ANNUAL REPORT 2001 ONE CALL ONE SOLUTION ONE SOURCE CLARCOR TOTAL FILTRATION

Transcription

1 ANNUAL REPORT 2001 ONE CALL ONE SOLUTION ONE SOURCE CLARCOR TOTAL FILTRATION

2 Heavy-duty and light-duty trucks Agricultural and construction vehicles Railroad locomotives CLARCOR is a global provider of filtration products and services. We have a worldwide customer base, superb product quality, well-known brands, an extensive distribution network, the industry s broadest product line and its largest sales force. Our focus on a consumable, disposable product that is continually purchased, used and then repurchased provides CLARCOR with a stable source of recurring business. Our goal is to record compound annual growth rates in earnings per share of 10% to 15% driven by internal growth programs, cost reduction efforts and acquisitions. ENGINE/MOBILE FILTRATION Worldwide Market Size $4 billion Customers: Product Brands: Major Product Lines: Applications: CLARCOR 2001 Revenues $251 million Aftermarket distributors and dealers, OEM truck and engine manufacturers, major fleets, private label accounts, parts wholesalers and jobbers, railroads, national accounts, truck quick lube and service centers Baldwin Filters, Hastings Filters, Clark Filter Heavy-duty and light-duty oil, air, hydraulic, coolant, transmission, fuel and desiccant filters, fuel/water separators Trucks, buses, automobiles, construction equipment, locomotives, marine equipment, mining equipment, agricultural equipment, industrial equipment INDUSTRIAL/ENVIRONMENTAL FILTRATION Worldwide Market Size $25 billion CLARCOR 2001 Revenues $346 million Customers: Environmental Product Brands: Worldwide Market Size $7 billion Major Product Lines: Applications: Process Product Brands: Worldwide Market Size $18 billion Major Product Lines: Applications: Commercial and industrial distributors, OEM and dealer networks, private label accounts, retailers, national accounts Purolator, Airguard, Facet, UAS (United Air Specialists), ATI (Air Technologies, Inc.) Air filters, antimicrobial filters, dust collection systems and filters, electrostatic air filtration, carbon filters, paint overspray filters, HEPA filters, air pollution control systems Residences, commercial and industrial buildings, factories and plants, clean rooms, hospitals and medical facilities, industrial machinery, power generation Purolator Facet, Facet, Purolator, FPI (Filter Products, Inc.) Hydraulic filters, sand control filters, aviation fuel filters, waste water filters, fuel/water separators, oil/water separators and coalescers, blood filtration, depth filters, microfiltration and ultrafiltration products Airports and aircraft, oil drilling and refining, chemical, paper, pharmaceutical, food and beverage processing, general manufacturing, medical, utilities, office equipment, shipyards, military, power generation, water treatment

3 Residences Commercial and industrial buildings Clean rooms Petrochemical FINANCIAL HIGHLIGHTS (Dollars in thousands except per share data) YEARS ENDED NOVEMBER % CHANGE Net Sales... $666,964 $652, Operating Profit... 75,810 75, Net Earnings... 41,893 40, Percent of Net Sales % 6.2% Percent of Beginning Shareholders Equity % 19.1% Basic Earnings per Average Share Diluted Earnings per Average Share Cash Dividends Paid per Share EBITDA (Operating profit before depreciation, asset impairment and amortization) ,082 97, Free Cash Flow (Operating cash flow less plant asset additions and dividends)... 33,511 13, Working Capital , , Shareholders Equity , , Per Share at Year-End Long-Term Debt as Percent of Total Capital % 36.9% Shares Outstanding at Year-End... 24,626,236 24,381, Employees at Year-End... 4,545 4, NET SALES IN MILLIONS EBITDA IN MILLIONS DILUTED EARNINGS PER SHARE CONTENTS Financial Highlights 1 Shareholder Letter 2 Business Overview 4 CLARCOR Worldwide 6 Financial Report 7 11-Year Financial Review 26 Corporate Information 28 CLARCOR 1

4 TO OUR SHAREHOLDERS... 2 In my letter to you last year I wrote, We approach 2001 optimistically, but we are conscious of a slowing world economy. In addition to a recession in 2001, none of us could have imagined the events of September 11th and its impact on our country and our economy. Still, CLARCOR had a solid fiscal Sales, earnings and cash flow all ended higher in 2001 than in fiscal 2000 and we made substantial progress in building our Total Filtration Program. Moreover, even after a significant acquisition, we strengthened our balance sheet with increased shareholders equity and lower borrowings. Overall filter markets continue to grow about 2-3% faster than the economy. There is an increasing demand for a cleaner environment and workplace, and filter maintenance requirements for transportation and manufacturing equipment also continue to expand. The majority of the products we sell are consumable and disposable, and are sold mostly to the aftermarket. Since our customers will always need to maintain their facilities and equipment, this provides us with a stable base of business when the economy is slow. Equally important, we have a strong platform to grow our business when the economy recovers. THE CLARCOR TOTAL FILTRATION PROGRAM I wrote last year about the CLARCOR Total Filtration Program and our initial efforts to become the total filter supplier to companies throughout North America. The Total Filtration Program is one of our principal growth strategies: to provide a company s entire filter requirements, not just certain filters for specific applications. The worldwide filtration market is very large with sales approaching $30 billion annually. The CLARCOR Total Filtration Program now gives us the opportunity to sell to nearly all of this market. Let me tell you some of the things we accomplished in 2001: CLARCOR became the exclusive filter supplier to a $13 billion manufacturing company for its 40 plants in North America. After each plant is converted to the CLARCOR program, we expect customer purchases to exceed $4 million annually. Before this year, CLARCOR had not sold filters to this company. CLARCOR CLARCOR became the exclusive filter supplier to a $20 billion diversified manufacturing company with over 150 facilities in North America. We will supply the filtration needs for its manufacturing plants, warehouses and offices. We expect that total customer purchases will exceed $5 million annually. We developed Total Filtration Programs for specific industries and applications, including power plants, petrochemical companies and integrated suppliers. By the end of 2001, we had signed several total filter contracts in these areas and were negotiating filter contracts with additional companies. These contracts are with companies which previously had little or no business with CLARCOR. Norman E. Johnson, Chairman, President and Chief Executive Officer In June 2001, we strengthened our Total Filtration Program with the acquisition of Total Filtration Services (TFS). The leading total filter supplier to the North American automotive industry, TFS serves over 90 manufacturing and assembly plants. TFS has developed the logistics and technical support systems critical to providing a comprehensive total filter management program to customers with multiple locations and sophisticated filtration requirements. We are currently presenting the CLARCOR Total Filtration Program to many potential customers. Some are current customers who already buy part of their filtration needs from CLARCOR. Some are companies who have never previously purchased our filters, and some are our current distributors who previously purchased only one of our filter brands. What they find attractive about our program is the ease and convenience of ordering, the expertise we have to provide the right filter solution wherever they operate, the breadth and quality of our filters, and our ability to offer the level of service and responsiveness they require. The appeal of the Total Filtration Program is obvious to every company and distributor we speak to. It makes their life simpler and, in most cases, will save them money. OUR FISCAL 2001 OPERATING RESULTS Overall, we were pleased with this year s results. However, growth was less than in prior years, and the increases in sales and earnings were less than we expected when the year began. Despite the slowing economy which affected most industrial companies in 2001 and the aftermath of the terrible events of

5 September 11th, sales grew by 2.3% and net earnings by 4.1%. After capital expenditures for new facilities and equipment, investment in working capital and payment of dividends, free cash flow more than doubled to $34 million, a new record. We paid particular attention to discretionary spending as the economy slowed during the year. As a result, we reduced selling and administrative costs in 2001 as a percentage of sales below 2000 levels. We believe this will benefit us when the economy recovers. In addition to our focus on developing the Total Filtration Program, we also accomplished a lot in other areas in Several filter manufacturing plants that opened during 2000 in our Industrial/Environmental segment became progressively more efficient and productive throughout the year. By year-end, each of these plants was profitable, and we expect they will become more so in We developed more new filter products than we had in any other year in our history. When it became apparent that 2001 was going to be a difficult year, our operating companies initiated new cost reduction programs. We successfully began manufacturing our electrostatic air pollution control systems in our Weifang, China plant for sale in China and throughout Southeast Asia. With increased oil drilling in 2001, sales of our sand control filters grew, and we introduced a less costly version for certain environments, which should increase sales further. Overall, 2001 was a solid year for CLARCOR and provides a base for greater growth as we move into OUR PEOPLE We were fortunate to have Keith Wandell join our Board of Directors in March Keith is the President of the Automotive Systems Group, Battery at Johnson Controls, Inc. in Milwaukee, Wisconsin. His experience in operations and marketing is an asset to CLARCOR. At our Annual Meeting in March 2002, Milt Brown will retire from our Board of Directors. Milt joined our Board in 1990 and we deeply appreciate the counsel and guidance he has given us over the years. I am very pleased that we were able to hire Sam Ferrise as the new President for our Baldwin Filters operation and Rich Larson as the new President for United Air Specialists. Both Sam and Rich bring great experience, enthusiasm and drive to these companies. We are fortunate to have both working with us. customers, they have made CLARCOR, over a period of nearly 100 years, into what I firmly believe is the best company in our industry. OUR FUTURE As the economy recovers, we expect 2002 will be a better year than 2001 and that both sales and net earnings will grow at a faster rate than in We also expect CLARCOR to grow faster than the filtration industry. The investments we have made in people, systems and marketing programs for our Total Filtration Program will provide an increasing return over the next several years. The result is that internal growth will come from two areas: First, it will come from the individual efforts of each company developing and selling its own products to its own customers with new product development and aggressive marketing programs. Second, each company will work, through the Total Filtration Program, to reach those customers seeking complete filter solutions that require the combined efforts and product offerings of all of our operating companies. Over the years, one of CLARCOR s hallmarks has been our consistent growth and profitability. Sales have increased for 15 consecutive years and profits for nine consecutive years. We have a strong foundation: a worldwide customer base, superb product quality, an extensive distribution network, the industry s broadest product line and its largest sales force. Our filters are used everywhere you look. Our focus on a consumable, disposable product that is continually purchased, used and then repurchased provides CLARCOR with a strong source of recurring business. When combined with our Total Filtration Program, I am tremendously excited about our future prospects and the ability of our company to bring value to our shareholders, our customers and our employees. Norman E. Johnson, Chairman, President and Chief Executive Officer February 1, 2002 I also want to recognize all the employees at CLARCOR. Through their perseverance, imagination and dedication to delivering continuing value to our CLARCOR 3

6 One Call Product List Cross Reference A single call to CLARCOR Total Filtration puts the resources and expertise of our filtration manufacturing, distribution and service companies at your disposal. TOTAL FILTRATION: WHAT IT IS AND HOW IT WORKS The CLARCOR Total Filtration Program enables our customers to purchase 100% of their filter requirements from one company. Whether the filters are used to clean fluids used in manufacturing equipment; to purify the air in offices, factories, hospitals and homes; to protect trucks, construction and farm equipment, automobiles and locomotives; or to provide the specialized filtration needs for oil drilling, power plants, pharmaceutical production, aviation refueling, or biohazard air contamination, CLARCOR provides the filters to meet these and many other filtration needs. We believe CLARCOR has the largest number of filters for more filter applications than any other company in the world. For our customers, this means that rather than purchasing filters from a variety of different suppliers, they can purchase their entire filter needs from one company. With more than 20 filter manufacturing plants, dozens of warehouses, over 25 company-owned filter outlets, thousands of distributors throughout North America and the largest filter sales force in the industry, CLARCOR provides customers with the right filter at the right location at the right time. more filter products for more filter applications in more filter markets than anyone else anywhere! We compare the filters you currently use to the filters manufactured in our plants and available through our distribution network which is the largest in the industry. OUR ACCOMPLISHMENTS IN 2001 Expanded the CLARCOR Total Filtration Program with new customers, including several Fortune 500 companies. Equally important, we began discussions with a number of the largest corporations in the United States about the Program s benefits and expect to sign additional agreements in Acquired Total Filtration Services (TFS) in June. TFS provides filtration management services to all of the major automotive companies and has developed the product procurement and delivery systems critical to making the Total Filtration Program successful. Through continual efforts during the year to reduce costs, our selling and administrative expenses were a lower percentage of sales in 2001 than they were in Maintaining appropriate cost disciplines regardless of the state of the economy is an important objective for CLARCOR. Significantly increased productivity in our newer manufacturing and distribution facilities and we expect further productivity gains in Other accomplishments: A team of experienced filtration experts will visit your facilities to make a record of your filter applications and assess your filtration needs. We will recommend alternatives to improve filter efficiency and longevity and will provide a copy of our report for your review. Developed a new, less costly version of our successful sand control filter which is used extensively in the oil drilling industry. Secured the largest number of FAA approvals ever received by CLARCOR for aerospace filter applications. Began manufacturing our electrostatic air pollution control systems in our Weifang, China plant for sale throughout China and Southeast Asia. Demand for these systems in this region has greatly exceeded our expectations. 4 CLARCOR Set a new record in 2001 by generating free cash flow of $34 million, after investments in new plant and equipment and working capital and payment of dividends. This enabled us to increase the dividend to our shareholders for the 18th consecutive year, reduce our bank borrowings and pay for a significant acquisition.

7 ONE SOURCE Facility Survey One Solution We will then provide you with a quotation to meet your entire filtration requirements whether to clean the air in your buildings, to provide filtration for your transportation fleet and production machinery or to meet your specialized filtration needs. CLARCOR Total Filtration will reduce your costs, simplify your purchasing and reduce the number of your suppliers. CLARCOR Total Filtration is your single source supplier for all your filtration needs: Total Coverage, Total Quality, Total Service, Total Savings, Total Innovation. OUR GOALS FOR 2002 Our #1 goal for 2002 is to grow the CLARCOR Total Filtration Program. We will allocate resources to expand our product procurement systems, our product development efforts and our distribution systems, and to train our people to make the Program the single, best way for companies throughout the world to meet all their filtration needs. We will offer TFS filtration management programs to non-automotive industrial companies through CLARCOR s extensive distribution and sales network. We will focus on continuing to improve our manufacturing productivity by rationalizing plant capacity. Though we have made great strides in the past year in increasing production efficiencies and achieving cost savings, we believe there are still significant opportunities to do even better. Cost reductions have always been a way of life at CLARCOR. This will continue in We expect the U.S. economy to recover later this year, but as in 2001, we will work throughout the year to reduce our costs. Our goal is the same as last year: to reduce our costs even as sales increase. Though we already offer more filters and more filter applications than any other company in our industry, in 2002 we will increase our new product development efforts. In addition, our acquisition strategy will focus on opportunities to further expand our filter range. Financial strength continues to be one of CLARCOR s hallmarks. We operate CLARCOR prudently with a constant focus on providing increasing value to our shareholders. We expect to generate significant free cash flow in 2002, as we did in 2001, which we will use to pay dividends to our shareholders, expand our operations in North America and internationally, and to further reduce our outstanding borrowings. THE CLARCOR STRATEGY Our strategy is two-fold: Each of our operating units will strive to become the best filter company within its own market segment. Each will work to always be the lowest cost manufacturer, with the highest quality and most extensive product line for our customers. Our companies will continue to invest to strengthen their product brands and to differentiate their filter offerings from competitors. Our companies will work together to promote the CLARCOR Total Filtration Program. Drawing on the broadest product range, the largest sales force and the most extensive distribution network in the filter industry, CLARCOR can offer its customers the ability to purchase 100% of their filter requirements from one company. For our customers, the advantages are obvious: a simpler purchasing experience, consistently high product quality, cost savings and the technical expertise and experience to solve the most difficult filtration problems. THE CLARCOR TOTAL FILTRATION VISION We will be the best filter company in the world, with the widest product offering, the highest quality products and unsurpassed customer service. Above all, we will strive to meet the entire filter needs of every one of our customers at any time and at any place. CLARCOR 5

8 CLARCOR WORLDWIDE CLARCOR CORPORATE OFFICES Rockford, Illinois ENGINE/MOBILE FILTRATION INDUSTRIAL/ENVIRONMENTAL FILTRATION BALDWIN FILTERS Headquarters: Kearney, Nebraska Other U.S. Locations: Gothenburg, Nebraska Yankton, South Dakota International Locations: Australia Belgium China Mexico South Africa United Kingdom CLARK FILTER Headquarters: Lancaster, Pennsylvania PACKAGING J.L. CLARK Headquarters: Rockford, Illinois Other U.S. Locations: Lathrop, California Lancaster, Pennsylvania AIRGUARD Headquarters: Louisville, Kentucky Other U.S. Locations: Birmingham, Alabama Corona, California Commerce City, Colorado Atlanta, Georgia Rockford, Illinois New Albany, Indiana Ottawa, Kansas Campbellsville & Jeffersontown, Kentucky Kansas City, Missouri Gastonia, North Carolina Cincinnati, Columbus & Toledo, Ohio Portland, Oregon Nashville, Tennessee Dallas, Texas International Locations: Malaysia Singapore FACET INTERNATIONAL U.S. Locations: Stillwell & Tulsa, Oklahoma International Locations: Australia France Germany Italy Netherlands Spain United Kingdom FILTER PRODUCTS, INC. Headquarters: Sacramento, California PUROLATOR AIR FILTRATION Headquarters: Henderson, North Carolina Other U.S. Locations: Fresno, Hayward & Sacramento, California Davenport, Iowa Wichita, Kansas Sparks, Nevada Metuchen, New Jersey Kenly, North Carolina Fairfax, Virginia Auburn, Washington PUROLATOR FACET, INC. Headquarters: Greensboro, North Carolina TOTAL FILTRATION SERVICES Headquarters: Rochester Hills, Michigan Other U.S. Locations: Cincinnati, Ohio Goodlettsville, Tennessee International Locations: Mexico UNITED AIR SPECIALISTS Headquarters: Cincinnati, Ohio Other U.S. Locations: Phoenix, Arizona Anaheim & Hayward, California Louisville, Kentucky Troy, Michigan Jackson, Mississippi Houston, Texas International Locations: Germany United Kingdom 6 CLARCOR

9 FINANCIAL REVIEW (Dollars in millions except per share data) CLARCOR s operating results for fiscal 2001 reached record levels for sales, cash flow and earnings. Fiscal 2001 included six-month results from Total Filtration Services, Inc. (TFS) which was acquired at the beginning of the third quarter of fiscal This acquisition increased CLARCOR s sales and operating profit, and after related interest and amortization expenses, also increased net earnings and diluted earnings per share in fiscal Purchase accounting adjustments for the acquisition will be completed in fiscal 2002 as described in Note C to the Consolidated Financial Statements. The Company also made several smaller acquisitions in fiscal 2000 that were not material to the Company s operating results. Fiscal 2000 included the full-year results from three industrial filtration companies (hereafter, the Industrial Filtration Acquisitions) that were acquired at the beginning of the fourth quarter TFS, the Industrial Filtration Acquisitions and the smaller fiscal 2000 acquisitions are included in the Industrial/Environmental Filtration segment. The information presented in this financial review should be read in conjunction with other financial information provided throughout this 2001 Annual Report. The following discussion of operating results focuses on the Company s three reportable business segments: Engine/Mobile Filtration, Industrial/Environmental Filtration and Packaging. Fiscal 2001 was a fifty-two week year for the Company and fiscal years 2000 and 1999 were fifty-three and fifty-two week years, respectively. OPERATING RESULTS Sales Net sales in fiscal 2001 were $667.0 million, a 2.3% increase from $652.1 million in fiscal The 2001 net sales included approximately $28 million for TFS which was acquired at the beginning of the third quarter. Fiscal 2000 included approximately $12-$13 million in additional sales compared to fiscal 2001 as fiscal year 2000 was a fifty-three week year for the Company. The 2001 sales increase was the 15th consecutive year of sales growth for the Company. Net sales grew 36.5% in 2000 over the 1999 level of $477.9 million primarily due to a full year of sales from the Industrial Filtration Acquisitions compared to 1999 which included only the fourth quarter activity. Excluding the additional sales from the Industrial Filtration Acquisitions, sales increased approximately 11% in 2000 from Comparative net sales information related to CLARCOR s operating segments is shown in the following tables vs Change NET SALES 2001 % Total $ % Engine/Mobile Filtration... $ % $ (8.8) -3.4% Industrial/Environmental Filtration % 26.7) 8.3% Packaging % (3.0) -4.1% Total... $ % $ % 2000 vs Change NET SALES 2000 % Total $ % Engine/Mobile Filtration... $ % $ % Industrial/Environmental Filtration % % Packaging % % Total... $ % $ % The Engine/Mobile Filtration segment s sales decreased 3.4% in 2001 from 2000, or approximately 1.5%, excluding the additional week in fiscal The segment s sales were lower than expected for fiscal 2001 due to the slowdown in the U.S. economy that led to competitive pricing pressures and a reduction in inventory levels and product demand by our customers. Fiscal 2000 sales included increases for heavy-duty, light-duty and railroad filter products from both domestic and international markets compared to fiscal The segment s sales were favorably impacted in 2000 by new product introductions, additional OEM sales, and penetration into new domestic and international distribution channels, primarily through sales to quick lube and truck service centers, fleets and automotive parts buying groups. The Company s Industrial/Environmental Filtration segment recorded an 8.3% increase in sales in 2001 over Included in 2001 were sales of approximately $28 million for six months of activity from TFS. Excluding sales from TFS and the additional week in fiscal 2000, sales for the segment increased approximately 1.5% compared to fiscal Fiscal 2001 also included additional sales from new products introduced late in fiscal 2000 and greater distribution coverage for environmental filters. This increase was partially offset by lower sales due to the U.S. economic recession which primarily affected sales of filtration equipment and systems. The segment s sales increased 82.8% in 2000, or excluding acquisitions, approximately 11% over fiscal The 11% sales increase resulted primarily from higher sales of environmental air filtration and electrostatic air quality products. The Packaging segment s sales of $69.6 million decreased 4.1% in fiscal 2001 from Included in 2001 was a nonrecurring $7.0 million payment arising from the early termination of a supply and license agreement by a customer. Sales to this customer of plastic closures decreased substantially beginning in the first quarter The segment was unable to completely replace this business during the year although sales increased for non-promotional metal packaging products and flat sheet decorating. The segment focuses on sales of non-promotional packaging products such as metal closures for food and beverage containers, wire spools, and film and battery cartridges. This focus resulted in a 12.9% increase in sales in 2000 from Operating Profit Operating profit of $75.8 million in 2001 was slightly lower than $76.0 million in Operating profit in 2001 included approximately $1.2 million from the TFS acquisition and operating profit in 2000 included approximately $1.5 million of additional profit due to the fifty-three week fiscal year in Operating profit increased 35.5% in fiscal 2000 from Excluding the Industrial Filtration Acquisitions, fiscal CLARCOR 7

10 FINANCIAL REVIEW (Dollars in millions except per share data) operating profit rose approximately 19% over fiscal Operating margin was 11.4% of sales in 2001 and 11.7% of sales in both fiscal 2000 and In both fiscal 2001 and 2000, continued cost reductions, improved manufacturing productivity and the integration of acquired businesses positively impacted operating margin. These profit improvements offset, in part, competitive pricing pressures and cost increases the Company experienced for energy, employee insurance and pensions. Selling and administrative expenses were reduced to $119.7 million in 2001 from $122.3 million in 2000 primarily due to discretionary cost reductions and reduced incentive compensation expenses. Selling and administrative expenses increased to $122.3 million in 2000 from $92.5 million in 1999 primarily due to the Industrial Filtration Acquisitions that were included for an additional nine months in 2000 and related amortization charges, and also due to new product development and sales and marketing programs. Although foreign currency fluctuations reduced sales and operating profit in fiscal 2001 and 2000, currency adjustments did not have a material impact on consolidated operating profit in 2001, 2000 or Comparative operating profit information related to the Company s business segments is as follows vs Change OPERATING PROFIT 2001 % Total $ % Engine/Mobile Filtration... $ % $ % Industrial/Environmental Filtration % (1.6) -9.1% Packaging % (1.2) -13.4% Total... $ % $ (0.2) -0.2% 2000 vs Change OPERATING PROFIT 2000 % Total $ % Engine/Mobile Filtration... $ % $ % Industrial/Environmental Filtration % % Packaging % % Total... $ % $ % OPERATING MARGIN AS A PERCENT OF NET SALES Engine/Mobile Filtration % 18.9% 18.3% Industrial/Environmental Filtration % 5.8% 2.9% Packaging % 11.6% 11.5% Total % 11.7% 11.7% Operating profit for the Engine/Mobile Filtration segment increased to $51.8 million in 2001 from $49.2 million in 2000, an increase of 5.3%. Operating margin as a percent of sales in fiscal 2001 improved to a record 20.6% from 18.9% in 2000 and 18.3% in In fiscal 2001, the segment s operating margin improved as a result of material and labor cost reductions and improved productivity in its main distribution and light-duty filter manufacturing facilities. These improvements more than offset increased energy and employee insurance costs and competitive pricing pressures. In fiscal 2000, the segment s operating profit was favorably impacted compared to CLARCOR 1999 by higher sales volumes, productivity improvements and reduced legal costs, which more than offset the negative impacts of increased energy, labor and raw material costs. The Industrial/Environmental Filtration segment s operating profit in 2001 was $16.8 million, a decrease from $18.4 million in 2000 primarily as a result of start-up costs early in fiscal 2001 related to two new production facilities and reduced sales of filtration equipment and systems. The start-up costs associated with the new facilities and new product introductions decreased during the third quarter of 2001 as production efficiencies and capacity utilization improved. Fiscal 2001 also included approximately $1.2 million of operating profit from TFS for the six-month period since the acquisition. The segment s operating profit of $18.4 million in 2000 increased significantly from $5.1 million in Approximately $9 million of the increase was due to the Industrial Filtration Acquisitions. The remaining increase of $4.3 million, or an increase of approximately 90%, was due to improvements in previously existing businesses. The increased profit in these businesses reflected a significantly higher sales volume of industrial and environmental air filtration products, improved manufacturing operations and significant reductions in overhead and administrative costs, many of which were implemented beginning in fiscal The Packaging segment s operating profit in fiscal 2001 decreased to $7.2 million from $8.4 million in fiscal Fiscal 2001 results included approximately $7.0 million related to a non-recurring termination payment from a customer that was reduced by $2.4 million for related asset impairment charges. Excluding this item, operating profit was lower than 2000 due to the lower sales of plastic closures to this customer, reduced capacity utilization, higher energy and pension costs, and increased costs related to the installation of new lithography equipment in early Due to difficulties with the start-up of this new equipment, plant utilization was reduced throughout 2001 from expected levels and costs were incurred for product scrap and rework. In fiscal 2000, the segment s operating profit increased to $8.4 million from $7.4 million in 1999, or 13.9%. This increase resulted from better capacity utilization, a significant increase in sales volume and reduced discretionary spending. Other Income & Expense Net other expense totaled $10.1 million in 2001, $12.5 million in 2000 and $0.5 million in Interest expense of $10.3 million was lower in 2001 compared with $11.5 million in 2000, due to declining interest rates and reduced overall borrowings during the year. Interest expense increased in 2000 from $3.7 million in 1999 due to additional borrowings in the fourth quarter of 1999 for the Industrial Filtration Acquisitions. Interest income was $0.7 million for both 2001 and 2000, which was reduced from $1.5 million in 1999 as a result of lower interest rates and lower average cash and short-term cash investment balances primarily due to the use of cash for acquisitions in Currency gains of $0.2 million in 2001 and losses of $1.2 million in 2000 resulted primarily from fluctuations in European currency exchange rates against the U.S. dollar. There were no significant gains or losses on the disposition of plant assets in fiscal 2001 or 2000; however, a gain of $1.7 million recorded in 1999 was primarily from the sale of a building.

11 Provision for Income Taxes The provision for income taxes in 2001 was $23.8 million and resulted in an effective tax rate of 36.2%, which was slightly lower than the effective tax rate of 36.5% in The effective tax rate was 36.2% in The effective tax rate in 2002 is expected to be approximately the same rate as recorded in Net Earnings and Earnings Per Share Net earnings were a record $41.9 million in 2001, or diluted earnings per share of $1.68, compared to $40.2 million, or $1.64 per diluted share in Net earnings in 1999 were $35.4 million, or $1.46 per diluted share. Diluted average shares outstanding for fiscal 2001 were 24,892,062 compared to 24,506,171 for 2000, an increase of 1.6%. Diluted average shares outstanding for fiscal 1999 were 24,313,607. The increase in outstanding shares was primarily due to stock options. FINANCIAL CONDITION Corporate Liquidity The Consolidated Statements of Cash Flows are shown on page 15, and this discussion of corporate liquidity should be read in conjunction with information presented in those statements. Cash and short-term cash investments decreased to $7.4 million at year-end 2001 from $10.9 million at year-end Cash provided by operating activities totaled $63.3 million in 2001 compared to $54.1 million in 2000 and $38.6 million in As a result of an increased emphasis on working capital management during fiscal 2001, accounts receivable and inventories decreased excluding the TFS assets acquired in the third quarter Accounts receivable and inventories increased during 2000 due to the higher level of business activity throughout the Company. Other current assets and pension liabilities were reduced in 2000 as restricted trust assets were used for the payment of nonqualified pension liabilities. Depreciation and amortization increased in fiscal 2000 from 1999 primarily due to the fourth quarter 1999 Industrial Filtration Acquisitions. The Company used cash of $51.4 million for investing activities in 2001, $42.1 million in 2000 and $160.7 million in Cash used for acquisitions in 2001, primarily for TFS, totaled $33.4 million, while cash used for the acquisition of several small filtration businesses in 2000 totaled $12.7 million. In fiscal 1999, $142.7 million, net of cash acquired, was used for acquisitions, primarily the Industrial Filtration Acquisitions. Additions to plant assets totaled $18.2 million in 2001 and included residual payments on several projects begun in fiscal Additions to plant assets in 2000 totaled $29.0 million and included payments on new state-of-the-art lithography equipment, the purchase and refurbishment of a manufacturing building in Campbellsville, Kentucky, and additional manufacturing capacity throughout the Company. Additions to plant assets in 1999 of $21.8 million included adding plant capacity and the completion of an expansion to a manufacturing and distribution facility in Kearney, Nebraska. Cash of $3.9 million was received in 1999 primarily from the sale of a building. Net cash used in financing activities totaled $15.3 million and $15.9 million in 2001 and 2000, respectively. The Company received $8.0 million in 2001 from the issuance of industrial revenue bonds related to the manufacturing facility in Campbellsville, Kentucky. During 2001 the Company also borrowed an additional $27.5 million against a revolving credit agreement, primarily for the TFS acquisition; however, payments of $36.5 million were made during the year which reduced the total borrowed from the agreement at year-end 2001 to $107.0 million. The Company borrowed a net additional $1.0 million against the revolving credit agreement during Net cash provided by financing activities in fiscal 1999 totaled $103.5 million and included $115.0 million in borrowings used for the Industrial Filtration Acquisitions. The Company did not repurchase any shares in 2001 or 2000 under the remaining authorization of approximately 920,000 shares from the December 1997 Board of Directors approved stock repurchase plan. The Company purchased 50,000 shares of CLARCOR common stock for $0.9 million in Dividend payments totaled $11.6 million, $11.2 million and $10.8 million in 2001, 2000 and 1999, respectively. Payments on longterm debt were $5.3 million in 2001, $7.0 million in 2000 and $0.5 million in CLARCOR s current operations continue to generate cash and sufficient lines of credit remain available to fund current operating needs, pay dividends, provide for additions and the replacement of necessary plant facilities, and to service and repay long-term debt. Capital expenditures for normal facility maintenance, productivity improvements and new products are expected to be approximately $21-$23 million in fiscal Due to the September 1999 Industrial Filtration Acquisitions, a $185.0 million multicurrency revolving credit facility was established with several financial institutions. Of the $185.0 million, a total of $107.0 million of the credit facility was outstanding as of year-end 2001 and $11.2 million was outstanding for letters of credit. Principal payments on longterm debt will be approximately $5.6 million in 2002 based on scheduled payments in current debt agreements. No payments are required in fiscal 2002 on the multicurrency revolving credit facility and the Company is in compliance with all covenants related to the credit facility, as described in Note H to the Consolidated Financial Statements. Other than operating leases, as described in Note I to the Consolidated Financial Statements, the Company has no material off-balance sheet arrangements. Commitments for noncancellable leases in 2002 total approximately $7.3 million. While customer demand for our products will affect operating cash flow, the Company is not aware of any known trends, demands or reasonably likely events that would materially affect cash flow from operations in the future. It is possible that business acquisitions or dispositions could be made in the future that may require changes in the Company s debt and capitalization. Capital Resources The Company s financial position at November 30, 2001 continued to be sufficiently liquid to support current operations. Total assets increased to $530.6 million at the end of fiscal 2001, an increase of 5.7% from the year-end 2000 level of $501.9 million. Total current assets increased to $244.4 mil- CLARCOR 9

12 FINANCIAL REVIEW 10 (Dollars in millions except per share data) lion from $230.5 million at year-end 2000 and total current liabilities decreased to $94.9 million from $97.8 million at yearend The current ratio was 2.6 at year-end 2001 compared to 2.4 at year-end Excluding the TFS assets acquired at the beginning of the third quarter 2001, accounts receivable and inventories decreased during fiscal 2001 partially due to increased emphasis on working capital management. Current liabilities at year-end 2001 were lower primarily due to reduced accruals for incentive plans and income taxes. Plant assets decreased to $137.3 million as a result of increased depreciation and the write-off of certain Packaging manufacturing equipment, which offset the plant asset additions made during the year. Acquired intangibles increased to $116.7 million primarily due to the acquisition of TFS during fiscal Current liabilities include accruals for costs related to litigation matters arising in the normal course of business. See Note L in the Notes to Consolidated Financial Statements for further information on these matters. Long-term debt of $135.2 million at year-end 2001 included the borrowing against the revolving credit facility. Shareholders equity increased to $274.3 million from $242.1 million at year-end The increase in shareholders equity resulted primarily from net earnings of $41.9 million offset by dividend payments of $11.6 million, or $ per share. Long-term debt decreased to 33.0% of total capitalization at year-end 2001, compared to 36.9% at year-end At November 30, 2001, CLARCOR had 24,626,236 shares of common stock outstanding at $1.00 par value, compared to 24,381,307 shares outstanding at the end of OTHER MATTERS Market Risk The Company s market risk is primarily the potential loss arising from adverse changes in interest rates. The Company s long-term debt obligations are primarily at variable LIBOR-associated rates and fixed interest rates and are denominated in U.S. dollars. In order to minimize the longterm costs of borrowing, the Company manages its interest rate risk by monitoring trends in rates as a basis for determining whether to enter into fixed rate or variable rate agreements. In addition, during fiscal 2000 the Company entered into several interest rate agreements related to the revolving credit agreement as described in Note H to the Consolidated Financial Statements. Market risk is estimated as the potential change in fair value of the Company s longterm debt obligations resulting from a hypothetical 1% increase in interest rates. A hypothetical 1% increase in interest rates on the Company s variable rate agreements would adversely affect fiscal 2002 net earnings and cash flows by approximately $0.4 million and reduce the fair value of fixed rate long-term debt, as measured at November 30, 2001, by approximately $0.3 million. Last year, a hypothetical 1% increase in interest rates would have adversely affected fiscal 2001 s net earnings and cash flows by approximately $0.3 million and reduced the fair value of fixed rate longterm debt by approximately $0.9 million. Although the Company continues to evaluate derivative financial instruments, including forwards, swaps and purchased options, to manage foreign currency exchange rate CLARCOR changes, the Company did not hold derivatives for trading purposes during 2001, 2000 or The Company uses forward exchange contracts on a limited basis to manage foreign currency exchange risk related to certain transactions, primarily equipment purchases denominated in currencies other than U.S. dollars. As a result of increased foreign sales and business activities, the Company will continue to evaluate the use of derivative financial instruments to manage foreign currency exchange rate changes in the future. Critical Accounting Policies The Company s critical accounting policies, including the assumptions and judgments underlying them, are disclosed in the Notes to the Consolidated Financial Statements. These policies have been consistently applied in all material respects and address such matters as revenue recognition, depreciation methods, inventory valuation, asset impairment recognition, business combination accounting and pension and postretirement benefits. While the estimates and judgments associated with the application of these policies may be affected by different assumptions or conditions, the Company believes the estimates and judgments associated with the reported amounts are appropriate in the circumstances. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase method of accounting be used for business combinations initiated after June 30, Under SFAS 142, amortization of goodwill, including goodwill recorded in past business combinations, will discontinue upon adoption of this standard. In addition, goodwill and intangible assets with indefinite lives will be tested for impairment in accordance with the provisions of SFAS 142. Although not required to adopt the provisions of SFAS 142 until fiscal 2003, the Company expects to adopt SFAS 142 in the first quarter of fiscal The Company has not completed an assessment of the impact of these statements including the impairment test of goodwill and other intangible assets; however, at this time, it is expected that amortization expense will be reduced by approximately $2.5 million in fiscal 2002 as a result of adopting SFAS 142. Two other recently issued pronouncements, SFAS No. 143, Accounting for Asset Retirement Obligations and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets will be effective for the Company beginning in fiscal The Company has not yet evaluated the impact of these standards on its financial statements. Outlook The Company s long-term objective to record compound annual growth rates in diluted earnings per share of 10% to 15% will require both sales growth and improved profitability in the Company s existing operations and additional acquisitions. Due in part to the recession in the U.S. economy during 2001, growth in diluted earnings per share was less in fiscal 2001 than in 2000 and in During fiscal 2001 the Company incurred significant start-up costs related to new production facilities and equipment, and incurred higher

13 energy, employee insurance and pension costs than in prior years. If the U.S. economy improves during 2002 as expected, the Company anticipates that improved economic conditions will positively impact sales and earnings, and that 2002 will be the tenth consecutive year of earnings per share growth for the Company. The Company s Total Filtration Program that was started in fiscal 2000 is expected to continually add to sales levels in the Company s two filtration segments over the next several years. The acquisition of TFS in June 2001 increased the Company s ability to provide filtration management services to industrial companies throughout North America. Since the TFS acquisition, the Company s various other total filtration activities have been combined with TFS to provide a single focus throughout the Company. Several total filtration management contracts were completed late in 2001 and negotiations continue on others. The impact of these contracts will grow over the next several years as customers facilities are converted to CLARCOR s Total Filtration Program. The Total Filtration Program is expected to serve as an added distribution channel for all of the Company s filtration products. The Company expects to make investments at TFS in 2002 that are planned to significantly accelerate its sales growth, but will slow the improvement in its operating margin in It is anticipated that TFS margins will improve beginning in The Engine/Mobile Filtration segment is expected to increase its sales and profit by providing outstanding customer service, introducing new products and expanding marketing programs. These sales initiatives are expected to offset any continued reduction in sales due to reduced customer demand as a result of the economic recession, especially due to reduced freight mileage. The Industrial/Environmental Filtration segment is expected to grow sales and profits as a result of continued expansion of sales programs throughout various distribution channels, including the Total Filtration Program, and by continuing to achieve synergies and cost savings from integrating production facilities and processes. This segment continues to have the most potential for improved operating margins over the next few years, although this continues to be a highly competitive industry. The Packaging segment s focus on non-promotional metal decorating sales is expected to increase utilization of both the new lithography equipment and other production capacity. Due to decreased customer orders for plastic closures and the non-recurring termination payment received in 2001, overall sales and operating profit for the segment are expected to be lower in fiscal 2002 than in Excluding the $7.0 million non-recurring termination payment in 2001, Packaging sales are expected to increase to approximately $67-$69 million in fiscal 2002 compared to approximately $63 million in fiscal The Company will continue to implement cost reductions and productivity improvements, although competitive pricing pressures, increases in labor, healthcare, insurance and energy costs, and worldwide business conditions may reduce the overall profit improvement. Due to significantly reduced pension asset valuations and lower discount rates, pension expense will increase by approximately $3.0 million in fiscal 2002 from Capital investments will continue to be made in each segment s facilities during 2002 to improve productivity and support new products. It is expected that the investments made in fiscal 2001 and 2000 for new manufacturing facilities and production lines will continue to improve productivity and profitability. While the Company fully anticipates that sales and profits will improve as a result of these efforts, the Company has developed contingency plans to reduce discretionary spending if recessionary economic conditions persist. The Company continues to look at acquisition opportunities, primarily in related filtration businesses. It is expected that these acquisitions would expand the Company s market base, distribution coverage and product offerings. The Company has established financial standards that will continue to be vigorously applied in the review of all acquisition opportunities. Additionally, even though debt increased significantly in 1999 due to the Industrial Filtration Acquisitions, the Company believes that it has sufficient additional borrowing capacity to continue this acquisition program. FORWARD-LOOKING STATEMENTS Certain statements quoted in this Annual Report are forwardlooking. These statements involve risk and uncertainty. Actual future results and trends may differ materially depending on a variety of factors including: the volume and timing of orders received during the year; the mix of changes in distribution channels through which the Company s products are sold; the success of the Company s Total Filtration Program; the timing and acceptance of new products and product enhancements by the Company or its competitors; changes in pricing, labor availability and related costs, product life cycles, raw material costs, insurance, pension and energy costs and purchasing patterns of distributors and customers; competitive conditions in the industry; business cycles affecting the markets in which the Company s products are sold; the effectiveness of plant conversions, plant expansions and productivity improvement programs; the management of both growth and acquisitions; the fluctuation in foreign and U.S. currency exchange rates; the fluctuation in interest rates, primarily LIBOR, which affect the cost of borrowing under the revolving credit facility; extraordinary events such as litigation, acquisitions or divestitures including related charges; and economic conditions generally or in various geographic areas. All of the foregoing matters are difficult to forecast. The future results of the Company may fluctuate as a result of these and the other risk factors detailed from time to time in the Company s filings with the Securities and Exchange Commission. Due to the foregoing items, it is possible that, in the future, the Company s operating results will be below the expectations of stock market analysts and investors. In such event, the price of CLARCOR common stock could be materially adversely affected. CLARCOR 11

14 CONSOLIDATED BALANCE SHEETS NOVEMBER 30, 2001 AND 2000 (Dollars in thousands except per share data) ASSETS 2001) 2000) Current assets: Cash and short-term cash investments... $ 7,418) $ 10,864) Accounts receivable, less allowance for losses of $7,920 for 2001 and $5,027 for ,003) 110,083) Inventories ,291) 100,561) Prepaid expenses and other current assets... 4,120) 3,640) Deferred income taxes... 13,518) 5,331) Total current assets ,350) 230,479) Plant assets, at cost less accumulated depreciation ,316) 140,121) Acquired intangibles, less accumulated amortization ,746) 101,877) Pension assets... 18,939) 19,519) Other noncurrent assets... 13,266) 9,934) Total assets... $530,617) )$501,930) LIABILITIES Current liabilities: Current portion of long-term debt... $ 5,579) $ 5,482) Accounts payable and accrued liabilities... 84,826) 84,187) Income taxes... 4,526) 8,157) Total current liabilities... 94,931) 97,826) Long-term debt, less current portion ,203) 141,486) Postretirement health care benefits... 3,851) 3,574) Long-term pension liabilities... 4,955) 4,374) Deferred income taxes... 15,114) 10,663) Other long-term liabilities... 1,868) 1,519) Minority interests ) 395) Contingencies SHAREHOLDERS EQUITY Capital stock: Preferred, par value $1, authorized 5,000,000 shares, none issued... ) ) Common, par value $1, authorized 60,000,000 shares, issued 24,626,236 in 2001 and 24,381,307 in ,626) 24,381) Capital in excess of par value... 9,565) 5,700) Accumulated other comprehensive earnings... (9,179) (6,919) Retained earnings ,249) 218,931) Total shareholders equity ,261) 242,093) Total liabilities and shareholders equity... $530,617) $501,930) The accompanying notes are an integral part of the consolidated financial statements. 12 CLARCOR

15 CONSOLIDATED STATEMENTS OF EARNINGS FOR THE YEARS ENDED NOVEMBER 30, 2001, 2000 AND 1999 (Dollars in thousands except per share data) 2001) 2000) 1999) Net sales... $666,964) $652,148) $477,869) Cost of sales ,477) 453,803) 329,282) Gross profit ,487) 198,345) 148,587) Selling and administrative expenses ,677) 122,358) 92,510) Operating profit... 75,810) 75,987) 56,077) Other income (expense): Interest expense... (10,270) (11,534) (3,733) Interest income ) 698) 1,451) Other, net... (460) (1,664) 1,820) (10,076) (12,500) (462) Earnings before income taxes and minority interests... 65,734) 63,487) 55,615) Provision for income taxes... 23,804) 23,201) 20,137) Earnings before minority interests... 41,930) 40,286) 35,478) Minority interests in earnings of subsidiaries... (37) (49) (66) Net earnings... $ 41,893) $ 40,237) $ 35,412) Net earnings per common share: Basic... $ 1.71) $ 1.66) $ 1.48) Diluted... $ 1.68) $ 1.64) $ 1.46) Average number of common shares outstanding: Basic... 24,535,199) 24,269,675) 23,970,011) Diluted... 24,892,062) 24,506,171) 24,313,607) The accompanying notes are an integral part of the consolidated financial statements. CLARCOR 13

16 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY FOR THE YEARS ENDED NOVEMBER 30, 2001, 2000 AND 1999 (Dollars in thousands except per share data) The accompanying notes are an integral part of the consolidated financial statements. Common Stock Accumulated Number of Shares Amount Capital in Other In In Excess of Comprehensive Retained Issued Treasury Issued Treasury Par Value Earnings Earnings Total Balance, November 30, ,949,358) ) $23,949) $ ) $ 156) $(2,993) $165,695) $186,807) Net earnings... ) ) ) ) ) ) 35,412) 35,412) Other comprehensive earnings: Translation adjustments... ) ) ) ) ) (1,158) ) (1,158) Total comprehensive earnings... 34,254) Purchase of treasury stock... ) (50,000) ) (897) ) ) ) (897) Retirement of treasury stock... (50,000) 50,000) (50) 897) (455) ) (392) ) Stock options exercised... 82,344) ) 83) ) 740) ) ) 823) Issuance of stock under award plans... 38,020) ) 38) ) 507) ) ) 545) Cash dividends $ per common share... ) ) ) ) ) ) (10,814) (10,814) Balance, November 30, ,019,722) ) 24,020) ) 948) (4,151) 189,901) 210,718) Net earnings... ) ) ) ) ) ) 40,237) 40,237) Other comprehensive earnings: Translation adjustments... ) ) ) ) ) (2,768) ) (2,768) Total comprehensive earnings... 37,469) Business acquisition ,704) ) 161) ) 2,734) ) ) 2,895) Stock options exercised ,479) ) 182) ) 1,898) ) ) 2,080) Issuance of stock under award plans... 18,402) ) 18) ) 120) ) ) 138) Cash dividends $ per common share... ) ) ) ) ) ) (11,207) (11,207) Balance, November 30, ,381,307) ) 24,381) ) 5,700) (6,919) 218,931) 242,093) Net earnings... ) ) ) ) ) ) 41,893) 41,893) Other comprehensive earnings: Cumulative effect of accounting change... ) ) ) ) ) (769) ) (769) Unrealized losses on derivative... ) ) ) ) ) (1,137) ) (1,137) Translation adjustments... ) ) ) ) ) (354) ) (354) Total comprehensive earnings... 39,633) Stock options exercised ,424) ) 246) ) 3,223) ) ) 3,469) Issuance of stock under award plans... 10,618) ) 11) ) 642) ) ) 653) Forfeiture of stock under award plans... (12,113) ) (12) ) ) ) ) (12) Cash dividends $ per common share... ) ) ) ) ) ) (11,575) (11,575) Balance, November 30, ,626,236) ) $24,626) $ ) $9,565) $(9,179) $249,249) $274,261) 14 CLARCOR

17 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED NOVEMBER 30, 2001, 2000 AND 1999 (Dollars in thousands) 2001) 2000) 1999) Cash flows from operating activities: Net earnings... $ 41,893) $ 40,237) $ 35,412) Adjustments to reconcile net earnings to net cash provided by operations: Depreciation... 18,187) 17,537) 13,729) Amortization... 3,663) 3,542) 1,643) Minority interests in earnings of subsidiaries... 37) 49) 66) Net (gain) loss on dispositions of plant assets ) 109) (1,660) Impairment of plant assets... 2,422) ) ) Changes in assets and liabilities, net of business acquisitions: Accounts receivable... 5,116) (3,448) (6,062) Inventories... 5,190) (9,636) (4,585) Prepaid expenses and other current assets... (374) 8,040) (1,369) Other noncurrent assets... (2,523) (554) (18) Accounts payable and accrued liabilities... (8,693) (1,170) 4,790) Pension assets and liabilities, net... 1,163) (7,430) (583) Income taxes... (2,683) 4,663) (2,366) Deferred income taxes... (446) 2,191) (355) Net cash provided by operating activities... 63,290) 54,130) 38,642) Cash flows from investing activities: Additions to plant assets... (18,204) (29,005) (21,822) Business acquisitions, net of cash acquired... (33,388) (12,735) (142,709) Dispositions of plant assets ) 55) 3,873) Other, net... (300) (440) ) Net cash used in investing activities... (51,353) (42,125) (160,658) Cash flows from financing activities: Proceeds from multicurrency revolving credit agreement... 27,500) 43,200) 115,000) Payments on multicurrency revolving credit agreement... (36,500) (42,200) ) Proceeds from borrowings under long-term debt... 8,000) ) ) Reduction of long-term debt... (5,349) (7,034) (468) Sales of capital stock under stock option plan... 2,598) 1,379) 680) Purchases of treasury stock... ) ) (897) Cash dividends paid... (11,575) (11,207) (10,814) Net cash provided by (used in) financing activities... (15,326) (15,862) 103,501) Net effect of exchange rate changes on cash... (57) (24) (61) Net change in cash and short-term cash investments... (3,446) (3,881) (18,576) Cash and short-term cash investments, beginning of year... 10,864) 14,745) 33,321) Cash and short-term cash investments, end of year... $ 7,418) $ 10,864) $ 14,745) The accompanying notes are an integral part of the consolidated financial statements. CLARCOR 15

18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share data) 16 A. ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include all domestic and foreign subsidiaries that are more than 50% owned and controlled. CLARCOR Inc. and its subsidiaries are hereinafter collectively referred to as the Company or CLARCOR. Minority interests represent an outside shareholder s 10% ownership of the common stock of Filtros Baldwin de Mexico (FIBAMEX) and outside shareholders 20% ownership of Baldwin-Unifil S.A. Foreign Currency Translation Financial statements of foreign subsidiaries are translated into U.S. dollars at current rates, except that revenues, costs and expenses are translated at average current rates during each reporting period. Net exchange gains or losses resulting from the translation of foreign financial statements and the effect of exchange rate changes on intercompany transactions of a long-term investment nature are accumulated with other comprehensive earnings as a separate component of shareholders equity and are presented, net of tax, in the Consolidated Statements of Shareholders Equity. Plant Assets Depreciation is provided by the straight-line and accelerated methods for financial statement purposes and by the accelerated method for tax purposes. The provision for depreciation is based on the estimated useful lives of the assets (15 to 40 years for buildings and improvements and 3 to 15 years for machinery and equipment). It is the policy of the Company to capitalize renewals and betterments and to charge to expense the cost of current maintenance and repairs. When property or equipment is retired or otherwise disposed of, the net book value of the asset is removed from the Company s books and the resulting gain or loss is reflected in earnings. Excess of Cost Over Fair Value of Assets Acquired and Other Intangible Assets The excess of cost over fair value of assets acquired is being amortized over a forty-year period using the straight-line method. Other acquired intangible assets are being amortized over the estimated periods to be benefited using the straightline method. These intangibles include trademarks (40 year life), patents (average 14 year life), and other identifiable intangible assets with lives ranging from one to thirty years. In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible Assets, which discontinues amortization of the excess of cost over fair value of assets acquired and of intangible assets with indefinite lives. It also requires goodwill and intangible assets with indefinite lives to be tested for impairment annually or whenever there is an impairment indicator. Although not required to adopt the provisions of SFAS 142 until fiscal 2003, the Company expects to adopt SFAS 142 in the first quarter of fiscal The Company has not completed an assessment of the impact of this statement, including the impairment tests. However, as a result of adopting SFAS 142, the Company expects amortization expense will be reduced by approximately $2,500 in fiscal CLARCOR In accordance with Statement of Financial Accounting Standards No. 121 (SFAS 121), Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of, the Company determines any impairment losses based on underlying cash flows related to specific groups of acquired plant assets and identifiable intangibles and excess of cost over fair value of assets acquired, and would first apply any such impairment losses to related goodwill. Statements of Cash Flows All highly liquid investments with a maturity of three months or less when purchased or that are readily saleable are considered to be short-term cash equivalents. The carrying amount of the investments approximates fair value. Income Taxes The Company provides for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Revenue Recognition Revenue is recognized when product ownership and risk of loss has transferred to the customer or performance of services is complete and the Company has no remaining obligations regarding the transaction. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements, relating to revenue recognition under generally accepted accounting principles in financial statements. No significant changes to the Company s revenue recognition policies were necessary to comply with SAB 101. Product Warranties The Company provides for estimated warranty costs when the related products are recorded as sales or for specific items at the time their existence is known and the amounts are reasonably determinable. Comprehensive Earnings Foreign currency translation adjustments and unrealized losses on derivative instruments are included in other comprehensive earnings, net of tax, in accordance with Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive Income. Use of Management s Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

19 Accounting Period The Company s fiscal year ends on the Saturday closest to November 30. The fiscal year ended December 1, 2001 included fifty-two weeks. The fiscal years ended December 2, 2000 and November 27, 1999 were comprised of fifty-three and fifty-two weeks, respectively. In the consolidated financial statements, all fiscal years are shown to begin as of December 1 and end as of November 30 for clarity of presentation. Reclassifications Certain reclassifications have been made to conform prior years data to the current presentation. These reclassifications had no effect on reported earnings. B. ACCOUNTING CHANGE AND DERIVATIVE INSTRUMENTS The Company makes limited use of derivative financial instruments to manage certain interest rate and foreign currency risks. Interest rate swap agreements are utilized to convert certain floating rate debt into fixed rate debt. Cash flows related to interest rate swap agreements are included in interest expense over the terms of the agreements. Effective December 1, 2000, the Company adopted Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities. SFAS 133 requires the recognition of all derivatives in the balance sheet as either an asset or a liability measured at fair value and requires a company to recognize changes in the derivative s fair value currently in earnings unless it meets specific hedge accounting criteria. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive earnings and are recognized in the income statement when the hedged item affects earnings. The Company documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. In addition, the Company assesses (both at the hedge s inception and on an ongoing basis) the effectiveness of the derivatives that are used in hedging transactions. If it is determined that a derivative is not (or has ceased to be) effective as a hedge, the Company would discontinue accounting for it as a hedge prospectively. Ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. During 2000, the Company entered into interest rate agreements to manage its interest exposure related to the multicurrency credit revolver. The agreement in place at November 30, 2001 provides for the Company to pay a 7.34% fixed interest rate on a notional amount of $60,000. The agreement expires September 11, Under the agreement the Company will receive interest at floating rates based on LIBOR. The adoption of SFAS 133 resulted in a cumulative effect of an accounting change to accumulated other comprehensive earnings of a negative $769 ($1,183 pretax) and the recognition of a liability. The Company s derivative instrument is designated as a cashflow hedge and determined to be effective. Therefore, there was no adjustment to net earnings. At November 30, 2001, the fair value of the agreement was a negative $2,932 and is included in other current liabilities. The net loss included in other comprehensive earnings for the fiscal year ended November 30, 2001 was $1,137 ($1,750 pretax). Derivative gains and losses will be reclassified into earnings as payments are made on its variable rate interest debt. Approximately $711 ($1,094 pretax) was reclassified into earnings during the fiscal year ended November 30, The amount of net derivative losses included in other comprehensive income at November 30, 2001 will be reclassified into earnings in fiscal year C. BUSINESS COMBINATIONS AND INVESTMENTS IN AFFILIATES On June 4, 2001, the Company acquired the stock of several filtration management companies for approximately $33,258, net of cash received, including acquisition expenses. The purchase price was paid in cash with available funds and proceeds from long-term borrowings from a revolving credit facility. As a result of the acquisition, the companies were combined into one company, Total Filtration Services, Inc. (TFS), and became a subsidiary of the Company. TFS is included in the Industrial/Environmental Filtration segment. The transaction was accounted for under the purchase method of accounting with the excess of the initial purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired recorded as goodwill and amortized over 40 years by the straight-line method. The initial purchase price was based on the net assets of the businesses acquired as shown on a June 4, 2001 balance sheet and is subject to a final adjustment. A preliminary allocation of the initial purchase price has been made to major categories of assets and liabilities. The allocation will be completed when the Company finalizes a closing balance sheet in accordance with the purchase agreement with the seller. The results are included in the Company s consolidated results of operations from the date of acquisition. The following unaudited pro forma information summarizes the results of operations for the periods indicated as if the acquisition had been completed as of the beginning of the periods presented. The pro forma information gives effect to the actual operating results prior to the acquisition, adjusted to include the pro forma effect of interest expense, depreciation, amortization of intangibles and income taxes. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of the beginning of the periods presented or that may be obtained in the future. Unaudited pro forma net sales for the Company would have been $695,729 and $707,460 for the years ended November 30, 2001 and Net earnings and earnings per share for each of these periods would not have been significantly affected. During 2000, the Company purchased Filter Products, Inc., a Sacramento, California liquid process filtration manufacturer, and two air filtration distributors. All three of these acquisitions were accounted for under the purchase method of accounting and are included in the Industrial/ Environmental Filtration segment. Two of the acquisitions were paid for in cash. The purchase price of the other was paid in cash and stock. For these acquisitions, the Company CLARCOR 17

20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share data) paid $12,730 in cash, net of cash received, and issued 160,704 shares of its common stock (valued at $2,895). The final allocation of the purchase price to the assets and liabilities acquired with the purchase of Filter Products, Inc. resulted in an increase to goodwill of $615 in the second quarter of These acquisitions did not have a significant impact on the results of the Company. On September 10, 1999, the Company completed its acquisitions of Purolator Air Filtration (Purolator), Facet International (Facet), and Purolator Facet, Inc. (PFI), manufacturers of air and liquid filtration products, for approximately $140,985, net of cash received, including acquisition expenses. The purchase price was paid in cash with available funds and proceeds from long-term borrowings of approximately $115,000 from a revolving credit facility. (See Note H.) As a result of the acquisitions, Purolator, Facet, and PFI became subsidiaries of the Company and are included in the Company s Industrial/Environmental Filtration segment. The Company s non-cash investing and financing activities related to this acquisition included assumed liabilities of $25,910. The transaction was accounted for under the purchase method of accounting with the excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired recorded as goodwill and amortized over 40 years by the straight-line method. Other acquired intangible assets are being amortized as discussed in Note A. During fiscal year 2000, the Company finalized the purchase price according to the terms of the purchase agreement and completed the estimates of assets acquired and liabilities assumed, including those associated with exit and other costs of the acquisition. The finalized allocation to major categories of assets and liabilities resulted in a reduction to goodwill of $34. As part of the final allocation of purchase price, the Company had accrued and paid $1,012 for severance and exit costs as of November 30, The operating results are included in the Company s consolidated results of operations from September 1, 1999, the effective date of the acquisitions. D. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the last-in, first-out (LIFO) method for approximately 40% and 43% of the Company s inventories at November 30, 2001 and 2000, respectively, and by the first-in, first-out (FIFO) method for all other inventories. The FIFO method approximates current cost. Inventories are summarized as follows: Raw materials... $ 37,455 $ 38,444 Work-in-process... 12,120 14,253 Finished products... 55,078 48,316 Total at FIFO , ,013 Less excess of FIFO over LIFO $104,291 $100,561 E. PLANT ASSETS AND IMPAIRMENT LOSS Plant assets at November 30, 2001 and 2000 were as follows: Land... $ 4,736 $ 3,911 Buildings and building fixtures... 73,497 67,986 Machinery and equipment , ,689 Construction-in-process... 7,092 17, , ,252 Less accumulated depreciation , ,131 $137,316 $140,121 During the first quarter of 2001, the Company recognized an impairment loss in its Packaging segment of $2,422 related to certain plant assets used exclusively in the manufacture of plastic closures for a customer who terminated a manufacturing contract. The loss is included in the cost of sales and was calculated under the guidelines of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. F. ACQUIRED INTANGIBLES Acquired intangibles, net of accumulated amortization, at November 30, 2001 and 2000 consisted of the following: Excess of cost over fair value of assets acquired... $ 78,620 $ 62,333 Trademarks... 28,358 29,090 Other acquired intangibles... 9,768 10,454 $116,746 $101,877 Accumulated amortization was $17,392 and $13,812 at November 30, 2001 and 2000, respectively. G. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities at November 30, 2001 and 2000 were as follows: Accounts payable... $ 42,657 $ 40,826 Accrued salaries, wages and commissions... 8,733 12,678 Compensated absences... 6,366 6,192 Accrued pension liabilities Other accrued liabilities... 26,807 24,229 $ 84,826 $ 84,187 During 2001 and 2000, certain LIFO inventory quantities were reduced resulting in a partial liquidation of the LIFO bases. The effect on net earnings was not material. 18 CLARCOR

21 H. LONG-TERM DEBT Long-term debt at November 30, 2001 and 2000 consisted of the following: Multicurrency revolving credit agreement, interest payable at the end of each funding period at an adjusted LIBOR... $107,000 $116,000 Promissory note, interest payable semi-annually at 6.69%... 15,000 20,000 Industrial Revenue Bonds, at 1.6% to 5.85% interest rates... 17,815 10,063 Other , ,968 Less current portion... 5,579 5,482 $135,203 $141,486 A fair value estimate of $140,023 and $145,990 for long-term debt in 2001 and 2000, respectively, is based on the current interest rates available to the Company for debt with similar remaining maturities. On May 1, 2001, the Company, in cooperation with the Campbellsville-Taylor County Industrial Development Authority (Kentucky), issued $8,000 of Industrial Revenue Bonds. The bonds are due May 1, 2031, with a variable rate of interest that is reset weekly. In conjunction with the issuance of the Industrial Revenue Bonds, the Company holds in trust certain restricted investments committed for the acquisition of plant equipment. At November 30, 2001, the restricted asset balance was $2,343 and is included in other noncurrent assets. The Company has other industrial revenue bonds, including $8,410 issued in cooperation with the South Dakota Economic Development Finance Authority due February 1, 2016 with a variable rate of interest that is reset weekly and additional bonds of $1,405 and $1,653 outstanding as of November 30, 2001 and 2000, respectively, which mature in In September 1999, the Company entered into a three-year, multicurrency revolving credit agreement with a group of participating financial institutions under which it may borrow up to $185,000. The agreement, which was extended for one additional year in 2000, provides that loans may be made under a selection of currencies and rate formulas. The interest rate is based upon either a defined Base Rate or the London Interbank Offered Rate (LIBOR) plus a variable spread of.55% to 1.25%. The variable spread is based on the ratio of the Company s outstanding borrowings compared with its shareholders equity. The spread was.65% and.80% at November 30, 2001 and 2000, respectively. Facility fees and other fees on the entire loan commitment are payable for the duration of this facility. At November 30, 2001 and 2000, $107,000 and $116,000 were outstanding under this agreement and the related LIBOR, including the spread, was 4.17% and 7.46%, respectively. Borrowings under the credit facility are unsecured but are guaranteed by certain of the Company s subsidiaries. The agreement related to this borrowing includes certain restrictive covenants that include maintaining minimum consolidated net worth, limiting new borrowings, maintaining a minimum interest coverage, and restricting certain changes in ownership as stipulated in the agreement. The Company was in compliance with these covenants as of November 30, 2001 and This agreement also includes a letter of credit facility, against which $11,182 and $10,841 in letters of credit had been issued as of November 30, 2001 and 2000, respectively. The 6.69% promissory note matures July 25, 2004, but the Company is required to prepay, without premium, certain principal amounts as stated in the agreement. Under the note agreement, the Company must meet certain restrictive covenants. The covenants were amended during 1999 to be similar to those contained in the multicurrency revolving credit facility. Exclusive of the multicurrency revolving credit facility, principal maturities of long-term debt for the next five fiscal years ending November 30 approximates: $5,579 in 2002, $5,624 in 2003, $5,629 in 2004, $381 in 2005, $166 in 2006 and $16,403 thereafter. The borrowings under the revolving credit facility that matures in 2003 have been classified as long-term as the Company has both the intent and ability to refinance this amount on a long-term basis. Interest paid totaled $10,666, $10,714 and $2,228 during 2001, 2000 and 1999, respectively. I. LEASES The Company has various lease agreements for offices, warehouses, manufacturing plants, and equipment that expire on various dates through June 2007 and contain renewal options. Some of these leases provide for payment of property taxes, utilities and certain other expenses. Commitments for minimum rentals under noncancellable leases at November 30, 2001 for the next five years are: $7,278 in 2002, $4,881 in 2003, $3,641 in 2004, $1,997 in 2005, and $936 in Rent expense totaled $8,869, $8,367 and $6,063 for the years ended November 30, 2001, 2000 and 1999, respectively. J. PENSION AND OTHER POSTRETIREMENT PLANS The Company has defined benefit pension plans and postretirement health care plans covering certain employees and retired employees. In addition to the plan assets related to qualified plans, the Company has funded approximately $2,281 and $2,580 at November 30, 2001 and 2000, respectively, in restricted trusts for its nonqualified plans. These trusts are included in other noncurrent assets in the Company s Consolidated Balance Sheets. During 2001, the Company received approval from the Internal Revenue Service to terminate one of its plans related to a business that was previously sold and distribute all the plan s assets. The Company terminated the plan and settled all of its obligations by making lump-sum distributions or purchasing annuity contracts for its participants. The following table shows reconciliations of the pension plans and other postretirement plan benefits as of November 30, 2001 and The accrued pension benefit liability includes an unfunded benefit obligation of $6,974 and $5,231 CLARCOR 19

22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share data) 20 as of November 30, 2001 and 2000, respectively. The obligations have been determined with a weighted average discount rate of 7.25% and 7.75% in 2001 and 2000, respectively, and a rate of increase in future compensation of primarily 5.0% in both years. The expected weighted average long-term rate of return was 9.0% in both 2001 and Pension Postretirement Benefits Benefits Change in benefit obligation: Benefit obligation at beginning of year... $68,980) $73,356) $ 4,082) $ 3,866) Service cost... 3,142) 3,122) 107) 92) Interest cost... 5,114) 5,021) 305) 280) Amendments... 1,154) ) ) ) Actuarial losses / (gains)... 3,750) (2,038) (808) (6) Benefits paid... (5,717) (10,481) (151) (150) Benefit obligation at end of year... 76,423) 68,980) 3,535) 4,082) Change in plan assets: Fair value of plan assets at beginning of year... 86,686) 87,214) ) ) Actual return on plan assets... (10,726) 3,012) ) ) Benefits paid... (5,455) (3,540) ) ) Fair value of plan assets at end of year... 70,505) 86,686) ) ) Funded status... (5,918) 17,706) (3,535) (4,082) Unrecognized prior service cost... 1,320) 188) ) ) Unrecognized net actuarial loss / (gain)... 18,319) (3,011) (570) 238) Net amount recognized... $13,721) $14,883) $(4,105) $(3,844) Amounts recognized in the Consolidated Balance Sheets include: Prepaid benefit cost... $18,939) $19,519) $ ) $ ) Accrued benefit liability... (5,218) (4,636) (4,105) (3,844) Net amount recognized... $13,721) $14,883) $(4,105) $(3,844) The components of net periodic benefit cost for pensions are shown below. Pension Benefits 2001) 2000) 1999) Components of net periodic benefit cost: Service cost... $3,142) $3,122) $2,364) Interest cost... 5,114) 5,021) 5,251) Expected return on plan assets... (7,527) (7,695) (7,041) Additional recognition amount... ) ) 196) Amortization of unrecognized: Net transition asset... ) (1,056) (1,056) Prior service cost... 22) 21) 62) Net actuarial loss... 5) 7) 54) Settlement cost for a terminated plan ) ) ) Net periodic benefit cost / (income)... $1,425) $ (580) $ (170) The postretirement obligations represent a fixed dollar amount per retiree. The Company has the right to modify or terminate these benefits. The participants will assume CLARCOR substantially all future health care benefit cost increases, and therefore, future increases in health care costs will not increase the postretirement benefit obligation or cost to the Company. Therefore, the Company has not assumed any annual rate of increase in the per capita cost of covered health care benefits for future years. The components of net periodic benefit cost for postretirement health care benefits are shown below. Postretirement Benefits Components of net periodic benefit cost: Service cost... $ 107 $ 92 $ 13 Interest cost Net periodic benefit cost... $ 412 $ 372 $ 162 The Company also sponsors various defined contribution plans that provide employees with an opportunity to accumulate funds for their retirement. The Company matches the contributions of participating employees based on the percentages specified in the respective plans. The Company recognized expense related to these plans of $1,395, $1,408 and $1,211 in 2001, 2000 and 1999, respectively. K. INCOME TAXES The provision for income taxes consisted of: ) Current: Federal... $21,644) $17,693) $18,398) State... 2,751) 2,574) 2,177) Foreign... 1,460) 1,063) 547) Deferred... (2,051) 1,871) (985) $23,804) $23,201) $20,137) Income taxes paid, net of refunds, totaled $26,858, $16,458 and $22,234 during 2001, 2000 and 1999, respectively. Earnings before income taxes and minority interests included the following components: ) Domestic income... $62,664) $60,471) $53,467) Foreign income... 3,070) 3,016) 2,148) $65,734) $63,487) $55,615) The provision for income taxes resulted in effective tax rates that differ from the statutory United States federal income tax rate. The reasons for these differences are as follows: Percent of Pretax Earnings Statutory U.S. tax rate % 35.0% 35.0% State income taxes, net of federal benefit Foreign sales... (1.1) (0.8) (0.8) Other, net... (0.3) (0.3) (0.6) Consolidated effective income tax rate % 36.5% 36.2% The components of the net deferred tax liability as of November 30, 2001 and 2000 were as follows:

23 2001) 2000) Deferred tax assets: Deferred compensation... $ 4,304) $ 3,930) Other postretirement benefits ) 783) Foreign net operating loss carryforwards 406) 377) Accounts receivable... 3,385) 2,177) Inventories... 3,113) 1,774) Other comprehensive income items... 1,026) -) Accrued liabilities and other... 2,915) 2,071) Total gross deferred tax assets... 16,080) 11,112) Deferred tax liabilities: Pensions... (5,069) (5,209) Plant assets... (12,081) (11,189) Intangibles... (526) 36) Other... -) (82) Total gross deferred tax liabilities... (17,676) (16,444) Net deferred tax liability... $ (1,596) $ (5,332) The Company expects to realize the deferred tax assets, including foreign net operating loss carryforwards, through the reversal of taxable temporary differences and future earnings. As of November 30, 2001, the Company has not provided taxes on accumulated unremitted foreign earnings of approximately $6,000 that are intended to be indefinitely reinvested to finance operations and expansion outside the United States. If such earnings were distributed beyond the amount for which taxes have been provided, foreign tax credits would substantially offset any incremental U.S. tax liability. L. CONTINGENCIES The Company is involved in legal actions arising in the normal course of business. Additionally, the Company is party to various proceedings relating to environmental issues. The U.S. Environmental Protection Agency (EPA) and/or other responsible state agencies have designated the Company as a potentially responsible party (PRP), along with other companies, in remedial activities for the cleanup of waste sites under the federal Superfund statute. Environmental and related remediation costs are difficult to quantify for a number of reasons, including the number of parties involved, the difficulty in determining the extent of the contamination, the length of time remediation may require, the complexity of the environmental regulation and the continuing advancement of remediation technology. Applicable federal law may impose joint and several liability on each PRP for the cleanup. It is the opinion of management that additional liabilities, if any, resulting from these legal or environmental issues, are not expected to have a material adverse effect on the Company s financial condition or consolidated results of operations. M. PREFERRED STOCK PURCHASE RIGHTS In March 1996, the Board of Directors of CLARCOR adopted a Shareholder Rights Plan to replace an existing plan that expired on April 25, Under the terms of the Plan, each shareholder received rights to purchase shares of CLARCOR Series B Junior Participating Preferred Stock. The rights become exercisable only after the earlier to occur of (i) 10 business days after the first public announcement that a person or group (other than a CLARCOR-related entity) has become the beneficial owner of 15% or more of the outstanding shares of CLARCOR Common Stock; or (ii) 10 business days (unless extended by the CLARCOR Board in accordance with the Rights Agreement) after the commencement of, or the intention to make, a tender or exchange offer, the consummation of which would result in any person or group (other than a CLARCOR related entity) becoming such a 15% beneficial owner. Each right entitles the holder to buy onehundredth of a share of such preferred stock at an exercise price of $80 subject to certain adjustments. Once the rights become exercisable, each right will entitle the holder, other than the acquiring person or group, to purchase a number of CLARCOR common shares at a 50% discount to the then-market price of CLARCOR Common Stock. In addition, under certain circumstances, if the rights become exercisable, the holder will be entitled to purchase the stock of the acquiring individual or group at a 50% discount. The Board may also elect to redeem the rights at $.01 per right. The rights expire on April 25, The authorized preferred stock includes 300,000 shares designated as Series B Junior Participating Preferred Stock. N. INCENTIVE PLAN In 1994, the shareholders of CLARCOR adopted the 1994 Incentive Plan, which allows the Company to grant stock options, restricted stock and performance awards to officers, directors and key employees. The 1994 Incentive Plan incorporates the various incentive plans in existence prior to March In addition, the Company has, in connection with the 1997 acquisition of United Air Specialists, Inc. (UAS), assumed the stock option plans of UAS and has reserved 6,949 shares of the Company s common stock for issuance under the assumed UAS stock option plans. The amended 1994 Incentive Plan allows grants and awards of up to 1.5% of the outstanding common stock as of January 1 of each calendar year. In addition, the Compensation and Stock Option Committee of the Company s Board of Directors may approve an additional 1% of outstanding common stock to be awarded during any calendar year. Any portion that is not granted in a given year is available for future grants. After the close of fiscal year 2001, 314,761 shares were granted, including the restricted stock units discussed hereafter. The following is a description and a summary of key provisions related to this Plan. Stock Options In accordance with Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation, the Company accounts for stock-based compensation using the intrinsic value method as prescribed under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations and provides the disclosure-only provisions of SFAS 123. CLARCOR 21

24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share data) 22 Nonqualified stock options may, at the discretion of the Board of Directors, be granted at the fair market value at the date of grant or at an exercise price less than the fair market value at the date of grant. All options granted in 2001, 2000, and 1999 were at the fair market value at the dates of the grants. Options granted to key employees prior to the end of fiscal year 2000 vest 25% per year beginning at the end of the third year; therefore, they become fully exercisable at the end of six years. Options granted to key employees after the close of fiscal year 2000 vest 25% per year beginning at the end of the first year; therefore, they become fully exercisable at the end of four years. Options granted to non-employee directors vest immediately. All options expire ten years from the date of grant unless otherwise terminated. The following table summarizes the activity under the nonqualified stock option plans Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding at beginning of year... 2,286,026) $ ,239,162) $ ,116,182) $14.18 Granted ,366) ,404) ,982) Exercised/ surrendered... (411,262) (365,540) (165,002) Outstanding at end of year... 2,324,130) $ ,286,026) $ ,239,162) $14.83 Options exercisable at end of year... 1,531,152) $ ,508,859) $ ,159,462) $12.62 The following table summarizes information about the options at November 30, Options Outstanding Options Exercisable Weighted Weighted Weighted Range of Average Average Average Exercise Exercise Remaining Exercise Prices Number Price Life in Years Number Price $ $ ,247,757 $ ,988 $13.49 $ $ ,076,373 $ ,164 $20.10 In addition, stock options outstanding and exercisable at November 30, 2001 and 2000 assumed as part of the UAS acquisition were 6,949 and 20,669, respectively. These substitute options have an exercisable price range per share of $2.40 to $5.94 at November 30, 2001 and expire between 2002 and Long Range Performance and Restricted Stock Awards Officers and key employees may be granted target awards of Company shares of common stock and performance units, which represent the right to a cash payment. The awards are earned and shares are issued only to the extent that the Company achieves performance goals determined by the Board of Directors during a three-year performance period. The Company granted 28,383 performance shares on December 1, The shares vest at the end of three years. As of November 30, 2001, the Company has cancelled 14,609 and 4,860 shares of the 2000 and 1999 grants, respectively. CLARCOR Subsequent to the end of the fiscal year, the Company cancelled an additional 4,475 shares of the 1999 grant. During the performance period, officers and key employees are permitted to vote the performance shares and receive compensation equal to dividends declared on common shares. The Company accrues compensation expense assuming attainment of the performance goals ratably during the performance cycle. Distributions of Company common stock and cash for the performance periods ended November 30, 2001, 2000 and 1999 were $437, $488 and $485, respectively. During 2001, the Company granted 35,222 restricted units of Company common stock with a fair value of $18.50 per share, the market price of the stock at the date granted. In connection therewith, the Company cancelled 12,113 performance shares and 8,074 performance units from the December 1, 1999 grant and replaced them with 9,182 units of restricted stock and with additional stock option awards. The restricted share units require no payment from the employee and compensation cost is recorded based on the market price on the grant date and is recorded over the vesting period of four years. During the vesting period, officers and key employees receive compensation equal to dividends declared on common shares. Upon vesting, the employee may elect to defer receipt of their shares. Subsequent to the end of fiscal year 2001, 2,464 shares (net of 1,157 shares withheld for taxes) of the December 2000 restricted unit grant were issued and 6,855 units were deferred. In addition, the Company granted 25,436 restricted stock units in December 2001 at the market price on the date granted of $ Compensation expense related to long range performance and restricted stock awards totaled $618, $901 and $534 in 2001, 2000 and 1999, respectively. No future awards of long range performance shares or units are expected to be granted. Directors Restricted Stock Compensation The 1994 Incentive Plan, as amended on March 25, 2000, provides for grants of shares of common stock to all non-employee directors equal to a one-year annual retainer in lieu of cash. The directors rights to the shares vest immediately on the date of grant. In 2001 and 2000, respectively, 10,618 and 7,076 shares of Company common stock were issued under the amended plan. During 1999, 16,002 shares of Company common stock were issued under the plan of which 15,488 were cancelled in 2000 due to the plan amendment. During 1999, 1,321 shares from a prior year grant were forfeited. Compensation expense for the plan totaled $252, $184 and $191 in 2001, 2000 and 1999, respectively. Fair Value Accounting (SFAS 123) Had compensation expense for the Company s stock-based compensation plans been determined based on the fair value at the grant dates consistent with the method of SFAS 123, the Company s pro forma net earnings and diluted earnings per share would have been $40,760, $39,520 and $34,848 and $1.64, $1.61 and $1.43 for 2001, 2000 and 1999, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for 2001, 2000, and Adjustments for forfeitures are made as they occur.

25 Risk-free interest rate % 6.34% 4.87% Expected dividend yield % 2.47% 2.35% Expected volatility factor % 25.00% 24.50% Expected option term (in years) The weighted average fair value per option at the date of grant for options granted in 2001, 2000 and 1999 was $5.12, $5.28 and $4.88, respectively. The above pro forma disclosures may not be representative of the effects on reported net income and earnings per share for future years because compensation cost under SFAS 123 is amortized over the options vesting period and compensation cost for options granted prior to fiscal year 1996 is not considered. O. TREASURY STOCK TRANSACTIONS AND EARNINGS PER SHARE During 1999, the Company purchased and retired 50,000 shares of common stock. The number of issued shares was reduced as a result of the retirement of these shares. The Company calculates and presents basic and diluted earnings per share in accordance with Statement of Financial Accounting Standards No. 128 (SFAS 128), Earnings per Share. Diluted earnings per share reflects the impact of outstanding stock options if exercised during the periods presented using the treasury stock method. The following table provides a reconciliation of the numerators and denominators utilized in the calculation of basic and diluted earnings per share: Net Earnings (numerator)... $41,893 $40,237 $35,412 Basic EPS: Weighted average number of common shares outstanding (denominator)... 24,535,199 24,269,675 23,970,011 Basic per share amount... $1.71 $1.66 $1.48 Diluted EPS: Weighted average number of common shares outstanding... 24,535,199 24,269,675 23,970,011 Dilutive effect of stock options , , ,596 Diluted weighted average number of common shares outstanding (denominator)... 24,892,062 24,506,171 24,313,607 Diluted per share amount... $1.68 $1.64 $1.46 For fiscal years ended November 30, 2001, 2000 and 1999, respectively, 28,491, 682,866 and 525,156 stock options with a weighted average exercise price of $25.97, $19.34 and $19.81 were not included in the computation of diluted earnings per share as the exercise prices of the options were greater than the average market price of the common shares during the respective periods. P. UNAUDITED QUARTERLY FINANCIAL DATA The unaudited quarterly data for 2001 and 2000 were as follows: First Second Third Fourth Quarter Quarter Quarter Quarter Total 2001: Net sales...$156,197 $159,505 $175,645 $175,617 $666,964 Gross profit... 46,286 45,344 50,306 53, ,487 Net earnings... 9,804 8,936 10,257 12,896 41,893 Net earnings per common share: Basic... $0.40 $0.36 $0.42 $0.52 $1.71 Diluted... $0.40 $0.36 $0.41 $0.51 $ : Net sales... $150,697 $ 162,205 $ 160,830 $ 178,416 $ 652,148 Gross profit... 44,283 49,985 47,778 56, ,345 Net earnings... 7,063 10,090 10,078 13,006 40,237 Net earnings per common share: Basic... $0.29 $0.42 $0.41 $0.53 $1.66 Diluted... $0.29 $0.41 $0.41 $0.53 $1.64 Fiscal year 2001 was a fifty-two week year, whereas fiscal year 2000 was a fifty-three week year. Likewise, fourth quarter 2001 was a thirteen week quarter while fourth quarter 2000 was a fourteen week quarter. During the first quarter of 2001, the Company received a settlement payment of $7,000 for the early termination of a supply and license agreement and in connection therewith recognized an impairment loss in its Packaging segment of $2,422 related to certain plant assets as discussed in Note E. Q. SEGMENT INFORMATION The Company adopted Statement of Financial Accounting Standards No. 131 (SFAS 131), Disclosures About Segments of an Enterprise and Related Information effective with yearend This standard requires that companies disclose selected information by operating segment. SFAS 131 defines an operating segment as a component of a company which engages in business activities from which it may earn revenues and incur expenses; has its operating results regularly reviewed by the entity s chief operating decision makers to make decisions about the allocation of resources and the assessment of performance; and has discrete financial information available. Based on the economic characteristics of the Company s business activities, the nature of products, customers and markets served, and the performance evaluation by management and the Company s Board of Directors, the Company has identified three reportable segments: Engine/Mobile Filtration, Industrial/Environmental Filtration and Packaging. The Engine/Mobile Filtration segment manufactures and markets a complete line of filters used in the filtration of oils, air, fuel, coolant, hydraulic and transmission fluids in both domestic and international markets. The Engine/Mobile Filtration segment provides filters for certain types of transportation equipment including automobiles, heavy-duty and light trucks, buses and locomotives, marine and mining equipment, industrial equipment and heavy-duty construc- CLARCOR 23

26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share data) tion and agricultural equipment. The products are sold to aftermarket distributors, original equipment manufacturers and dealer networks, private label accounts and directly to truck service centers and large national accounts. The Industrial/Environmental Filtration segment manufactures and markets a complete line of filters, cartridges, dust collectors and filtration systems used in the filtration of air and industrial fluid processes in both domestic and international markets. The filters and filter systems are used in commercial and industrial buildings, hospitals, manufacturing processes, pharmaceutical processes, clean rooms, airports, shipyards, refineries, power generation plants and residences. The products are sold to commercial and industrial distributors, original equipment manufacturers and dealer networks, private label accounts, retailers and directly to large national accounts. The Packaging segment manufactures and markets consumer and industrial packaging products including custom-designed plastic and metal containers and closures and lithographed metal sheets in both domestic and international markets. The products are sold directly to consumer and industrial packaging customers. As discussed in Note P, the Company received a settlement payment of $7,000 for the early termination of a supply and license agreement and in connection therewith recognized an impairment loss in its Packaging segment of $2,422 related to certain plant assets as discussed in Note E. The segment s sales of plastic closures were reduced in 2001 as a result of the termination of the agreement. Net sales represent sales to unaffiliated customers. No single customer or class of product accounted for 10% or more of the Company s consolidated 2001 sales. Intersegment sales are not material. Assets are those assets used in each business segment. Corporate assets consist of cash and short-term cash investments, deferred income taxes, headquarters facility and equipment, pension assets and various other assets that are not specific to an operating segment. Unallocated amounts include interest income and expense and other nonoperating income and expense items. The segment data for the years ended November 30, 2001, 2000 and 1999 were as follows: 2001) 2000) 1999) Net sales: Engine/Mobile Filtration... $250,960) $259,791) $238,680) Industrial/Environmental Filtration ,394) 319,746) 174,889) Packaging... 69,610) 72,611) 64,300) $666,964) $652,148) $477,869) Operating profit: Engine/Mobile Filtration... $ 51,785) $ 49,162) $ 43,591) Industrial/Environmental Filtration... 16,761) 18,433) 5,120) Packaging... 7,264) 8,392) 7,366) 75,810) 75,987) 56,077) Other income (expense)... (10,076) (12,500) (462) Earnings before income taxes and minority interests... $ 65,734) $ 63,487) $ 55,615) Identifiable assets: Engine/Mobile Filtration... $135,265) $144,563) $137,351) Industrial/Environmental Filtration ,901) 271,669) 241,471) Packaging... 41,652) 41,891) 36,173) Corporate... 49,799) 43,807) 57,996) $530,617) $501,930) $472,991) Additions to plant assets: Engine/Mobile Filtration... $ 3,852) $ 7,588) $ 13,115) Industrial/Environmental Filtration... 8,746) 10,842) 4,824) Packaging... 5,404) 8,045) 3,217) Corporate ) 2,530) 666) $ 18,204) $ 29,005) $ 21,822) Depreciation and amortization: Engine/Mobile Filtration... $ 7,725) $ 7,475) $ 6,944) Industrial/Environmental Filtration... 10,711) 10,145) 5,132) Packaging... 2,725) 2,832) 2,742) Corporate ) 627) 554) $ 21,850) $ 21,079) $ 15,372) Financial data relating to the geographic areas in which the Company operates are shown for the years ended November 30, 2001, 2000 and Net sales by geographic area are based on sales to final customers within that region. 2001) 2000) 1999) Net sales: United States... $549,210) $532,210) $399,717) Europe... 58,490) 60,250) 35,984) Other international... 59,264) 59,688) 42,168) $666,964) $652,148) $477,869) Plant assets, at cost less accumulated depreciation: United States... $131,171) $133,323) $119,196) Europe... 5,144) 5,695) 5,650) Other international... 1,001) 1,103) 1,180) $137,316) $140,121) $126,026) 24 CLARCOR

27 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Shareholders CLARCOR Inc. Rockford, Illinois In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, shareholders equity and cash flows present fairly, in all material respects, the consolidated financial position of CLARCOR Inc. and its subsidiaries at November 30, 2001 and November 30, 2000 and the consolidated results of their operations and their cash flows for each of the three years in the period ended November 30, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Chicago, Illinois January 8, 2002 MANAGEMENT S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING The management of CLARCOR is responsible for the preparation, integrity and objectivity of the Company s financial statements and the other financial information in this report. The financial statements were prepared in conformity with generally accepted accounting principles and reflect, in all material respects, the results of operations and the Company s financial position for the periods shown. The financial statements are presented on the accrual basis of accounting and, where appropriate, reflect estimates based upon judgments of management. In addition, management maintains a system of internal controls designed to assure that Company assets are safeguarded from loss or unauthorized use or disposition. Also, the controls system provides assurance that transactions are authorized according to the intent of management and are accurately recorded to permit the preparation of financial statements in accordance with generally accepted accounting principles. For the periods covered by the financial statements in this report, management believes this system of internal controls was effective concerning all material matters. The effectiveness of the controls system is supported by the selection and training of qualified personnel, an organizational structure that provides an appropriate division of responsibility, a strong budgetary system of control and a comprehensive internal audit program. The Audit Committee of the Board of Directors, which is composed of three outside directors, serves in an oversight role to assure the integrity and objectivity of the Company s financial reporting process. The Committee meets periodically with representatives of management and the independent and internal auditors to review matters of a material nature related to financial reporting and the planning, results and recommendations of audits. The independent and internal auditors have free access to the Audit Committee. The Committee is also responsible for making recommendations to the Board of Directors concerning the selection of the independent auditors. Norman E. Johnson Bruce A. Klein Marcia S. Blaylock Chairman, President and Vice President-Finance and Vice President, Controller Chief Executive Officer Chief Financial Officer January 8, 2002 CLARCOR 25

28 11 YEAR FINANCIAL REVIEW 2001) 2000) 1999) 1998) PER SHARE Equity $ 11.14) $ 9.93) $ 8.77) $ 7.80) Diluted Earnings from Continuing Operations ) 1.64) 1.46) 1.30) Diluted Net Earnings ) 1.64) 1.46) 1.30) Dividends ) ) ) ) Price: High ) 21.44) 21.38) 24.63) Low ) 16.06) 14.25) 14.25) EARNINGS DATA ($000) Net Sales $666,964) $652,148) $477,869) $426,773) Operating Profit ,810) 75,987) 56,077) 51,663) Interest Expense ,270) 11,534) 3,733) 2,336) Pretax Income ,734) 63,487) 55,615) 51,347) Income Taxes ,804) 23,201) 20,137) 19,262) Income from Continuing Operations ,893) 40,237) 35,412) 32,079) Income from Discontinued Operations ) ) ) ) Cumulative Effect of Accounting Changes ) ) ) ) Net Earnings ,893) 40,237) 35,412) 32,079) Basic Average Shares Outstanding ,535) 24,270) 23,970) 24,268) Diluted Average Shares Outstanding ,892) 24,506) 24,314) 24,649) EARNINGS ANALYSIS Operating Margin %) 11.7%) 11.7%) 12.1%) Pretax Margin %) 9.7%) 11.6%) 12.0%) Effective Tax Rate %) 36.5%) 36.2%) 37.5%) Net Margin-Continuing Operations %) 6.2%) 7.4%) 7.5%) Net Margin %) 6.2%) 7.4%) 7.5%) Return on Beginning Assets %) 8.5%) 11.6%) 11.4%) Return on Beginning Shareholders Equity %) 19.1%) 19.0%) 18.7%) Dividend Payout to Net Earnings %) 27.9%) 30.5%) 33.4%) BALANCE SHEET DATA ($000) Current Assets $244,350) $230,479) $227,670) $168,173) Plant Assets, Net ,316) 140,121) 126,026) 86,389) Total Assets ,617) 501,930) 472,991) 305,766) Current Liabilities ,931) 97,826) 97,475) 61,183) Long-Term Debt ,203) 141,486) 145,981) 36,419) Shareholders Equity ,261) 242,093) 210,718) 186,807) BALANCE SHEET ANALYSIS ($000) Debt to Capitalization %) 36.9%) 40.9%) 16.3%) Working Capital $149,419) $132,653) $130,195) $106,990) Current Ratio ) 2.4) 2.3) 2.7) CASH FLOW DATA ($000) From Operations $ 63,290) $ 54,130) $ 38,642) $ 42,267) For Investment (51,353) (42,125) (160,658) (19,290) From/(For) Financing (15,326) (15,862) 103,501) (19,943) Change in Cash & Equivalents (3,446) (3,881) (18,576) 2,997) Capital Expenditures ,204) 29,005) 21,822) 15,825) Depreciation & Amortization ,850) 21,079) 15,372) 12,380) Dividends Paid ,575) 11,207) 10,814) 10,717) Net Interest Expense ,616) 10,836) 2,282) 1,053) Income Taxes Paid ,858) 16,458) 22,234) 16,199) EBITDA (A) ,082) 97,066) 71,449) 64,043) Free Cash Flow (B) ,511) 13,918) 6,006) 15,725) (A) Operating profit before depreciation, asset impairment and amortization. (B) Cash flow from operations less capital expenditures and dividends paid. 26 CLARCOR

29 1997) 1996) 1995) 1994) 1993) 1992) 1991) $ 7.06) $ 6.46) $ 5.79) $ 5.18) $ 4.63) $ 4.39) $ 4.26) 1.11) 1.07) 0.97) 0.87) 0.72) 0.66) 0.78) 1.11) 1.07) 0.97) 0.89) 0.72) 0.56) 0.79) ) ) ) ) ) ) ) 20.79) 16.75) 18.00) 14.92) 13.33) 15.00) 15.11) 13.33) 12.42) 12.08) 10.58) 10.67) 10.00) 8.67) $394,264) $372,382) $330,110) $300,450) $253,211) $218,172) $213,999) 44,424) 42,596) 38,728) 33,188) 29,960) 27,810) 32,204) 2,759) 3,822) 3,418) 3,298) 3,979) 4,438) 4,402) 44,192) 41,405) 36,631) 31,886) 27,221) 24,930) 28,778) 17,164) 15,315) 13,060) 12,057) 9,944) 8,941) 10,095) 26,918) 25,945) 23,500) 20,786) 17,277) 15,989) 18,683) ) ) ) ) ) ) 297) ) ) ) 630) ) (2,370) ) 26,918) 25,945) 23,500) 21,416) 17,277) 13,619) 18,980) 24,133) 23,908) 23,850) 23,804) 23,831) 24,030) 23,915) 24,344) 24,217) 24,205) 24,030) 24,076) 24,346) 23,988) 11.3%) 11.4%) 11.7%) 11.0%) 11.8%) 12.7%) 15.0%) 11.2%) 11.1%) 11.1%) 10.6%) 10.8%) 11.4%) 13.4%) 38.8%) 37.0%) 35.7%) 37.8%) 36.5%) 35.9%) 35.1%) 6.8%) 7.0%) 7.1%) 6.9%) 6.8%) 7.3%) 8.7%) 6.8%) 7.0%) 7.1%) 7.1%) 6.8%) 6.2%) 8.9%) 10.1%) 10.6%) 11.4%) 11.2%) 9.5%) 7.6%) 11.6%) 17.4%) 18.8%) 19.1%) 19.4%) 16.4%) 13.4%) 21.3%) 38.2%) 36.7%) 39.7%) 43.0%) 52.3%) 65.8%) 43.0%) $160,527) $140,726) $133,286) $109,992) $ 97,569) $105,067) $ 87,322) 82,905) 84,525) 73,047) 58,787) 53,839) 42,324) 52,324) 282,519) 267,019) 245,697) 206,928) 191,657) 181,660) 179,337) 54,237) 51,297) 49,841) 43,926) 37,647) 30,559) 25,977) 37,656) 43,449) 41,860) 25,090) 32,650) 38,534) 45,406) 171,162) 154,681) 138,144) 122,801) 110,299) 105,460) 102,000) 18.0%) 21.9%) 23.3%) 17.0%) 22.8%) 26.8%) 30.8%) $106,290) $ 89,429) $ 83,445) $ 66,066) $ 59,922) $ 74,508) $ 61,345) 3.0) 2.7) 2.7) 2.5) 2.6) 3.4) 3.4) $ 41,632) $ 26,675) $ 21,092) $ 25,670) $ 20,727) $ 23,456) $ 19,012) (8,193) (18,934) (29,044) (1,159) (74) (7,737) (15,848) (21,850) (8,774) 7,226) (18,656) (22,772) (9,929) (8,059) 11,497) (964) (684) 5,912) (2,197) 5,811) (4,895) 11,349) 22,230) 14,471) 12,119) 10,776) 8,290) 10,804) 11,600) 10,704) 9,145) 8,166) 7,227) 8,387) 7,722) 10,290) 9,512) 9,330) 9,201) 9,036) 8,958) 8,165) 1,739) 2,991) 2,560) 2,750) 3,104) 4,140) 3,280) 15,112) 11,230) 11,939) 10,194) 10,059) 11,200) 9,693) 56,024) 53,300) 47,873) 41,354) 37,187) 36,197) 39,926) 19,993) (5,067) (2,709) 4,350) 915) 6,208) 43) CLARCOR 27

30 CORPORATE INFORMATION BOARD OF DIRECTORS J. Marc Adam Retired Vice President, Marketing 3M (A diversified manufacturer) St. Paul, Minnesota Age: 63 Director Since: 1991 Milton R. Brown Retired Chairman & Chief Executive Officer Suntec Industries Incorporated (A diversified manufacturer) Rockford, Illinois Age: 70 Director Since: 1990 Robert J. Burgstahler Senior Vice President, Business Development & Corporate Services 3M (A diversified manufacturer) St. Paul, Minnesota Age: 57 Director Since: 2000 Lawrence E. Gloyd Chairman Emeritus, Retired Chairman & Chief Executive Officer CLARCOR Inc. Rockford, Illinois Age: 69 Director Since: 1984 Norman E. Johnson Chairman, President & Chief Executive Officer CLARCOR Inc. Rockford, Illinois Age: 53 Director Since: 1996 Philip R. Lochner, Jr. Retired Senior Vice President - Chief Administrative Officer Time Warner, Inc. (A diversified media company) New York, New York Age: 58 Director Since: 1999 James L. Packard Chairman, President & Chief Executive Officer Regal-Beloit Corporation (A diversified manufacturer) Beloit, Wisconsin Age: 59 Director Since: 1998 Keith E. Wandell President - Automotive Systems Group, Battery Johnson Controls, Inc. Milwaukee, WI Age: 51 Director Since: 2001 Robert H. Jenkins Retired Chairman Hamilton Sundstrand Corporation (A diversified manufacturer) Rockford, Illinois Age: 58 Director Since: CLARCOR

31 EXECUTIVE OFFICERS Norman E. Johnson Chairman, President & Chief Executive Officer Age: Years of Service David J. Anderson Vice President - Corporate Development Age: Years of Service Marcia S. Blaylock Vice President, Controller Age: Years of Service David J. Boyd Vice President, General Counsel & Corporate Secretary Age 62 2 Years of Service STOCK PRICE & DIVIDEND INFORMATION CLARCOR common stock is traded on the New York Stock Exchange under the symbol CLC. The tables set forth the high and low market prices as quoted by the New York Stock Exchange and dividends paid for each quarter of the last two fiscal years. Market Price Quarter Ended High Low Dividend March 3, $ $ $.1175 June 2, September 1, December 1, Total Dividends... $.4725 Market Price Quarter Ended High Low Dividend February 26, $ $ $.1150 May 27, August 26, December 2, Total Dividends... $.4625 Bruce A. Klein Vice President - Finance & Chief Financial Officer Age: 54 7 Years of Service David J. Lindsay Vice President - Administration & Chief Administrative Officer Age: Years of Service Peter F. Nangle Vice President - Information Services & Chief Information Officer Age: 40 8 Years of Service William B. Walker President - Environmental Filtration Age: Years of Service 2323 Sixth Street P.O. Box 7007 Rockford, Illinois / FAX: 815/ TRANSFER AGENT & REGISTRAR DIVIDEND REINVESTMENT PLAN EquiServe Trust Company N.A. P.O. Box 2506 Jersey City, New Jersey / AUDITORS PricewaterhouseCoopers LLP Certified Public Accountants One North Wacker Chicago, Illinois ANNUAL MEETING The University of Illinois College of Medicine at Rockford 1601 Parkview Avenue Rockford, Illinois Tuesday, March 19, :00 p.m. C.S.T. SEC FORM 10-K A copy of the 2001 Form 10-K may be obtained from: Corporate Secretary CLARCOR 2323 Sixth Street P.O. Box 7007 Rockford, Illinois 61125

32 2323 Sixth Street P.O. Box 7007 Rockford, Illinois TEL: 815/ FAX: 815/