  May 31,
2014
May 30,
2015
  May 31,
2014
Net sales by segment:
Engine/Mobile Filtration $ 161,290 $ 148,398 $ 305,748 $ 270,895
Industrial/Environmental Filtration 218,676 219,592 409,592 394,455
Packaging 19,833   18,652   35,582   33,977  
$ 399,799   $ 386,642   $ 750,922   $ 699,327  
 
Operating profit by segment:
Engine/Mobile Filtration $ 30,564 $ 26,972 $ 55,310 $ 49,846
Industrial/Environmental Filtration 26,604 23,005 40,612 31,151
Packaging 1,775   1,170   2,214   1,416  
$ 58,943   $ 51,147   $ 98,136   $ 82,413  
 
Operating margin by segment:
Engine/Mobile Filtration 18.9 % 18.2 % 18.1 % 18.4 %
Industrial/Environmental Filtration 12.2 % 10.5 % 9.9 % 7.9 %
Packaging 8.9 % 6.3 % 6.2 % 4.2 %
14.7 % 13.2 % 13.1 % 11.8 %
 

CLARCOR INC. 2015 UNAUDITED SECOND QUARTER RESULTS, continued

Reconciliation of Second Quarter 2014 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 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 May 31, 2014. 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, 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 May 31, 2014 non-GAAP financial measures provided in this release exclude integration, purchase accounting and transaction related costs associated with the GE Air Filtration, Bekaert Advanced Filtration and Stanadyne Filtration acquisitions. Although the comparison of data excluding these selected items in the second quarter ended May 31, 2014 is not a measure 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. Management believes that removing the impact of these selected items provides a more comparable measure of the changes in cost of sales, gross profit, selling and administrative expenses, operating profit, net earnings, basic and diluted earnings per share, gross margin percentage, selling and administrative expenses as a percentage of net sales and operating margin for the quarter ended May 31, 2014 compared to the quarter ended May 30, 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.

    Certain Acquisition Related Costs
(Dollars in thousands, except per share data)

Second
Quarter 2014
GAAP

GE Air
Filtration
Acquisition

Bekaert
Advanced
Filtration
Acquisition

Stanadyne
Filtration
Acquisition

Second
Quarter 2014
Non-GAAP
Adjusted

 
Net sales $ 386,642 $ $ $ $ 386,642
Cost of sales 261,272   (664 ) 1 (120 ) 1 (1,368 ) 1 259,120  
Gross profit 125,370 664 120 1,368 127,522
Selling and administrative expenses 74,223   (1,161 ) 2   (3,035 ) 2 70,027  
Operating profit 51,147   1,825   120   4,403   57,495  
Other income (expense):
Interest expense (670 ) (670 )
Interest income 96 96
Other, net 174         174  
(400 )       (400 )
Earnings before income taxes 50,747 1,825 120 4,403 57,095
Provision for income taxes 16,201   491   40   1,501   18,233  
Net earnings 34,546 1,334 80 2,902 38,862

Net loss attributable to noncontrolling interests, net of tax

6         6  

Net earnings attributable to CLARCOR Inc.

$ 34,552   $ 1,334   $ 80   $ 2,902   $ 38,868  
Net earnings per share attributable to CLARCOR Inc. – Basic $ 0.68   $ 0.03   $   $ 0.06   $ 0.77  
Net earnings per share attributable to CLARCOR Inc. – Diluted $ 0.68   $ 0.03   $   $ 0.06   $ 0.76  
Gross margin percentage 32.4 % 0.2 % 0.0 % 0.4 % 33.0 %
Selling and administrative expenses as a percentage of net sales 19.2 % (0.3 )% 0.0 % (0.8 )% 18.1 %
Operating margin 13.2 % 0.5 % 0.0 % 1.2 % 14.9 %

1 – Purchase accounting step-up in inventory basis.

2 – Integration costs and accelerated amortization of backlog pursuant to purchase accounting.

CLARCOR INC. 2015 UNAUDITED SECOND QUARTER RESULTS, continued

Reconciliation of First Six Months 2014 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 income (expense), 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 six months ended May 31, 2014. 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 income (expense), 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 six months ended May 31, 2014 non-GAAP financial measures provided in this release exclude integration, purchase accounting and transaction related costs associated with the GE Air Filtration, Bekaert Advanced Filtration and Stanadyne Filtration acquisitions and a bargain purchase gain recognized pursuant to the Bekaert Advanced Filtration acquisition. Although the comparison of data excluding these selected items in the second quarter ended May 31, 2014 is not a measure 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. Management believes that removing the impact of these selected items provides a more comparable measure of the changes in cost of sales, gross profit, selling and administrative expenses, operating profit, operating margin, other income (expense), net earnings, basic and diluted earnings per share, gross margin percentage, selling and administrative expenses as a percentage of net sales and operating margin for the first six months ended May 31, 2014 compared to the first six months ended May 30, 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.

    Certain Acquisition Related Costs
(Dollars in thousands, except per share data)

First Six
Months 2014
GAAP

GE Air
Filtration
Acquisition

Bekaert
Advanced
Filtration
Acquisition

Stanadyne
Filtration
Acquisition

First Six
Months 2014
Non-GAAP
Adjusted

 
Net sales $ 699,327 $ $ $ $ 699,327
Cost of sales 477,370   (4,216 ) 1 (240 ) 1 (1,368 ) 1 471,546  
Gross profit 221,957 4,216 240 1,368 227,781
Selling and administrative expenses 139,544   (4,263 ) 2 (130 ) 2 (3,035 ) 2 132,116  
Operating profit 82,413   8,479   370   4,403   95,665  
Other income (expense):
Interest expense (1,070 ) (1,070 )
Interest income 203 203
Other, net 4,145     (2,814 ) 3   1,331  
3,278     (2,814 )   464  
Earnings (loss) before income taxes 85,691 8,479 (2,444 ) 4,403 96,129
Provision for income taxes 26,804   2,281   123   1,501   30,709  
Net earnings (loss) 58,887 6,198 (2,567 ) 2,902 65,420

Net earnings attributable to noncontrolling interests, net of tax

(14 )       (14 )

Net earnings attributable to CLARCOR Inc.

$ 58,873   $ 6,198   $ (2,567 ) $ 2,902   $ 65,406  
Net earnings per share attributable to CLARCOR Inc. – Basic $ 1.17   $ 0.12   $ (0.05 ) $ 0.06   $ 1.30  
Net earnings per share attributable to CLARCOR Inc. – Diluted $ 1.16   $ 0.12   $ (0.05 ) $ 0.06   $ 1.28  
Gross margin percentage 31.7 % 0.6 % 0.0 % 0.2 % 32.6 %
Selling and administrative expenses as a percentage of net sales 20.0 % (0.6 )% 0.0 % (0.4 )% 18.9 %
Operating margin 11.8 % 1.2 % 0.1 % 0.6 % 13.7 %

1 – Purchase accounting step-up in inventory basis.

2 – Integration costs and accelerated amortization of backlog pursuant to purchase accounting.

3 – Bargain purchase gain (non-taxable)

CLARCOR INC. 2015 UNAUDITED SECOND QUARTER RESULTS, continued

Reconciliation of Second Quarter 2015 Net Sales to Organic Net Sales

The following appendix presents information with respect to second quarter 2015 organic net sales at the consolidated and segment level. These organic net sales figures reflect second quarter 2015 GAAP net sales adjusted to exclude additional sales pursuant to the Stanadyne Filtration acquisition during the 2015 second quarter occurring prior to May 1, 2015 (the first anniversary of the completion of this acquisition), additional sales pursuant to the Filter Resources acquisition, and changes in average foreign currency exchange rates from the second quarter of 2014. Although the comparison of data adjusted for these items in the second quarter of 2015 is not a measure of financial performance under GAAP, the Company believes that presenting organic net sales for this period may assist investors in understanding the Company’s performance between periods by excluding the impact of the Stanadyne Filtration and Filter Resources acquisitions to the extent noted above and the changes in average foreign currency exchange rates. Organic net sales may have limitations as an analytical tool, and management does not intend this measure to be considered in isolation or as a substitute for GAAP net sales. Following is a reconciliation of GAAP net sales for the second quarter of 2015 to organic net sales at the consolidated and segment level.

  Second Quarter 2015     2Q 2014        
               
Net Sales

Stanadyne
Acquisition

Filter
Resources
Acquisition

Foreign
Exchange

Organic
Net Sales

Net Sales

Organic
Net Sales
Growth

Organic
Net Sales
Growth %

 
Engine/Mobile:
 
U.S. $ 109,972 $ (10,920 ) $ $ $ 99,052 $ 95,015 $ 4,037 4 %
International 51,318   (7,061 )   4,330   48,587   53,383   (4,796 ) (9 )%
$ 161,290   $ (17,981 ) $   $ 4,330   $ 147,639   $ 148,398   $ (759 ) (1 )%
 
Industrial/Environmental:
 
U.S. $ 155,832 $ $ (5,134 ) $ $ 150,698 $ 141,358 $ 9,340 7 %
International 62,844       8,725   71,569   78,234   (6,665 ) (9 )%
$ 218,676   $   $ (5,134 ) $ 8,725   $ 222,267   $ 219,592   $ 2,675   1 %
 
Packaging:
 
U.S. $ 19,643 $ $ $ $ 19,643 $ 18,382 $ 1,261 7 %
International 190         190   270   (80 ) (30 )%
$ 19,833   $   $   $   $ 19,833   $ 18,652   $ 1,181   6 %
 
Consolidated:
 
U.S. $ 285,447 $ (10,920 ) $ (5,134 ) $ $ 269,393 $ 254,755 $ 14,638 6 %
International 114,352   (7,061 )   13,055   120,346   131,887   (11,541 ) (9 )%
$ 399,799   $ (17,981 ) $ (5,134 ) $ 13,055   $ 389,739   $ 386,642   $ 3,097   1 %

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