The information presented in this discussion should be read in conjunction with other financial information provided in the Consolidated Financial Statements and Notes thereto. The analysis of operating results focuses on the Company's three reportable business segments: Engine/Mobile Filtration, Industrial/Environmental Filtration and Packaging. Except as otherwise set forth herein, references to particular years refer to the applicable fiscal year of the Company.

The Management's Discussion and Analysis of Financial Condition and Results of Operations section of this Annual Report on Form 10-K includes certain net sales and operating profit figures (at the consolidated and segment level) and net earnings and diluted earnings per share figures for 2011 fiscal year which exclude the impact of having an additional week in our 2011 fiscal year in comparison to our 2012 fiscal year and 2010 fiscal year. These figures are non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures to GAAP financial measures, along with reasons for the inclusion of these non-GAAP financial measures and the limitations of such non-GAAP financial measures, see "Other Matters - Additional Week in 2011" later in this Management's Discussion and Analysis of Financial Condition and Results of Operations section.

EXECUTIVE SUMMARY

                         Management Discussion Snapshot
                      (In thousands except per share data)

                               2012            2011            2010              2012 vs 2011
                            (52 weeks)      (53 weeks)      (52 weeks)       $ Change     % Change
Net sales                  $ 1,121,765     $ 1,126,601     $ 1,011,429     $   (4,836 )      -%
Cost of sales                  741,433         743,180         673,022         (1,747 )      -%
Gross profit                   380,332         383,421         338,407         (3,089 )     (1)%
Selling and administrative
expenses                       197,618         202,154         193,758         (4,536 )     (2)%
Operating profit               182,714         181,267         144,649          1,447        1%
Other income (expense)             283              41          (1,226 )          242
Provision for income taxes      59,657          56,947          47,072          2,710        5%
Net earnings attributable
to CLARCOR                     122,986         124,003          96,081         (1,017 )     (1)%
Weighted average diluted
shares                          50,882          51,191          51,156           (309 )     (1)%
Diluted earnings per
common share attributable
to CLARCOR                 $      2.42     $      2.42     $      1.88     $        -        -%
Percentages:
Gross margin                      33.9 %          34.0 %          33.5 %                    (0.1)   pt
Selling and administrative
percentage                        17.6 %          17.9 %          19.2 %                    (0.3)   pt
Operating margin                  16.3 %          16.1 %          14.3 %                     0.2    pt
Effective tax rate                32.6 %          31.4 %          32.8 %                     1.2    pt
Net earnings margin               11.0 %          11.0 %           9.5 %                      -     pt

2012 versus 2011

Net Sales

Net sales decreased $4.8 million, or less than one percent, in 2012 compared to 2011. The decrease in net sales in 2012 primarily reflects the effect of our fiscal year 2012 having one less week than our fiscal year 2011, a decline in sales at our Packaging segment and unfavorable changes in foreign currency exchange rates, partly offset by increased sales volume at our Engine/Mobile Filtration and Industrial/Environmental Filtration segments on a combined basis, increased selling prices and increased sales from business acquisitions. Components of the less than one percent decrease in net sales are as follows:

Additional week in 2011             (2 )%
Packaging segment volume            (1 )%
Foreign exchange                    (1 )%
Filtration segments combined volume  2  %
Pricing                              1  %
Acquisitions                         1  %
                                     -  %

• The effect of our fiscal year 2012 having one less week than our fiscal year 2011 unfavorably impacted net sales by approximately 2%.

• Excluding the impact of the additional week in 2011 and changes in pricing, net sales at our Packaging segment were 17% lower in 2012 than in 2011, primarily driven by lower sales of smokeless tobacco and confection packaging products and lower sales of decorated flat sheet metal products.

• Changes in the average exchange rates for foreign currencies versus the U.S. dollar unfavorably impacted our translated U.S. dollar value of net sales by 1% in 2012 compared to 2011, primarily due to strengthening of the U.S. dollar compared to the Euro during 2012.

• Net sales in our Engine/Mobile and Industrial/Environmental Filtration segments increased 2% on a combined basis in 2012 compared to 2011, excluding the effects of the additional week in 2011, changes in foreign currency exchange rates, changes in pricing and acquisitions. This 2% increase was primarily driven by an increase in natural gas vessel and aftermarket sales in the U.S. and internationally, increased domestic sales of commercial and industrial filters through our Total Filtration Services distribution business, and increased sales of dust collection cartridges and systems.

• Net sales increased approximately 1% in 2012 compared to 2011 due to business acquisitions, reflecting our acquisitions of Modular Engineering Pty Ltd in the second quarter of 2012 and PDDA Filtration, Inc. in the first quarter of 2012.

Cost of Sales

Cost of sales decreased $2.0 million, or less than one percent, in 2012 compared to 2011. This less than one percent decrease in cost of sales was primarily the result of the less than one percent decrease in net sales. Our 33.9% gross margin percentage in 2012 was 0.1 percentage points lower than 2011. The decrease in gross margin percentage was primarily the result of lower absorption of fixed overhead costs in our Packaging segment due to an 18% decline in net sales in 2012 compared to 2011, partly offset by benefits from our ongoing cost reduction and continuous improvement initiatives across each of our businesses. Raw material costs as a percentage of sales remained relatively stable in 2012, as we were able to increase the selling prices of our products by approximately 1% in 2012 to effectively pass through higher commodity costs to our customers. Because the majority of our sales are into the aftermarket where we do not have long-term contracts, we had the ability to pass the impact of commodity cost increases onto our customers in 2012.

Selling and Administrative Expenses

Selling and administrative expenses decreased $4.5 million, or 2%, in 2012 compared to 2011. This decrease was primarily driven by a $5.9 million decline in compensation related to our company-wide profit sharing program and a $3.2 million decline in legal expenses, partly offset by $3.1 million higher employee costs to support our long-term growth initiatives and $1.5 million higher other selling and administrative expenses to support our domestic and international growth initiatives. Our incentive compensation programs are tied to the achievement of objective annual goals, including the amount by which the Company's after-tax earnings exceeds the Company's cost of capital in relation to the assets under management's control. Although our operating profit increased by 1% in 2012 compared to 2011 and our diluted earnings per share was flat in 2012 compared to 2011, our results were below our internal annual goals, resulting in the decrease in incentive compensation in 2012 compared to 2011. The $3.2 million decline in legal expenses reflects the resolution during 2012 of certain legal matters, including the patent infringement lawsuit filed by Donaldson Company in 2009.

2011 versus 2010

Net Sales

Higher operating profit, net earnings and diluted earnings per share in 2011 compared with 2010 were primarily the result of a $115.2 million, or 11%, increase in net sales. Components of this 11% increase in net sales are as follows:

Volume                   5 %
Pricing                  2 %
Additional week in 2011  2 %
Foreign exchange         1 %
TransWeb acquisition     1 %
                        11 %

Net sales in our Engine/Mobile Filtration segment were 14% higher in 2011 than 2010 primarily on the strength of higher heavy-duty engine filter sales both in the U.S., where sales grew 12%, and internationally, where sales grew 15%. Net sales in our Industrial/Environmental Filtration segment were 11% higher in 2011 than 2010 primarily based upon higher net sales in the U.S. including sales from our acquisition of TransWeb, which was completed at the end of December 2010. Net sales at our Packaging segment were 1% lower in 2011 than 2010. However, excluding the impact of a no margin tooling and equipment sale to one of our customers in 2010, net sales at our Packaging segment increased $3.2 million, or 4%, in 2011 compared with 2010. Each of the segment growth rates referenced above include the effect of our fiscal year 2011 having one more week than our fiscal year 2010, which favorably impacted net sales by approximately 2%.

Cost of Sales

Our 2011 cost of sales increased $70.2 million, or 10%, from 2010. This 10% increase in cost of sales was primarily the result of the 11% increase in net sales. Our 34.0% gross margin percentage in 2011 was 0.5 percentage points higher than 2010. This increase in gross margin percentage was primarily the result of our ability to leverage manufacturing overhead while maintaining relatively stable raw material costs as a percentage of net sales as we were able to increase prices by approximately 2% in 2011 to effectively pass through higher commodity costs to our customers. Because a majority of our sales are into the aftermarket where we do not have long-term contracts, we had the ability to pass the impact of commodity cost increases onto our customers in 2011.

Selling and Administrative Expenses

Selling and administrative expenses increased $8.4 million, or 4%, in 2011 from 2010. This increase was the result of $7.9 million higher employee costs and $4.9 million higher other selling and administrative expenses to support our domestic and international growth. These higher selling and administrative expenses were partially offset by a $4.4 million decline in compensation related to our company-wide profit sharing program. With selling and administrative expenses growing only 4% while our net sales increased 11%, we reduced our selling and administrative expenses as a percentage of net sales to 17.9% in 2011 from 19.2% in 2010.

Other Items

Other significant items impacting the comparison between the years presented are as follows:

• Additional week in 2011

Fiscal year 2012 and fiscal year 2010 included fifty-two weeks, while fiscal year 2011 included fifty-three weeks. Refer to the "Additional Week in 2011" section within Other Matters for further discussion of the impact of this item on comparisons between the years presented.

• Significant acquisitions

On May 9, 2012 we acquired Modular Engineering Company Pty Ltd. This acquisition, which has been integrated into our Industrial/Environmental Filtration segment, increased our 2012 net sales by $5.3 million and did not have a material impact on our 2012 operating profit.

On December 29, 2010 we acquired TransWeb LLC. The impact of including TransWeb's results, which are reported within our Industrial/Environmental Filtration segment, for twelve months in fiscal 2012 compared to eleven months in fiscal 2011 increased our 2012 net sales by $0.7 million (excluding $0.3 million of net sales to other CLARCOR companies) and did not have a material impact on operating profit. The acquisition of TransWeb in the first quarter of 2011 increased our 2011 net sales (excluding $2.5 million of net sales to other CLARCOR companies) and operating profit by $13.0 million and $2.6 million, respectively, as compared to fiscal 2010.

• Foreign exchange

The average exchange rate for foreign currencies versus the U.S. dollar (unfavorably) / favorably impacted our translated U.S. dollar value of net sales and operating profit in 2012 and 2011 as follows:

(Dollars in thousands)    2012         2011
Net sales              $ (11,918 )   $ 12,458
Operating profit          (2,004 )      2,286

• Other income (expense)

Interest expense

Interest expense was $0.5 million in each of 2012, 2011 and 2010, respectively.

Foreign currency gains and losses

Changes in foreign currency transaction gains and losses unfavorably impacted other income (expense) by $0.9 million in 2012 versus 2011. We recognized a foreign currency loss of $0.8 million in 2012 from the translation of cash accounts at certain foreign subsidiaries denominated in currencies other than their functional currency, primarily driven by foreign holdings of U.S. dollars. We recognized a foreign currency gain of $0.1 million in 2011.

Changes in net foreign currency transaction gains and losses positively impacted other income (expense) by $0.8 million in 2011 versus 2010. We recognized a foreign currency gain of $0.1 million in 2011 and a foreign currency loss of $0.7 million in 2010. The foreign currency loss in 2010 was from the translation of cash accounts at certain foreign subsidiaries denominated in currencies other than their functional currencies.

• Provision for income taxes

Our effective tax rate in 2012 was 32.6% compared with 31.4% in 2011. The higher effective tax rate in 2012 was primarily driven by the research and development tax credit not being renewed for 2012, a $1.0 million tax benefit related to the release of a valuation allowance recorded against net operating loss carryovers at one of our foreign subsidiaries in 2011 that did not recur in 2012, and changes in the effect of foreign tax rate differences.

The effective tax rate in 2011 was 31.4% compared with 32.8% in 2010. This lower effective tax rate was primarily due to the renewal of the research and development tax credit in 2011, a higher domestic production activities deduction in 2011 and the recognition of a $1.0 million tax benefit in 2011 from the release of a valuation allowance recorded against net operating loss carryovers at one of our foreign subsidiaries.

• Shares outstanding

Average diluted shares outstanding decreased by approximately 0.3 million shares in 2012 as compared to 2011, as the number of shares repurchased and retired pursuant to our stock repurchase program exceeded the incremental dilutive shares related to the exercise of stock options and the issuance of restricted shares. Average diluted shares outstanding remained relatively flat in 2011 as compared to 2010 as incremental dilutive shares related to the exercise of stock options and the issuance of restricted shares were offset by our repurchase of common stock.

SEGMENT ANALYSIS

                              2012                       2011                       2010
(Dollars in thousands)     (52 weeks)     % Total     (53 weeks)     % Total     (52 weeks)     % Total
Net sales:
Engine/Mobile Filtration  $   503,607         45 %   $   510,012         45 %   $   446,104         44 %
Industrial/Environmental
Filtration                    541,364         48 %       523,026         46 %       470,359         47 %
Packaging                      76,794          7 %        93,563          9 %        94,966          9 %
                          $ 1,121,765        100 %   $ 1,126,601        100 %   $ 1,011,429        100 %
Gross profit:
Engine/Mobile Filtration  $   185,419         49 %   $   189,511         49 %   $   165,384         49 %
Industrial/Environmental
Filtration                    180,402         47 %       173,731         45 %       154,098         46 %
Packaging                      14,511          4 %        20,179          6 %        18,925          5 %
                          $   380,332        100 %   $   383,421        100 %   $   338,407        100 %
Operating profit:
Engine/Mobile Filtration  $   111,653         61 %   $   112,839         62 %   $    92,246         64 %
Industrial/Environmental
Filtration                     64,766         35 %        58,028         32 %        43,515         30 %
Packaging                       6,295          4 %        10,400          6 %         8,888          6 %
                          $   182,714        100 %   $   181,267        100 %   $   144,649        100 %
Gross margin:
Engine/Mobile Filtration      36.8%                      37.2%                      37.1%
Industrial/Environmental
Filtration                    33.3%                      33.2%                      32.8%
Packaging                     18.9%                      21.6%                      19.9%
                              33.9%                      34.0%                      33.5%
Operating margin:
Engine/Mobile Filtration      22.2%                      22.1%                      20.7%
Industrial/Environmental
Filtration                    12.0%                      11.1%                      9.3%
Packaging                     8.2%                       11.1%                      9.4%
                              16.3%                      16.1%                      14.3%

Engine/Mobile Filtration Segment

(Dollars in thousands)     2012           2011           2010             2012 v 2011                  2011 v 2010
                                                                        $            %               $            %
                        (52 weeks)     (53 weeks)     (52 weeks)      Change       Change          Change       Change
Net sales              $  503,607     $  510,012     $  446,104     $ (6,405 )        (1 )%      $ 63,908          14  %
Cost of sales             318,188        320,501        280,720       (2,313 )        (1 )%        39,781          14  %
Gross profit              185,419        189,511        165,384       (4,092 )        (2 )%        24,127          15  %
Selling and
administrative
expenses                   73,766         76,672         73,138       (2,906 )        (4 )%         3,534           5  %
Operating profit          111,653        112,839         92,246       (1,186 )        (1 )%        20,593          22  %

Gross margin                 36.8 %         37.2 %         37.1 %                   (0.4 )  pt                    0.1    pt
Selling and
administrative
percentage                   14.6 %         15.0 %         16.4 %                   (0.4 )  pt                   (1.4 )  pt
Operating margin             22.2 %         22.1 %         20.7 %                    0.1    pt                    1.4    pt

Our Engine/Mobile Filtration segment primarily sells aftermarket filters for heavy-duty trucks and off-highway vehicles, locomotives and automobiles. The largest market in this segment includes heavy-duty engine truck filters produced at our Baldwin business unit.

2012 versus 2011

Net Sales

The $6.4 million, or 1%, decrease in net sales for our Engine/Mobile Filtration segment in 2012 compared to 2011 is detailed in the following tables:
Additional week in 2011 (2 )%

Volume                   1  %
Pricing                  1  %
Foreign exchange        (1 )%
                        (1 )%



(Dollars in millions)                 Net Sales
2011                                 $    510.0

U.S. net sales                              1.1
Foreign net sales (including export)       (2.8 )
Foreign exchange                           (4.7 )
Net decrease                               (6.4 )

2012                                 $    503.6

The increase in U.S. net sales for the Engine/Mobile Filtration segment in 2012 from 2011 is detailed as follows:

(Dollars in millions)                          Net Sales
Heavy-duty engine filters to U.S. aftermarket $     4.3
Dust collection cartridges                          1.5
Locomotive filters                                  0.6
Additional week in 2011                            (6.0 )
Other                                               0.7
Increase in U.S. net sales                    $     1.1

Our sales of heavy-duty engine filters to the U.S. aftermarket were influenced by slow growth in U.S. trucking activity in 2012 compared with 2011. In the eleven months-ended November 2012, heavy-duty truck tonnage in the U.S. as measured by the American Trucking Associations had increased, on average, 3% versus the comparable prior year period, which is consistent with the rate of growth in our sales of heavy-duty engine filters to the U.S. aftermarket in 2012 compared to 2011, excluding the effect of the additional week in 2011. The increase in sales of dust collection cartridges in 2012, including those that incorporate the Company's Proturaฎ nanofiber filtration media, was driven by sales of new products and sales to new customers. Our U.S. sales of locomotive filters increased approximately 2% in 2012 compared with 2011 as U.S. rail activity expanded.

The decrease in foreign net sales (including export sales and adjusted for changes in foreign currency exchange rates) for the Engine/Mobile Filtration segment in 2012 from 2011 is detailed as follows:

(Dollars in millions)                     Net Sales
Heavy-duty engine filter sales in China  $    (4.6 )
Additional week in 2011                       (3.9 )
Heavy-duty engine filter sales in Europe       0.6
Other                                          5.1
Decrease in Foreign net sales            $    (2.8 )

Net sales (including export sales and adjusted for changes in foreign currency exchange rates) outside the U.S. declined $2.8 million in 2012 from 2011. This was influenced by a decline of $4.6 million, or 15%, in sales in China driven by lower sales to OEM engine manufacturers due to lower diesel engine production activity in China, as well as a decline of $3.9 million due to the additional week in 2011. Excluding the effect of the additional week in 2011 and changes in foreign currency exchange rates, our heavy-duty engine filter sales in Europe increased $0.6 million, or 1%, in 2012 compared to 2011. All other net sales outside the U.S. increased by $5.1 million, or 5%, in 2012 compared to 2011 as we increased sales to South America, South Africa and the Middle East primarily of existing products to existing customers.

Cost of Sales

Cost of sales decreased $2.3 million, or 1%, in 2012 compared to 2011, primarily due to the 1% decrease in net sales. Cost of sales as a percentage of net sales increased to 63.2% in 2012 compared to 62.8% in 2011. Our raw material costs at our manufacturing facilities decreased approximately 2% in 2012 compared to 2011, driven by the 1% decrease in net sales and the benefits of certain cost reduction initiatives throughout our supply chain. Other components of cost of sales including direct labor, freight and manufacturing overhead increased 1%, or 0.6% as a percentage of sales, in 2012 due to annual salary rate and fringe benefit cost increases, higher freight costs as we continue to broaden our sales channels internationally, and lower overhead absorption driven by lower net sales, partially offset by lower compensation cost related to our company-wide profit sharing program.

Selling and Administrative Expenses

Selling and administrative expenses decreased $2.9 million, or 4%, in 2012 from 2011. This decrease was driven by a $2.2 million decline in compensation related to our company-wide profit sharing program and a $2.5 million decline in legal expenses, partly offset by $1.3 million higher employee costs and $0.5 million higher other selling and administrative expenses. With selling and administrative expenses declining 4% while our net sales declined 1%, we reduced our selling and administrative expenses as a percentage of net sales to 14.6% in 2012 compared to 15.0% in 2011.

2011 versus 2010

Net Sales

The $63.9 million, or 14%, increase in net sales for our Engine/Mobile Filtration segment in 2011 from 2010 is detailed in the following tables:

Volume                   9 %
Additional week in 2011  2 %
Pricing                  1 %
Foreign exchange         2 %
                        14 %



(Dollars in millions)                 Net Sales
2010                                 $     446.1

U.S. net sales                              32.3
Foreign net sales (including export)        24.2
Foreign exchange                             7.4
Net increase                                63.9

2011                                 $     510.0

The net increase in U.S. sales for the Engine/Mobile Filtration segment in 2011 from 2010 is detailed as follows:

(Dollars in millions)       Net Sales
Heavy-duty engine filters  $      28.2
Locomotive filters                 2.4
Other                              1.7
Increase in U.S. net sales $      32.3

Our sales of heavy-duty engine filters in the U.S. were positively influenced by the strength of the U.S. trucking industry compared with 2010. Heavy-duty truck tonnage in the U.S. as measured by the American Trucking Associations was approximately 5% higher in 2011 compared with 2010. Our 2011 sales in the U.S. were also positively influenced by market share gains which we estimate contributed approximately 4% to our sales growth. Our U.S. sales of locomotive filters increased approximately 7% in 2011 compared with 2010 as U.S. rail activity improved.

The increase in net sales outside the U.S. (including export sales and adjusted for changes in foreign currency) was driven by higher heavy-duty engine filter sales in many geographic locations including China where sales increased $7.2 million, or 29%, from 2010 primarily from additional sales of new parts to OEM engine manufacturers. Our export sales from the U.S. increased $11.4 million, or 20%, from 2010 as we increased our sales into South America and the Middle East . . .