##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURTIES EXCHANGE ACT OF 1934
   o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
  CLARCOR Inc.
 
  DELAWARE
    
    36-0922490(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)840 Crescent Centre Drive, Suite 600, Franklin, TN
    
    37067(Address of principal executive offices)
    
    (Zip Code)Registrants telephone number, including area code
    
    615-771-3100
  
  ý o
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  51,781,566 common shares outstanding
      Part I
 Item
 
 
 March 4,
    
    
    December 3,2006
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    21,420
    
    
    $
    18,502Short-term investments
    
    
    16,835
    
    
    
    10,400Accounts receivable, less allowance for losses
of $9,891 for 2006 and $9,775 for 2005
    
    
    149,812
    
    
    
    152,755Inventories:Raw materials
    
    
    44,178
    
    
    
    42,205Work in process
    
    
    19,365
    
    
    
    17,057Finished products
    
    
    61,769
    
    
    
    58,246Total inventories
    
    
    125,312
    
    
    
    117,508Prepaid expenses and other current assets
    
    
    6,743
    
    
    
    7,253Deferred income taxes
    
    
    18,630
    
    
    
    18,515Total current assets
    
    
    338,752
    
    
    
    324,933Plant assets at cost,
    
    
    357,815
    
    
    
    355,216less accumulated depreciation
    
    
    (210,834
    )
    
    
    (205,711
    )146,981
    
    
    
    149,505Acquired intangibles, less accumulated amortization
    
    
    167,929
    
    
    
    168,176Pension assets
    
    
    22,235
    
    
    
    22,069Deferred income taxes
    
    
    513
    
    
    
    521Other noncurrent assets
    
    
    10,641
    
    
    
    10,068$
    687,051
    
    
    $
    675,272LIABILITIESCurrent liabilities:Current portion of long-term debt
    
    $
    237
    
    
    $
    233Accounts payable
    
    
    48,464
    
    
    
    49,239Income taxes
    
    
    14,674
    
    
    
    12,544Accrued employee compensation
    
    
    15,730
    
    
    
    24,281Other accrued liabilities
    
    
    35,464
    
    
    
    35,173Total current liabilities
    
    
    114,569
    
    
    
    121,470Long-term debt, less current portion
    
    
    15,999
    
    
    
    16,009Postretirement health care benefits
    
    
    4,203
    
    
    
    4,239Long-term pension liabilities
    
    
    17,433
    
    
    
    16,287Deferred income taxes
    
    
    25,888
    
    
    
    26,184Other long-term liabilities
    
    
    6,633
    
    
    
    6,267Minority interests
    
    
    2,186
    
    
    
    1,983ContingenciesSHAREHOLDERS EQUITYCapital stock
    
    
    51,782
    
    
    
    51,595Capital in excess of par value
    
    
    25,071
    
    
    
    21,458Accumulated other comprehensive earnings
    
    
    (3,832
    )
    
    
    (4,637
    )Retained earnings
    
    
    427,119
    
    
    
    414,417500,140
    
    
    
    482,833$
    687,051
    
    
    $
    675,272
 See Notes to Consolidated Condensed Financial Statements
 Page 2      Three Months EndedMarch 4,
    
    
    February 26,2006
    
    
    2005Net sales
    
    $
    213,183
    
    
    $
    196,261Cost of sales
    
    
    149,409
    
    
    
    139,242Gross profit
    
    
    63,774
    
    
    
    57,019Selling and administrative expenses
    
    
    37,901
    
    
    
    35,939Operating profit
    
    
    25,873
    
    
    
    21,080Other income (expense):Interest expense
    
    
    (188
    )
    
    
    (143
    )Interest income
    
    
    300
    
    
    
    114Other, net
    
    
    (153
    )
    
    
    (283
    )(41
    )
    
    
    (312
    )Earnings before income taxes and minority interests
    
    
    25,832
    
    
    
    20,768Provision for income taxes
    
    
    9,520
    
    
    
    7,536Earnings before minority interests
    
    
    16,312
    
    
    
    13,232Minority interests in earnings of subsidiaries
    
    
    (111
    )
    
    
    (78
    )Net earnings
    
    $
    16,201
    
    
    $
    13,154Net earnings per common share:Basic
    
    $
    0.31
    
    
    $
    0.26Diluted
    
    $
    0.31
    
    
    $
    0.25Average number of common shares outstanding:Basic
    
    
    51,792,245
    
    
    
    51,444,416Diluted
    
    
    52,498,939
    
    
    
    52,321,798Dividends paid per share
    
    $
    0.0675
    
    
    $
    0.0638
 Page 3      Three Months EndedMarch 4,
    
    
    February 26,2006
    
    
    2005Cash flows from operating activities:Net earnings
    
    $
    16,201
    
    
    $
    13,154Depreciation
    
    
    5,483
    
    
    
    5,214Amortization
    
    
    538
    
    
    
    315Stock-based compensation expense
    
    
    632
    
    
    
    229Excess tax benefits from stock-based compensation
    
    
    (903
    )
    
    
    Changes in assets and liabilities
    
    
    (16,347
    )
    
    
    (2,566
    )Other, net
    
    
    116
    
    
    
    75Net cash provided by operating activities
    
    
    5,720
    
    
    
    16,421Cash flows from investing activities:Business acquisitions, net of cash acquired
    
    
    (206
    )
    
    
    Additions to plant assets
    
    
    (2,906
    )
    
    
    (3,575
    )Other, net
    
    
    8
    
    
    
    39Net cash used in investing activities
    
    
    (3,104
    )
    
    
    (3,536
    )Cash flows from financing activities:Net payments under line of credit
    
    
    
    
    
    
    (7,500
    )Payments on long-term debt
    
    
    (18
    )
    
    
    (702
    )Sale of capital stock under stock option and employee
purchase plans
    
    
    2,649
    
    
    
    3,003Excess tax benefits from stock-based compensation
    
    
    903
    
    
    
    Cash dividends paid
    
    
    (3,499
    )
    
    
    (3,281
    )Other, net
    
    
    
    
    
    
    (5,790
    )Net cash provided by (used in) financing activities
    
    
    35
    
    
    
    (14,270
    )Net effect of exchange rate changes on cash
    
    
    267
    
    
    
    146Net change in cash and cash equivalents
    
    
    2,918
    
    
    
    (1,239
    )Cash and cash equivalents, beginning of period
    
    
    18,502
    
    
    
    17,420Cash and cash equivalents, end of period
    
    $
    21,420
    
    
    $
    16,181Cash paid during the period for:Interest
    
    $
    184
    
    
    $
    156Income taxes
    
    $
    7,067
    
    
    $
    3,509
  Page 4
      1.
    
    CONSOLIDATED FINANCIAL STATEMENTSThe consolidated condensed balance sheet as of March 4, 2006, the consolidated condensed
statements of earnings and the consolidated condensed statements of cash flows for the periods
ended March 4, 2006, and February 26, 2005, have been prepared by the Company without audit.
The financial statements have been prepared on the same basis as those in the Companys December
3, 2005 annual report on Form 10-K (2005 Form 10-K). The November 30, 2005 consolidated balance
sheet data was derived from CLARCORs year-end audited financial statements as presented in the
2005 Form 10-K. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position, results of
operations, and cash flows have been made. The results of operations for the period ended March
4, 2006 are not necessarily indicative of the operating results for the full year.As discussed in the 2005 Form 10-K, at year end 2005 the Company revised its presentation of
short-term investments on its Consolidated Balance Sheets and Consolidated Statements of Cash
Flows, which were previously presented as cash and cash equivalents in previous years, to
present them in accordance with their contractual maturities. The amount revised in the
Consolidated Condensed Statement of Cash Flows totaled $5,100 for first quarter 2005. The
purchases and sales related to the investments held have been presented on the Consolidated
Statements of Cash Flows in the operating activities section. This revision had no impact on
the Consolidated Statements of Earnings.2.
    
    STOCK-BASED COMPENSATIONEffective December 4, 2005, the Company adopted Statement of Financial Accounting Standards No.
123R, Share-Based Payment (SFAS No. 123R), using the modified prospective transition method.
Under this method, stock-based compensation expense is recognized using the fair-value based
method for all awards granted on or after the date of adoption. Compensation expense for
unvested stock options and awards that were outstanding on December 4, 2005 will be recognized
over the requisite service period based on the grant-date fair value of those options and awards
as previously calculated under the pro forma disclosures under SFAS No. 123. The Company
determined the fair value of these awards using the Black-Scholes option pricing model. The
Company also adopted the non-substantive vesting period approach for attributing stock
compensation to individual periods for awards with retirement eligibility options, which
requires recognition of compensation expense immediately for grants to retirement eligible
employees or over the period from the grant date to the date retirement eligibility is achieved.
This change will not affect the overall amount of compensation expense recognized and had an
immaterial effect on the amount recorded in the three months ended March 4, 2006. Prior to
adoption, the Company used the intrinsic value method under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and related Interpretations and provided the
disclosure-only provisions of SFAS No. 123 applying the nominal vesting period approach.
Therefore, the Company did not recognize compensation expense in association with options
granted.As a result of adopting the standard, the Company recorded pretax compensation expense related
to stock options of $411 and tax benefits of $146. This reduced net earnings by $265 and
diluted earnings per share (EPS) by less than $0.01 for the first quarter 2006. The Company
also recorded $221 in pretax compensation expense related to its restricted share
 Page 5
      2.
    
    STOCK-BASED COMPENSATION (Continued)units. The tax benefits associated with tax deductions that exceed the amount of compensation
expense recognized in the financial statements was $903 for the three months ended March 4,
2006. This reduced cash flows from operating activities and increased cash flows from financing
activities compared to amounts that would have been reported if the standard had not been
adopted.On November 18, 2005, the Board of Directors approved a grant of 386,375 options that were fully
vested on the date of grant. Approximately $3,000 of pretax compensation expense was included
in the determination of pro forma earnings during 2005 that otherwise would have been recorded
as stock option expense in accordance with SFAS No. 123R over future years had the options been
granted with a four-year vesting period similar to prior grants. On March 22, 2005, the
Compensation Committee of the Board of Directors approved accelerating the vesting of
nonqualified stock options granted on December 12, 2004 to current employees, including
executive officers. All of these options had an exercise price greater than the then-market
price per share and provided for vesting at the rate of 25% per year beginning on the first
anniversary of the date of grant. Approximately $3,000 of pretax compensation expense was
included in the determination of pro forma earnings during 2005 that otherwise would have been
recorded as stock option expense in accordance with SFAS No. 123R over future years. Together
these events reduced the amount of pre-tax compensation that would have been recorded related to
these two grants in the three months ended March 4, 2006 by approximately $375.If the Company had determined compensation expense for its stock-based compensation plans based
on the fair value at the grant dates for the prior fiscal year, the Companys pro forma net
earnings and basic and diluted EPS would have been as follows:
 Three Months EndedFebruary 26, 2005Net earnings, as reported
    
    $
    13,154Add stock-based compensation expense, net of tax, included in net earnings
    
    
    145Less total stock-based compensation expense under the fair value-based
method, net of tax
    
    
    (709
    )Pro forma net earnings
    
    $
    12,590Basic EPS, as reported
    
    $
    0.26Pro forma basic EPS
    
    $
    0.24Diluted EPS, as reported
    
    $
    0.25Pro forma diluted EPS
    
    $
    0.24
 The following is a description and summary of the key provisions of the stock-based
compensation plans.On March 24, 2003, the shareholders of CLARCOR approved the 2004 Incentive Plan, which replaced
the 1994 Incentive Plan on its termination date of December 14, 2003. The 2004 Incentive Plan
allows the Company to grant stock options, restricted stock and performance awards to officers,
directors and key employees of up to 3,000,000 shares. Upon share option
 Page 6
      2.
    
    STOCK-BASED COMPENSATION (Continued)exercise or restricted share unit conversion, the Company
issues new shares unless treasury shares are available.Stock OptionsUnder the 2004 Incentive Plan, nonqualified stock options may only be granted at the fair market
value at the date of grant. All outstanding stock options have been granted at the fair market
value on the date of grant. The Companys Board of Directors determines the vesting
requirements for stock options at the time of grant and may accelerate vesting as occurred
during 2005. Excluding the grants awarded in fiscal 2005, options granted to key employees vest
25% per year beginning at the end of the first year; therefore, they become fully exercisable at
the end of four years. Vesting may be accelerated in the event of retirement, disability or
death of a participant or change in control of the Company. Options granted to non-employee
directors vest immediately. All options expire ten years from the date of grant unless
otherwise terminated. The options granted in fiscal 2005 are fully vested as discussed above.The following table summarizes the activity for the three months ended March 4, 2006 under the
nonqualified stock option plans and includes options granted under both the 1994 Incentive Plan
and the 2004 Incentive Plan.
 Shares Granted under
    
    
    Weighted AverageIncentive Plans
    
    
    Exercise PriceOutstanding at beginning of year
    
    
    3,885,915
    
    
    $
    20.63Granted
    
    
    5,050
    
    
    
    34.16Exercised
    
    
    (147,425
    )
    
    
    12.38Surrendered
    
    
    (17,700
    )
    
    
    20.15Outstanding at end of year
    
    
    3,725,840
    
    
    $
    20.97Options exercisable at March 4, 2006
    
    
    3,371,816
    
    
    $
    20.99
 At March 4, 2006, there was $1,836 of unrecognized compensation cost related to nonvested option
awards which the Company expects to recognize over a weighted-average
period of 1.5 years.The total intrinsic value of options exercised during the three months ended March 4, 2006 and
February 26, 2005 was $3,007 and $4,724, respectively. Cash received upon exercises of stock
options was $1,506 and $1,898 and the related tax benefits realized were $849 and $1,737 during
the three months ended March 4, 2006 and February 26, 2005, respectively. The fair value of
options exercised during first quarter 2006 and 2005 was $518 and $820, respectively.
 Page 7
      2.
    
    STOCK-BASED COMPENSATION (Continued)The following table summarizes information about the options at March 4, 2006.
 Options Outstanding
    
    
    Options ExercisableWeighted AverageRange of
    
    
    
    
    
    Weighted Average
    
    
    Remaining Life in
    
    
    
    
    
    
    Weighted AverageExercise Prices
    
    Number
    
    
    Exercise Price
    
    
    Years
    
    
    Number
    
    
    Exercise Price$7.21 - $9.79
    
    
    430,126
    
    
    $
    9.11
    
    
    
    3.61
    
    
    
    430,126
    
    
    $
    9.11$10.53 - $15.15
    
    
    318,395
    
    
    $
    13.31
    
    
    
    5.46
    
    
    
    318,395
    
    
    $
    13.31$16.01 - $22.80
    
    
    1,631,354
    
    
    $
    20.08
    
    
    
    5.79
    
    
    
    1,281,130
    
    
    $
    19.94$25.89 - $34.40
    
    
    1,345,965
    
    
    $
    27.66
    
    
    
    8.05
    
    
    
    1,342,165
    
    
    $
    27.643,725,840
    
    
    $
    20.97
    
    
    
    6.33
    
    
    
    3,371,816
    
    
    $
    20.99
 At March 4, 2006, the aggregate intrinsic value of options outstanding and exercisable was
$47,979 and $43,345, respectively.The weighted average fair value per option at the date of grant for options granted in first
quarter 2006 and 2005 was $9.32 and $6.77, 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. The expected life selected for options granted during the quarter
represents the period of time that the options are expected to be outstanding based on
historical data of option holder exercise and termination behavior. Expected volatilities are
based upon historical volatility of the Companys monthly stock closing prices over a period
equal to the expected life of each option grant. The risk-free interest rate was selected based
on yields from U.S. Treasury zero-coupon issues with a remaining term equal to the expected term
of the options being valued.
 Three Months Ended
    
    
    
    
    
    
    Year EndedMarch 4, 2006
    
    
    
    
    
    
    December 3, 2005Risk-free interest rate
    
    
    
    
    
    
    4.50
    %
    
    
    
    
    
    
    4.05
    %Expected dividend yield
    
    
    
    
    
    
    0.96
    %
    
    
    
    
    
    
    1.06
    %Expected volatility factor
    
    
    
    
    
    
    20.70
    %
    
    
    
    
    
    
    21.48
    %Expected option term (in years):Original grants without reloads
    
    
    
    
    
    
    6.0
    
    
    
    
    
    
    
    6.4Original grants with reloads
    
    
    
    
    
    
    n/a
    
    
    
    
    
    
    
    5.0
 Restricted Share Unit AwardsThe Companys restricted share unit awards are considered nonvested share awards as defined
under SFAS No. 123R. No restricted share units were granted during the three months ended March
4, 2006. During the three months ended February 26, 2005, the Company granted 32,144 restricted
units of Company common stock with a fair value of $26.08 per unit, the respective market price
of the stock at the date granted. The restricted share units require no payment from the
employee and compensation cost is recorded based on the market price
 Page 8
      2.
    
    STOCK-BASED COMPENSATION (Continued)on the grant date and is recorded equally 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.
Compensation expense related to vesting of restricted stock awards totaled $221 and $229 for the
three months ended March 4, 2006 and February 26, 2005, respectively. The following table
summarizes the restricted share unit awards.
 Weighted Average GrantUnits
    
    
    
    Date Fair ValueNonvested at beginning of year
    
    
    110,441
    
    
    $
    23.32Granted
    
    
    
    
    
    
    Vested
    
    
    (37,158
    )
    
    
    19.56Surrendered
    
    
    
    
    
    
    Nonvested at March 4, 2006
    
    
    73,283
    
    
    $
    25.22
 The total fair value of shares vested during the three months ended March 4, 2006 and February
26, 2005 was $727 and $689, respectively. As of March 4, 2006, there was $1,591 of total
unrecognized compensation cost related to nonvested share-based compensation arrangements. Of
this nonvested cost, $542 is expected to be recognized during the remainder of fiscal 2006 and
the remaining $1,049 during fiscal years 2007, 2008 and 2009.Employee Stock Purchase PlanThe Company sponsors an employee stock purchase plan which allows employees to purchase stock at
a discount. Effective January 1, 2006, the plan was amended to be in compliance with the safe
harbor rules of SFAS No. 123R so that the plan is not compensatory under the new standard and no
expense will be recognized. The company received $1,143 and $1,108, for the issuance of stock
under this plan during first quarter 2006 and 2005, respectively.3.
    
    EARNINGS PER SHAREDiluted earnings per share reflects the impact of outstanding stock options and restricted share
units as 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:
 Page 9
      EARNINGS PER SHARE (Continued)
 Three Months EndedMarch 4,
    
    
    February 26,2006
    
    
    2005Basic weighted average number of common
shares outstanding
    
    
    51,792,245
    
    
    
    51,444,416Dilutive effect of stock options and restricted share units
    
    
    706,694
    
    
    
    877,382Diluted weighted average number of
common shares outstanding
    
    
    52,498,939
    
    
    
    52,321,798Net Earnings
    
    $
    16,201
    
    
    $
    13,154Basic per share amount
    
    $
    0.31
    
    
    $
    0.26Diluted per share amount
    
    $
    0.31
    
    
    $
    0.25
 Options with exercise prices greater than the average market price of the common shares
during the respective quarter were not included in the computation of diluted earnings per
share. For the three months ended March 4, 2006, 5,050 options with a weighted average exercise
price of $34.16 were excluded from the computation. For the three months ended February 26,
2005, there were no options excluded.For the three months ended March 4, 2006, exercises of stock options added $1,969 to capital in
excess of par value.4.
    
    COMPREHENSIVE EARNINGSThe Companys total comprehensive earnings and its components are as follows:
 Three Months EndedMarch 4,
    
    
    February 26,2006
    
    
    2005Net earnings
    
    $
    16,201
    
    
    $
    13,154Other comprehensive earnings, net of tax:Foreign currency translation adjustments
    
    
    805
    
    
    
    496Total comprehensive earnings
    
    $
    17,006
    
    
    $
    13,650
 The components of the ending balances of accumulated other comprehensive earnings are as
follows:
 March 4,
    
    
    December 3,2006
    
    
    2005Minimum pension liability, net of $2,373 tax
    
    $
    (3,944
    )
    
    $
    (3,944
    )Translation adjustments, net of $155 tax
    
    
    112
    
    
    
    (693
    )Accumulated other comprehensive loss
    
    $
    (3,832
    )
    
    $
    (4,637
    )
 Page 10      5.
    
    ACQUISITIONAs discussed in the 2005 Form 10-K, on November 1, 2005, the Company acquired Martin Kurz & Co.,
Inc. (MKI), a privately-owned Mineola, New York manufacturer of sintered porous metal laminates
used in screening and filtration products for a wide array of industries, including
pharmaceutical, petrochemical, aerospace, paper and chemical process industries, for
approximately $24,621 net of cash received, including acquisition expenses. During the first
quarter 2006, the Company paid an additional $206 related to a working capital adjustment. This
payment, along with a revised estimate of liabilities assumed, increased goodwill by $96. The
preliminary purchase price was paid in cash with available funds. MKIs sales for the most
recent twelve months prior to acquisition were approximately $12,000. The acquisition would not
have significantly affected net earnings and earnings per share of the Company for prior fiscal
years. MKI was acquired to expand the Companys product line and technical capabilities in
filter manufacturing, primarily for manufacturing of metal filters. The Company expects the
acquisition to be accretive to earnings per share in fiscal year 2006. MKI is included in the
Industrial/Environmental segment from the date of acquisition.The excess of the initial purchase price over the estimated fair value of the net tangible and
identifiable intangible assets acquired was recorded as goodwill. The initial purchase price
was based on the net assets of the business acquired as shown on an October 31, 2005, balance
sheet which is subject to a final adjustment. The preliminary allocation of the purchase price
over the preliminary estimated fair value of the tangible and identifiable intangible assets
acquired for MKI resulted in $9,210 recorded as goodwill. In addition based on a preliminary
appraisal, the Company recognized $8,600 for customer relationships that will be amortized over
twelve years, $267 as indefinite-lived trademarks and $1,700 as other acquired intangibles which
will be amortized over five to ten years. The preliminary allocation for MKI will be finalized
when the Company completes its estimates of liabilities assumed, completes an appraisal of the
assets acquired and finalizes the purchase price with the sellers. The Company expects to do
this in fiscal 2006. Following is a preliminary condensed balance sheet based on fair values of
the assets acquired and liabilities assumed.
 Cash
    
    $
    244Accounts receivable, less allowance for losses
    
    
    1,312Inventory, net
    
    
    468Prepaid assets
    
    
    59Plant assets
    
    
    3,580Goodwill
    
    
    9,210Other acquired intangibles
    
    
    10,567Total assets acquired
    
    
    25,440Accounts payable and accrued liabilities
    
    
    (369
    )Net assets acquired
    
    $
    25,071
 Page 11
      6.
    
    ACQUIRED INTANGIBLESThe following table reconciles the activity for goodwill by reporting unit for the three months
ended March 4, 2006.
 Engine/
    
    
    Industrial/Mobile
    
    
    Environmental
    
    
    
    
    
    
    TotalFiltration
    
    
    Filtration
    
    
    Packaging
    
    
    GoodwillBalance at December 3, 2005
    
    $
    15,678
    
    
    $
    98,600
    
    
    $
    
    
    
    $
    114,278Acquisitions
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    96Currency translation adjustments
    
    
    108
    
    
    
    85
    
    
    
    
    
    
    
    193Balance at March 4, 2006
    
    $
    15,786
    
    
    $
    98,781
    
    
    $
    
    
    
    $
    114,567
 The following table summarizes acquired intangibles by reporting unit. Other acquired
intangibles includes parts manufacturer regulatory approvals, patents and noncompete agreements.
 Engine/
    
    
    Industrial/Mobile
    
    
    EnvironmentalFiltration
    
    
    Filtration
    
    
    Packaging
    
    
    TotalBalance at March 4, 2006:Trademarks
    
    $
    603
    
    
    $
    29,158
    
    
    $
    
    
    
    $
    29,761Customer relationships, gross
    
    $
    943
    
    
    $
    16,501
    
    
    $
    
    
    
    $
    17,444Less accumulated amortization
    
    
    307
    
    
    
    1,493
    
    
    
    
    
    
    
    1,800Customer relationships, net
    
    $
    636
    
    
    $
    15,008
    
    
    $
    
    
    
    $
    15,644Other acquired intangibles
    
    $
    208
    
    
    $
    12,624
    
    
    $
    
    
    
    $
    12,832Less accumulated amortization
    
    
    208
    
    
    
    4,667
    
    
    
    
    
    
    
    4,875Other acquired intangibles, net
    
    $
    
    
    
    $
    7,957
    
    
    $
    
    
    
    $
    7,957
 Amortization expense is estimated to be $2,109 in 2006, $2,016 in 2007, $1,831 in 2008,
$1,831 in 2009 and $1,826 in 2010.7.
    
    GUARANTEES AND WARRANTIESThe Company has provided letters of credit totaling approximately $24,603 to various government
agencies, primarily related to industrial revenue bonds, and to insurance companies and other
entities in support of its obligations. The Company believes that no payments will be required
resulting from these accommodation obligations.In the ordinary course of business, the Company also provides routine indemnifications and other
guarantees whose terms range in duration and often are not explicitly defined. The Company does
not believe these will have a material impact on the results of operations or financial
condition of the Company.The Company has a majority ownership interest in a consolidated affiliate in which the Company
has agreed, under certain conditions, to buy out the minority owners interest for an amount
estimated not to exceed $1,800 as of March 4, 2006. In accordance with SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity, the Company has recorded this amount at its fair value in other long-term liabilities.
 Page 12
      7.
    
    GUARANTEES AND WARRANTIES (Continued)Warranties are recorded as a liability on the balance sheet and as charges to current expense
for estimated normal warranty costs and, if applicable, for specific performance issues known to
exist on products already sold. The expenses estimated to be incurred are provided at the time
of sale and adjusted as needed, based primarily upon experience.Changes in the Companys warranty accrual during the quarter ended March 4, 2006 are as follows:
 Balance at December 3, 2005
    
    $
    1,122Accruals for warranties issued during the period
    
    
    404Accruals related to pre-existing warranties
    
    
    (14
    )Settlements made during the period
    
    
    (197
    )Other adjustments, including currency translation
    
    
    13Balance at March 4, 2006, included in other current liabilities
    
    $
    1,328
 8.
    
    RETIREMENT BENEFITSThe Company provides various retirement benefits, including defined benefit plans and
postretirement health care plans covering certain current and retired employees in the U.S. and
abroad. Components of net periodic benefit cost and company contributions for these plans were
as follows:
 Three Months EndedMarch 4,
    
    
    February 26,Pension Benefits
    
    2006
    
    
    2005Components of net periodic benefit cost:Service cost
    
    $
    845
    
    
    $
    947Interest cost
    
    
    1,682
    
    
    
    1,568Expected return on plan assets
    
    
    (1,952
    )
    
    
    (1,881
    )Amortization of unrecognized:Prior service cost
    
    
    43
    
    
    
    40Net actuarial loss
    
    
    501
    
    
    
    524Net periodic benefit cost
    
    $
    1,119
    
    
    $
    1,198Cash Contributions
    
    $
    124
    
    
    $
    125Postretirement Healthcare BenefitsComponents of net periodic benefit cost:Service cost
    
    $
    5
    
    
    $
    8Interest cost
    
    
    21
    
    
    
    26Amortization of unrecognized:Prior service cost
    
    
    (31
    )
    
    
    (31
    )Net actuarial gain
    
    
    (26
    )
    
    
    (19
    )Net periodic benefit income
    
    $
    (31
    )
    
    $
    (16
    )Cash Contributions
    
    $
    70
    
    
    $
    66
 Page 13
      8.
    
    RETIREMENT BENEFITS (Continued)The Companys policy is to contribute to the qualified U.S. and non-U.S. pension plans at least
the minimum amount required by applicable laws and regulations, to contribute to the
nonqualified plan when required for benefit payments, and to contribute to the postretirement
benefit plan an amount equal to the benefit payments. There is no minimum required contribution
for the U.S. pension plans for 2006. The Company from time to time makes contributions in
excess of the minimum amount required as economic conditions warrant. The Company has not
determined whether it will make a voluntary contribution to the U.S. qualified plan in 2006;
however it does expect to fund $280 for the U.S. nonqualified plan, $220 for the non-U.S. plan
and $280 for the postretirement benefit plan to pay benefits during 2006.9.
    
    CONTINGENCIESThe 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.Although it is not certain what future environmental claims, if any, may be asserted, the
Company currently believes that its potential liability for known environmental matters does not
exceed its present accrual of $50. However, environmental and related remediation costs are
difficult to quantify for a number of reasons, including the number of parties involved, the
difficulty in determining the extent of the contamination, the length of time remediation may
require, the complexity of 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, after consultation with legal counsel 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.In the event of a change in control of the Company, termination benefits may be required for
certain executive officers and other key employees.10.
    
    SEGMENT DATAThe Company operates in three principal product segments: Engine/Mobile Filtration,
Industrial/Environmental Filtration, and Packaging. The segment data for the three months
ended March 4, 2006 and February 26, 2005, respectively, are shown below. Net sales represent
sales to unaffiliated customers as reported in the consolidated condensed statements of
earnings. Intersegment sales were not material.
 Page 14
      SEGMENT DATA (Continued)
 Three Months EndedMarch 4,
    
    
    February 26,2006
    
    
    2005Net sales:Engine/Mobile Filtration
    
    $
    91,032
    
    
    $
    83,129Industrial/Environmental Filtration
    
    
    102,656
    
    
    
    97,198Packaging
    
    
    19,495
    
    
    
    15,934$
    213,183
    
    
    $
    196,261Operating profit:Engine/Mobile Filtration
    
    $
    19,073
    
    
    $
    16,778Industrial/Environmental Filtration
    
    
    5,485
    
    
    
    3,969Packaging
    
    
    1,315
    
    
    
    33325,873
    
    
    
    21,080Other expense
    
    
    (41
    )
    
    
    (312
    )Earnings before income taxes and minority earnings
    
    $
    25,832
    
    
    $
    20,768Identifiable assets:Engine/Mobile Filtration
    
    $
    198,651
    
    
    $
    187,062Industrial/Environmental Filtration
    
    
    373,804
    
    
    
    345,923Packaging
    
    
    44,256
    
    
    
    41,313Corporate
    
    
    70,340
    
    
    
    46,702$
    687,051
    
    
    $
    621,000
 Page 15
      MANAGEMENTS DISCUSSION AND ANALYSIS
 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
         Page 16
      MANAGEMENTS DISCUSSION AND ANALYSIS
 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
         Page 17
      MANAGEMENTS DISCUSSION AND ANALYSIS
 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
      (Dollars in thousands)2006
    
    
    2007 & 2008
    
    
    2009 & 2010
    
    
    ThereafterLong-Term Debt
    
    $
    237
    
    
    $
    179
    
    
    $
    
    
    
    $
    15,820Credit Facility
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating Leases
    
    $
    8,895
    
    
    $
    13,003
    
    
    $
    6,886
    
    
    $
    7,250
 The Companys off-balance sheet arrangements relate to various operating leases. The Company had
no derivative, swap, hedge, variable interest entity or special purpose entity agreements during
2006 or 2005.The Companys financial position at the end of the first quarter reflected cash and short-term
investments of $38,255,000, an increase from $28,902,000 at year-end 2005. At the end of first
quarter 2006 compared to year-end 2005, accounts receivable were reduced by $2,943,000 primarily
due to lower sales in the first quarter of 2006 compared to the fourth quarter of 2005.
Inventories increased $7,804,000 from the year-end level due to inventory requirements for
increased shipments expected for the remainder of 2006. The changes in accounts receivable and
inventories at the end of the first quarter were consistent with the normal seasonality changes
between fiscal quarters. The current ratio at the end of the first quarter was 3.0 compared to 2.7
at
 Page 18
      MANAGEMENTS DISCUSSION AND ANALYSIS
 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 the end of fiscal 2005. The ratio of total debt to total capitalization was 3.1% at the end of the
2006 first quarter compared to the year-end 2005 level of 3.3%. At the end of the first quarter
2006, CLARCOR had 51,781,566 shares of common stock outstanding.OTHER MATTERSMarket RiskThe Companys interest income on short-term investments and interest expense on long-term debt are
sensitive to changes in interest rates. In addition, changes in foreign currency exchange rates
may affect assets, liabilities and commitments that are to be settled in cash and are denominated
in foreign currencies. Market risks are also discussed in the Companys Form 10-K for the year
ended November 30, 2005 (2005 Form 10-K) in Managements Discussion and Analysis of Financial
Condition and Results of Operation.Critical Accounting PoliciesThe Companys critical accounting policies, including the assumptions and judgments underlying
them, are disclosed in the Companys 2005 Form 10-K in Managements Discussion and Analysis of
Financial Condition and Results of Operation. These policies have been consistently applied in all
material respects. 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.OutlookContinued sales growth for the Company overall is expected for the remainder of 2006.
Engine/Mobile segment sales are expected to grow due to increased aftermarket distribution, sales
to OEM dealers and sales of new products. Sales are expected to increase for the
Industrial/Environmental segment as a result of several initiatives including new product
introductions along with continued growth for specialty filtration products including air quality
equipment and aviation related products. Sales growth is also expected for the Packaging segment
for 2006.In January 2006 the Company announced that a major customer of the Industrial/Environmental segment
planned to manufacture, at their non-U.S. plants, certain products that the segment currently sells
to the customer manufactured at the segments domestic plants. This reduction in sales and
operating profit is expected to begin during the second quarter. In 2006, the Company expects to
lose sales totaling approximately $11 million and operating profit could be reduced by
approximately $2 million.As a result of the anticipated overall sales growth for the Company combined with continued cost
control efforts, it is expected that diluted earnings per share for 2006 will be in the $1.52 to
$1.60 range. This range includes an estimate of $0.03 related to the expense that will be recorded
for stock-based compensation beginning with the Companys first quarter 2006 adoption of SFAS No.
123R.Continued emphasis on cost reductions and price changes within each business unit are expected to
offset costs that have or may increase for freight, energy and purchased materials. These costs
 Page 19
      MANAGEMENTS DISCUSSION AND ANALYSIS
 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 for the Company may change significantly based on future changes in the U.S. and world economies.
Capital investments will continue to be made in each segments facilities to improve productivity
and to support new products. While the Company fully anticipates that sales and profits will
improve as a result of sales initiatives and cost reductions, the Company has developed contingency
plans to reduce discretionary spending if unfavorable economic conditions persist.
CLARCOR continues to assess acquisition opportunities, primarily in related filtration businesses.
It is expected that these acquisitions would expand the Companys market base, distribution
coverage or product offerings.FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTYThis First Quarter 2006 Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. All statements made in this Form 10-Q, other than statements of historical fact,
are forward-looking statements. You can identify these statements from use of the words may,
should, could, potential, continue, plan, forecast, estimate, project, believe,
intent, anticipate, expect, target, is likely, will, or the negative of these terms,
and similar expressions. These statements are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These forward-looking statements may include,
among other things:
 
    
    statements and assumptions relating to future growth, earnings, earnings per share
and other financial performance measures, as well as managements short-term and
long-term performance goals;
    
    statements relating to the anticipated effects on results of operations or financial
condition from recent and expected developments or events;
    
    statements relating to the Companys business and growth strategies; and
    
    any other statements or assumptions that are not historical facts.
 The Company believes that its expectations are based on reasonable assumptions. However, these
forward-looking statements involve known and unknown risks, uncertainties and other important
factors that could cause the Companys actual results, performance or achievements, or industry
results, to differ materially from the Companys expectations of future results, performance or
achievements expressed or implied by these forward-looking statements. In addition, the Companys
past results of operations do not necessarily indicate its future results. These and other
uncertainties are discussed in the Risk Factors section of the Companys 2005 Form 10-K. The
future results of the Company may fluctuate as a result of these and other risk factors detailed
from time to time in the Companys filings with the Securities and Exchange Commission.You should not place undue reliance on any forward-looking statements. These statements speak only
as of the date of this First Quarter 2006 Form 10-Q. Except as otherwise required by applicable
laws, the Company undertakes no obligation to publicly update or revise any forward-looking
statements or the risk factors described in this Form 10-Q, whether as a result of new information,
future events, changed circumstances or any other reason after the date of this Form 10-Q.
 Page 20
      Page 21
      (c)
    
    
    (d)Total number of
    
    
    Approximate dollarshares purchased as
    
    
    value of shares(a)
    
    
    (b)
    
    
    part of publicly
    
    
    that may yet beTotal number of
    
    
    Average price paid
    
    
    announced plans or
    
    
    purchased under thePeriod
    
    shares purchased
    
    
    per share
    
    
    programs
    
    
    plans or programsDecember 4, 2005 through December 31,
2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    139,538,839January 1, 2006 through January 31,
2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    139,538,839February 1, 2006 through March 4, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    139,538,839Total
    
    
    
    
    
    
    
    
    
    
    
   a.
    Exhibits:
 31(i)
    Certification of Norman E. Johnson pursuant to Section
302 of the Sarbanes-Oxley Act of 200231(ii)
    Certification of Bruce A. Klein pursuant to Section 302
of the Sarbanes-Oxley Act of 200232(i)
    Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
 Page 22
      SIGNATURE
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
 CLARCOR Inc.
(Registrant)March 24 2006
    By:
    /s/ Norman E. Johnson(Date)
    
    Norman E. JohnsonChairman of the Board, President and Chief
Executive OfficerMarch 24 2006
    By:
    /s/ Bruce A. Klein(Date)
    
    Bruce A. KleinVice President  Finance and
Chief Financial Officer Page 23