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 SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 30, 2009

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

          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.)

840 Crescent Centre Drive, Suite 600, Franklin, Tennessee 37067

(Address of principal executive offices)

Registrant’s telephone number, including area code 615-771-3100

No Change

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of May 30, 2009, 50,932,941 common shares with a par value of $1 per share were outstanding.

 

 

TABLE OF CONTENTS

						PAGE
Part I — Financial Information
Item 1.				Financial Statements			3
Item 2.				Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3.				Quantitative and Qualitative Disclosures About Market Risk			36
Item 4.				Controls and Procedures			36
Part II — Other Information
Item 1.				Legal Proceedings			37
Item 1A.				Risk Factors			37
Item 2.				Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 3.				Defaults Upon Senior Securities			*
Item 4.				Submission of Matters to a Vote of Security Holders			37
Item 5.				Other Information			*
Item 6.				Exhibits			38
EX-31.I
EX-31.II
EX-32.I

Part I — Item 1. Financial Statements

CLARCOR Inc.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)

		May 30,				November 29,
		2009				2008
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	46,803			$	40,715
Restricted cash			2,020				473
Short-term investments			23,334				7,269
Accounts receivable, less allowance for losses of $15,973 for 2009 and $13,267 for 2008			170,853				194,864
Inventories:
Raw materials			65,332				60,575
Work in process			26,077				27,318
Finished products			76,692				70,308
Total inventories			168,101				158,201
Deferred income taxes			22,975				23,121
Prepaid expenses and other current assets			7,947				7,928
Total current assets			442,033				432,571
Plant assets at cost,			443,122				439,423
less accumulated depreciation			(252,608	)			(246,824	)
			190,514				192,599
Goodwill			229,788				223,964
Acquired intangibles, less accumulated amortization			95,839				95,089
Deferred income taxes			224				224
Other noncurrent assets			13,151				13,435
Total assets		$	971,549			$	957,882
LIABILITIES
Current liabilities:
Current portion of long-term debt		$	154			$	128
Accounts payable			59,557				65,398
Accrued salaries, wages and commissions			8,392				14,292
Compensated absences			7,545				8,004
Accrued insurance liabilities			10,907				9,668
Customer deposits			11,110				11,777
Income taxes			3,845				5,083
Other accrued liabilities			30,996				29,153
Total current liabilities			132,506				143,503
Long-term debt, less current portion			82,393				83,822
Postretirement healthcare benefits			652				642
Long-term pension liabilities			29,327				27,307
Deferred income taxes			37,878				39,317
Other long-term liabilities			4,340				7,360
Minority interests			2,417				4,172
Total liabilities			289,513				306,123
Contingencies
SHAREHOLDERS’ EQUITY
Capital stock			50,933				50,794
Capital in excess of par value			53,132				48,025
Accumulated other comprehensive loss			(17,997	)			(26,562	)
Retained earnings			595,968				579,502
Total shareholders’ equity			682,036				651,759
Total liabilities and shareholders’ equity		$	971,549			$	957,882

See Notes to Consolidated Condensed Financial Statements
Page 3

CLARCOR Inc.
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data)
(Unaudited)

		Quarter Ended								Six Months Ended
		May 30,				May 31,				May 30,				May 31,
		2009				2008				2009				2008
Net sales		$	229,395			$	267,137			$	443,085			$	517,318
Cost of sales			159,797				181,526				312,504				355,152
Gross profit			69,598				85,611				130,581				162,166
Selling and administrative expenses			44,368				48,153				91,664				96,969
Operating profit			25,230				37,458				38,917				65,197
Other income (expense):
Interest expense			(604	)			(72	)			(1,532	)			(3,638	)
Interest income			88				432				230				701
Other, net			464				(177	)			444				(389	)
			(52	)			183				(858	)			(3,326	)
Earnings before income taxes and minority interests			25,178				37,641				38,059				61,871
Provision for income taxes			8,121				12,903				12,217				20,844
Earnings before minority interests			17,057				24,738				25,842				41,027
Minority interests in earnings of subsidiaries			(266	)			(104	)			(260	)			(244	)
Net earnings		$	16,791			$	24,634			$	25,582			$	40,783
Net earnings per common share:
Basic		$	0.33			$	0.49			$	0.50			$	0.80
Diluted		$	0.33			$	0.48			$	0.50			$	0.80
Average number of common shares outstanding:
Basic			51,042,665				50,752,765				51,014,126				50,682,871
Diluted			51,330,567				51,272,388				51,392,809				51,125,712
Dividends paid per share		$	0.09			$	0.08			$	0.18			$	0.16

See Notes to Consolidated Condensed Financial Statements
Page 4

CLARCOR Inc.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

		Six Months Ended
		May 30,				May 31,
		2009				2008
Cash flows from operating activities:
Net earnings		$	25,582			$	40,783
Depreciation			13,851				13,259
Amortization			2,436				2,779
Loss on interest rate agreement			348				1,337
Stock-based compensation expense			3,142				3,713
Excess tax benefit from stock-based compensation			(432	)			(2,289	)
Changes in short-term investments			(16,065	)			(8,980	)
Changes in assets and liabilities, excluding short-term investments			7,394				(3,776	)
Other, net			205				297
Net cash provided by operating activities			36,461				47,123
Cash flows from investing activities:
Business acquisitions, net of cash acquired			(12,192	)			(75,073	)
Additions to plant assets			(10,784	)			(17,412	)
Investment in affiliate			(1,000	)			(2,000	)
Other, net			394				56
Net cash used in investing activities			(23,582	)			(94,429	)
Cash flows from financing activities:
Net proceeds (payments) under line of credit			(10,000	)			100,000
Borrowings under long-term debt			8,410				—
Payments on long-term debt			(559	)			(7,327	)
Sale of capital stock under stock option and employee purchase plans			2,106				7,825
Purchase of treasury stock			—				(37,260	)
Excess tax benefits from stock-based compensation			432				2,289
Cash dividends paid			(9,196	)			(8,183	)
Net cash (used in) provided by financing activities			(8,807	)			57,344
Net effect of exchange rate changes on cash			2,016				1,062
Net change in cash and cash equivalents			6,088				11,100
Cash and cash equivalents, beginning of period			40,715				36,059
Cash and cash equivalents, end of period		$	46,803			$	47,159
Cash paid during the period for:
Interest		$	1,140			$	1,642
Income taxes		$	14,200			$	17,821

See Notes to Consolidated Condensed Financial Statements
Page 5

CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)

1.		CONSOLIDATED FINANCIAL STATEMENTS
		The consolidated condensed balance sheet as of May 30, 2009, the consolidated condensed statements of earnings and the consolidated condensed statements of cash flows for the periods ended May 30, 2009, and May 31, 2008, have been prepared by the Company without audit. The financial statements have been prepared on the same basis as those in the Company’s Annual Report on Form 10-K for the fiscal year ended November 29, 2008 (2008 Form 10-K). The November 29, 2008 consolidated balance sheet data was derived from the Company’s year-end audited financial statements as presented in the 2008 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 May 30, 2009, are not necessarily indicative of the operating results for the full year.
2.		BUSINESS ACQUISITIONS
		On April 20, 2009, the Company purchased the remaining 20% minority interest in its consolidated subsidiary based in Weifang, China for $4,583, including acquisition costs. This subsidiary is part of the Company’s Engine/Mobile Filtration segment and manufactures heavy-duty engine filters, certain lines of environmental filters and filter systems and filters used in off-shore oil drilling. The allocation of the purchase price will be made to major categories of assets and liabilities when the Company completes its assessment of assets acquired and liabilities assumed during fiscal 2009. The $2,195 excess of the initial purchase price over the preliminary estimated fair value of the assets acquired and liabilities assumed was recorded as goodwill.
		On April 6, 2009, the Company purchased Weifang Yuhua Filters Ltd. (Yuhua), based in Weifang, China for approximately $706. Yuhua manufactures heavy-duty engine filters. The business is included in the Company’s Engine/Mobile Filtration segment. The acquisition is not material to the results of the Company. The allocation of the purchase price will be made to major categories of assets and liabilities when the Company completes its assessment of the assets acquired and liabilities assumed during fiscal 2009.
		On February 1, 2009, the Company purchased 85% ownership interests in Pujiang Novaeastern International Mesh Co., Ltd. (Pujiang) and Quzhou Chinagrace Filter Co., Ltd. (Quzhou). Both companies are based in China and were under common ownership. Pujiang and Quzhou are manufacturers of wire mesh filtration products sold primarily to the fibers, resin and aerospace industries. The combined purchase price for the ownership interests in both companies was approximately $1,535, excluding cash acquired and including acquisition costs. The Company has the right, but not the obligation, to purchase the remaining 15% ownership interests using a formula based on the combined companies’ future operating results. The businesses are included in the Company’s Industrial/Environmental Filtration segment. The acquisition is not material to the results of the Company. A preliminary allocation of the purchase price for the acquisition has been made to major categories of assets and liabilities, based on available information, and is currently subject to change. Other acquired intangibles included patents valued at $189 which will be amortized over an estimated useful life of 10 years. The $717 excess of the initial purchase price over the preliminary estimated fair value of the assets acquired and the liabilities assumed was recorded as goodwill.

CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)

		On January 16, 2009, the Company purchased certain assets of Meggitt (UK) Limited (Meggitt), for $578. This business was acquired to expand the Company’s product range of aerospace filters sold primarily to European aircraft manufacturers and aerospace parts distributors. The purchased assets were combined into an existing Company subsidiary which is part of the Company’s Industrial/Environmental Filtration segment. The Company expects to make an additional payment in 2010 of approximately $146 to the former owner of the Meggitt assets contingent upon the renewal of a contract with a customer. The acquisition is not material to the results of the Company. A preliminary allocation of the purchase price for the acquisition has been made to major categories of assets based on available information, and is currently subject to change. Other acquired intangibles included customer relationships valued at $201 which will be amortized over their estimated useful life of 13 years. The $231 excess of the initial purchase price over the preliminary estimated fair value of the net assets acquired was recorded as goodwill.
		On December 29, 2008, the Company purchased the Keddeg Company (Keddeg), a manufacturer of aerospace filtration products based in Lenexa, Kansas. The purchase price was $5,495, excluding cash acquired and including acquisition costs. Keddeg’s results are included as part of the Company’s Industrial/Environmental Filtration segment from the date of acquisition. The acquisition is not material to the results of the Company. A preliminary allocation of the purchase price has been made to major categories of assets and liabilities assumed, based on available information, and is subject to change. The $1,753 excess of the purchase price over the preliminary estimated fair value of the net tangible and intangible assets acquired was recorded as goodwill. Acquired intangible assets, other than trade names and goodwill, are amortized on a straight-line basis according to the useful lives of the acquired assets. The fair value of the identifiable intangible assets and their respective lives are shown in the following table:

						Estimated
Identifiable Intangible Asset		Value				Useful Life
Trade names		$	553			Indefinite
Non-compete agreements			86			5 years
Customer relationships			875			12 years
Developed technology			1,256			10 years
Total fair value		$	2,770

Effective May 1, 2008, the Company acquired a 30% share in BioProcessH2O LLC (BPH), a Rhode Island based manufacturer of industrial waste water and water reuse filtration systems, for $4,000, payable $2,000 in cash at the acquisition date with the remaining $2,000 to be paid by December 31, 2009. On February 6, 2009, the Company paid $1,000 of the remaining amount. Under the terms of the agreement with BPH, the Company has the right, but not the obligation, to acquire additional ownership shares and eventually complete ownership of the company over several years at a price based on, among other factors, BPH’s operating income. The investment, with a carrying amount of $3,802 and $4,011 at May 30, 2009 and November 29, 2008, respectively, is being accounted for under the equity method of accounting in accordance with Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.” The investment was initially recorded at cost. The carrying amount is adjusted each period to recognize the Company’s share of the earnings or losses of the investee based on the percentage of ownership, as well as the receipt of any dividend income. The equity investment is periodically reviewed for indicators of impairment. The Company’s share of undistributed earnings was not material at May 30, 2009.

CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)

		On December 3, 2007, the Company acquired Perry Equipment Corporation (Peco), a privately-owned manufacturer of engineered filtration products and technologies used in a wide array of industries, including oil and natural gas, refining, power generation, petrochemical, food and beverage, electronics, polymers and pulp and paper. Peco is based in Mineral Wells, Texas with operations in Mexico, Canada, the United Kingdom, Italy, Romania, Malaysia and China. Peco was merged with the Company’s Facet operations with the combined headquarters based in Mineral Wells. Peco was acquired to expand the Company’s product offerings, technology, filtration solutions and customer base in the oil and natural gas industries. Its results are included as part of the Company’s Industrial/Environmental Filtration segment since the date of acquisition. The purchase price was $145,807 excluding cash acquired and including acquisition costs. The Company issued 2,137,797 shares of CLARCOR common stock with a value of approximately $71,954 and paid the remaining purchase price with available cash of $5,301 and $80,000 of cash borrowed under the Company’s multicurrency revolving credit agreement. An allocation of the purchase price for the acquisition has been made to major categories of assets and liabilities based on available information. The $101,987 excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. Other acquired intangibles are amortized over a straight-line basis according to their useful lives. During the quarter ended May 30, 2009, the Company resolved a tax accrual issue resulting in a decrease to goodwill of $108.
		Also in December 2007, the Company purchased a distributor of engineered filtration products in Canada for approximately $1,402 including acquisition costs. Of the purchase price, $811 was paid during fiscal year 2008, $198 was paid during fiscal year 2009 and the remaining amount will be paid over the next three years. An allocation of the purchase price for the acquisition has been made to major categories of assets and liabilities. The $698 excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. The business was included in the Industrial/Environmental Filtration segment from the date of acquisition and was not material to the results of the Company.
3.		STOCK-BASED COMPENSATION
		The Company applies the provisions of Statement of Financial Accounting Standards (SFAS) No. 123R, “Share-Based Payment,” which establishes the accounting for stock-based awards. Under this method, stock-based employee compensation cost is recognized using the fair-value based method for all awards granted on or after the date of adoption. The Company issues stock option awards and restricted share unit awards to employees and issues stock option awards and restricted stock to non-employee directors under its stock-based incentive plans. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. Compensation cost related to restricted share units is recorded based on the market price of the Company’s common stock on the grant date. Options granted 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. For those who are already retirement eligible on the date of grant, compensation expense is recognized immediately. The key provisions of the Company’s stock-based incentive plans are described in Note N of the Company’s consolidated financial statements included in the 2008 Form 10-K.

CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)

		The Company recorded pretax compensation expense related to stock options of $620 and $2,277, respectively, and related tax benefits of $197 and $724, respectively, for the quarter and six months ended May 30, 2009. For the quarter and six months ended May 31, 2008, the Company recorded pretax compensation expense related to stock options of $1,293 and $2,775, respectively, and related tax benefits of $445 and $955, respectively. Pretax compensation expense related to restricted share unit awards totaled $107 and $865, respectively, for the quarter and six months ended May 30, 2009, and $412 and $938, respectively, for the quarter and six months ended May 31, 2008. The tax benefits associated with tax deductions that exceed the amount of compensation expense recognized in the financial statements related to stock-based compensation were $10 and $432, respectively, for the quarter and six months ended May 30, 2009, and $1,323 and $2,289, respectively, for the quarter and six months ended May 31, 2008.
		Stock Options
		The following table summarizes the activity for the six months ended May 30, 2009, with respect to non-qualified stock options granted under the Company’s incentive plans.

		Shares
		Granted				Weighted
		under				Average
		Incentive				Exercise
		Plans				Price
Outstanding at beginning of year			3,132,111			$	25.75
Granted			466,025			$	35.22
Exercised			(76,322	)		$	10.91
Surrendered			(13,200	)		$	34.26
Outstanding at May 30, 2009			3,508,614			$	26.86
Options exercisable at May 30, 2009			2,622,897			$	24.39

The fair value of stock options granted during the six months ended May 30, 2009 and May 31, 2008 were based on the following assumptions:

		Six Months Ended
		May 30,				May 31,
		2009				2008
Risk-free interest rate			1.91	%			3.76	%
Expected dividend yield			0.96	%			0.85	%
Expected volatility factor			24.16	%			20.24	%
Expected option term in years			6.1				6.1

The weighted average fair value per option at the date of grant for options granted during the six months ended May 30, 2009 and May 31, 2008, was $7.62 and $9.37, respectively. The total intrinsic value of options exercised during the six months ended May 30, 2009 and May 31, 2008, was $1,527 and $7,001, respectively.

CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)

The following table summarizes information about the Company’s outstanding and exercisable options at May 30, 2009.

		Options Outstanding																Options Exercisable
						Weighted								Weighted								Weighted								Weighted
						Average								Average								Average								Average
Range of						Exercise				Intrinsic				Remaining								Exercise				Intrinsic				Remaining
Exercise Prices		Number				Price				Value				Life in Years				Number				Price				Value				Life in Years
$8.97 — $9.75			150,948			$	9.10			$	2,953				0.85				150,948			$	9.10			$	2,953				0.85
$11.50 — $13.75			163,400			$	13.13				2,537				2.33				163,400			$	13.13				2,537				2.33
$16.01 — $22.80			887,148			$	20.54				7,208				3.35				887,148			$	20.54				7,208				3.35
$25.31 — $28.13			467,000			$	25.98				1,249				6.03				466,000			$	25.98				1,248				6.02
$28.79 — $38.23			1,840,118			$	32.81				—				7.23				955,401			$	31.53				—				5.82
			3,508,614			$	26.86			$	13,947				5.59				2,622,897			$	24.39			$	13,946				4.52

		At May 30, 2009, total unrecognized compensation cost of $3,689 related to non-vested stock option awards is expected to be recognized over a weighted-average period of 2.6 years.
		Restricted Share Unit Awards
		During the six months ended May 30, 2009 and May 31, 2008, the Company granted 36,368 and 25,989 restricted units of Company common stock with a fair value of $32.78 and $36.48, respectively, per unit. During the six months ended May 30, 2009, 1,481 restricted units of Company common stock with a weighted average grant date fair value of $34.19 were forfeited.
4.		COMPREHENSIVE EARNINGS
		The Company’s total comprehensive earnings and its components are as follows:

		Quarter Ended								Six Months Ended
		May 30,				May 31,				May 30,				May 31,
		2009				2008				2009				2008
Net earnings		$	16,791			$	24,634			$	25,582			$	40,783
Other comprehensive earnings, net of tax:
Foreign currency translation adjustments			11,446				2,412				8,132				3,852
Pension liability adjustments			216				—				433				—
Total comprehensive earnings		$	28,453			$	27,046			$	34,147			$	44,635

The components of the ending balances of accumulated other comprehensive loss are as follows:

		May 30,				November 29,
		2009				2008
Pension liability, net of tax of $10,532 and $10,790		$	(17,745	)		$	(18,178	)
Translation adjustments, net of tax of $155 and $155			(252	)			(8,384	)
Accumulated other comprehensive loss		$	(17,997	)		$	(26,562	)

CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)

5.		ACQUIRED INTANGIBLES
		The following table reconciles the activity for goodwill by reporting unit for the six months ended May 30, 2009.

						Industrial/
		Engine/Mobile				Environmental
		Filtration				Filtration				Packaging				Total
Balance at November 29, 2008		$	21,143			$	202,821			$	—			$	223,964
Acquisitions			2,195				2,593				—				4,788
Currency translation adjustments			654				382				—				1,036
Balance at May 30, 2009		$	23,992			$	205,796			$	—			$	229,788

The following table summarizes acquired intangibles by reporting unit. Other acquired intangibles includes parts manufacturer regulatory approvals, proprietary technology, patents and non-compete agreements.

						Industrial/
		Engine/Mobile				Environmental
		Filtration				Filtration				Packaging				Total
Balance at May 30, 2009:
Trademarks, gross		$	919			$	41,510			$	—			$	42,429
Less accumulated amortization			36				269				—				305
Trademarks, net		$	883			$	41,241			$	—			$	42,124
Customer relationships, gross		$	2,169			$	34,048			$	—			$	36,217
Less accumulated amortization			1,124				7,017				—				8,141
Customer relationships, net		$	1,045			$	27,031			$	—			$	28,076
Other acquired intangibles, gross		$	243			$	35,400			$	—			$	35,643
Less accumulated amortization			243				9,761				—				10,004
Other acquired intangibles, net		$	—			$	25,639			$	—			$	25,639

Amortization expense is estimated to be $4,877 in 2009, $4,470 in 2010, $4,410 in 2011, $4,395 in 2012 and $4,325 in 2013.

CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)

6.		FAIR VALUE MEASUREMENT
		The Company measures assets and liabilities at fair value as discussed throughout the footnotes to its quarterly and annual financial statements. Assets or liabilities that have recurring measurements are shown below:

		Fair Value Measurements at Reporting Date Using
						Quoted Prices				Significant
						in Active Markets				Other				Significant
						for Identical				Observable				Unobservable
						Assets				Inputs				Inputs
		Total				(Level 1)				(Level 2)				(Level 3)
May 30, 2009
Short-term investments		$	23,334			$	23,334			$	—			$	—
Restricted trust (part of noncurrent assets)			1,321				1,321				—				—
Interest rate agreement (part of current liabilities)			(2,355	)			—				(2,355	)			—
		$	22,300			$	24,655			$	(2,355	)		$	—
November 29, 2008
Short-term investments		$	7,269			$	7,269			$	—			$	—
Restricted trust (part of noncurrent assets)			1,428				1,428				—				—
Interest rate agreement (part of long-term liabilities)			(2,007	)			—				(2,007	)			—
		$	6,690			$	8,697			$	(2,007	)		$	—

		The Company’s short-term investments consist of tax-exempt municipal money market funds, which are actively traded. The restricted trust, which is used to fund certain payments for the Company’s nonqualified U.S. pension plan, consists of actively traded equity and bond funds. The interest rate agreement’s fair value was determined based on the present value of expected future cash flows using discount rates appropriate to the risks involved.
7.		GUARANTEES AND WARRANTIES
		The Company has provided letters of credit totaling approximately $23,575 and $24,003 as of May 30, 2009 and November 29, 2008, respectively, 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 obligations.
		In the ordinary course of business, the Company also provides routine indemnifications and other guarantees whose terms range in duration and are often 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.

CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)

		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 May 30, 2009, are as follows:

Balance at November 29, 2008		$	2,494
Accruals for warranties issued during the period			502
Accruals related to pre-existing warranties			345
Settlements made during the period			(366	)
Other adjustments, including currency translation			48
Balance at May 30, 2009, included in other accrued liabilities		$	3,023

8.		LONG-TERM DEBT AND INTEREST RATE AGREEMENT
		During the second fiscal quarter of 2009, the Company re-issued an $8,410 industrial revenue bond issued in cooperation with the South Dakota Economic Development Finance Authority which is due February 1, 2016. The interest rate on this bond was 0.57% at May 30, 2009 and is reset weekly.
		On December 18, 2007, the Company entered into a five-year multicurrency revolving credit agreement (Credit Facility) with a group of financial institutions under which it may borrow up to $250,000 under a selection of currencies and rate formulas. The Credit Facility interest rate is based upon, at the Company’s election, either a defined Base Rate or the London Interbank Offered Rate (LIBOR) plus or minus applicable margins. Commitment fees, letter of credit fees and other fees are also payable as provided in the credit agreement. At May 30, 2009, long-term debt included $65,000 outstanding on the Credit Facility.
		The Company’s significant accounting policies for derivative instruments are described in Note A of the 2008 Form 10-K. On January 2, 2008, the Company entered into a fixed rate interest swap agreement to manage its interest rate exposure on certain amounts outstanding under the Credit Facility. The interest rate agreement provides for the Company to receive interest at floating rates based on LIBOR and pay a 3.93% fixed interest rate plus an applicable margin on a notional amount of $100,000. Payments pursuant to the interest rate agreement are settled on a net basis quarterly. The agreement expires January 1, 2010. The swap agreement has not been designated as a hedge pursuant to SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Unrealized gains or losses and periodic settlement payments are recorded in interest expense in the Consolidated Condensed Statements of Earnings and as a component of cash flows from operations in the Consolidated Condensed Statements of Cash Flows.
		The Company’s swap agreement incorporates by reference the non-financial and financial debt covenants included in the Credit Facility. The swap agreement also includes other events which would qualify as a default or termination event, whereby the counterparty could request payment on the derivative instrument. Should the counterparty to the Company’s derivative contract fail to meet its obligations, the Company would be exposed to greater interest rate fluctuations along with the cost, if any, to extinguish the contract. The Company manages exposure to counterparty credit risk by entering into derivative financial instruments with institutions that can be expected to perform fully under the terms of the agreements.

CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)

At May 30, 2009 and November 29, 2008, the Company had the following derivative in a liability position. The Company did not have any derivatives in an asset position at either reporting date.

		Derivatives In Liability Position
		Consolidated
Derivatives Not Designated as Hedging		Balance Sheet				Fair
Instruments Under SFAS No. 133		Location				Value
May 30, 2009
Fixed rate interest swap agreement		Current liabilities				$	2,355
Total						$	2,355
November 29, 2008
Fixed rate interest swap agreement		Other long-term liabilities				$	2,007
Total						$	2,007

The following table reflects the gain (loss) on interest rate agreement for the quarter and six months ended May 30, 2009 and May 31, 2008, respectively.

Location of Gain

Derivatives Not Designated as Hedging

(Loss) on Interest

Amount of Gain (Loss) on

Instruments Under SFAS No. 133

Rate Agreement

Interest Rate Agreement

Quarter Ended

May 30,

May 31,

2009

2008

Fixed rate interest swap agreement

Interest expense

$

257

$

1,116

						Six Months Ended
						May 30,				May 31,
						2009				2008
Fixed rate interest swap agreement		Interest expense				$	(348	)		$	(1,337	)

CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)

9.		PENSION AND OTHER POSTRETIREMENT PLANS
		The Company provides various retirement benefits, including defined benefit plans and postretirement healthcare 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 Ended
		May 30,				May 31,				May 30,				May 31,
		2009				2008				2009				2008
Pension Benefits:
Components of net periodic benefit cost:
Service cost		$	451			$	650			$	901			$	1,300
Interest cost			2,298				2,129				4,595				4,258
Expected return on plan assets			(1,715	)			(2,604	)			(3,428	)			(5,207	)
Amortization of unrecognized:
Prior service cost			32				41				65				82
Net actuarial loss			390				42				779				84
Net periodic benefit cost		$	1,456			$	258			$	2,912			$	517
Cash contributions		$	417			$	319			$	807			$	645
Postretirement Healthcare Benefits:
Components of net periodic benefit income:
Interest cost		$	15			$	15			$	30			$	30
Amortization of unrecognized:
Prior service cost			(31	)			(31	)			(62	)			(62	)
Net actuarial gain			(46	)			(33	)			(92	)			(66	)
Net periodic benefit income		$	(62	)		$	(49	)		$	(124	)		$	(98	)
Cash contributions		$	50			$	53			$	100			$	106

The Company’s policy is to contribute to its 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 healthcare benefit plan an amount equal to the benefit payments. The minimum required contribution to one of the Company’s qualified U.S. pension plans for fiscal 2009 is approximately $400. The Company, from time to time, makes contributions in excess of the minimum amount required as economic conditions warrant. The Company has determined it will make a voluntary contribution to its U.S. qualified plans of $360 in 2009. The Company has not determined if it will make further contributions to its U.S. qualified plans in 2009. The Company also expects to contribute $295 to its U.S. nonqualified plan, $363 to its non-U.S. plan and $198 to its postretirement healthcare benefit plan to pay benefits during 2009.

CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)

		In addition to the plan assets related to its qualified plans, the Company has also funded $1,321 and $1,428 at May 30, 2009 and November 29, 2008, respectively, in a restricted trust for its nonqualified plan. This trust is included in other noncurrent assets in the Consolidated Condensed Balance Sheets.
		Recent declines in the fair value of the plans’ assets may result in significant charges to other comprehensive loss and a potential increase in the fiscal year 2010 pension expense to the extent the effects are not offset by a change in the discount rate at the time of the Company’s annual pension measurement on November 30, 2009. The Company’s required contributions to its plans may also be affected.
10.		INCOME TAXES
		The liability for gross unrecognized tax benefits was $2,207 at May 30, 2009 and $1,970 at November 29, 2008. The net increase in the liability for the quarter and six months ended May 30, 2009 of $95 and $237, respectively, resulted from additions of current and prior period tax positions and changes in interest and penalties of $125 and $112, respectively.
		At May 30, 2009, the amount of unrecognized tax benefit for permanent tax adjustments that, if recognized, would impact the effective tax rate was $1,763. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of May 30, 2009, the Company had $498 accrued for the payment of interest and penalties. The Company believes it is reasonably possible that the total amount of unrecognized tax benefits as of May 30, 2009 will decrease by $657 over the next twelve months as a result of expected settlements with taxing authorities. Due to the various jurisdictions in which the Company files tax returns and the uncertainty regarding the timing of settlements, it is possible that there could be other significant changes in the amount of unrecognized tax benefits in fiscal 2009; however, the amount cannot be estimated.
		The Company is regularly audited by federal, state and foreign tax authorities. The Internal Revenue Service has completed its audits of the Company’s U.S. income tax returns through fiscal 2003 and has started audits of the Company’s U.S. income tax returns for fiscal years 2004 through 2007. With few exceptions, the Company is no longer subject to income tax examinations by state or foreign tax jurisdictions for years prior to fiscal 2003.
11.		RESTRUCTURING CHARGES
		As discussed more fully in the 2008 Form 10-K, in July 2006, the Company began a restructuring program focused on the heating, ventilating and air conditioning (HVAC) filter manufacturing operations within its Industrial/Environmental Filtration segment. The Company anticipates that the HVAC restructuring program will be completed in fiscal year 2009, and that realization of the full benefits of the program will be achieved in fiscal year 2010. The majority of these expenses have been paid as of May 30, 2009.
		As an ongoing part of this program, during the six months ended May 30, 2009, the Company consolidated four Louisville, Kentucky area facilities into one location in Jeffersonville, Indiana in order to realize cost savings and efficiency benefits. Severance costs of $107 and $133, respectively, were accrued during the quarter and six months ended May 30, 2009 and were included in cost of sales in the Condensed Consolidated Statements of Earnings. At May 30, 2009, severance costs of $66 were accrued in other accrued liabilities in the accompanying consolidated condensed balance sheet.

CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)

		During May 2009, the Company also closed a small facility in Clover, South Carolina. The Company did not incur any material expenses related to this closure.
		During the third quarter of fiscal year 2008, the Company discontinued production at an HVAC filter manufacturing plant in Henderson, North Carolina. The Company expensed $1,081 in fiscal year 2008, which was included in cost of sales in the Condensed Consolidated Statements of Earnings, mainly for employee termination costs and a pension curtailment expense of $516. The Company expensed $20 and $47, respectively, related to the Henderson, North Carolina location during the quarter and six months ended May 30, 2009, mainly for facility consolidation and employee termination costs. Minimal additional charges related to facility consolidation costs will be recognized when the Company exits that facility. The Company has classified land of $230 and building and building fixtures of $2,962, which are included in plant assets, as assets held for sale related to the North Carolina plant.
		During the second quarter of fiscal year 2008, the Company discontinued production at an HVAC filter manufacturing plant in Davenport, Iowa. The Company expensed and paid $154 in fiscal year 2008, which was included in cost of sales in the Condensed Consolidated Statements of Earnings, mainly for employee termination costs. The Company did not incur any expenses related to the Davenport, Iowa location during the quarter and six months ended May 30, 2009. Minimal additional charges related to contract termination costs and facility consolidation costs will be recognized when the Company exits a lease related to that facility.
		The Company discontinued production at an HVAC filter manufacturing plant in Kenly, North Carolina in November 2006. Severance costs of $164 were accrued and paid during fiscal 2006 and were included in cost of sales in the Condensed Consolidated Statements of Earnings.
12.		INSURANCE CLAIMS
		In the second quarter of fiscal 2008, four of the Company’s facilities in three states were damaged in weather-related events. In accordance with FASB Interpretation No. 30 (FIN 30), “Accounting for Involuntary Conversions of Non-Monetary Assets to Monetary Assets,” the Company’s Industrial/Environmental Filtration segment recognized a gain for fiscal year 2008, resulting from the excess of insurance proceeds received over the net book value of the property, of $1,963 (net of the $500 deductible paid by the Company) as a reduction of cost of sales. The Company’s Engine/Mobile Filtration segment recognized a loss for fiscal year 2008, resulting from costs incurred below the Company’s deductible limit, of $178 in cost of sales. For the quarter ended May 31, 2008, expenses of $750 were recorded in cost of sales. As of May 30, 2009, the Company has a receivable of approximately $292 from the insurance company and the repairs to the buildings were complete.
13.		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 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.

CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)

		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 nature and extent of the contamination at issue, the length of time remediation may require, the complexity of the environmental regulation and the continuing advancement of remediation technology. Applicable federal law may impose joint and several liability on each PRP for the cleanup.
		It is the opinion of management that additional liabilities, if any, resulting from these legal or environmental issues, are not expected to have a material adverse effect on the Company’s financial condition or consolidated results of operations.
		In the event of a change in control of the Company, termination benefits are likely to be required for certain executive officers and other employees.
14.		EARNINGS PER SHARE AND TREASURY STOCK TRANSACTIONS
		Diluted earnings per share reflect 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.

		Quarter Ended								Six Months Ended
		May 30,				May 31,				May 30,				May 31,
		2009				2008				2009				2008
Weighted average number of common shares outstanding			51,042,665				50,752,765				51,014,126				50,682,871
Dilutive effect of stock-based arrangements			287,902				519,623				378,683				442,841
Weighted average number of diluted common shares outstanding			51,330,567				51,272,388				51,392,809				51,125,712
Net earnings		$	16,791			$	24,634			$	25,582			$	40,783
Basic earnings per share amount		$	0.33			$	0.49			$	0.50			$	0.80
Diluted earnings per share amount		$	0.33			$	0.48			$	0.50			$	0.80

Options with exercise prices greater than the average market price of the common shares during the respective periods are not included in the computation of diluted earnings per share. For the quarter and six months ended May 30, 2009, 1,840,118 and 1,330,663 options with a weighted average exercise price of $32.81 and $34.32, respectively, were excluded from the computation. For the quarter ended May 31, 2008, no options were excluded from the computation. For the six months ended May 31, 2008, 5,325 options with a weighted average exercise price of $38.23 were excluded from the computation.

CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)

		For the six months ended May 30, 2009, exercises of stock options added $1,903 to capital in excess of par value. For the six months ended May 31, 2008, exercises of stock options added $8,911 to capital in excess of par value.
		During the quarter and six months ended May 30, 2009, the Company did not repurchase any shares of its common stock under its $250,000 stock repurchase program. As of May 30, 2009, there was approximately $187,210 available for future purchases under this program. During the quarter ended May 31, 2008, the Company did not repurchase any shares of its common stock. For the six months ended May 31, 2008, the Company repurchased and retired 1,000,000 shares of common stock for $37,260.
15.		SEGMENT DATA
		The Company operates in three principal product segments: Engine/Mobile Filtration, Industrial/Environmental Filtration and Packaging. The segment data for the quarter and six months ended May 30, 2009 and May 31, 2008, 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 Ended
		May 30,				May 31,				May 30,				May 31,
		2009				2008				2009				2008
Net sales:
Engine/Mobile Filtration		$	92,277			$	108,658			$	177,657			$	213,767
Industrial/Environmental Filtration			119,889				139,326				233,347				265,748
Packaging			17,229				19,153				32,081				37,803
		$	229,395			$	267,137			$	443,085			$	517,318
Operating profit:
Engine/Mobile Filtration		$	18,457			$	24,450			$	31,758			$	46,792
Industrial/Environmental Filtration			5,864				11,444				6,527				15,729
Packaging			909				1,564				632				2,676
			25,230				37,458				38,917				65,197
Other (expense) income			(52	)			183				(858	)			(3,326	)
Earnings before income taxes and minority earnings		$	25,178			$	37,641			$	38,059			$	61,871

CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)

		May 30,				November 29,
		2009				2008
Identifiable assets:
Engine/Mobile Filtration		$	251,104			$	252,380
Industrial/Environmental Filtration			648,775				638,915
Packaging			37,706				37,949
Corporate			33,964				28,638
		$	971,549			$	957,882

16.		RECENT ACCOUNTING PRONOUNCEMENTS
		In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141R, “Business Combinations” and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” These standards will affect the Company’s accounting for businesses acquired after November 28, 2009 and presentation of noncontrolling interests, previously called minority interests, in its consolidated financial statements in fiscal year 2010. In April 2009, the FASB issued FSP SFAS 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” This FSP requires that assets acquired or liabilities assumed in a business combination and arising from a contingency be recognized at fair value at the acquisition date if the acquisition date fair value can be determined during the measurement period. The Company will adopt this FSP in connection with its adoption of SFAS No. 141R in fiscal year 2010.
		In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R).” This statement requires recognition of the overfunded or underfunded status of defined benefit postretirement plans as an asset or liability in the statement of financial position and to recognize changes in the funded status in other comprehensive earnings in the year in which the changes occur. SFAS No. 158 also requires measurement of the funded status of a plan as of the date of the statement of financial position. See Note I of the 2008 Form 10-K for further discussion of the impact of this change on the Company’s consolidated financial statements. SFAS No. 158’s provisions regarding the change in the measurement date are effective for the Company’s fiscal year ending November 28, 2009. As permitted by SFAS No. 158, the Company will use the measurements performed in fiscal year 2008 to estimate the effects of the changes to the 2009 fiscal year-end measurement dates. The impact of the transition to fiscal year-end measurement dates, which will be recorded as an adjustment to retained earnings in the fourth quarter of fiscal year 2009, is expected to be immaterial to the consolidated financial statements.
		In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities.” This standard requires enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. These requirements include the disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. The Company adopted SFAS No. 161 effective as of the beginning of the first quarter of fiscal year 2009.

CLARCOR Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(Unaudited)

		In June 2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1, “Determining Whether Instruments Granted in Share Based Payment Transactions Are Participating Securities.” FSP EITF 03-6-1 requires that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) be considered participating securities and be included in the computation of earnings per share pursuant to the two-class method discussed in SFAS No. 128, “Earnings per Share.” FSP EITF 03-6-1 is effective for the Company’s fiscal year 2010 and requires the restatement of all previously reported earnings per share data. The Company does not expect the adoption of FSP EITF 03-6-1 to have a material impact on the consolidated financial statements.
		In December 2008, the FASB issued FSP SFAS 132R-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” FSP SFAS 132R-1 expands the disclosure set forth in SFAS No. 132R by adding required disclosures about how investment allocation decisions are made by management, major categories of plan assets and significant concentration of risk. Additionally, FSP SFAS 132R-1 requires an employer to disclose information about the valuation of plan assets similar to that required under SFAS No. 157. This FSP will be effective for the Company’s fiscal year 2010 and will affect the disclosures in the consolidated financial statements.
		In April 2009, the FASB issued FSP SFAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” FSP SFAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased and re-emphasizes that regardless of market conditions the fair value measurement is an exit price concept as defined in SFAS No. 157. The scope of this FSP does not include assets and liabilities measured under level 1 inputs (quoted prices in active markets for identical assets). FSP SFAS 157-4 is applied prospectively to all fair value measurements where appropriate and will be effective for the Company’s interim and annual periods beginning in the third quarter of fiscal year 2009. The Company does not anticipate adoption to have a material impact on the Condensed Consolidated Financial Statements.
		In April 2009, the FASB issued FSP SFAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require publicly-traded companies to provide disclosures on the fair value of financial instruments in interim financial statements. FSP SFAS 107-1 and APB 28-1 will be effective for the Company’s third quarter of fiscal year 2009. The Company does not anticipate adoption to have a material impact on the Condensed Consolidated Financial Statements.
		In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” This standard establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued and shall be applied to subsequent events not addressed in other applicable generally accepted accounting principles. SFAS No. 165, among other things, sets forth the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures an entity should make about events or transactions that occurred after the balance sheet date. SFAS No. 165 is effective for the Company’s interim and annual periods beginning in the third quarter of fiscal year 2009. The Company does not expect the adoption of SFAS No. 165 to have a material impact on the interim or annual financial statements or the disclosures in those financial statements.

Part I — Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information presented in this discussion should be read in conjunction with other financial information provided in the Consolidated Condensed Financial Statements and Notes thereto. Except as otherwise set forth herein, references to particular years refer to the applicable fiscal year of the Company. The analysis of operating results focuses on the Company’s three reportable business segments: Engine/Mobile Filtration, Industrial/Environmental Filtration and Packaging. The Engine/Mobile Filtration segment sells filtration products used on engines and in mobile equipment applications generally, including trucks, automobiles, buses, locomotives, and marine, construction, industrial, mining and agricultural equipment. The Company’s Industrial/Environmental Filtration segment focuses on the manufacture and marketing of filtration products used in industrial and commercial processes and in buildings and infrastructures of various types. The segment’s products include liquid process filtration products, engineered filtration products and technologies and air filtration products and systems used to maintain high interior air quality and to control exterior pollution. The Packaging segment manufactures and markets consumer and industrial packaging products. The Company’s products are manufactured and sold throughout the world.

EXECUTIVE SUMMARY

Management Discussion Snapshot
(Dollars in thousands except per share data)

		Second Quarter Ended												Six Months Ended
		May 30, 2009				May 31, 2008				Change				May 30, 2009				May 31, 2008				Change
Net sales		$	229,395			$	267,137				-14.1	%		$	443,085			$	517,318				-14.3	%
Operating profit			25,230				37,458				-32.6	%			38,917				65,197				-40.3	%
Operating margin			11.0	%			14.0	%		-3.0 pts.					8.8	%			12.6	%		-3.8 pts.
Other income (expense)			(52	)			183				-128.4	%			(858	)			(3,326	)			-74.2	%
Provision for income taxes			8,121				12,903				-37.1	%			12,217				20,844				-41.4	%
Effective tax rate			32.3	%			34.3	%		-2.0 pts.					32.1	%			33.7	%		-1.6 pts.
Net earnings			16,791				24,634				-31.8	%			25,582				40,783				-37.3	%
Net earnings margin			7.3	%			9.2	%		-1.9 pts.					5.8	%			7.9	%		-2.1 pts.
Diluted earnings per share		$	0.33			$	0.48				-31.3	%		$	0.50			$	0.80				-37.5	%
Average diluted shares outstanding			51,330,567				51,272,388				0.1	%			51,392,809				51,125,712				0.5	%

     The global recession continued to impact the Company in the second quarter of 2009. The Company’s reported 2009 second quarter net sales of $229,395,000 and operating profit of $25,230,000 were 14.1% and 32.6% lower than the second quarter of 2008, respectively. For the second quarter of 2009, net earnings of $16,791,000 and diluted earnings per share of $0.33 were also lower than net earnings of $24,634,000 and diluted earnings per share of $0.48 in the second quarter of 2008. Within the U.S., sales declined by 11%; outside the U.S., sales declined by 19%. Although each of the Company’s operating segments reported lower sales and profits in 2009, some markets were stronger than others. For the second quarter this year compared to last year’s second quarter, natural gas and aviation fuel filter sales declined slightly. Sales of HVAC filters were significantly better by the end of the second quarter of 2009 after a slow start at the beginning of that quarter. Sales were slower for filters sold to the over-the-road trucking, railroad, fibers and resins, aerospace and oil drilling markets. As expected, sales of replacement maintenance filters to the automobile industry and sales of dust collector systems were weak compared to the comparable period of 2008.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED

The reduced demand throughout the quarter affected production volumes at the Company’s plants causing underabsorption of fixed manufacturing and operating expenses and lower operating margin. Throughout the first six months of fiscal 2009, the Company continued to implement many cost reduction programs throughout CLARCOR, including headcount reductions, wage freezes for all domestic units, consolidation of manufacturing plants and controls over discretionary spending. As cost controls take hold, the Company expects to see an increasing drop in discretionary spending as 2009 unfolds compared to 2008. Selling and administrative costs declined by 3% in the first fiscal quarter of 2009 compared to the prior year first quarter and by 8% in the second quarter of 2009 compared to the prior year second quarter. The Company expects selling and administrative costs to continue to be lower in 2009 than they were in 2008.

In the second quarter of 2009, the strengthening of the U.S. dollar compared to other currencies reduced net sales and operating profit by approximately $12 million and $2 million, respectively. Fluctuations in foreign currencies contributed approximately $6 million to net sales and approximately $1 million to operating profit for the second quarter of 2008.

For the 2009 six-month period, the Company reported sales of $443,085,000, a decrease of 14.3% from sales of $517,318,000 in the 2008 six-month period. Operating profit decreased 40.3% to $38,917,000 from $65,197,000 in the 2008 period and operating margin was 8.8% in 2009’s first half compared to 12.6% in 2008’s first half. Net earnings decreased 37.3% and diluted earnings per share decreased 37.5% in the 2009 six-month period compared to the comparable 2008 period. Fluctuations in foreign currencies reduced sales and profits in the 2009 six-month period by approximately $21 million and $2 million, respectively. For the 2008 six-month period, fluctuations in foreign currencies increased sales and profits by approximately $11 million and $2 million, respectively.

CLARCOR’s financial position remains strong with adequate cash resources and sufficient borrowing capacity under its current line of credit. As of May 30, 2009, it had over $70 million of cash and short-term investments and approximately $176.5 million of availability under its line of credit.

During the first six months of 2009, the Company acquired several businesses. Although none of these acquisitions were large, each added to the Company’s product offerings, expanded its reach in certain geographies and markets, and, for certain acquisitions in China, will allow the Company to lower the cost of products previously purchased from other third-parties. The acquisitions, individually or in total, are not expected to be material to the results of the Company.

On December 29, 2008, the Company purchased the Keddeg Company (Keddeg), a manufacturer of aerospace filtration products based in Lenexa, Kansas. The purchase price was $5,495,000, including acquisition costs and net of cash acquired. Keddeg’s results are included as part of the Company’s Industrial/Environmental Filtration segment from the date of acquisition.

On January 16, 2009, the Company purchased certain assets of Meggitt (UK) Limited, a manufacturer of aerospace filters based in the United Kingdom for approximately $600,000. This business was acquired to expand the Company’s product range of aerospace filters sold primarily to European aircraft manufacturers and aerospace parts distributors. The purchased assets were combined into an existing Company subsidiary which is part of the Company’s Industrial/Environmental Filtration segment.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED

		On February 1, 2009, the Company purchased 85% ownership interests in Pujiang Novaeastern International Mesh Co., Ltd. (Pujiang) and Quzhou Chinagrace Filter Co., Ltd. (Quzhou). Both companies are based in China and were under common ownership. Pujiang and Quzhou are manufacturers of wire mesh filtration products sold primarily to the fibers, resin and aerospace industries. The combined purchase price for both companies was approximately $1.5 million. In addition, the Company is committed to invest an additional $2.8 million within two years to fund growth initiatives. The Company has the right, but not the obligation, to purchase the remaining 15% ownership interests using a formula based on the combined companies’ future operating results.
		On April 6, 2009, the Company purchased Weifang Yuhua Filters Ltd. (Yuhua), a manufacturer of heavy-duty engine filters, based in Weifang, China for approximately $706,000. Yuhua is included in the Company’s Engine/Mobile Filtration segment.
		On April 20, 2009, the Company purchased the remaining 20% minority interest in its consolidated subsidiary based in Weifang, China, for approximately $4.6 million. This subsidiary is part of the Company’s Engine/Mobile Filtration segment and manufactures heavy-duty engine filters and certain lines of environmental filters and filter systems and also filters used in off-shore oil drilling.

RESULTS OF OPERATIONS

SALES

Net Sales by Segment (Dollars in Thousands)

		Second Quarter Ended												Six Months Ended
		May 30,				May 31,								May 30,				May 31,
		2009				2008				Change				2009				2008				Change
Engine/Mobile Filtration		$	92,277			$	108,658				-15.1	%		$	177,657			$	213,767				-16.9	%
Industrial/Environmental
Filtration			119,889				139,326				-14.0	%			233,347				265,748				-12.2	%
Packaging			17,229				19,153				-10.0	%			32,081				37,803				-15.1	%
CLARCOR		$	229,395			$	267,137				-14.1	%		$	443,085			$	517,318				-14.3	%

Engine/Mobile Filtration

The Engine/Mobile Filtration segment’s 2009 second quarter sales decreased $16,381,000, or 15.1%, to $92,277,000 from the prior year’s second quarter. Fluctuations in foreign currencies reduced sales by approximately $4.9 million, or 4.5% for this segment in the second quarter of 2009 compared to sales in the second quarter of 2008 as the dollar strengthened against most currencies. Sales in international markets for this segment, in dollar terms, were 18% lower in the second quarter of 2009 than in 2008’s second quarter while domestic sales declined 13% for the same periods. Specifically, sales in Asian markets increased by 8% in the 2009 quarter from last year’s second quarter while sales in Europe, Morocco and South Africa decreased by 25%. Sales declined in the second quarter of 2009 across all major market segments, including over-the-road trucking, agriculture, mining, construction and particularly in the railroad market.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED

Although 2009’s second quarter sales were below 2008’s second quarter, they were slightly better than in the first quarter of 2009. Except for the railroad market, this segment sells relatively few products into original equipment markets, and the aftermarket has held up better than the new equipment market during the current difficult economic period. Order rates for heavy-duty engine filters had improved by about 5% by the end of the second quarter from earlier in the quarter. In addition to signing many new customers over the last six months, the Company also believes that its current customers will need to restock their inventories sometime in the latter part of 2009, which is expected to improve its results in the second half of 2009 compared to the first half. However, the Company expects the commercial rail industry to remain soft through the rest of 2009 as economic pressures continue in the coal, housing, manufacturing and automotive sectors. Therefore, the Company expects sales to be lower in fiscal 2009 compared to fiscal 2008’s reported sales for this segment overall although it does expect operating margins to be higher in the remaining two quarters of 2009 than they were in the first half of 2009. Specifically, the Company expects the Engine/Mobile Filtration segment sales to decline by 9% to 11% in the second half of 2009 compared to the same period in 2008.

For the six-month period, Engine/Mobile Filtration segment sales of $177,657,000 declined 16.9% from 2008 six-month sales of $213,767,000. Hauled freight tonnage in both over-the-road and railway traffic remained low as the current recession continued to drive down customer demand throughout the six-month period compared to that of 2008’s first half. Fluctuations in foreign currencies reduced sales by approximately $10 million for this segment in the first half of 2009 compared to the first half of 2008. For the six-month period of 2008, the weakening of the U.S. dollar contributed approximately $4 million to sales for this segment.

Industrial/Environmental Filtration

The Company’s Industrial/Environmental Filtration segment recorded a $19,437,000, or 14.0%, decrease in sales to $119,889,000 from $139,326,000 for the 2009 second quarter. The strengthening of the U.S. dollar during the current quarter compared to the dollar’s value in the 2008 quarter reduced sales by approximately $6.8 million, or 4.9%. For this segment, sales in international markets, in dollar terms, were down 4% in the second quarter of 2009 compared to the second quarter of 2008. International growth was seen for aviation fuel filter sales in Spain and the U.K. and natural gas vessel and filter element sales in Southeast Asia. Sales declines were seen for air filtration system sales in Germany, aerospace filter sales throughout Europe and aviation fuel filter sales in Italy and France. Domestic sales were down approximately 17% in the second quarter of 2009 compared to the second quarter of 2008.

Within the Industrial/Environmental Filtration segment, certain operations and markets are showing improvement from declines in the latter part of 2008 although this is not the case for every operation or market. Sales of filters to the oil drilling market, aerospace market, fibers and resins market and for dust collector systems were much lower during the second quarter of 2009 than in last year’s second quarter. The Company anticipates that sales of air filtration systems will remain soft throughout fiscal 2009 as customers continue to reduce or delay their capital spending plans, both in the U.S. and in Europe. Sales of replacement dust collector cartridges and filters to aviation fuel markets were also slightly weaker during the second quarter of 2009 than in last year’s second quarter. However, the Company expects that sales to the aviation fuel market will improve by approximately 5% for the rest of 2009 compared to the second half of 2008.

Overall sales of heating, ventilating and air conditioning (HVAC) filters used in industrial, commercial and residential applications were also weaker in the second quarter of 2009 than in the second quarter of 2008 primarily due to the continued widespread reduction in production at U.S. manufacturing plants. Sales of replacement filters for automotive production and assembly facilities, which are sold through the Company’s Total Filtration Services operation, were especially weak due to the continued drop in automobile sales in the United States. Sales to this market dropped by over 20% in the second quarter of 2009 compared to last year’s second quarter. The Company expects that HVAC filter sales to the automotive market will not improve for the rest of this year and may not improve in 2010.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED

During the second quarter of 2009, the Company began selling its high-end Purolator^® brand HVAC residential filters to a large retail store chain in one of its sales regions. So far, the program has been successful with product reorders coming sooner than the Company had initially expected. The customer is expected to evaluate the success of this program later this summer or in the early fall. After this evaluation, the Company is hopeful that it will then begin to sell this product into additional regions of the U.S. for this customer. In addition, the Company’s restructure of its HVAC filter manufacturing operations has improved customer service, fill rates and product development, which has helped gain new and former customers. For the rest of 2009, the Company expects sales for its HVAC filter manufacturing operation to increase by approximately 5% compared to the second half of 2008.

Sales of original equipment and replacement filter elements to the natural gas market declined by 5% during the second quarter of 2009. The Company expects sales of vessels for the remainder of 2009 to be lower than in 2008, but it has begun to receive purchase orders for projects that were previously delayed. In general, these projects are built over a six month to 24 month period, so the impact of purchase orders in the current quarter will positively impact sales in fiscal 2010 and 2011. Recent discoveries of natural gas fields in the U.S. and expanded production in current fields throughout the world will require new pipelines and transmission facilities which will increase demand for the Company’s natural gas filtration systems. The Company is actively quoting many new development projects and is not experiencing any major order cancellations. In addition, the Company is actively investing to grow its natural gas aftermarket filtration business with increased new product development efforts and investments in customer service, product availability and marketing programs. The Company expects to announce significant new products for this market later this year.

For the Industrial/Environmental Filtration segment as a whole, the Company expects sales to decrease by 6% to 8% in the second half of 2009 compared to the same period in 2008.

For the 2009 six-month period, the Industrial/Environmental Filtration segment sales of $233,347,000 were 12.2% lower than $265,748,000 in the first half of 2008. Foreign currency translation reduced sales by approximately $7 million to the six-month 2009 sales figures for this segment when compared to the first half of 2008.

Packaging

The Packaging segment’s second quarter 2009 sales declined 10.0% or $1,924,000 to $17,229,000 compared to $19,153,000 in the second quarter of 2008. Six-month sales for 2009 were 15.1% lower at $32,081,000 compared to $37,803,000 for the 2008 comparable period. Sales were impacted in 2009 by lower demand for packaging used in the health and beauty, confection, tobacco, promotion and film industries resulting in a slower second quarter and first half of 2009 compared to 2008’s comparable periods. There was modest growth in the second quarter of 2009 in flat sheet metal decorating, particularly for the spice and battery markets, compared to the second quarter of 2008. Although the second quarter’s results were less than what the Company expected, it believes that the segment will have a solid 2009 with a stronger second half of the year compared to the first half of 2009. The Company expects that this segment’s second half 2009 sales will increase 6% to 8% compared to the same period in 2008. The segment recently signed a five-year agreement with a major consumer products company which is expected to result in additional sales of $4 million to $5 million per year beginning in 2010.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED

OPERATING PROFIT

Operating Profit and Margin by Segment (Dollars in Thousands)

		Second Quarter Ended												Six Months Ended
		May 30,				May 31,								May 30,				May 31,
		2009				2008				Change				2009				2008				Change
Engine/Mobile Filtration		$	18,457			$	24,450				-24.5	%		$	31,758			$	46,792				-32.1	%
Industrial/Environmental Filtration			5,864				11,444				-48.8	%			6,527				15,729				-58.5	%
Packaging			909				1,564				-41.9	%			632				2,676				-76.4	%
CLARCOR		$	25,230			$	37,458				-32.6	%		$	38,917			$	65,197				-40.3	%
Engine/Mobile Filtration			20.0	%			22.5	%		-2.5 pts.					17.9	%			21.9	%		-4.0 pts.
Industrial/Environmental Filtration			4.9	%			8.2	%		-3.3 pts.					2.8	%			5.9	%		-3.1 pts.
Packaging			5.3	%			8.2	%		-2.9 pts.					2.0	%			7.1	%		-5.1 pts.
CLARCOR			11.0	%			14.0	%		-3.0 pts.					8.8	%			12.6	%		-3.8 pts.