<PAGE>   1


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                   EXHIBIT 13(a)(vi)
(Dollars in thousands except per share data)
===============================================================================

A. ACCOUNTING POLICIES 

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include all domestic and foreign
subsidiaries that are more than 50% owned and controlled. CLARCOR Inc. and its
subsidiaries are hereinafter collectively referred to as the "Company" or
CLARCOR.

     Minority interests represent an outside shareholder's 10% ownership of the
common stock of Filtros Baldwin de Mexico (FIBAMEX) and outside shareholders'
20% ownership of Baldwin-Unifil S.A.

FOREIGN CURRENCY TRANSLATION

     Financial statements of foreign subsidiaries are translated into U.S.
dollars at current rates, except that revenues, costs and expenses are
translated at average current rates during each reporting period. Net exchange
gains or losses resulting from the translation of foreign financial statements
and the effect of exchange rate changes on intercompany transactions of a
long-term investment nature are accumulated and credited or charged directly to
a separate component of shareholders' equity.

PLANT ASSETS

     Depreciation is provided by the straight-line and accelerated methods for
financial statement purposes and by the accelerated method for tax purposes. The
provision for depreciation is based on the estimated useful lives of the assets
(15 to 40 years for buildings and improvements and 3 to 15 years for machinery
and equipment). It is the policy of the Company to capitalize renewals and
betterments and to charge to expense the cost of current maintenance and
repairs.

EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED

     The excess of cost over fair value of assets acquired is being amortized
over a forty-year period, using the straight-line method subject to impairment
write-offs determined by underlying cash flows. Accumulated amortization was
$7,809 and $7,192 at November 30, 1998 and 1997, respectively.

PENSIONS AND POSTRETIREMENT BENEFITS

     In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132 (SFAS 132), "Employers' Disclosures about Pensions and Other
Postretirement Benefits." Effective for fiscal year 1998, the Company adopted
SFAS 132, which requires certain disclosures related to pensions and
postretirement benefits. See Note H.

STATEMENTS OF CASH FLOWS

     All highly liquid investments that are readily saleable are considered to
be short-term cash investments. The carrying amount approximates fair value. The
Company has certain non-cash transactions related to stock option and award
plans that are described in Note L.

CONCENTRATIONS OF CREDIT

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of short-term cash investments
and trade receivables. The Company places its short-term cash investments in
high-grade municipal securities. At November 30, 1998 and 1997, the Company held
short-term municipal securities with a total cost of $32,420 and $27,620,
respectively, with an original maturity of three months or less. Cost
approximates market for these securities. Concentrations of credit risk with
respect to trade receivables are limited due to the Company's large number of
customers and their dispersion across many different industries and locations.

INCOME TAXES

     The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." SFAS 109 requires the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between the
financial statement carrying amounts and the tax basis of assets and
liabilities.

STOCK-BASED COMPENSATION

     On November 30, 1997, the Company adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation." SFAS 123 encourages, but does not require, companies
to adopt a fair value based method for determining expense related to
stock-based compensation. The disclosures are presented in Note L. The Company
continues to account for stock-based compensation using the intrinsic value
method as prescribed under Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.

REVENUE RECOGNITION

      Revenue is recognized upon shipment of goods to customers.


                                       19
<PAGE>   2



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
===============================================================================

NET EARNINGS PER COMMON SHARE

     The Company adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), "Earnings per Share" in the first quarter of fiscal year 1998. SFAS
128 requires presentation of basic earnings per share and diluted earnings per
share, simplifies computational guidelines, and increases the comparability of
earnings per share on an international basis. Basic earnings per common share is
based on the weighted average number of common shares outstanding during the
respective years. Diluted earnings per share is based on the weighted average
number of common shares outstanding and dilutive common stock equivalents. See
Note M.

USE OF MANAGEMENT'S ESTIMATES

     The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

ACCOUNTING PERIOD

     The Company's fiscal year ends on the Saturday closest to November 30. Each
of the fiscal years ended November 28, 1998, November 29, 1997, and November 30,
1996, was comprised of fifty-two weeks. In the consolidated financial
statements, all fiscal years are shown to begin as of December 1 and end as of
November 30 for clarity of presentation.

RECLASSIFICATIONS

     Certain reclassifications have been made to conform prior years' data to
the current presentation. These reclassifications had no effect on reported
earnings.

B.   BUSINESS COMBINATIONS, INVESTMENTS IN AFFILIATES, AND DIVESTITURE

     During 1998, the Company purchased Air Technologies, Inc. (ATI), an Ottawa,
Kansas manufacturer of air filtration products, and a small filter distributor.
Each acquisition was made for cash and accounted for under the purchase method
of accounting. Both of these companies became part of Airguard Industries, Inc.
(Airguard), a subsidiary of the Company. Also during 1998, the Company purchased
the remaining 50% interest in Baldwin Australia and now owns 100% of this
company. These acquisitions did not have a significant impact on the results of
the Company.

     On February 28, 1997, the Company completed its acquisition of United Air
Specialists, Inc. (UAS), a manufacturer of air quality equipment based in
Cincinnati, Ohio. The Company issued 1,622,612 shares (on a post-split basis) of
its common stock in exchange for all the shares of UAS stock. Additional shares
of the Company's common stock will be issued upon exercise of UAS options. (See
Note L for a discussion of the additional shares to be issued.) The transaction
has been structured as a statutory merger accounted for as a pooling of
interests. As a result of the acquisition, UAS became a subsidiary of the
Company. Under the requirements of the pooling of interests accounting
treatment, the consolidated financial statements for the periods presented were
restated (except for cash dividends declared per share, which represent the
historical dividends declared by the Company) to include the results of
operations, cash flows, and financial positions of UAS.

     No intercompany transactions existed between the two companies during the
periods presented. A one-time pre-tax charge of $2,972 ($2,390 net of tax)
covering the costs of the merger includes legal and professional fees,
non-compete agreements, and costs to integrate the businesses of the two
companies.

     Other business acquisitions in fiscal 1997 included Airklean Engineering
Pte. Ltd., an Airguard distributor in Singapore; a filter distributor in Toledo,
Ohio; and The Filtair Company in Arlington, Texas. Each company was purchased
for cash. None of these acquisitions had a significant impact on the results of
the Company.

     Also during 1997, the Company sold the assets of its Tube division located
in Downers Grove, Illinois. The divestiture did not have a significant impact on
the results of the Company.

     During fiscal 1996, Baldwin-Unifil S. A., a partnership in which the
Company owned a 70% interest, was established in South Africa. Baldwin-Unifil S.
A. acquired certain assets from Unifil (Pty.) Ltd. for $1,298 in cash. In 1998,
the Company purchased an additional 10% interest in Baldwin-Unifil S.A. The
Company also entered into a joint venture in China in 1996, called
Baldwin-Weifang Filters Ltd., and accounts for this investment on a cost basis.

C. INVESTMENT IN MARKETABLE SECURITIES

     In November 1996, the Company sold 50% of its 5% interest in G.U.D.
Holdings Limited, an Australian company, recognizing a pretax gain on the sale
of $1,675 in fiscal 1996. The Company sold its remaining 2.5% investment in
December 1996, recognizing a pretax gain on the sale of $1,706 in fiscal 1997.
The investment, with 

                                       20



<PAGE>   3

===============================================================================

an average cost basis, had been classified as available for sale under the
provisions of Statement of Financial Accounting Standards No. 115 (SFAS 115),
"Accounting for Certain Investments in Debt and Equity Securities." The quoted
market value of the investment was $3,292 as of November 30, 1996, which
included unrealized holding gains, net of deferred income taxes, of $992 as of
November 30, 1996. Unrealized holding gains, net of deferred income taxes, were
included as a component of shareholders' equity at November 30, 1996.

D. INVENTORIES

       Inventories are stated at the lower of cost or market. Cost is determined
by the last-in, first-out (LIFO) method for approximately 60% and 61% of the
Company's inventories at November 30, 1998 and 1997, respectively, and by the
first-in, first-out (FIFO) method for all other inventories. The FIFO method
approximates current cost. Inventories are summarized as follows:

<TABLE>
<CAPTION>

                                                            1998        1997
                                                         ---------------------
<S>                                                      <C>         <C>
Raw materials...........................                 $  20,657   $  20,890
Work-in-process.........................                     9,231       9,341
Finished products.......................                    30,767      30,585
                                                         ---------------------
Total at FIFO...........................                    60,655      60,816
Less excess of FIFO over LIFO...........                     2,041       2,534
                                                         ---------------------
                                                         $  58,614   $  58,282
                                                         =====================
</TABLE>

E. PLANT ASSETS

       Plant assets at November 30, 1998 and 1997 were as follows:

<TABLE>
<CAPTION>

                                                            1998        1997
                                                         ---------------------
<S>                                                      <C>         <C>
Land....................................                 $   2,491   $   2,566
Buildings and building fixtures.........                    53,392      53,442
Machinery and equipment.................                   128,467     119,644
Construction-in-process.................                     9,322       4,967
                                                         ---------------------
                                                           193,672     180,619
Less accumulated depreciation...........                   107,283      97,714
                                                         ---------------------
                                                         $  86,389   $  82,905
                                                         =====================
</TABLE>


F.  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

       Accounts payable and accrued liabilities at November 30, 1998 and 1997
were as follows:                                                           

<TABLE>
<CAPTION>

                                                            1998        1997
                                                         ---------------------
<S>                                                      <C>         <C>
Accounts payable........................                 $  26,528   $  22,168
Accrued salaries, wages and commissions.                     8,249       8,773
Compensated absences....................                     3,967       3,742
Accrued pension liabilities.............                       263         996
Other accrued liabilities...............                    15,518      12,474
                                                         ---------------------
                                                         $  54,525   $  48,153
                                                         =====================
</TABLE>


G. LONG-TERM DEBT

       Long-term debt at November 30, 1998 and 1997 consists of the following:

<TABLE>
<CAPTION>
                                                            1998        1997
                                                         ---------------------
<S>                                                      <C>         <C>
Promissory note, interest payable 
  semi-annually at 6.69%................                 $  25,000   $  25,000
Industrial Revenue Bonds, at 2.85% to 
  4.80% interest rates..................                    10,710      10,958
Other obligations, at 7% to 10% 
  interest rates........................                     1,179       2,838
                                                         ---------------------
                                                            36,889      38,796
Less current portion....................                       470       1,140
                                                         ---------------------
                                                         $  36,419   $  37,656
                                                         =====================

</TABLE>

     A fair value estimate of $34,631 and $36,792 for the long-term debt in 1998
and 1997, respectively, is based on the current interest rates available to the
Company for debt with similar remaining maturities.

     The 6.69% promissory note matures July 25, 2004, but the Company is
required to prepay, without premium, certain principal amounts as stated in the
agreement. Under the note agreements, the Company must meet certain restrictive
covenants. The primary covenants include maintaining minimum consolidated net
worth at $100,000, limiting new borrowings, and restricting certain changes in
ownership as stipulated in the agreement.

     On February 1, 1996, the Company, in cooperation with the South Dakota
Economic Development Finance Authority, issued $8,410 of Industrial Revenue
Bonds. The bonds are due February 1, 2016, with a variable rate of interest that
is reset weekly. In conjunction with the issuance of the Industrial Revenue
Bonds, the Company holds in trust certain investments restricted and committed
for the acquisition of plant equipment. At November 30, 1997, the restricted
asset balance of $1,525 was included in other noncurrent assets. All of these
remaining restricted funds were used to acquire plant equipment during 1998. The
Company has other outstanding Industrial Revenue Bonds of $2,300 and $2,548 as
of November 30, 1998 and 1997, respectively. These mature in 2005 and are backed
by a letter of credit that requires an annual fee of 1.25% of the outstanding
balance. This letter of credit expires in May 2001.

     Other obligations include a 15-year capital lease for a manufacturing
facility acquired in 1991 from the Community Development Authority of the City
of Gothenburg, Nebraska, and debt acquired through the merger with UAS and the
acquisition of Airguard.



                                                                              21



<PAGE>   4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
===============================================================================

     The Company has a $25,000 revolving credit facility with a financial
institution, against which $10,305 and $9,995 letters of credit have been issued
at November 30, 1998 and 1997, respectively. The agreement related to this
obligation includes certain restrictive covenants that are similar to the 6.69%
promissory note. The agreement expires in 2000.

     Principal maturities of long-term debt for the next five fiscal years
ending November 30 approximates: $470 in 1999, $5,460 in 2000, $5,489 in 2001,
$5,517 in 2002, $5,546 in 2003, and $14,407 thereafter.

     Interest paid totaled $2,293, $2,870, and $3,987 during 1998, 1997, and
1996, respectively.

H. PENSION AND OTHER POSTRETIREMENT PLANS

     The Company has defined benefit pension plans and a postretirement health
care plan covering certain employees and retired employees. In addition to the
plan assets related to qualified plans, the Company has funded approximately
$8,279 and $3,002 at November 30, 1998 and 1997, respectively, in restricted
trusts for its nonqualified plans. These trusts are included in other noncurrent
assets in the Company's Consolidated Balance Sheets.

     During 1996, the Company entered into an irrevocable agreement with the
Healthcare Financing Administration (HCFA), the Federal agency that oversees
Medicare, whereby certain employees and retirees of the Company's locations in
Pennsylvania relinquished their rights to receive Medicare and accepted health
care insurance from an insurance carrier. This agreement terminated the
Company's primary responsibility to provide for the postretirement benefit
obligation and eliminated significant risks related to the obligation and plan
assets related to those employees and retirees. The Company recognized a pretax
gain of $672 related to this curtailment in 1996.

     The following table shows reconciliations of the pension plans and other
postretirement plan benefits as of November 30, 1998 and 1997. The pension
benefits include an unfunded benefit obligation of $10,830 and $10,218 as of
November 30, 1998 and 1997, respectively. The obligations have been determined
with a weighted average discount rate of 6.75% and 7.25% in 1998 and 1997,
respectively, and a rate of increase in future compensation of primarily 5.0% in
both years. The expected weighted average long-term rate of return was 9.0% in
both 1998 and 1997.

<TABLE>
<CAPTION>

                                                 Pension              Postretirement
                                                 Benefits                Benefits
                                           --------------------------------------------
                                             1998       1997         1998         1997
                                           --------------------------------------------
<S>                                        <C>        <C>          <C>         <C>
Change in benefit obligation:
Benefit obligation at beginning
  of year..........................        $69,036    $62,458      $  2,431    $  2,318
Service cost.......................          2,248      2,029            13           7
Interest cost......................          4,882      4,558           167         162
Amendments.........................              -       (399)            -           -
Actuarial losses...................          4,065      3,926            15         211
Benefits paid......................         (4,245)    (3,536)         (284)       (267)
                                           --------------------------------------------
Benefit obligation at end of
  year.............................         75,986     69,036         2,342       2,431
                                           --------------------------------------------
Change in plan assets:
Fair value of plan assets at
  beginning of year................         78,046     66,857             -           -
Actual return on plan assets.......          5,500     14,630             -           -
Employer contribution..............             41         61             -           -
Benefits paid......................         (3,759)    (3,502)            -           -
                                           --------------------------------------------
Fair value of plan assets
  at end of year ..................         79,828     78,046             -           -
                                           --------------------------------------------

Funded status......................          3,842      9,010        (2,342)     (2,431)
Unrecognized net transition
  asset ...........................         (2,112)    (3,168)            -           -
Unrecognized prior service
  cost.............................            272        335             -           -
Unrecognized net actuarial
  (gain)/loss......................          5,157        (73)          226         210
                                           --------------------------------------------
Net amount recognized..............        $ 7,159    $ 6,104      $ (2,116)   $ (2,221)
                                           ============================================
Amounts recognized in the
  Consolidated Balance
  Sheets include:
        Prepaid benefit
          cost.....................        $15,907    $13,897      $      -    $      -
        Accrued benefit
          liability................         (9,159)    (8,552)       (2,116)     (2,221)
        Intangible asset...........            411        759             -           -
                                           --------------------------------------------
Net amount recognized..............        $ 7,159    $ 6,104      $(2,116)    $ (2,221)
                                           ============================================
</TABLE>


     The components of net periodic benefit cost for the pensions are shown
below.

<TABLE>
<CAPTION>
                                                    Pension Benefits
                                            ---------------------------------
                                              1998         1997        1996
                                            ---------------------------------
<S>                                         <C>          <C>         <C>
Components of net periodic benefit cost:
  Service cost...............               $ 2,248      $  2,029    $  1,986
  Interest cost..............                 4,882         4,558       4,394
  Expected return on 
     plan assets.............                (6,883)       (5,880)     (5,503)
  Additional recognition 
     amount..................                   196           488           -
  Amortization of unrecognized:
     Net transition asset....                (1,056)       (1,087)     (1,088)
     Prior service cost......                    63           342         419
     Net actuarial loss......                    64            13           2
                                           ---------------------------------
  Net periodic benefit 
     (income)/cost...........               $  (486)     $    463    $    210
                                            =================================
</TABLE>


22



<PAGE>   5


===============================================================================

     The CLARCOR postretirement obligation is a fixed dollar amount per retiree.
The Company has the right to modify or terminate these benefits. The
participants will assume substantially all future health care benefit cost
increases, and therefore, future increases in health care costs will not
increase the postretirement benefit obligation or cost to the Company.
Therefore, the Company has not assumed any annual rate of increase in the per
capita cost of covered health care benefits for future years and, likewise, a
one percentage point change in the assumed health care cost trend rate would not
have an effect. The components of net periodic benefit cost for the
postretirement health care are shown below.

<TABLE>
<CAPTION>

                                                   Postretirement Benefits
                                                -----------------------------
                                                  1998      1997       1996
                                                -----------------------------
<S>                                             <C>        <C>        <C>
Components of net periodic benefit cost:
     Service cost................               $    13    $     7    $    11
     Interest cost...............                   166        162        236
                                                -----------------------------
     Net periodic benefit cost...               $   179    $   169    $   247
                                                =============================
</TABLE>

     The Company also sponsors various defined contribution plans that provide
substantially all employees with an opportunity to accumulate funds for their
retirement. The Company matches the contributions of participating employees
based on the percentages specified in the respective plans. The Company
recognized expense related to these plans of $1,037, $941, and $786 in 1998,
1997, and 1996, respectively.

I. INCOME TAXES

     The provision for income taxes consists of:

<TABLE>
<CAPTION>


                                                  1998       1997      1996
                                                -----------------------------
<S>                                             <C>        <C>        <C>
Current:
     Federal.....................               $16,976    $15,095    $11,596
     State.......................                 2,784      2,356      1,432
     Foreign.....................                   585        446        423
Deferred.........................                (1,083)      (733)     1,864
                                                -----------------------------
                                                $19,262    $17,164    $15,315
                                                =============================
</TABLE>


     Income taxes paid, net of refunds, totaled $16,199, $15,112, and $11,230
during 1998, 1997, and 1996, respectively.

     The components of the net deferred tax liability as of November 30, 1998
and 1997 were as follows:

<TABLE>
<CAPTION>
                                                            1998        1997 
                                                          -------------------
<S>                                                       <C>        <C>
Deferred tax assets:
     Deferred compensation..............                  $  2,296   $  1,984 
     Other postretirement benefits......                       741        777 
     Foreign net operating 
        loss carryforwards..............                       422        626 
     Accounts receivable................                       833      1,229 
     Inventories........................                     1,397        985 
     Other..............................                     1,487      1,295
                                                          -------------------
Total gross deferred tax assets.........                     7,176      6,896
                                                          -------------------
Deferred tax liabilities:
     Pensions...........................                    (2,506)    (2,151)
     Plant assets.......................                    (7,981)    (7,766)
     Other..............................                      (372)      (432)
                                                          -------------------
Total gross deferred tax liabilities....                   (10,859)   (10,349)
                                                          -------------------
Net deferred tax liability..............                  $ (3,683)  $ (3,453)
                                                          ===================
</TABLE>


     The Company expects to realize the deferred tax assets, including foreign
net operating loss carryforwards, through the reversal of taxable temporary
differences and future earnings.

     Earnings before income taxes and minority interests included the following
components:

<TABLE>
<CAPTION>
                                                  1998       1997      1996
                                                -----------------------------
<S>                                             <C>        <C>        <C>
Domestic income..................               $49,762    $42,874    $40,224
Foreign income...................                 1,585      1,318      1,181
                                                -----------------------------
     Total.......................               $51,347    $44,192    $41,405
                                                =============================
</TABLE>


     The provision for income taxes resulted in effective tax rates that differ
from the statutory federal income tax rates. The reasons for these differences
are as follows:

<TABLE>
<CAPTION>
                                                 Percent of Pretax Earnings
                                                -----------------------------
                                                 1998        1997      1996
                                                -----------------------------
<S>                                                <C>        <C>        <C>

Statutory U.S. tax rates.........                  35.0%      35.0%      35.0%
State income taxes, net of 
  federal benefit................                   3.4        3.2        2.6
Merger-related costs.............                     -        0.8          -
Other, net.......................                  (0.9)      (0.2)      (0.6)
                                                -----------------------------
Consolidated effective income
  tax rate.......................                  37.5%      38.8%      37.0%
                                                =============================
</TABLE>

J. CONTINGENCIES

     The Company is involved in legal actions arising in the normal course of
business. Additionally, the Company is party to various proceedings relating to
environmental issues. The U.S. Environmental Protection Agency (EPA) and/or
other responsible state agencies have designated the Company as a potentially
responsible party (PRP), along with other companies, in remedial activities for
the cleanup of waste sites under the federal Superfund statute.



  
                                                                             23



<PAGE>   6



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
===============================================================================

     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 liabilities, if any, resulting from these matters, are not expected to have
a material adverse effect on the Company's financial condition or consolidated
results of operations.

K. PREFERRED STOCK PURCHASE RIGHTS

     In March 1996, the Board of Directors of CLARCOR adopted a Shareholder
Rights Plan to replace an existing plan that expired on April 25, 1996. Under
the terms of the Plan, each shareholder received rights to purchase shares of
CLARCOR Series B Junior Participating Preferred Stock. The rights become
exercisable only after the earlier to occur of (i) 10 business days after the
first public announcement that a person or group (other than a CLARCOR related
entity) has become the beneficial owner of 15% or more of the outstanding shares
of CLARCOR Common Stock; or (ii) 10 business days (unless extended by the
CLARCOR Board in accordance with the Rights Agreement) after the commencement
of, or the intention to make, a tender or exchange offer the consummation of
which would result in any person or group (other than a CLARCOR related entity)
becoming such a 15% beneficial owner. Each right entitles the holder to buy
one-hundredth of a share of such preferred stock at an exercise price of $80
subject to certain adjustments.

     Once the rights become exercisable, each right will entitle the holder,
other than the acquiring individual or group, to purchase a number of CLARCOR
common shares at a 50% discount to the then-market price of CLARCOR Common
Stock. In addition, under certain circumstances, if the rights become
exercisable, the holder will be entitled to purchase the stock of the acquiring
individual or group at a 50% discount. The Board may also elect to redeem the
rights at $.01 per right. The rights expire on April 25, 2006.

     The authorized preferred stock includes 300,000 shares designated as Series
B Junior Participating Preferred Stock.

L. INCENTIVE PLAN

     In 1994, the shareholders of CLARCOR adopted the 1994 Incentive Plan, which
allows the Company to grant stock options, restricted stock and performance
awards to officers, directors and key employees. The 1994 Incentive Plan
incorporates the various incentive plans in existence prior to March 1994,
including the 1984 Stock Option Plan, the 1987 Long Range Performance Share
Plan, and the 1990 Directors' Restricted Stock Compensation Plan. In addition,
the Company has, in connection with the acquisition of UAS, assumed the stock
option plans of UAS. The Company has reserved 191,385 shares of the Company's
common stock for issuance under the assumed UAS stock option plans.

     At the inception of the 1994 Incentive Plan, there were 1,500,000 shares
authorized for future grants. In 1998, the shareholders approved an amendment to
the 1994 Incentive Plan to allow grants and awards of up to 1.5% of the
outstanding common stock as of January 1 of each calendar year. Any portion of
the 1.5% that is not granted in a given year is available for future grants. In
addition, the Compensation and Stock Option Committee of the Company's Board of
Directors may approve an additional 1% of outstanding common stock to be awarded
during any calendar year. After the close of fiscal year 1998, 274,831 shares
were granted.

     The following is a description and a summary of key provisions related to
this plan.

STOCK OPTIONS

     Nonqualified stock options may, at the discretion of the Board of
Directors, be granted at the fair market value at the date of grant or at an
exercise price less than the fair market value at the date of grant. All options
granted in 1998, 1997, and 1996 were at the fair market value at the dates of
the grants. Options granted to key employees vest 25% per year beginning at the
end of the third year; therefore, they become fully exercisable at the end of
six years. Options granted to non-employee directors vest immediately. All
options expire ten years from the date of grant unless otherwise terminated.

     The following table summarizes the activity under the nonqualified stock
option plans.



24


<PAGE>   7

================================================================================

<TABLE>
<CAPTION>
                                1998                   1997                  1996
                         -------------------  ---------------------  --------------------
                                    Weighted               Weighted              Weighted
                                     Average                Average               Average
                                    Exercise               Exercise              Exercise
                           Shares     Price     Shares      Price      Shares     Price
                         -------------------  ---------------------  --------------------
<S>                      <C>         <C>      <C>          <C>       <C>        <C>
Outstanding at
  beginning of year....  1,895,086   $12.15   2,002,200    $11.44    1,879,359   $10.77
Granted................    518,239    19.86     290,625     14.63      312,750    13.92
Exercised/
  surrendered..........   (297,143)   11.10    (397,739)    10.39     (189,909)    8.98
                         -------------------  ---------------------  --------------------
Outstanding at end 
  of year..............  2,116,182   $14.18   1,895,086    $12.15    2,002,200   $11.44
                         ===================  =====================  ====================
Options exercisable 
  at end of year.......  1,110,433   $12.12   1,106,931    $11.13    1,116,263   $10.23
                         ===================  =====================  ====================
</TABLE>


     The following table summarizes information about the options at November
30, 1998:

<TABLE>
<CAPTION>

                       Options Outstanding           Options Exercisable
                -----------------------------------  -------------------
                           Weighted     Weighted                Weighted
   Range of                 Average      Average                Average
   Exercise                Exercise     Remaining               Exercise
    Prices        Number     Price    Life in Years    Number     Price
--------------- -----------------------------------  -------------------
<S>              <C>        <C>           <C>         <C>        <C>
$8.37 - $12.33   785,318    $10.96        3.56        766,568    $10.92
$12.58 - $17.00  822,000    $13.75        7.00        288,001    $13.45
$19.58 - $22.67  508,864    $19.87        8.50         55,864    $21.59
</TABLE>


     In addition, stock options outstanding and exercisable at November 30, 1998
and 1997 assumed as part of the UAS acquisition were 41,511 and 64,071,
respectively. These substitute options have an exercisable price range per share
of $2.40 to $7.56 at November 30, 1998 and expire between 2002 and 2005. No
grants were made under these plans in 1996, 1997, or 1998 and no future
additional awards will be granted.

LONG RANGE PERFORMANCE AWARDS

     Officers and key employees may be granted target awards of Company shares
of common stock and performance units, which represent the right to a cash
payment. The awards are earned and shares are issued only to the extent that the
Company achieves performance goals determined by the Board of Directors during a
three-year performance period. The Company granted 15,063 and 18,015 performance
shares on December 1, 1997 and 1996, respectively. As of November 30, 1998, none
of these shares have been cancelled. The shares vest at the end of three years.

     During the performance period, officers and key employees are permitted to
vote the restricted stock and receive compensation equal to dividends declared
on common shares. The Company accrues compensation expense for the performance
opportunity ratably during the performance cycle. Compensation expense for the
plan totaled $435, $547, and $522 in 1998, 1997, and 1996, respectively.
Distribution of Company common stock and cash for the performance periods ended
November 30, 1998, 1997, and 1996 were $537, $341, and $291, respectively.

DIRECTORS' RESTRICTED STOCK COMPENSATION

     The 1994 Incentive Plan grants all non-employee directors, in lieu of cash,
shares of common stock equal to five years of directors' annual retainers. The
directors' rights to the shares vest 20% on date of grant and 20% annually
during the next four years. The directors are entitled to receive dividends and
exercise voting rights with respect to all shares prior to vesting. Any unvested
shares are forfeited if the director ceases to be a non-employee director for
any reason.

     Compensation expense for the plan totaled $149, $121, and $165 in 1998,
1997, and 1996, respectively. During 1998, 7,122 shares of Company common stock
were issued under the plan.

FAIR VALUE ACCOUNTING (SFAS 123)

     Had compensation expense for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates consistent with the
method of SFAS 123, the Company's pro forma net earnings and diluted earnings
per share would have been $31,520, $26,702, and $25,782 and $1.28, $1.10, and
$1.06 for 1998, 1997, and 1996, respectively.

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions for 1998, 1997, and 1996. Adjustments for forfeitures are made as
they occur.


<TABLE>
<CAPTION>
                                                     1998     1997      1996
                                                  -----------------------------
<S>                                                <C>       <C>       <C>
Risk-free interest rate...........                   5.90%     5.98%     5.61%
Expected dividend yield...........                   2.60%     3.05%     3.04%
Expected volatility factor........                  25.80%    26.10%    27.90%
Expected option term (in years)...                   7.0       7.0       7.0
</TABLE>


     The weighted average fair value per option at the date of grant for options
granted in 1998, 1997, and 1996 was $5.63, $4.05, and $3.92, respectively.

     The above pro forma disclosures may not be representative of the effects on
reported net income and earnings per share for future years because compensation
cost under SFAS 123 is amortized over the options' vesting period and
compensation cost for options granted prior to fiscal year 1996 is not
considered.



                                                                              25


<PAGE>   8



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
===============================================================================

M.  STOCK SPLIT, EARNINGS PER SHARE AND TREASURY STOCK TRANSACTIONS

     On March 24, 1998, the Company declared a three-for-two stock split in the
form of a 50% stock dividend distributable April 24, 1998 to shareholders of
record April 10, 1998. In connection therewith, the Company transferred $8,145
from retained earnings to common stock, representing the par value of additional
shares issued. All share and per share amounts for all periods presented have
been adjusted to reflect the stock split.

     During the quarter ended February 28, 1998, the Company adopted Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share,"
which simplifies the calculation of earnings per share and requires presentation
of both basic and diluted earnings per share on the Consolidated Statements of
Earnings. Diluted earnings per share reflects the impact of outstanding stock
options if exercised during the periods presented using the treasury stock
method. The following table provides a reconciliation of the numerators and
denominators utilized in the calculation of basic and diluted earnings per
share.

<TABLE>
<CAPTION>
                                           1998          1997          1996
                                       ---------------------------------------
<S>                                    <C>           <C>           <C>
Net Earnings (numerator).............  $    32,079   $    26,918   $    25,945
Basic EPS:
     Weighted average number of 
        common shares outstanding 
        (denominator)................   24,268,250    24,133,472    23,907,632
          Basic per share amount.....  $      1.32   $      1.12   $      1.09
                                       =======================================
Diluted EPS:
     Weighted average number of 
        common shares outstanding....   24,268,250    24,133,472    23,907,632
     Dilutive effect of 
        stock options................      380,373       210,409       309,821
                                       ---------------------------------------
          Diluted weighted average 
            number of common
            shares outstanding 
            (denominator)............   24,648,623    24,343,881    24,217,453
          Diluted per share amount...  $      1.30   $      1.11   $      1.07
                                       =======================================
</TABLE>


     For the fiscal year ended November 30, 1998, 508,864 options with a
weighted average exercise price of $19.86 were not included in the computation
of diluted earnings per share as the options' exercise prices were greater than
the average market price of the common shares.

     During 1998, the Company purchased and retired 528,691 shares of common
stock. The number of issued shares was reduced as a result of the retirement of
these shares.

N. UNAUDITED QUARTERLY FINANCIAL DATA

     The unaudited quarterly data for 1998 and 1997 are as follows:

<TABLE>
<CAPTION>

                             First     Second      Third    Fourth
                            Quarter    Quarter    Quarter   Quarter     Total
-------------------------------------------------------------------------------
<S>                         <C>       <C>        <C>        <C>        <C>
1998:
     Net sales............. $97,786   $107,266   $110,058   $111,663   $426,773
     Gross profit..........  28,775     34,849     34,698     36,914    135,236
     Net earnings..........   5,337      8,030      8,769      9,943     32,079
     Net earnings per 
        common share:
          Basic............ $  0.22   $   0.33   $   0.36   $   0.41   $   1.32
          Diluted.......... $  0.22   $   0.32   $   0.35   $   0.41   $   1.30

1997:
     Net sales............. $86,958   $ 96,684   $104,636   $105,986   $394,264
     Gross profit..........  24,508     29,866     32,111     34,077    120,562
     Net earnings..........   3,017      7,048      8,085      8,768     26,918
     Net earnings per 
        common share:
          Basic............ $  0.13   $   0.29   $   0.33   $   0.37   $   1.12
          Diluted.......... $  0.12   $   0.29   $   0.33   $   0.36   $   1.11
</TABLE>


     In the first quarter of 1997, the Company incurred merger-related costs of
$2,972 ($2,390 after-tax or $0.10 per share) as discussed in Note B and realized
a gain from the sale of securities of $1,706 ($1,092 after-tax or $0.05 per
share). The realized gain is discussed in Note C.

O. SEGMENT INFORMATION

     The Company operates in three principal product segments: Engine/Mobile
Filtration, Industrial/ Environmental Filtration and Packaging (formerly
referred to as Consumer Packaging). Engine/Mobile Filtration manufactures and
markets a complete line of filters used in the filtration of lubrication oils,
air, fuel, coolant, hydraulic and transmission fluids in both the domestic and
international markets, including Europe, Australia, Canada, Mexico, South
Africa, Latin America and Asia. Industrial/Environmental Filtration manufactures
and markets a complete line of filters and systems used in air filtration in
commercial and industrial buildings, residences, and clean rooms in both the
domestic and international markets, including Europe, Australia, Canada, Mexico,
South Africa, Latin America and Asia. Packaging manufactures and markets plastic
closures and custom-designed lithographed metal and metal/plastic containers in
both domestic and international markets, including Canada and Germany.



26



<PAGE>   9



===============================================================================

     Net sales represent sales to unaffiliated customers, as reported in the
Consolidated Statements of Earnings. Intersegment sales were not material.
Assets are those assets used in each business segment. Corporate assets consist
of cash and short-term cash investments, deferred income taxes, world
headquarters facility, pension assets and various other assets that are not
specific to an industry segment.

     The segment data for the years ended November 30, 1998, 1997, and 1996 are
as follows:

<TABLE>
<CAPTION>
 ..........................................          1998      1997      1996
                                                 -----------------------------
<S>                                              <C>       <C>        <C>
Net sales:
Engine/Mobile Filtration..................       $223,761  $207,640   $195,223
Industrial/Environmental Filtration.......        135,828   111,491    103,388
Packaging.................................         67,184    75,133     73,771
                                                 -----------------------------
                                                 $426,773  $394,264   $372,382
                                                 =============================
Operating profit:
Engine/Mobile Filtration..................       $ 38,983  $ 34,536   $ 31,169
Industrial/Environmental Filtration.......          6,966     4,188      4,046
Packaging.................................          5,714     8,672      7,381
                                                 -----------------------------
                                                   51,663    47,396     42,596
Merger-Related Costs......................              -    (2,972)         -
                                                 -----------------------------
                                                 $ 51,663  $ 44,424   $ 42,596
                                                 =============================
Assets:
Engine/Mobile Filtration..................       $128,618  $121,804   $120,584
Industrial/Environmental Filtration.......         72,289    60,706     56,272
Packaging.................................         30,500    36,824     41,334
Corporate.................................         74,359    63,185     48,829
                                                 -----------------------------
                                                 $305,766  $282,519   $267,019
                                                 =============================
Additions to plant assets:
Engine/Mobile Filtration..................       $ 10,479  $  7,382   $ 11,386
Industrial/Environmental Filtration.......          3,743     2,570      1,829
Packaging.................................          1,258     1,127      4,275
Corporate.................................            345       270      4,740
                                                 -----------------------------
                                                 $ 15,825  $ 11,349   $ 22,230
                                                 =============================
Depreciation:
Engine/Mobile Filtration..................       $  5,889  $  5,262   $  4,533
Industrial/Environmental Filtration.......          2,546     2,249      2,310
Packaging.................................          2,749     2,994      2,946
Corporate.................................            508       496        361
                                                 -----------------------------
                                                 $ 11,692  $ 11,001   $ 10,150
                                                 =============================
</TABLE>


     No class of products accounted for as much as 10% of the total sales of the
Company.

      Financial data relating to the geographic areas in which the Company
operates are shown for the years ended November 30, 1998, 1997, and 1996. Net
sales by geographic area are based on sales to final customers within that
segment.

<TABLE>
<CAPTION>
                                                   1998      1997       1996
                                                 -----------------------------
<S>                                              <C>       <C>        <C>
Net Sales:
Sales within the United States........           $355,522  $325,361   $310,611
Export Sales to Other Countries.......             43,785    43,266     37,171
Sales within Other Countries..........             27,466    25,637     24,600
                                                 -----------------------------
                                                 $426,773  $394,264   $372,382
                                                 =============================
Operating Profit:
On Sales within the United States.....           $ 42,983  $ 37,730   $ 35,530
On Export Sales to Other Countries....              6,800     8,043      5,649
On Sales within Other Countries.......              1,880     1,623      1,417
                                                 -----------------------------
                                                   51,663    47,396     42,596
Merger-Related Costs..................                  -    (2,972)         -
                                                 -----------------------------
                                                 $ 51,663  $ 44,424   $ 42,596
                                                 =============================
Identifiable Assets:
United States.........................           $283,673  $262,739   $249,505
Other Countries.......................             22,093    19,780     17,514
                                                 -----------------------------
                                                 $305,766  $282,519   $267,019
                                                 =============================
</TABLE>


                                       27