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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
 For the quarterly period ended June 3, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 1-11024
 CLARCOR Inc.
 (Exact name of registrant as specified in its charter)
 DELAWARE
    
    36-0922490(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
  
    
  þ o
  þ o o
 o þ




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TABLE OF CONTENTS  Part I  Item 1Part I  Item 2Part I  Item 3. Quantitative and Qualitative Disclosure About Market RiskPart I  Item 4. Controls and ProceduresPart II  Other InformationItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 4. Submission of Matters to a Vote of Security HoldersItem 6. ExhibitsSIGNATURESCertification of Norman E. JohnsonCertification of Bruce A. KleinCertifications    Table of Contents  
 Part I  Item 1
 
 
 June 3,
    
    
    December 3,2006
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    25,936
    
    
    $
    18,502Short-term investments
    
    
    27,850
    
    
    
    10,400Accounts receivable, less allowance for losses
of $13,018 for 2006 and $9,775 for 2005
    
    
    150,970
    
    
    
    152,755Inventories:Raw materials
    
    
    44,765
    
    
    
    42,205Work in process
    
    
    19,299
    
    
    
    17,057Finished products
    
    
    60,276
    
    
    
    58,246Total inventories
    
    
    124,340
    
    
    
    117,508Prepaid expenses and other current assets
    
    
    6,566
    
    
    
    7,253Deferred income taxes
    
    
    18,328
    
    
    
    18,515Total current assets
    
    
    353,990
    
    
    
    324,933Plant assets at cost,
    
    
    361,735
    
    
    
    355,216less accumulated depreciation
    
    
    (215,049
    )
    
    
    (205,711
    )146,686
    
    
    
    149,505Acquired intangibles, less accumulated amortization
    
    
    170,341
    
    
    
    168,176Pension assets
    
    
    22,401
    
    
    
    22,069Deferred income taxes
    
    
    521
    
    
    
    521Other noncurrent assets
    
    
    11,152
    
    
    
    10,068$
    705,091
    
    
    $
    675,272LIABILITIESCurrent liabilities:Current portion of long-term debt
    
    $
    223
    
    
    $
    233Accounts payable
    
    
    47,881
    
    
    
    49,239Income taxes
    
    
    10,910
    
    
    
    12,544Accrued employee compensation
    
    
    18,073
    
    
    
    24,281Other accrued liabilities
    
    
    36,589
    
    
    
    35,173Total current liabilities
    
    
    113,676
    
    
    
    121,470Long-term debt, less current portion
    
    
    15,985
    
    
    
    16,009Postretirement health care benefits
    
    
    4,658
    
    
    
    4,239Long-term pension liabilities
    
    
    18,798
    
    
    
    16,287Deferred income taxes
    
    
    25,561
    
    
    
    26,184Other long-term liabilities
    
    
    5,384
    
    
    
    6,267Minority interests
    
    
    1,472
    
    
    
    1,983ContingenciesSHAREHOLDERS EQUITYCapital stock
    
    
    51,966
    
    
    
    51,595Capital in excess of par value
    
    
    28,261
    
    
    
    21,458Accumulated other comprehensive earnings
    
    
    (1,077
    )
    
    
    (4,637
    )Retained earnings
    
    
    440,407
    
    
    
    414,417519,557
    
    
    
    482,833$
    705,091
    
    
    $
    675,272
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Quarter Ended
    
    
    Six Months EndedJune 3,
    
    
    May 28,
    
    
    June 3,
    
    
    May 28,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    227,076
    
    
    $
    219,786
    
    
    $
    440,259
    
    
    $
    416,047Cost of sales
    
    
    159,959
    
    
    
    153,700
    
    
    
    309,368
    
    
    
    292,942Gross profit
    
    
    67,117
    
    
    
    66,086
    
    
    
    130,891
    
    
    
    123,105Selling and administrative expenses
    
    
    40,896
    
    
    
    38,533
    
    
    
    78,797
    
    
    
    74,472Operating profit
    
    
    26,221
    
    
    
    27,553
    
    
    
    52,094
    
    
    
    48,633Other income (expense):Interest expense
    
    
    (202
    )
    
    
    (153
    )
    
    
    (390
    )
    
    
    (296
    )Interest income
    
    
    426
    
    
    
    175
    
    
    
    726
    
    
    
    289Other, net
    
    
    (159
    )
    
    
    (117
    )
    
    
    (312
    )
    
    
    (400
    )65
    
    
    
    (95
    )
    
    
    24
    
    
    
    (407
    )Earnings before income taxes and
minority interests
    
    
    26,286
    
    
    
    27,458
    
    
    
    52,118
    
    
    
    48,226Provision for income taxes
    
    
    9,332
    
    
    
    9,973
    
    
    
    18,852
    
    
    
    17,509Earnings before minority interests
    
    
    16,954
    
    
    
    17,485
    
    
    
    33,266
    
    
    
    30,717Minority interests in earnings of subsidiaries
    
    
    (149
    )
    
    
    (139
    )
    
    
    (260
    )
    
    
    (217
    )Net earnings
    
    $
    16,805
    
    
    $
    17,346
    
    
    $
    33,006
    
    
    $
    30,500Net earnings per common share:Basic
    
    $
    0.32
    
    
    $
    0.34
    
    
    $
    0.64
    
    
    $
    0.59Diluted
    
    $
    0.32
    
    
    $
    0.33
    
    
    $
    0.63
    
    
    $
    0.58Average number of common shares outstanding:Basic
    
    
    52,006,685
    
    
    
    51,631,794
    
    
    
    51,902,894
    
    
    
    51,528,689Diluted
    
    
    52,817,895
    
    
    
    52,418,831
    
    
    
    52,629,923
    
    
    
    52,316,801Dividends paid per share
    
    $
    0.0675
    
    
    $
    0.0638
    
    
    $
    0.1350
    
    
    $
    0.1275
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Six Months EndedJune 3,
    
    
    May 28,2006
    
    
    2005Cash flows from operating activities:Net earnings
    
    $
    33,006
    
    
    $
    30,500Depreciation
    
    
    10,846
    
    
    
    10,336Amortization
    
    
    1,079
    
    
    
    630Stock-based compensation expense
    
    
    1,422
    
    
    
    446Tax benefits from stock-based compensation
    
    
    (2,992
    )
    
    
    Changes in assets and liabilities
    
    
    (24,993
    )
    
    
    (4,344
    )Other, net
    
    
    159
    
    
    
    118Net cash provided by operating activities
    
    
    18,527
    
    
    
    37,686Cash flows from investing activities:Business acquisitions, net of cash acquired
    
    
    (5,241
    )
    
    
    (3,508
    )Additions to plant assets
    
    
    (7,358
    )
    
    
    (10,562
    )Other, net
    
    
    471
    
    
    
    614Net cash used in investing activities
    
    
    (12,128
    )
    
    
    (13,456
    )Cash flows from financing activities:Net payments under line of credit
    
    
    
    
    
    
    (7,500
    )Payments on long-term debt
    
    
    (372
    )
    
    
    (830
    )Sale of capital stock under stock option and employee
purchase plans
    
    
    4,483
    
    
    
    3,653Tax benefits from stock-based compensation
    
    
    2,992
    
    
    
    Cash dividends paid
    
    
    (7,016
    )
    
    
    (6,577
    )Other, net
    
    
    
    
    
    
    (9,332
    )Net cash provided by (used in) financing activities
    
    
    87
    
    
    
    (20,586
    )Net effect of exchange rate changes on cash
    
    
    948
    
    
    
    (264
    )Net change in cash and cash equivalents
    
    
    7,434
    
    
    
    3,380Cash and cash equivalents, beginning of period
    
    
    18,502
    
    
    
    17,420Cash and cash equivalents, end of period
    
    $
    25,936
    
    
    $
    20,800Cash paid during the period for:Interest
    
    $
    383
    
    
    $
    304Income taxes
    
    $
    17,861
    
    
    $
    9,659
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1.
    
    CONSOLIDATED FINANCIAL STATEMENTSThe consolidated condensed balance sheet as of June 3, 2006, the consolidated condensed
statements of earnings and the consolidated condensed statements of cash flows for the periods
ended June 3, 2006, and May 28, 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 but does not include all disclosures required by accounting principles generally
accepted in the United States of America. 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 June 3, 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 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 $1,700 for the first six months of 2005. The purchases and
sales related to the investments 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 quarter and six months ended June 3, 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 prior to fiscal 2006 in
association with options granted.




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2.
    
    STOCK-BASED COMPENSATION (Continued)As a result of adopting the standard, the Company recorded pretax compensation expense related
to stock options of $606 and $1,017 and related tax benefits of $215 and $361 for the quarter
and six months ended June 3, 2006, respectively. This reduced net earnings by $391 and $656 and
diluted earnings per share (EPS) by less than $0.01 for the quarter and $0.01 for the six months
ended June 3, 2006. The Company also recorded $184 and $405 in pretax compensation expense
related to its restricted share units for the quarter and six months ended June 3, 2006. The
tax benefits associated with tax deductions that exceed the amount of compensation expense
recognized in the financial statements related to stock option exercises was $2,088 and $2,992
for the quarter and six months ended June 3, 2006, respectively. 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 quarter and six months ended June 3, 2006 by approximately $375 and
$750, respectively.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:
 Quarter Ended
    
    
    Six Months EndedMay 28, 2005
    
    
    May 28, 2005Net earnings, as reported
    
    $
    17,346
    
    
    $
    30,500Add stock-based
compensation expense,
net of tax, included in
net earnings
    
    
    138
    
    
    
    283Less total stock-based
compensation expense
under the fair
value-based method, net
of tax
    
    
    (3,003
    )
    
    
    (3,712
    )Pro forma net earnings
    
    $
    14,481
    
    
    $
    27,071Basic EPS, as reported
    
    $
    0.34
    
    
    $
    0.59Pro forma basic EPS
    
    $
    0.28
    
    
    $
    0.53Diluted EPS, as reported
    
    $
    0.33
    
    
    $
    0.58Pro forma diluted EPS
    
    $
    0.28
    
    
    $
    0.52
 The following is a description and summary of the key provisions of the stock-based
compensation plans.




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2.
    
    STOCK-BASED COMPENSATION (Continued)On June 22, 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 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 six months ended June 3, 2006 under the
nonqualified stock option plans and includes options granted under both the 1994 Incentive Plan
and the 2004 Incentive Plan.
 SharesGranted
    
    
    Weightedunder
    
    
    AverageIncentive
    
    
    ExercisePlans
    
    
    PriceOutstanding at beginning of year
    
    
    3,885,915
    
    
    $
    20.63Granted
    
    
    57,550
    
    
    
    35.53Exercised
    
    
    (494,467
    )
    
    
    16.84Surrendered
    
    
    (24,300
    )
    
    
    20.53Outstanding at June 3, 2006
    
    
    3,424,698
    
    
    $
    21.42Options exercisable at June 3, 2006
    
    
    3,084,648
    
    
    $
    21.50
 At June 3, 2006, there was $1,799 of unrecognized compensation cost related to nonvested option
awards which the Company expects to recognize over a weighted-average period of 1.2 years.
 Quarter Ended
    
    Six Months EndedJune 3,
    
    May 28,
    
    June 3,
    
    May 28,2006
    
    2005
    
    2006
    
    2005Fair value of options exercised
    
    $
    1,520
    
    
    $
    192
    
    
    $
    2,038
    
    
    $
    1,011Total intrinsic value of options exercised
    
    
    5,881
    
    
    
    731
    
    
    
    8,888
    
    
    
    5,456Cash received upon exercise of options
    
    
    1,507
    
    
    
    649
    
    
    
    3,014
    
    
    
    2,547Tax benefit realized from exercise of options
    
    
    2,150
    
    
    
    332
    
    
    
    2,999
    
    
    
    2,069




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##### Table of Contents



2.
    
    STOCK-BASED COMPENSATION (Continued)The following table summarizes information about the options at June 3, 2006.
 Options Outstanding
    
    
    Options ExercisableWeightedWeighted
    
    
    Average
    
    
    
    
    
    
    WeightedAverage
    
    
    Remaining
    
    
    
    
    
    
    AverageRange of
    
    
    
    
    
    
    Exercise
    
    
    Life in
    
    
    
    
    
    
    ExerciseExercise Prices
    
    
    Number
    
    
    Price
    
    
    Years
    
    
    Number
    
    
    Price$
    7.21 - $  9.79
    
    
    
    370,726
    
    
    $
    9.13
    
    
    
    3.48
    
    
    
    370,726
    
    
    $
    9.13$
    10.53 - $15.15
    
    
    
    284,563
    
    
    $
    13.26
    
    
    
    5.24
    
    
    
    284,563
    
    
    $
    13.26$
    16.01 - $22.80
    
    
    
    1,462,368
    
    
    $
    20.29
    
    
    
    5.81
    
    
    
    1,126,118
    
    
    $
    20.20$
    25.89 - $35.66
    
    
    
    1,307,041
    
    
    $
    27.95
    
    
    
    8.01
    
    
    
    1,303,241
    
    
    $
    27.933,424,698
    
    
    $
    21.42
    
    
    
    6.35
    
    
    
    3,084,648
    
    
    $
    21.50
 At June 3, 2006, the aggregate intrinsic value of options outstanding and exercisable was
$38,994 and $34,898, respectively.The weighted average fair value per option at the date of grant for options granted during the
six month periods of 2006 and 2005 was $10.71 and $6.84, 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 six month periods 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 approximately equal to the expected term of the options being valued.
 Six Months
    
    Year EndedEnded June 3,
    
    December 3,2006
    
    2005Risk-free interest rate
    
    
    4.74
    %
    
    
    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
    
    
    6.9
    
    
    
    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 six months ended June 3,
2006. During the six months ended May 28, 2005, the Company granted 32,144 restricted units of
Company common stock with a fair value of $26.08 per unit, the 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 on the




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2.
    
    STOCK-BASED COMPENSATION (Continued)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 $185 and $405 for the quarter and
six months ended June 3, 2006, respectively, and $296 and $446 for the quarter and six months
ended May 28, 2005, respectively. The following table summarizes the restricted share unit
awards.
 WeightedAverageGrant DateUnits
    
    
    Fair ValueNonvested at beginning of year
    
    
    110,441
    
    
    $
    23.32Granted
    
    
    
    
    
    
    Vested
    
    
    (37,158
    )
    
    
    19.56Surrendered
    
    
    
    
    
    
    Nonvested at June 3, 2006
    
    
    73,283
    
    
    $
    25.22
 The total fair value of shares vested during the six months ended June 3, 2006 and May 28, 2005
was $727 and $689, respectively. As of June 3, 2006, there was $1,350 of total unrecognized
compensation cost related to nonvested share-based compensation arrangements. Of this nonvested
cost, $377 is expected to be recognized during the remainder of fiscal 2006 and the remaining
$973 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 issued stock under this plan for $327 and $1,469 during
second quarter and six months of 2006, respectively, and $0 and $1,108, during second quarter
and six months of 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:




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##### Table of Contents



3.
    
    EARNINGS PER SHARE (Continued)
 Quarter Ended
    
    
    Six Months EndedJune 3,
    
    
    May 28,
    
    
    June 3,
    
    
    May 28,2006
    
    
    2005
    
    
    2006
    
    
    2005Basic weighted average number of
common shares outstanding
    
    
    52,006,685
    
    
    
    51,631,794
    
    
    
    51,902,894
    
    
    
    51,528,689Dilutive effect of stock options and
restricted stock
    
    
    811,210
    
    
    
    787,037
    
    
    
    727,029
    
    
    
    788,112Diluted weighted
average number of
common shares
outstanding
    
    
    52,817,895
    
    
    
    52,418,831
    
    
    
    52,629,923
    
    
    
    52,316,801Net earnings
    
    $
    16,805
    
    
    $
    17,346
    
    
    $
    33,006
    
    
    $
    30,500Basic earnings per share amount
    
    $
    0.32
    
    
    $
    0.34
    
    
    $
    0.64
    
    
    $
    0.59Diluted earnings per share amount
    
    $
    0.32
    
    
    $
    0.33
    
    
    $
    0.63
    
    
    $
    0.58
 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 quarter and six months ended June 3, 2006, 56,300 and 57,550 options with a
weighted average exercise price of $35.57 and $35.53, respectively, were excluded from the
computation. For the quarter and six months ended May 28, 2005, there were no options excluded.For the six months ended June 3, 2006, exercises of stock options added $4,032 to capital in
excess of par value.4.
    
    COMPREHENSIVE EARNINGSThe Companys total comprehensive earnings and its components are as follows:
 Quarter Ended
    
    
    Six Months EndedJune 3,
    
    
    May 28,
    
    
    June 3,
    
    
    May 28,2006
    
    
    2005
    
    
    2006
    
    
    2005Net earnings
    
    $
    16,805
    
    
    $
    17,346
    
    
    $
    33,006
    
    
    $
    30,500Other comprehensive earnings, net of tax:Foreign currency translation adjustments
    
    
    2,755
    
    
    
    (1,500
    )
    
    
    3,560
    
    
    
    (1,004
    )Total comprehensive earnings
    
    $
    19,560
    
    
    $
    15,846
    
    
    $
    36,566
    
    
    $
    29,496
 The components of the ending balances of accumulated other comprehensive earnings are as
follows:
 June 3,
    
    
    December 3,2006
    
    
    2005Minimum pension liability, net of $2,373 tax
    
    $
    (3,944
    )
    
    $
    (3,944
    )Translation adjustments, net of $155 tax
    
    
    2,867
    
    
    
    (693
    )Accumulated other comprehensive loss
    
    $
    (1,077
    )
    
    $
    (4,637
    )




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##### Table of Contents



5.
    
    ACQUISITIONS, PURCHASE OF MINORITY INTERESTSDuring the quarter ended June 3, 2006, the Company acquired two small businesses for
approximately $2,957 in cash, net of cash received. One was a filter distributorship based in
Minnesota which became a wholly-owned subsidiary of the Company and is included in the
Industrial/ Environmental Filtration segment beginning in the second quarter of 2006. In the
other transaction, the Company acquired certain assets of a manufacturer and distributor of
heavy-duty air filters based in Oklahoma. These assets were combined into an existing
subsidiary of the Company within the Engine/Mobile Filtration segment and the results will be
included in the Companys consolidated results of operations from the date of acquisition.A preliminary allocation of the initial purchase prices for these two acquisitions has been
made to major categories of assets and liabilities. The $840 excess of the initial purchase
price over the preliminary estimated fair value of the net tangible and identifiable intangible
assets acquired was recorded as goodwill. Other acquired intangibles included noncompete
agreements valued at $33 and customer relationships valued at $1,026, which will be amortized on
a straight-line basis over three years and twenty years, respectively. The acquisitions are not
material to the results of the Company. The Company expects to make additional adjustments to
reflect purchase agreement adjustments and adjustments for valuation of assets and deferred
taxes during the second half of 2006.On June 1, 2006, the Company purchased the minority owners interest in a consolidated
affiliate in South Africa for approximately $2,200 of which $1,644 was paid and the remainder
will be paid in 2007 based on fiscal 2006 results. In addition, there will be a payment
estimated to be approximately $225 to be paid in 2008 based on fiscal 2007 results.As 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 $25,261 net of cash received, including acquisition expenses. During the first
six months of 2006, the Company paid an additional $640 related to a working capital adjustment
and final settlement with the sellers. This payment, along with a revised estimate of
liabilities assumed and finalization of the appraisal, increased goodwill by $617. The 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 was included in the
Industrial/Environmental Filtration segment from the date of acquisition.The excess of the 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 was subject to a final adjustment. The allocation of the purchase price over the
estimated fair value of the tangible and identifiable intangible assets acquired for MKI
resulted in $9,731 recorded as goodwill. In addition based on an independent appraisal, the
Company recognized $8,600 for customer relationships that will be amortized over twelve years,
$267 for trademarks that will be amortized over twelve years and $1,700 as other acquired
intangibles
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5.
    
    ACQUISITIONS, PURCHASE OF MINORITY INTERESTS (Continued)which will be amortized over five to ten years. Following is a 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
    
    
    3,493Goodwill
    
    
    9,731Other acquired intangibles
    
    
    10,567Total assets acquired
    
    
    25,874Accounts payable and accrued liabilities
    
    
    (369
    )Net assets acquired
    
    $
    25,505
 6.
    
    RESTRUCTURING CHARGESAt the end of the second quarter 2006, the Company announced a plan to merge two of its
manufacturing facilities in order to realize cost savings and efficiency benefits. The
Company recorded a $412 severance charge at one of its European subsidiaries which it expects
to pay as one-time termination benefits to employees who are expected to be involuntarily
terminated in the third and fourth quarters of fiscal 2006. No amounts were paid as of the end
of the second quarter 2006. This charge is included in cost of sales in the
Industrial/Environmental filtration segment. Additional charges related to contract
termination costs and facilities consolidation costs, estimated to be less than $500, will be
recognized when the Company exits leases related to that facility and terminates manufacturing,
which it expects will occur in August 2006. The cost savings during the remainder of 2006 will
not be significant; however, the Company expects the savings to approximate $1,500 annually
beginning in fiscal 2007.Following is a summary of the related liability accounts:
 Employee
    
    Contract
    
    FacilitiesTermination
    
    Termination
    
    ConsolidationBenefits
    
    Costs
    
    Costs
    
    TotalBalance at December 3, 2005
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Additional expense incurred
    
    
    412
    
    
    
    
    
    
    
    
    
    
    
    412Amounts paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at June 3, 2006
    
    $
    412
    
    
    $
    
    
    
    $
    
    
    
    $
    412
 7.
    
    ACQUIRED INTANGIBLESThe following table reconciles the activity for goodwill by reporting unit for the six months
ended June 3, 2006.
 Engine/
    
    
    Industrial/Mobile
    
    
    Environmental
    
    
    
    
    
    
    TotalFiltration
    
    
    Filtration
    
    
    Packaging
    
    
    GoodwillBalance at December 3, 2005
    
    $
    15,678
    
    
    $
    98,600
    
    
    $
    
    
    
    $
    114,278Acquisitions
    
    
    213
    
    
    
    1,244
    
    
    
    
    
    
    
    1,457Currency translation adjustments
    
    
    560
    
    
    
    163
    
    
    
    
    
    
    
    73Balance at June 3, 2006
    
    $
    16,451
    
    
    $
    100,007
    
    
    $
    
    
    
    $
    116,458
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##### Table of Contents



7.
    
    ACQUIRED INTANGIBLES (Continued)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 June 3, 2006:Trademarks, gross
    
    $
    603
    
    
    $
    29,157
    
    
    $
    
    
    
    $
    29,760Less accumulated amortization
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    8Trademarks, net
    
    $
    603
    
    
    $
    29,149
    
    
    $
    
    
    
    $
    29,752Customer relationships, gross
    
    $
    1,970
    
    
    $
    16,504
    
    
    $
    
    
    
    $
    18,474Less accumulated amortization
    
    
    334
    
    
    
    1,775
    
    
    
    
    
    
    $
    2,109Customer relationships, net
    
    $
    1,636
    
    
    $
    14,729
    
    
    $
    
    
    
    $
    16,365Other acquired intangibles
    
    $
    241
    
    
    $
    12,624
    
    
    $
    
    
    
    $
    12,865Less accumulated amortization
    
    
    211
    
    
    
    4,888
    
    
    
    
    
    
    $
    5,099Other acquired intangibles, net
    
    $
    30
    
    
    $
    7,736
    
    
    $
    
    
    
    $
    7,766
  8.
    
    GUARANTEES AND WARRANTIESThe Company has provided letters of credit totaling approximately $28,272 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.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 six months ended June 3, 2006 are as
follows:
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##### Table of Contents



8.
    
    GUARANTEES AND WARRANTIES (Continued)
 Balance at December 3, 2005
    
    $
    1,122Accruals for warranties issued during the period
    
    
    739Accruals related to pre-existing warranties
    
    
    (49
    )Settlements made during the period
    
    
    (350
    )Other adjustments, including currency translation
    
    
    141Balance at June 3, 2006, included in other current liabilities
    
    $
    1,603
 9.
    
    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:
 Quarter Ended
    
    
    Six Months EndedJune 3,
    
    
    May 28,
    
    
    June 3,
    
    
    May 28,2006
    
    
    2005
    
    
    2006
    
    
    2005Pension BenefitsComponents of net periodic benefit cost:Service cost
    
    $
    846
    
    
    $
    946
    
    
    $
    1,693
    
    
    $
    1,893Interest cost
    
    
    1,685
    
    
    
    1,567
    
    
    
    3,368
    
    
    
    3,135Expected return on plan assets
    
    
    (1,957
    )
    
    
    (1,879
    )
    
    
    (3,910
    )
    
    
    (3,760
    )Amortization of unrecognized:Prior service cost
    
    
    43
    
    
    
    40
    
    
    
    87
    
    
    
    80Net actuarial loss
    
    
    501
    
    
    
    523
    
    
    
    1,003
    
    
    
    1,047Net periodic benefit cost
    
    $
    1,118
    
    
    $
    1,197
    
    
    $
    2,241
    
    
    $
    2,395Cash Contributions
    
    $
    125
    
    
    $
    116
    
    
    $
    249
    
    
    $
    241Postretirement Healthcare BenefitsComponents of net periodic benefit cost:Service cost
    
    $
    5
    
    
    $
    8
    
    
    $
    11
    
    
    $
    16Interest cost
    
    
    21
    
    
    
    26
    
    
    
    41
    
    
    
    52Amortization of unrecognized:Prior service cost
    
    
    (31
    )
    
    
    (31
    )
    
    
    (62
    )
    
    
    (62
    )Net actuarial gain
    
    
    (26
    )
    
    
    (19
    )
    
    
    (51
    )
    
    
    (38
    )Net periodic benefit income
    
    $
    (31
    )
    
    $
    (16
    )
    
    $
    (61
    )
    
    $
    (32
    )Cash Contributions
    
    $
    70
    
    
    $
    66
    
    
    $
    140
    
    
    $
    132
 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
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9.
    
    RETIREMENT BENEFITS (Continued)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, $210 for the
non-U.S. plan and $280 for the postretirement benefit plan to pay benefits during 2006.10.
    
    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 at issue, the difficulty in
determining the nature and extent of contamination attributable to each PRP, 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.11.
    
    SEGMENT DATAThe Company operates in three principal product segments: Engine/Mobile Filtration,
Industrial/Environmental Filtration and Packaging. The segment data for the second quarter and
six months ended June 3, 2006 and May 28, 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.
 Quarter Ended
    
    
    Six Months EndedJune 3,
    
    
    May 28,
    
    
    June 3,
    
    
    May 28,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales:Engine/Mobile Filtration
    
    $
    101,429
    
    
    $
    93,722
    
    
    $
    192,461
    
    
    $
    176,851Industrial/Environmental Filtration
    
    
    103,866
    
    
    
    106,668
    
    
    
    206,522
    
    
    
    203,866Packaging
    
    
    21,781
    
    
    
    19,396
    
    
    
    41,276
    
    
    
    35,330$
    227,076
    
    
    $
    219,786
    
    
    $
    440,259
    
    
    $
    416,047
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##### Table of Contents



11.
    
    SEGMENT DATA (Continued)
 Quarter Ended
    
    
    Six Months EndedJune 3,
    
    
    May 28,
    
    
    June 3,
    
    
    May 28,2006
    
    
    2005
    
    
    2006
    
    
    2005Operating profit:Engine/Mobile Filtration
    
    $
    22,446
    
    
    $
    19,629
    
    
    $
    41,519
    
    
    $
    36,407Industrial/Environmental Filtration
    
    
    1,594
    
    
    
    6,234
    
    
    
    7,079
    
    
    
    10,203Packaging
    
    
    2,181
    
    
    
    1,690
    
    
    
    3,496
    
    
    
    2,02326,221
    
    
    
    27,553
    
    
    
    52,094
    
    
    
    48,633Other income (expense)
    
    
    65
    
    
    
    (95
    )
    
    
    24
    
    
    
    (407
    )Earnings before income taxes and
minority earnings
    
    $
    26,286
    
    
    $
    27,458
    
    
    $
    52,118
    
    
    $
    48,226Identifiable assets:Engine/Mobile Filtration
    
    
    
    
    
    
    
    
    
    $
    207,957
    
    
    $
    187,005Industrial/Environmental Filtration
    
    
    
    
    
    
    
    
    
    
    370,767
    
    
    
    347,564Packaging
    
    
    
    
    
    
    
    
    
    
    44,018
    
    
    
    41,352Corporate
    
    
    
    
    
    
    
    
    
    
    82,349
    
    
    
    67,671$
    705,091
    
    
    $
    643,592
 During the quarter ended June 3, 2006, the Company recognized a pretax charge to earnings
of approximately $3,000 in the Industrial/Environmental segments operating profit arising from
the refusal of a customer to pay for products it had ordered and used. The charge represents
unpaid invoices and certain inventories and is included in selling and administrative expenses.
The Company has initiated legal proceedings against the customer to recover this amount. The
Industrial/Environmental operating profit for the quarter and six
months ended June 3, 2006 also includes
the $412 charge related to restructuring of a European manufacturing facility.
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MANAGEMENTS DISCUSSION AND ANALYSIS
 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    i.
    
    an approximate $3 million charge arising from the refusal by Electronic Data Systems
Corporation (EDS) and a related company to pay for products which EDS had ordered and
used. The Company has initiated legal proceedings against EDS to recover this amount.ii.
    
    an approximate $400,000 charge to record costs associated with the restructuring of a
European manufacturing facility.
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MANAGEMENTS DISCUSSION AND ANALYSIS
 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
         Page 18




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MANAGEMENTS DISCUSSION AND ANALYSIS
 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
          Page 19




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MANAGEMENTS DISCUSSION AND ANALYSIS
 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
         Page 20




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MANAGEMENTS DISCUSSION AND ANALYSIS
 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
       (Dollars in thousands)
    
    2006
    
    2007 & 2008
    
    2009 & 2010
    
    ThereafterLong-Term Debt
    
    $
    233
    
    
    $
    179
    
    
    $
    
    
    
    $
    15,830Credit Facility
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating Leases
    
    $
    9,571
    
    
    $
    14,379
    
    
    $
    7,896
    
    
    $
    7,215
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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS
 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
           Page 22




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MANAGEMENTS DISCUSSION AND ANALYSIS
 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
          Page 23




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MANAGEMENTS DISCUSSION AND ANALYSIS
 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  
    
    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.
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##### Table of Contents



The information required hereunder is set forth on Page 22 of the Quarterly Report under
the captions Managements Discussion and Analysis  Other Matters  Market Risk.
 
  The Company has established disclosure controls and procedures which are designed to ensure
that information required to be disclosed in reports filed or submitted under the Securities
Exchange Act of 1934 are recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms. The
Companys management, with the participation of Norman E. Johnson, Chairman of the Board,
President, and Chief Executive Officer and Bruce A. Klein, Vice President  Finance and
Chief Financial Officer, evaluated the effectiveness of the Companys disclosure controls
and procedures as of June 3, 2006. Based on their evaluation, such officers concluded that
the Companys disclosure controls and procedures were effective as of June 3, 2006 in
achieving the objectives for which they were designed. No change in the Companys internal
control over financial reporting occurred during the Companys most recent fiscal quarter
ended June 3, 2006 that has materially affected, or is reasonably likely to materially
affect, the Companys internal control over financial reporting.
 Page 25




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##### Table of Contents



COMPANY PURCHASES OF EQUITY SECURITIES (1)(c)Total number of
    
    
    (d)shares
    
    
    Approximatepurchased
    
    
    dollar value ofas part of
    
    
    shares that may(a)
    
    
    (b)
    
    
    publicly
    
    
    yet beTotal number
    
    
    Average
    
    
    announced
    
    
    purchased underof shares
    
    
    price paid
    
    
    plans or
    
    
    the plans orPeriod
    
    purchased
    
    
    per share
    
    
    programs
    
    
    programsMarch 5, 2006 through March 31,
2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    139,538,839April 1, 2006 through April 30,
2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    139,538,839May 1, 2006 through June 3, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    139,538,839Total
    
    
    
    
    
    
    
    
    
    
    
 
 (1) Stock Repurchase Program announced June 20, 2005, for aggregate
purchases up to $150 million. Program expires June 16, 2007. 
    For
    
    
    WithheldJ. Marc Adam
    
    
    46,376,675
    
    
    
    1,892,130James W. Bradford, Jr.
    
    
    47,941,868
    
    
    
    326,937James L. Packard
    
    
    46,011,190
    
    
    
    2,257,615
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##### Table of Contents



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
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SIGNATURES
  CLARCOR Inc.
 June 22, 2006
(Date)
    
    By
    
    /s/ Norman E. Johnson
Norman E. JohnsonChairman of the Board, President andChief Executive OfficerJune 22, 2006
(Date)
    
    By
    
    /s/ Bruce A. Klein
Bruce A. KleinVice President  Finance andChief Financial Officer
 Page 28